<PAGE>
SCHEDULE 14 A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
FILED BY THE REGISTRANT /X/
FILED BY A PARTY OTHER THAN THE REGISTRANT / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SELFCARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
SELFCARE, INC.
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02453
February , 1999
Dear Fellow Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders on
, 1999, at Doubletree Guest Suites, 550 Winter Street, Waltham, MA
02451 at the Harvard Club of Boston, 38(th)Floor, One Federal Street, Boston, MA
02110.
At this Special Meeting you will be asked to (i) authorize and approve the
amendment of the terms of the Restated Certificate of Incorporation to amend the
terms of the Series B Convertible Preferred Stock in connection with the
settlement of certain obligations owed by the Company to the holders of Series B
Convertible Preferred Stock, par value $.001 per share; (ii) ratify, confirm and
approve the issuance of the Series B Convertible Preferred Stock in connection
with the settlement of certain obligations owed by the Company to the holders of
the Series B convertible Preferred Stock (iii) ratify, confirm and approve the
issuance of the Senior Subordinated Convertible Notes including the Senior
Subordinated Convertible Notes as amended January 11, 1999 in connection with
the settlement of certain obligations owed by the Company to the holders of the
Senior Subordinated Convertible Notes, and (iv) ratify, confirm and approve the
issuance of the Series C Convertible Preferred Stock, Series D Convertible
Preferred Stock and Series E Convertible Preferred Stock, each par value $.001
per share, and ratify the participation by certain officers and directors in the
private placement of the Series C Convertible Preferred Stock and the Series E
Convertible Preferred Stock.
THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THESE FOUR PROPOSALS IS IN
THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE FOUR PROPOSALS AND RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR APPROVAL OF THE PROPOSALS.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Special Meeting and Proxy Statement, please complete, sign, date and return your
proxy card in the envelope provided no later than , 1999. If the
address on the accompanying material is incorrect, please advise our Transfer
Agent, Boston EquiServe, 150 Royall Street, Canton, MA 02021.
Your vote is important. We will appreciate a prompt return of your signed
proxy card and hope to see you at the meeting. If you have questions about
voting your shares, please contact our proxy solicitor, at
( ) .
Cordially,
Ron Zwanziger
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
SELFCARE, INC.
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02453
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
------------------------
To The Shareholders of Selfcare, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (together with
all adjournments and postponements thereof, the "Special Meeting") of Selfcare,
Inc. (the "Company") will be held on , , 1999, at at
the Doubletree Guest Suites, 550 Winter Street, Waltham, MA 02451, for the
following purposes:
1. To consider and act upon a proposal to approve and adopt an amendment to
the Restated Certificate of Incorporation which will amend the terms of
the Series B Convertible Preferred Stock, par value $.001 per share (the
"Series B Preferred Stock"), in connection with the settlement of certain
obligations of the Company to the holders of the Series B Preferred
Stock;
2. To consider and act upon a proposal to authorize and approve the
issuance of the Series B Preferred Stock in connection with the
settlement of certain obligations of the Company to the holders of the
Series B Preferred Stock;
3. To consider and act upon a proposal to ratify, confirm and approve the
issuance of the Senior Subordinated Convertible Notes, issued October 27,
1997 (the "Original Notes") and the portion of Original Notes amended and
issued by the Company on January 11, 1999 (the "Amended Notes") (the
Original Notes and the Amended Notes are hereinafter referred to as the
"Notes") in connection with the settlement of certain obligations of the
Company to the holders of the Convertible Notes; and
4. To consider and act upon a proposal to ratify, confirm and approve the
issuance of the Series C Convertible Preferred Stock, Series D
Convertible Preferred Stock and Series E Convertible Preferred Stock,
each par value $.001 per share (the "Series C Preferred Stock," the
"Series D Preferred Stock" and the "Series E Preferred Stock,"
respectively) and to ratify the participation of certain officers and
directors of the Company in the private placement of the Series C
Preferred Stock and the Series E Preferred Stock.
The Board of Directors has fixed the close of business on February , 1999
as the record date for determining the shareholders having the right to receive
notice of and to vote at the Special Meeting. Only shareholders of record of the
Company's common stock, par value $.001 per share ("Common Stock"), and the
Series B Preferred Stock at the close of business on such date are entitled to
notice of and to vote at the Special Meeting. A list of shareholders entitled to
vote at the Special Meeting will be available during ordinary business hours at
the offices of Goodwin, Procter & Hoar LLP, 53 State Street, Boston,
Massachusetts 02109 and also at the Company's executive offices, 200 Prospect
Street, Waltham, Massachusetts 02453, at least ten (10) days prior to the
Special Meeting, for examination by any Company shareholder for purposes germane
to the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION
OF THE AMENDMENT TO CERTIFICATE OF INCORPORATION OF THE COMPANY WHICH WILL AMEND
THE TERMS OF THE SERIES B PREFERRED STOCK, "FOR" AUTHORIZATION AND APPROVAL OF
THE ISSUANCE OF COMMON STOCK UPON CONVERSION OF THE SERIES B PREFERRED STOCK
"FOR" RATIFICATION, CONFIRMATION AND APPROVAL OF THE ISSUANCE OF THE CONVERTIBLE
NOTES AND "FOR" RATIFICATION OF THE ISSUANCE OF THE SERIES C PREFERRED STOCK,
SERIES D PREFERRED STOCK AND SERIES E PREFERRED STOCK AND THE PARTICIPATION OF
CERTAIN OFFICERS AND DIRECTORS OF THE COMPANY IN THE PRIVATE PLACEMENT OF THE
SERIES C PREFERRED STOCK AND THE SERIES E PREFERRED STOCK.
<PAGE>
- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXY CARDS BE RETURNED PROMPTLY. IF YOU DO NOT EXPECT TO
BE PRESENT AT THE MEETING, PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. ANY PROXY
CARD RETURNED BY MAIL SHOULD BE RETURNED NO LATER THAN , 1999. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT
THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE
THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
- --------------------------------------------------------------------------------
By Order of the Board of Directors,
Kenneth D. Legg, Ph.D.,
SECRETARY
February , 1999
<PAGE>
SELFCARE, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
THE SPECIAL MEETING
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Selfcare, Inc. (the "Company" or
"Selfcare") for use at a Special Meeting of Shareholders to be held on ,
1999, at P.M. at the Doubletree Guest Suites, 550 Winter Street, Waltham,
MA 02451, including any adjournment or postponement thereof (the "Special
Meeting"), for the purposes set forth in the accompanying Notice of Special
Meeting. This Proxy Statement and the accompanying form of proxy to shareholders
will be mailed on or about February , 1999.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, all of the holders of Common Stock and Series B
Preferred Stock of the Company will be asked to consider and vote upon the
following matters:
1. The authorization and approval of the amendment of the Restated
Certificate of Incorporation to amend the terms of the Series B
Convertible Preferred Stock, par value $.001 per share (the "Series B
Preferred Stock"), contained in the Certificate of Incorporation in
connection with the settlement of certain obligations of the Company to
the holders of the Series B Preferred Stock (the "Amendment to
Certificate Proposal");
2. The authorization and approval of the issuance of Common Stock upon
conversion of the Series B Preferred Stock in connection with the
settlement of certain obligations of the Company to the holders of the
Series B Preferred Stock (the "Issuance of Series B Preferred Stock
Proposal");
3. On October 27, 1997, the Company issued certain Senior Subordinated
convertible Notes (the "Original Notes") having an aggregate face value
of $10,000,000 and on January 11, 1999 the Company amended the portion of
the Original Notes which remained outstanding (the "Amended Notes") (the
"Notes"). Original Notes and the Amended Notes are hereinafter referred
to as the. The Company proposes that the Company's shareholders ratify,
confirm and approve the issuance of the Convertible Notes (the "Notes
Amendment Proposal").
4. The ratification, confirmation and approval of the issuance of the
Series C Convertible Preferred Stock, Series D Convertible Preferred
Stock and Series E Convertible Preferred Stock, each par value $.001 per
share (the "Series C Preferred Stock," the "Series D Preferred Stock" and
the "Series E Preferred Stock," respectively) and the participation by
certain officers and directors of the Company in the private placement of
the Series C Preferred Stock and the Series E Preferred Stock (the
"Private Placement Proposal").
