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EXHIBIT 4.5
SERIES C PREFERRED STOCK PURCHASE AGREEMENT dated as of December
29, 1997, among GENOMIC SOLUTIONS INC., a Delaware corporation (the
"Corporation"), and each of the investors identified on Schedule I, (each, an
"Investor", and, collectively, the "Investors").
The Corporation desires to sell to the Investors and the Investors
desire to purchase from the Corporation an aggregate of up to 4,070,339 shares
of the Corporation's Series C Convertible Preferred Stock, $.001 par value (the
"Series C Preferred Stock"), with the voting powers, designations, preferences,
limitations, and relative participating, optional or other rights set forth in
the Amended and Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") attached as EXHIBIT A, on the terms and subject
to the conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
ISSUANCE AND SALE OF THE PREFERRED
SHARES
1.1 AUTHORIZATION OF ISSUANCE OF PREFERRED STOCK; RESERVATION OF COMMON
STOCK.
(a) (a) Subject to the terms and conditions hereof, the
Corporation has authorized the issuance of an aggregate of up to 4,070,339
shares of Series C Preferred Stock (the "Securities") at a per share price of
$1.75.
(b) (b) The Corporation shall reserve 4,070,339 shares of
Common Stock, $.001 par value ("Common Stock"), for issuance upon conversion of
the Securities.
1.2 SALE OF SECURITIES.
Simultaneously with the execution and delivery of this Agreement, the
Corporation is issuing and selling that number of Securities to the Investors,
as set forth on Schedule I attached hereto at a per share price of $1.75;
provided however, that in the case of Chase Venture Capital Associates, L.P.,
3,015,375 shares of Series C Preferred Stock shall be issued and sold on the
date hereof and 356,053 shares of Series C Preferred Stock shall be issued and
sold on January 6, 1998.
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ARTICLE II
DELIVERY; ADDITIONAL CLOSINGS
2.1 Delivery.
Except as set forth in Section 1.2 hereof, concurrent with execution
and delivery of this Agreement by an Investor hereunder, the Corporation is
delivering to such Investor a certificate representing the Securities registered
in such Investor's name equal to the number of Securities set forth opposite the
name of such Investor on Schedule I attached hereto, against payment of the
purchase price for such Securities by (at the option of the Corporation) either
cashier's check payable in immediately available funds to the order of the
Corporation or by a wire transfer of funds to the order of the Corporation.
2.2 ADDITIONAL CLOSINGS.
Subject to Section 1.2 hereof, the Corporation may sell up to the
balance of the authorized shares of Series C Preferred Stock not sold on the
date hereof, as it shall elect, at a price not less than $1.75 per share. Upon
execution of a signature page counterpart and without need for an amendment
hereto except to add such investor's name to Schedule I attached hereto, any
such investor shall become a party to this Agreement, shall be deemed an
"Investor" for purposes of this Agreement and shall have the rights and
obligations of an Investor hereunder. At each additional closing hereunder, at
the request of the Investor, the Corporation shall deliver to the Investor
acquiring Securities at such closing an officer's certificate certifying to such
Investor that there has been no material adverse change in the business,
operations or conditions of the Corporation since the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
Except as otherwise expressly indicated in the Schedules attached
hereto, the Corporation hereby represents and warrants to the Investors as
follows:
3.1 ORGANIZATION AND STANDING; CHARTER AND BY-LAWS.
The Corporation is a corporation duly organized, validly exiting and in
good standing under the laws of the State of Delaware, and the Corporation is
authorized to exercise all of its corporate powers, rights and privileges. The
Corporation has all required corporate power and authority to own its property,
to carry on its business as presently conducted or contemplated. True and
accurate copies of the Certificate of Incorporation and the By-laws of the
Corporation, each as in effect on the date hereof, have been delivered to the
Investors.
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3.2 CAPITALIZATION.
The authorized capital stock of the Corporation on the date hereof
consists of 40,000,000 shares of Common Stock, par value $.001 per share
("Common Stock") and 10,000,000 shares of Preferred Stock, par value $.001 per
share (the "Preferred Stock"). On the date hereof, 625,448 shares of Common
Stock will be outstanding. Of the authorized Preferred Stock, 4,070,339 shares
have been designated Series C Preferred Stock, 1,680,880 shares have been
designated Series B Preferred Stock and 50,000 have been designated Series M
Preferred Stock. On the date hereof, giving effect to the issuance of the
Securities hereunder, 4,070,339 shares of Series C Preferred Stock are
outstanding, 1,680,880 shares of Series B Preferred stock are outstanding and
50,000 shares of Series M Preferred Stock are outstanding. The Securities have
the rights, preferences and privileges set forth in the Certificate of
Incorporation. The Corporation has reserved 4,070,339 shares of Common Stock for
issuance upon conversion of the Series C Preferred Stock, 5,093,576 shares of
Common Stock for issuance upon conversion of the Series B Preferred Stock, and
270,027 shares of Common Stock for issuance upon conversion of the Series M
Preferred Stock and 1,590,000 shares of Common Stock for issuance to employees,
consultants and directors under its 1994 Omnibus Equity Incentive Plan (the
"Stock Plan"). On the date of the closing, options to acquire an aggregate of
1,582,100 shares of Genomic Solutions Inc. Common Stock are outstanding. The
Stock Plan was adopted by the Board of Directors and shareholders of the
Corporation in July 1994 and amended in April 1997. In addition, the Corporation
has committed to issue shares of Common Stock to shareholders of PBA Technology
Ltd. ("PBA") in the event the Corporation consummates the acquisition of PBA
(the "PBA Acquisition"). Additionally, the Corporation expects to grant options
to acquire Common Stock to executive officers and directors of the Company and
employees of PBA after consummation of the PBA Acquisition. Except as set forth
herein, there are no outstanding rights, options, warrants, preemptive rights,
conversion rights or agreements for the purchase, acquisition or receipt from
the Corporation of any shares of capital stock or any other securities of the
Corporation. The Corporation is not a party to any existing agreement with any
person or entity which requires the Corporation to purchase from such person or
entity any of its capital stock, any securities convertible into or exchangeable
or exercisable for any of its capital stock, or any right, options or warrants
for its capital stock. All outstanding securities of the Corporation, including
the Securities, have been issued in accordance with all applicable state and
Federal securities laws.
3.3 CORPORATE POWER: AUTHORIZATION.
The Corporation has all requisite legal and corporate power to enter
into this Agreement, to issue and sell the Securities as provided hereunder, and
to carry out and perform its obligations under the terms of this Agreement. All
corporate action on the part of the Corporation and its officers, directors and
shareholders that is necessary for the authorization, execution and delivery of
this Agreement by the Corporation, for the performance of the Corporation's
obligations hereunder and for the issuance and delivery of the Securities has
been taken; and this Agreement constitutes a legal and binding
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obligation of the Corporation, enforceable against the Corporation in accordance
with its terms subject to: (i) judicial principles respecting or limiting the
availability of specific performance, injunctive relief and other equitable
remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect generally relating to or affecting
creditors' rights. The Corporation is not in violation of any term of its
Certificate of Incorporation or By-laws, or in violation of any term of any
judgment, decree, order, statute, rule or government regulation applicable to
the Corporation or to which the Corporation is a party. The Corporation is not
in violation of any term of any agreement or instrument applicable to the
Corporation or to which the Corporation is a party where such violation is
likely to be materially adverse to the Corporation's financial condition,
business or operations.
3.4 VALIDITY OF SECURITIES.
The Securities, when issued, sold and delivered in accordance with the
terms of this Agreement, will be duly and validly issued, fully paid and
non-assessable and will be free and clear of any liens, encumbrances or
restrictions of any kind; provided, however, that the Securities may be subject
to restrictions on transfer under state and federal securities laws and the
Shareholders Agreement dated as of December 24, 1997 (the "Shareholders
Agreement"), among the Corporation and the Shareholders (as defined therein).
The Common Stock issuable upon conversion of the Securities has been duly and
validly reserved and, upon issuance in accordance with the terms of the
Certificate of Incorporation, will be duly and validly issued, fully paid and
non-assessable and will be free and clear of any liens, encumbrances or
restrictions of any kind; provided, however, that the Common Stock may be
subject to restrictions on transfer under state and federal securities laws.
3.5 CONSENTS AND WAIVERS.
The Corporation has obtained any and all consents, permits and waivers
and made all filings necessary or appropriate for consummation of the
transactions contemplated by this Agreement.
3.6 LITIGATION.
There is no action, suit or proceeding pending or, to the knowledge of
the Corporation, threatened against the Corporation or related to the business
conducted by the Corporation. The Corporation is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Corporation currently pending or which the Corporation
intends to initiate.
3.7 SHAREHOLDER LISTS AND AGREEMENTS.
Set forth on Schedule 3.7 is a true and complete list of all
shareholders of the Corporation and persons holding options or warrants to
acquire shares of the Corporation,
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showing the number of shares of capital stock held, or acquirable upon exercise
of the option or warrant, by each such person in each case as of the date of
this Agreement.
3.8 SUBSIDIARIES.
Except as set forth on Schedule 3.8, the Corporation has no
subsidiaries and does not own, directly or indirectly, any interest in any
corporation, association or business entity.
3.9 FINANCIAL STATEMENTS.
(a) (c) Schedule 3.9 attached hereto contains true, correct
and complete copies of:
(i) the balance sheet of the Corporation, as of July 31,
1997, and the related statements of operations, shareholders' deficit
and cash flows of the Corporation for the period covered thereby,
including the footnotes thereto (all of foregoing being hereinafter
collectively called the "Annual Financial Statements"); and
(ii) the interim balance sheet of the Company (the
"Interim Balance Sheet") as of November 30, 1997 (the "Interim Balance
Sheet Date"), and the interim statements of operations and cash flows
of the Corporation for the four month period then ended, including any
footnotes thereto (all of the foregoing, including the Interim Balance
Sheet, being hereinafter collectively referred to as the "Interim
Financial Statements" and together with the Annual Financial Statements
collectively, the "Financial Statements").
(b) The Financial Statements taken as a whole (A) fairly
present in all material respects (subject, in the case of the Interim Financial
Statements, to normal, recurring year-end adjustments which are not material
individually or in the aggregate) the financial position of the Corporation as
of the dates indicated and the results of operations of the Corporation for the
periods indicated, (B) (x) have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") consistently applied throughout the
periods covered thereby (subject, in the case of the Interim Financial
Statements, to normal, recurring year-end adjustments which are not material
individually or in the aggregate) or (y) to the extent not prepared in
accordance with GAAP, then footnotes to the Financial Statements will be
provided describing in reasonable detail the differences, if any, between the
generally accepted accounting principles pursuant to which such Financial
Statements were in fact prepared and GAAP and (C) are in accordance with the
books and records of the Corporation which have been maintained in a manner
consistent with historical practice. All reserves established and set forth in
the Interim Balance Sheet are reasonable and adequate.
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3.10 ABSENCE OF UNDISCLOSED LIABILITIES.
The Corporation has no liabilities or obligations of any nature,
whether matured or unmatured, known or unknown, or fixed or contingent, except
(a) to the extent expressly reflected or reserved against on the Interim Balance
Sheet or expressly disclosed in the notes thereto and (b) liabilities and
obligations arising since the Interim Balance Sheet Date in the ordinary course
of business consistent with past practice (other than any such liability or
obligation arising from breach of contract, breach of warranty, tort,
infringement, or violation of any Legal Requirement).
3.11 ABSENCE OF CERTAIN DEVELOPMENTS.
Except as reflected in the Financial Statements, in the Business Plan
or in Schedule 3.11, since the Interim Balance Sheet Date, there has been (i) no
material adverse change in the condition (financial or otherwise) of the
Corporation or in the assets, liabilities, or properties of the Corporation,
(ii) no declaration, setting aside or payment of any dividend or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of the Corporation, (iii) no waiver of
any valuable right of the Corporation or cancellation of any debt or claim held
by the Corporation, (iv) no loan by the Corporation to any officer, director,
employee or shareholder of the Corporation, or any agreement or commitment
therefor, (v) no increase, direct or indirect, in the compensation paid or
payable to any officer, director, employee or agent of the Corporation, (vi) no
material loss, destruction or damage to any property of the Corporation, whether
or not insured, (vii) no labor disputes involving the Corporation and no
material change in the personnel of the Corporation or the terms and conditions
of their employment, and (viii) no acquisition or disposition of any assets (or
any contract or arrangement therefor), nor any other transaction by the
Corporation otherwise than for fair value in the ordinary course of business.
