FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS
ISSUERS PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
MEDCARE TECHNOLOGIES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0429962B
-------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2443 Warrenville Road, Suite 600, Lisle, Illinois 60532
- ------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (800) 611-3388
--------------
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
to be so registered which each class is to
be registered
Common Stock None
$0.001 par value
Securities to be registered pursuant to Section 12(g) of the Act:
100,000,000 Shares of Common Stock,
including 800,000 options
1,000,000 Shares of Preferred Stock
1
<PAGE>
TABLE OF CONTENTS
Page
COVER PAGE .............................................................. 1
TABLE OF CONTENTS ....................................................... 2
PART I ............................................................ 3
DESCRIPTION OF BUSINESS ............................................. 3
DESCRIPTION OF PROPERTY ............................................. 13
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES .......... 14
REMUNERATION OF DIRECTORS AND OFFICERS .............................. 16
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
........ 16
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS ..........
17
SECURITIES BEING OFFERED ............................................. 17
PART II ................................................................. 18
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS ......................... 18
LEGAL PROCEEDINGS .................................................. 19
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS .................... 19
RECENT SALES OF UNREGISTERED SECURITIES .............................. 19
INDEMNIFICATION OF DIRECTORS AND OFFICERS ......................... 20
PART F/S ................................................................. 20
FINANCIAL STATEMENTS ............................................. 20
PART III ................................................................. 20
INDEX TO EXHIBITS .................................................. 20
SIGNATURES ............................................................ 21
2
<PAGE>
PART I
The issuer has elected to follow Form 10-SB, Disclosure Alternative 2.
ITEM 6. DESCRIPTION OF BUSINESS
MedCare Technologies, Inc. (the "Company") is a developmental stage
company. The Company, formerly known as Multi-Spectrum Group, Inc., was
incorporated under the name Santa Lucia Funding, Inc., in the State of Utah on
January 17, 1986, with an authorized capital of 50,000,000 common shares with a
par value of $0.001 for the purposes of raising capital in order to seek
business opportunities believed to hold potential for profit. On February 8,
1990, the Company adopted a plan of merger with Multi-Spectrum Group, Inc., a
Delaware corporation, and Santa Lucia Funding, Inc., a Utah corporation, merged
into Santa Lucia Funding, Inc., a Utah corporation, which then changed its name
to Multi-Spectrum Group, Inc. The outstanding shares of Multi-Spectrum Group,
Inc. were converted into common shares of Santa Lucia Funding, Inc. at the
exchange rate of 55,305 shares of Santa Lucia for each common share of Multi-
Spectrum then issued and outstanding. In addition, the number of common shares
authorized was increased from 50,000,000 to 100,000,000 with the par value
remaining at $0.001. On November 13, 1992, the Company issued 8,7722,800 shares
of its Common Stock to Group of Five, Inc. in exchange for services rendered.
The Company was inactive during the period from February 1990 to August 1995, at
which point the Company acquired the MedCare program for treating incontinence.
On August 11, 1995, a reverse split of the common stock by a ratio of one
new for 1,200 old was effected, with the par value remaining at $0.001. This
reduced the total number of shares issued and outstanding to 58,519. On August
14, 1995, the Company acquired MedCare Technologies Corporation, a Nevada
corporation, as a wholly-owned subsidiary in exchange for 2,000,000 shares of
the Company's common stock, for a total value of $300,000. This transaction was
completed in order to acquire the MedCare UI System, a method for treating
urinary incontinence without the use of drugs or surgery. On August 25, 1995,
the Company approved an increase in the authorized capital to 101,000,000 shares
of stock, comprised of 100,000,000 common shares with a par value of $0.0001 per
share and 1,000,000 preferred shares with a par value of $0.25 per share, and
approved a name change to MedCare Technologies, Inc.
On August 15, 1995, the Company authorized in a Private Placement Memorandum,
pursuant to Regulation D, Rule 504, offering 4,200,000 shares of its common
stock at a price of $0.15. This offering was conducted in order to raise money
for research and development on the MedCare UI System and was broken down as
follows: $300,000 for public relations and advertising, $155,000 for market
research and development, $45,000 for consulting, $25,000 for miscellaneous
expenses and $75,000 as a cash reserve. On September 20, 1995, the offering was
completed with all shares being issued for a total value of $630,000, less
offering costs of $30,000.
