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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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SELFCARE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3164127
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
</TABLE>
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200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02154
(781) 647-3900
(Address, including zip code and telephone number, including
area code, of Registrant's principal executive offices)
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RON ZWANZIGER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SELFCARE, INC.
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02154
(781) 647-3900
(Name, address, including zip code, and telephone number, including area code of
agent for service)
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COPIES OF ALL COMMUNICATIONS SHOULD BE SENT TO:
MARTIN CARMICHAEL III, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE
SECURITIES TO BE TO OFFERING PRICE OFFERING AMOUNT OF
REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value......................... 1,203,739 Shares(2) $11.78125 $14,181,551 $4,298
</TABLE>
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(1) Based upon the average of the high and low sale prices reported on American
Stock Exchange on October 13, 1997 and estimated solely for purposes of
calculating the registration fee in accordance with Rule 457(c) under the
Securities Act of 1933.
(2) Pursuant to Rule 416, this Registration Statement also relates to an
indeterminate number of additional Shares issuable (i) to prevent dilution
resulting from stock splits, stock dividends or similar transactions, or
(ii) by reason of changes in the conversion price of shares of the Series B
Convertible Preferred Stock, $.001 par value per share, or the exercise
price of certain warrants in accordance with the terms thereof.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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PROSPECTUS
SELFCARE, INC.
1,203,739 SHARES OF COMMON STOCK
This Prospectus relates to 1,203,739 shares (the "Shares") of Common Stock,
$.001 par value per share (the "Common Stock"), of Selfcare, Inc. ("Selfcare" or
the "Company") to be sold by certain stockholders of the Company (the "Selling
Stockholders") from time to time. In addition, pursuant to Rule 416 of the
Securities Act of 1933, as amended (the "Securities Act"), this Prospectus also
relates to such additional number of shares of Common Stock as may become
issuable upon conversion of the Company's Series B Preferred Stock, $.001 par
value per share (the "Series B Preferred Stock"), or exercise of the warrants to
purchase shares of Common Stock (the "Warrants") issued in connection with the
sale of the Series B Preferred Stock as a result of, among others, stock splits,
stock dividends and anti-dilution adjustment provisions (including by reason of
any reduction in the floating rate conversion price mechanism of the Series B
Preferred Stock). The Selling Stockholders may sell the Shares from time to time
in transactions on the American Stock Exchange, in negotiated transactions or by
a combination of these methods, at fixed prices that may be changed, at market
prices at the time of sale, at prices related to market prices or at negotiated
prices. The Selling Stockholders may effect these transactions by selling the
Shares to or through broker-dealers, who may receive compensation in the form of
discounts or commissions from the Selling Stockholders or from the purchasers of
the Shares for whom the broker-dealers may act as an agent or to whom they may
sell as a principal, or both. See "Selling Stockholders" and "Plan of
Distribution." The Common Stock of the Company is traded under the symbol "SLF"
on the American Stock Exchange. On October 14, 1997, the reported closing price
for the Common Stock on the American Stock Exchange was $11.625 per share.
The Company will not receive any of the proceeds from the sale of the
Shares. The Company has agreed to bear all of the Company's expenses and certain
additional expenses in connection with the registration and sale of the Shares
(but not underwriting discounts and selling commissions). See "Plan of
Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OF
COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS OCTOBER 15, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-3 under
the Securities Act, with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, to which Registration Statement reference is hereby made. For
further information with respect to the Company and the securities covered
hereby, reference is made to the Registration Statement and to the exhibits
thereto filed as a part thereof. The Registration Statement and the exhibits
thereto may be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be
obtained at the prescribed rates from the Public Reference section of the
Commission at its principal office in Washington, DC. The Commission also
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files proxy statements, reports and other information with the
Commission. Such proxy statements, reports and other information filed by the
Company may be inspected and copied at prescribed rates at the aforementioned
public reference facilities maintained by the Commission. The Common Stock of
the Company is traded on the American Stock Exchange under the symbol "SLF."
Reports and other information concerning the Company may be inspected at the
offices of the American Stock Exchange, Inc., at 86 Trinity Place, New York, NY
10006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in, and made a part of, this Prospectus by reference as of their
respective dates: (1) the Company's Annual Report on Form 10-KSB/A for the
fiscal year ended December 31, 1996; (2) the Company's Quarterly Reports on Form
10-QSB for the fiscal quarters ended March 31, 1997, and June 30, 1997; (3) the
definitive Proxy Statement of the Company for the Annual Meeting of Stockholders
held June 10, 1997; (4) the Company's Current Report on Form 8-K filed with the
Commission on March 5, 1997, as amended; and (5) the description of the Common
Stock of the Company contained in the Company's Registration Statement on Form
SB-2, dated January 16, 1997 (File No. 333-19911), including all amendments and
reports updating such description.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated by reference in this
Prospectus and shall be a part hereof from the date of filing of such document.
The Company will furnish without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, upon oral or written request, a
copy of any or all of the documents that have been incorporated by reference to
the Registration Statement of which this Prospectus is a part, other than
exhibits to such documents. Requests should be addressed to: Selfcare, Inc., 200
Prospect Street, Waltham, Massachusetts 02154, Attention: Corporate Secretary
(telephone number (781) 647-3900).
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This Prospectus, including the information incorporated herein by
reference, contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. The words "believe,"
"expect," "anticipate," "intend," "estimate," and other expressions which are
predictions of or indicate future events and trends and which do not relate to
historical matters identify forward-looking statements. The Company's actual
results could differ materially from those projected in the forward-looking
statements set forth in this Prospectus including the information incorporated
herein by reference. The Company undertakes no obligation to update publicly or
revise any forward-looking statement, whether as a result of new information,
future events, or otherwise. Investors should carefully consider the discussion
of risk factors below, in addition to the other information contained in this
Prospectus, in connection with an investment in the Shares offered hereby.
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, the following factors should be considered carefully in
evaluating an investment in the shares of Common Stock offered by this
Prospectus.
As used in this Prospectus, the terms "Selfcare" and the "Company" refer to
Selfcare, Inc. and its subsidiaries and predecessors, unless the context
otherwise requires.
RISKS RELATED TO THE LIFESCAN ALLIANCE
The Company has entered into an exclusive worldwide alliance and
distribution agreement (the "LifeScan Alliance") with LifeScan, Inc., a
subsidiary of Johnson & Johnson ("LifeScan"). The terms of the LifeScan Alliance
contemplate that Selfcare will manufacture and LifeScan will distribute
Selfcare's proprietary electrochemical blood glucose monitoring system for the
management of diabetes (the "New System"). The Company previously anticipated
that shipments would commence in the third quarter of this year. Currently,
LifeScan is completing its evaluation of the New System. Selfcare believes that
it will commence shipments of the New System promptly after LifeScan completes
its evaluation, although there can be no assurance that this will be the case.
The Company's future results of operations depend to a substantial degree on the
successful commencement of shipments of, and LifeScan's ability to market and
sell, the New System. No assurance can be given that these events will occur or
will not be delayed. A material delay in or the nonoccurrence of any of these
events would have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Comprehensive Government
Regulation" and "-- Dependence on Patents and Proprietary Technology."
RISKS RELATED TO THE NUTRITIONAL SUPPLEMENT LINES ACQUISITION
On February 19, 1997, the Company acquired (the "Nutritional Supplement
Lines Acquisition") for consideration totaling $36.0 million from American Home
Products Corporation ("AHP") the U.S. rights to several nutritional supplement
product lines (the "Nutritional Supplement Lines"), which had domestic sales of
approximately $24.0 million in 1996. The lines include Stresstabs(R),
Ferro-Sequels(R), Posture(R), Protegra(R), Gevrabon(R), Allbee(R), and Z-Bec(R).
As part of its plans for maintaining and expanding sales of these products, 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. Selfcare is also developing
additional nutritional supplement products, but there can be no assurances that
these can be successfully introduced.
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MANAGING AND MAINTAINING GROWTH
The Company is currently experiencing a period of rapid growth and
expansion, including as a result of 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.
RISKS RELATED TO NEW PRODUCT DEVELOPMENT
The Company is at an early stage in its development. With the exception of
certain professional diagnostic products for infectious diseases, its women's
health products produced by third-party manufacturers, and the Nutritional
Supplement Lines, 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.
COMPREHENSIVE GOVERNMENT REGULATION
Self-Test Products
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 self-test products, including those licensed by the Company
from third parties, require governmental approvals for commercialization that
have not yet been obtained and are not expected to be obtained for several
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 Food and Drug Administration (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 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 marketing authorization 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 Company is developing a human immunodeficiency virus ("HIV") home-test
program and plans to develop other infectious disease self tests in the future.
Although the FDA has authorized a number of home collection and mail-in HIV
testing and telephone counseling services, the program being developed by the
Company differs in significant respects from these services. There can be no
assurance that the FDA will grant clearance for commercialization of the
Company's HIV home test in a timely manner, or at all. There also can be no
assurance that requisite regulatory approvals for the Company's other products
will be obtained within a reasonable period of time, if at all. Moreover, if
regulatory approval of a product is granted, such approval may impose
limitations on the indicated uses, or methods of use, for which such product may
be marketed. Further, even if such regulatory approval is obtained, a marketed
product, its manufacturer and its
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manufacturing facilities are subject to continual review and periodic
inspections, and later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market. Failure to
comply with the applicable regulatory requirements can result in, among other
things, fines, suspensions of regulatory approvals, product recalls, operating
restrictions and criminal prosecution.
In addition, the Company is required to meet regulatory requirements in
countries outside the United States, which can change rapidly with relatively
short notice, resulting in the Company's products being banned in certain
countries with consequent loss of revenues and income. Foreign regulatory
agencies could also introduce test format changes which, if not quickly
addressed by the Company, could result in restrictions on sales of the Company's
products. Such changes are not uncommon due to advances in basic research and
the nature of certain infectious diseases and agents such as HIV, which is a
mutating virus capable of producing new strains and subtypes. In July 1993, the
French Ministry of Health prohibited the sale in France of certain diagnostic
tests for HIV, due to a concern that the tests did not meet required sensitivity
levels. The Ministry of Health has subsequently imposed a separate ban on a
single HIV test manufactured and sold due to the failure of such test to
identify a newly discovered HIV subtype. There can be no assurance that there
will not be similar actions in the future.
Nutritional Supplements
The manufacturing, processing, formulation, packaging, labeling and
advertising of nutritional supplements such as the Nutritional Supplement Lines
are subject to regulation by one or more federal agencies, including the FDA,
the Federal Trade Commission ("FTC") and the Consumer Product Safety Commission.
These activities are also regulated by various agencies of the states,
localities and foreign countries in which Nutritional Supplement Lines are now
sold or may be sold in the future. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements, including
vitamins, minerals and herbs, food additives, over-the-counter ("OTC") and
prescription drugs and cosmetics. The regulations that are promulgated by the
FDA relating to the manufacturing process are known as Current Good
Manufacturing Practices ("CGMPs"), and are different for drug and food products.
In addition, the FTC has overlapping jurisdiction with the FDA to regulate the
promotion and advertising of dietary supplements, OTC drugs, cosmetics and
foods.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA") which
amends the FDA Act by defining dietary supplements as a new category of food
separate from conventional food, was enacted on October 25, 1994. The FDA has
finalized certain regulations to implement DSHEA, including those relating to
nutritional labeling requirements, but has not finalized other regulations. The
finalized regulations require different labeling for the Nutritional Supplement
Lines and, with respect to nutritional supplement products under development by
Selfcare, impose new notification procedures and scientific substantiation
requirements regarding ingredients, product claims and safety. The Company
cannot determine what effect these regulations will have on its business in the
future. Failure to comply with applicable FDA requirements could result in
sanctions being imposed on the Company or the manufacturers of its products,
including warning letters, product recalls and seizures, injunctions or criminal
prosecution. With respect to regulations that have not been finalized, the
Company anticipates that the FDA will promulgate specific CGMPs to regulate
dietary supplements which are modeled on the current CGMPs for food. The Company
believes that the manufacture of the Nutritional Supplement Lines is currently
in compliance with applicable CGMPs for food, but changes may be required in
order for the manufacture of the Nutritional Supplement Lines to comply with the
anticipated CGMPs for dietary supplements.
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT;
UNCERTAIN PROFITABILITY
The Company has incurred operating losses since its inception. As of June
30, 1997, the Company's accumulated deficit totaled approximately $54.1 million.
For the year ended December 31, 1996, the Company had revenues of approximately
$19.1 million and a net loss of approximately $28.6 million. For the six months
ended June 30, 1997, the Company had revenues of approximately $21.1 million and
a net loss of approximately $10.7 million. The continued development of the
Company's products will require the
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commitment of substantial resources to conduct research and pre-clinical and
clinical development programs, and to establish manufacturing facilities, sales
and marketing capabilities, and additional quality control and regulatory and
administrative capabilities. The Company may incur substantial and increasing
operating losses over the next several years as its product programs expand and
various clinical trials commence. The amount of net losses and the time required
by the Company to reach sustained profitability are highly uncertain since
achieving profitability requires the Company to, among other things,
successfully complete development of its products, obtain regulatory approvals
and establish manufacturing and marketing capabilities. There can be no
assurance that the Company will be able to achieve profitability on a sustained
basis, or at all.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY; TRADEMARKS
Self-Test Products
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 protection that any such patents will afford the
Company. The patent position of medical products and diagnostic testing firms is
often highly uncertain and usually involves complex legal and factual questions.
There is a substantial backlog of patents at the U.S. Patent and Trademark
Office. No consistent policy has emerged regarding the breadth of claims covered
in medical products patents. Accordingly, there can be no assurance that patent
applications relating to the Company's products or technology will result in
patents being issued or that, if issued, such patents will afford adequate
protection to the Company's products or, if patents are issued to the Company,
that its competitors will not be able to design around such patents. In
addition, the medical products industry, including the diagnostic testing
industry, has been characterized by extensive litigation regarding patents,
licenses and other intellectual property rights. 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.
See "-- Risks Related to Certain Licensing Arrangements."
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. Under the distribution agreement entered into pursuant to
the LifeScan Alliance, Selfcare has agreed to indemnify LifeScan for any claims
that the New System infringes any patents.
The Company also seeks to protect its proprietary technology, including
technology that may not be patented nor patentable, in part through
confidentiality agreements and, if applicable, inventors' rights agreements with
its collaborators, advisors, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise be disclosed to, or discovered by, competitors. Moreover, the Company
may from time to time conduct research through academic advisors and
collaborators who are prohibited by their academic institutions from entering
into confidentiality or inventors' rights agreements.
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Nutritional Supplements
In connection with the Nutritional Supplement Lines Acquisition, the
Company acquired certain trademarks which, the Company believes, are valuable
assets and are very important to the marketing of the Nutritional Supplement
Lines. Substantially all of these trademarks have been registered with the U.S.
Patent and Trademark Office. There can be no assurance, however, that such
registrations will afford adequate protection to the Company and not be
challenged as unenforceable or invalid, or not be infringed. In addition, the
Company could incur substantial costs in defending suits brought against it or
in prosecuting suits in which the Company asserted rights under such
registrations. If the outcome of such litigation were adverse to the Company,
the Company's business and results of operations could be materially adversely
affected.
COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE
Self-Test Products
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 seeking to develop and market generic test strips which are
compatible with other manufacturers' electrochemical blood glucose monitoring
systems. If the Company succeeds in these efforts, others may attempt to enter
this market with similar products. In addition, the introduction of lower-priced
generic test strips could lead the manufacturers of the systems with which such
test strips are compatible to lower their own test strip prices, thereby
reducing or eliminating the price advantage enjoyed by the generic test strip
producers. On June 28, 1996, the Company obtained FDA Clearance for its first
generic test strip, to be sold under the name "Excel(TM)," which is compatible
with the ExacTech(TM) system sold by MediSense, Inc. ("MediSense"). The Company
initially intended to commence marketing this product in the United States in
1997, but has delayed the commencement of such marketing until 1998. Although
the Company believes that its Excel generic test strip will be priced lower than
the strips produced by MediSense for the ExacTech System and therefore will
compete effectively with the MediSense product, there can be no assurance that
MediSense will not institute price cuts and thereby reduce or eliminate any
price advantage which the Company's product may enjoy.
The Company is also aware of several of its competitors who are attempting
to develop a noninvasive blood glucose monitoring technology. Noninvasive blood
glucose monitoring involves methods for measuring blood glucose levels without
the need to draw blood and, in certain proposed configurations, without the need
to utilize disposable components, such as test strips. The Company believes that
manufacturers are pursuing a number of different technological approaches to
noninvasive blood glucose monitoring. These include near-infrared spectroscopy,
which involves shining a beam of near-infrared light to penetrate the skin and
determine the amount of glucose in the blood, and reverse iontophoresis, which
utilizes a "patch" system to extract glucose through the skin for measurement by
an external meter. In addition, several manufacturers are pursuing minimally
invasive approaches to blood glucose monitoring, such as using a fine needle to
withdraw a small sample of interstitial fluid which is analyzed by use of
mid-infrared spectroscopy. The development and
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successful introduction of any such products could have a material adverse
effect on the Company's business, financial condition and results of operations.
Nutritional Supplements
The market for the sale of vitamins and nutritional supplements such as the
Nutritional Supplement Lines is highly competitive. Competition is based
principally upon price, quality of products, customer service and marketing
support. There are numerous companies in the vitamin and nutritional supplement
industry selling products to retailers such as mass merchandisers, drug store
chains, independent drug stores, supermarkets and health food stores. Most of
these companies are privately held and the Company is unable to precisely assess
the size of such competitors. However, a number of the Company's competitors,
particularly manufacturers of nationally advertised brand name products, are
substantially larger than the Company and have greater financial resources.
DEPENDENCE ON THIRD-PARTY DISTRIBUTION NETWORK
The Company markets and distributes its products primarily through
independent retail brokers and distributors. The Company generally has written
agreements with such brokers and distributors, although it also has a limited
number of oral arrangements. In general, these brokers and distributors are not
subject to minimum purchase requirements and may discontinue marketing the
Company's products with little or no notice. Certain of the Company's retail
brokers and distributors also market products which compete with the Company's
products and which may, from time to time, offer greater sales incentives than
the Company's products. The loss of, or a significant reduction in sales volume
through, one or more of the Company's retail brokers or distributors could have
a material adverse effect on the Company's business, financial condition or
results of operations.
DEPENDENCE ON CERTAIN SUPPLIERS
The Company has no facilities to manufacture the Nutritional Supplement
Lines. The Company currently relies on third-party manufacturers other than AHP
for certain of the products constituting the Nutritional Supplement Lines and
AHP for the supply of the remaining products. The supply agreements with AHP
expire on February 17, 1998. Thereafter, third-party manufacturers other than
AHP will supply all of the products constituting the Nutritional Supplement
Lines. If the Company should encounter delays or other difficulties in the
supply of any of these products from third parties, including AHP, these
interruptions could have a material adverse effect on the Company's result of
operations and result in significant quarter-to-quarter fluctuations. In
addition, contract manufacturers that the Company uses or may use to supply
products for the Nutritional Supplement Lines must adhere to CGMP regulations.
Failure to do so could result in the withdrawal of FDA approval of such
manufacturers and consequent interruptions in the supply of products to the
Company. In addition, the Company has assumed responsibility for all marketing
and sales functions for the Nutritional Supplement Lines as well as certain
administrative functions, including customer service, order receipt, billing and
collection and distribution.
The Company has entered into a manufacturing agreement with Nova Biomedical
Corporation ("Nova") to supply Selfcare with electrochemical blood glucose
meters. The meters manufactured by Nova, together with the Company's test
strips, will form the New System. The Company's ability to ship the New System
on time and in accordance with LifeScan's requirements is highly dependent upon
receipt of an adequate supply of electrochemical blood glucose meters. There can
be no assurance that the Company's supply of electrochemical blood glucose
meters will not be interrupted, or that if such supply were interrupted, that
the Company would be able to contract with another supplier on a timely or
satisfactory basis. If such supply were interrupted, the Company could incur
set-up costs and delays in manufacturing the New System which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If any such delay were to occur, and were to result in
the Company being unable to supply LifeScan with certain required amounts of
meters for the New System under the LifeScan Alliance, LifeScan would
automatically receive a license to manufacture, or to have manufactured on its
behalf, the New System, subject to payment of a royalty to the Company. In such
event, the Company could begin supplying the New
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System to LifeScan again at any time, but would be required to reimburse
LifeScan for certain expenses incurred by LifeScan to produce the New System.
RISKS RELATED TO CERTAIN LICENSING ARRANGEMENTS
Through its wholly owned Irish subsidiary, Cambridge Diagnostics Ireland
Ltd. ("Cambridge Diagnostics"), the Company is currently producing diagnostic
test kits primarily for detecting antibodies to HIV, which are associated with
Acquired Immune Deficiency Syndrome ("AIDS"). Selfcare acquired Cambridge
Diagnostics (formerly known as Cambridge Biotech Limited) in November 1994 from
Cambridge Biotech Corporation ("Cambridge Biotech"), which at that time was
operating in Massachusetts under Chapter 11 of the U.S. Bankruptcy Code. Prior
to the acquisition (the "Cambridge Diagnostics Acquisition"), Cambridge Biotech
licensed from Pasteur Sanofi Diagnostics (formerly known as Diagnostics
Pasteur), certain HIV 1/2 immunoassay technologies relating to patents and
proprietary rights held by Institut Pasteur (the "Pasteur HIV Technologies"),
and required for production of HIV test kits, including the Selfcare HIV test
kits manufactured by Cambridge Diagnostics. Under the terms of Cambridge
Biotech's license agreements with Pasteur Sanofi Diagnostics, Cambridge Biotech
could not assign or sublicense its rights with respect to the Pasteur HIV
Technologies to Selfcare or to Cambridge Diagnostics. In order to allow Selfcare
and Cambridge Diagnostics to have access to such technologies, Selfcare and
Cambridge Biotech formed Cambridge Affiliate Corporation ("Cambridge
Affiliate"), 51% owned by Cambridge Biotech, and 49% owned by Selfcare, but
managed by Cambridge Diagnostics. The establishment of Cambridge Affiliate and
the terms of the arrangements relating thereto were considered and approved by
both U.S. and Irish bankruptcy courts in connection with the approval of the
sale of Cambridge Diagnostics by such courts. Cambridge Affiliate maintains its
own accounts and records and makes payments of royalties due under the Pasteur
Sanofi Diagnostics licenses to Cambridge Biotech.
The licenses of the Pasteur HIV Technologies to Cambridge Biotech are
nonexclusive and cover diagnostic test kits in finished form embodying the
Pasteur HIV Technologies. The territorial scope of the licenses is worldwide,
with the exception of exclusive rights which Pasteur Sanofi Diagnostics asserted
to have granted in the Pasteur HIV Technologies to Genetic Systems Corporation
("Genetic Systems") in the United States, Canada, Mexico, Australia, New Zealand
and India (the "Excluded Countries"). However, the licenses provide that, to the
extent that Pasteur Sanofi Diagnostics recovers the right to practice the
patents underlying the Pasteur HIV Technologies in the Excluded Countries,
Cambridge Biotech is entitled to non-exclusive rights in such technology in such
countries. In 1990, Pasteur Sanofi Diagnostics acquired ownership of Genetic
Systems, whereupon Cambridge Biotech commenced selling products incorporating
the Pasteur HIV Technologies in the United States. These activities were
challenged in a patent infringement lawsuit filed in bankruptcy court in March
1995 by Institut Pasteur, the minority stockholders of Pasteur Sanofi
Diagnostics and Genetic Systems. In September 1995, the bankruptcy court ruled
in favor of Cambridge Biotech on this issue, and Institut Pasteur and Genetic
Systems Corporation subsequently filed an appeal to the United States District
Court for the District of Massachusetts. On July 18, 1997, a hearing was held on
the merits of the appeal. To Selfcare's knowledge, the district court has not
rendered a decision. If the bankruptcy court decision were reversed on appeal,
the territories to which Cambridge Affiliate could sell HIV-related products
would be limited and this could have a material adverse effect on the Company.