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE AMENDMENT TO CERTIFICATE PROPOSAL, THE ISSUANCE OF SERIES B PREFERRED STOCK
PROPOSAL, THE NOTES AMENDMENT PROPOSAL AND THE PRIVATE PLACEMENT PROPOSAL.
RECORD DATE; VOTING RIGHTS; PROXIES
Only holders of the Company's common stock, par value $.001 per share (the
"Common Stock"), and the holders of the Series B Preferred Stock at the close of
business on February , 1999 (the "Record Date"), are entitled to receive
notice of and to vote at the Special Meeting. As of the Record Date, the Company
had [ ] shares of Common Stock and [ ] shares of Series B Preferred Stock
outstanding. Shares held in the treasury of the Company are not considered
outstanding. Each share of Common Stock
<PAGE>
is entitled to vote on all matters. Each Series B Preferred Share is entitled to
vote with the Common Stock on an as if converted basis on the Issuance of Series
B Preferred Stock Proposal, the Notes Amendment Proposal and the Private
Placement Proposal. The Series B Preferred Shares are entitled to vote as a
separate class on the Amendment of Certificate Proposal. No other class of
securities will be entitled to vote at the Special Meeting. There are no
cumulative voting rights.
The address of the principal executive offices of the Company is 200
Prospect Street, Waltham, Massachusetts 02453, Telephone No. (781) 647-3900.
All shares that are entitled to vote and are represented at the Special
Meeting by properly executed proxies received prior to or at the Special Meeting
will be voted at the Special Meeting in accordance with the instructions
indicated on the proxies. PROXIES WHICH ARE EXECUTED BUT WHICH DO NOT CONTAIN
ANY SPECIFIC INSTRUCTIONS WILL BE VOTED IN FAVOR OF THE PROPOSALS CONTAINED
HEREIN. IF ANY OTHER MATTERS ARE PROPERLY PRESENTED AT THE SPECIAL MEETING FOR
CONSIDERATION, INCLUDING, AMONG OTHER THINGS, CONSIDERATION OF A MOTION TO
ADJOURN SUCH MEETING TO ANOTHER TIME AND/OR PLACE (INCLUDING, WITHOUT
LIMITATION, FOR THE PURPOSES OF SOLICITING ADDITIONAL PROXIES), THE PERSONS
NAMED IN THE ENCLOSED FORMS OF PROXY WILL HAVE DISCRETION TO VOTE ON SUCH
MATTERS IN ACCORDANCE WITH THEIR BEST JUDGMENT. However, proxies voted against
the proposals will not be voted in favor of adjournment in order to continue to
solicit proxies. Pursuant to the Company's By-laws, no notice of an adjourned
meeting need be given other than announcement at the Special Meeting of the
hour, date and place to which the Special Meeting is adjourned, except where the
meeting is adjourned for 30 days or more.
Proxies in the accompanying form, duly executed and returned to the
management of the Company and not revoked, will be voted at the Special Meeting.
All proxies returned by mail must be returned no later than ,
1999. Any proxy given pursuant to such solicitation may be revoked by the
shareholder at any time prior to the voting of the proxy by a subsequently dated
proxy, by written notification to the Secretary of the Company, or by personally
withdrawing the proxy at the Special Meeting and voting in person. Attendance at
the Special Meeting will not in and of itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
The Company will bear the costs of solicitation of proxies and of preparing,
printing and mailing this Proxy Statement. It is estimated that said costs,
excluding the costs incurred for the services of the proxy solicitor, will be
approximately $10,000. Brokerage houses, fiduciaries, nominees and others will
be reimbursed for their out-of-pocket expenses in forwarding proxy materials to
beneficial owners of shares held in their names. In addition to the solicitation
of proxies by use of the mails, proxies may be solicited from holders of shares
by directors, officers and employees of the Company in connection with the
solicitation. In addition, , a proxy solicitation firm, has been
engaged by the Company to act as proxy solicitor and will receive fees estimated
at $ , plus reimbursement of out-of-pocket expenses.
QUORUM
The holders of a majority of the votes represented by the issued and
outstanding shares of Common Stock and Series B Preferred Stock, present in
person or represented by proxy, shall constitute a quorum at the Special
Meeting. Shares represented by executed proxies received by the Company will be
counted for purposes of establishing a quorum, regardless of how or whether such
shares are voted on any specific proposal.
The inspector of elections appointed for the meeting will tabulate votes
cast in person or by proxy at the meeting. The inspector of elections will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as unvoted for purposes of determining
the approval of any matter submitted to the shareholders for a vote. Broker
non-votes (i.e., proxies on which a
2
<PAGE>
broker or nominee indicates that it does not have discretionary authority as to
certain shares to vote on a particular matter) will also be considered as
present for the purposes of determining the presence of a quorum, but unvoted
with respect to that matter.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock is required to approve the Amendment to the
Certificate of Incorporation Proposal and the vote of the holders of a majority
of the votes cast at the Special Meeting is required to approve each of the
Issuance of Series B Preferred Stock Proposal, Amendment of Notes Proposal and
the Private Placement Proposal.
The directors and officers of the Company who beneficially owned
approximately 25.6% of the outstanding Common Stock on the record date have
expressed their intention to vote in favor of the approval of the Amendment to
the Certificate of Incorporation Proposal, the Issuance of Series B Preferred
Stock Proposal, the Amendment of Notes Proposal and the Private Placement
Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE APPROVAL OF THE FOUR PROPOSALS.
FORWARD LOOKING STATEMENTS
Statements made in this proxy statement or in the documents incorporated by
reference into this document include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. We caution you that, while forward-looking
statements reflect the Company's good faith beliefs, they are not guarantees and
involve known and unknown risks and uncertainties, and that actual results may
differ materially from those forward-looking statements.
3
<PAGE>
PROPOSAL 1
APPROVAL OF AMENDMENT TO CERTIFICATE
OF INCORPORATION PROPOSAL
The Company has proposed the approval and adoption of an Amendment to its
Restated Certificate of Incorporation (the "Amendment"), which will amend the
terms of the Company's Series B Convertible Preferred Stock, par value $.001 per
share (the "Series B Preferred Shares"), as described below (the "Amendment to
Certificate Proposal"). The Amendment to Certificate Proposal is proposed for
approval and adoption by the Company's shareholders in connection with the
restructuring of the terms of the Series B Preferred Shares.
BACKGROUND
ORIGINAL ISSUANCE OF SERIES B PREFERRED SHARES
On August 26, 1997, the Company sold in a private placement an aggregate of
8,000 Series B Preferred Shares and warrants to purchase an aggregate of up to
114,628 shares of Common Stock of the Company to Capital Ventures International,
C.C. Investments LLC and Marshall Capital Management, Inc. (formerly known as
Proprietary Convertible Investment Group, Inc.) (collectively, the "Series B
Investors") at an aggregate purchase price of $8,000,000. Each Series B
Preferred Share accrued a premium of 6% per annum (the "Premium"). Following the
issuance, the Series B Preferred Shares were convertible into shares of Common
Stock. The conversion price to determine the number of shares issuable upon
conversion of the Series B Preferred Shares was the lower of the fixed
conversion price of $13.9581 and the average of the lowest closing bid price of
the Common Stock of any five trading days during the thirty trading days
immediately preceding the date on which the proposed conversion was made
multiplied by 95% (the "Original Series B Conversion Price"). On August 26,
2000, any Series B Preferred Share which remains outstanding will automatically
convert into shares of Common Stock.
The transaction was effected in accordance with Delaware law and pursuant to
the authority conferred upon the Company's Board of Directors in the Company's
Restated Certificate of Incorporation to designate the terms of, and to issue,
Series B Preferred Shares. The Board of Directors approved the original
transaction in order to satisfy the Company's then current working capital needs
and to repay indebtedness.