3
<PAGE>
On October 1, 1995, the Company's wholly owned subsidiary, MedCare
Technologies Corporation, acquired 100% of Manon Consulting Ltd., an Alberta,
Canada, corporation, for a nominal value from its owners, Diane Nunzianto, a
MedCare Technologies, Inc. director and Philip Tolley and Mel Tolley. On
December 31, 1995, the Company issued 16,666 shares of its common stock for
$50,000 cash and 25,000 shares of its common stock in exchange for consulting
services for a total value of $75,000.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on June 20, 1996 and completed on August
15, 1996. This offering was for 50,000 shares of common stock at $4.75 per
share for a total offering of $237,500. The proceeds from this offering were
used for equipment purchase, advertising and marketing, and working capital.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on November 18, 1996 and completed on
December 24, 1996. This offering was for 56,000 shares of common stock at $4.50
per share for a total offering of $252,000. The proceeds from this offering
were used for equipment purchases, advertising and marketing and working
capital.
Narinder Thouli, a member of the Board of Directors, resigned on November
1, 1996. He resigned for personal reasons and did not have any disagreements
with the Company. On October 4, 1996 a migratory merger was completed changing
the Company's domicile from Utah to Delaware.
The going concern opinion of the independent accountant, as disclosed in
the Company's Independent Auditors Report attached to Part F/S, is as follows:
"The Company is a Developmental Stage Company as defined in Financial
Accounting Standards Board Statement No. 7. The Company is devoting
substantially all of its present efforts in establishing a new business
and its planned principal operations have not commenced and, accordingly,
no revenue has been derived therefrom. In addition, the Company does
not presently have adequate financing to carry out its business plan.
These factors raise substantial doubt about its ability as a going
concern. The Company's ability to continue as a going concern is
dependent upon a successful purchase and financing of a business and
its ability to establish itself as a profitable business. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty."
The MedCare program is a multi-modality program based primarily on
behavioral techniques for treatment. These techniques include biofeedback using
electromyography (EMG), pelvic floor muscle exercises and bladder and bowel re-
training. The program is designed to activate and strengthen the various
sensory-response mechanisms that maintain bladder and bowel control. The
therapy is provided through computerized instrumental electromyography
biofeedback and is based
4
<PAGE>
on operant conditioning strategies whereby specific physiological responses are
progressively shaped, strengthened and coordinated. All patients entering the
MedCare treatment program are initially evaluated by a physician and a
biofeedback clinician whose expertise is in bladder and bowel control.
The MedCare program is individualized for each patient's needs and
circumstances. It focuses on their clinical, cognitive, functional and
residential status to produce a comprehensive program for bladder and bowel
disorder sufferers. These terms may be defined as follows:
Clinical -- The MedCare program works with patients with a primary diagnosis of
pelvic floor muscle weakness or spasm. The secondary diagnosis is usually
urinary incontinence, fecal incontinence, pelvic pain, constipation, etc. In
addition, other secondary diagnosis could be MS, Parkinson's disease, incomplete
spinal cord injury, diabetes, CVA, Spina Bifida, IBS, Imperforated Anus,
Hirschbrung's disease, child birth injury, etc.
Cognitive -- The MedCare program works with cognitive functions ranging from
normal to moderately impaired. The patient must be able to follow directions,
cooperate with the treatments and respond to written and verbal cueing.
Biofeedback therapy, which is part of MedCare's program, has been shown to be
successful in the treatment of incontinence in patients with traumatic brain
injury as long as they can meet the above requirements.
Functional -- The MedCare program works with patients on a variety of functional
levels from normal to moderately impaired. The only thing that must be largely
intact is the nerves that go to the pelvic floor and the pelvic floor muscles
themselves. For example, the program will work for incomplete spinal cord
patients as long as the nerves and muscles are intact, and not for patients who
have complete spinal cord injuries.
Residential -- The patients who come to the MedCare program are all outpatients.
At present, the MedCare program does not go to the patients' homes, provide in-
patient hospital treatment or in-patient residential programs.