DEBT FINANCING
The Company is 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. At June 30, 1997, the Company had
approximately $49.1 million of outstanding debt, including $31 million of debt
incurred to pay the consideration payable to AHP under the terms of 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 bears interest at floating rates, an increase in interest rates could
adversely affect the Company's ability to meet its debt service obligations.
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RISK OF INADEQUATE FUNDING; FUTURE CAPITAL NEEDS
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.
RISKS RELATED TO THE INTEGRATION OF ORGENICS' OPERATIONS
Selfcare has acquired a 97.1% direct and indirect equity interest in
Orgenics Ltd. ("Orgenics"), an Israeli company (the "Orgenics Acquisition"), for
approximately $19.1 million and expects to acquire direct and indirect ownership
of the balance of the outstanding capital stock of Orgenics. Orgenics develops,
manufactures and markets self-contained diagnostic test kits for the
professional market which detect antibodies and/or infectious disease agents,
including those associated with AIDS and chlamydia (a sexually transmitted
disease which may impair fertility). The Company has commenced the integration
of Orgenics' operations with the Company's current organization in order to
avoid redundancy and to make the most efficient use of Orgenics' assets. No
assurance can be given that such integration will be successful or that the
Company will not incur significant costs associated with such integration, such
as costs associated with the diversion of management resources to integration
issues.
DEPENDENCE UPON KEY PERSONNEL
The Company is highly dependent on the services of Ron Zwanziger, its
Chairman, President and Chief Executive Officer, and certain other members of
its management and scientific staff, and the loss of Mr. Zwanziger or one or
more of such employees could have a material adverse effect on the Company. In
addition, the Company believes that its future success will depend in large part
upon its ability to attract and retain highly skilled scientific, managerial and
marketing personnel, particularly as the Company expands its activities,
including product development and regulatory affairs, research and development
and sales and manufacturing. The Company faces significant competition for such
personnel from other companies, research and academic institutions, government
entities and other organizations. There can be no assurance that the Company
will be successful in hiring or retaining the personnel it requires for
continued growth. The failure to hire and retain such personnel could materially
and adversely affect the Company's prospects.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
In both the United States and elsewhere, sales of some of the Company's
products will be dependent in part on the availability of reimbursement from
third party payors, such as government and private insurance plans. Third-party
payors are increasingly challenging the prices charged for medical products and
services. If the Company succeeds in bringing one or more of such products to
market, there can be no assurance that these products will be considered
cost-effective, that reimbursement will be available or, if available, that the
level of reimbursement will be sufficient to allow the Company to sell its
products on a profitable basis.
PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The testing, manufacturing and marketing of medical diagnostic devices,
such as the Company's blood glucose monitoring systems and HIV self tests
currently under development, including a home collection and mail-in HIV test
under development by a third party which the Company plans to market under a
license arrangement, entail an inherent risk of product liability claims. In
addition, the marketing of the Nutritional Supplement Lines may cause the
Company to be subjected to various product liability claims, including, among
others, that the Nutritional Supplement Lines have inadequate warnings
concerning side effects and interactions with other substances. Potential
product liability claims may exceed the amount of the
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Company's insurance coverage or may be excluded from coverage under the terms of
the policy. There can be no assurance that the Company's existing insurance can
be renewed at a cost and level of coverage comparable to that presently in
effect, if at all. In the event that the Company is held liable for a claim
against which it is not indemnified or for damages exceeding the limits of its
insurance coverage, such claim could have a material adverse effect on the
Company's business, financial condition and results of operations.
EFFECT OF ADVERSE PUBLICITY; SCIENTIFIC RESEARCH
The Nutritional Supplement Lines contain vitamin, minerals, herbs and other
ingredients that the Company generally regards as safe when taken as directed
and that various scientific studies have suggested may offer certain health
benefits. However, because the Company is highly dependent upon consumers'
perception of safety and quality of the Nutritional Supplement Lines as well as
similar products distributed by competitors, the Company could be adversely
affected in the event any of the Nutritional Supplement Lines or similar
products should be asserted or prove to be harmful to consumers. In addition,
the Company believes that the recent growth of the nutritional supplements
market is based on recent scientific research suggesting potential health
benefits from regular consumption of certain vitamins and other nutritional
products and the attention focused on such benefits by the media. The scientific
research to date is preliminary and there can be no assurance of future
favorable scientific results and media attention or of the absence of
unfavorable or inconsistent findings.
RISKS RELATED TO INTERNATIONAL SALES AND OPERATIONS
The Company has manufacturing facilities in Galway, Ireland (the "Galway
Facility") and Inverness, Scotland (the "Inverness Facility") and markets and
sells its products in several international markets. Through the first six
months of 1997, approximately 27% and 2% of the Company's net sales were to
customers in Europe and the Middle East, respectively. If the Company's revenues
generated by foreign activities are not adequate to offset the expense of
establishing and maintaining these foreign activities, the Company's business,
financial condition and results of operations could be materially adversely
affected. In addition, there are certain risks inherent in doing business
internationally, such as changes in applicable laws and regulatory requirements,
export and import restrictions, export controls relating to technology, tariffs
and other trade barriers, less favorable intellectual property laws,
difficulties in staffing and managing foreign operations, longer payment cycles,
difficulties in collecting accounts receivable, political instability,
fluctuations in currency exchange rates, expatriation controls and potential
adverse tax consequences, which could adversely impact the success of the
Company's international activities. There can be no assurance that one or more
of such factors will not have a material adverse effect on the Company's future
international activities and, consequently, on the Company's business, financial
condition and results of operations.
The executive offices and production facilities of Orgenics are located in
the State of Israel, and Orgenics is directly affected by political, economic
and military conditions in that country. On many occasions since December 1987,
Israel has experienced severe civil unrest, primarily in the areas that have
been under its control since 1967. No assurance can be given that hostilities or
other political, economic and military conditions in Israel will not have a
material adverse effect on the business and operations of Orgenics. Any such
effect could have a material adverse effect on the business, operations or
financial condition of the Company.
FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company's annual and quarterly operating results may fluctuate due to
factors such as the timing of new product announcements and introductions by the
Company and its competitors, market acceptance of new or enhanced versions of
the Company's products, changes in manufacturing costs or other expenses,
competitive pricing pressures, the gain or loss of significant distribution
outlets or customers, increased research and development expenses and general
economic conditions. In addition, it is possible that in some future periods the
Company's results of operations will be below the expectations of the public
market. In any such event, the market price of the Common Stock could be
materially and adversely affected.
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POSSIBLE VOLATILITY OF SHARE PRICE
The market price of the Common Stock may be highly volatile. Quarterly
operating results of the Company, changes in general conditions in the economy,
the financial markets, or the healthcare industry, or other developments
affecting the Company or its competitors, could cause the market price of the
Common Stock to fluctuate substantially. In particular, the stock market may
experience significant price and volume fluctuations which may affect the market
price of the Common Stock for reasons unrelated to the Company's operating
performance.
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect the prevailing market price for the
Common Stock. On August 26, 1997, the Company sold 8,000 shares of Series B
Convertible Preferred Stock, and warrants to purchase shares of Common Stock to
certain investors yielding net proceeds to the Company of approximately $7.5
million. The holders of such shares of Series B Preferred Stock and Warrants
(the "Series B Investors") are entitled, among other things, to convert their
shares or exercise their Warrants, as applicable, pursuant to, respectively, a
conversion formula set forth in the Certificate of Designations, Rights and
Preferences of Series B Convertible Preferred Stock and an exercise price set
forth in the Warrants. The Warrants expire at the close of business on August
25, 2000. Immediately prior to such time, the holders therefore may elect to
exercise such Warrants to purchase up to 114,628 shares of Common Stock. In
addition, any shares of Series B Preferred Stock not previously converted will
automatically convert into shares of Common Stock on August 26, 2000. At such
time, assuming, among other things, (i) that all shares of Series B Preferred
Stock remain outstanding, and (ii) an average of the lowest closing bid prices
for Selfcare's Common Stock of $11.275 per share (based on an average of the
five lowest closing bid prices of the Common Stock on the American Stock
Exchange during the period September 2, 1997, to October 13, 1997), 881,317
shares of Common Stock will be issued. All of the shares issued as a result of
the exercise of the Warrants and the conversion of the Series B Preferred Stock
will be freely tradeable without restriction or registration under the
Securities Act.
Additionally, in October 1996, the Company sold 5,500 shares of Series A
Convertible Preferred Stock, par value $.001 per share, (the "Series A Preferred
Stock") to certain non-U.S. investors yielding net proceeds to the Company of
approximately $5.2 million. Pursuant to a conversion formula contained in their
subscription agreements with the Company, the holders of such shares, among
other things, are entitled to convert their Series A Preferred Stock into shares
of Common Stock in five equal installments over a 120-day period beginning in
December 1996. Any shares of Series A Preferred Stock not previously converted
will automatically convert into shares of Common Stock on October 15, 1998. 400
shares of Series A Preferred Stock remain unconverted. Accordingly, assuming an
average market price of $12.075 per share of Common Stock (based on the closing
price of the Common Stock on the American Stock Exchange on the five trading
days during the period August 15 through August 21, 1997), resulting in a
conversion price of $12.075 per share, 34,849 shares of Common Stock will be
freely tradeable without restriction or registration under the Securities Act as
a result of the conversion of the remaining shares Series A Preferred Stock.
CONTROL BY CERTAIN STOCKHOLDERS
The executive officers and directors of the Company currently hold a
significant portion, totalling over 20%, of the outstanding shares of Common
Stock (including rights to receive shares of Common Stock but excluding options
and warrants). In addition, such executive officers and directors hold options
and warrants to purchase a significant number of additional shares of Common
Stock. Accordingly, these persons may have the ability to control the Company's
Board of Directors, and, therefore, the business, policies and affairs of the
Company.
ANTI-TAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS AND
DELAWARE LAW
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated By-laws (the "By-laws")
contain certain provisions relating to corporate governance and the rights of
stockholders. These provisions may be deemed to have a potential "anti-takeover"
effect since such provisions may delay, defer or prevent a change in control of
the Company. The Certificate of Incorporation provides for the Board of
Directors to be divided into three classes of directors
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serving staggered three-year terms. As a result, approximately one-third of the
Board of Directors will be elected each year. In addition, the Certificate of
Incorporation provides that stockholders may remove a director only for cause
and only by the vote of the holders of two-thirds of the Common Stock of the
Company. This provision, when coupled with the provision of the Certificate of
Incorporation authorizing only the Board of Directors to fill vacant
directorships, will preclude stockholders from removing incumbent directors
without cause and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with their own nominees, and will
make more difficult, and therefore may discourage, a proxy contest to change
control of the Company. These provisions of the Certificate of Incorporation may
be changed only by the affirmative vote of the holders of eighty percent of the
Common Stock of the Company entitled to vote on such matters at a meeting duly
called for such purpose. The Certificate of Incorporation also provides that
stockholder actions may not be taken by written consents.
The By-laws provide that special meetings of stockholders of the Company
may be called only by the Board of Directors. The By-laws also provide that
stockholders seeking to bring business before an annual or special meeting of
stockholders, or to nominate candidates for election as directors at an annual
or special meeting of stockholders, must provide prior written notice thereof,
as set forth in the By-laws. The By-laws may only be amended by the stockholders
by the affirmative vote of at least two-thirds of the votes eligible to be cast,
unless the Board of Directors has approved such amendment, in which case the
affirmative vote of at least a majority of the votes eligible to be cast is
required.
EFFECT OF ISSUANCE OF PREFERRED STOCK
The Company's Board of Directors is currently authorized to issue up to
4,982,000 shares of preferred stock in the future without further stockholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as the Board of Directors may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. In addition, the issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire control of, or of
discouraging acquisition bids for, the Company. This could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. In October 1996 and August 1997, respectively, the Board of Directors
adopted resolutions authorizing shares of Series A Convertible Preferred Stock,
par value $.001 per share (the "Series A Preferred Stock"), and shares of Series
B Preferred Stock, and the Company subsequently sold 5,500 shares of Series A
Preferred Stock to certain non-U.S. investors and 8,000 shares of Series B
Preferred Stock to the Selling Stockholders. 400 shares of Series A Preferred
Stock remain outstanding and all 8,000 shares of the Series B Preferred Stock
remain outstanding.
SHARES ELIGIBLE FOR FUTURE SALE
The Company had a total of 8,449,019 shares of Common Stock outstanding as
of September 30, 1997. 3,739 of the 1,203,739 shares of Common Stock offered
hereby and 2,295,000 shares issued in previous public offerings are freely
tradable without restriction or registration under the Securities Act by persons
other than "affiliates" of the Company, as that term is defined in Rule 144
promulgated under the Securities Act ("Affiliates"). The remaining 1,200,000
shares of Common Stock offered hereby will become similarly freely tradeable
upon conversion of the 8,000 shares Series B Preferred Stock and exercise of the
Warrants. Further, upon conversion of the outstanding 400 shares of Series A
Preferred Stock, assuming an average market price of $12.075 per share of Common
Stock (based on the closing price of the Common Stock on the American Stock
Exchange on the five trading days during the period August 15 through August 21,
1997), resulting in a conversion price of $12.075 per share, an additional
34,849 shares of Common Stock will be freely tradeable without restriction or
registration under the Securities Act. During the period November 1996 through
August 1997, the Company issued an aggregate of 170,245 shares of Common Stock
in connection with exercises of employee stock options and purchases under the
Company's Employee Stock Purchase Plan, all of which have been registered and
are freely tradeable. The remaining [4,379,978] shares of Common Stock currently
outstanding are "restricted securities" as that term is defined by Rule 144.
These restricted securities were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act.
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In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including persons who may be deemed Affiliates of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the number of shares of Common
Stock then outstanding or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an Affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years, would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above.
In addition, the Company has granted certain registration rights with
respect to shares of Common Stock which are currently outstanding or which are
issuable in the future, pursuant to which the Company may be required to
register such shares for sale under the Securities Act.
DIVIDENDS
The Company has never paid any dividends to holders of shares of Common
Stock. The Company is not currently generating income from operations and
expects that it will retain its earnings, if any, to finance its operations. In
addition, Selfcare is not permitted to pay dividends on the Common Stock prior
to the first anniversary of the date of issuance of the Series B Preferred Stock
(i.e., August 26, 1998). The Company thus does not expect to pay dividends to
holders of shares of Common Stock for the foreseeable future. Holders of shares
of Series A Preferred Stock are generally entitled to receive cumulative
quarterly dividends at a rate of 6% per annum. Holders of shares of Series B
Preferred Stock are not entitled to receive dividends.
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THE COMPANY
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 self-test 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 HIV. As part of its strategy for addressing the
diabetes management market, the Company has entered into an exclusive worldwide
alliance and distribution agreement with LifeScan, Inc., a subsidiary of Johnson
& Johnson. The terms of the LifeScan Alliance contemplate that Selfcare will
manufacture and LifeScan will distribute Selfcare's proprietary electrochemical
blood glucose monitoring system for the management of diabetes. In addition the
Company plans to commence commercial production and marketing of disposable
generic test strips which can be used in electrochemical blood glucose
monitoring systems currently sold by certain other leading manufacturers.
In the women's health market, Selfcare is currently marketing home
pregnancy and ovulation prediction tests under the Selfcare brand name and under
various private labels. Pregnancy products packaged and distributed by Selfcare
are currently available on a private label basis or under the Selfcare brand in
approximately 90% of U.S. pharmacy chain outlets, including Wal-Mart, Walgreens,
CVS/pharmacy, Eckerd Drug, Osco Drug, Revco Pharmacy and Target Stores. On
February 19, 1997, pursuant to the Nutritional Supplement Lines Acquisition, the
Company acquired the U.S. rights to several nutritional supplement product
lines, which had domestic sales of approximately $24.0 million in 1996. Included
in these product lines are Stresstabs (a B-complex vitamin with folic acid),
Stresstabs plus iron, Ferro-Sequels (an iron supplement) and Posture!!REG MARK!!
(a calcium supplement), which are targeted primarily at the women's health
market. The Company expects to continue to expand its women's health product
line with products supplied by or co-developed with third-party manufacturers,
as well as products developed by the Company.
Through its wholly owned Irish subsidiary, Cambridge Diagnostics, the
Company is currently producing diagnostic test kits primarily for detecting
antibodies to HIV. The Company also produces other tests for the detection of
hepatitis and Lyme disease infections. In addition, the Company has nearly
completed its acquisition of the capital stock of Orgenics Ltd. Orgenics
develops, manufactures, and markets self-contained test kits for the
professional market which detect antibodies and/or infectious agents, including
those associated with AIDS and chlamydia.
In August 1996, the Company completed an initial public offering in which
it sold 1,495,000 shares of Common Stock. In October 1996, Selfcare completed a
private placement of 5,500 shares of Series A Preferred Stock. In March 1997,
the Company completed a further public offering in which it sold 1,800,000
shares of Common Stock. In August 1997, the Company completed a private
placement of 8,000 shares of Series B Preferred Stock and the Warrants.
Selfcare, Inc. was incorporated in Delaware on August 25, 1992, and
acquired its predecessor company, Superior Sensors, Inc. by merger on September
15, 1992. The Company's principal executive offices are located at 200 Prospect
Street, Waltham, Massachusetts 02154, and its telephone number is (781)
647-3900.
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RECENT DEVELOPMENTS
SERIES B PREFERRED STOCK
On August 26, 1997, Selfcare completed the sale of 8,000 shares of Series B
Preferred Stock and warrants to purchase an aggregate of 114,628 shares of
Common Stock. The shares of Series B Preferred Stock accrue a premium, similar
to a dividend, at the rate of 6% per year and are convertible, prior to 1998, at
$13.9581 per share and thereafter at the lower of such price (subject to adjust
under certain circumstances) or the average of the lowest closing bid prices for
any five trading days during the thirty trading days prior to the conversion,
less a 5% discount after May 24, 1998. The Company has the option to redeem, at
a 15% premium over the stated value of the Series B Preferred Stock, at least
50% of such shares in the event the average closing bid price of the Common
Stock over any five trading days is less than $9.00. The investors were granted
registration rights with respect to the Common Stock underlying the Series B
Preferred Stock and Warrants and retain the right to require redemption of the
Series B Preferred Stock in certain circumstances. Subject to certain
circumstances, the Series B Preferred Stock will automatically convert into
shares of Common Stock on August 26, 2000. The Warrants, 50% of which are
exercisable immediately, are exercisable at $13.9581 per share. The remaining
Warrants are exercisable on or after August 25, 1998.
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders.
REGISTRATION RIGHTS
The registration of the Shares pursuant to the Registration Statement of
which this Prospectus is a part will discharge certain of the Company's
obligations (i) under the terms of a Registration Rights Agreement, dated as of
August 26, 1997 (the "Registration Rights Agreement"), which the Company entered
into in connection with the purchase of the Series B Preferred Stock by, and the
issuance of the Warrants to, the Series B Investors, and (ii) under the terms of
certain option agreements entered into in connection with the acquisition of
Orgenics Ltd. (the "Orgenics Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company has agreed to
pay all of the Company's reasonable expenses of registering the Shares (other
than brokerage and underwriting discounts and commissions). The Company also has
agreed under the Registration Rights Agreement to indemnify each Selling
Stockholder and its directors, officers, employees and agents and any person who
controls any Selling Stockholder against losses, claims, damages, expenses and
liabilities arising under the securities laws in connection with the
Registration Statement, except, among other things, to the extent that such
liabilities arise out of or are based upon any information furnished in writing
to the Company by each respective Selling Stockholder expressly for use in the
Registration Statement or an amendment or supplement thereto. In addition, each
Selling Stockholder under the Registration Rights Agreement agreed to indemnify
the Company and its directors, officers (who sign the Registration Statement),
employees, agents, and each person who controls the Company, and each other
stockholder selling securities pursuant to the Registration Statement and each
of their respective directors, officers, and any person who controls any of
them, against all losses, claims, damages, expenses and liabilities arising
under the securities laws insofar as such losses, claims, damages or liabilities
relate to information furnished to the Company by such Selling Stockholder for
use in the Registration Statement or an amendment or supplement thereto.
Pursuant to the Orgenics Registration Rights Agreement, Selfcare will pay
all registration expenses incurred in connection with the Shares to be
registered (other than brokerage and underwriting discounts and commissions).
17
<PAGE> 19
SELLING STOCKHOLDERS
The Shares are to be offered by and for the respective accounts of the
Selling Stockholders. The following table sets forth the names of the Selling
Stockholders, the number of Shares beneficially owned by such Selling
Stockholders as of October 10, 1997, and the number of Shares which may be
offered for sale pursuant to this Prospectus by each such Selling Stockholder.
None of the Selling Stockholders has held any position, office or other material
relationship with the Company or any of its affiliates within the past three
years other than as a result of his or its beneficial ownership of Shares. The
Shares may be offered from time to time by the Selling Stockholders named below.
However, such Selling Stockholders are under no obligation to sell all or any
portion of such Shares, nor are the Selling Stockholders obligated to sell any
such Shares immediately under this Prospectus. Because the Selling Stockholders
may sell all or part of their Shares, no estimate can be given as to the number
of Shares that will be held by any Selling Stockholder upon termination of any
offering made hereby.
With the exception of the following individuals, none of the Selling
Stockholders has held any position, office or other material relationship with
the Company or any of its affiliates within the past three years other than as a
result of his or its beneficial ownership of Shares. Max Herzberg is the
Chairman of the board of directors and the Chief Executive Officer of Orgenics
Ltd., a subsidiary of Selfcare, Inc.
Pursuant to Rule 416 of the Securities Act, the Selling Stockholders may
also offer and sell Shares issued with respect to the Series B Preferred Shares
and the Warrants as a result of, among other things, stock splits, stock
dividends, other dilutive events (including by reason of any reduction in the
floating rate conversion price mechanism of the Series B Preferred Stock), and
as payment of liquidated damages upon certain events of default.
<TABLE>
<CAPTION>
COMMON SHARES
BENEFICIALLY
OWNED AFTER
NUMBER OF SHARES OFFERING(1)
BENEFICIALLY OWNED SHARES --------------------
NAME OF SELLING PRIOR TO OFFERED PERCENT OF
SHAREHOLDER OFFERING(2) HEREBY NUMBER OUTSTANDING
- -------------------------------------------- ------------------ ------- ------ -----------
<S> <C> <C> <C> <C>
Capital Ventures International.............. 375,000(3) 375,000 0 0
C.C. Investments LDC........................ 375,000(3) 375,000 0 0
Proprietary Convertible Investment Group,
Inc....................................... 450,000(3) 450,000 0 0
Max Herzberg(4)............................. 3,739 3,739 0 0
</TABLE>
- ---------------
(1) Assumes the sale of all Shares.