AMENDMENT OF TERMS OF SERIES B PREFERRED SHARES
As a result of the decline in the market price of the Company's Common
Stock, the number of shares of Common Stock into which the Series B Preferred
Shares were convertible significantly increased. When the number of shares of
Common Stock into which the Series B Preferred Shares were convertible exceeded
the shares of Common Stock listed on the American Stock Exchange for conversion
of the Series B Preferred Shares (the "Cap Amount"), each Series B Investor
became entitled to request that the Company redeem a portion of the Series B
Preferred Shares held by it for cash, and one of the Series B Investors in fact
sent such a redemption notice in December, 1998. To avoid having to make the
sizeable cash payment which would result from the exercise by the Series B
Investors of their right to request that the Company redeem a portion of their
Series B Preferred Shares for cash, the Company commenced discussions with the
Series B Investors to amend certain of the terms of the Series B Preferred
Shares. The Company and the Series B Investors began negotiations in December,
1998 with respect to amendments to the terms of the Series B Preferred Shares.
On January 22, 1999, the Company entered into an Agreement to Amend the
Terms of the Series B Preferred Shares (the "Agreement to Amend Terms"). In
exchange for certain amendments to the terms of the Series B Preferred Stock,
the Series B Investors agreed not to request that the Company redeem any Series
B Preferred Shares and agreed not to convert any Series B Preferred Shares into
Common Stock to
4
<PAGE>
the extent that such conversion would exceed such Series B Investor's allocable
portion of the Cap Amount. The Series B Investors' agreement that they will not
request that the Company redeem any Series B Preferred Shares, and that this
will not convert any Series B Preferred Shares in excess of the Cap Amount
terminates if approval of the Company's shareholders is not obtained by either
March 31, 1999, or, in the event the Company's proxy solicitation materials are
reviewed by the Securities and Exchange Commission, April 30, 1999.
Under the Agreement to Amend Terms, the terms of the Series B Preferred
Shares will be amended to increase the face amount of each Series B Preferred
Share (plus any accrued but unpaid Premium thereof) by 15%. The conversion price
will be the greater of $2.00 or the Original Series B Conversion Price until the
date on which shareholder approval of the Amendment of Certificate Proposal is
obtained ("Series B Approval Date"). When and if shareholder approval is
obtained, the conversion price will be fixed at $2.00 until July 20, 1999. After
July 20, 1999, and assuming shareholder approval is obtained, the conversion
price will be the lower of $2.00 or the Original Series B Variable Conversion
Price. In the event the closing price of a share of the Company's Common Stock
exceeds $3.25 for any ten consecutive trading days after the Series B Approval
Date, the Company will have the option to fix the conversion price upon thirty
days' advance notice to the holders of the Series B Preferred Shares. In
connection with the potential conversion of Series B Preferred Shares, the
Company is required to list an additional 2,600,000 shares of Common Stock on
the American Stock Exchange. After July 20, 1999, if the closing price of a
share of Common Stock is less than $2.00 for at least ten consecutive trading
days, the Company will have the right to redeem the Series B Preferred Shares at
the face amount, plus accrued Premium and conversion default payments (if any).
As described above in the Amendment to Certificate Proposal, the Series B
Investors agreed not to request that the Company redeem any portion of the
Series B Preferred Shares prior to the listing of additional shares of Common
Stock, in exchange for the Company's agreement to pursue an Amendment to the
Company's Restated Certificate of Incorporation, as well as a listing of
2,600,000 additional shares of Common Stock on the American Stock Exchange
issuable upon conversion of the Series B Preferred Shares.
EFFECT ON EXISTING HOLDERS OF COMMON STOCK
Approval of the Amendment of Certificate Proposal will likely have a
dilutive effect on the shareholders of the Company. Such approval will permit
the Company to list an additional 2,600,000 shares of Common Stock issuable upon
conversion of the Series B Preferred Shares on the American Stock Exchange and
will permit the Company to satisfy its contractual listing obligations relating
to the Series B Preferred Shares, while also getting the benefit, through the
Agreement to Amend, of a fixed conversion price for a period of time. The
listing of such additional shares, however, will permit the holders of the
Series B Preferred Shares to convert more of these shares and therefore in the
future will result in a significant increase in the number of shares of Common
Stock outstanding.
INTERESTS OF CERTAIN PERSONS
The Series B Investors hold Series B Preferred Shares as of
, 1999. On such date the Series B Preferred Shares were convertible
into shares of Common Stock.
BOARD OF DIRECTORS RECOMMENDATION; REASONS FOR THE AUTHORIZATION OF AMENDMENT TO
CERTIFICATE PROPOSAL
The Board of Directors of the Company believes that the authorization of the
Amendment to the Restated Certificate of Incorporation of the Company is in the
best interest of the Company and its shareholders.
5
<PAGE>
Among the factors considered by the Board of Directors in approving the
Amendment to Certificate Proposal and recommending it to the Company'
shareholders was the Board's view that (i) the amendment is necessary to prevent
the Series B Investors from requesting that the Company redeem their Series B
Shares for cash at a premium at a time when the Company did not have sufficient
cash to make the required payments and (ii) the revised terms under which
conversion would occur may have a less dilutive effect on the Company's
shareholders than if there were no Amendment to the Restated Certificate of
Incorporation. In addition, the Board of Directors considered the effect of an
obligation to redeem Series B Preferred Shares in light of the fact that the
Company had, as of the end of December 1998, a limited amount of cash and other
working capital available to it to conduct its operating activities.
THE BOARD OF DIRECTORS, AFTER REVIEWING THE FINANCIAL POSITION AND RESULTS
OF OPERATIONS OF THE COMPANY, DETERMINED THAT AN OBLIGATION TO REDEEM A
SIGNIFICANT NUMBER OF SERIES B PREFERRED SHARES WOULD LIKELY HAVE HAD A DAMAGING
EFFECT ON THE COMPANY AND ITS PROSPECTS AND LIKELY HAVE RESULTED IN ITS
INABILITY TO MEET ITS OBLIGATIONS. ACCORDINGLY, THE BOARD OF DIRECTORS
DETERMINED THAT AN AMENDMENT TO THE TERMS OF THE SERIES B PREFERRED SHARES WHICH
MITIGATES THE POTENTIAL EXPOSURE TO CASH REDEMPTION OBLIGATIONS, WHILE ALSO
FIXING, FOR A PERIOD OF TIME, THE CONVERSION PRICE OF THE SERIES B PREFERRED
SHARES AT A MINIMUM OF $2.00 PER SHARE, IS IN THE BEST INTERESTS OF THE COMPANY
AND ITS SHAREHOLDERS.
DELAWARE STATE LAW VOTING REQUIREMENTS
The Company is incorporated in the State of Delaware. The Delaware General
Corporation Law requires the approval of a majority of shareholders entitled to
vote to amend the Series Designation.
AMERICAN STOCK EXCHANGE VOTING REQUIREMENTS
The Company's Common Stock is traded on the American Stock Exchange. Rule
713 of the American Stock Exchange requires shareholder approval of the issuance
of securities convertible into Common Stock if such underlying Common Stock
would have, upon issuance, voting power equal to or in excess of 20% of the
voting power for such security before such issuance. As noted above, under
certain circumstances it is possible that Series B Preferred Stock could be
convertible into a number of shares of Common Stock which exceeds 20% of the
voting power of the Company's Common Stock.
VOTE REQUIRED
To approve the Amendment to Certificate Proposal, the affirmative vote of a
majority of the outstanding shares of Common Stock entitled to vote at the
Special Meeting is required. THE BOARD OF DIRECTORS BELIEVES THE AMENDMENT TO
CERTIFICATE PROPOSAL IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS, AND ACCORDINGLY, RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE AMENDMENT TO CERTIFICATE PROPOSAL.
PROPOSAL 2
APPROVAL OF ISSUANCE OF SERIES B PREFERRED STOCK
The Company has proposed the authorization and approval of the issuance of
Series B Preferred Shares, as described below (the "Issuance of Series B
Preferred Stock Proposal"). The Issuance of Series B Preferred Stock Proposal is
proposed for authorization and approval by the Company's shareholders in
connection with the restructuring of the terms of the Series B Preferred Shares.
6
<PAGE>
BACKGROUND
ORIGINAL ISSUANCE OF SERIES B PREFERRED SHARES
On August 26, 1997, the Company sold in a private placement an aggregate of
8,000 Series B Preferred Shares and warrants to purchase an aggregate of up to
114,628 shares of Common Stock of the Company to the Series B Investors at an
aggregate purchase price of $8,000,000. Each Series B Preferred Share accrued a
Premium. For a further description of the original issuance of the Series B
Preferred Shares, see the Amendment of Certificate Proposal above.