3.12 TITLE TO ASSETS.
The Corporation has good and marketable title to all of the assets,
reflected as being owned by the Corporation on the Interim Balance Sheet or
acquired subsequent thereto (except for inventory sold or otherwise disposed of
in the ordinary course of business for fair value and accounts and notes
receivable paid in full since the date of the Interim Balance Sheet), free and
clear of all Encumbrances, except for those Encumbrances set forth on Schedule
3.12 and Permitted Liens. Such assets are in good operating condition and repair
(normal wear and tear excepted), are adequate and suitable for the uses for
which they are used in the Corporation' business, are not subject to any
condition which interferes with the economic value or use thereof, and
constitute all assets necessary to permit the Corporation to carry on its
business after the consummation of the transactions contemplated by this
Agreement as generally conducted by the Corporation prior thereto. The term
"Permitted Liens" means (i) liens arising by operation of law in the ordinary
course of business that, individually and in the aggregate, do not in any
material respect interfere with the use of any of the assets subject thereto,
(ii) minor imperfections of title which do not materially detract from the value
of the
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property affected or materially impair the operations of either Corporation, and
(iii) liens for taxes not yet due and payable; and (iv) landlords liens, if any,
relating to leases.
3.13 REAL PROPERTY
The Corporation does not own directly or indirectly any real property.
3.14 TAX MATTERS.
The Corporation has filed all federal, state and local income, excise
or franchise tax returns, real estate and personal property tax returns, sales
and use tax returns and other tax returns required to be flied by it and has
paid all taxes owed by it, except taxes which have not yet accrued or otherwise
become due or for which adequate provision has been made in the pertinent
Financial Statements. The provision for taxes on the Interim Balance Sheet is
sufficient as of its date for the payment of all accrued and unpaid federal,
state, county and local taxes of any nature of the Corporation whether or not
assessed or disputed. All taxes and other assessments and levies which the
Corporation is required to withhold or collect have been withheld and collected
and have been paid over when due to the proper governmental authorities. With
regard to the income tax returns of the Corporation, the Corporation has not
received notice of any audit or of any proposed deficiencies from any taxing
authority and no controversy with respect to taxes of any type is pending or, to
the knowledge of the Corporation, threatened. There are in effect no waivers of
applicable statutes of limitations with respect to any taxes owed by the
Corporation for any year. The Corporation does not conduct any foreign or
international operations that would ordinarily subject it to taxation in any
jurisdiction outside of the United States.
3.15 CONTRACTS AND COMMITMENTS.
Except as set forth in Schedule 3.15, the Corporation (i) is not a
party to any contract, obligation or commitment which involves a potential
commitment in excess of $ 100,000 or which is otherwise material and not entered
into in the ordinary course of business, and (ii) does not have any employment
contracts; stock redemption or purchase agreements; financing agreements;
licenses; distributor or sales representative agreements; agreements with
officers, directors, employees or shareholders of the Corporation or persons or
organizations related to or affiliated with any such persons; leases; agreements
relating to product development; or pension, profit-sharing, retirement or stock
option plans. Each agreement or understanding set forth on Schedule 3.15 is in
full force and effect and constitutes a valid and binding obligation of the
Corporation and to the best knowledge of the Corporation, the other party
thereto. The Corporation has in all material respects performed the obligations
required to be performed by them except for obligations not yet due to be
performed and are not in default or have received notices that they are in
default in any material respect under any such agreement or understanding. There
exists no known event or condition which, after notice or lapse of time, or
both, would constitute such a default. There are no material defaults by any
other party to any such agreement or understanding as to which any notice of
default has been
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given. The Corporation has made available to the Investors correct and complete
copies of all documents set forth on such Schedule.
3.16 PROPRIETARY RIGHTS; EMPLOYEE RESTRICTION.
The Corporation has disclosed on Schedule 3.16, all copyright
registrations, trademark registrations and applications for registration,
patents and patent applications, trademarks, trade secrets or other proprietary
rights (collectively, "Intellectual Property Rights") used or, to the best of
the Corporation's knowledge, to be used in the Corporation's business as
presently conducted or contemplated and all licenses, assignments and leases
relating to Intellectual Property Rights of others embodied in products of the
Corporation. The Corporation has exclusive ownership of or license to use, all
Intellectual Property Rights identified in Schedule 3.16 and, to the best
knowledge of the Corporation, it has obtained any licenses, releases or
assignments to use all third parties' Intellectual Property Rights embodied in
products of the Corporation. To best knowledge of the Corporation, neither the
present nor contemplated business activities or products of the Corporation
infringe any Intellectual Property Rights of others. The Corporation has not
received any notice or other claim from any person asserting that any of the
Corporation's present or contemplated activities infringe or may infringe any
Intellectual Property Rights of such person. The Corporation has the right to
use, free and clear of claims or rights of others, all trade secrets, customer
lists, manufacturing processes, hardware designs, programming processes,
software and other information required for or incident to its products or its
business as presently conducted or contemplated. The Corporation has taken all
commercially reasonable steps to establish and preserve its ownership of all
copyright, trade secret and other proprietary rights with respect to its
products and technology, except such rights as the Corporation has reasonably
determined are not material to the Corporation's continuing business operations.
The Corporation is not aware of any infringement by others of its copyrights or
other Intellectual Property Rights to which it has exclusive use in any of its
products, technology or services, or any violation of the confidentiality of any
of its proprietary information. The Corporation is not making unlawful use of
any confidential information or trade secrets of any past or present employees
of the Corporation. Except as set forth in Schedule 3.16, neither the
Corporation nor, to the Corporation's knowledge, any of the key employees of the
Corporation have any agreements or arrangements with former employers of such
employees relating to confidential information or trade secrets of such
employers. The activities of the Corporation's employees on behalf of the
Corporation do not violate any agreements or arrangements known to the
Corporation which any such employees have with former employers.
3.17 EFFECT OF TRANSACTIONS.
The execution, delivery and performance by the Corporation of this
Agreement and the documents executed and delivered in connection therewith will
not conflict with or result in any default under any material contract,
obligation or commitment of the Corporation, or any charter provision, by-law or
corporate restriction of the Corporation or the creation of any lien, charge or
encumbrance of any nature upon any of the
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properties or assets of the Corporation, except pursuant to this Agreement. The
Corporation's execution and delivery of this Agreement and the documents
executed and delivered in connection therewith and its performance of the
transactions contemplated thereby will not violate any instrument, agreement,
judgment, decree, order, statute, rule or regulation of any federal, state or
local government or agency applicable to the Corporation.
3.18 INSURANCE.
The Corporation maintains valid and effective insurance policies,
issued by financially sound and reputable insurers, to insure it against all
risks usually insured against by persons or entities conducting businesses
similar to that of the Corporation in the locality in which such businesses are
conducted. The Corporation has paid all due premiums with respect to all
policies of insurance currently maintained by the Corporation.
3.19 SECURITIES ACT REGISTRATION.
Assuming that the representations and warranties of the Investor
contained herein are true, the offer, sale and delivery of the Securities in the
manner contemplated by this Agreement are each exempt from registration under
the Securities Act and are exempt or will be exempt under applicable state
securities or Blue Sky laws regulating the issuance or sale of securities upon
the timely filing of notices with the appropriate states.
3.20 BUSINESS; COMPLIANCE WITH LAWS.
The Corporation (i) is in compliance with, in all respects all Legal
Requirements applicable to it and its business and (ii) has all material
federal, state, local and foreign governmental licenses and permits
(collectively, "Permits") used or necessary in the conduct of its business. Such
Permits are in full force and effect, no violations with respect to any thereof
are recorded, no legal proceeding is pending or, to the best knowledge of the
Corporation, threatened to revoke or limit any thereof.
3.21 BOOKS AND RECORDS.
The minute books of the Corporation contain complete and accurate
records of all meetings and other corporate actions of its shareholders and its
board of directors (the "Board of Directors") and committees thereof. The stock
ledger of the Corporation is complete and reflects all issuances, transfers,
repurchases and cancellations of shares of capital stock of the Corporation.
3.22 EMPLOYEE BENEFIT PLANS.
Each employee benefit plan, program, arrangement, practice or contract,
whether formal or informal, maintained or contributed to by the Corporation
providing current or retirement benefits or compensation to or on behalf of
employees or former employees of
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such Persons (the "Benefits Plans"), are in compliance in all material respects
with the presently applicable laws.
3.23 SMALL BUSINESS MATTERS.
The Corporation is a "small business concern" within the meaning of the
Small Business Investment Act of 1958 and the regulations thereunder (the "SBIC
Act"), including Title 13, Code of Federal Regulations, ss. 121.301. The
information set forth in the Small Business Administration Forms 480, 652 and
Sections A and B of Form 1031, which have been delivered on or prior to the
date hereof to the Investor regarding the Corporation is accurate and complete.
The Corporation does not presently engage in, and it shall not hereafter engage
in, any activities, nor shall the Corporation use directly or indirectly the
proceeds from the sale of the Securities for any purpose for which a Small
Business Investment Corporation is prohibited from providing funds by the SBIC
Act, including Title 13, Code of Federal Regulations, ss. 107.720. The
Corporation acknowledges that it has been declared by the Investor that the
Investor is a federal licensee under the SBIC Act.
3.24 INFORMATION SUPPLIED TO THE INVESTOR.
(a) (e) Neither this Agreement, or the Schedules and Exhibits
attached hereto, nor any written document (including the Business Plan),
certificate, projection or statement furnished to the Investor by or on behalf
of the Corporation pursuant to this Agreement contains any untrue statement of a
material fact, and none of this Agreement, the Schedules and Exhibits attached
hereto or such other written documents, projections, certificates and statements
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no material fact relating
to the business, prospects, operations, affairs or conditions of the Corporation
which adversely affects or in the future may, in the reasonable business
judgment of the Corporation, adversely affect the same which has not been set
forth in this Agreement or in the Schedules or Exhibits attached hereto or other
materials delivered pursuant to this Agreement.
(b) The projections contained in the Business Plan are based
upon assumptions believed by the Corporation to be reasonable as of the date
hereof, however the Corporation gives no assurance that the actual operations of
the Company will conform to such projections.
(c) Any disclosure contained in any of the Schedules delivered
hereunder, which on its face is clearly and unequivocally applicable to another
Schedule to this Agreement, shall be deemed made with respect to such other
Schedule.
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3.25 BROKERAGE.
No person or entity acting on behalf or under the authority of the
Corporation is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the sale of the Securities.
3.26 EMPLOYEES.
The Corporation has no collective bargaining agreement with any of its
employees. There is no labor union organizing activity pending nor, to the best
knowledge of the Corporation, threatened with respect to the Corporation. The
Corporation is not aware that any officer or key employee intends to terminate
his or her relationship with the Corporation, nor does the Corporation have any
present intention of terminating the employment of any officer or key employee.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
4.1 REPRESENTATIONS AND WARRANTIES
Each Investor hereby represents and warrants to the Corporation,
severally and not jointly, and only as to itself, as follows:
(a) All action on the part of such Investor necessary for the
execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby has been taken and, assuming due execution
and delivery by the Corporation, this Agreement constitutes a legal, valid,
binding and enforceable obligation of such Investor, subject to: (i) judicial
principles respecting or limiting the availability of specific performance,
injunctive relief and other equitable remedies; and (ii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors' rights.
(b) If the Investor is an entity, trust, pension fund or ▇▇▇
account (and "Entity"), the Entity represents and warrants that: (i) such Entity
is an existing entity, and has not been organized or reorganized for the purpose
of making this investment (or if not true, such fact shall be disclosed to the
Corporation in writing along with information concerning the beneficial owners
of the Entity), (ii) the undersigned has the authority to execute this Agreement
and the Confidential Statement of Investor Suitability attached as Exhibit B
hereto and any other documents in connection with an investment in the
Securities on the Entity's behalf, and (iii) the Entity has the power, right and
authority to invest in the Securities and enter into the transactions
contemplated hereby, and the investment is suitable and appropriate for the
Entity and its beneficiaries (given the risks and illiquid nature of the
investment).
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4.2 INVESTMENT.