(2) Pursuant to the Securities Purchase Agreement, dated as of August 26, 1997,
by and among the Company and each of the Series B Investors, the Series B
Investors purchased an aggregate of 8,000 shares of Series B Preferred
Stock, which are convertible into shares of Common Stock, and warrants to
acquire 114,628 shares of Common Stock.
(3) Represents the pro rata allocation among the Series B Investors of 1,200,000
Shares which the Company is registering hereunder pursuant to the
Registration Rights Agreement attached as Exhibit 99.1 hereto. The actual
number of Shares issuable upon conversion of the Series B Preferred Stock
will equal (i) the aggregate stated value of the shares of Series B
Preferred Stock then being converted (i.e., $1,000 per share), plus a
premium in the amount of 6% per annum accruing beginning on August 27, 1997,
through the date of conversion (unless the Company chooses to pay such
premium in cash) plus any conversion default amount (as defined in the
Certificate of Designations, Preferences and Rights of the Series B
Preferred Stock), divided by (ii) (x) if the conversion occurs on or before
December 31, 1997, a conversion price (the "Fixed Conversion Price")
initially equal to $13.9581 per share, or (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 an average based upon the
closing bid prices of shares of Common Stock during a specified trading
period immediately prior to conversion, or (z) in the case of conversions on
or after May 24, 1997, a conversion price equal to the lower of the Fixed
Conversion Price and a percentage of an average based upon the closing bid
prices of shares of Common Stock during a specified trading period
immediately prior to conversion (subject to adjustment in accordance with
the Certificate
18
<PAGE> 20
of Designations, Preferences and Rights of the Series B Preferred Stock).
The Warrants entitle the holder thereof to acquire Shares at an exercise
price of $13.9581 per share. For a complete description of the relative
rights, preferences, privileges, powers and restrictions of the Series B
Preferred Stock, see the Certificate of Designations, Preferences and
Rights of Series B Convertible Preferred Stock of Selfcare, Inc. attached
as Exhibit 99.2 hereto. For complete descriptions of the terms of the
Warrants, see the Form of Stock Purchase Warrant attached as Exhibit 99.4
hereto.
Except under certain limited circumstances, no holder of shares of Series B
Preferred Stock or the Warrants is entitled to convert or exercise such
securities to the extent that the shares to be received by such holder upon
such conversion or exercise would cause such holder to beneficially own
more than 4.9% of the Common Stock. Therefore, the number of shares set
forth herein and which a Series B Investor may sell pursuant to this
Prospectus may exceed the number of Shares such Series B Investor would
otherwise beneficially own as determined pursuant to Section 13(d) of the
Exchange Act. Moreover, pursuant to the regulations of the American Stock
Exchange, in the absence of shareholder approval, the aggregate number of
shares of Common Stock issuable to the Series B Investors at a discount
from market price upon conversion of the Series B Preferred Stock and
exercise of the Warrants which have been issued to the Series B Investors
pursuant to the Securities Purchase Agreement may not exceed 19.99% of the
outstanding Common Stock on August 26, 1997 (i.e., 1,691,317 shares).
Unless shareholder approval is obtained to issue Common Stock to the Series
B Investors in excess of the maximum amount set forth above, none of the
Series B Investors will be entitled to acquire more than its proportionate
share of such maximum amount. Any Series B Preferred Stock which may not be
converted and any Warrants which may not be exercised because of such
limitation must be redeemed by the Company.
(4) Represents Shares acquired pursuant to an option agreement entered into in
connection with the Orgenics Acquisition.
PLAN OF DISTRIBUTION
The Shares are being offered on behalf of the Selling Stockholders. The
Shares may be sold or distributed from time to time by the Selling Stockholders,
or by pledgees, donees or transferees of, or other successors in interests to,
the Selling Stockholders, directly to one or more purchasers (including
pledgees) or through brokers, dealers or underwriters who may act solely as
agents or may acquire Shares as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices, or at fixed prices, which may be changed. The sale of the Shares may be
effected in one or more of the following methods: (i) ordinary brokers'
transactions, which may include long or short sales; (ii) transactions involving
cross or block trades or otherwise on the American Stock Exchange; (iii)
purchases by brokers, dealers or underwriters as principal and resale by such
purchasers for their own accounts pursuant to this Prospectus; (iv) "at the
market" to or through market makers or into an existing market for the Shares;
(v) in other ways not involving market makers or established trading markets,
including direct sales to purchases or sales effected through agents; (vi)
through transactions in options, swaps or other derivatives (whether exchange-
listed or otherwise); or (vii) any combination of the foregoing, or by any other
legally available means. In addition, the Selling Stockholders or their
successors in interest may enter into hedging transactions with broker-dealers
who may engage in short sales of Shares in the course of hedging the positions
they assume with the Selling Stockholders. The Selling Stockholders or their
successors in interest may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the Shares,
which Shares may be resold thereafter pursuant to this Prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the Shares as agents may receive compensation in the form of commissions,
discounts or concessions from the Selling Stockholders and/or purchasers of the
Shares for whom such broker-dealers may act as agent, or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer may
be less than or in excess of customary commissions). The Selling Stockholders
and any broker-dealers who act in connection with the sale of Shares hereunder
may be deemed to be "Underwriters" within the meaning of the Securities Act, and
19
<PAGE> 21
any commissions they receive and proceeds of any sale of Shares may be deemed to
be underwriting discounts and commissions under the Securities Act. Neither the
Company nor any Selling Stockholder can presently estimate the amount of such
compensation. The Company knows of no existing arrangements between any Selling
Stockholder, any other stockholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the Shares.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents. The Company
has also agreed to indemnify certain of the Selling Stockholders and certain
related persons against certain liabilities, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
LEGAL MATTERS
The validity of the issuance of the Shares offered hereby will be passed
upon for the Company by its counsel, Goodwin, Procter & Hoar LLP, Exchange
Place, Boston, Massachusetts 02109-2881.
EXPERTS
The consolidated financial statements of Selfcare, Inc. and its
subsidiaries incorporated by reference in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said reports.
20
<PAGE> 22
================================================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Risk Factors.......................... 3
The Company........................... 15
Recent Developments................... 16
Use of Proceeds....................... 17
Registration Rights................... 17
Selling Stockholders.................. 18
Plan of Distribution.................. 19
Legal Matters......................... 20
Experts............................... 20
</TABLE>
------------------------
1,203,739 SHARES
SELFCARE, INC.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
October 15, 1997
================================================================================
<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. (1)
The following are the estimated expenses of issuance and distribution of
the Shares registered hereunder on Form S-3:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 4,298
American Stock Exchange Listing Fee................................ 17,500
Legal Fees and Expenses............................................ 30,000
Miscellaneous...................................................... 8,202
-------
Total......................................................... $
=======
</TABLE>
- ---------------
(1) The amounts set forth in this Item 14, except for the SEC Registration Fee,
are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with Section 145 of the General Corporation Law of the State
of Delaware, Article VII of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") provides that no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, or (iv)
for any transaction from which the director derived an improper personal
benefit. In addition, the Certificate of Incorporation provides that if the
Delaware General Corporation Law is amended to authorize the further elimination
or limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law, as so amended.
Article V of the Company's Amended and Restated By-laws (the "By-laws")
provide for indemnification by the Company of its officers and certain
non-officer employees under certain circumstances against expenses (including
attorneys fees, judgments, fines and amounts paid in settlement) reasonably
incurred in connection with the defense or settlement of any threatened, pending
or completed legal proceeding in which any such person is involved by reason of
the fact that such person is or was an officer or employee of the Company, if
such person acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
criminal actions or proceedings, if such person had no reasonable cause to
believe his or her conduct was unlawful.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
5 Opinion of Goodwin, Procter & Hoar LLP
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5)
24 Power of Attorney (included on signature page)
99.1 Registration Rights Agreement, dated as August 26, 1997, by and among the Company
and the Selling Stockholders
99.2 Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock of Selfcare, Inc.
99.3 Securities Purchase Agreement, dated as of August 26, 1997, by and among the
Company and each of the Selling Stockholders
99.4 Form of Warrant to Purchase Shares of Common Stock of the Company issued to each of
the Series B Investors
</TABLE>
II-1
<PAGE> 24
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes to:
1. File, during any period in which offers and sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement which, individually or
in the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement); and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) herein do
not apply if the information required in a post-effective amendment
is incorporated by reference from periodic reports filed by the
undersigned Registrant under the Exchange Act.
2. For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Waltham, The Commonwealth of Massachusetts, on
October 14, 1997.
SELFCARE, INC.
By: /s/ RON ZWANZIGER
----------------------------------
RON ZWANZIGER
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, each of the undersigned officers and
Directors of Selfcare, Inc. hereby severally constitutes Ron Zwanziger and
Anthony H. Hall and each of them singly, his true and lawful attorneys with full
power to them, and each of them singly, to sign for the undersigned and in his
name in the capacity indicated below, the Registration Statement filed herewith
and any and all amendments to said Registration Statement, and generally to do
all such things in his name and in his capacity as an officer or Director to
enable Selfcare, Inc. to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming his signature as it may be signed by
his said attorney, or any of them, to said Registration Statement and any and
all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- --------------------------------------- ----------------
<C> <S> <C>
/s/ RON ZWANZIGER President, Chief Executive Officer and October 14, 1997
- --------------------------------- Director (Principal Executive Officer)
RON ZWANZIGER
/s/ ANTHONY H. HALL Chief Financial Officer (Principal October 14, 1997
- --------------------------------- Financial Officer and Principal
ANTHONY H. HALL Accounting Officer)
/s/ JONATHAN J. FLEMING Director October 14, 1997
- ---------------------------------
JONATHAN J. FLEMING
/s/ CAROL R. GOLDBERG Director October 14, 1997
- ---------------------------------
CAROL R. GOLDBERG
/s/ EDWARD B. ROBERTS Director October 14, 1997
- ---------------------------------
EDWARD B. ROBERTS
/s/ WILLARD LEE UMPHREY Director October 14, 1997
- ---------------------------------
WILLARD LEE UMPHREY
/s/ PETER TOWNSEND Director October 14, 1997
- ---------------------------------
PETER TOWNSEND
/s/ JOHN F. LEVY Director October 14, 1997
- ---------------------------------
JOHN F. LEVY
</TABLE>
II-3
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------- ----
<C> <S> <C>
5 Opinion of Goodwin, Procter & Hoar LLP......................................
23.1 Consent of Arthur Andersen LLP..............................................
23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5)..............
24 Power of Attorney (included on signature page)..............................
99.1 Registration Rights Agreement, dated as August26, 1997, by and among the
Company and the Selling Stockholders........................................
99.2 Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock of Selfcare, Inc............................................
99.3 Securities Purchase Agreement, dated as of August 26, 1997, by and among the
Company and each of the Selling Stockholders................................
99.4 Form of Warrant to Purchase Shares of Common Stock of the Company issued to
each of the Series B Investors..............................................
</TABLE>
<PAGE> 1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
October 14, 1997
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Ladies and Gentlemen:
This opinion is furnished in our capacity as special counsel to Selfcare,
Inc., a Delaware corporation (the "Company"), in connection with the
registration, pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), of 1,203,739 shares (the "Shares") of common stock, par value
$0.001 per share, of the Company.
In connection with rendering this opinion, we have examined the Amended and
Restated Certificate of Incorporation and the Amended and Restated Bylaws of the
Company, both as amended to date; such records of the corporate proceedings of
the Company as we have deemed material; a registration statement on Form S-3
under the Securities Act relating to the Shares and the prospectus contained
therein; and such other certificates, receipts, records and documents as we
considered necessary for the purposes of this opinion.
We are attorneys admitted to practice in The Commonwealth of Massachusetts.
We express no opinion concerning the laws of any jurisdiction other than the
laws of the United States of America, The Commonwealth of Massachusetts, and the
General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that the
Shares when sold will be duly authorized, legally issued, fully paid and
nonassessable by the Company.
The foregoing assumes that all requisite steps will be taken to comply with
the requirements of the Securities Act and applicable requirements of state laws
regulating the offer and sale of securities.
<PAGE> 2
GOODWIN, PROCTER & HOAR LLP
Selfcare, Inc.
October 14, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
-------------------------------
GOODWIN, PROCTER & HOAR LLP
<PAGE> 1
EXHIBIT 23.1
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 19,
1997 (except for the matters discussed in Notes 2(n) and 5, as to which the date
is March 6, 1997) incorporated by reference in Selfcare, Inc.'s Form 10-KSB/A
for the year ended December 31, 1996 and to all references to our Firm included
in this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 13, 1997
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of August
26, 1997 by and among SELFCARE, INC., a corporation organized under the laws of
the State of Delaware, with headquarters located at 200 Prospect Street,
Waltham, Massachusetts, 02154 (the "COMPANY"), and the undersigned (together
with affiliates, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investors (the "SECURITIES
PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors Units
consisting of (i) shares of its Series B Convertible Preferred Stock (the
"PREFERRED STOCK") that is convertible into shares of the Company's common
stock, par value $.001 per share (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in the Certificate of
Designations, Rights and Preferences with respect to such Preferred Stock (the
"CERTIFICATE OF DESIGNATION") and (ii) Warrants ("WARRANTS") that are
exercisable for shares of Common Stock. The shares of Common Stock issuable upon
conversion of the Preferred Stock or otherwise pursuant to the terms of the
Certificate of Designation shall be referred to herein as the "CONVERSION
SHARES" and the shares of Common Stock issuable upon exercise of the Warrants or
otherwise pursuant to the terms of the Warrants shall be referred to herein as
the "WARRANT SHARES"); and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investors hereby agree as follows:
<PAGE> 2
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
(i) "INVESTORS" means the Initial Investors and
any transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 10 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means (a) the
Conversion Shares (including any Conversion Shares issuable with respect to
Conversion Default Payments under the Certificate of Designation or in
redemption of any Preferred Stock) issued or issuable with respect to the
Preferred Stock; or (b) the Warrant Shares issued or issuable with respect to
the Warrants; and (c) any shares of capital stock issued or issuable, from time
to time (with any adjustments), as a distribution on or in exchange for or
otherwise with respect to any of the foregoing.
(iv) "REGISTRATION STATEMENT" means a
registration statement of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall use all
commercial reasonable efforts to (i) prepare as soon as practicable after the
date hereof (and in no event later than the fiftieth day following the Closing
Date (the "FILING DEADLINE")), and (ii) file with the SEC a Registration
Statement on Form S-3 (or, if Form S-3 is not then available, on such form of
Registration Statement as is then available to effect a registration of all of
the Registrable Securities, subject to the consent of the Initial Investors (as
determined pursuant to Section 11(j) hereof)) covering the resale of at least
1,200,000 Registrable Securities, which Registration Statement, to the extent
allowable under the Securities Act and the Rules promulgated thereunder
(including Rule 416), shall state that such Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Stock and exercise of the Warrants (x)
to prevent dilution resulting from stock splits, stock dividends or similar
transactions or (y) by reason of reductions in the conversion price of the
Preferred Stock or the exercise price of the
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Warrants in accordance with the terms thereof, including, but not limited to,
the terms which cause the Variable Conversion Price of the Preferred Stock to
decrease as the bid price of the Common Stock decreases. The Registrable
Securities included in the Registration Statement shall be allocated to the
Investors as set forth in Section 12(k) hereof. The Registration Statement (and
each amendment or supplement thereto and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the approval of,
which approval shall be granted or denied within two (2) business days of the
request therefor and shall not be unreasonably withheld) the Initial Investors
and their counsel prior to its filing or other submission.
b. UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, (i) the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering (the "PARTICIPATING
INVESTORS"), with the consent of the Initial Investors, shall have the right to
select one legal counsel to represent the Investors and (ii) the Participating
Investors and the Company shall jointly select an investment banker or bankers
and manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the
Participating Investors and the Company. In the event that any Investors elect
not to participate in such underwritten offering, the Registration Statement
covering all of the Registrable Securities shall contain appropriate plans of
distribution reasonably satisfactory to the Investors participating in such
underwritten offering and the Investors electing not to participate in such
underwritten offering (including, without limitation, the ability of
nonparticipating Investors to sell from time to time and at any time during the
effectiveness of such Registration Statement).
c. PAYMENTS BY THE COMPANY. The Company shall cause the
Registration Statement required to be filed pursuant to Section 2(a) hereof to
become effective as soon as practicable, but in no event later than November 25,
1997 (the "REGISTRATION DEADLINE"). If (i) the Registration Statement(s)
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof is not filed with the SEC by the Filing Deadline or is
not declared effective by the SEC on or before the Registration Deadline (other
than, in each case, because of a Delay Period permitted hereby) or if, after the
Registration Statement has been declared effective by the SEC, sales of all the
Registrable Securities (including any Registrable Securities required to be
registered pursuant to Section 4(b) hereof) cannot be made pursuant to the
Registration Statement (by reason of a stop order or the Company's failure to
update the Registration Statement) other than during a Delay Period permitted
hereby (the occurrences set forth in this clause (i) are referred to as
"Registration Failure") or (ii) the Common Stock is not listed or included for
quotation on the Nasdaq National Market ("NASDAQ"), the New York Stock Exchange
(the "NYSE") or the American Stock Exchange (the "AMEX") at any time after the
Registration Deadline, then the Company will make payments to the Investors in
such amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity). The Company shall pay to each Investor an amount equal to the product
of (i) the aggregate Stated Value of the Preferred Stock held by such Investor
(including, without limitation, Preferred Stock that has been converted into
Conversion
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Shares then held by such Investor) (the "AGGREGATE SHARE PRICE") multiplied by
(ii) the Registration Percentage (as defined below) multiplied by (iii) the sum
of: (x) the number of months (pro rated for partial months) after the Filing
Deadline and prior to the date a Registration Statement is filed with the SEC in
accordance with Section 2(a) (unless such Registration Statement is declared
effective by the Registration Deadline in which case, this subpart (x) shall
equal zero), plus (y) the number of months (prorated for partial months) after
the Registration Deadline and prior to the date the Registration Statement filed
pursuant to Section 2(a) is declared effective by the SEC, plus (z) the number
of additional months (prorated for partial months) that sales of any Registrable
Securities cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective (other than Delay Periods) or
the Common Stock is not listed or included for quotation on Nasdaq, the NYSE or
AMEX; provided, however that there shall be excluded from each such period any
days included in any Delay Period and delays which are solely attributable to
changes (other than corrections of Company mistakes with respect to information
previously provided by the Investors) required by the Investors in the
Registration Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of distribution. (For
example, if the Registration Statement is not effective by the Registration
Deadline and the Registration Percentage applicable to such failure is three
hundredths (.03), the Company would pay $30,000 per month for each $1,000,000 of
Aggregate Share Price until the Registration Statement becomes effective.) Such
amounts shall be paid in cash within five (5) business days of the end of the
period creating such obligation. If such payment is not made to Investors during
such five (5) business day period, the Investors may elect to convert such
payment amount into Common Stock at the "CONVERSION PRICE" (as defined in the
Certificate of Designation). Any shares of Common Stock issued upon conversion
of such amounts shall be Registrable Securities. If the Investor desires to
convert the amounts due hereunder into Registrable Securities it shall so notify
the Company in writing within two (2) business days after the date on which such
amounts are first payable in cash and such amounts shall be so convertible
(pursuant to the mechanics set forth under Article IV of the Certificate of
Designation), beginning on the last day upon which the cash amount would
otherwise be due in accordance with the following sentence. Payments of cash
pursuant hereto shall be made within five (5) days after the end of each period
that gives rise to such obligation, provided that, if any such period extends
for more than thirty (30) days, interim payments shall be made for each such
thirty (30) day period. As used herein, the "Registration Percentage" means (I)
two hundredths (.02) with respect to any Registration Failure resulting from
circumstances which the Corporation would be entitled to initiate or continue a
Disclosure Delay Period but for the limitations set forth in the last sentence
of Section 3(d) and (II) for all other purposes, three hundredths (.03).
d. PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC a Registration Statement under the Securities Act relating to
either (i) an underwritten public offering or (ii) any offering if a
Registration Statement covering all Registrable Securities is not then
effective, in the case of both (i) and (ii) for its own account or the account
of others of any of its equity securities (other than on Form S-4 or Form S-8 or
their then equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable
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in connection with stock option or other employee benefit plans) and the Company
is not prohibited from including such Registrable Securities on such
Registration Statement and the Registration Statement has not become effective,
the Company shall send to each Investor who is entitled to registration rights
under this Section 2(d) written notice of such determination and, if within ten
(10) days after the date of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
except that if, in connection with any underwritten public offering for the
account of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights except to the
extent any existing agreements otherwise provide. No right to registration of
Registrable Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. If an offering in connection
with which an Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering.
e. 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 sale by the Initial Investors and any other Investor of the Registrable
Securities and the Company shall, if necessary to keep effective a Registration
Statement covering any of the Registrable Securities, use all commercially
reasonable efforts to file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain the effectiveness of such
Registration Statement.
f. RULE 416. The Company and the Investors each acknowledge
that an indeterminate number of Registrable Securities shall be registered
pursuant to Rule 416 under the Securities Act so as to include in such
Registration Statement any and all Registrable Securities which may become
issuable (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) if permitted by law, by reason of reductions in
the Conversion Price of
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the Preferred Stock in accordance with the terms thereof, including, but not
limited to, the terms which cause the Variable Conversion Price to decrease as
the bid price of the Common Stock decreases (collectively, the "RULE 416
SECURITIES"). In this regard, the Company agrees to use all commercially
reasonable efforts to ensure that the maximum number of Registrable Securities
which may be registered pursuant to Rule 416 under the Securities Act are
covered by the Registration Statement and, absent guidance from the SEC or other
definitive authority to the contrary, the Company shall use all commercially
reasonable efforts to affirmatively support and to not take any action adverse
to the position that the Registration Statements filed hereunder covers all of
the Rule 416 Securities. If the Company determines that the Registration
Statement filed hereunder does not cover all of the Rule 416 Securities, the
Company shall immediately provide to each Investor written notice (a "RULE 416
NOTICE") setting forth the basis for the Company's position and the authority
therefor.
3. DELAY PERIODS; SUSPENSION OF SALES.
a. If, at any time prior to the expiration of the Registration
Period (as defined below), if in the good faith reasonable judgment of the
Company's Board of Directors, the disposition of Registrable Securities would
require the premature disclosure of material nonpublic information which may
reasonably be expected to have an adverse effect on the Company, then the
Company shall not be required to maintain the effectiveness thereof or amend or
supplement the Registration Statement for a period (a "DISCLOSURE DELAY PERIOD")
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) ten (10)
business days after the Company provides a notice to the Investors under Section
4(f) hereof that the failure to disclose such nonpublic information causes the
prospectus included in the Registration Statement, as then in effect, to include
an untrue statement of a material fact or to omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
b. If, at any time prior to the expiration of the Registration
Period and after the Effectiveness Date of the Registration Statement required
to be filed pursuant to Section 2(a) hereof is declared effective by the SEC
(the "Effectiveness Date"), the Company undertakes an underwritten public
offering of any class of its securities, then the Company shall not be required
to maintain the effectiveness of or amend or supplement the Registration
Statement for a period (an "OFFERING DELAY PERIOD") commencing no later than the
closing of such public offering and expiring no later than the thirtieth (30th)
day following such commencement.
c. If, at any time prior to the expiration of the Registration
Period, an order is entered by a court of competent jurisdiction prohibiting the
Company from taking action to have the Registration Statement covering the
Registrable Securities declared effective by the SEC or requiring the Company to
take action to render such Registration Statement ineffective for purposes of
sales of the Registrable Securities as contemplated herein (a "COURT ORDER"),
then the Company shall not be required to request or maintain, as the case may
be, such effectiveness for a period (a "COURT ORDER DELAY PERIOD" and,
collectively with the Disclosure Delay Period and the Offering Delay Period, a
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"DELAY PERIOD") expiring no later than the earlier of (i) the third business day
following the date such Court Order is no longer in effect and (ii) the one
hundred eightieth (180th) day following the Closing Date.