AMENDMENT OF TERMS OF SERIES B PREFERRED SHARES
As a result of the decline in the market price of the Company's Common
Stock, the number of shares of Common Stock into which the Series B Preferred
Shares were convertible significantly increased. When the number of shares of
Common Stock into which the Series B Preferred Shares were convertible exceeded
the Cap Amount, each Series B Investor became entitled to request that the
Company redeem a portion of the Series B Preferred Shares held by it for cash,
and one of the Series B Investors in fact sent such a redemption notice in
December, 1998. To avoid having to make the sizeable cash payment which would
result from the exercise by the Series B Investors of their right to request
that the Company redeem a portion of their Series B Preferred Shares for cash,
the Company commenced discussions with the Series B Investors to amend certain
of the terms of the Series B Preferred Shares. The Company and the Series B
Investors began negotiations in December, 1998 with respect to amendments to the
terms of the Series B Preferred Shares.
As described in fuller detail above in the Amendment of Certificate
Proposal, on January 22, 1999, the Company entered the Agreement to Amend Terms.
In exchange for certain amendments to the terms of the Series B Preferred Stock,
the Series B Investors agreed not to request that the Company redeem any Series
B Preferred Shares and agreed not to convert any Series B Preferred Shares into
Common Stock to the extent that such conversion would exceed such Series B
Investor's allocable portion of the Cap Amount. Under the Agreement to Amend
Terms, the terms of the Series B Preferred Shares will be amended to increase
the face amount of each Series B Preferred Share (plus accrued but unpaid
Premium) by 15% and establish certain fixed conversion prices for the Series B
Preferred Shares. In connection with the potential conversion of Series B
Preferred Shares, the Company is required to list an additional 2,600,000 shares
of Common Stock on the American Stock Exchange.
If shareholder approval is not obtained, the original terms of the Series B
Preferred Shares require the Company to list on the American Stock Exchange 135%
of the total number of shares of Common Stock into which the Series B Preferred
Shares could then be converted. As a result of the decline in the market price
of the Common Stock in the time period since a number of shares of Common Stock
issuable upon conversion of the Series B Preferred Shares were initially listed
on the American Stock Exchange, and the corresponding increase in the number of
shares of Common Stock into which the Series B Preferred Shares are convertible,
the Company may not have listed the number of shares of Common Stock required by
its agreements with the Series B Investors, including the Series B Preferred
Shares Certificate of Designations, Rights and Preferences. As a result, the
Company could be required to list a yet undetermined number of additional shares
of Common Stock into which the Series B Preferred Shares would be convertible on
the American Stock Exchange. Under Rule 713 of the American Stock Exchange, the
Company is required to obtain the authorization of its shareholders to issue an
as yet undetermined number of shares of Common Stock issuable upon conversion of
the Series B Preferred Shares in order to list an adequate number of shares of
Common Stock on the American Stock Exchange so that the Company may meet its
contractual obligations with the Series B Investors. Under Rule 713 a Company
must get shareholder approval to issue any security convertible into Common
Stock if such underlying Common Stock would have, upon issuance, voting power
equal to or in excess of 20% or more of the presently book or market value for
the security. A failure to obtain shareholder approval of the
7
<PAGE>
Amendment to Certificate Proposal or the Issuance of Series B Stock Preferred
Stock Proposal will result in a default under the original terms of the Series B
Preferred Shares and may result in the Series B Investors having the right to
request that the Company redeem a portion of the Series B Preferred Shares then
outstanding for cash at a significant premium. There can be no assurances that
the Company would have sufficient cash to make any such required redemption
payments.
As described above in the Amendment to Certificate Proposal, the Series B
Investors agreed not to request that the Company redeem any portion of the
Series B Preferred Shares prior to the listing of additional shares of Common
Stock, in exchange for the Company's agreement to pursue an Amendment to the
Company's Restated Certificate of Incorporation, as well as a listing of
2,600,000 additional shares of Common Stock on the American Stock Exchange
issuable upon conversion of the Series B Preferred Shares.
EFFECT ON EXISTING HOLDERS OF COMMON STOCK
Approval of the Issuance of Series B Preferred Stock Proposal will likely
have a dilutive effect on the shareholders of the Company. Such approval will
permit the Company to list an additional 2,600,000 shares of Common Stock
issuable upon conversion of the Series B Preferred Shares on the American Stock
Exchange will permit the Company to satisfy its contractual listing obligations
relating to the Series B Preferred Shares, while also getting the benefit,
through the Agreement to Amend, of a fixed conversion price for a period of
time. The listing of such additional shares, however, will permit the holders of
the Series B Preferred Shares to convert more of these shares and therefore in
the future result in a significant increase in the number of shares of Common
Stock outstanding.
INTERESTS OF CERTAIN PERSONS
The Series B Investors hold 4,880 Series B Preferred Shares as of December
31, 1998. On such date the Series B Preferred Shares were convertible into
3,218,720 shares of Common Stock.
BOARD OF DIRECTORS RECOMMENDATION; REASONS FOR THE AUTHORIZATION AND APPROVAL OF
THE ISSUANCE OF SERIES B PREFERRED STOCK PROPOSAL
The Board of Directors of the Company believes that the authorization and
approval of the Issuance of Series B Preferred Stock Proposal is in the best
interest of the Company and its shareholders.
Among the factors considered by the Board of Directors in approving the
Issuance of Series B Preferred Stock Proposal and recommending it to the
Company's shareholders was the Board's view that the increase in Common Stock
issuable upon conversion of the Series B Preferred Shares is necessary (i) to
satisfy its contractual obligations under the original Series B Preferred Share
terms and the amended Series B Preferred terms as contemplated in the Amendment
to Certificate Proposal, and (ii) to satisfy the requirements of the American
Stock Exchange under Rule 713 thereof. In addition, the Board of Directors
considered the effect of an obligation to redeem Series B Preferred Shares in
light of the fact that the Company had, as of the end of December 1998, a
limited amount of cash and other working capital available to it to conduct its
operating activities.
THE BOARD OF DIRECTORS, AFTER REVIEWING THE FINANCIAL POSITION AND RESULTS
OF OPERATIONS OF THE COMPANY, DETERMINED THAT AN OBLIGATION TO REDEEM A
SIGNIFICANT NUMBER OF SERIES B PREFERRED SHARES WOULD LIKELY HAVE AN ADVERSE
EFFECT ON THE COMPANY AND ITS PROSPECTS. ACCORDINGLY, THE BOARD OF DIRECTORS
DETERMINED THAT AN AMENDMENT TO THE TERMS OF THE SERIES B PREFERRED SHARES WHICH
MITIGATES THE POTENTIAL EXPOSURE TO CASH REDEMPTION OBLIGATIONS, WHILE ALSO
FIXING, FOR A PERIOD OF TIME, THE POTENTIAL DILUTIVE EFFECT OF THE SERIES B
PREFERRED SHARES, IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS.
THE PROPOSED AMENDMENT OF THE SERIES B PREFERRED SHARES, COUPLED WITH THE
DECLINE IN THE PRICE OF THE COMPANY'S COMMON STOCK REQUIRES THE COMPANY TO GET
SHAREHOLDER APPROVAL OF THE AMENDMENT OF CERTIFICATE
8
<PAGE>
PROPOSAL AND THE ISSUANCE OF SERIES B PREFERRED STOCK PROPOSAL, EACH WHICH THE
BOARD OF DIRECTORS HAS DETERMINED IS IN THE BEST INTERESTS OF THE COMPANY AND
ITS SHAREHOLDERS.
AMERICAN STOCK EXCHANGE VOTING REQUIREMENTS
The Company's Common Stock is traded on the American Stock Exchange. Rule
713 of the American Stock Exchange requires shareholder approval of the issuance
of securities convertible into Common Stock if such security would be
convertible into 20% or more of the presently outstanding stock for less than
the greater of book or market value of the stock. As noted above, under certain
circumstances it is possible that Series B Preferred Shares could be convertible
into a number of shares of Common Stock which exceeds 20% of the currently
outstanding Company stock.
VOTE REQUIRED
To approve the Issuance of Series B Preferred Stock Proposal, the
affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote at the Special Meeting is required. THE BOARD OF DIRECTORS
BELIEVES THE ISSUANCE OF SERIES B PREFERRED STOCK PROPOSAL IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, AND ACCORDINGLY, RECOMMENDS THAT
THE SHAREHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE ISSUANCE OF SERIES
B PREFERRED STOCK PROPOSAL.