The fundamental goals for the MedCare program, as they relate to bladder
and bowel function, are:
1. Increase the strength and tone of the pelvic floor muscles that prevent
incontinence;
2. Augment the motor efficiency of the striated pelvic floor muscles;
3. Enhance sensory-response systems that trigger motor activity which
prevent or limit incontinence;
4. Decrease abnormal motor substitutions that are ineffective in preventing
incontinence;
5. Re-establish normal muscle activity which may contribute to voiding and
defecation dysfunction;
6. Provide patients with strategies that establish normal bowel and bladder
habits; and
7. Reduce incontinence and symptoms of urgency and frequency.
5
<PAGE>
To reach these goals, the MedCare program may use the following treatments
or procedures:
1. Biofeedback using electromyography;
2. Bladder ultrasound;
3. Aerodynamicist;
4. Electrical stimulation of the pelvic floor muscles;
5. Anorectal Manometry;
6. Weighted vaginal cones;
7. Rectal pressure balloons;
8. Pelvic floor muscle exercises;
9. Various behavioral programs for bladder and bowel re-training; and
10. Behavioral strategies and home programs which generalize gains made
within each treatment session to the patient's life situation.
The following disorders respond to this treatment:
Urinary Dysfunction
1. Stress incontinence;
2. Urge incontinence;
3. Mixed stress and urge incontinence;
4. Bladder disorders secondary to neurologic disorders;
5. Urinary frequency and urgency;
6. Hyperactive or dissynergic sphincters; and
7. Pelvic floor muscle strengthening prior to bladder suspension surgery.
Bowel Dysfunction
1. Fecal incontinence, idiopathic, or due to muscle or nerve damage from
obstetrical trauma, or surgery;
2. Disordered defecation caused by excessive spasm or activity of the pelvic
floor muscles; i.e., constipation, acquired megacolon;
3. Bowel disorders secondary to neurologic disorders; i.e., CVA (stroke),
incomplete spinal cord injury, multiple sclerosis, spina bifida, etc.;
4. Hirschbrung's disease;
5. Irritable bowel syndrome; and
6. Adjunct to surgical procedures such as muscle transpositions, ostomy
reversal surgeries, anal spincteroplasty and imperforated anus.
Pelvic Floor Disorders
1. Levator ani syndrome;
2. Perineal descent syndrome; and
6
<PAGE>
3. Spastic floor syndrome.
Admission to the MedCare Program
________________________________
Admission to MedCare's program is by a physician's order for pelvic floor
muscle strengthening or pelvic floor muscle spasm. The referral may come from
a physician who has completely evaluated the patient and has determined that
EMG biofeedback therapy in conjunction with behavioral programs is a reasonable
treatment for the patient. The referral may also come from a physician who
would like more assessment of the patient. In that case, the patient would be
referred to the physician working with MedCare's program for evaluation to see
if he or she is an appropriate candidate for EMG biofeedback therapy. A patient
can also self-refer to the MedCare program, but must first be evaluated by the
physician working with MedCare's program to see if the individual is an
appropriate candidate for treatment. The cost of the MedCare program is covered
by most insurance companies and by Medicare.
Course of Treatment
- -------------------
The MedCare program begins by having the clinician (a licensed and
registered physical therapist, occupational therapist or nurse) review the
patient's medical history. The clinician then conducts an in-depth verbal
interview with the patient regarding his or her bladder or bowel dysfunction.
A patient diary is then given to the patient to fill out for a week at a time to
keep track of their symptoms better. This diary is reviewed each visit and
helps to track patient progress and improvement.
The patient then undergoes a physical assessment, which varies according to
the patient's disorder and symptoms. In the case of bladder dysfunction, the
physical assessment may include EMG measurements of the pelvic floor showing
baselines, maximum contraction/relaxation and degree of maladaptive abdominal
substitution with attempts at pelvic floor muscle contraction. A bladder scan,
catheterization or aerodynamicist may also be done. These help to evaluate the
patient's post-void residual volumes, bladder compliance, presence of
uninhibited bladder contractions and sensation related to increasing levels of
bladder infusion.
In the case of bowel dysfunction, the physical assessment consists of EMG
measures of the pelvic floor muscles showing baselines, maximum contraction/
relaxation, degree of maladaptive abdominal substitution with attempts at pelvic
floor muscle contractions and the ability to relax with defecation maneuvers.
Anal manometry may also be done to show the dynamic characteristics of the
pelvic floor, coordination and synchrony of the internal and external anal
sphincters and sensation in response to varying degrees of rectal distention.