(a) Such Investor has been advised that the Securities have not
been registered under the Securities Act of 1933, as amended (the "Act"), or
registered or qualified under any applicable state securities laws on the ground
that no distribution or public offering of the Securities is to be effected, and
that in this connection the Corporation is relying in part on the
representations of such Investor set forth in this Article IV;
(b) Such Investor has been further advised that no public market
now exists for any of the securities issued by the Corporation and that a public
market may never exist for the Securities;
(c) Such Investor is purchasing the Securities for its own
account and not for any other person;
(d) By reason of its business or financial experience, such
Investor has the capacity to protect its own interest in connection with the
transactions contemplated hereunder, is able to bear the risks of an investment
in the Corporation, and can afford a complete loss of such investment;
(e) Such Investor is aware of the Corporation's business affairs
and financial condition an has acquired sufficient information about the
Corporation to reach an informed and knowledgeable decision to acquire the
Securities; and
(f) Such Investor has had the opportunity to ask questions
regarding the Corporation and the Corporation has provided information in
response to the questions.
4.3 FEDERAL SECURITIES LAWS.
In order to enable the Corporation to determine whether the sale of the
Securities is exempt from registration under the Act, such Investor represents
that it is an Accredited Investor (as defined in Schedule 4.3 hereof), has
completed truthfully the appropriate items in the Confidential Statement of
Investor Suitability attached as Exhibit B hereto, and is acquiring the
Securities for its own account, for investment, and not with a view to, or for
sale in connection with, any distribution thereof.
4.4 STATE SECURITIES LAWS.
The address of such Investor set forth on Schedule I attached hereto is
the Investor's true and correct residence or place of business.
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ARTICLE V
PRIOR OR SIMULTANEOUS ACTIONS
Before or at the closing of the issuance of the Securities hereunder,
the following actions have been or are being taken:
(a) Certificate of Incorporation. The Certificate of
Incorporation is being filed with and accepted by the Secretary of State of the
State of Delaware.
(b) Shareholders Agreement. Each Investor that is not currently
a party to the Shareholders Agreement is executing and delivering a Joinder
Agreement in a form acceptable to the Corporation pursuant to which such
Investor shall agree to be bound by the terms of the Shareholders Agreement.
(c) Merger. The merger of B.I. Systems Corporation with and into
the Corporation shall have become effective.
(d) Authorizing Actions of the Corporation. The Investors are
receiving certified copies of all requisite corporate actions taken by the
Corporation to authorize its adoption of the Certificate of Incorporation, its
execution and delivery of the Documents, its performance of its obligations
thereunder, and its consummation of the transactions contemplated thereby.
ARTICLE VI
COVENANTS OF THE CORPORATION
6.1 OPERATING PLAN; OTHER REPORTING.
The Corporation shall prepare and deliver to each Investor holding,
together with its affiliate, Securities with an aggregate purchase price
exceeding $ 1,000,000 (each a "Qualified Investor") within 30 days after the
start of each fiscal year, an operating plan prepared on an annual basis and,
promptly after preparation, any material revisions to such operating plan;
provided, however that with respect to fiscal year 1998, the operating plan
shall be delivered to the Qualified Investor when such plan has been made
available to the Board of Directors. In addition, the Corporation shall promptly
provide to Qualified Investors other customary information and materials,
including, without limitation, reports of material adverse developments,
management letters, communications with shareholders or directors, press
releases and registration statements.
6.2 AFFILIATED TRANSACTION.
All transactions by and between the Corporation and any officer,
employee or shareholder of the Corporation or Persons controlled by or
affiliated with such officer, employee or shareholder, shall be conducted on an
arms-length basis, shall be on terms and conditions no less favorable to the
Corporation than could be obtained from unrelated
-13-
14
SCHEDULE I
INVESTORS
---------
SHARES OF SERIES DOLLAR VALUE
---------------- ------------
C C
- -
NAME AND ADDRESS PREFERRED STOCK PREFERRED STOCK
---------------- --------------- ---------------
Chase Capital Partners 3,015,375 $5,276,906
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ Floor 356,053 623,094
------- -------
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 3,371,428 5,900,000
American Healthcare Fund 11 342,857 600,000
Capital Health Venture Partners
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 142,857 250,000
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ian R. N. Bund 104,924 183,617
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Grove Investment Partners 50,378 88,162
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 17,143 30,000
▇▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 15,467 27,067
▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 15,285 26,750
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 10,000 17,500
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
4,070,339 $7,123,096
-25-
15
EXHIBIT A
Certificate of Incorporation
See Attached.
16
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF GENOMIC SOLUTIONS INC.
A DELAWARE CORPORATION
GENOMIC SOLUTIONS INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, as amended, does hereby
certify:
ONE: The corporation's original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on December 5, 1997.
TWO: This Amended and Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of this corporation
and has been duly adopted in accordance with Section 241 and Section 245 of the
General Corporation Law of the State of Delaware, as amended. This Amended and
Restated Certificate of Incorporation shall become effective on the date of its
filing with the Secretary of State of the State of Delaware.
THREE: The text of the Certificate of Incorporation is hereby amended and
restated in its entirety as follows:
ARTICLE I.
The name of this corporation is Genomic Solutions Inc.
ARTICLE II.
The address of the registered office of the corporation in the State of
Delaware is Corporation Trust Center, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle, and the name of its registered agent at that
address is The Corporation Trust Company.
ARTICLE III.
The name and mailing address of the incorporator of the corporation is:
▇▇▇▇ ▇. ▇▇▇▇▇, Jaffe, Raitt, Heuer & ▇▇▇▇▇, Professional Corporation, ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
ARTICLE IV.
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, as amended.
17
ARTICLE V.
A. Classes of Stock. This corporation shall have authority to issue the
following classes of stock in the number of shares and at the par value
indicated below:
CLASS NUMBER OF SHARES AUTHORIZED PAR VALUE PER SHARE
----- --------------------------- --------------------
Common Stock 40,000,000 $0.001
Preferred Stock 10,000,000 $0.001
B. Preferred Stock. Preferred Stock may be issued from time to time in one
or more series in addition to those created pursuant to Section C of this
Article V. below. Subject to the other provisions of this Certificate of
Incorporation, the Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of and to issue shares of the
Preferred Stock in series, and by filing a certificate pursuant to the laws of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. Subject to compliance with the applicable protective
provisions listed in Section C.6 of this Article V. below, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series (other than Series B Preferred Stock, Series C Preferred Stock and Series
M Preferred Stock, as provided below), prior or subsequent to the issuance of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
C. Rights, Preferences and Restrictions of Series B, Series C and Series M
Preferred Stock. Five Million Eight Hundred One Thousand Two Hundred Nineteen
(5,801,219) shares of the Preferred Stock authorized by this Certificate of
Incorporation shall be divided into three (3) series. The first series of stock
shall consist of One Million Six Hundred Eighty Thousand Eight Hundred Eighty
(1,680,880) shares and is designated "Series B Preferred Stock." The second
series of stock shall consist of Four Million Seventy Thousand Three Hundred
Thirty Nine (4,070,339) shares and is designated "Series C Preferred Stock." The
third series shall consist of Fifty Thousand (50,000) shares and is designated
"Series M Preferred Stock." The rights, preferences, privileges and restrictions
granted to and imposed on the Series B Preferred Stock, the Series C Preferred
Stock and the Series M Preferred Stock are as set forth below in this Article
V.C.
1. Dividend Provisions. The holders of shares of Series B Preferred Stock,
Series C Preferred Stock and Series M Preferred Stock shall not be entitled to
receive any dividends.
2. Liquidation Preference.
a. In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, the holders of shares of
Series B Preferred Stock shall be entitled to receive-, prior and in
preference to any distribution of any of the
2
18
assets of this corporation available for distribution to the stockholders,
to the holders of shares of Common Stock or any other class of capital
stock ranking junior to the Series B Preferred Stock by reason of their
ownership thereof, an amount per share equal to (i) $1.00 for each
outstanding share of Series B Preferred Stock (the "Original Series B Issue
Price"), as adjusted to reflect any share split, dividend, combination,
reclassification or similar event involving the Series B Preferred Stock,
plus (ii) an amount per share equal to eight percent (8%) of the Original
Series B Issue Price, from the date of issuance to the date of
distribution, compounded annually. The holders of shares of Series C
Preferred Stock shall be entitled to receive, prior and in preference to
any distribution of any of the assets of this corporation available for
distribution to the stockholders, to the holders of shares of Common Stock
or any other class of capital stock ranking junior to the Series C
Preferred Stock by reason of their ownership thereof, an amount per share
equal to (i) $1.75 for each outstanding share of Series C Preferred Stock
(the "Original Series C Issue Price"), as adjusted to reflect any share
split, dividend, combination, reclassification or similar event involving
the Series C Preferred Stock, plus (ii) an amount per share equal to eight
percent (8%) of the Original Series C Issue Price, from the date of
issuance to the date of distribution, compounded annually. The holders of
shares of Series M Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets of this corporation
available for distribution to the stockholders, to the holders of shares of
Common Stock or any other class of capital stock ranking junior to the
Series M Preferred Stock by reason of their ownership thereof, an amount
per share equal to $6.00 for each outstanding share of Series M Preferred
Stock (the "Original Series M Issue Price"), as adjusted to reflect any
share split, dividend, combination, reclassification or similar event
involving the Series M Preferred Stock. If upon the occurrence of such
event, the assets and funds to be distributed hereunder among the holders
of shares of the Series B Preferred Stock, Series C Preferred Stock and
Series M Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then the entire
assets and funds of the corporation legally available for distribution
shall be distributed ratably among the holders of shares of the Series B
Preferred Stock, Series C Preferred Stock and Series M Preferred Stock in
proportion to the preferential amount each such holder is entitled to
receive pursuant to this Section C.2.a.
b. After the completion of the distribution required by subparagraph
(a) of this Section C.2 and any other distribution which may be required
with respect to series of Preferred Stock which may from time to time come
into existence, the assets of this corporation available for distribution
to stockholders shall be distributed among the holders of shares of Common
Stock pro rata based on the number of shares of Common Stock held by each.
c. Whenever the distribution provided for in this Section C.2. shall
be payable in property other than cash, the dollar amount of such
distribution shall be the fair market value of such property at the time of
distribution as determined in good faith by the Board of Directors.
3
19
d. The Corporation shall mail written notice of any liquidation or
dissolution or winding down not less than thirty days prior to the payment
date stated therein to each record holder of shares of Preferred Stock. Any
(i) acquisition of the corporation by means of merger or other form of
corporate reorganization in which outstanding shares of the corporation are
exchanged for securities or other consideration issued by the acquiring
corporation or its subsidiary (other than a mere reincorporation
transaction), (ii) sale, conveyance or disposition of all or substantially
all of the assets of this corporation or (iii) the effectuation by the
corporation of a transaction or series of related transactions in which
more than 50% of the voting power of the corporation is disposed of (other
than the Public Offering as defined herein) (clauses (i), (ii) and (iii)
are referred to herein as a "Sale of the Corporation"), shall be deemed to
be a liquidation, dissolution or winding up within the meaning of this
Section C.2.
3. Conversion. The holders of the Series B Preferred Stock, Series C
Preferred Stock and Series M Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
a. Right to Convert.
(i) Each share of Series B Preferred Stock, Series C Preferred
Stock and Series M Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such
share, at the office of this corporation or any transfer agent for the
Series B Preferred Stock, Series C Preferred Stock or Series M
Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as determined by dividing the Original Series B
Issue Price, Original Series C Issue Price or Original Series M Issue
Price, as applicable, by the Conversion Price (defined below) at the
time in effect for such share. The initial Conversion Price per share
for shares of Series B Preferred Stock shall be thirty-three cents
($0.33). The initial Conversion Price per share for shares of Series C
Preferred Stock shall be one dollar and seventy five cents ($1.75).
The initial Conversion Price per share for shares of Series M
Preferred Stock shall be one dollar and one hundred and eleven
thousandths of a cent ($ 1.111). The Conversion Price for the Series B
Preferred Stock, Series C Preferred Stock and the Series M Preferred
Stock shall be subject to adjustment as set forth in Section C.3.c.,
Section C.3.d. and Section C.3.e.