PROPOSAL 3
APPROVAL OF NOTES AMENDMENT PROPOSAL
On October 27, 1997, the Company issued certain Senior Subordinated
Convertible Notes (the "Original Notes") having an aggregate face value of
$10,000,000, and on January 11, 1999 the Company amended the portion of the
Original Notes which remained outstanding (the "Amended Notes") (the Original
Notes and the Amended Notes are hereinafter referred to as the "Convertible
Notes"). The Company is proposing the ratification, confirmation and approval of
the issuance of the Convertible Notes. The Notes Amendment Proposal is proposed
for ratification, confirmation and approval by the Company's shareholders in
connection with the amendment of the terms of the Notes.
BACKGROUND
ORIGINAL ISSUANCE OF NOTES
On October 27, 1997, the Company sold in a private placement the Convertible
Notes and warrants to purchase up to 106,700 shares of Common Stock to Elliott
Associates, L.P. and Westgate International, L.P. for gross proceeds of $10
million. The principal of the Notes was payable in full on October 28, 2002. The
unpaid principal on each Note currently accrues interest at the rate of 8% per
year payable in cash or, at the option of the Company, subject to certain
conditions, shares of Common Stock. The holder of each Note may convert all or a
portion of the principal amount outstanding under such Note into Common Stock
prior to October 27, 2002. The principal amount of the Note to be converted
converts into that number of shares of Common Stock calculated by dividing the
principal amount of the Note to be converted, plus any accrued and unpaid
interest, by a conversion price equal to the lesser of (i) $12.65625 (the
"Ceiling Price"), and (ii) the Recent Market Price as of the date on which the
conversion notice is sent by the holder of the Note to the Company
(collectively, the "Current Formula"). The Company may block any conversion by a
holder of a Note in the event the per share conversion price is less than 60% of
the Ceiling Price by offering to redeem for cash the value of the shares that
would have been issued had a conversion of the Notes occurred in the normal
course plus accrued but unpaid interest.
The transaction was effected in accordance with Delaware law and pursuant to
the authority conferred upon the Company's Board of Directors by the Company's
Restated Certificate of Incorporation and By-laws to incur debt on behalf of the
Company. The Board of Directors approved the original
9
<PAGE>
transaction in order to continue the Company's research and development and
marketing efforts and to satisfy the Company's then current working capital
needs.
AMENDMENT OF TERMS OF THE NOTES
As a result of the significant decline in the market price of the Company's
Common Stock during 1998 from $11.875 to as low as $1.25, the number of shares
of Common Stock into which the Notes were convertible increased dramatically.
When the number of shares of Common Stock into which the Notes were convertible
exceeded the number of shares listed on the American Stock Exchange for
conversion of the Notes, the holders of the Notes became entitled to request
that the Company redeem up to the full principal amount of the Notes in cash. As
of January 11, 1999, the principal amount of the Notes was approximately
$3,778,000. To mitigate the sizeable cash payments which would result from the
exercise by the Note holders of their rights under the Notes to accelerate
principal amounts due thereunder, the Company commenced discussions with the
Note holders to amend the terms of the Notes. On January 11, 1999, the Company
entered into an agreement to amend the terms of the Notes ("Note Amendment
Agreement") with the holders of the Notes, subject to ratification of certain
terms of the Note Amendment Agreement by the Company's shareholders in order to
comply with certain rules and regulation of the American Stock Exchange.
Pursuant to the terms of the Note Amendment Agreement, the Company redeemed
approximately $781,000 of the principal amount of the Notes and 78,000 of
accrued premium in cash and converted approximately $904,000 of the principal
amount due under the Notes plus accrued but unpaid interest into 500,000 shares
of Common Stock at a conversion price of $1.8125 per share. Under the Notes, as
amended by the Note Amendment Agreement (the "Amended Notes"), any principal
amount not redeemed for cash or converted into shares of the Company's Common
Stock on or prior to January 11, 1999 as part of the settlement with the Note
holders was increased by 15% and, in consideration thereof, as well as for other
consideration, the warrants held by the Note holders were canceled. The Amended
Notes, which are due and payable in full on July 12, 1999, accrue interest at a
rate of 8% per share. As of the close of business on January 11, 1999 the
principal amount and accrued interest of the Amended Notes was $2,415,000.
Amounts due under the Amended Notes may be converted into shares of Common
Stock subject to certain restrictions. The holders of the Amended Notes cannot
effect a conversion of the Amended Notes into shares of Common Stock until the
Company has obtained the approval of its shareholders, to the extent required,
of the terms of the Amended Notes and the issuance of shares of Common Stock
issuable upon conversion of the Amended Notes. The number of shares of Common
Stock issuable upon conversion of the Amended Notes is determined by dividing
the portion of the principal amount of the Amended Notes being converted by the
then conversion price. If the Company's shareholders ratify the Notes Amendment,
the holders of the Amended Notes will then be entitled to convert all or a
portion of the amounts due under the Amended Notes into shares of Common Stock
at a fixed conversion price of $2.00 per share. In the event of certain events
of default under the Amended Notes, the holders may convert all or a portion of
the amounts due under the Amended Notes into shares of Common Stock at a
conversion price equal to the lesser of $2.00 (the "Notes Ceiling Price") and
the lowest price at which the Company's Common Stock traded during the five
trading days preceding such conversion date. Notwithstanding the foregoing
provision, the holders of the Amended Notes may fix the conversion price at
which the Amended Notes may be converted into shares of Common Stock on any date
at the conversion price in effect on that date.
If the per share conversion price is less than 60% of the Ceiling Price, the
Company may block any conversion by offering to redeem the Amended Notes for
cash in an amount equal to the fair market value of the Common Stock for which
the Amended Notes plus accrued but unpaid interest could then be converted.
Commencing two weeks after shareholder approval is obtained, the Company may
redeem an Amended Note at 100% of its face value plus accrued but unpaid
interest. In the event shareholder approval is not obtained by certain dates
which vary depending upon the review, if any, of the Company's
10
<PAGE>
proxy solicitation materials by the Securities and Exchange Commission, the
holders of the Amended Notes will be entitled to accelerate all amounts due
under the Amended Notes and require the Company to pay the Amended Notes in
full.
In exchange for the Noteholders' forbearance of acceleration of amounts due
under the Notes or conversion of amounts due thereunder into shares of Common
Stock at the then applicable conversion prices (which were as low as $1.25 per
share) prior to the listing of additional shares of Common Stock issuable upon
conversion of the Notes, the Company has agreed to amend the terms of the
outstanding Notes and list additional shares of Common Stock issuable upon
conversion of the Notes on the American Stock Exchange, subject to shareholder
approval. On January 19, 1999, the Company listed 2,500,000 Note Conversion
Shares on the American Stock Exchange on the condition shareholder ratification
of the amendment to these Notes be obtained as soon as practicable.
EFFECT UPON EXISTING HOLDERS OF COMMON STOCK
Approval of the Notes Amendment Proposal will likely have a potentially
dilutive effect on the shareholders of the Company. Such approval will permit
the Company to list an additional 2,500,000 shares of Common Stock issuable upon
conversion of the Notes on the American Stock Exchange will permit the Company
to satisfy its contractual listing obligations under both the existing Notes and
the terms of the Note Amendment Agreement. The listing of such additional
shares, however, will permit the holders of the Notes to convert more and
therefore in the future result in a significant increase in the number of shares
of Common Stock outstanding.
INTERESTS OF CERTAIN PERSONS
The Note holders currently hold $3,778,000 principal amount of Notes as of
December 31, 1999. On such date the Notes were convertible into 2,126,074 shares
of Common Stock.
BOARD OF DIRECTOR RECOMMENDATIONS; REASONS FOR THE AUTHORIZATION OF ADDITIONAL
SHARES OF COMMON STOCK
Based primarily on its consideration of the factors referred to below, the
Board of Directors of the Company believes that the amendment of the terms
governing the Notes and the authorization of additional shares of Common Stock
to be listed on the American Stock Exchange is in the best interest of the
Company and its shareholders.