If the Company is prevented from taking action to have the
Registration Statement covering the Registrable Securities declared effective as
a result of a Court Order in effect at any time after the one hundred eightieth
(180th) day following the Closing Date, the Investors shall have the option to
require the Company to purchase for cash any or all of their outstanding shares
of Series B Preferred Stock held by such Investor for an amount per share equal
to (i) one hundred ten percent (110%) of the Face Amount (as defined in the
Certificate of Designation) thereof plus (ii) the accrued premium thereon
through the date of such purchase.
d. The Company will give prompt written notice, in the manner
prescribed by Section 12 hereof, to the Initial Investors of each Delay Period.
Advance notice of the Delay Period shall be given to the extent practicable. If
practicable, such notice shall estimate the duration of such Delay Period. Each
Initial Investor, by its acceptance of any share of Common Stock, agrees that,
upon receipt of such notice, it will forthwith discontinue disposition of the
Common Stock pursuant to the Registration Statement, and will not deliver any
prospectus forming a part thereof in connection with any sale of Common Stock
until the expiration of such Delay Period. In addition, the provisions of
Section 2(c) shall not apply to the Delay Periods. Notwithstanding anything in
this Section 3 to the contrary, (i) there shall not be more than an aggregate of
forty-five (45) calendar days in any twelve (12) month period during which the
Company is in a Disclosure Delay Period or more than one (1) Offering Delay
Period in any twelve (12) month period, (ii) no individual Disclosure Delay
Period shall last more than ten (10) business days and (iii) the Company may not
initiate more than one (1) Disclosure Delay Period with respect to any event
causing the occurrence of a Disclosure Delay Period. For the avoidance of doubt,
the occurrence, discontinuance and reoccurrence of any circumstance shall
constitute two (2) different events for purposes of clause (iii) above.
4. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall use all commercially reasonable efforts
to prepare promptly and file with the SEC the Registration Statement required by
Section 2(a), and to cause such Registration Statement relating to Registrable
Securities to become effective as soon as practicable after such filing, but in
no event later than the Registration Deadline, and keep the Registration
Statement effective pursuant to Rule 415 at all times (other than during Delay
Periods permitted by Section 3 hereof) until such date as is the earlier of (i)
the date on which all of the Registrable Securities have been sold and (ii) the
date on which all of the Registrable Securities (in the reasonable opinion of
counsel to the Initial Investors) may be immediately sold to the public without
registration pursuant to Rule 144 under the Securities Act without any
limitation on the
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<PAGE> 8
number of Registrable Securities that can then be immediately resold (the
"REGISTRATION PERIOD"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein and all documents
incorporated by reference therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading, except for those
provided by the Investors. The Company agrees and acknowledges that the
Registration Period shall be reinstituted after its expiration if at any time
all of the Registrable Securities may not be sold to the public without
registration pursuant to Rule 144 under the Securities Act (without any volume
limitations).
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period (other than during Delay
Periods permitted by Section 3 hereof). In the event (i) the Company delivers a
Rule 416 Notice to the Investors or the Investors who hold a majority in
interest of the Registrable Securities shall reasonably determine or the SEC
shall state formally or informally that Rule 416 under the Securities Act does
not permit a registration statement to cover securities which may become
issuable upon conversion or exercise of convertible or exercisable securities by
reason of reductions in the conversion or exercise price of such securities and
(ii) the number of shares available under a Registration Statement filed
pursuant to this Agreement is, for any three (3) consecutive trading days (the
last of such three (3) trading days being the "REGISTRATION TRIGGER DATE"),
insufficient to cover one hundred thirty-five percent (135%) of the Registrable
Securities issued or issuable upon conversion and exercise (without giving
effect to any limitations on conversion or exercise contained in Article IV.C of
the Certificate of Designation or Section 7(g) of the Warrants) of the Preferred
Stock and the Warrants, the Company shall use all commercially reasonable
efforts to amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover two hundred percent (200%) of the Registrable Securities so issued or
issuable (without giving effect to any limitations on conversion or exercise
contained in Article IV.C of the Certificate of Designation or Section 7(g) of
the Warrants) as of the Registration Trigger Date, in each case, as soon as
practicable, but in any event within fifteen (15) days after the Registration
Trigger Date (based on the market price then in effect of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall use all commercially reasonable efforts to cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. In the event the Company fails to obtain the
effectiveness of any such Registration Statement within sixty (60) days after a
Registration Trigger Date (excluding Delay Periods), each Investor shall
thereafter have the option, exercisable in whole or in part at any time and from
time to time by delivery of a written notice to the Company (a "REDEMPTION
NOTICE"), to require the Company to purchase for cash, at an amount per share
equal to the Redemption Amount (as defined in Article VIII.B of the Certificate
of Designation), a portion of the Investor's Preferred Stock such that the total
number of Registrable Securities included on the Registration Statement for
resale by such Investor exceeds 100% of the Registrable Securities issued or
issuable upon conversion and exercise (without giving effect to any limitations
on conversion or exercise contained in Article IV.C of the Certificate of
Designation or
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Section 7(g) of the Warrants) of such Investor's Preferred Stock and Warrants.
If the Corporation fails to redeem any of such shares within five (5) business
days after its receipt of a Redemption Notice and the Registration Statement is
not effective, then such Investor shall be entitled to the remedies provided in
Article VIII.C of the Certificate of Designation.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration Statement
referred to in Section 2(a), each letter written by or on behalf of the Company
to the SEC or the staff of the SEC (including, without limitation, any request
to accelerate the effectiveness of any Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to such Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of effectiveness of the Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) 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 all 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 in the United States as each Investor who holds Registrable
Securities being offered reasonably requests, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest
of the Registrable Securities being offered in an offering select underwriters
for the offering, the Company shall enter into an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering and the Investors.
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f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use all
commercially reasonable efforts promptly to prepare a supplement or amendment to
the Registration Statement to correct such untrue statement or omission, and
deliver such number of copies of such supplement or amendment to each Investor
as such Investor may reasonably request.
g. The Company shall use all commercially reasonable efforts
to prevent the issuance of any stop order or other suspension of effectiveness
of a Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in each
case by amending or supplementing such Registration Statement) and to notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request).
h. The Company shall permit a single firm of counsel
designated by a majority of the Initial Investors to review the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC, and not file any such Registration Statement
or amendment or supplement thereto in a form to which such counsel reasonably
objects in accordance with Section 2(a) hereof.
i. If necessary to obtain the benefits of Section 11(a) of the
Securities Act, the Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish,
on the date of effectiveness of the Registration Statement, in the case of an
underwriting (i) an opinion, dated as of such date, from counsel representing
the Company addressed to the Investors and in form, scope and substances as is
customarily given in an underwritten public offering and (ii) a letter, dated
such date, from the Company's independent certified public accountants in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors, if permitted by applicable accounting
practices.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of
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attorneys retained by all such underwriters (collectively, the "INSPECTORS") all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "RECORDS"), as shall be reasonably
deemed necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 4(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein shall be deemed to
limit the Investors' ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations, provided that it does
not disclose any confidential information in connection therewith.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use all commercially reasonable efforts
at its option to promptly either (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on the AMEX or another
national securities exchange and on each additional national securities exchange
on which securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then permitted
under the rules of such
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exchange, or (ii) secure the designation and quotation, of all the Registrable
Securities covered by the Registration Statement on the Nasdaq and, without
limiting the generality of the foregoing, to arrange for or maintain at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related
to a Registration Statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in connection
therewith (including without limitation the Securities Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated by
the SEC.)
r. The Company shall take all such other actions as any
Investor or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
s. From and after the date of this Agreement, the Company
shall not, and shall not agree to, allow the holders of any securities of the
Company to include any of their securities in any Registration Statement filed
under Section 2(a) hereof or any amendment or supplement thereto under Section
4(b) hereof without the consent of the holders of a majority of the Registrable
Securities, subject to the following exceptions: (i) the Company shall be
permitted to allow a holder or holders of shares of Common Stock to include
shares of Common Stock on such Registration Statement if a court of competent
jurisdiction has entered a final non-appealable order requiring that
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<PAGE> 13
such securities owned by such holder or holders be included on the Registration
Statement; and (ii) the Company or other holders of the Company's Securities
shall be permitted to include up to 40,000 shares of Common Stock on the
Registration Statement.
t. Until the first day which is not included in a Delay Period
and which occurs after the one hundred and eightieth (180th) day following the
date the Registration Statement required to be filed pursuant to Section 2(a)
hereof is declared effective by the SEC (as extended by the number of days
included in any Delay Periods occurring during such time period), the Company
shall not permit the SEC to declare effective any registration statement
covering any of the Company's Common Stock which is either (x) issued in a
private transaction or issued or issuable upon conversion, exercise or exchange
of any security issued in a private transaction or (y) issued or issuable
pursuant to a Commitment Offering; provided, however, that this obligation of
the Company shall not apply to a registration statement covering Common Stock
(i) to be issued in a firm commitment underwritten public offering undertaken by
the Company, (ii) issued or to be issued pursuant to any Company stock option,
restricted stock or similar plan for the benefit of the Company's or any of its
subsidiaries employees, directors or consultants; (iii) issued or to be issued
as consideration in a merger, consolidation or acquisition of assets or stock,
or in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or as consideration for the
acquisition of a business, product or license by the Company or (iv) issuable
upon exercise of warrants issued in connection with the issuance of debt
securities if the maximum number of shares of Common Stock issuable pursuant to
such warrants does not exceed the product of .05 multiplied by the aggregate
purchase price of all securities issued in such transaction at the closing
thereof, multiplied by the greater of (x) the exercise price of such warrants or
(y) the Market Price (as defined in the Warrants) on the date of issuance of
such debt securities. As used herein, a "Commitment Offering" means an offering
of securities of the Company whereby the Company has the right (at its option)
to require an investor(s), subject to certain conditions which may be contained
in the documentation evidencing such Commitment Offering, to purchase securities
registered under the Securities Act from time to time on a date(s) designated by
the Company (e.g., an equity line of credit).
5. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of
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<PAGE> 14
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Preferred Stock or any of the Registrable Securities, agrees to cooperate with
the Company as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the Registration
Statement.
c. In the event Investors holding a majority in interest of
the Registrable Securities being offered determine to engage 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 underwriter(s) of such offering and the Company 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 not to participate in such
underwritten distribution.
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 4(f)
or 4(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 4(f) or 4(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
distribution hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
6. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, of the Company incurred in connection with registrations, filings
or qualifications pursuant to Sections 2 and 4, including, without limitation,
all registration, listing and qualifications fees, printers and accounting fees,
the fees and disbursements of counsel for the Company, and the fees and
disbursements contemplated by Section 4(j) hereof shall be borne by the Company.
In addition, if successful in its actions to enforce its rights hereunder, (i)
an Investor shall be entitled to reimbursement from the Company for all of such
Investor's costs and expenses (including legal fees) incurred in connection with
the enforcement of its rights hereunder and (ii) the Company shall be
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<PAGE> 15
entitled to reimbursement from each Investor of all of the Company's costs and
expenses (including legal fees) incurred in connection with the enforcement of
its rights hereunder with respect to such Investor.
7. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees,
agents of such Investor and each person who controls any Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the person required to provide
indemnification hereunder (i.e., the Company for purposes of this Section 7(a)
and the Investor for the purpose of Section 7(b)) of the Securities Act, the
Exchange Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 7(c) with respect to the number of legal counsel, the Company shall
reimburse the Investors and each other Indemnified Person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 7(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; (iii) shall not apply to any Claim arising out of or
based upon a sale by an Investor during a Delay Period permitted by Section 3
hereof; (iv) with respect to any preliminary prospectus, shall not inure to the
benefit of any
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<PAGE> 16
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected prospectus was
timely made available by the Company pursuant to Section 4(c) hereof, and the
Indemnified Person was advised in writing not to use the incorrect prospectus
prior to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 10.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 7(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, 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 Securities 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 Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case other than a Violation defined in clause
(iii) of the definition of "Violations" 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 subject to Section 7(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 7(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Agreement (including this Section 7(b) and Section 8) for only that amount
as does not exceed the net proceeds actually received by 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 10. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 7(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, and the Indemnified Party failed to utilize such
corrected prospectus.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 7 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 made against
16
<PAGE> 17
any indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that such indemnifying party shall not be
entitled to assume such defense and 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 conflicts of interest between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are in conflict with those
available to such indemnifying party. The indemnifying party shall pay for only
one separate legal counsel for the Indemnified Persons or the Indemnified
Parties, as applicable, and such legal counsel for the Indemnified Person shall
be selected by Investors holding a majority-in-interest of the Registrable
Securities included in the Registration Statement to which the Claim relates
(with the approval of a majority of the Initial Investors if they hold
Registrable Securities included in such Registration Statement), if the
Investors are entitled to indemnification hereunder, or by the Company, if the
Company is entitled to indemnification hereunder, as applicable. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 7,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Section 7
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.
8. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 7 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the express terms set forth in
Section 7, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities or the Company who was
not guilty of such fraudulent misrepresentation, and (iii) contribution
(together with any indemnification obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
17
<PAGE> 18
9. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell Registrable
Securities of the Company to the public without registration ("RULE 144"), the
Company agrees to use (until such time as all Registrable Securities may be sold
by the Investors pursuant to Rule 144(k)) all commercially reasonable efforts
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 (it
being understood that nothing herein shall limit the Company's obligations under
Section 4(c) of the Securities Purchase Agreement) 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 owns
shares of Preferred Stock, Warrants or Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the
reporting requirements of 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.
10. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the shares of Preferred Stock, the Warrants or the Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company after such assignment, (ii) the Company is furnished with written notice
of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned, (iii) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws, (iv) the transferee or
assignee agrees in writing for the benefit of the Company to be bound by all of
the provisions contained herein, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
11. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Investors who hold a majority interest of the Registrable Securities or, in the
case of a waiver, with the consent of the party charged with the enforcement of
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<PAGE> 19
any such provision. Any amendment or waiver effected in accordance with this
Section 11 shall be binding upon each Investor and the Company.
12. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from a majority, if any, of the
registered owners of such Registrable Securities.
b. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five (5) days after being placed in the mail,
if mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Telecopy: (617) 647-3939
Attn: Chief Executive Officer
with a copy to:
Goodwin, Proctor & Hoar LLP
Exchange Place
Boston, MA 02109
Telecopy: 617-523-1231
Attn: Stephen W. Carr, P.C.
and
Martin Carmichael, III, P.C.
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 12(b).
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
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<PAGE> 20
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware. The Company and each Investor
irrevocably consent to the jurisdiction of the state and federal courts located
in the State of Delaware in any suit or proceeding based on or arising under
this Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company and each Investor
irrevocably waive the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company and each Investor further agree that
service of process upon the Company and any such Investor, mailed by first class
mail shall be deemed in every respect effective service of process upon the
Company and each Investor in any such suit or proceeding. Nothing herein shall
affect the Company's or any Investor's right to serve process in any other
manner permitted by law. The Company and each Investor agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
e. This Agreement, the Securities Purchase Agreement and the
Warrants (including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement and the Warrants supersede all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 10 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors or the Initial Investors pursuant to this Agreement shall be made by
the Investors or the Initial Investors holding a majority of the Registrable
Securities (determined as if all shares of Preferred Stock and
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<PAGE> 21
Warrants then outstanding had been converted into or exercised for Registrable
Securities) then held by all Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included on
any Registration Statement and each increase to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of doubt, the number of Registrable Securities held by any Investor shall be
determined as if all shares of Preferred Stock then outstanding or then issuable
upon exercise of the Warrants were converted into or exercised for Registrable
Securities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
SELFCARE, INC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
INITIAL INVESTORS:
PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, its authorized agent
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
C.C. INVESTMENTS, LDC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
<PAGE> 1
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
SELFCARE, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Selfcare, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "CORPORATION"), hereby certifies that the following
resolution was adopted by a Special Committee of the Board of Directors of the
Corporation pursuant to authority of such Special Committee of the Board of
Directors and of the Board of Directors as required by Section 151 of the
Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Special Committee of the Board of Directors (the "SPECIAL COMMITTEE") by duly
approved and adopted resolutions of the Board of Directors of this Corporation
(the "BOARD OF DIRECTORS" or the "BOARD") and in accordance with the provisions
of its Certificate of Incorporation and Bylaws, each as amended and restated
through the date hereof, the Special Committee hereby authorizes a series of the
Corporation's previously authorized Preferred Stock, par value $.001 per share
(the "PREFERRED STOCK"), and hereby states the designation and number of shares,
and fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
<PAGE> 2
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 8,000 shares of
Preferred Stock, is the Series B Convertible Preferred Stock (the "SERIES B
PREFERRED STOCK") and the face amount shall be One Thousand U.S. Dollars
($1,000.00) per share (the "FACE AMOUNT").
II. NO DIVIDENDS
The Series B Preferred Stock will bear no dividends, and the holders of
the Series B Preferred Stock shall not be entitled to receive dividends on the
Series B Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series B Preferred Stock if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "BLOOMBERG"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc., in each case for such date or, if such
date was not a trading date for such security, on the next preceding date which
was such a trading date. If the Closing Bid Price cannot be calculated for such
security as of either of such dates on any of the foregoing bases, the Closing
Bid Price of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Corporation
and reasonably acceptable to holders of a majority of the then outstanding
shares of Series B Preferred Stock, with the costs of such appraisal to be borne
by the Corporation.
B. "CONVERSION DATE" means, for any Optional Conversion (as defined
below), the date specified in the notice of conversion in the form attached
hereto (the "NOTICE OF CONVERSION"), so long as the copy of the Notice of
Conversion is faxed (or delivered by other means resulting in notice) to the
Corporation before 11:59 p.m., New York City time, on the Conversion Date
indicated in the Notice of Conversion; provided, however, that if the Notice of
Conversion is not so delivered before such time, then the Conversion Date shall
be the date the holder faxes or otherwise delivers the Notice of Conversion to
the Corporation. The Conversion Date for the Required Conversion at Maturity
shall be the Maturity Date (as such terms are defined in Paragraph D of Article
IV) and the
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<PAGE> 3
Conversion Date for a Mandatory Conversion shall be the Effective Date of
Mandatory Conversion (as such terms are defined in Paragraph E of Article IV).
C. "CONVERSION PERCENTAGE" shall have the following meaning and shall
be subject to adjustment as provided herein:
IF THE CONVERSION DATE IS: THEN THE CONVERSION PERCENTAGE IS:
- -------------------------- ----------------------------------
Prior to the 271st day following 100%
the Issuance Date
On or after the 271st day following 95%
the Issuance Date
D. "CONVERSION PRICE" means (i) prior to the earlier of January 1, 1998
and the occurrence of any Redemption Event (as defined in Article III.A); the
Fixed Conversion Price; and (ii) thereafter, the lower of the Fixed Conversion
Price and the Variable Conversion Price, each in effect as of such date and
subject to adjustment as provided herein.
E. "FIXED CONVERSION PRICE" means $13.9581, and shall be subject to
adjustment as provided herein.
F. "ISSUANCE DATE" means the date this Certificate of Designation is
filed with the Secretary of the State of Delaware.
G. "MARKET PRICE," as of any date, (i) means the closing bid price for
the shares of Common Stock as reported on the American Stock Exchange for the
trading day immediately preceding such date, or (ii) if the American Stock
Exchange is not the principal trading market for the shares of Common Stock, the
last reported bid prices on the principal trading market for the Common Stock
for the trading day immediately preceding such date or, if there is no bid price
for such day, the last reported sales price for such day, or (iii) if market
value cannot be calculated as of such date on any of the foregoing bases, the
Market Price shall be the average fair market value as reasonably determined by
an investment banking firm selected by the Corporation and reasonably acceptable
to the holder, with the costs of the appraisal to be borne by the Corporation.
The manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
H. "N" means the number of days from, but excluding, the Issuance Date.
I. "PREMIUM" means an amount equal to (.06)x(N/365)x(1,000).
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J. "VARIABLE CONVERSION PRICE" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage then
in effect by the average of the lowest Closing Bid Prices for the Corporation's
common stock, par value $.001 per share ("COMMON STOCK"), for any five (5)
trading days during the thirty (30) consecutive trading days ending on the
trading day immediately preceding such date of determination (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications or
similar events during such thirty (30) trading day period), and shall be subject
to adjustment as provided herein.
K. "TRADING DAY" means any day that securities generally may be
traded.
IV. CONVERSION
A. CONVERSION AT THE OPTION OF THE HOLDER. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series B Preferred Stock may, at any time and from time to
time on or after the earlier of (a) the date the Registration Statement filed
pursuant to Section 2(a) of the Registration Rights Agreement (as defined
herein) is declared effective by the Securities and Exchange Commission (the
"SEC") and (b) the ninetieth day following the Issuance Date, convert (an
"OPTIONAL CONVERSION") each of its shares of Series B Preferred Stock into a
number of fully paid and nonassessable shares of Common Stock determined in
accordance with the following formula:
1,000 + THE PREMIUM
-------------------
CONVERSION PRICE
(ii) (a) The Corporation shall have the right, in its sole
discretion, upon receipt of a Notice of Conversion and the Preferred Stock
Certificate (as hereinafter defined) or in the event of a Required Conversion at
Maturity, to redeem any portion of the Premium subject to such conversion for a
sum of cash equal to the amount of the Premium being so redeemed. All cash
redemption payments hereunder shall be paid in lawful money of the United States
of America at such address for the holder as appears on the record books of the
Corporation (or at such other address as such holder shall hereafter give to the
Corporation by written notice). In the event the Corporation so elects to redeem
all or any portion of the Premium in cash and fails to pay such holder the
applicable redemption amount to which such holder is entitled by depositing a
check in the U.S. Mail to such holder within five (5) business days of receipt
by the Corporation of a Notice of Conversion (in the case of a redemption in
connection with an Optional Conversion) or the Maturity Date (in the case of a
redemption in connection with a Required Conversion at Maturity), the
Corporation shall thereafter forfeit its right to redeem such Premium in cash
and such Premium shall thereafter be converted into shares of Common Stock in
accordance with Article IV.A(i).