(ii) Each share of Series B Preferred Stock, Series C Preferred
Stock and Series M Preferred Stock shall automatically be converted
into shares of Common Stock at the applicable Conversion Price at the
time in effect for such Series B Preferred Stock, Series C Preferred
Stock or Series M Preferred Stock, respectively, immediately
concurrent with the consummation of the corporation's sale of its
Common Stock in a firm commitment underwriting pursuant to a
registration statement on Form S-1, Form SB-1, Form SB-2, or their
then equivalents, filed under the Securities Act of 1933, as amended,
and resulting in
4
20
an aggregate offering price to the public of at least $20,000,000, and
where the offering price to the public is not less than $5.00 per
share (the "Public Offering").
b. Mechanics of Conversion. Any holder of shares of Series B Preferred
Stock, Series C Preferred Stock or Series M Preferred Stock shall be
entitled to convert the same into shares of Common Stock, by surrendering
the certificate or certificates therefor, duly endorsed, at the office of
this corporation or of any transfer agent for the Series B Preferred
Stock, Series C Preferred Stock or Series M Preferred Stock, as
applicable, and by giving written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to convert
the same and stating therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder of shares of Series B Preferred Stock, Series C Preferred
Stock or Series M Preferred Stock, or to a nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series B Preferred
Stock, Series C Preferred Stock or Series M Preferred Stock to be
converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities Act of 1933,
as amended, other than in a Public Offering as set forth in Section
C.3.a.(ii) above, the conversion may, at the option of any holder tendering
Series B Preferred Stock, Series C Preferred Stock or Series M Preferred
Stock for conversion, be conditioned upon the closing with the underwriter
of the sale of securities pursuant to such offering, in which event the
person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series B Preferred Stock, Series C Preferred Stock or
Series M Preferred Stock shall not be deemed to have converted such stock
until immediately prior to the closing of such sale of securities.
c. Conversion Price Adjustments of Preferred Stock Upon Reorganization
or Recapitalization. If at any time or from time to time there shall be any
capital reorganization or recapitalization of the Common Stock (including,
without limitation, any stock split or stock dividend), provision shall be
made so that the holders of shares of Series B Preferred Stock, Series C
Preferred Stock and Series M Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series B Preferred Stock, Series C
Preferred Stock or Series M Preferred Stock, as applicable, the number of
shares of stock or other securities or property of the corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section C.3 with respect to the rights of the holders of the Series
B Preferred Stock, Series C Preferred Stock and Series M Preferred Stock
after the recapitalization to the end that the provisions of this Section
C.3 (including adjustment of the Conversion Price then in effect and the
number of shares which would
5
21
be received upon conversion of the Series B Preferred Stock, Series C
Preferred Stock and Series M Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable. The provisions of
this clause shall similarly apply to successive reorganizations,
reclassifications, consolidations or mergers.
d. Conversion Upon Sale of the Corporation. In the event of a Sale of
the Corporation, as defined in Section C.2.d., the holders of Series B
Preferred Stock, Series C Preferred Stock and Series M Preferred Stock, as
applicable, shall concurrently with the consummation of such sale, have
the right to convert shares of Series B Preferred Stock, Series C Preferred
Stock and Series M Preferred Stock into the kind and amount of stock,
securities or other consideration (including cash) as are issued upon such
Sale of the Corporation to a holder of the number of shares of Common Stock
into which such shares of Series B Preferred Stock, Series C Preferred
Stock and Series M Preferred Stock could have been converted immediately
prior to such merger, consolidation or sale. The corporation shall provide
holders of Series B Preferred Stock, Series C Preferred Stock and Series M
Preferred Stock with at least five business days prior written notice of
any event referred to in this paragraph.
e. Conversion Price Adjustment Upon Sale of Securities. Each
Conversion Price shall be subject to adjustment from time to time as
follows:
(i) If the corporation shall at any time or from time to time
issue any shares of Common Stock, or securities convertible into or
exercisable for Common Stock (including any shares of Common Stock
deemed to have been issued pursuant to subdivision (iv)(c) below)
other than Excluded Stock (as defined in clause (v) below) without
consideration or for a consideration per share less than the
Conversion Price for the Series B Preferred Stock, Series C Preferred
Stock or Series M Preferred Stock, as applicable, in effect
immediately prior to the issuance of such Common Stock, then any
Conversion Price for the Series B Preferred Stock, Series C Preferred
Stock or Series M Preferred Stock that is greater than the
consideration per share of Common Stock or its equivalent received in
such issuance or sale shall forthwith be lowered to be equal to the
quotient obtained by dividing:
(a) an amount equal to the sum of (x) the total number of
shares of Common Stock outstanding (including any shares of
Common Stock deemed to have been issued pursuant to subdivision
(iv)(c) below) immediately prior to such issuance, multiplied by
the applicable Conversion Price for the Series B Preferred Stock,
Series C Preferred Stock or Series M Preferred Stock, as
applicable, in effect immediately prior to such issuance, and (y)
the consideration received by the corporation upon such issuance;
by
(b) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued
6
22
pursuant to subdivision (iv)(c) below) immediately after the
issuance of such Common Stock.
For the purposes of any adjustment of any Conversion Price for
the Series B Preferred Stock, Series C Preferred Stock or Series M
Preferred Stock pursuant to this clause, the following provisions
shall be applicable:
(ii) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor
after deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the corporation for any underwriting or
otherwise in connection with the issuance and sale thereof
(iii) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the corporation,
irrespective of any accounting treatment.
(iv) In the case of the issuance of options to purchase or rights
to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable securities:
(a) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been issued
at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in subdivisions (ii) and (iii) above), if any,
received by the corporation upon the issuance of such options or
rights plus the minimum purchase price provided in such options
or rights for the Common Stock covered thereby;
(b) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such
securities, options, or rights were issued and for a
consideration equal to the consideration received by the
corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to
be received by the corporation upon the conversion or exchange of
such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner
provided in subdivisions (ii) and (iii) above);
7
23
(c) on any change in the number of shares or exercise price
of Common Stock deliverable upon exercise of any such options or
rights or conversions of or exchange for such securities, other
than a change resulting from the antidilution provisions thereof,
each Conversion Price previously adjusted shall forthwith be
readjusted to such Conversion Price as would have been obtained
had the adjustment made upon the issuance of such options, rights
or securities not converted prior to such change or options or
rights related to such securities not converted prior to such
change been made upon the basis of such change; and
(d) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible
or exchangeable securities, each Conversion Price previously
adjusted shall forthwith be readjusted to such Conversion Price
as would have obtained had the adjustment made upon the issuance
of such options, rights, securities or options or rights related
to such securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon
the exercise of such options or rights, upon the conversion or
exchange of such securities, or upon the exercise of the options
or rights related to such securities and subsequent conversion or
exchange thereof.
(v) "Excluded Stock" means (1) shares of Common Stock issued by
the corporation as a stock dividend or upon any subdivision, split-up
or combination of shares of Common Stock; (2) shares of Common Stock
issued by the corporation upon conversion of shares of Preferred
Stock; or (3) securities that are or were declared to be "Excluded
Stock" for purposes of this Section by the holders of 66 2/3% of the
outstanding shares of Series B Preferred Stock, Series C Preferred
Stock and Series M Preferred Stock, as applicable, each voting as a
separate class and only with respect to the shares held by such class.
(vi) All calculations made pursuant to Section C.3.c., C.3.d. and
C.3.e. shall be made to the nearest one hundredths (1/100) of one cent
or the nearest one tenth (1/10) of a share, as the case may be.
(vii) In any case in which the provisions of Sections C.3.c.,
C.3.d. and C.3.e. shall require that an adjustment shall become
effective immediately after a record date of an event, the corporation
may defer until the occurrence of such event (i) issuing to the holder
of any share of Preferred Stock converted after such record date and
before the occurrence of such event the shares of capital stock
issuable upon such conversion by reason of the adjustment required by
such event in addition to the shares of capital stock issuable upon
such conversion before giving effect to such adjustments, and (ii)
paying to such holder any amount in cash in lieu of a fractional share
of capital stock pursuant to paragraph (e) above;
8
24
provided, however, that the corporation shall deliver to such
holder an appropriate instrument evidencing such holder's right to
receive such additional shares and such cash.
f. No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by this corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section C.3
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holder of shares of the
Series B Preferred Stock, Series C Preferred Stock and Series M Preferred
Stock against impairment.
g. No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of the
Series B Preferred Stock, Series C Preferred Stock or the Series M
Preferred Stock. The number of shares of Common Stock to be issued to
each holder of shares of Series B Preferred Stock, Series C Preferred
Stock and/or Series M Preferred Stock upon conversion shall be
computed on the basis of the aggregate number of shares of Series B
Preferred Stock, Series C Preferred Stock or Series M Preferred Stock
to be converted. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of any shares of
Series B Preferred Stock, Series C Preferred Stock or Series M
Preferred Stock, the corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the product
of (i) the price of one share of Common Stock as determined in good
faith by the Board of Directors of the corporation and (ii) such
fractional interest. The holders of fractional interests shall not be
entitled to any rights as stockholders of the corporation in respect
of such fractional interests.
(ii) Upon the corporation's awareness of an event that would
cause an adjustment or readjustment of the Conversion Price of Series
B Preferred Stock, Series C Preferred Stock or Series M Preferred
Stock pursuant to this Section C.3, this corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of shares
of Series B Preferred Stock, Series C Preferred Stock or Series M
Preferred Stock, as applicable, a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. This corporation shall, upon
the written request at any time of any holder of shares of Series B
Preferred Stock, Series C Preferred Stock or Series M Preferred Stock,
furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion
Ratio at the time in effect, and (C) a number of shares of Common
Stock and the value, if any, of other property which at the time would
be received upon the
9
25
conversion of a share of Series B Preferred Stock, Series C
Preferred Stock or Series M Preferred Stock, as applicable.
h. Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of shares of Series B Preferred
Stock, Series C Preferred Stock and Series M Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
i. Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of shares of the Series B Preferred Stock, Series C Preferred
Stock and Series M Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of
all outstanding shares of the Series B Preferred Stock, Series C Preferred
Stock and Series M Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all the outstanding shares of the Series B
Preferred Stock, Series C Preferred Stock and Series M Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
shares of Preferred Stock, this corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
j. Notices. Any notice required by the provisions of this Section C.3
to be given to the holders of shares of Series B Preferred Stock, Series C
Preferred Stock or Series M Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
4. Mandatory Redemption. The shares of Series M Preferred Stock shall be
subject to mandatory redemption as set forth below in this Section C.4.
a. Redemption Events. Except as prohibited by applicable law and the
corporation's then existing agreements with its lenders and provided the
corporation has generated net income for its most recent quarterly interim
period, the corporation shall redeem all outstanding shares of Series M
Preferred Stock on May 7, 2002. The corporation shall effect the redemption
by paying in cash, out of any source of funds legally available therefor,
an amount per share of Series M Preferred Stock equal to the Original
Series M Issue Price (the "Redemption Price").
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26
b. Redemption Notice. At least thirty (30) but no more than sixty (60)
days prior to the date fixed for redemption of the Series M Preferred Stock
(the "Redemption Date"), - the corporation shall mail, postage prepaid,
written notice thereof (the "Redemption Notice"), to each holder of record
(at the close of business on the business day next preceding the day on
which notice is given) of shares of Series M Preferred Stock, at the
address last shown on the records of the corporation for such holder or if
no address appears or is given at the place where the principal executive
office of the corporation is located, specifying the number of shares to be
redeemed from such holder, the Redemption Date, the Redemption Price, the
place at which payment may be obtained, and calling upon such holder to
surrender to the corporation, in the manner and at the place designated,
its certificate or certificates representing all of such holders shares of
Series M Preferred Stock.
c. Surrender of Certificate Payment. Except as prohibited by
applicable law, on or before the Redemption Date, each holder of shares of
Series M Preferred Stock to be redeemed on such Redemption Date shall
surrender the certificate or certificates representing such shares to the
corporation, in the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price for such shares shall be payable
to the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall
be canceled and retired. In the event that, due to restrictions imposed by
applicable law, fewer than all of the shares represented by such
certificate are redeemed, a new certificate representing the unredeemed
shares shall be issued forthwith.
d. Rights Subsequent to Redemption. If the Redemption Notice shall
have been duly given, and if on the Redemption Date the Redemption Price
therefor is either paid or made available for payment through the deposit
arrangement specified in subparagraph (e) below, then notwithstanding that
the certificates evidencing any of the shares of Series M Preferred Stock
so called for redemption shall not have been surrendered, all rights with
respect to such shares shall forthwith terminate after such Redemption
Date, except for the right of the holders to receive the Redemption Price
without interest upon surrender of their certificate or certificates
therefor, and such shares shall not thereafter be transferred on the books
of the corporation or be deemed to be outstanding whatsoever. If the funds
of the corporation legally available for redemption of shares of Series M
Preferred Stock on the Redemption Date are insufficient to redeem the total
number of shares of Series M Preferred Stock to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
possible number of such shares ratably among the holders of such shares to
be redeemed based upon the number of shares of Series M Preferred Stock
held by each of them. The shares of Series M Preferred Stock not redeemed
shall remain outstanding and shall be entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds
of the corporation are legally available for the redemption of shares of
Series M Preferred Stock such funds will immediately be used to redeem the
balance of the shares which the
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corporation has become obliged to redeem on the Redemption Date, but
which it has not redeemed.
e. Deposit of Funds. On or prior to the Redemption Date, the
corporation shall deposit in a trust fund with any bank or trust company
having a capital and surplus of at least $100,000,000, a sum equal to the
aggregate Redemption Price of all shares of Series M Preferred Stock, or a
sum equal to the funds legally available pursuant to Section C.4.d above,
with irrevocable instructions and authority to the bank or trust company to
pay, on or after the Redemption Date, the Redemption Price to the
respective holders upon the surrender of their stock certificates. The
deposit shall constitute full payment of the shares to their holders, and
from and after the Redemption Date the shares redeemed on the Redemption
Date shall be deemed to be no longer outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares and shall have
not rights with respect thereto except the rights to receive, from the bank
or trust company, payment of the Redemption Price, without interest, upon
surrender of their certificates therefor. Any funds so deposited and
unclaimed at the end of one year from the Redemption Date shall be released
or repaid to the corporation, after which the holders of shares called for
redemption shall be entitled to receive payment of the Redemption Price
only from the corporation.