Among the factors considered by the Board of Directors in approving and
recommending to the shareholders the Notes Amendment Proposal was the Board's
view that (i) the current Note terms and terms of the Amended Notes both require
the Company to list additional shares of Common Stock on the American Stock
Exchange and (ii) that a partial redemption of the Notes in six months in the
form of Common Stock rather than payment immediately of cash which is otherwise
necessary for working capital as a result of the Notes being accelerated is in
the Company's best interest. In addition, the Board of Directors considered the
effect of an acceleration of the amounts due under the Notes in light of the
fact that the Company had, as of the end of December 1998, a limited amount of
cash and other working capital available to it to conduct its operating
activities.
The Board of Directors, after reviewing the financial position and results
of operations of the Company determined that an obligation to repay, following
acceleration of the amounts due under the Notes, would likely have an adverse
effect on the Company and its prospects. Accordingly, the Board of Directors
determined that an amendment to the terms of the Notes which mitigated the
potential exposure to cash payment obligations following an acceleration of the
amounts due under the Notes, while also fixing, for a period of time, the
potential dilutive effect of the Notes, was in the best interests of the Company
and its shareholders.
11
<PAGE>
AMERICAN STOCK EXCHANGE VOTING REQUIREMENTS
The Company's Common Stock is traded on the American Stock Exchange. Rule
713 of the American Stock Exchange requires shareholder approval of the issuance
of securities convertible into Common Stock if such underlying Common Stock
would have, upon issuance, voting power equal to or in excess of 20% of the
voting power of such security before such issuance. On January 8, 1999, the
Company obtained a waiver from the American Stock Exchange of the requirement
that the Company receive shareholder approval prior to listing the additional
Note Conversion Shares. On January 19, 1999 the Company listed an additional
2,500,000 shares of Common Stock issuable upon conversion of the Notes on the
American Stock Exchange. The American Stock Exchange waiver was conditioned on
the Company providing certain notice to shareholders and obtaining shareholder
approval or ratification of the amendment to Notes as soon as practicable after
listing the additional shares of Common Stock issuable upon conversion of the
Notes.
Accordingly, the Company has decided to seek shareholder approval of the
Notes Amendment Proposal. Shareholder approval is not otherwise required as a
matter of Delaware law or other applicable laws or rules.
VOTE REQUIRED
To approve the Notes Amendment Proposal, the affirmative vote of the holders
of a majority of the votes cast by shareholders at the Special Meeting is
required. THE BOARD OF DIRECTORS BELIEVES THAT THE NOTES AMENDMENT PROPOSAL IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, AND ACCORDINGLY,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE NOTES AMENDMENT PROPOSAL.
PROPOSAL 4
APPROVAL OF THE PRIVATE PLACEMENT PROPOSAL
TERMS OF THE ISSUANCES
On January 8, 1999, the Company sold an aggregate of 56,845 shares of Series
C Convertible Preferred Stock (the "Series C Preferred Shares") at a price per
share of $100, 3,030 shares of Series D Convertible Preferred Stock (the "Series
D Preferred Shares") at a price per share of $100, and 14,170 shares of Series E
Convertible Preferred Stock (the "Series E Preferred Shares") at a price per
share of $100, for an aggregate purchase price of $7,404,500 to certain
investors (the "Investors") in a private placement (the "Private Placement")
(the Series C Preferred Shares, Series D Preferred Shares and Series E Preferred
Shares, collectively the "Series Preferred Shares"). The Investors include
certain officers and directors of the Company. Each Series Preferred Share
accrues a dividend at the rate of 7% per annum (the "Preferred Premium"). The
Preferred Premium is cumulative and accrues without interest from the first day
of the quarterly period in which such dividend may be payable. No interest shall
be declared and paid on the Preferred Shares unless the dividends on the Series
B Preferred Shares have been declared and paid. The Preferred Shares are
convertible into shares of Common Stock.
The transactions were effected in accordance with Delaware law and pursuant
to the authority conferred upon the Company's Board of Directors in the
Company's Certificate of Incorporation to designate the terms of and to issue
shares of Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock. The Board of Directors approved the transactions because the
Company required funds to redeem a portion of the amounts due under the Notes,
as described above, and to continue to execute the Company's business strategy
and meet its current working capital needs.
The actual number of shares of Common Stock issuable upon conversion of one
Series Preferred Share is equal to the aggregate stated value per share (i.e.,
$100), plus any accrued but unpaid Preferred Premium (unless the Company elects
to pay such premium in cash) through the date of such conversion,
12
<PAGE>
divided by a conversion price initially equal to $1.8125 per share of Series C
Convertible Preferred Stock, $2.00 per share of Series D Preferred Stock and
$3.028 per share of Series E Convertible Preferred Stock (in each case, the
"Applicable Conversion Value") as adjusted in accordance with the applicable
Certificate of Designation. The conversation prices for the different Series
were determined by applying a discount of 15% to the closing price of the Common
Stock on the American Stock Exchange on the date before the Investor was
scheduled to purchase the applicable shares, except that the conversion price
for the Series D Shares was specifically negotiated with the sole purchaser
thereof, a Series B Investor. The 15% discount was approved by the members of
the special committee and reflects among other things, that the Series Preferred
Shares are not freely tradeable for at least the year from the date of issuance.
Any Series Preferred Share not previously converted will automatically convert
into Common Stock on the third anniversary of the date of issuance of such
Series Preferred Share.
Pursuant to the regulations of the American Stock Exchange, in the absence
of shareholder approval, the aggregate number of shares of Common Stock (or
shares of Common Stock issuable upon conversion of a convertible security)
issuable upon conversion of the Series Preferred Shares may not exceed 20% of
the outstanding shares of Common Stock on January 8, 1999 (i.e., [
shares]) (the "Listed Shares"). Accordingly, no holder of any Series Preferred
Shares is entitled to convert such securities until the earlier of April 30,
1999 or shareholder ratification of the issuance of such Series Preferred
Shares. If the shareholders do not ratify the issuance of the Series Preferred
Shares and any holder of the Series Preferred Shares gives the Company a
conversion notice on or after April 30, 1999, then the Company will deliver to
all holders of the Series Preferred Shares notice of the right to convert up to
a pro-rata portion of the number of Listed Shares. The holders of the Series
Preferred Shares wishing to convert any Series Preferred Shares must so notify
the Company within thirty days of the Company's notice of the right to convert.
If the total number of shares of Common Stock issuable upon conversion of the
Series Preferred Stock for which conversion is requested (the "Requested
Shares") exceeds the number of Listed Shares, then the Company will convert, on
a pro-rata basis, only that portion of the Series Preferred Shares as is
convertible into the number of Listed Shares. In this event, the Company will
redeem the remaining Series Preferred Shares for cash. If instead the total
number of shares of Common Stock issuable upon conversion of the Requested
Shares does not exceed the number of Listed Shares, then the Company will
automatically convert the Requested Shares and redeem all remaining outstanding
shares of the Series Preferred Stock. In such an event, the Company has the
option of redeeming a percentage of the Series Preferred Shares in shares of
Common Stock instead of cash so long as the aggregate number of shares of Common
Stock issuable upon conversion and redemption of the Series Preferred Shares
does not exceed the number of Listed Shares.
USE OF PROCEEDS FROM THE PRIVATE PLACEMENT
The gross proceeds to the Company from the offering of approximately
$7,404,500 have been and will be used principally to fund the working capital
needs of the Company and redeem approximately $859,000 of the outstanding
amounts due under the Notes as discussed in the Notes Amendment Proposal.
EFFECT UPON EXISTING HOLDERS OF COMMON STOCK
Approval of the Private Placement Proposal will have a dilutive effect on
the shareholders of the Company. The investors in the Series Preferred Shares
beneficially held an aggregate 23.0% of the shares of Common Stock as prior to
issuance and will beneficially hold an aggregate 28.4% of the Common Stock after
issuance of the Series Preferred Shares.
Authorization of shares of Common Stock issuable upon conversion of the
Series Preferred Shares will permit the Company to list an appropriate number of
shares on the American Stock Exchange to satisfy the Company's obligation in the
event of a conversion.