(b) Each holder of Series B Preferred Stock shall
have the right to require the Corporation to provide advance notice to such
holder stating whether the Corporation will elect to redeem all or any portion
of the Premium in cash pursuant to the Corporation's redemption rights
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described in subparagraph (a) of this Article IV.A(ii). A holder may exercise
such right from time to time by sending notice (an "ELECTION NOTICE") to the
Corporation, by facsimile, requesting that the Corporation disclose to such
holder whether the Corporation would elect to redeem any portion of the Premium
for cash in lieu of issuing Common Stock therefor if such holder were to
exercise its right of conversion pursuant to this Article IV.A. The Corporation
shall, no later than the close of business on the next business day following
receipt of an Election Notice, disclose to such holder whether the Corporation
would elect to redeem any portion of a Premium in connection with a conversion
pursuant to a Notice of Conversion delivered over the subsequent thirty (30) day
period. If the Corporation does not respond to such holder within such one (1)
business day period via facsimile, the Corporation shall, with respect to any
conversion pursuant to a Notice of Conversion delivered within the subsequent
thirty (30) day period, forfeit its right to redeem such Premium in accordance
with subparagraph (a) of this Article IV.A(ii) and shall be required to convert
such Premium into shares of Common Stock.
B. MECHANICS OF CONVERSION. In order to effect an Optional
Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully
executed Notice of Conversion to the Corporation and (y) surrender or cause to
be surrendered the original certificates representing the Series B Preferred
Stock being converted (the "PREFERRED STOCK CERTIFICATES"), duly endorsed, along
with a copy of the Notice of Conversion as soon as practicable thereafter to the
Corporation. Upon receipt by the Corporation of a facsimile copy of a Notice of
Conversion from a holder, the Corporation shall immediately send, via facsimile,
a confirmation to such holder stating that the Notice of Conversion has been
received, the date upon which the Corporation expects to deliver the Common
Stock issuable upon such conversion and the name and telephone number of a
contact person at the Corporation regarding the conversion. The Corporation
shall not be obligated to issue shares of Common Stock upon a conversion unless
both (i) the executed Notice of Conversion and (ii) either the Preferred Stock
Certificates or, in the case where such certificates have been lost, stolen or
destroyed, the indemnity and evidence required by Article VIV.B are delivered to
the Corporation as provided above, or the holder notifies the Corporation that
such certificates have been lost, stolen or destroyed (subject to the
requirements of Article XIV.B).
(i) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the
surrender of Preferred Stock Certificates from a holder of Series B Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, on or before
the later to occur of (a) the third business day following the Conversion Date
(subject to a two (2) business day grace period) and (b) the business day
following the date of such surrender (or, in the case of lost, stolen or
destroyed certificates, after provision of indemnity pursuant to Article XIV.B)
(the "DELIVERY PERIOD"), issue and deliver to the holder or its nominee (x) that
number of shares of Common Stock issuable upon conversion of such shares of
Series B Preferred Stock being converted and (y) a certificate representing the
number of shares of Series B Preferred Stock not being converted, if any. If the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, and so long as the
certificates therefor do not bear a legend and the holder thereof is not
obligated to return such certificate for the placement of a legend thereon, the
Corporation shall cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the holder
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by crediting the account of the holder or its nominee with DTC through its
Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver to the holder physical certificates representing the Common Stock
issuable upon conversion. Further, a holder may instruct the Corporation to
deliver to the holder physical certificates representing the Common Stock
issuable upon conversion in lieu of delivering such shares by way of DTC
Transfer.
(ii) TAXES. The Corporation shall pay any and all taxes
which may be imposed upon it with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series B Preferred Stock.
(iii) NO FRACTIONAL SHARES. If any conversion of Series B
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock shall be
the nearest whole number of shares.
(iv) CONVERSION DISPUTES. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to an independent outside
accountant of national reputation via facsimile within two (2) business days of
receipt of the Notice of Conversion. The accountant, at the Corporation's sole
expense, shall audit the calculations and notify the Corporation and the holder
of the results no later than two (2) business days from the date it receives the
disputed calculations. The accountant's calculation shall be deemed conclusive,
absent manifest error. The Corporation shall then issue the appropriate number
of shares of Common Stock in accordance with subparagraph (i) above.
C. LIMITATIONS ON CONVERSIONS. The conversion of shares of
Series B Preferred Stock shall be subject to the following limitations (each of
which limitations shall be applied independently):
(i) CAP AMOUNT. Unless permitted by the applicable rules
and regulations of the principal securities exchange or market on which the
Common Stock is listed or traded, in no event shall the total number of shares
of Common Stock issued upon conversion of the Series B Preferred Stock exceed
the maximum number of shares of Common Stock that the Corporation can so issue
pursuant to Section 713 of the Rules of the American Stock Exchange ("AMEX") (or
any successor rule) (the "CAP AMOUNT") which, as of the date of issuance of the
Series B Preferred Stock, shall be 1,689,043 shares. The Cap Amount shall be
allocated pro-rata to the holders of Series B Preferred Stock as provided in
Article XIV.C. In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
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(ii) NO FIVE PERCENT HOLDERS. In no event shall a holder
of shares of Series B Preferred Stock be entitled to receive shares of Common
Stock upon a conversion to the extent that the sum of (x) the number of shares
of Common Stock beneficially owned by the holder and its affiliates (exclusive
of shares issuable upon conversion of the unconverted portion of the shares of
Series B Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of shares of
Common Stock issuable upon the conversion of the shares of Series B Preferred
Stock with respect to which the determination of this subparagraph is being
made, would result in beneficial ownership by the holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (x) above. The
provisions of this subparagraph may be amended and/or implemented in a manner
otherwise than in strict conformity with the terms of this subparagraph (ii)
with the approval of the Board of Directors of the Company and the holders of a
majority of the then outstanding shares of Series B Preferred Stock: (a) with
respect to any matter to cure any ambiguity herein, to correct this subparagraph
(ii) (or any portion thereof) which may be defective or inconsistent with the
intended 4.99% beneficial ownership limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
4.99% limitation; and (b) with respect to any other matter, with the further
consent of the holders of majority of the then outstanding shares of Common
Stock; the provisions of this subparagraph (ii) may be waived with the approval
of the holders of all outstanding shares of Series B Preferred Stock upon ninety
(90) days prior written notice from such holders to the Corporation and all
other holders. To the extent that the limitation contained in this Paragraph C
applies, the determination of whether and the extent to which shares of Series B
Preferred Stock are convertible shall be in the sole discretion of the holder of
such shares, and the submission of a Notice of Conversion shall be deemed such
holder's determination of whether and the extent to which such shares are
convertible, subject to such aggregate percentage limitation, and the
Corporation shall have no obligation whatsoever to verify or confirm the
accuracy of such determination.
D. REQUIRED CONVERSION AT MATURITY. Subject to the limitations
set forth in Paragraph C(i) of this Article IV and provided all shares of Common
Stock issuable upon conversion of all outstanding shares of Series B Preferred
Stock are then (i) authorized and reserved for issuance and (ii) eligible to be
listed or traded on either the New York Stock Exchange ("NYSE"), the AMEX or the
Nasdaq National Market ("NNM"), or the successor to any of them, each share of
Series B Preferred Stock issued and outstanding on the third anniversary of the
Issuance Date or, if all of the conditions set forth above are not satisfied on
such date, the first date thereafter that they are satisfied (the "MATURITY
DATE"), automatically shall be converted into shares of Common Stock on such
date in accordance with the conversion formulas set forth in Paragraph A of this
Article IV (the "REQUIRED CONVERSION AT MATURITY"). If the Required Conversion
at Maturity occurs, the Corporation and the holders of Series B Preferred Stock
shall follow the applicable conversion procedures set forth in Paragraph B of
this Article IV; provided, however, that the holders of Series B Preferred Stock
are not required to deliver a Notice of Conversion to the Corporation. If the
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Required Conversion at Maturity does not occur on such third anniversary, each
holder of Series B Preferred Stock shall thereafter have the option, exercisable
in whole or in part at any time and from time to time prior to the occurrence of
the Required Conversion at Maturity by delivery of a Redemption Notice to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Redemption Amount (as defined in Article VIII.C), the
holder's Series B Preferred Stock. If the Corporation fails to redeem any of
such shares within five (5) business days after the day on which the Corporation
receives such Redemption Notice (the "REDEMPTION DATE"), then such holder shall
be entitled to the remedies provided in Article VIII.E.
E. MANDATORY CONVERSION
(i) If at any time after the first twelve (12) months
following the Issuance Date that the Required Conditions (as defined in
subparagraph (iii) below) are satisfied, the Corporation shall have the right,
subject to the limitations set forth in Paragraph C(i) of this Article IV, to
require the conversion (a "MANDATORY CONVERSION") of all (but not less than all)
of the outstanding shares of Series B Preferred Stock at the Conversion Price in
effect on the Effective Date of Mandatory Conversion (as defined below). If the
Mandatory Conversion occurs, the Corporation and the holders of Series B
Preferred Stock shall follow the applicable conversion procedures set forth in
Paragraph B of this Article IV (including the requirement that each holder
deliver all Preferred Stock Certificates to the Corporation); provided, however,
that the holders of Series B Preferred Stock are not required to deliver a
Notice of Conversion to the Corporation. Each holder of Series B Preferred Stock
may convert all or any portion of its shares of Series B Preferred Stock into
Common Stock by delivering a Notice of Conversion to the Corporation at any time
prior to the Effective Date of Mandatory Conversion.
(ii) The Corporation shall effect a Mandatory Conversion
under this Paragraph E by giving at least thirty (30) trading days but not more
than forty (40) trading days prior written notice (the "MANDATORY CONVERSION
NOTICE") of the date which such Mandatory Conversion is to become effective (the
"EFFECTIVE DATE OF MANDATORY CONVERSION") to each holder of Series B Preferred
Stock, which Mandatory Conversion Notice shall be deemed to have been delivered
to a holder on the trading day after the Corporation's fax (with a copy sent by
overnight courier) of such notice to such holder. No Mandatory Conversion Notice
shall be effective hereunder unless it is delivered to all holders of Series B
Preferred Stock within three (3) trading days of any satisfaction of the
Required Condition set forth in (iii)(a) below. Upon the surrender of the Series
B Preferred Stock, the Corporation shall issue and deliver to holder the shares
of Common Stock to which such holder is entitled upon the Mandatory Conversion.
(iii) The "REQUIRED CONDITIONS" shall consist of the
following:
(a) the Closing Bid Price of a share of Common Stock
shall be at least equal to 200% of the Fixed Conversion Price then in effect for
a period of twenty (20) consecutive trading days (with each of such days
occurring at least twelve (12) months after the Issuance Date);
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(b) all shares of Common Stock issuable upon
conversion of all outstanding shares of Series B Preferred Stock are then (i)
authorized and reserved for issuance, (ii) registered under the Securities Act
of 1933, as amended (the "SECURITIES ACT") for resale by the holders of such
shares of Series B Preferred Stock or may be immediately resold by the holders
of Series B Preferred Stock or may be immediately resold by the holders of
Series B Preferred Stock pursuant to Rule 144 under the Securities Act without
any limitation on the number of such shares that can be immediately resold and
(iii) eligible to be listed or traded on either the NYSE, the AMEX or NNM (or
the successor to any of them); and
(c) no Redemption Event shall have occurred and be
continuing.
V. RESERVATION OF SHARES OF COMMON STOCK
A. RESERVED AMOUNT. Upon the initial issuance of the shares of
Series B Preferred Stock, the Corporation shall reserve 2,000,000 shares of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the Series B Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "RESERVED AMOUNT") shall not be
decreased and shall at all times be sufficient to provide for the conversion of
the Series B Preferred Stock outstanding at the then current Conversion Price.
The Reserved Amount shall be allocated to the holders of Series B Preferred
Stock as provided in Article XIV.C.
B. INCREASES TO RESERVED AMOUNT. If the Reserved Amount for any
three (3) consecutive trading days (the last of such three (3) trading days
being the "AUTHORIZATION TRIGGER DATE") shall be less than 135% of the number of
shares of Common Stock issuable upon conversion of the outstanding Series B
Preferred Stock on such trading days, the Corporation shall immediately notify
the holders of Series B Preferred Stock of such occurrence and shall take
immediate action (including, if necessary, seeking shareholder approval to
authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Series B Preferred Stock. In the event the
Corporation fails to so increase the Reserved Amount within ninety (90) days
after an Authorization Trigger Date, each holder of Series B Preferred Stock
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time by delivery of a Redemption Notice to the Corporation, to
require the Corporation to purchase for cash, at an amount per share equal to
the Redemption Amount (as defined in Article VIII.C), a portion of the holder's
Series B Preferred Stock such that, after giving effect to such purchase, the
holder's allocated portion of the Reserved Amount exceeds 100% of the total
number of shares of Common Stock issuable to such holder upon conversion of its
Series B Preferred Stock. If the Corporation fails to redeem any of such shares
within five (5) business days after such Redemption Date, then such holder shall
be entitled to the remedies provided in Article VIII.E.
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VI. FAILURE TO SATISFY CONVERSIONS
A. CONVERSION DEFAULT PAYMENTS. If, at any time, (x) a holder of shares
of Series B Preferred Stock submits a Notice of Conversion, accompanied by the
Preferred Stock Certificates representing the shares which are the subject of
such conversion and the Corporation fails for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII) to deliver, on or prior to the business day
following the expiration of the Delivery Period for such conversion, such number
of freely tradeable shares of Common Stock to which such holder is entitled upon
such conversion, or (y) the Corporation provides notice to any holder of Series
B Preferred Stock at any time of its intention not to issue freely tradeable
shares of Common Stock upon exercise by any holder of its conversion rights in
accordance with the terms of this Certificate of Designation (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount) (each of (x) and (y) being a "CONVERSION DEFAULT"), then
the Corporation shall pay to the affected holder, in the case of a Conversion
Default described in clause (x) above, and to all holders, in the case of a
Conversion Default described in clause (y) above, an amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the Delivery
Period through and including the Default Cure Date;
"DEFAULT AMOUNT" means (i) the total Face Amount of all shares of
Series B Preferred Stock held by such holder plus (ii) the total accrued Premium
as of the first day of the Conversion Default on all shares of Series B
Preferred Stock included in clause (i) of this definition; and
"DEFAULT CURE DATE" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series B Preferred Stock and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable Common Stock in
satisfaction of all conversions of Series B Preferred Stock in accordance with
Article IV.A.
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "CONVERSION DEFAULT PAYMENTS." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Default Payments, at any time,
into Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date for
such conversion. In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing. Such payment
shall be made in accordance with and be subject to the provisions of Article
XIV.E. In the event a holder elects to convert all or any portion of the
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Conversion Default Payments into Common Stock, the holder shall indicate on a
Notice of Conversion such portion of the Conversion Default Payments which such
holder elects to so convert and such conversion shall otherwise be effected in
accordance with the provisions of Article IV.
B. ADJUSTMENT TO CONVERSION PRICE. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series B Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for
which failures the holders shall have the remedies set forth in Articles V and
VII), then the Fixed Conversion Price in respect of any shares of Series B
Preferred Stock held by such holder (including shares of Series B Preferred
Stock submitted to the Corporation for conversion, but for which shares of
Common Stock have not been issued to such holder) shall thereafter be the lesser
of (i) the Fixed Conversion Price on the Conversion Date specified in the Notice
of Conversion which resulted in the Conversion Default and (ii) the lowest
Conversion Price in effect during the period beginning on, and including, such
Conversion Date through and including the day such shares of Common Stock are
delivered to the holder. If there shall occur a Conversion Default of the type
described in clause (y) of Article VI.A, then the Fixed Conversion Price with
respect to any conversion thereafter shall be the lowest Conversion Price in
effect at any time during the period beginning on, and including, the date of
the occurrence of such Conversion Default through and including the Default Cure
Date. The Fixed Conversion Price shall thereafter be subject to further
adjustment for any events described in Article XI.
C. BUY-IN CURE. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a holder upon a conversion of shares of Series B Preferred Stock or (b)
there shall occur a Legend Removal Failure (as defined in Article VIII.A(iii)
below) and (ii) thereafter, such holder purchases (in an open market transaction
or otherwise) shares of Common Stock to make delivery in satisfaction of a sale
by such holder of the unlegended shares of Common Stock (the "SOLD SHARES")
which such holder anticipated receiving upon such conversion (a "BUY-IN"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification indicating any amounts payable to such holder pursuant to
this Paragraph C. The Corporation shall make any payments required pursuant to
this Paragraph C in accordance with and subject to the provisions of Article
XIV.E.
D. REDEMPTION RIGHT. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the
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Reserved Amount or Cap Amount, for which failures the holders shall have the
remedies set forth in Articles V and VII) to issue shares of Common Stock within
ten (10) business days after the expiration of the Delivery Period with respect
to any conversion of Series B Preferred Stock, then the holder may elect at any
time and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Redemption Notice to the Corporation, to have all or
any portion of such holder's outstanding shares of Series B Preferred Stock
purchased by the Corporation for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VIII.C). If the Corporation fails to
redeem any of such shares within five (5) business days after such Redemption
Date, then such holder shall be entitled to the remedies provided in Article
VIII.E.
VII. INABILITY TO CONVERT SHARES OF SERIES B PREFERRED STOCK DUE
TO CAP AMOUNT
A. OBLIGATION TO CURE. If at any time the then unissued portion of any
holder's Cap Amount is less than 135% of the number of shares of Common Stock
then issuable upon conversion of such holder's shares of Series B Preferred
Stock (a "TRADING MARKET TRIGGER EVENT"), the Corporation shall immediately
notify the holders of Series B Preferred Stock of such occurrence and shall use
all commercially reasonable efforts to take action as soon as practicable
(including, if necessary, seeking the approval of its shareholders to authorize
the issuance of the full number of shares of Common Stock which would be
issuable upon the conversion of Series B Preferred Stock but for the Cap Amount)
to eliminate any prohibitions under applicable rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities on the
Corporation's ability to issue shares of Common Stock in excess of the Cap
Amount. In the event the Corporation fails to eliminate all such prohibitions
within one hundred (100) days after the Trading Market Trigger Event, each
holder of Series B Preferred Stock shall thereafter have the option, exercisable
in whole or in part at any time and from time to time until such date that all
such prohibitions are eliminated by delivery of a Redemption Notice to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Cap Redemption Amount (as defined below), a portion of the
holder's Series B Preferred Stock such that, after giving effect to such
purchase, the then unissued portion of such holder's Cap Amount on such
Redemption Date exceeds 100% of the total number of shares of Common Stock then
issuable to such holder upon conversion of its Series B Preferred Stock. If the
Corporation fails to redeem any of such shares within five (5) business days
after such Redemption Date, then such holder shall be entitled to the remedies
provided in Article VIII.E. As used herein, the Cap Redemption Amount with
respect to any share of Series B Preferred Stock shall mean (x) during the six
(6) month period following the Issuance Date, 115% of the Face Amount thereof
plus the accrued Premium thereon and all accrued Default Payments (if any) with
respect thereto through the date of the payment of the Cap Redemption Amount and
(y) thereafter an amount equal to the Redemption Amount (as defined in
Article VIII.C).
B. REMEDIES. If the Corporation fails to eliminate the applicable
prohibitions within the ninety (90) day cure period referred to in Paragraph A
of this Article VII and thereafter the
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Corporation is prohibited, at any time, from issuing shares of Common Stock upon
conversion of Series B Preferred Stock to any holder because such issuance would
exceed the then unissued portion of such holder's Cap Amount because of
applicable rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the
Corporation or its securities, any holder who is so prohibited from converting
its Series B Preferred Stock may elect either or both of the following
additional remedies:
(i) to require, with the consent of holders of at least
fifty percent (50%) of the outstanding shares of Series B Preferred Stock
(including any shares of Series B Preferred Stock held by the requesting
holder), the Corporation to terminate the listing of its Common Stock on AMEX
(or any other stock exchange, interdealer quotation system or trading market)
and to cause its Common Stock to be eligible for trading on the Nasdaq SmallCap
Market or on the over-the-counter electronic bulletin board, at the option of
the requesting holder; or
(ii) to require the Corporation to issue shares of Common
Stock in accordance with such holder's Notice of Conversion at a conversion
price equal to the average of the Closing Bid Prices of the Common Stock for the
five (5) consecutive trading days (subject to equitable adjustment for any stock
splits, stock dividends, reclassifications or similar events during such five
(5) trading day period) preceding the date of the holder's written notice to the
Corporation of its election to receive shares of Common Stock pursuant to this
subparagraph (ii).
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. REDEMPTION BY HOLDER. In the event (each of the events
described in clauses (i)-(vii) below after expiration of the applicable cure
period (if any) being a "REDEMPTION EVENT"):
(i) the Common Stock (including any of the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock) is
suspended from trading on any of, or is not listed (and authorized) for trading
on at least one of, the New York Stock Exchange, the AMEX or the Nasdaq National
Market for an aggregate of ten (10) trading days in any nine (9) month period;
(ii) the Registration Statement required to be filed by
the Corporation pursuant to Section 2(a) of the Registration Rights Agreement
entered into by the Corporation in connection with the original issuance of the
Series B Preferred Stock in connection with and pursuant to the Securities
Purchase Agreement (as the same may be amended from time to time, the
"REGISTRATION RIGHTS AGREEMENT"), has not been declared effective by February
28, 1998 or such Registration Statement, after being declared effective, cannot
be utilized by the holders of Series B Preferred Stock for the resale of all of
their Registrable Securities (as defined in the Registration Rights Agreement)
for an aggregate of more than thirty (30) days not included in any Delay Period
under the Registration Rights Agreement;
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<PAGE> 14
(iii) the Corporation fails to remove any restrictive
legend on any certificate or any shares of Common Stock issued to the holders of
Series B Preferred Stock upon conversion of the Series B Preferred Stock as and
when required by this Certificate of Designation, the Securities Purchase
Agreement or the Registration Rights Agreement (a "Legend Removal Failure"), and
any such failure continues uncured for five (5) business days after the
Corporation has been notified thereof in writing by the holder;
(iv) the Corporation provides notice to any holder of
Series B Preferred Stock, including by way of public announcement, at any time,
of its intention not to issue shares of Common Stock to any holder of Series B
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation (other than due to the circumstances contemplated by Articles V
or VII for which the holders shall have the remedies set forth in such
Articles);
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially
all of its assets;
(b) merge, consolidate or engage in any other
business combination with any other entity (other than (i) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation or (ii) with a publicly traded corporation (or
a subsidiary of a publicly traded corporation), whereby the securities of the
publicly traded company are the primary compensation to holders of the
Corporation's Common Stock, provided such publicly traded corporation assumes
the Company's obligations under this Certificate of Designations and such
corporation's common stock is listed for trading on the AMEX, NYSE or NNM; or
(c) have fifty percent (50%) or more of the voting
power of its capital stock owned beneficially by one person, entity or "group"
(as such term is used under Section 13(d) of the Securities Exchange Act of
1934, as amended) unless the entity or group beneficially owning such voting
power announces, within ten (10) days of it acquiring such fifty percent (50%)
beneficial ownership, its intention to consummate a merger which would not be a
Redemption Event under Article V.A(v)(b) and such merger is consummated within
one hundred twenty (120) days thereafter;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series B Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series B Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph C
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (ii), (iv) or (v)
above shall immediately constitute a Redemption Event and there shall be no cure
period.