5. Voting.
a. Voting Rights of Series B and Series C Preferred Stock. The holder
of each share of Series B Preferred Stock or Series C Preferred Stock shall
have the right to one vote for each share of Common Stock into which such
Series B Preferred Stock or Series C Preferred Stock could then be
converted (with any fractional shares, determined on an aggregate
conversion basis, being rounded to the nearest whole share), and with
respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of holders of shares of Common Stock,
and shall be entitled, notwithstanding any provision hereof, to notice of
any stockholders' meeting in accordance with the bylaws of this
corporation, and shall be entitled to vote (except as otherwise expressly
provided herein or as required by law), together with holders of shares of
Common Stock as a single class, with respect to any question upon which
holders of shares of Common Stock have the right to vote. Election of
directors need not be by written ballot, unless the bylaws of the
corporation shall so provide.
b. Right to Vote on the Sale of the Corporation. The corporation shall
not effect a Sale of the Corporation, as defined in Section C.2.d of
Article V, without first obtaining the written consent of the holders of 66
-2/3% of the shares of the Series B Preferred Stock, Series C Preferred
Stock (both treated as if fully converted to common stock) and the common
stock issued upon conversion of the Series B and Series C Preferred Stock,
all voting together as a single class.
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c. Voting Rights of the Series M Preferred Stock. Except as required
by law, the holders of Series M Preferred Stock shall have no voting
rights.
6. Protective Provisions.
a. Subject to the rights of series of Preferred Stock which may from
time to time come into existence, so long as shares of Series B Preferred
Stock are outstanding, this corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of holders of
a majority of the then outstanding shares of Series B Preferred Stock:
(i) alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock, in a manner that adversely affects
the holders of shares of the Series B Preferred Stock; or
(ii) increase the authorized number of shares of Series B
Preferred Stock or Series C Preferred Stock.
b. Subject to the rights of series of Preferred Stock which may from
time to time come into existence, so long as shares of Series M Preferred
Stock are outstanding, this corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the
holders of a majority of the outstanding shares of Series M Preferred
Stock:
(i) alter or change the rights, preferences or privileges of the
shares of Series M Preferred Stock, in a manner that adversely affect
the holders of shares of the Series M Preferred Stock; or
(ii) increase the authorized number of shares of Series M
Preferred Stock.
c. Subject to the rights of series of Preferred Stock which may from
time to time come into existence, so long as shares of Series C Preferred
Stock are outstanding, this corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of holders of
a majority of the then outstanding shares of Series C Preferred Stock:
(i) alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock, in a manner that adversely affects
the holders of shares of the Series C Preferred Stock; or
(ii) increase the authorized number of shares of Series C
Preferred Stock or Series B Preferred Stock.
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29
7. Status of Converted Stock. In the event any shares of Series B Preferred
Stock, Series C Preferred or Series M Preferred Stock shall be converted
pursuant to Section C.3 of this Article V., the shares so converted shall be
canceled and shall not be issuable by the corporation. This Certificate of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the corporation's authorized capital stock.
8. Status of Redeemed Stock. In the event any shares of Series M Preferred
Stock shall be redeemed pursuant to Section C.4 of this Article V., the shares
so redeemed shall be canceled and shall not be issuable by the corporation.
This Certificate of Incorporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
D. Common Stock.
1. Dividend Rights. Subject to the rights of holders of shares of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends, if any, as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up of
the corporation, the assets of the corporation shall be distributed as provided
in Section C.2 of this Article V.
3. Voting Rights. Each holder of a share of Common Stock shall have the
right to one vote per share, and shall be entitled to notice of any
stockholders' meetings in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters in such manner as may be provided by
law.
4. Redemption. The Common Stock is not redeemable.
ARTICLE VI.
The business and affairs of the corporation shall be managed by or
under the direction of a board of directors consisting of not less than three
(3) nor more than nine (9) directors, provided, however, that the corporation
may have only one director until the effective date of the merger contemplated
between the corporation and B.I. Systems Corporation, a Delaware corporation.
The exact number shall be determined from time to time by resolution adopted by
the affirmative vote of a majority of the directors in office at the time of
adoption of such resolution. The directors shall be divided into three classes,
Class I Class II and Class III. The initial term of office of the Class I, Class
II and Class III directors shall expire at the annual meeting of stockholders in
1998, 1999 and 2000, respectively. The number of directors shall be apportioned
among the classes by the Board of Directors so as to maintain the number of
directors in each class as nearly equal as possible, and any additional director
of any class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall
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30
coincide with the remaining term of that class. Beginning in 1998, at each
annual meeting of stockholders, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. In no
case will a decrease in the number of directors shorten the term of any
incumbent director even though such decrease may result in an inequality of the
classes until the expiration of such term. A director shall hold office until
the annual meeting of the year in which his or her term expires and until his or
her successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement or removal from office. Any director may be,
removed with or without cause, but only by the affirmative vote of the holders
of not less than a majority of the outstanding capital stock of the corporation
entitled to vote generally in the election of directors voting together as a
single class. Except as required by law or the provisions of this Certificate of
Incorporation, all vacancies on the Board of Directors and newly created
directorships shall be filled by the Board of Directors. Any director elected to
fill a vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his or her predecessor.
ARTICLE VII.
A. Indemnification of Officers and Directors. The corporation shall:
1. indemnify, to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as amended, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, or if such person has previously been
designated for indemnification by the resolution of the Board of Directors, an
employee or agent of the Corporation, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendre or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was unlawful; and
2. indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, joint venture, employee benefit plan, trust or
other enterprise, or if such person has previously been designated for
indemnification by the
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resolution of the Board of Directors, an employee or agent of the corporation,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper; and
3. indemnify any director or officer, or, if such person has previously
been designated for indemnification by the resolution of the Board of Directors,
an employee or agent of the corporation, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith,
to the extent that such director, officer, employee or agent of the corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Article VII.A.1 and 2, or in defense of any claim,
issue or matter therein; and
4. make any indemnification under Article VII.A.1 and 2 (unless ordered by
a court) only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such director, officer, employee or agent has met the
applicable standard of conduct set forth in Article VII.A.1 and 2. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders of the corporation; and
5. pay expenses incurred by a director or officer in defending a civil or
criminal action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to be indemnified by
the corporation as authorized in this Article VII. Notwithstanding the
foregoing, the corporation shall not be obligated to pay expenses incurred by a
director or officer with respect to any threatened, pending, or completed claim,
suit or action, whether civil, criminal, administrative, investigative or
otherwise ("Proceedings") initiated or brought voluntarily by a director or
officer and not by way of defense (other than proceedings brought to establish
or enforce a right to indemnification under the provision of this Article VII.
unless a court of competent jurisdiction determines that each of the material
assertions made by the director or officer in such proceeding were not made in
good faith or were frivolous). The corporation shall not be obligated to
indemnify the director or officer for any amount paid in settlement of a
proceeding covered hereby without the prior written consent of the corporation
to such settlement; and
6. not deem the indemnification and advancement of expenses granted
pursuant to the other subsections of this Article VII. exclusive of any other
rights to which those seeking
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indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in which director's or officer's official capacity and as to action in
another capacity while holding such office; and
7. have the right, authority and power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the provisions of this Article VII.; and
8. deem the provisions of this Article VII. to be a contract between the
corporation and each director and officer, or appropriately designated employee
or agent who serves in such capacity at any time while this Article VII. is in
effect, and any repeal or modification of this Article VII. shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon such state of facts; and
9. continue the indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VII. unless otherwise provided when authorized
or ratified, as to a person who has ceased to be a director, officer, employee
or agent of the corporation and such rights shall inure to the benefit of the
heirs, executors and administrators of such a person.
B. Elimination of Certain Liability of Directors. A director of the
corporation shall not be personally liable to the corporation 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
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, as the same
exists or hereafter may be amended, or (iv) for any transaction from which the
director derived an improper personal benefit. If the General Corporation Law of
the State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation, in addition to the limitation on personal
liability provided herein, shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of this Article VII. by the stockholders of
the corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
ARTICLE VIII.
Meetings of stockholders may be held within or without the State of
Delaware as the bylaws may provide. The books of the corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the
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33
bylaws of the corporation. Election of directors need not be by written ballot
unless the bylaws of the corporation so provide.
ARTICLE IX.
No stockholder of the corporation shall by reason of holding shares of any
class of stock have any cumulative voting right.
ARTICLE X.
The Board of Directors may from time to time make, amend, supplement or
repeal the corporation's bylaws; provided, however, that the stockholders may
change or repeal any bylaw adopted by the Board of Directors; and provided,
further, that no amendment or supplement to the bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement adopted by the
stockholders.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation of Genomic Solutions Inc. on December 24, 1997.
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and Chief
Executive Officer
18
34
EXHIBIT B
Statement of Investor Suitabilily
See Attached.
35
GENOMIC SOLUTIONS INC.
CONFIDENTIAL STATEMENT OF INVESTOR SUITABILITY
In order to comply with the requirements of federal and state securities
laws, securities of the Company may be sold only to persons or entities meeting
the suitability standards established by Genomic Solutions Inc., successor by
merger to the business of B.I. Systems Corporation (the "Company").
The purpose of this Confidential Statement of Investor Suitability (this
"Statement") is to obtain information from each prospective investor relating to
the investor's knowledge and experience in financial and business matters and to
the investor's ability to bear the economic risks of the proposed investment.
Such information is required in order to determine whether or not the
suitability standards have been met by the prospective investor. Please answer
questions concerning prior business and financial experience and investment
decision-making in detail.
By signing this Statement you agree that it may be shown to such authorized
persons as the Company may deem appropriate to establish that the offer and/or
sale of this investment in the Company will not result in any violation of any
laws or regulations of any jurisdiction.
A separate Statement must be completed for each co-owner of securities,
except that spouses may complete a joint Statement.
You make the following representations with the intent that they may be
relied upon by the Company and other persons designated by the Company.
(Please Print or Type. Attach additional sheets
if necessary to answer fully any question.)
I. BIOGRAPHICAL INFORMATION (If Joint Subscriber, provide information for both.)
A. Name(s): Birthdate:
----------------------------------------
----------------------------
(Print)
Name(s): Birthdate:
----------------------------------------
-----------------------------
(Print)
36
B. State of Residency:
_____________________________________________________________
C. Employer or business association and
position:____________________________________________
D. Business address and telephone no.:
__________________________________________________
__________________________________________________
E. Business and/or professional education and degrees:
School Location Degree Year Rec'd
______ ________ ______ __________
________________________________________________________________________________
________________________________________________________________________________
F. Employment during the past five years:
Employer or other association Position, nature of responsibility From To
________________________________________________________________________________
________________________________________________________________________________
II. ACCREDITED INVESTOR STATUS
Please check or initial all that apply:
_____the investor a natural person whose net worth, or joint net worth with
spouse, at the time of purchase, exceeds $ 1,000,000 (including the value of
home, home furnishings and automobiles).
_____investor is a natural person whose individual gross income (excluding that
of spouse) exceeded $200,000 in the last two calendar years, and who reasonably
expects individual gross income exceeding $200,000 in the current calendar year;
or for such periods, the combined income of the investor with spouse exceeded
and is expected to exceed $300,000.