After the evaluation identifies the patient's dysfunctional motor patterns,
the MedCare treatment program is then individualized to include the modalities
that will be used and a home exercise program. At each consecutive treatment
session the patient's progress is reviewed, new
7
<PAGE>
goals are set and the patient's program is changed to accommodate their current
situation and symptoms.
Length of Treatment
- -------------------
Initial treatment sessions are usually one hour in length at one week
intervals, with the inter treatment interval increasing thereafter for most
ambulatory non-neurological compromised outpatients. As a result, most patients
will be seen over a three- to four-month period, with an average of six to eight
treatment sessions. MedCare's program relies on patients following a specific
individual home exercise program that is updated during each treatment session.
If, however, the patient's condition demands more intensive therapy (i.e.,
neurologic disorders, cognitive dysfunction or pediatric patients) or if the
patient's ability to perform the home program is compromised, the treatment
sessions may need to be scheduled more frequently and over a longer period of
time.
Contradictions to Treatment
- ---------------------------
The most significant contradiction to MedCare's program is the patient's lack of
motivation, inability to follow directions and failure to remember to do the
home exercise program. Since each patient is carefully and thoroughly assessed
and is followed closely, however, the clinician can determine within just a few
sessions if the patient will benefit from the program or not. If the patient is
found to be inappropriate for therapy, other methods of treatment will be
offered, such as regular toileting or adaptive equipment. In addition, the
evaluating physician may also determine contradictions to theraphy such as
anatomic obstruction, severe descensus, prolapse or severe neurologic disorder.
Effectiveness of the MedCare Program
- ------------------------------------
The value and effectiveness of neuromuscular re-education therapy and
behavioral techniques has been well documented by many notable and respected
researchers. Studies in the various applications of biofeedback (EMG), combined
with behavioral treatments, report a range of 54% to 95% improvement in
incontinence across different patient groups. The researchers of one such
study (1) were able to obtain a mean 82% reduction in stress incontinence and a
range of 30% to 100% reduction in urge incontinence. With regard to fecal
incontinence with various age groups, including
- ----------
1 Burgio KL, Whitehead WE & Engel BT. "Urinary incontinence in the elderly:
bladder/spincter biofeedback and toileting training." ANNALS OF INTERNAL
MEDICINE. 103(1985): 507-515.
8
<PAGE>
geriatric patients and children with spina bifida, reports (2 3 4) indicate a
range of 66% to 77% using behavioral and neuromuscular re-education techniques.
Combined analyzes of 22 articles that dealt with behavioral techniques in
community-dwelling adults were reviewed (5) by a subcommittee of behavioral
experts and then by external reviewers. The number of patients (both male and
female) studied in the combined analyzes was 887, with an average age of 53
years. The number of baseline incontinent episodes ranged from 4 to 21 per
week, per article, with an overall average of 6 per week. Based on the weighted
combined data, the average percent reduction in incontinent episodes ranged from
4 to 21 per week, with an overall average of 6 per week. Based on the weighted
combined data, the average percent reduction in incontinence frequency at the
end of treatment was 64.6%, with a 95% confidence interval ranging from 58.8%
to 70.4%.
Successful application of behavioral treatment and neuromuscular re-
education therapy using biofeedback is highly dependent on the knowledge and
skill of the health care provider. This very important factor is the principle
reason for such a wide percentage range in the studies mentioned above. In
contrast, MedCare protocols are in-depth, standardized and comprehensive. All
MedCare-trained clinicians receive training in every aspect of the treatment
program, including familiarity with evaluation techniques, anatomic and
physiologic correlates of the different forms and symptoms of bladder
dysfunction, instrumentation and behavioral principles that guide the MedCare
program for incontinence.
At MedCare's developmental clinic in Calgary, Alberta, a study of randomly
selected volunteers was conducted to rate the effectiveness of the program.
Eighteen subjects with stress, urge or mixed incontinence were chosen with the
approval of their physicians. There were 3 males and 15 females, with an
average age of 64.6. The results of this study revealed a statistically
significant reduction in incontinent episodes in the randomly selected patient
population. Before the treatment program began, the subjects had an average of
5.5 incontinent episodes per day. After the treatment program, only 2 out of
the 18 patients displayed any symptoms of incontinence -- representing an 89%
success rate. A 12 month follow-up revealed no tendency for relapse.