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<PAGE> 15
B. REDEMPTION AT OPTION OF CORPORATION.
(i) Provided all shares of Common Stock issuable upon
conversion of all outstanding shares of Series B Preferred Stock (without giving
effect to the limitations set forth in Article IV.C) are then (i) authorized and
reserved for issuance, (ii) registered under the Securities Act for resale by
the holders of such shares of Series B Preferred Stock or may be sold pursuant
to Rule 144 under the Securities Act without any limitation on the number of
such shares that can then be immediately resold and (iii) eligible to be listed
or traded on any of the NYSE, the AMEX or the NNM (or the successor to any of
them) and provided no Redemption Event shall have occurred and be continuing, in
the event the Closing Bid Price for any five (5) consecutive trading days is
less than $9.00 (subject to equitable adjustment for the events set forth in
Article XI.A and B) (the "OPTIONAL REDEMPTION TRIGGER AMOUNT"), the Corporation
may elect at its option, by delivering a written notice (an "OPTIONAL REDEMPTION
NOTICE") to all holders of Series B Preferred Stock no later than 11:59 p.m. on
the last day of the three trading day period (the "OPTIONAL REDEMPTION NOTICE
PERIOD") following the expiration of such five (5) day period, to redeem all or
such portion at least equal to fifty percent (50%) of the then outstanding
shares of Series B Preferred Stock at a price per share equal to the Optional
Redemption Amount (as defined below) in accordance with the redemption
procedures set forth herein and subject to the holders' rights to convert a
portion of the shares of Series B Preferred Stock subject to such Optional
Redemption Notice as set forth below. Each Optional Redemption Notice shall set
forth (x) the date upon which such redemption shall be effected (the "OPTIONAL
REDEMPTION DATE"), which Optional Redemption Date shall be the thirtieth (30th)
trading day following the date of the Optional Redemption Notice in the case of
the first optional redemption effected hereunder or the fifth (5th) trading day
following the Optional Redemption Notice in the case of the second optional
redemption effected hereunder, (y) the shares of Series B Preferred Stock
selected to be redeemed by the Corporation, which shares shall be selected pro
rata from each holder in proportion to the number of shares of Series B
Preferred Stock then held by each holder compared to the total number of shares
of Series B Preferred Stock then outstanding and (z) the Optional Redemption
Amount. The Corporation may not select for redemption in any Optional Redemption
Notice any of a holder's shares of Series B Preferred Stock subject to a Notice
of Conversion delivered to the Corporation prior to the Corporation's delivery
of such Optional Redemption Notice (the "OPTIONAL REDEMPTION NOTICE DELIVERY
TIME") unless the Corporation has also selected for redemption all of such
holder's shares of Series B Preferred Stock which are not subject to Notices of
Conversion delivered prior to the Optional Redemption Notice Delivery Time.
Except as set forth in subparagraph (ii) below, no shares of Series B Preferred
Stock selected for redemption under this Paragraph B (including any shares of
Series B Preferred Stock which are the subject to a Notice of Conversion
delivered to the Corporation during the Optional Redemption Notice Period) may
be converted by a holder prior to the Optional Redemption Date. The "OPTIONAL
REDEMPTION AMOUNT" with respect to a share of Series B Preferred Stock means (a)
115% of the Face Amount thereof, plus (b) the accrued premium thereon and all
Conversion Default Payments (if any) with respect thereto through the date of
payment of the Optional Redemption Amount.
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<PAGE> 16
(ii) Notwithstanding the Corporation's delivery of an
Optional Redemption Notice pursuant to this Paragraph B, (a) all shares of
Series B Preferred Stock subject to an Optional Conversion on a Conversion Date
occurring prior to the commencement of the Optional Redemption Notice Period
entitling the Corporation to deliver such Optional Redemption Notice shall be
converted into Common Stock in accordance with Article IV and shall not be
subject to redemption hereunder and (b) each holder of Series B Preferred Stock
shall be entitled to convert in accordance with Article IV.A, at any time during
the period beginning on the commencement of the Optional Redemption Notice
Period and ending on the Corporation's effectuation of the redemption
contemplated hereby (including pursuant to Notices of Conversion delivered
during the Optional Redemption Notice Period), up to fifty percent (50%) of the
shares of Series B Preferred Stock held by such holder on the date of such
Optional Redemption Notice; provided, however, that a holder must convert any
shares not selected for redemption prior to converting any shares subject to an
Optional Redemption Notice. For the avoidance of doubt, any conversion of Series
B Preferred stock by a holder during an Optional Redemption Notice Period shall
be honored on the original Conversion Date for such Optional Conversions to the
extent such conversions do not exceed the fifty percent (50%) limitation
contained in this subparagraph (ii).
(iii) The Optional Redemption Amount shall be paid to the
holder of the Series B Preferred Shares being redeemed on the Optional
Redemption Date; provided, however, that the Corporation shall not be obligated
to deliver any portion of the Optional Redemption Amount until either the
Preferred Stock Certificates being redeemed are delivered to the office of the
Corporation or the transfer agent, or the holder notifies the Corporation that
such Preferred Stock Certificates have been lost, stolen or destroyed and
delivers the documentation in accordance with Article XIV.B.
(iv) If the Corporation fails to pay, when due and owing,
less than fifty percent (50%) of the Optional Redemption Amount (the "MINIMUM
REDEMPTION AMOUNT") pursuant to this Article VIII.B, then the holder of Series B
Preferred Stock entitled to receive such Optional Redemption Amount shall have
the right, at any time and from time to time, to require the Corporation, upon
written notice, to immediately convert (in accordance with the terms of
paragraph A of Article IV) any or all of the shares of Series B Preferred Stock
which are the subject of such redemption and for which the Optional Redemption
Amount has not then been paid, into shares of Common Stock, (A) for those shares
of Series B Preferred Stock representing the Minimum Redemption Amount, at the
lowest Conversion Price in effect during the period beginning on the date the
Corporation elected to redeem such shares of Series B Preferred Stock and ending
on the scheduled Optional Redemption Date, and (B) for those shares of Series B
Preferred Stock representing in excess of the Minimum Redemption Amount, at the
Conversion Price then in effect. In addition, if the Corporation fails to pay an
Optional Redemption Amount pursuant to this Article VIII.B when due and owing,
the Corporation shall thereafter forfeit its rights under this Paragraph B to
effect any redemption with respect to any or all issued and outstanding shares
of Series B Preferred Stock.
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<PAGE> 17
(v) Subject to subparagraph (iv) above, the Corporation
shall only be entitled to effect two (2) optional redemptions under this Article
VIII.B.
C. DEFINITION OF REDEMPTION AMOUNT. The "REDEMPTION AMOUNT" with
respect to a share of Series B Preferred Stock means an amount equal to:
(i) with respect to any redemption pursuant to Article V,
VI, VII or VIII.A(i)-(iv) or pursuant to any redemption right set forth in the
Registration Rights Agreement:
V
--------- X M
CP
(ii) with respect to any redemption pursuant to
Article VIII.A(v) or VIII.D; the greater of:
(a) V
--------- X C
CP
; and
(b) 124% of the face amount thereof plus the accrued
premium thereon and all Conversion Default Payments (if any) with respect
thereto through the date of payment of the Redemption Amount,
where:
"V" means the Face Amount thereof plus the accrued Premium thereon and
all Conversion Default Payments (if any) with respect thereto through the date
of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the Redemption Date;
"M" means the highest Closing Bid Price of the Corporation's Common
Stock during the period beginning on the Redemption Date and ending on the date
of the payment of the Redemption Amount; and
"C" means the fair market value, as of the date of redemption, of the
consideration payable to the holder of a share of Common Stock pursuant to the
transaction which triggers the redemption. For purposes of this definition,"fair
market value" shall be determined by the mutual agreement of the Company and
holders of a majority of the shares of Series B Preferred Stock then
outstanding, or if such agreement cannot be reached within five (5) business
days prior to the date of redemption, by an investment banking firm selected by
the Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series B Preferred Stock, with the costs of such appraisal
to be borne by the Corporation.
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<PAGE> 18
D. REDEMPTION BY CORPORATION. In the event that the Corporation shall
desire to sell all or substantially all of the Corporation's assets, merge or
consolidate (other than a merger or consolidation whereby the stockholders of
the Corporation immediately prior to the merger or consolidation continue to own
greater than fifty percent (50%) of the voting securities of the entity
surviving such merger or consolidation), upon not less than twenty (20) business
days prior written notice from the Corporation to each holder of Series B
Preferred Stock, the Corporation shall have the right immediately prior to the
consummation of such transaction to redeem all but not less than all of the then
outstanding shares of Series B Preferred Stock by paying to each holder an
amount per share of Series B Preferred Stock equal to the Redemption Amount. At
all times prior to redemption pursuant to this Article VIII.E (including after
receipt of the notice required by this Article), each holder of Series B
Preferred Stock shall remain entitled to convert shares of Series B Preferred
Stock into shares of Common Stock in accordance with the terms of Article IV
hereof.
E. REDEMPTION DEFAULTS. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series B Preferred Stock within
five (5) business days after its receipt of a notice requiring such redemption
("REDEMPTION NOTICE"), then the holder of Series B Preferred Stock delivering
such Redemption Notice (i) shall be entitled to interest on the Redemption
Amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law from the Redemption Date
until the date of payment of the Redemption Amount hereunder, and (ii) shall
have the right, at any time and from time to time until the Corporation's
payment of such Redemption Amount, to require the Corporation, upon written
notice, to immediately convert (in accordance with the terms of Paragraph A of
Article IV) all or any portion of the Redemption Amount, plus interest as
aforesaid, into shares of Common Stock at the lowest Conversion Price in effect
during the period beginning on the Redemption Date and ending on the Conversion
Date with respect to the conversion of such Redemption Amount. In the event the
Corporation is not able to redeem all of the shares of Series B Preferred Stock
subject to Redemption Notices delivered prior to the date upon which such
redemption is to be effected, the Corporation shall redeem shares of Series B
Preferred Stock from each holder pro rata, based on the total number of shares
of Series B Preferred Stock outstanding at the time of redemption included by
such holder in all Redemption Notices delivered prior to the date upon which
such redemption is to be effected relative to the total number of shares of
Series B Preferred Stock outstanding at the time of redemption included in all
of the Redemption Notices delivered prior to the date upon which such redemption
is to be effected.
IX. RANK
All shares of the Series B Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to any class or series of capital stock
of the Corporation hereafter created (unless, with the consent of the holders of
Series B Preferred Stock obtained in accordance with Article XIII hereof, such
class or series of capital stock specifically, by its terms, ranks senior to or
PARI PASSU with the Series B Preferred Stock) (collectively with the Common
Stock, "JUNIOR SECURITIES"); (iii) PARI PASSU with any class or series of
capital stock of the Corporation hereafter created (with the
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<PAGE> 19
consent of the holders of Series B Preferred Stock obtained in accordance with
Article XIII hereof) specifically ranking, by its terms, on parity with the
Series B Preferred Stock (the "PARI PASSU SECURITIES"); and (iv) junior to (A)
the Series A Convertible Preferred Stock, and (B) any class or series of capital
stock of the Corporation hereafter created (with the consent of the holders of
Series B Preferred Stock obtained in accordance with Article XIII hereof)
specifically ranking, by its terms, senior to the Series B Preferred Stock
(collectively, the "SENIOR SECURITIES"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up, including, but not limited to, the sale or transfer of all or
substantially all of the Corporation's assets in one transaction or in a series
of related transactions (a "LIQUIDATION EVENT"), no distribution shall be made
to the holders of any shares of capital stock of the Corporation (other than
Senior Securities) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of Series B Preferred Stock shall have received
the Liquidation Preference with respect to each share. If, upon the occurrence
of a Liquidation Event, the assets and funds available for distribution among
the holders of the Series B Preferred Stock and holders of PARI PASSU Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series B Preferred Stock and the PARI
PASSU Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate Liquidation Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of all or substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
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<PAGE> 20
C. The "LIQUIDATION PREFERENCE" with respect to a share of Series B
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any PARI PASSU Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
as follows:
A. STOCK SPLITS, STOCK DIVIDENDS, ETC. If at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "CORPORATE CHANGE"), then the holders of Series B
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities, cash and/or other property as would have been issued or payable in
such Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion (without giving
effect to the limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series B Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and of the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock) shall, if
relevant, thereafter be applicable, as nearly as may be practicable in relation
to any shares of stock or securities thereafter deliverable upon the conversion
thereof. The Corporation shall not effect any transaction described in this
Paragraph B unless (i) each holder of Series B Preferred Stock has received
written notice of such transaction at least twenty (20) days prior thereto, but
in no event later than ten (10) days prior to the record date for the
determination of shareholders entitled to vote with respect thereto, and (ii)
the resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligations of this Paragraph B. The above provisions
shall apply regardless of whether or not there would have
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been a sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series B Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
C. ADJUSTMENT DUE TO MAJOR ANNOUNCEMENT. In the event the Corporation
at any time after the Issuance Date (i) makes a public announcement that it
intends to consolidate or merge with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock (the date
of the announcement referred to in clause (i) or (ii) of this Paragraph C is
hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the earlier
of the consummation of the proposed transaction or tender offer, exchange offer
or another transaction or the Abandonment Date (as defined below), be equal to
the lower of (x) the Conversion Price which would have been applicable for an
Optional Conversion occurring on the Announcement Date and (y) the Conversion
Price determined in accordance with Section III.D on the Conversion Date set
forth in the Notice of Conversion for the Optional Conversion. From and after
the consummation of the proposed transaction or tender offer or other
transaction or the Abandonment Date, the Conversion Price shall be determined as
set forth in Section III.D "ABANDONMENT DATE" means with respect to any proposed
transaction or tender offer, exchange offer or another transaction for which a
public announcement as contemplated by this Paragraph C has been made, the date
upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer, exchange
offer or another transaction which caused this Paragraph B to become operative.
D. ADJUSTMENT DUE TO DISTRIBUTION. If at any time after the Issuance
Date the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"DISTRIBUTION"), then the Conversion Price with respect to any conversion of
shares of Series B Preferred Stock after the date of record for determining
shareholders entitled to such Distribution, shall be reduced to a price
determined by decreasing the Conversion Price which would otherwise be
applicable to such conversion by an amount equal to the fair market value of the
assets (or rights) so distributed with respect to each share of Common Stock.
For purposes of this Paragraph D, "fair market value" with respect to any
security shall equal its Market Price (as defined in Article III.G hereof) and
with respect to any other asset shall be determined by the mutual agreement of
the Company and holders of a majority of the shares of Series B Preferred Stock
then outstanding, or if such agreement cannot be reached within five (5)
business days prior to the date of the Distribution, by an investment banking
firm selected by the Corporation and reasonably acceptable to holders of a
majority of the
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then outstanding shares of Series B Preferred Stock, with the costs of such
appraisal to be borne by the Corporation.
E. [INTENTIONALLY OMITTED]
F. PURCHASE RIGHTS. If at any time after the Issuance Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "PURCHASE RIGHTS") pro rata to the
record holders of any class of Common Stock, then the holders of Series B
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series B Preferred Stock (without giving effect
to the limitations contained in Article IV.C) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
G. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI, if more than
1% of the Conversion Price in effect prior to such adjustment, the Corporation,
at its expense, shall promptly compute such adjustment or readjustment and
prepare and furnish to each holder of Series B Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series B Preferred Stock,
furnish to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series B Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series B Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "BUSINESS CORPORATION LAW"), in this Article XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its holders of Common Stock
for the purpose of determining shareholders entitled to (a) receive payment of
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
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<PAGE> 23
holder, at least fifteen (15) days prior to the record date specified therein
(or thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such vote, dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Law the vote of the
holders of the Series B Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series B Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series B
Preferred Stock (except as otherwise may be required under the Business
Corporation Law) shall constitute the approval of such action by the class. To
the extent that under the Business Corporation Law holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series B Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible (without giving effect to the limitations contained
in Article IV.C) using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series B Preferred Stock are outstanding, the
Corporation shall not, prior to the date on which the Registration Statement is
declared effective and, thereafter without first obtaining the approval (by vote
or written consent, as provided by the Business Corporation Law) of the holders
of at least 60% of the then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any capital stock of the Corporation so as to affect adversely the
Series B Preferred Stock;
(c) create any new class or series of capital stock
having a preference over the Series B Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "SENIOR SECURITIES");
(d) create any new class or series of capital stock
ranking PARI PASSU with the Series B Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "PARI PASSU SECURITIES");
(e) increase the authorized number of shares of
Series B Preferred Stock;
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<PAGE> 24
(f) issue any shares of Senior Securities or PARI
PASSU Securities;
(g) issue any shares of Series B Preferred Stock
other than pursuant to the Securities Purchase Agreement; or
(h) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities prior to the first anniversary of the
Issuance Date.
If holders of at least a majority of the then outstanding shares of Series B
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series B Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series B Preferred Stock that did not agree to such
alteration or change (the "DISSENTING HOLDERS") and the Dissenting Holders shall
have the right, for a period of thirty (30) days, to convert pursuant to the
terms of this Certificate of Designation as they existed prior to such
alteration or change or to continue to hold their shares of Series B Preferred
Stock.
XIV. MISCELLANEOUS
A. CANCELLATION OF SERIES B PREFERRED STOCK. If any shares of Series B
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series B Preferred Stock.
B. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series B
Preferred Stock.
C. ALLOCATION OF CAP AMOUNT AND RESERVED AMOUNT. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series B
Preferred Stock based on the number of shares of Series B Preferred Stock issued
to each holder on the Issuance Date. Each increase to the Cap Amount or Reserved
Amount shall be allocated pro rata among the holders of Series B Preferred Stock
based on the number of shares of Series B Preferred Stock held by each holder at
the time of the increase in the Cap Amount or Reserved Amount, as the case may
be. In the event a holder shall sell or otherwise transfer any of such holder's
shares of Series B Preferred Stock, each transferee shall be allocated a pro
rata portion of such transferor's Cap Amount and Reserved Amount. A holder's Cap
Amount and Reserved Amount shall be reduced by any issuances of shares of Common
Stock to such holder upon conversion of Series B Preferred Stock. Any portion of
the Cap Amount or Reserved Amount which remains allocated to any person or
entity
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<PAGE> 25
which does not hold any Series B Preferred Stock shall be allocated to the
remaining holders of shares of Series B Preferred Stock, pro rata based on the
number of shares of Series B Preferred Stock then held by such holders.
D. QUARTERLY STATEMENTS OF AVAILABLE SHARES. The Corporation shall
deliver (or cause its transfer agent to deliver) to each holder a written report
notifying the holders of any occurrence which prohibits the Corporation from
issuing Common Stock upon any conversion of Series B Preferred Stock. The
Corporation (or its transfer agent) shall also provide, within fifteen (15) days
after delivery to the Corporation of a written request by any holder, any of the
following information as of the date of such request: (i) the total number of
shares of Series B Preferred Stock outstanding, (ii) the total number of shares
of Common Stock issued upon all conversions of Series B Preferred Stock, (iii)
the total number of shares of Common Stock which are reserved for issuance upon
conversion of the Series B Preferred Stock as of the end of such quarter, and
(iv) the total number of shares of Common Stock which may thereafter be issued
by the Corporation upon conversion of the Series B Preferred Stock before the
Corporation would exceed the Cap Amount and the Reserved Amount.
E. PAYMENT OF CASH; DEFAULTS. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as a
Conversion Default Payment, upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five (5) business day
period, such holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder.
F. STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion by
a holder of Series B Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series B Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of Series B
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation)
the holder shall regain the rights of a holder of Series B Preferred Stock with
respect to such unconverted shares of Series B Preferred Stock and the
Corporation shall,
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<PAGE> 26
as soon as practicable, return such unconverted shares to the holder. In all
cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Article VI.A to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Article VI.B) for the Corporation's failure to convert Series B Preferred
Stock.
G. REMEDIES CUMULATIVE. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Corporation to comply with the terms of this Certificate of
Designation. The Corporation acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of Series B Preferred Stock
and that the remedy at law for any such breach may be inadequate. The
Corporation therefore agrees, in the event of any such breach or threatened
breach, that the holders of Series B Preferred Stock shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
H. REGISTRATION RIGHTS AGREEMENT. The Company shall provide a copy of
the Registration Rights Agreement, (at no cost) to any holder of Series B
Preferred Stock who so requests such copy.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 27
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 26th day of August, 1997.
SELFCARE, INC.
By:
---------------------------------
Name:
Title:
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<PAGE> 28
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series B Preferred Stock (the "CONVERSION"), represented by stock certificate
Nos(s). ___________ (the "PREFERRED STOCK CERTIFICATES") into shares of common
stock ("COMMON STOCK") of Selfcare, Inc. (the "CORPORATION") according to the
conditions of the Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION"), as of the date
written below. If securities are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto. No fee will be charged to the holder for any conversion, except
for transfer taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto (or evidence of loss, theft or destruction thereof accompanied
by an indemnity which is subject to your reasonable satisfaction).
The Corporation shall electronically transmit the Common Stock issuable pursuant
to this Notice of Conversion to the account of the undersigned or its nominee
(which is _________________) with DTC through its Deposit Withdrawal Agent
Commission System ("DTC TRANSFER").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series B Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "ACT"), or pursuant to
an exemption from registration under the Act.
[ ] In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned
hereby requests that the Corporation issue and deliver to the
undersigned physical certificates representing such shares of Common
Stock.