13
<PAGE>
INTERESTS OF CERTAIN PERSONS
The Series C Preferred Shares and the Series E Preferred Shares were
purchased in part by officers and directors of the Company. The officers and
directors who participated in the sale of Series C Preferred Shares and Series E
Preferred Shares beneficially held an aggregate % of the Company's Common
Stock prior to the issuance and will beneficially hold an aggregate % of the
Company's Common Stock in the event the Private Placement Proposal is approved.
BOARD OF DIRECTORS RECOMMENDATIONS; REASONS FOR AUTHORIZATION OF THE PRIVATE
PLACEMENT
The Board of Directors of the Company, as advised by the special committee
described below, believes that the ratification of the sale of Series Preferred
Shares to the Preferred Investors, including certain officers and directors, is
in the best interest of the Company and its shareholders.
In considering the proposed private placement, the Board of Directors
determined that some members of the Board of Directors would likely participate
in the Private Placement because they constituted part of a group of investors
that could be provided the opportunity to invest in a private placement and,
based upon their knowledge of the Company, reach an agreement with the Company
in a relatively short period of time so as to provide the Company with the
needed capital infusion on an expedited basis. Because of this potential
conflict of interest, the Board of Directors appointed a special committee which
consisted of two members of the Board of Directors, who would not participate in
any private placement transaction, to consider and act upon the private
placement and approve the final terms of the Private Placement. The special
committee then worked with a financial advisor to review and negotiate the terms
of the Series Preferred Shares on behalf of the Company.
Among the factors considered by the special committee of the Board of
Directors in approving the private placement of the Series Preferred Shares was
the special committee's (and the entire Board of Directors, view that (i) the
Company's working capital needs and the agreement to repay $859,000 of the Notes
plus Premium required an immediate influx of cash, and (ii) the issuance and
sale of the Series Preferred Shares represented the most efficient means of
satisfying the Company's immediate need for working capital and funds to repay a
portion of the Notes. The Company's management provided the Board of Directors
and its special committee with financial and operational information about the
Company that indicated that the Company had less than $1 million of available
cash at the end of December 1998 and that the Company was then expending a
significant amount of cash each week in its operating activities. This analysis
of the Company's cash position and net cash outflow led the Board of Directors
to conclude that the Company needed to raise capital on an expedited basis and
that the issuance of the Series Preferred Stock would be an efficient way to
raise these funds.
AMERICAN STOCK EXCHANGE VOTING REQUIREMENTS
The Company's Common Stock is traded on the American Stock Exchange. Rule
713 of the American Stock Exchange requires shareholder approval of the issuance
of securities convertible into Common Stock if such underlying Common Stock
would have, upon issuance, voting power equal to or in excess of 20% of the
voting power of such security before such issuance. The Series Preferred Shares,
if fully converted, would may be convertible into Common Stock exceeding such
20% threshold.
Accordingly, the Company has elected to seek shareholder approval of the
Private Placement Proposal. Shareholder approval is not otherwise required as a
matter of Delaware law or other applicable laws or rules.
VOTE REQUIRED
To approve the Private Placement Proposal, the affirmative vote of a
majority of the votes cast by shareholders at the Special Meeting is required.
THE BOARD OF DIRECTORS BELIEVES THAT THE PRIVATE
14
<PAGE>
PLACEMENT PROPOSAL IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS,
AND ACCORDINGLY, RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PRIVATE
PLACEMENT PROPOSAL.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain Common Stock information regarding
the beneficial ownership of the Common Stock as of February 1, 1999 by (i) each
person or entity known by the Company to own beneficially more than five percent
of the Common Stock, (ii) each director of the Company, (iii) each of the
executive officers of the Company and (iv) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AS OF FEBRUARY 1, PERCENT
DIRECTORS AND EXECUTIVE OFFICERS 1999 OF CLASS
- ---------------------------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Ron Zwanziger..................................................................... 2,036,230 11.9%
Willard Lee Umphrey............................................................... 646,334 4.1%
David Scott, Ph.D................................................................. 425,016 2.6%
Kenneth D. Legg, Ph.D............................................................. 393,384 2.5%
Robert Oringer.................................................................... 282,294 1.8%
Johnathan J. Fleming.............................................................. 235,416 1.5%
John F. Levy...................................................................... 225,896 1.4%
Carol R. Goldberg................................................................. 146,183 0.9%
Edward B. Roberts, Ph.D........................................................... 108,479 0.7%
Otto Wahl......................................................................... 105,245 0.7%
Peter Townsend.................................................................... 28,750 0.2%
John Yonkin....................................................................... 5,919 0.0%
Christopher Huntoon............................................................... 0 0.0%
Emanuel Hart...................................................................... 0 0.0%
----------- ---
----------- ---
Total of Directors and Executive Officers......................................... 4,639,146 25.6%
</TABLE>
SERIES B
PREFERRED STOCK
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNER(2) OF CLASS
- ---------------------------------------------------------------- ------------------------- ---------------
<S> <C> <C>
SHAREHOLDERS
C.C. Investments LDC............................................ %
Capital Ventures International.................................. %
Marshall Capital Management, Inc................................ %
</TABLE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH U.S. BOSTON CAPITAL CORPORATION
Approximately $598,000 of the gross proceeds from the sale of the Series
Preferred Shares represented exchange of payments that the Company would have
otherwise been due for Subordinated Revenue Royalty Notes. U.S. Boston Capital
Corporation assisted the Company in securing the agreement of the holders of
their payment rights to exchange their rights to receive cash from the Company
for Series Preferred Shares. As compensation for its services, U.S. Boston
Capital received a cash commission of $47,190. Willard L. Umphrey, a Director of
the Company, is Chairman, President, Treasurer and a Director of U.S. Boston
Capital Corporation.
15
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information into this Proxy
Statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this Proxy Statement, except
for any information superseded by information in this Proxy Statement. This
Proxy Statement incorporates by reference the documents set forth below that we
have previously filed with the SEC. These documents contain important
information about the Company and its finances.
- The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997;
- The Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998; and
- The Company's current reports on Form 8-K filed on March 4, 1998, May 4,
1998, October 22, 1998 and January 20, 1999.
We are also incorporating by reference additional documents that we will
file with the SEC between the date of this Proxy Statement and the date of the
Special Meeting.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Proxy Statement. Shareholders may obtain documents incorporated
by reference in this Proxy Statement by requesting them in writing or by
telephone from the following address: Attention Duane James, Controller and
Assistant Secretary, Selfcare, Inc., 200 Prospect Street, Waltham, Massachusetts
02453, telephone (781) 647-3900.
If you would like to request documents from us, please do so by
, 1999 to receive them before the Special Meeting. You should rely
only on the information contained or incorporated by reference in this Proxy
Statement to vote on the Company's proposals. We have not authorized anyone to
provide you with information that is different from what is contained in this
Proxy Statement. This Proxy Statement is dated , 1999. You should
not assume that the information contained in this Proxy Statement is accurate as
of any date other than such date, and the mailing of this Proxy Statement to
shareholders shall not create any implication to the contrary.
16
<PAGE>
OTHER INFORMATION
Proxies for the Special Meeting will be solicited by mail and through
brokerage institutions and all expenses involved, including printing and
postage, will be paid by the Company.
The Board of Directors is aware of no other matters, except for those
incident to the conduct of the Special Meeting, that are to be presented to
shareholders for formal action at the Special Meeting. If, however, any other
matters properly come before the Special Meeting or any adjournments thereof, it
is the intention of the persons named in the proxy to vote the proxy in
accordance with their judgment.
By order of the Board of Directors
Ron Zwanziger
CHAIRMAN OF THE BOARD OF DIRECTORS
February , 1999
17
<PAGE>
ANNEX A
CERTIFICATE OF AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION
OF
SELFCARE, INC.
(Pursuant to Section 242 of the
Delaware General Corporation Law)
Selfcare, Inc., a Delaware corporation (the "Corporation"), hereby certifies
that the following amendment to the Corporation's Certificate of Incorporation
(the "Amendment") has been duly adopted in accordance with Section 242 of the
Delaware General Corporation Law.
The Certificate of Designations, Preferences and Rights of the Series B
Convertible Preferred Stock filed by the Corporation with the Secretary of State
of the State of Delaware on August 26, 1997 and incorporated into the
Corporation's Certificate of Incorporation (the "Certificate") is hereby amended
as follows:
1. In Article I of the Certificate, the words "One Thousand U.S. Dollars
($1,000)" shall be deleted and replaced with the words "[THE AMOUNT TO BE
INSERTED WILL BE EQUAL TO THE PRODUCT OF (A) $1,000 PLUS PREMIUM ON EACH
SHARE OF PREFERRED STOCK ACCRUED TO, BUT NOT INCLUDING, THE DATE OF THE
AMENDMENT TIMES (B) 1.15]".