_____the investor is a trust, and the grantor
(i) has the power to revoke the trust at any time and regain title to
the trust assets; and
(ii) has an individual (or, together with his spouse a joint) net worth
in excess of $1,000,000, or had and expects to have a gross income (not
including spouse's
37
income) for the last two years and the current year in excess of $200,000, or
for such periods, had and expects to have all gross income including that of a
spouse in excess of $300,000.
_____the investor (or beneficiary if ▇▇▇ or pension money is invested) is an
executive officer of the Company.
_____the investor is a corporation, partnership, or Massachusetts or similar
business trust, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.
_____the investor is otherwise an accredited investor as follows (if applicable,
please review Schedule 4.3 of the Series C Preferred Stock Purchase Agreement
and describe qualification for accredited status):
__________________________________________________________________________
_____
__________________________________________________________________________
_____
III. PRIOR INVESTMENT EXPERIENCE OF INVESTOR
A. Indicate by check ▇▇▇▇ which of the following categories best describes the
extent of your prior experience in the areas of investment listed below:
More Than 5 2 to 5 years 1 year No
yrs Experience Experience Experience Experience
______________________________________________________________
Corporate Stocks ______________________________________________________________
Corporate Bonds ______________________________________________________________
Real Estate ______________________________________________________________
Limited
Partnerships ______________________________________________________________
Stock in Privately
Held Companies ______________________________________________________________
B. Do you make your own investment decisions with respect to the investments
listed above?
Yes________ No________
C. What are the principal sources of your investment knowledge or advice? (check
all that apply)
____First hand experience ____Financial publications
____Broker(s) ____Investment Adviser(s)
____Attorney(s) ____Accountant(s)
38
D. Please briefly describe any additional investment experience in business
ventures, experience with the Company or any other investment experience which
would indicate your ability to evaluate an investment in this business venture.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
IV. OTHER MATTERS
1. Do any significant contingent liabilities exist for which you may be
obligated?
Yes_______________ No________________
If yes, please indicate type and amount:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
2. Are you involved in any litigation which if an adverse decision occurred
would affect your financial condition adversely?
Yes_______ No_______ If yes, provide details:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3. Is this a suitable and appropriate investment for you?
Yes________ No________
V. SIGNATURE PAGE
The signature pages for this document are located on pages 5 (for individuals)
and 6 (for non-individuals).
39
[TO BE COMPLETED AND SIGNED
BY ALL INDIVIDUAL INVESTORS]
SIGNATURE PAGE
(FOR INDIVIDUALS)
This page constitutes the signature page for INDIVIDUALS for the
Confidential Statement of Investor Suitability. Execution of this Signature Page
constitutes execution of such document.
IN WITNESS WHEREOF, the undersigned executed the Confidential
Statement of Investor Suitability this this _______ day of December, 1997.
______________________________
________________________________
Signature of Investors Signature of Spouse
(or Joint Investor, if any)
______________________________
________________________________
Print Name of Investor Print Name of Spouse
(or Joint Investor, if any)
______________________________
________________________________
Social Security Number Social Security Number of
Spouse
(or Joint Investor, if any)
Address:______________________ Address:
_______________________
_________________________________
_______________________
_________________________________
40
[TO BE COMPLETED AND SIGNED BY ALL
INVESTORS THAT ARE NOT INDIVIDUALS]
SIGNATURE PAGE
(FOR NON-INDIVIDUALS)
This page constitutes the signature page for the Confidential Statement
of Investor Suitability. Execution of this Signature Page constitutes execution
of such document.
IN WITNESS WHEREOF, the undersigned has executed the Confidential
Statement of Investor Suitability this day of December, 1997
______________________________________
Address:
_______________________
Print Name of Entity
_____________________________
_____________________________
____________________________________
_____________________________
Describe Entity (i.e., corporation, trust, Tax Identification Number
LLC, partnership, etc.)
By:________________________________
________________________________
Name:___________________________ State of Organization
Title:__________________________
41
GENOMIC SOLUTIONS INC. ("CORPORATION")
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
SCHEDULES
NOTE: Unless previously provided, copies of the related attachments are
available upon request of the Secretary of the Corporation or its legal
counsel.
42
SCHEDULE 3.7
See attached list of shareholders.
43
List of Ownership as of December 11, 1997 of Common Stock. Preferred "B" &
"M" Shares
Common Stock
Issued and Series B Series M
Investor Outstanding Preferred Preferred
Capital Health 172,870 400,353
Liberty Bidco 25,535 52,016
▇▇▇ ▇▇▇▇▇▇ 19,642 20,000
J ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 98,796 526,336
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 79,154 180,130
▇▇▇▇▇ ▇▇▇▇▇ 11,785 24,007
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 11,785 24,007
▇▇▇▇ ▇▇▇▇▇▇▇ 11,785
▇▇▇▇▇▇ ▇▇▇▇▇▇ 11,785 24,007
Corp. Capital Partners 11,785 24,007
Grove Invest Partners 11,785 24,007
▇▇. ▇▇▇▇▇▇▇ Styles 5,893 12,004
▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 5,893 0
▇▇▇▇▇▇ ▇▇▇▇▇▇ 5,893 0
▇▇▇ ▇▇▇▇▇ 5,893 0
▇▇▇ ▇▇▇ ▇▇▇▇ 15,333 0
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 4,911 0
▇▇▇▇ ▇▇▇▇▇▇▇▇ 4,911 0
▇▇▇▇ ▇▇▇▇▇▇ 9,821 20,006
▇▇▇▇▇▇ ▇▇▇▇▇ 14,745 0
▇. ▇▇▇▇ 300,000
Millipore 50,000
J ▇▇▇▇▇▇▇▇ 85000
▇▇▇▇ ▇▇▇▇▇▇▇▇ 21
▇▇▇ ▇▇▇▇▇▇▇▇▇ 41
Ian R Bund 50,000
▇▇▇▇▇▇ ▇▇▇▇▇ 386
Chase Capital
Total as of 12/11/97* 625,448 1,680,880 50,000
*Note. No change in Common Stock and Series B & M shares issued and
outstanding since July 31, 1997
Page 1
44
Schedule 3.7.1
See attached list for all persons holding options to purchase common stock.
45
SCHEDULE 3.7.1
B.I. SYSTEMS CORPORATION
STOCK OPTIONS
Date Signed
Board Issued Copy
Proposed Approved Date Returned
Akahori, Motonori 40,000 04/28/97 12/3/97 12/12/97
Cuff, Adrian Terminated 10/31/97
▇▇▇▇▇, ▇▇▇▇▇▇▇ 04/28/97 5/10/97 5/21/97 Terminated 7/31/97
▇▇▇▇▇▇, ▇▇▇▇▇ 15,000 04/28/97 5/10/97 5/14/97
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 14,600 04/28/97 5/10/97 6/6/97
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Terminated 10/31/97
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 04/28/97 5/10/97 5/10/97 Terminated 7/31/97
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 10,000 04/28/97 5/10/97 5/23/97
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 15,000 04/28/97 5/10/97 5/10/97
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 40,000 04/28/97 5/10/97 5/10/97
▇▇▇▇, ▇▇▇▇▇▇ 10,000 04/28/97 12/08/97
▇▇▇▇▇, ▇▇▇▇ 40,000 04/28/97 5/10/97 5/21/97
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 40,000 04/28/97 5/10/97 5/10/97
▇▇▇▇▇, ▇▇▇▇▇▇ 40,000 04/28/97 5/10/97 5/10/97
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 10,000 04/28/97 5/10/97 9/5/97
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 5,000 04/28/97 5/10/97 5/27/97
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ 10,000 04/28/97 5/10/97 5/12/97
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 15,000 04/28/97 5/10/97 5/14/97
▇▇▇▇ ▇▇▇▇▇▇▇▇ 1,080,000 04/28/97 8/1/97
▇▇▇▇▇ ▇▇▇▇▇▇ 50,000 06/06/97 6/6/97 6/6/97
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 15,000 06/06/97 6/23/97 6/23/97
▇▇▇▇ ▇▇▇▇▇▇▇▇ 50,000 06/17/97 6/1/97 6/1/97
▇▇▇▇▇ ▇'▇▇▇▇▇ 15,OOC 08/24/97 6/24/97 8/28/97
▇▇▇▇▇ ▇▇▇▇▇▇ 10,000 08/24/97 8/28/97 10/9/97
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 5,000 08/24/97 8/28/97 9/8/97
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 10,000 08/24/97 8/28/97 1O/l7/97
▇▇▇▇▇▇ ▇▇▇▇▇▇ 10,000 08/24/97 8/28/97 9/9/97
▇▇▇▇ ▇▇▇▇▇ 2,500 08/24/97 8/28/97 10/16/97
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 5,000 08/24/97 8/28/97 11/20/97
▇▇▇▇▇ ▇▇▇▇▇▇ 5,000 08/24/97 8/28/97 10/9/97
▇▇▇▇ ▇▇▇▇▇▇▇ 10,000 08/24/97 8/28/97 12/12/97
▇▇ ▇▇▇▇▇▇▇ 10,000 08/24/97 8/28/97 9/29/97
Total 1,582,100
=========
Page 1
46
Schedule 3.8
ITEM: COMMENT:
3.8 Bio Image UK, Inc., a Michigan Corporation wholly owned by B.I.
Systems Corporation. Operations ceased and office closed
effective October 31, 1997.
Nihon Bio Image, Ltd., a Michigan Corporation wholly owned by
B.I. Systems Corporation. Doing business as a branch office in
Japan. Office is located in Tokyo, Japan.
47
Schedule 3.9(i)
See attached July 31, 1997 financial statements with footnotes. These financial
statements are in draft form pending completion of the Series C Financing,
after which time the revised financial statements will be distributed to the
stockholders.
48
SCHEDULE 3.9(i)
Report of Independent Public Accountants
To the Board of Directors,
B.I. Systems Corporation, Inc.:
We have reviewed the accompanying consolidated balance sheet of B.I. SYSTEMS
CORPORATION, INC. AND SUBSIDIARIES (a Delaware corporation) as of July 31, 1997,
and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of the Company.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above in order for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
may be unable to continue as a going concern due to significant operating
losses. Management's plans to deal with this matter are also described in Note
1. The accompanying financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern.
Ann Arbor, Michigan,
September 19, 1997 (except with
respect to the matter discussed
in Note 1 as to which the date is
December 12, 1997).
49
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 575,838
Accounts receivable, less allowance for doubtful
accounts of $38,250 459,552
Inventories 430,615
Prepaid expenses and other 42,553
-----------
Total current assets $ 1,508,558
PROPERTY AND EQUIPMENT, NET 63,916
GOODWILL, NET 125,651
-----------
$ 1,698,125
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 823,811
Accounts payable 271,379
Accrued liabilities 61,005
Deferred revenue 45,679
-----------
Total current liabilities $ 1,201,874
-----------
STOCKHOLDERS' EQUITY:
Preferred stock, 4,000,000 shares authorized-
Series B convertible, $0.001 par value,
2,000,000 shares authorized, 1,680,880
shares issued and outstanding 1,681
Series M convertible, $0.001 par value,
50,000 shares authorized, 50,000 shares
issued and outstanding 50
Common stock, $0.001 par value, 15,000,000
shares authorized, 625,448 shares issued
and outstanding 626
Additional paid-in capital 2,270,297
Accumulated deficit (1,776,403)
-----------
Total stockholders' equity 496,251
-----------
$ 1,698,125
===========
The accompanying notes are an integral part of this balance sheet.
50
B.1. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
REVENUE $ 2,276,421
COST OF REVENUE 861,665
-----------
Gross profit 1,414,756
-----------
OPERATING EXPENSES:
Research and development 637,178
Sales and marketing 1,148,838
General and administrative 1,064,687
Unusual charge 1,182,575
----------
Total operating expenses 4,033,278
----------
Loss from operations (2,618,522)
----------
OTHER EXPENSE:
Interest 306,338
Other 55,989
----------
Total other expense 362,327
----------
Loss before taxes and extraordinary gain (2,980,849)
CREDIT FOR INCOME TAXES (637,776)
----------
Loss before extraordinary gain (2,343,073)
EXTRAORDINARY GAIN - Forgiveness of debt, net of
tax expense of $641,000 1,245,691
----------
NET LOSS $(1,097,382)
===========
The accompanying notes are an integral part of this statement.