Date of Conversion:________________________________
Applicable Conversion Price:_______________________
Amount of Conversion Default Payments
to be Converted, if any:___________________________
Number of Shares of
Common Stock to be Issued:_________________________
Signature:_________________________________________
Name:______________________________________________
Address:___________________________________________
___________________________________________
___________________________________________
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<PAGE> 1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of August
26, 1997, by and among SELFCARE, INC., a corporation organized under the laws of
the State of Delaware (the "COMPANY"), with headquarters located at 200 Prospect
Street, Waltham, Massachusetts, 02154 and each of the purchasers (the
"PURCHASERS") set forth on the execution pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser 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. Each Purchaser desires to purchase, upon the terms and conditions
stated in this Agreement, Units ("UNITS") consisting of (i) one (1) share of the
Company's Series B Convertible Preferred Stock, par value $.001 per share (the
"PREFERRED SHARES"), convertible into the Company's common stock, par value
$.001 per share (the "COMMON STOCK") and (ii) warrants (the "WARRANTS"), in the
form attached hereto as EXHIBIT B, to acquire such number of shares of Common
Stock as is equal to two hundred (200) divided by the Fixed Conversion Price set
forth in the Certificate of Designation (as defined below) . The rights,
preferences and privileges of the Preferred Shares, including the terms upon
which such Preferred Shares are convertible into shares of Common Stock are set
forth in the form of Certificate of Designations, Preferences and Rights
attached hereto as EXHIBIT A (the "CERTIFICATE OF DESIGNATION"). The shares of
Common Stock issuable upon conversion of the Preferred Shares or otherwise
pursuant to the Certificate of Designation are referred to herein as the
"CONVERSION SHARES" and the shares of Common Stock issuable upon exercise or
otherwise pursuant to the Warrants are referred to as the "WARRANT SHARES." The
Units, the Preferred Shares, the Conversion Shares and the Warrant Shares are
collectively referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
<PAGE> 2
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. PURCHASE OF PREFERRED SHARES. On the Closing Date (as defined
below), subject to the satisfaction (or waiver) of the conditions set forth in
Section 6 and Section 7 below, the Company shall issue and sell to each
Purchaser and each Purchaser severally agrees to purchase from the Company, such
number of Units as is set forth on such Purchaser's Execution Page hereto. The
purchase price (the "PURCHASE PRICE") per Unit shall be equal to One Thousand
Dollars ($1,000.00). Each Purchaser's obligation to purchase Units hereunder is
distinct and separate from each other Purchaser's obligation to purchase Units
and no Purchaser shall be required to purchase hereunder more than the number of
Units set forth on such Purchaser's Execution Page hereto notwithstanding any
failure by any other Purchaser to purchase Units hereunder.
b. FORM OF PAYMENT. On the Closing Date, each Purchaser shall pay the
aggregate Purchase Price for the Units being purchased by such Purchaser on the
Closing Date by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates
representing the Preferred Shares and Warrants being purchased by such Purchaser
and the Company shall deliver such certificates against delivery of such
aggregate Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Units pursuant to this Agreement (the "CLOSING")
shall be 12:00 noon Eastern Daylight Savings Time on August 26, 1997, or such
other time as may be mutually agreed upon by the Company and the Purchasers (the
"CLOSING DATE"). The closing shall occur at the offices of Klehr, Harrison,
Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia, Pennsylvania
19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company as set
forth in this Section 2. No Purchaser makes any 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 any Purchaser 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 warranties,
if any, shall not survive the execution and delivery of this Agreement.
a. INVESTMENT PURPOSE. Purchaser is purchasing the Units for
Purchaser's own account for investment purposes and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the
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<PAGE> 3
Securities Act and any applicable state securities or blue sky 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. Notwithstanding anything in this Section
2(a) to the contrary, by making the representations herein, 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 under the Securities
Act.
b. ACCREDITED INVESTOR STATUS. Purchaser is an "ACCREDITED INVESTOR" as
that term is defined in Rule 501(a) of Regulation D.
c. RELIANCE ON EXEMPTIONS. Purchaser understands that the Units 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
Units.
d. INFORMATION. Purchaser and 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 Units which have been
specifically requested by Purchaser or its counsel. Purchaser and its counsel
have been afforded the opportunity to ask questions of the Company and have
received what Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or its counsel or any of its representatives shall
modify, amend or affect Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.
e. 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.
f. 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 transferred unless (a) subsequently registered thereunder, or (b)
if required by the Company, Purchaser shall have delivered to the Company an
opinion from counsel reasonably acceptable to the Company (which opinion shall
be in form, substance and scope customary for opinions of counsel in comparable
circumstances) to the effect that the Securities to be sold or transferred may
be sold or transferred pursuant to an exemption from such registration or (c)
sold pursuant to Rule 144 promulgated under the Securities Act (or a successor
rule) ("RULE 144"); and (ii) 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
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<PAGE> 4
comply with the terms and conditions of any exemption thereunder (in each case,
other than pursuant to the Registration Rights Agreement).
g. LEGENDS. Purchaser understands that the Preferred Shares and
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the Securities Act (including registration pursuant to
Rule 416 thereunder) as contemplated by the Registration Rights Agreement or
otherwise may be sold by Purchaser pursuant to Rule 144, the certificates for
the Conversion Shares and Warrant Shares may bear a restrictive 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 in the absence of an effective registration
statement for the securities under applicable securities laws unless
offered, sold or transferred pursuant to an available exemption from
the registration requirements of those laws.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Conversion Shares or
Warrant Shares upon which it is stamped, if, unless otherwise required by state
securities laws, (a) the sale of such Security is registered under the
Securities Act (including registration pursuant to Rule 416 thereunder), or (b)
such holder provides the Company with an opinion from counsel reasonably
acceptable to the Company, in form, substance and scope customary for opinions
of counsel in comparable circumstances, to the effect that a contemplated public
sale or transfer of such Security may be made without registration under the
Securities Act or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144. Purchaser agrees
to sell all Securities, including those represented by a certificate(s) from
which the legend has been removed, pursuant to an effective registration
statement or in compliance with an exemption from the registration requirements
of the Securities Act. In the event the above legend is removed from any
Security and thereafter the effectiveness of a registration statement covering
such Security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon advance
notice to Purchaser the Company may require that the above legend be placed on
any such Security that cannot then be sold pursuant to an existing effective
registration statement or Rule 144 (and the Company may provide appropriate stop
transfer instructions to its transfer agent with respect to such Security during
the period such registration statement cannot be utilized) and Purchaser shall
cooperate in the prompt replacement of such legend. Such legend shall be removed
when such Security may be sold pursuant to an effective registration statement
or Rule 144.
h. 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 terms.
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<PAGE> 5
i. RESIDENCY. Purchaser is a resident of the jurisdiction set forth
under such Purchaser's name on the Execution Page hereto executed by such
Purchaser which jurisdiction does not require any consent, approval,
authorization or order of, or any filing or registration with, any governmental
or regulatory agency or court in such jurisdictions in connection with the
transaction contemplated hereby and the securities laws of any other
jurisdiction or applicable to the offer or sale or any of the Securities to such
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as set forth in
this Section 3. The Company does not make any other representations or
warranties, express or implied, to the Purchasers 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 Purchasers 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.
a. ORGANIZATION AND QUALIFICATION. The Company and each of its
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 every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations
hereunder, the Certificate of Designation, the Warrants or the Registration
Rights Agreement or (iii) the business, operations, properties or financial
condition of the Company and its subsidiaries, taken as a whole.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and the Registration Rights Agreement, to issue and sell the Preferred
Shares and Warrants in accordance with the terms hereof, and to issue the
Conversion Shares upon conversion of the Preferred Shares in accordance with the
terms of the Certificate of Designation and the Warrant Shares upon exercise of
the Warrants in accordance with the terms of the Warrants; (ii) the execution,
delivery and performance of this Agreement, the Warrants 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 Preferred Shares and the Warrant Shares and the issuance and reservation for
issuance of the Conversion Shares and the Warrant Shares) have been duly
authorized by the Company's Board of Directors or an authorized subcommittee
thereof and no further consent or authorization of the Company, its Board of
Directors, or its stockholders is required (under Section 713 of the Rules of
The American Stock Exchange ("AMEX") or otherwise); (iii) this Agreement has
been duly executed and delivered by the Company; and (iv) this Agreement
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<PAGE> 6
constitutes, and, upon execution and delivery by the Company of the Registration
Rights Agreement and the Warrants, such agreements will constitute, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms.
c. 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 issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and the
Warrants) exercisable 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 Preferred Shares and exercise of the Warrants is set forth on
SCHEDULE 3(c). All of such outstanding shares of capital stock have been, or
upon issuance will be, validly issued, fully paid and nonassessable. No shares
of capital stock of the Company (including the Preferred Shares, the Conversion
Shares and the Warrant Shares) are subject to preemptive rights or any other
similar rights of the stockholders of the Company or any liens or encumbrances
created by the Company. Except for the Securities and as set forth on
SCHEDULE 3(c), as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, 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 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) 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). Except as set forth on SCHEDULE
3(c), there are no securities or instruments containing antidilution or similar
provisions that will be triggered by the issuance of the Securities in
accordance with the terms of this Agreement, the Certificate of Designation or
the Warrants. The Company has furnished to each Purchaser true and correct
copies of the Company's Certificate of Incorporation as in effect on the date
hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in effect on
the date hereof (the "BYLAWS"), and all other instruments and agreements
governing securities convertible into or exercisable or exchangeable for Common
Stock of the Company. The Certificate of Designation, in the form attached
hereto, has been duly filed with the Secretary of State of the State of Delaware
and, upon the issuance of the Preferred Shares in accordance with the terms
hereof, each Purchaser shall be entitled to the rights set forth therein.
d. ISSUANCE OF SHARES. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances with respect to the issuance thereof and will not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability on the holders thereof. The Conversion Shares
and the Warrant Shares are duly authorized and reserved for issuance, and, upon
conversion of the Preferred Shares and exercise of the Warrants in accordance
with the terms thereof, will be validly issued, fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances with respect to the
issuance
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<PAGE> 7
thereof and will not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
e. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
the performance by the Company of its obligations under the Certificate of
Designation, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Preferred Shares, the Conversion
Shares and the Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) 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 (each a "CONTRACT"), or result
in a violation of any law, rule, regulation, order, judgment or decree
(including U.S. federal and state securities laws and regulations) 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, with respect to
clause (ii), for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect or that are related to any
inaccuracies or omission in any representation or warranty of any Purchaser set
forth herein). Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its subsidiaries is in default (and no event
has occurred 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 actual or 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 a Purchaser owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity, except for possible or
actual violations, if any, the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by Section 4(b) hereof and the Registration Rights Agreement, the
Company is not required to obtain any consent, approval, authorization or order
of, or make any filing or registration with, any court or governmental agency or
any regulatory or self regulatory agency or other party in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Warrants or the Registration Rights Agreement or to perform its obligations
under the Certificate of Designation, in each case in accordance with the terms
hereof or thereof. The Company is not in violation of the listing requirements
of the AMEX, has not received notification that it is in violation of such
listing requirements and does not reasonably anticipate that the Common Stock
will be delisted by AMEX for the foreseeable future.
f. SEC DOCUMENTS, FINANCIAL STATEMENTS. Since August 1, 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
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amended (the "EXCHANGE ACT") (all of the foregoing, filed prior to the date
hereof and after August 1, 1996, and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). The
Company has delivered to each Purchaser true and complete copies of the SEC
Documents, except for the exhibits and schedules thereto and the documents
incorporated therein. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act or the
Securities Act, as the case may be, 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 is, or has been, required to be
updated or amended under applicable law. As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC applicable with respect thereto. Such
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company 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, to
immaterial year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents filed prior to the date
hereof or as otherwise set forth on SCHEDULE 3(f), the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business, (ii) obligations under contracts and commitments
incurred in the ordinary course of business and (iii) liabilities not required
under generally accepted accounting principles to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i), (ii)
and (iii) individually or in the aggregate are not material to the financial
condition or operating results of the Company. 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. 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 thereunder which would have a
Material Adverse Effect.
g. ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company except as disclosed in SCHEDULE 3(g) or in the SEC Documents filed prior
to the date hereof.
h. ABSENCE OF LITIGATION. Except for matters disclosed in the SEC
Documents filed prior to the date hereof, there is no action, suit, proceeding,
inquiry or investigation before or by any court,
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<PAGE> 9
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its subsidiaries, threatened
against the Company, any of its subsidiaries, or any of their respective
directors or officers in their capacities as such which will have a Material
Adverse Effect. There are no facts which, if known by a potential claimant or
governmental authority, could give rise to a claim or proceeding which, if
asserted against the Company or any of its subsidiaries, is likely to have a
Material Adverse Effect.
i. INTELLECTUAL PROPERTY. Except as disclosed in the SEC Documents,
each of the Company and its subsidiaries owns or is licensed to use all patents,
patent applications, trademarks, trademark applications, trade names, service
marks, copyrights, copyright applications, licenses, permits, 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") necessary for the conduct of
its business as now being conducted and as described in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1996 the absence of
which would have a Material Adverse Effect. To the best knowledge of the
Company, except as disclosed in the SEC Documents, neither the Company nor any
subsidiary of the Company infringes or is in conflict with any right of any
other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect and except as disclosed in the SEC Documents,
neither the Company nor any of its subsidiaries has received written notice of
any pending conflict with or infringement upon such third party Intangibles. The
Intangibles are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, except for such cancellations and adversarial
proceedings which, individually or in the aggregate, are not likely to have a
Material Adverse Effect and all applications for any material Intangibles are
pending and are in good standing. The Company and its subsidiaries have
complied, in all material respects, with their respective contractual
obligations relating to the protection of the Intangibles used pursuant to
licenses, except where the failures to so comply would not, individually or in
the aggregate, have a Material Adverse Effect.
j. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. DISCLOSURE. All information which is set forth in this Agreement or
included in the documents set forth on Schedule 3(k) hereof was true and correct
in all material respects on the date such information was prepared and the
Company has not omitted to state any material fact necessary
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in order to make the statements made herein or therein, in light of the
circumstances under which they were made, and at the time they were made, not
misleading.
l. ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF THE UNITS. The
Company acknowledges and agrees that none of the Purchasers is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, and the
relationship between the Company and each of the Purchasers is "arms length" and
that any statement made by any Purchaser or any of their representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to each
Purchaser's purchase of Units and has not been relied upon by the Company, its
officers or directors in any way. The Company further represents to each
Purchaser that the Company's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its
representatives.
m. FORM S-3 ELIGIBILITY. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. Except with respect to matters set forth in the SEC Documents,
there exist no facts or circumstances that would prohibit or delay the
preparation and filing of a registration statement on Form S-3 with respect to
the Registrable Securities (as defined in the Registration Rights Agreement)
beyond the scheduled deadlines set forth in the Registration Rights Agreement.
n. 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 such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. 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 offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
p. NO BROKERS. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with The Shemano Group, whose
commissions and fees will be paid for by the Company.
q. ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares issuable
upon conversion of the Preferred Shares and Warrant Shares issuable upon
exercise of the Warrants may increase substantially in certain circumstances,
including, in the case of the Preferred Shares, the circumstance wherein the
trading price of the Common Stock declines. The Company's executive
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officers have studied and fully understand the nature of the securities being
sold hereunder. The Company acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with the terms of
the Certificate of Designation and Warrant Shares in accordance with the terms
of the Warrants is, subject to the terms applicable thereto, absolute and
unconditional, regardless of the dilution that such issuance may have on the
ownership interests of other stockholders. Taking the foregoing into account,
the Company has determined that the issuance of the Units hereunder and the
consummation of the other transactions contemplated hereby are in the best
interests of the Company and its stockholders.
r. TITLE. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in SCHEDULE 3(r) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
s. TAX STATUS. Except as set forth on SCHEDULE 3(s), the Company and
each of its subsidiaries has made or filed all foreign, federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books a reserve
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to any statute of
limitations relating to the assessment or collection of any federal, state or
local tax. None of the Company's tax returns has been or is being audited by any
taxing authority.
t. KEY EMPLOYEES. Each of the Company's executive officers and
significant employees (collectively, the "KEY EMPLOYEES") set forth in the
Company's prospectus dated March 7, 1997 with respect to the offer of 1,800,000
shares of Common Stock (the "PROSPECTUS") is currently serving the Company in
the capacity disclosed in the Prospectus. No Key Employee, to the best of the
knowledge of the Company and its subsidiaries, 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 material liability with respect to any of the foregoing
matters. Except
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<PAGE> 12
as set forth on SCHEDULE 3(t), no Key Employee has, to the best of the knowledge
of the Company and its subsidiaries, any intention to terminate his employment
with, or services to, the Company or any of its subsidiaries.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use all commercially reasonable
efforts timely to satisfy each of the conditions described in Section 6 and 7 of
this Agreement.
b. FORM D: BLUE SKY LAWS. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall on or
before the Closing Date take such action, if any, as the Company shall
reasonably determine are necessary to qualify the Securities for sale to the
Purchasers pursuant to this Agreement under applicable securities or "blue sky"
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 Closing Date.
c. REPORTING STATUS. So long as any Purchaser beneficially owns any of
the Securities and except following the merger by the Company into, or the
acquisition of the Company by, another corporation, the Company shall use all
commercially reasonable efforts to 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.
d. USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Preferred Shares as set forth in SCHEDULE 4(d).
e. Intentionally Omitted.
f. EXPENSES. The Company shall pay to the Purchasers, or at their
direction, at the Closing reimbursement for the expenses reasonably incurred by
them and their affiliates and advisors in connection with the negotiation,
preparation, execution, and delivery of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, such
Purchasers' and their affiliates' and advisors' reasonable due diligence and
attorneys' fees and expenses (the "EXPENSES"). In addition, from time to time
thereafter, upon any Purchaser's written request, the Company shall pay to such
Purchaser such additional Expenses, if any, incurred at or prior to Closing not
covered by such payment, in each case to the extent reasonably incurred by the
Purchaser. Notwithstanding the foregoing, the Company shall not be obligated to
reimburse the Purchasers for more than $25,000 pursuant to this Section 4(f).
g. FINANCIAL INFORMATION. The Company agrees to send the following
reports to each Purchaser until such Purchaser transfers, assigns or sells all
of its Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB, its Quarterly Reports
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on Form 10-QSB, its proxy statements and any Current Reports on Form 8-K; and
(ii) within two (2) business days after release, copies of all press releases
issued by the Company or any of its subsidiaries.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection therewith
and the full exercise of the Warrants and issuance of the Warrant Shares in
connection therewith and as otherwise required by the Certificate of Designation
and the Warrants. The Company shall not reduce the number of shares reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants
(except as a result of any such conversion or exercise) without the consent of
Purchasers holding a majority of the Preferred Shares then held by all
Purchasers.
i. LISTING. The Company shall promptly secure the listing of the
Conversion Shares and the Warrant Shares upon AMEX and each other national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and the Warrant Shares from time to time
issuable upon conversion of the Preferred Shares and exercise of the Warrants.
The Company will use all commercially reasonable efforts to continue the listing
and trading of its Common Stock on the New York Stock Exchange ("NYSE"), AMEX or
the Nasdaq National Market. In the event the Common Stock is not eligible to be
traded on any of the NYSE, the AMEX or the Nasdaq National Market and the Common
Stock is not eligible for listing on any such exchange or system, the Company
shall use all commercially reasonable efforts to cause the Common Stock to be
eligible for trading on the over-the-counter bulletin board at the earliest
practicable date and remain eligible for trading while any Preferred Shares or
Warrants are outstanding.
j. CORPORATE EXISTENCE. So long as a Purchaser beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence; provided,
however, that the Company may engage in a merger, consolidation or sale of all
or substantially all of the Company's assets with a publicly traded corporation
(or a subsidiary of a publicly traded corporation), if the Company ensures that
(i) such publicly traded Corporation assumes the Company's obligations hereunder
and under the Certificate of Designation and the Warrants and the agreements and
instruments entered into in connection herewith regardless of whether or not the
Company would have had a sufficient number of shares of Common Stock authorized
and available for issuance in order to effect the conversion of all Preferred
Shares and the exercise of all Warrants outstanding as of the date of such
transaction and (ii) such publicly traded corporation's common stock is then
listed for trading on the Nasdaq National Market, NYSE or AMEX. For the
avoidance of doubt, if the Company effects a redemption of Preferred Shares
pursuant to and in accordance with the provisions of Article VIII.D of the
Certificate of Designation, immediately thereafter, no Purchaser will
beneficially own any Preferred Shares and the conditions of this Section 4(j)
need not be satisfied with respect to such immediately ensuing merger,
consolidation or sale of all or substantially all of the Company's assets.
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<PAGE> 14
k. NO INTEGRATED OFFERINGS. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
other offering of securities by the Company for purposes of AMEX Rule 713.
l. [Intentionally Omitted]
m. COOPERATION BY PURCHASERS. Each Purchaser (or subsequent holder) of
Preferred Shares or Warrants agrees to provide the Company promptly with such
information with respect to the Purchaser and the Securities held by such
Purchaser as the Company may reasonably request in connection with the Company's
fulfillment of its obligations hereunder or any of the documents executed in
connection herewith.
n. Each Purchaser shall promptly notify the Company upon the transfer
by it of any Warrants or Preferred Shares or of such date that the Purchaser no
longer owns any Securities.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares and the Warrant Shares in such amounts as specified in accordance with
law from time to time by such Purchaser to the Company upon conversion of the
Preferred Shares or exercise of the Warrants, as applicable. To the extent and
during the periods provided in Section 2(f) and 2(g) of this Agreement, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement.
b. The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) and 2(g) hereof in the case of the transfer of the
Conversion Shares and the Warrant Shares at a time when a registration statement
of the Conversion Shares and the Warrant Shares under the Securities Act is not
available or without an exemption therefrom, will be given by the Company to its
transfer agent except as required by law or as expressly permitted by this
Agreement and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section shall affect in
any way each Purchaser's obligations and agreement set forth in Section 2(g)
hereof to resell the Securities pursuant to an effective registration statement
or in compliance with an exemption from the registration requirements of
applicable securities law.
c. If a Purchaser provides the Company with an opinion from counsel
reasonably satisfactory to the Company, which opinion of counsel shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from registration applicable to
such proposed sale or transfer, or a Purchaser provides the Company with
reasonable assurances
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<PAGE> 15
that the Securities are to be sold pursuant to Rule 144 or may be sold pursuant
to Rule 144(k), the Company shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by a Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to
a Purchaser hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
a. The aggregate number of Units being purchased hereunder by all
Purchasers shall be 8,000 Units.
b. The applicable Purchaser shall have delivered the Purchase Price for
the Units being purchased by it in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Purchaser shall
be true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which representations and warranties shall be true and
correct as of such date), and the applicable Purchaser shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Purchaser at or prior to the Closing Date.
d. 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 the consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Units to be
purchased by it hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered the same to such Purchaser.
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<PAGE> 16
b. The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware and a copy thereof
certified by the Secretary of State of Delaware shall have been delivered to
such Purchaser.
c. The Company shall have delivered to such Purchaser duly executed
certificates and Warrant agreements (in such denominations as such Purchaser
shall request) representing the Preferred Shares and Warrants being so purchased
by such Purchaser in accordance with Section 1(b) above.
d. The Common Stock shall be authorized for listing on AMEX and trading
in the Common Stock (or AMEX generally) shall not have been suspended by the SEC
or AMEX.
e. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. Such Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date to
the foregoing effect and as to such other matters as may be reasonably requested
by such Purchaser.
f. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding 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 questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
g. Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of EXHIBIT D
attached hereto.
h. The Company shall have delivered evidence reasonably satisfactory to
the Purchasers that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as EXHIBIT E.
i. The aggregate number of Units being purchased by all Purchasers
hereunder shall be 8,000.
j. The Company shall have delivered to the Purchasers Lock-Up Letters
in the form attached hereto as EXHIBIT F from each of Ron Zwanziger, Anthony H.
Hall and Kenneth D. Legg.
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8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and the
Purchasers irrevocably consent to the jurisdiction of the state and federal
courts located in the State of Delaware in any suit or proceeding based on or
arising under this Agreement and irrevocably agrees that all claims in respect
of such suit or proceeding may be determined in such courts. The Company and the
Purchasers irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Service of process on the Company and
the Purchasers mailed by first class mail shall be deemed in every respect
effective service of process upon the Company and the Purchasers in any such
suit or proceeding. Nothing herein shall affect the right of the Company or any
Purchaser, as the case may be, to serve process in any other manner permitted by
law. The Company and the Purchasers agree that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
b. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Executive Page(s)
to be physically delivered to the other party within five (5) days of the
execution hereof.
c. HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make 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.
f. NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered
-17-
<PAGE> 18
personally or by courier or by confirmed telecopy, and shall be effective five
days after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or confirmed telecopy, in each
case addressed to a party. The addresses for such communications shall be:
If to the Company:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Telecopy: (617) 647-3939
Attn: Chief Executive Officer
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Telecopy: 617-523-1231
Attn: Stephen W. Carr, P.C.
and
Martin Carmichael, III, P.C.
If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor any Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the foregoing,
any Purchaser may assign its rights hereunder to any of its "AFFILIATES," as
that term is defined under the Exchange Act, without the consent of the Company
or to any other person or entity with the consent of the Company. This provision
shall not limit a Purchaser's right to transfer the Securities pursuant to the
terms of the Certificate of Designation and this Agreement or to assign such
Purchaser's rights hereunder to any such transferee.