2. Paragraph D of Article III of the Certificate shall be deleted in its
entirety and replaced with the following:
" 'Conversion Price' means (i) on any date occurring from and after [THE
DATE OF THE AMENDMENT] through and including July 20, 1999, the Fixed
Conversion Price; and (ii) on any date occurring from and after July 20,
1999, the lower of (A) the Variable Conversion Price and (B) the Fixed
Conversion Price; PROVIDED, HOWEVER, that in the event that at any time
following [THE DATE OF THE AMENDMENT] the Closing Bid Price for a share
of Common Stock exceeds $3.25 (subject to equitable adjustment for the
events specified in Article XI, A and B) for a period of ten (10)
consecutive trading days and the Corporation delivers to each Holder, in
accordance with the provisions of this Certificate relating to the
delivery of notice, written notice of the occurrence of such event within
five (5) Business Days after the tenth such trading day, "Conversion
Price" shall mean, from and after the effective date specified in such
notice, which date shall be at least thirty (30) days after delivery of
such notice to each Holder, the Fixed Conversion Price, it being
understood that after the date of such delivery and prior to such
effective date, each Holder shall have the right to convert shares of
Series B Preferred Stock at any time and from time to time at the lower
of (A) the Variable Conversion Price and (B) the Fixed Conversion Price."
3. Article III of the Certificate shall be amended as follows:
Paragraph E thereof shall be deleted in its entirety and replaced with
the following:
"E. 'Fixed Conversion Price' means $2.00, and shall be subject to
adjustment as provided herein."
Paragraph H thereof shall be deleted in its entirety and replaced with
the following:
"H. 'N' means the number of days from and including [THE DATE OF THE
AMENDMENT]."
A-1
<PAGE>
4. In Section A of Article IV of the Certificate, the formula described in
clause (i) thereof shall be deleted and replaced with the following:
FA + P
CP
<TABLE>
<S> <C> <C>
where FA represents the Face Amount of such share of Series B Preferred Stock,
P represents the aggregate Premium accrued on such share of Series B Preferred
Stock up to and including the Conversion Date, and
CP represents the Conversion Price (as defined below) in effect on the applicable
Conversion Date.
</TABLE>
5. In the first sentence of paragraph (i) of Section B of Article IV of the
Certificate, the following words shall be inserted in the parenthetical
after the words "subject to a two (2) business day grace period":
"or, if the Corporation does not have a sufficient number of shares of
Common Stock listed on the principal exchange or market on which the
Common Stock is then traded in order to effect the conversion of Series B
Preferred Stock, a five (5) business day grace period"
6. Section C of Article IV of the Certificate shall be amended as follows:
(i) In the first sentence of Section C, the words "limitations (each of
which limitations shall be applied independently)" shall be deleted
and replaced with the word "limitation".
(ii) Paragraph (i) of Section C shall be deleted in its entirety.
(iii) The number "(ii)" at the beginning of paragraph (ii) of Section C
shall be deleted.
7. Section E of Article IV of the Certificate shall be amended so that the
words "the Fixed Conversion Price then in effect" appearing in
subparagraph (iii)(a) shall be deleted and replaced with "$13.9581
(subject to equitable adjustment for the events specified in Article XI,
A and B)".
8. Article VII of the Certificate shall be deleted in its entirety and
replaced with the following:
"VII. [Intentionally Omitted]"
9. In subparagraph (iv) of Section B, Article VIII of the Certificate, the
parenthetical shall be amended so that (i) the words "Articles V or VII"
shall be deleted and replaced with the words "Article V" and (ii) the
words "such Articles" shall be deleted and replaced with the words "such
Article".
10. Section B of Article VIII of the Certificate shall be amended as
follows:
(i) In the first sentence of paragraph VIII.B.(i), the words "for any
five (5) consecutive trading days is less than $9.00" shall be
deleted and replaced with the words "for any ten (10) consecutive
trading days occurring after July 20, 1999 is less than $2.00".
(ii) In the first sentence of paragraph VIII.B.(i), the words "following
the expiration of such five (5) day period" shall be deleted and
replaced with the words "following the expiration of such ten (10)
day period".
(iii) In the last sentence of paragraph VIII.B.(i), the words "115% of
the Face Amount thereof" shall be deleted and replaced with the
words "the Face Amount thereof".
11. In Section C of Article XIV of the Certificate, all references to "Cap
Amount" shall be deleted.
A-2
<PAGE>
12. The following paragraph shall be added at the end of Article XIV:
"NOTICES. Any notice, demand or request required or permitted to be
delivered by the Corporation to any Holder or by any Holder to the Corporation
pursuant to the terms of this Certificate of Designation shall be in writing and
shall be deemed delivered (i) when delivered personally or by verifiable
facsimile transmission (with an original to follow) on or before 5:00 p.m.,
eastern time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to a nationally-recognized overnight courier and (iii) upon actual
receipt after deposit in the U.S. mail (certified or registered mail, return
receipt requested, postage prepaid), addressed as follows:
IF TO THE CORPORATION:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Attn: Chief Executive Officer
Fax: (781) 647-3939
WITH A COPY TO:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Stephen W. Carr, P.C. and Martin Carmichael, III, P.C.
and if to any Holder, to such address for such Holder as appears in the
Securities Purchase Agreement, dated as of August 26, 1997 by and among the
Corporation and each of the purchasers named therein, or as may be designated by
such Holder in writing to the Corporation."
Except as specifically amended hereby, the Certificate of Incorporation
(including without limitation the Certificate of Designation) shall remain in
full force and effect in accordance with its terms. No amendment effected hereby
shall apply to any event or circumstance occurring prior to the date on which
this Amendment is filed with the Secretary of State of the State of Delaware and
has become effective in accordance with the laws of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
A-3
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment has been executed on
behalf of the Corporation this day of , 1999.
SELFCARE, INC.
By:
--------------------------------------
Name:
Title:
A-4
<PAGE>
APPENDIX
SELFCARE, INC.
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02154
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD , 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints RON ZWANZIGER and KENNETH D. LEGG, Ph.D.,
and each of them, Proxies, with full power of substitution in each of them, in
the name, place and stead of the undersigned, to vote at the Special Meeting of
Shareholders of Selfcare, Inc. to be held on , 1999, at P.M.
at the Doubletree Guest Suites, 550 Winter Street, Waltham, MA 02451, or at any
adjournment or adjournments thereof, according to the number of votes that the
undersigned would be entitled to vote if personally present, upon the following
matters:
1. Authorization and approval of the amendment of the Restated Certificate of
Incorporation to amend the terms of the Series B Convertible Preferred
Stock, par value $.001 per share, contained in the Certificate of
Incorporation in connection with the settlement of certain obligations of
the Company to the holders of the Series B Preferred Stock (the "Amendment
to Certificate Proposal").
/ / FOR / / AGAINST / / ABSTAIN
2. Authorization and approval of the issuance of Series B Preferred Stock in
connection with the settlement of certain obligations of the Company to the
holders of the Series B Preferred Stock (the "Issuance of Series B Preferred
Stock Proposal").
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of the amendment of the terms of the Senior Subordinated
Convertible Notes, issued October 27, 1997 (the "Convertible Notes"),
currently outstanding in connection with the settlement of certain
obligations of the Company to the holders of the Convertible Notes (the
"Notes Amendment Proposal").
/ / FOR / / AGAINST / / ABSTAIN
4. Ratification of the issuance of the Series C Convertible Preferred Stock,
Series D Convertible Preferred Stock and Series E Convertible Preferred
Stock, each par value $.001 per share, and the participation by certain
officers and directors of the Company in the private placement of the Series
C Preferred Stock and the Series E Preferred Stock (the "Private Placement
Proposal").
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE)
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS
LISTED ABOVE.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
DATED: , 1999
----------------------------------------
Signature
----------------------------------------
Signature if held jointly.
Please mark, sign, date and
return this proxy card
promptly using the enclosed
envelope.