A study using a larger patient population base was conducted by Cheryl
Aikey of Albany, New York. Out of 200 patients, ranging in age from 17 to 89
years of age, the study revealed an
- ---------------
2 Engel, BT, Nikoomanesh P & Shuster MM. "Operant conditioning in the
treatment of fecal incontinence." THE NEW ENGLAND JOURNAL OF MEDICINE. 290
(1974): 646-649.
3 Whitehead WE, Burgio KL & Engel BT. "Biofeedback treatment of fecal
incontinence in geriatric patients." JOURNAL OF AMERICAN GERIATRIC SOCIETY. 33
(1985): 320-324.
4 Wald A. "Biofeedback for neurogenic fecal incontinence: rectal sensation is
a determinant of outcome." JOURNAL OF PEDIATRIC GASTROENTEROLOGY AND
NUTRITION.
2(1983): 320-324.
5 Urinary Incontinence Guideline Panel. URINARY INCONTINENCE IN ADULTS:
CLINICAL PRACTICE GUIDELINES. ACHPR Pub 9-2-0038. Rockville, MD: Agency for
Health Care Policy & Research; PHS, HHS: March 1992.
9
<PAGE>
overall improvement rate of 77%. The high success rate of MedCare's program,
along with ample positive clinical evidence from other independent researchers,
supports the Company's expectations that a conservative approach in treating
incontinence will become the preferred treatment choice of all sufferers in the
near future. At present, the only hindrance to this conversion of treatment
modality (surgery, drugs and diapers being the current modalities of choice) is
the ignorance of the patient population and the medical community -- few realize
that an alternative treatment program exists at the present time.
Present Stage of Development
- ----------------------------
The MedCare program is offered in conjunction with a urologist,
obstetrician/gynaecologist, gastroenterologist and/or colon rectal surgeon in an
existing private office, clinic or hospital setting. With the exception of
costs relating to the purchase of EMG and bladder scan equipment (approximately
$14,000) and the recruitment and training of nurse clinicians (approximately
$6,000), this arrangement allows the Company to establish its program with
minimal infrastructure costs. Once a nurse clinician has been recruited,
usually through local newspaper advertisements or referral, a two-week training
program ensues, followed by on-going advanced training and development of skills
specific to the treatment of patients using the MedCare program. One week prior
to actual opening, an advertising program begins to inform potential patients
that the MedCare program is available. A twelve month plan of operations is
outlined at the end of this Item 6.
At present, the Company has one operating clinic located at Suite 800-500
East Robinson, Norman, Oklahoma, 73071, under the direction of Dr. Michael M.
Blue, a director of the Company. A second clinic opened in the fall of 1996.
The second clinic is located at 4840 College Boulevard, Overland Park, Kansas,
66211-1601 and is under the direction of Dr. Herbert C. Hodes. Additional
locations are planned for New York, Florida, Texas, Colorado, Illinois and
California in calendar 1997. To aid in the expansion, an experienced sales team
consisting of ten representatives has been assembled to market the MedCare
program to physicians. As compensation, each sales representative will receive
consideration from the sale of equipment that MedCare uses in each site.
All of the staff for these clinics will be registered nurses. The Company
anticipates that the start-up costs per clinic will total $30,000, broken down
as follows:
EMG Biofeedback Equipment $14,000
Bladder Scan $ 6,000
Miscellaneous (furniture, office supplies, etc.) $ 6,000
Training $ 5,000
-------
Total Start-Up Expenses $30,000
Regulatory Consideration
- ------------------------
10
<PAGE>
Since the MedCare program is a multi-modality program based primarily on
behavioral techniques for treatment using EMG biofeedback, pelvic floor muscle
exercises and bladder and bowel re-training, the Company does not require any
regulatory approvals from such agencies as the FDA. Additionally, since all
MedCare sites are under the direct supervision of medical doctors, only approved
insurance codes and procedures are used for Medicare, Medicaid and other private
insurance companies.
The Company has developed the MedCare UI System as a non-invasive (i.e., no
catheters or other internally implanted devices), non-surgical, non-drug, cost
effective way to significantly reduce or potentially eliminate many symptoms of
urinary incontinence (UI). Compliance with Federal, Provincial and local
environmental provisions will have no material effect upon the Company. To
date, the Company has spent $155,000 on the development of medical protocols,
advertising, equipment, and other research and development costs.