51
B.I. SYSTEMS CORPORATION, INC. AND SUDSIDIARIES
CONSOLIDATED STATEMENT OR STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JULY 30, 1997
Series A Series B Series H
Convertible Convertible Convertible
Preferred Preferred Preferred
Stock Stock Stock
---------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
BALANCE AS OF JULY 31, 1996 1,250,000 $1,250 - $ - - $ -
1 for 97.103 reverse stock split - - - - - -
Common stock issued on conversion of Series A
preferred stock (3,250,000) $1,250 - - - -
Series B preferred and common stock issued on
conversion of notes payable - - 413,169 413 - -
Series B preferred stock issued for cash - - 1,267,711 1,268 - -
Series M preferred stock issued on conversion
of notes payable - - - - 50,000 50
Common stock issued on conversion of
subordinated debt - - - - - -
Common stock issued on settlement of
accounts payable - - - - - -
Common stock issued in connection with the
acquisition of BioPhotonics, Inc. - - - - - -
Net loss for the period - - - - - -
--------- ------ --------- ------- ------ -----
BALANCE AS OF JULY 31, 1997 - $ - 1,690.880 $ 1,681 50,000 $ 50
========= ====== ========= ======= ====== ======
Additional
Common Stock Paid-In Accumulated
----------------
Shares Amount Capital Deficit Total
------ ------ --------- ----------- -----
BALANCE AS OF JULY 31, 1996 $ 3,043,500 $ 3,044 $ 499,127 $(1,407,747) $ (934,326)
1 for 97.103 reverse stock split (3,011,772) (3,012) 3,012 - -
Common stock issued on conversion of Series A
preferred stock 45,821 46 1,201 - -
Series B preferred and common stock issued on
conversion of notes payable 200,986 201 426,624 - 427,238
Series B preferred stock issued for cash - - 3,266,443 1,267,711
Series M preferred stock issued on conversion
of notes payable - - 49,950 - 50,000
Common stock issued on conversion of
subordinated debt 249,813 249 17,168 644,643 662,060
Common stock issued on settlement of
accounts payable 13,100 13 904 84,083 85,000
Common stock issued in connection with the
acquisition of BioPhotonics, Inc. 85,000 85 5,865 - 5,950
Net loss for the period - - - (1,097,382) (1,097,382)
----------- ------- ---------- ----------- -----------
BALANCE AS OF JULY 31, 1997 625,448 $ 624 $2,270,297 $(1,776,403) $ 496,251
=========== ======= ========== =========== ===========
The accompanying notes are an integral part of this statement.
52
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JULY 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,097,382)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Unusual charge 1,182,575
Depreciation and amortization 258,144
Interest expense forgiven under recapitalization 248,052
Extraordinary gain on forgiveness of debt (1,886,691)
Increase (decrease) in cash resulting from
changes in assets and liabilities-
Accounts receivable 396,430
Inventories (112,111)
Prepaid expenses and other (2,349)
Accounts payable 119,484
Accrued liabilities 26,563
Deferred revenue (38,769)
----------
Net cash used in operating activities (906,054)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of certain assets of BioPhotonics, Inc. (302,300)
Purchase of property and equipment (38,905)
----------
Net cash used in investing activities (341,205)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series B convertible
preferred stock 1,267,711
Borrowings under note payable to bank 22,000
Proceeds from bridge financing 350,000
----------
Net cash provided by financing activities 1,639,711
----------
NET INCREASE IN CASH 392,452
CASE AND CASH EQUIVALENTS AS OF BEGINNING OF PERIOD 183,386
----------
CASE AND CASH EQUIVALENTS AS OF END OF PERIOD $ 575,838
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY
Cash paid during the year for interest $ 85,000
==========
The accompanying notes are an integral part of this statement.
53
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
B.I. Systems Corporation, Inc. (the "Company") designs, develops,
manufactures and markets instrumentation, software, hardware and
related products for quantifying and analyzing biomolecules, such as
DNA, RNA and proteins. The Company's products are frequently used for
typing, mapping and sequencing genes, discovering and developing
pharmaceutical compounds, and diagnosing genetic and infectious
diseases. The Company's customers are typically pharmaceutical and
biotechnology companies, universities and government institutions. The
Company was incorporated in June 1994. On July 26, 1994, the Company
purchased certain assets, including software, inventory and fixed
assets, from the Bio Image business unit ("Bio Image") of Millipore
Corporation ("Millipore").
The Company has three wholly-owned subsidiaries, incorporated in
Michigan, which operate sales offices in Europe, North America and the
Asian Pacific areas. Revenues from software licensing, hardware sales
and support services were derived from Europe (15%), North America
(35%), and the Asian Pacific areas (50%).
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company may be
unable to continue as a going concern due to significant operating
losses. Furthermore, the Company is in the early phases of
implementing its operating strategy and its future success is subject
to several technical and business risks including customer acceptance,
availability and retention of key employees, competition,
technological changes and additional financing adequate to support
operations. In December 1997, the Company received letters of intent
from existing stockholders and a new stockholder to provide a total of
$6.5 million of equity financing beginning in December 1997.
Additionally, the Company has hired three new executives; a President
in March 1997, a Chief Financial Officer in November 1997, and an
Executive Vice President of Global Marketing and Sales in December
1997. The accompanying financial statements do not include any
adjustments that might be necessary should the Company be unable to
continue as a going concern.
(2) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Foreign Currency Translation
Foreign currency transaction losses resulting from sales in foreign
denominated currencies totaled approximately $52,000 and are included
in other expense in the accompanying statement of operations. Accounts
receivable denominated in foreign currencies as of July 31, 1997 have
been translated at the exchange rates existing at that date.
54
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Revenue Recognition
The Company recognizes revenue from contracts for sales of software
licenses, hardware and training upon shipment of goods or completion
of services. Agreements for service and support are recognized over
the period in which support services are provided on a straight-line
basis.
Inventories
Inventories consist primarily of purchased components are stated at
the lower of cost, as determined on a first-in, first-out basis, or
market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
on a straight-line basis over the estimated useful lives of the
related assets which generally ran from three to seven years.
Goodwill
Goodwill resulted from the acquisition of BioPhotonics in 1997 (see
Note 11) and is being amortized on a straight-line basis over ten
years.
At each balance sheet date, the Company evaluates the carrying value
of goodwill and other long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying value may not
be recoverable. In 1997, the Company wrote-off approximately $829,000
of goodwill and other intangible assets as a result of this evaluation
which is included in the unusual charge on the accompanying statement
of operations.
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86. Under SFAS
No. 86, capitalization of software development costs begins upon the
establishment of technological feasibility. Technological feasibility
for the Company's software products is based upon achievement of
detailed designs, free of high-risk development issues. The Company
amortizes capitalized software development costs on a
product-by-product, straight-line basis over the remaining estimated
economic life of the related products which is generally a maximum of
three years. In 1997, capitalized software development costs totaling
approximately $354,000 were written off as it was determined that
certain products had no remaining economic life. This charge is
included in the unusual charge on the accompanying statement of
operations.
55
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed under Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees." Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the fair value of the Company's common stock at the date of the
grant over the amount the employee must pay to acquire the stock. As
supplemental information, the Company has provided pro forma
disclosure of the fair value at the date of grant of stock options
granted during 1997 in Note 9, in accordance with the requirements of
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation."
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(3) PROPERTY AND EQUIPMENT
As of July 31, 1997, property and equipment consists of the following:
Furniture and fixtures $ 27,378
Computer equipment 457,103
Office equipment 6,691
---------
491,172
Less - Accumulated depreciation (427,256)
---------
$ 63,916
=========
56
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(4) NOTE PAYABLE
The Company has a note payable to a bank which is payable in full in
April 1998. Interest is payable monthly at the bank's prime rate plus
1.75% (effective rate of 10.25% as of July 31, 1997). The note is
collateralized by substantially all of the Company's assets.
The loan agreement subjects the Company to various financial and
nonfinancial covenants, the most restrictive of which require the
Company maintain certain levels of tangible net worth and current
ratios. As of July 31, 1997, the company was in compliance with all
covenants.
(5) INCOME TAXES
The components of the provision for income taxes are as follows:
Currently payable $ 3,224
Deferred credit (347,500)
Increase in valuation allowance 347,500
---------
$ 3,224
=========
The effective tax rate differs from the statutory tax rate primarily due
to certain nondeductible expenses and recognition of a valuation
allowance against the tax benefit of net operating loss carryforwards
and other tax benefits.
The net deferred income tax asset is summarized as follows:
Net operating loss carryforward $ 274,100
Purchased software 231,200
Research and development credit 24,700
Organization costs 23,700
Depreciation and amortization 18,700
Accounts receivable 13,000
---------
585,400
Less- Valuation allowance. (585,400)
---------
$ -
=========
The Company has an available net operating loss carryforward of
approximately $806,000 which can be utilized to offset future taxable
income and expires in 2011 through 2012. This and other deferred
income tax assets are fully reserved by a valuation allowance as
realizability of these tax benefits is not assured. Additionally,
utilization of the net operating loss carryforward may be limited
under Section 382 of the Internal Revenue Code.
57
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(6) RECAPITALIZATION
In April 1997, the Company amended its Articles of Incorporation pursuant
to which the majority of the Company's outstanding debt and all
outstanding shares of Series A preferred stock were restructured (the
"Recapitalization"). Significant components of the Recapitalization,
together with the applicable accounting effects, were as follows:
(1) The Company initiated a reverse stock split issuing one share of
common stock for every 97.103 shares of outstanding common
stock.
(2) Notes payable, bridge loan financing obtained during 1997 and
accrued interest totaling $413,169 were converted to 413,169
shares of Series B preferred stock at $1 per share. The Company
also issued 200,986 shares of common stock to these creditors.
(3) The Company issued 1,267,711 shares of Series B preferred stock
at $1 per share for cash.
(4) All outstanding shares of Series A preferred stock were converted
to 45,821 shares of common stock.
(5) Subordinated convertible debt of $1,200,000 and accrued interest
of $429,027, payable to both stockholders (defined as
stockholders with greater than 10% ownership interest) and
non-stockholders, was converted to 248,813 shares of common stock
at $0.07 per share. The difference between the carrying value of
the debt and the fair value of the common stock issued to
existing stockholders of $644,643 has been credited directly to
retained earnings. The difference between the carrying value of
the debt and the fair value of the common stock issued to
non-stockholders of $966,967 is included in extraordinary gain in
the accompanying statement of operations.
(6) Accounts payable to stockholders for professional services
rendered totaling $85,000 was converted to 13,100 shares of
common stock at $0.07 per share. The difference between the fair
value of the common stock and amounts owed of $84,083 has been
credited directly to retained earnings.
(7) A note payable to Millipore and accrued interest totaling
$983,764 was converted to 50,000 shares of Series M preferred
stock at $1 per share. The difference between the carrying value
of the debt and the fair value of the common stock of $933,764 is
included in extraordinary gain in the accompanying statement of
operations.
58
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(7) PREFERRED STOCK
As a result of the Recapitalization, the Company's preferred stock
contains two series, Series B and Series M, and provide the
following rights, preferences, privileges and restrictions:
Dividends
The holders of shares of Series B and Series M preferred stock are
not entitled to any dividends.
Conversion
Each share of Series B and Series M preferred stock shall be
convertible, at the holder's option, into such number of common
shares as is determined by dividing the original Series B and M
issue prices by $0.33 and $1.111, respectively. These conversion
factors are subject to adjustment upon any recapitalization of
the Company's common stock, as defined.
Conversion of Series B and Series M preferred stock will occur
automatically upon the consummation of the sale of the Company's
common stock in a registration statement in connection with an
initial public offering, as defined.
Voting Rights
The holders of Series B preferred stock have the right to one
vote for each share of common stock into which such Series B
preferred stock could then be converted. The holder of Series M
preferred stock have no voting rights.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the
affairs of the Company, either voluntarily or involuntarily, the
holders of Series B and M preferred stock are entitled to
receive, prior to and in preference to any distributions to the
holders of common stock, an amount initially equal to $1 and, $6
per share, respectively, subject to adjustment upon any
recapitalization of the Company's common stock, as defined. The
holders of Series B preferred stock are also entitled to receive,
prior to and in preference to any distributions to the holders of
common stock, an amount per share equal to 8% of the original
issuance price of Series B preferred stock.
59
B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(8) COMMON STOCK
The Company has reserved for issuance such number of shares of
its authorized but unissued common stock necessary to effect
conversion of all outstanding shares of Series B and M preferred
stock and exercise of all outstanding options.