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of any Purchasers. Moreover, none of the
-18-
<PAGE> 19
representations and warranties made by the Company herein shall act as a waiver
of any rights or remedies a Purchaser may have under applicable federal or state
securities laws. Each of the Company and the Purchasers agree to indemnify and
hold harmless the other parties to this Agreement and each of such party's
officers, directors, employees, partners, members, agents and affiliates for
loss or damage arising as a result of or related to any breach or alleged breach
by it of any of its representations or covenants set forth herein, including
advancement of expenses as they are incurred.
j. PUBLICITY. The Company and each Purchaser shall have the right to
approve before issuance any press releases, filings, or any other public
statements with respect to the issuance of the Units hereunder; provided,
however, that the Company shall be entitled, without the prior approval of the
Purchasers, to make any press release as is required by applicable law and
regulations and stock exchange rules (although the Purchasers, if practicable,
shall be consulted by the Company in connection with any such press release
prior to its release and shall be provided with a copy thereof).
k. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. TERMINATION. In the event that the Closing shall not have occurred
on or before August 26, 1997, unless the parties agree otherwise, this Agreement
shall terminate at the close of business on such date. Notwithstanding any
termination of this Agreement, any party not in breach of this Agreement shall
preserve all rights and remedies it may have against another party hereto for a
breach of this Agreement prior to or relating to the termination hereof.
m. JOINT PARTICIPATION IN DRAFTING. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement. As such, the
language used herein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
n. EQUITABLE RELIEF. The Company and each Purchaser acknowledge that a
breach by it of its obligations hereunder will cause irreparable harm to, in the
case of the Company, the Purchasers, and in the case of a Purchaser, the Company
by vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company and each Purchaser acknowledge that the remedy at law
for a breach of its obligations hereunder (including, but not limited to, in the
case of the Company, its obligations pursuant to Section 5 hereof) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company or a Purchaser of the provisions of this Agreement (including, but not
limited to, in the case of the Company, its obligations pursuant to Section 5
hereof), that the Company or a Purchaser, as the case may be, shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach without any bond or other security being required.
-19-
<PAGE> 20
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
SELFCARE, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, its authorized agent
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
RESIDENCE: Cayman Islands
PRINCIPAL BUSINESS ADDRESS:
c/o Heights Capital Management
425 California Street
Suite 1100
San Francisco, CA 94104
Telecopy: (415) 403-6525
Attn: Michael Spolan
with copies of all notices to:
Melita Saunders
Susquehanna Financial Group
401 City Line Avenue
Suite 220
Bala Cynwyd, PA 19004-1122
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units to be Purchased: 2,500
----------
Purchase Price ($1,000 per Units): $2,500,000
----------
<PAGE> 21
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
SELFCARE, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
PURCHASER:
PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
RESIDENCE: New York
PRINCIPAL BUSINESS ADDRESS:
c/o Credit Suisse First Boston Corporation
11 Madison Avenue
Third Floor
New York, NY 10010
Telecopy: (212) 325-6519
Attn: Allan D. Weine
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units to be Purchased: 3,000
----------
Purchase Price ($1,000 per Unit): $3,000,000
----------
<PAGE> 22
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
SELFCARE, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
PURCHASER:
C.C. INVESTMENTS LDC
By: CSS Corporation Ltd., Corporate Secretary
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
RESIDENCE: CAYMAN ISLANDS
PRINCIPAL BUSINESS ADDRESS:
C.C. Investments LDC
c/o Citco Fund Services (Cayman Islands) Ltd.
Corporate Center
West Bay Road
P.O. Box 31106
SMB Grand Cayman, Cayman Islands
with copies of all notices to:
c/o Castle Creek Investments
333 West Wacker Drive
Suite 1410
Chicago, Illinois 60606
Attn: Portfolio Manager
Telecopy: 312-435-2636
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units to be Purchased: 2,500
----------
Purchase Price ($1,000 per Unit): $2,500,000
----------
<PAGE> 1
FORM OF STOCK PURCHASE WARRANT
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON AUGUST 25, 2000
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD 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.
Right to Purchase _______Shares of
Common Stock,
par value $.001 per share
Date: August 26, 1997
SELFCARE, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _____________________________
or its registered assigns, is entitled to purchase from SELFCARE, INC., a
corporation organized under the laws of the State of Delaware (the "COMPANY"),
at any time or from time to time during the period specified in Section 2
hereof, ___________ (_______) fully paid and nonassessable shares of the
Company's common stock, par value $.001 per share (the "COMMON STOCK"), at an
exercise price per share (the "EXERCISE PRICE") equal to $13.9581. The number of
shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the
Exercise Price are subject to adjustment as provided in Section 4 hereof. The
term "WARRANTS" means this Warrant and the other warrants of the Company issued
pursuant to that certain Securities Purchase Agreement, dated as of the date
hereof, by and among the Company and the other signatories thereto (the
"SECURITIES PURCHASE AGREEMENT").
<PAGE> 2
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the holder is permitted to
effect a Cashless Exercise (as defined in Section 11(c) hereof) pursuant to
Section 11(c) hereof, delivery to the Company of a written notice of an election
to effect a Cashless Exercise for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof, as the record owner of such shares, as of the close of business
on the date on which this Warrant shall have been surrendered, the completed
Exercise Agreement shall have been delivered, and payment shall have been made
for such shares as set forth above or, if such date is not a business date, on
the next succeeding business date. Certificates for the Warrant Shares so
purchased, representing the aggregate number of shares specified in the Exercise
Agreement, shall be delivered to the holder hereof within a reasonable time, not
exceeding three (3) business days, after this Warrant shall have been so
exercised (the "DELIVERY PERIOD"), provided, however, that the Company shall be
granted a grace period of two (2) business days following the Delivery Period to
deliver certificates representing the Warrant Shares without breaching the
provisions of this Section 1. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of such holder or such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement and such exercise
complies with applicable law and the terms of this Warrant and the Securities
Purchase Agreement, and the Company fails for any reason to deliver, on or prior
to the third business day following the expiration of the Delivery Period for
such exercise, the number of shares of Common Stock to which the holder is
entitled upon such exercise effected in compliance with the terms of this
Warrant, the Securities Purchase Agreement and applicable law (an "EXERCISE
DEFAULT"), then the Company shall pay to the holder payments ("EXERCISE DEFAULT
PAYMENTS") for an Exercise Default in the amount of (a) (N/365), multiplied by
(b) the difference between the Market Price (as defined in Section 4(1) below)
on the date the Exercise Agreement giving rise to the Exercise Default is
transmitted in accordance with Section 1 (the "EXERCISE DEFAULT DATE") less the
Exercise Price, multiplied by (c) the number of shares of Common Stock the
Company failed to so deliver in such Exercise Default, multiplied by (d) .24,
where N = the number
2
<PAGE> 3
of days from the Exercise Default Date to the date that the Company effects the
full exercise of this Warrant which gave rise to the Exercise Default. The
accrued Exercise Default Payment for each calendar month shall be paid in cash
to holder by the fifth (5th) day of the month following the month in which it
has accrued. In the event such Exercise Default Payment is not paid to the
holders by the fifth (5th) day of the month following the month in which it has
accrued, the holder may convert such payment amount into Common Stock (in
accordance with the terms contained in Article IV of the Certificate of
Designations, Preferences and Rights (the "CERTIFICATE OF DESIGNATION")
governing the Company's Series B Convertible Preferred Stock $.001 par value
(the "SERIES B PREFERRED STOCK")) at the lower of the Exercise Price or the
Market Price (as defined in Section 4(l)) (as in effect at the time of
conversion) at any time after the fifth (5th) day of the month following the
month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual
damages to the extent not otherwise compensated for the Company's failure to
maintain a sufficient number of authorized shares of Common Stock as required
pursuant to the terms of Section 3(b) or to otherwise issue shares of Common
Stock upon exercise of this Warrant in accordance with the terms hereof, and
each holder shall have the right to pursue all remedies available at law or in
equity (including a decree of specific performance and/or injunctive relief).
2. PERIOD OF EXERCISE; VESTING.
(a) This Warrant is immediately exercisable, at any time or
from time to time on or after the date of initial issuance of this Warrant (the
"ISSUE DATE") and before 5:00 p.m., New York City time on, August 25, 2000 (the
"EXERCISE PERIOD"), with respect to _____________ (______) Warrant Shares. Such
number of Warrant Shares shall be subject to adjustment for the events set forth
in Section 4 hereof.
(b) On the first anniversary of the Issue Date, this Warrant
shall become, and thereafter during the Exercise Period shall remain,
exercisable at any time or from time to time with respect to an additional
number of Warrant Shares equal to fifty percent (50%) of the product obtained by
multiplying (i) the total number of Warrant Shares purchaseable hereunder
(subject to adjustments for the events set forth in Section 4 hereof) by (ii)
the quotient obtained by dividing (x) the aggregate number of shares of the
Company's Series B Preferred Stock issued to the initial holder of this Warrant
pursuant to the Securities Purchase Agreement and which either remain
outstanding on, or have been redeemed by the Company on or prior to, the first
anniversary of the Issue Date by (y) the aggregate number of shares of Series B
Preferred Stock issued to such holder pursuant to the Securities Purchase
Agreement.
(c) The right to exercise this Warrant with respect to any
Warrant Shares which are not exercisable on the first anniversary of the Issue
Date (after giving effect to the vesting set forth in Section 2(b) above) shall
be deemed forfeited by the holder hereof.
3
<PAGE> 4
(d) Notwithstanding the foregoing, upon the occurrence of a
Redemption Event set forth in Article VIII.A(v) of the Certificate of
Designation this Warrant shall become, and thereafter during the Exercise Period
shall remain, exercisable at any time or from time to time with respect to all
Warrant Shares which have not been forfeited pursuant to Section 2(c) hereof.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances
created by the Company.
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise in full of this Warrant (without giving effect
to the limitations on exercise set forth in Section 2 and Section 7(g) hereof).
(c) LISTING. The Company shall use its best efforts to
promptly secure the listing of the shares of Common Stock issuable upon exercise
of this Warrant 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)
and shall use all commercially reasonable 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; and
the Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company (i) will not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the
Exercise Price and the number of Warrant Shares issuable hereunder and for which
this Warrant is then exercisable pursuant to Section 2 hereof shall be subject
to adjustment from time to time as provided in this Section 4.
4
<PAGE> 5
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE. Except as otherwise provided
in Sections 4(c) and 4(e) hereof, if and whenever during the Exercise Period the
Company issues or sells in a private transaction, or in accordance with Section
4(b) hereof is deemed to have issued or sold in a private transaction, any
shares of Common Stock for no consideration or for a consideration per share
less than eighty-five percent (85%) of the Market Price (as hereinafter defined)
on the date of issuance (a "DILUTIVE ISSUANCE"), then effective immediately upon
the Dilutive Issuance, the Exercise Price will be adjusted in accordance with
the following formula:
E' = E x O + P/M
-------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price
(as defined in Section 4(1));
O = the number of shares of Common Stock
outstanding immediately prior to the
Dilutive Issuance;
P = the aggregate consideration, calculated as
set forth in Section 4(b) hereof, received
by the Company upon such Dilutive Issuance;
and
CSDO = the total number of shares of Common Stock
Deemed Outstanding (as defined in
Section 4(l)) immediately after the Dilutive
Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under Section 4(a) hereof,
the following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the
Company in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities exercisable, convertible into or exchangeable for Common Stock
("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "OPTIONS") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than eighty-five percent (85%) of the Market Price on the date
of issuance ("BELOW MARKET OPTIONS"), then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market Options
(assuming full exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such Below Market
Options, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon the exercise of such
Below Market Options" is determined by dividing (i) the total amount, if any,
5
<PAGE> 6
received or receivable by the Company as consideration for the issuance or
granting of all such Below Market Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
all such Below Market Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Below Market Options, the minimum aggregate
amount of additional consideration payable upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full conversion of Convertible Securities, if applicable). No
further adjustment to the Exercise Price will be made upon the actual issuance
of such Common Stock upon the exercise of such Below Market Options or upon the
exercise, conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues
or sells any Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of Options) and the
price per share for which Common Stock is issuable upon such exercise,
conversion or exchange (as determined pursuant to Section 4(b)(ii)(B) if
applicable) is less than eighty-five percent (85%) of the Market Price on the
date of issuance, then the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" is determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon exercise, conversion or
exchange of such Convertible Securities.
(B) If the Company in any manner issues
or sells any Convertible Securities with a fluctuating conversion or exercise
price or exchange ratio with a maximum conversion discount of at least 15% (a
"VARIABLE RATE CONVERTIBLE SECURITY") and subparagraph (A) of this Section
4(b)(ii) is applicable, then the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange for purposes of the
calculation contemplated by Section 4(b)(ii)(A) shall be deemed to be the lowest
price per share which would be applicable (assuming all holding period and other
conditions to any discounts contained in such Convertible Security have been
satisfied) if the Market Price on the date of issuance of such Convertible
Security was 75% of the Market Price on such date (the "ASSUMED VARIABLE MARKET
PRICE"). Further, if the Market Price at any time or times thereafter is less
than or equal to the Assumed Variable Market
6
<PAGE> 7
Price last used for making any adjustment under this Section 4 with respect to
any Variable Rate Convertible Security, the Exercise Price in effect at such
time shall be readjusted to equal the Exercise Price which would have resulted
if the Assumed Variable Market Price at the time of issuance of the Variable
Rate Convertible Security had been 75% of the Market Price existing at the time
of the adjustment required by this sentence.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE.
If there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price thereof as of the date of receipt.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE.
No adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the Issue
Date and set forth on Schedule 3(c) of the Securities Purchase Agreement in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee
7
<PAGE> 8
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose; (iii) upon the issuance of any shares of Series B Preferred Stock or
Warrants issued or issuable in accordance with terms of the Securities Purchase
Agreement; (iv) upon the issuance of any securities as consideration for a
merger or consolidation; or (v) upon conversion of the Series B Preferred Stock
or exercise of the Warrants.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company, at any time during the Exercise Period, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time during the Exercise Period, combines (by reverse stock
split, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant and for which this
Warrant is or may become exercisable shall be adjusted by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable or for which this Warrant is or
may become exercisable (as applicable) upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time during the Exercise Period, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the holder of this Warrant will have the right to
acquire and receive upon exercise of this Warrant in lieu of the shares of
Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities, cash or assets as were issued or
payable with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Section 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Section 4 and the obligations to
deliver to the holder of this Warrant such shares of stock,
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<PAGE> 9
securities, cash or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to all
holders of Common Stock as a partial liquidating dividend, stock repurchase by
way of return of capital or otherwise (including any dividend or distribution to
the Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "DISTRIBUTION") other than a Distribution
constituting a cash dividend payable entirely out of the Company's earnings and
profits for the then current fiscal year or the then immediately preceding
fiscal year, at any time during the Exercise Period, then upon the record date
for determining shareholders entitled to such Distribution, the Exercise Price
shall be reduced to a price determined by decreasing the Exercise Price then in
effect by an amount equal to the fair market value of the assets (or rights) so
distributed with respect to each share of Common Stock. For purpose of this
Section 4(g), "fair market value" with respect to any security shall equal its
Market Price (as defined in Section 4(l) hereof) and with respect to any other
asset shall be determined by the mutual agreement of the Company and Warrant
holders entitled to acquire a majority of the Warrant Shares then issuable upon
exercise of Warrants, or if such agreement cannot be reached within five (5)
business days prior to the date of the Distribution, by an investment banking
firm selected by the Company and reasonably acceptable to such Warrantholders,
with the costs of such appraisal to be borne by the Company.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
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<PAGE> 10
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon
the Common Stock payable in shares of stock of any class or make any other
distribution (other than (x) dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions or (y) any distribution to holders
of Common Stock in connection with the implementation of a stockholder rights
plan to the holders of the Common Stock;
(ii) the Company shall offer for subscription
pro rata to the holders of the Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date or estimated date on which the books of the Company shall
close or a record shall be taken for determining the holders of Common Stock
entitled to receive any such dividend, distribution, or subscription rights or
for determining the holders of Common Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable estimate
thereof by the Company to the extent practicable) when the same shall take
place. Such notice shall also specify the date, if known, on which the holders
of Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as the
case may be. Such notice shall be given at least 20 days prior to the record
date or the date on which the Company's books are closed in respect thereto.
Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv)
above.
(k) CERTAIN EVENTS. If, at any time during the Exercise
Period, any event occurs of the type contemplated by the adjustment provisions
of this Section 4 but not expressly provided for by such provisions, the Company
will make an appropriate adjustment in the Exercise Price and the number of
shares of Common Stock acquirable upon exercise of this Warrant so that the
rights of the holder shall be neither enhanced nor diminished by such event.
(l) CERTAIN DEFINITIONS.
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<PAGE> 11
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean
the number of shares of Common Stock actually outstanding (not including shares
of Common Stock held in the treasury of the Company), plus (x) in the case of
any adjustment required by Section 4(a) resulting from the issuance of any
Options, the maximum total number of shares of Common Stock issuable upon the
exercise of the Options for which the adjustment is required (including any
Common Stock issuable upon the conversion of Convertible Securities issuable
upon the exercise of such Options), and (y) in the case of any adjustment
required by Section 4(a) resulting from the issuance of any Convertible
Securities, the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of the Convertible Securities for which the
adjustment is required, as of the date of issuance of such Convertible
Securities, if any.
(ii) "MARKET PRICE,"as of any date, (i) means the
closing bid price for the shares of Common Stock as reported on the American
Stock Exchange for the trading day immediately preceding such date, or (ii) if
the American Stock Exchange is not the principal trading market for the shares
of Common Stock, the last reported bid prices on the principal trading market
for the Common Stock for the trading day immediately preceding such date or, if
there is no bid price for such day, the last reported sales price for such day,
or (iii) if market value cannot be calculated as of such date on any of the
foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the holder, with the costs of the appraisal to be borne
by the Company. The manner of determining the Market Price of the Common Stock
set forth in the foregoing definition shall apply with respect to any other
security in respect of which a determination as to market value must be made
hereunder.
(iii) "COMMON STOCK," for purposes of this
Section 4, includes the Common Stock and any additional class of stock of the
Company having both no preference as to dividends and no preference as to
distributions on liquidation, provided that the shares purchasable pursuant to
this Warrant shall include only Common Stock in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Section 4(e)
hereof, the stock or other securities or property provided for in such Section.
5. ISSUE TAX. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any
11
<PAGE> 12
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Section 7(f) and (g) hereof and to the
provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until
due presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated as of the date hereof, by and among the Company and the other signatories
thereto (the "REGISTRATION RIGHTS AGREEMENT").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant 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, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all expenses (other than legal expenses, if any,
incurred by the Holder or transferees) and charges payable by it in connection
with the preparation, execution, and delivery of Warrants pursuant to this
Section 7. The prevailing party in any action to enforce its rights hereunder
shall be entitled to reimbursement from the other for all costs and expenses
(including legal fees) incurred by such party in connection with the enforcement
of its rights hereunder.
(e) WARRANT REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder
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<PAGE> 13
hereof), a register for this Warrant, in which the Company shall record the name
and address of the person in whose name this Warrant has been issued, as well as
the name and address of each transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion from counsel reasonably acceptable to the Company
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable circumstances) to the effect that such exercise, transfer,
or exchange may be made without registration under the Securities Act and under
applicable state securities or blue sky laws, (ii) that the holder or transferee
execute and deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "ACCREDITED
INVESTOR" as defined in Rule 501(a) promulgated under the Securities Act;
provided that no such opinion, letter, status as an "accredited investor" shall
be required in connection with a transfer pursuant to Rule 144 under the
Securities Act.
(g) ADDITIONAL RESTRICTIONS ON EXERCISE OR TRANSFER.
Notwithstanding anything contained herein to the contrary, in no event shall the
holder hereof exercise Warrants to the extent that (a) the number of shares of
Common Stock beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unexercised portion of the Warrants or the unexercised or
unconverted portion of any other securities of the Company subject to a
limitation on conversion or exercise analogous to the limitation contained
herein) and (b) the number of shares of Common Stock issuable upon exercise of
the Warrants (or portion thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by such
holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise
provided in clause (a) hereof. The restrictions contained in this Section 7(g)
may not be amended without the consent of the holder of this Warrant and the
holders of a majority of the Company's then outstanding Common Stock. To the
extent that the limitation contained in this Section 7(g) applies, the
determination of whether and the extent to which this Warrant is exercisable
shall be in the sole discretion of the holder of this Warrant and the submission
of an Exercise Agreement shall be deemed such holder's determination of whether
and the extent to which this Warrant is exercisable, subject to such aggregate
percentage limitation, and the Company shall have no obligation whatsoever to
verify or confirm the accuracy of such determination.
8. REGISTRATION RIGHTS. The initial holder of this Warrant is
entitled to the benefit of such registration rights in respect of the Warrant
Shares as are set forth in the Registration Rights Agreement, including the
right to assign such rights to certain assignees, as set forth therein.
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<PAGE> 14
9. NOTICES. Any notices required or permitted to be given under
the terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Telecopy: (617) 647-3939
Attn: Chief Executive Officer
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Telecopy: (617) 523-1231
Attn: Stephen W. Carr, P.C.
and
Martin Carmichael, III, P.C.
If to the holder, at such address as such holder shall have provided in writing
to the Company, or at such other address as such holder furnishes by notice
given in accordance with this Section 9
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Stephen T. Burdumy, Esquire
10. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and the
holder of this Warrant consent to the jurisdiction of the state and federal
courts located in the State of Delaware in any suit or proceeding based on or
arising under this Agreement and irrevocably agree that all claims in respect of
such suit or proceeding may be determined in such courts. The Company and the
holder of this Warrant irrevocably waive any objection to the laying of venue
and the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company and the holder of this Warrant further
14
<PAGE> 15
agree that service of process upon the Company or such holder mailed by
certified or registered mail shall be deemed in every respect effective service
of process upon the Company or such holder in any such suit or proceeding.
Nothing herein shall affect the Company's or the holder's right to serve process
in any other manner permitted by law. The Company and the holder of this Warrant
agree that a final non-appealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised at any time after the
first anniversary of the Issue Date until the end of the Exercise Period, by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the closing bid price per share of the Common
Stock on the date of exercise (as reported on the American Stock Exchange, or if
not so reported, as reported on the principle United States securities market on
which the Common Stock is then traded) and the Exercise Price, and the
denominator of which shall be such closing bid price per share of Common Stock.
a. BUSINESS DAY. For purposes of this Warrant, the term
"business day" means any day, other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law, regulation or executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
SELFCARE, INC.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE> 17
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
To: Selfcare, Inc.
-----------------------
-----------------------
-----------------------
Telecopy:
-------------
Attention: President
The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of Selfcare, Inc., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), evidenced by
the attached Warrant, and herewith makes payment of the Exercise Price with
respect to such shares in full, all in accordance with the conditions and
provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable:
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 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.
(ii) The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:
------------------------ -----------------------------------
Signature of Holder
-----------------------------------
Name of Holder (Print)
Address:
-----------------------------------
-----------------------------------
-----------------------------------
<PAGE> 18
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
- ---------------------
Name:
-------------------------------------------
Signature:
---------------------------------
Title of Signing Officer or Agent (if any):
----------------------------------
Address:
----------------------------------
----------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