Compared to alternative treatment options, the MedCare program is cost
effective because the end result is the reduction or complete elimination of
the most commonly found symptoms of urinary incontinence. The average patient
suffering from urge or stress incontinence requires between six to eight
treatments using the MedCare program. Since each treatment session is covered
by most health insurance companies, upwards of 80% of the approximately $200
cost is paid for by insurance. The total cost to the patient is approximately
$240 to $320 (20% of the $1,200 to $1,600). In the case of absorbent products,
for example, an average sufferer spends an estimated $1,500 to $1,800 each and
every year just in order to contain the problem. The cost of surgical
intervention is around $10,000.
At present, there are only a few small incontinence clinics scattered
across North America that use a combination of currently available non-invasive
alternative treatment options to treat UI patients. Most, if not all, of these
clinics have limited financial strength for adequate marketing and advertising,
and operate only locally. The Company plans to market its own UI clinics
through a combination of radio, TV, print, direct mail, seminars, doctor
referral and guest interviews by Company representatives in the local media.
There are two characteristics of the Company's operation which may have a
material impact upon the Company's future financial performance: its reliance
on insurance coverage for payment and referrals from gynaecologists, urologists,
urogynaecologists and other medical professionals. Because the MedCare UI
System is primarily based on EMG (electromyography) biofeedback, which is an
approved service by Medicare, Medicaid and most commercial insurance companies
and has been reimbursed for many years, insurance is expected to cover
approximately $200 per patient treatment, with the average patient requiring 6
to 8 visits. Currently, the Medicare CPT cores (and approximate Medicare
allowance) being used include 51784 -- EMG urethral/anorectal ($100), 90900 --
EMG biofeedback ($61), 97530 -- Therapeutic activities ($21) and 97750 --
Physical performance, test or measurement ($25) for a total reimbursement of
$207. Payments from HMOs such as AEtna, Cigna and Humana are expected to range
from 50% to 100% of the treatment costs. There can be
11
<PAGE>
no assurance, however, that such payments will be received by the Company. Due
to the fact that the Company's treatment process is non-surgical and non-drug,
however, it offers a lower cost treatment alternative and it is unlikely,
therefore, that insurance coverage will change. Many medical professionals,
moreover, advocate drugs or surgery as their preferred method of treatment for
incontinent patients, primarily because they have been trained to do so and are
financially motivated to offer surgery, drugs or other invasive treatment
options. There is no guarantee that this will change in the future.
Competition
- -----------
MedCare's treatment program for incontinence directly competes with a
number of different treatment modalities offered by medical practitioners,
various collection and containment devices and a number of small "ma and pa"-
type clinical operations. Competitive treatments include the following:
SURGERY -- Surgery is an expensive and traumatic procedure which requires
hospitalization. The outcomes of these delicate and complicated procedures
often vary because the success depends on a number of factors. Unfortunately,
the short term advantages of surgical intervention soon diminish over a period
of time because of the body's intrinsic physiology -- much like an obese
person's weight returning after being surgically removed if eating or exercise
habits remain unchanged.
ADULT DIAPERS -- Absorbent products, made popular in recent years, do
nothing for the condition with the exception of containment, leave the sufferer
with the problems of odor and dampness and contribute to skin breakdown and
urinary tract infections. Current major competitors in the adult absorbent
market include Kimberly-Clark Corp., Proctor & Gamble Co., Johnson & Johnson,
Confab Technologies, Inc. and INBRAND Corp.
DRUGS -- Drugs require continual, life-long usage and generally alleviate
the symptoms in part but are seldom curative and carry the risk of adverse side
effects, often affecting the cardiovascular and circulatory systems. Current
major competitors in this market include Marion Merrel Dow, Ayerst Laboratories
and Lederle Laboratories.
CATHETERS -- Catheters are inserted into the bladder through the urethra
in order to allow for the drainage of the bladder directly through a tube into
a urine collection bag. Many experience the inconvenience of a long tube and
collection bag and many suffer from certain medical conditions, such as urinary
tract infections, arising from a continuously indwelling catheter. Current
major competitors in the catheter/urine collection bag drainage system market
include C.R. Bard, Inc., Kendall Co., Mentor Corp., ConvaTec Ltd. and Baxtor
Technologies, Inc.