(9) STOCK OPTION PLAN
Effective 1994, the Company established a stock option plan (the
Plan) to increase its ability to attract and retain key employees
as well as provide an incentive for certain consultants and
directors to invest in the Company. Options granted may be either
incentive stock options, which are granted at the fair market
value of the common stock on the date of grant (as determined
under the Plan), or nonqualified stock options, which are
generally granted at the fair market value of the common stock on
the date of grant. Options are granted at the discretion of Board
of Directors. The maximum number of shares that may be granted
under the Plan is 1,590,000. Options granted become exercisable
at a rate of 33% per year over three years from the date of
grant. As of July 31, 1997, 43,500 options have been exercised.
The Company accounts for the Plan under APB Opinion No. 25, under
which no compensation expense has been recognized. Had
compensation expense been determined consistent with SFAS
No. 123, the Company's reported net loss of $1,097,382 would have
been increased to a net loss of $1,098,845. This pro forma result
may not be representative of that to be expected in future
periods.
Information concerning stock options for the year ended July 31,
1997, is as follows:
Weighted
Price Average
Number of Per Exercise
Shares Share Price
--------- ----- ---------
Outstanding at July 31, 1996 675,750 $0.07 $0.07
Options granted 1,517,100 $0.07 $0.07
Options cancelled (693,250) $0.07 $0.07
Options exercised -
---------
Outstanding at July 31, 1997 1,499,600 $0.07 $0.07
=========
Exercisable at July 31, 1997 166,622 $0.07 $0.07
=========
60
B. I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(10) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan covering all eligible
employees. Participants may elect to defer a certain
percentage of qualified compensation through
voluntary contributions to the plan and the Company
may make discretionary contributions to the plan
based on the gross compensation of qualified
participants. The Company made no contributions to
the plan in 1997.
(11) ACQUISITION OF BIOPHOTONICS, INC.
In June 1997, the Company acquired substantially all
assets of BioPhotonics, Inc. in exchange for $302,300
in cash and 85,000 shares of common stock at $O.07
per share. The Company has accounted for the
acquisition as a purchase and has allocated the
purchase price over the assets acquired based on
their respective fair market values. The excess of
the purchase price over the fair value of the net
assets acquired of approximately $126,000 has been
recorded as goodwill (see Note 2).
61
Schedule 3.9(ii)
See attached management's interim financial statements, dated November 30, 1997.
62
SCHEDULE 3.9(ii)
B.I. Systems Corporation
Balance Sheet
As of November 30, 1997
ASSETS
Current Assets
Cash $113,440.76
Accounts Receivable -Trade (Net) 605,965.98
Accounts Receivable - Other 4,500.00
Inventory 489,564.23
Prepaid & Other Expenses 41,372.66
----------------
Total Current Assets $1,258,843.63
Long Term Assets:
Property & Equipment $500,410.65
Less: Accumulated Depreciation (451,189.10)
-----------------
Net property & Equipment $49,221.55
Capitalized S/W & Intangibles 175,651.00
Less: Accumulated Amortization (4,188.45)
-------------------
Net Capitalized Software $121,462.55
-------------------
Total Long Term Assets $170,684.10
----------------
Total Assets $1,429,527.73
================
LIABILITIES & EQUITY
Current Liabilities:
Accounts Payable - Trade $254,265.36
Accounts Payable Other 106,062.11
Notes Payable 923,811.00
Interest Payable 161.29
Taxes Payable 74,629.67
Deferred Revenue 36,328.74
-----------------
Total Current Liabilities $1,395,258.19
Shareholders's Equity
Preferred Stock $1,731.35
Common Stock $.001 Par Value 626.00
Add'l Pd In Capital 2,270,296.65
Retained Earnings (1,776,401.42)
Net Profit / (Loss) (461,963.041
------------------
Total Equity $34,269.54
--------------
Total Liabilities & Equity $1,429,527.73
==============
63
B.I. Systems Corporation
Income Statement
For All Locations
For the period November 1, 1997 to November 30, 1997
Current Period Current Period Current Period YTD YTD YTD
Actual Budget Variance Actual Budget Variance
Sales $170,590.48 $502,400.00 ($331,809.52) $855,965.79 $1,337,500.00 481
Cost of Sales 78,061.25 176,735.00 (96,673.75) 243,563.76 418,031.00 (174
Gross Margin $92,529.23 $325,665.00 ($233,135.77) $612,402.03 $919,469.00 $207
Direct Expenses:
Administration $44,084.79 $62.375.00 ($18,290.21) $164,038.92 $209,926.00 (545
Finance & Accounting 19,748.06 7,132.00 12,616.06 53,256.70 42,528.00 10
Software Development 26,732.28 32,231.00 (5,498.72) 110,624.13 140,974.00 (30
Marketing 41,376.36 38,221.00 3,156.36 174,589.13 221,503.00 (46
Engineering 25,430.72 27,400.00 (1,969.28) 98,161.01 116,936.00 (18
North America 61,487.49 66,066.00 (6,578.51) 197,618.07 227,502.00 (29
Europe 5,274.07 .00 5,274.07 64,343.20 58,897.00
Rest of world 7,057.69 15,877.00 (8,819.31) 35,616.23 49,503.00
Japan 36,205.18 34,900.00 1,305.18 128,876.18 135,200.00
--------------- --------------- --------------- --------------- --------------- -------
Total Allocated Direct Expense $267,396.64 $286,202.00 ($18,805.36) $1,027,123.57 $1,202,969.00 ($l75,
--------------- --------------- --------------- --------------- --------------- -------
($174,867.41) $39,463.00 ($214,330.41) ($414,721.54) ($283,500.00) (3,132,
Depreciation/Amortization (13,428.11) 15,040.00 (28,468.11) 56,483.98 60,160.00 (3,
--------------- --------------- --------------- --------------- --------------- -------
Total Depr. & Amort. ($13,428.11) $15,040.00 ($28,468.11) $56,483.98 $60,160.00 ($3,
--------------- --------------- --------------- --------------- --------------- -------
EBIT ($161,439.30) $24,423.00 ($185,862.30) ($471,205.52) ($343,560.00) $127,
Other (Income) / Expense:
Other (Income) / Expense $3.854.36 ($1,300.00) $5,154.36 ($9,222.48) ($5,200.00) ($4,
--------------- --------------- --------------- --------------- --------------- -------
Net Other (Income) / Expense $3,854.36 ($1,300.00) $5,154.36 ($9,222.48) ($5,200.00) ($4,
--------------- --------------- --------------- --------------- --------------- -------
Pretax Income ($165,293.66) $25,723.0O ($19l,016.66) ($461,983.04) ($338,460.00) ($123,
--------------- --------------- --------------- --------------- --------------- -------
Net Income ($165,293.66) $25,723.00 ($191,016.66) ($461,983.04) ($338,460.00) ($123,
=============== =============== =============== =============== =============== =======
64
B I SYSTEMS CORPORATION
CASH FLOW STATEMENT
FOR MONTH ENDED November 30, 1997
Cash flows from operating activities:
Net Income (165,294)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and Amortization (20,111)
Increase in Accounts Receivable 70,230
Decrease in Prepaid Expense 1,423
Increase in Inventory 18,922
Increase In Accounts Payable 54,050
Increase In Deferred Revenue (4,562)
Decrease in Accrued Interest 161
Increase in Deferred Tax Liability
Increase in Notes Payable 100,000
Total Adjustments 220,114
----------
Net Cash provided by operating activities 54,820
Cash flows from investing activities:
Capital Expenditures -
Debt Converted to Equity -
Additional Paid in Capital/Stock Purchased 0
-------
Net Cash provided by investing activities 0
----------
Net increase/decrease in cash and cash equivalents 54,821
Cash and cash equivalents at beginning of month $58,621
Cash and cash equivalents at end of month ----------
113,442
==========
65
SCHEDULE 3.11(ii)
Per the License Agreement with Computational Biosciences, the Corporation
has committed to issue 40,000 shares of common stock. This Agreement is
referenced in Schedule 3.15 and has been previously supplied or will be supplied
upon request.
The Corporation signed on December 19, 1997 a definitive Agreement for the
sale and purchase of the entire issued share capital of PBA Technology
Limited. This Agreement has been previously supplied or will be supplied upon
request.
66
SCHEDULE 3.12
National Bank of Detroit ("NBD") Term Loan. The Company intends
to fully pay-off the outstanding balance ($823,811) of the Term Loan upon
completion of the Series C Preferred Stock offering. For a description of the
terms of the Term Loan, see Note 4 of the Notes to Financial Statements which
are part of the July 31, 1997 financial statements.
67
SCHEDULE 3.15
List of Agreements (Unless previously provided, copies of these agreements are
available upon request of the Secretary of the Corporation or its legal
counsel.)
3.15 1994 Omnibus Equity Incentive Plan ("Stock Option Plan").
3.15(i) 401(k) Profit Sharing Plan and Trust.
3.15(ii) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Employment Agreement. Terms finalized and
agreement currently being drafted. Final employment agreement to
be attached upon its completion.
3.15(iii) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Employment Agreement.
3.15(iv) Promissory notes issued to certain shareholders, who also serve as
directors of the Corporation. These notes will be fully repaid in
exchange for Series C Preferred Stock.
3.15(v) Computational Biosciences Agreement.
3.15(vi) List of distributors.
3.15(vii) BioSpace Mesures Distribution Agreement.
3.15(viii) List of Leased Corporate Facilities.
3.15(ix) Bioseparations Agreement
3.15(x) List of Non-Disclosure Agreements
3.15(xi) Other leases: Dell computer leases; one for laptop and one for
desktop PC; Telephone and UPS System lease.
ITEM: COMMENT:
3.15(ix) Bio Image to supply segmentation software under license agreement
with BioSeparations Inc. This is an exclusive license, in the
field of cell imaging, for the segmentation software required for
cell location in an imaging system. B.I. Systems Corp. is to
receive 1% royalty on revenue of the direct sales of
BioSeparations Scanning and Analysis System. In addition, the
Company received 15,000 shares of BioSeparations Series "B"
Preferred Stock.
3.15(vii) Biospace Mesures - B.I. Systems to distribute Biospace products in
North America and Japan. B.I. Systems has exclusive distribution
rights.
68
SCHEDULE 3.15
LIST OF DISTRIBUTORS
ITEM: COMMENT:
3.15(vi) Distributors of Bio Image Products:
1. MWG
2. Manufacturers Reps. In North America -
Approx. 17 reps.
3. Research Instruments
Ptd., Ltd. - Singapore, Malaysia
4. Feng Jih Biomedical & Instruments Co.
Ltd. - Taiwan
5. Cor Bio - Korea
6. SATECH - Middle East
7. Bio Tech s.r.o. - Czech Republic
8. Ikeda Rika K. K. - Japan
Nihon Bio Image sells primarily through
distributors in Japan. Approx. 30
distributors.
69
SCHEDULE 3.15(viii)
LEASED CORPORATE FACILITIES
Leased Facilities
1.) Main Corporate offices which house - Sales, Marketing,
Software Development, Accounting and Administration.
Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
2.) Production and Engineering groups are located at a separate
facility.
Address: ▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
3.) The Company entered into a new property lease agreement on
August 7, 1997. The Company will consolidate from its Avis
Drive and W. Huron River Drive locations into this one single
facility. The Company plans to move into this new space
between December 18, 1997 and January 5, 1998.
Address: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
4.) Office facility in Tokyo, Japan for only one sales manager
and one marketing rep.
Note: a.) Copies of property leases for items 1, 2 & 3 have been
previously provided or are available upon request.
b.) Corporate sales reps located outside Michigan work out of
their homes.
70
SCHEDULE 3.15.X
[BIO IMAGE LETTERHEAD]
LIST OF NON - DISCLOSURE AGREEMENTS
1. Biotechnology Business Consultants, LLC.
2. ESA, Inc.
3. Gene Logic Inc.
4. ▇▇▇▇▇▇ Company Ltd.
5. Mosaic Technologies
6. PBA Technology
7. The Regents of the University of Michigan
71
SCHEDULE 3.16
ITEM: COMMENT:
3.16 Have applied for "Early Disclosure" designation with the US
patent office for the GeneTAC(TM) 2000.
Our Intellectual property includes:
- Proprietary software and image analysis
algorithms. All software is copyrighted.
The source code is updated monthly and
stored offsite.
- "Bio Image" and logo design registered
trademarks in USA and Japan.
- Common law trademarks include:
Visage(TM), GelPrint(TM), GeneTAC(TM),
Virtual 2-D(TM), Genomic Integrator(TM),
Advanced Quantifier(TM), Intelligent
Quantifier(TM), & Array Manager(TM)