INJECTABLE MATERIALS -- Periurethral injections generally show promise
when used in patients suffering from specific anatomical defects, principally
intrinsic sphincteric deficiency.
12
<PAGE>
Unfortunately, this limits its use to around 10% of the UI population. Current
major competitors in the market for surgical or implantable products for
incontinence include American Medical Systems, Inc., C.R. Bard, Inc., Collagen
Corporation, Mentor Corp. and Johnson & Johnson.
MECHANICAL DEVICES -- Most mechanical devices, such as vaginal pessaries,
diaphragm rings and other inflatable and non-inflatable devices, work by
supporting the urethrovesical junction. Despite their wide availability, these
products have not gained wide acceptance among UI sufferers. In addition to the
difficulty of properly fitting patients with these devices, other potential
adverse side effects include vaginal discharge and tissue erosion.
Ignorance of Sufferers and the Medical Community
- ------------------------------------------------
The greatest competition by far, however, comes from the ignorance of the
marketplace. A significant number of incontinence sufferers do not seek medical
guidance or treatment of any kind, either because they are too embarrassed,
believe that their condition is a normal part of aging or bearing children or
are not aware that a genuine medical treatment is available. Not only are most
sufferers ignorant of the care and treatment options available for their
condition, but so are a vast number of people in the medical profession. In
fact, so few doctors are knowledgeable that the Agency for Health Care Policy
and Research recommended that information regarding incontinence be included in
the curricula of undergraduate and graduate health professional schools.
Many medical professionals, such as urologists, gynaecologists or
urogynaecologists, advocate drugs or surgery as their preferred choice of
treatment for incontinent patients, primarily because they have been trained to
do so and are financially motivated to offer surgery, drugs and other invasive
treatment options.
"Ma & Pa" Clinics
- -----------------
At present, there are a number of small incontinence clinics scattered
across North America which use a combination of currently available non-invasive
alternative treatment options to treat incontinent patients. Some of these
clinics include small operations in Chicago and Milwaukee (The Continence
Control Service), Southern Florida (Advantage Medical), Burbank, California
(Continence Restoration Service, Edina, Minnesota (Urofitness Center) and Bryn
Mawr, Pennsylvania (Uro-Rehab). In addition, Colorado-based First Choice for
Continence, Inc. is attempting to form alliances with physicians by charging
doctors a fee for a continence service. This program also requires the doctor
to pay for all equipment, marketing and advertising charges and the salary of a
nurse-practitioner.
13
<PAGE>
Plan of Operations
- ------------------
Month 1 Month 2 Month 3 Month 4
Number of Clinics 0 2 2 4
Number of New Clinics 2 2
Total Number of Clinics 2 2 4 4
Nummber of Clinicians 2 2 4 4
Number of Recep/Admin 2 2 4 4
Number of Patients/day 4 6 12 16
Number of Patients/Mo
Total Revenues 14,080 21,120 42,240 56,320
Expenses
Advertising/Marketing 15,000 15,000 30,000 30,000
Clinician Salary 6,000 6,000 12,000 12,000
Receptionist/Admin 0 0 8,000 8,000
Staff Workers Comp 285 285 705 705
Staff FICA/Medicare 727 727 1,798 2,257
Staff SUI/FUTA 1,776 1,776 2,960 2,960
Clinician Continuing Ed 250 250 500 500
Amort/Dep & Good Will 11,246 11,246 11,780 11,780
Miscellaneous Costs 667 667 1,333 1,333
Management 3,500 3,500 3,599 9,500
Financial Relations 10,000 10,000 10,000 10,000
Office Rent & Oper 350 350 350 5,000
Other 422 634 1,267 1,690
Total Expenses 50,223 50,434 84,193 95,905
Income Before Tax -36,143 -29,314 -41,953 -39,585
Income Tax
Net Income -36,143 -29,314 -41,953 -39,585
Month 5 Month 6 Month 7 Month 8
Number of Clinics 4 6 6 8
Number of New Clinics 2 2
Total Number of Clinics 6 6 8 8
Number of Clinicians 6 8 10 12
Number of Recep/Admin 6 6 8 8
Number of Patients/day 24 30 40 48
24
<PAGE>
Number of Patients/Mo 88 132 264 352
Total Revenues 84,480 105,600 140,800 168,960
Expenses
Advertising/Marketing 45,000 45,000 60,000 60,000
Clinician Salary 18,000 24,000 30,000 36,000
Receptionist/Admin 12,000 12,000 16,000 16,000
Staff Workers Comp 1,320 1,500 1,800 1,980
Staff FICA/Medicare 3,366 3,825 4,590 5,049
Staff SUI/FUTA 4,440 5,032 6,216 6,808
Clinician Continuing Ed 750 1,000 1,250 1,500
Amort/Dep & Good Will 12,314 12,848 13,382 13,916
Miscellaneous Costs 2,000 2,667 3,333 4,000
Management 14,000 14,000 14,000 14,000
Financial Relations 10,000 10,000 10,000 10,000
Office Rent & Oper 5,000 5,000 5,000 5,000
Other 2,534 3,168 4,224 5,069
Total Expenses 130,724 140,040 169,795 179,332
Income Before Tax -46,244 -34,440 -28,995 -10,362
Income Tax
Net Income -46,244 -34,440 -28,995 -10,362
Month 9 Month 10 Month 11 Month 12
Number of Clinics 8 10 10 12
Number of New Clinics 2 2
Total Number of Clinics 10 10 12 12
Number of Clinicians 14 16 18 20
Number of Recep/Admin 10 10 12 12
Number of Patients/day 60 70 84 94
Number of Patients/Mo 1,320 1,540 1,848 2,068
Total Revenues 211,200 246,400 295,680 330,880
Expenses
Advertising/Marketing 75,000 75,000 90,000 90,000
Clinician Salary 42,000 48,000 54,000 60,000
Receptionist/Admin 20,000 20,000 24,000 24,000
Staff Workers Comp 2,280 2,580 2,880 3,060
Staff FICA/Medicare 5,814 6,579 7,344 7,803
15
<PAGE>
Staff SUI/FUTA 7,992 8,880 10,064 10,656
Clinician Continuing Ed 1,750 2,000 2,250 2,500
Amort/Dep & Good Will 14,450 14,984 15,518 16,052
Miscellaneous Costs 4,667 5,333 6,000 6,667
Management 14,000 18,000 18,000 18,000
Financial Relations 10,000 10,000 10,000 20,000
Office Rent & Oper 5,000 5,000 5,000 5,000
Other 6,226 7,392 8,870 9,926
Total Expenses 209,000 224,000 254,000 274,000
Income Before Tax 2,000 23,000 42,000 57,000
Income Tax
Net Income 2,000 23,000 42,000 57,000
YEAR 1
Number of Clinics
Number of New Clinics
Total Number of Clinics
Number of Clinicians
Number of Recep/Admin
Number of Patients/day
Number of Patients/Mo 10,736
Total Revenues 1,717,760
Expenses
Advertising/Marketing 630,000
Clinician Salary 348,000
Receptionist/Admin 160,000
Staff Workers Comp 19,560
Staff FICA/Medicare 49,878
Staff SUI/FUTA 69,560
Clinician Continuing Ed 14,500
Amort/Dep & Good Will 159,516
Miscellaneous Costs 38,667
Management 144,000
Financial Relations 130,000
Office Rent & Oper 46,050
Other 51,533
Total Expenses 1,861,263
16
<PAGE>
Income Before Tax -143,503
Income Tax
Net Income -143,503
Discussion of Plan of Operations
- --------------------------------
By the end of fiscal 1997, the Company plans to have twelve (12)
established centers, known as The MedCare Program, for the treatment of patients
suffering from urinary incontinence. The Company's treatment protocol consists
of a multi-modality program based on behavioral techniques and neuromuscular
electromyography biofeedback. The MedCare Program is designed to mobilize and
strengthen various sensory response systems and is based on operant conditioning
strategies whereby specific physiological responses are progressively shaped,
strengthened and coordinated. Currently, the Company has three (3) operating
units (Norman, Oklahoma, Winter Park, Florida, and Overland Park, Kansas) and a
fourth center is expected to open in Denver, Colorado in late May 1997. An
additional eight sites are planned for the balance of the year, with openings as
indicated in the following table:
Month Number of Sites
July 1
August 1
September 2
October 2
November 2
In anticipation of an expanded clinical system in fiscal 1997, the Company
plans to establish a new office on June 1, 1997 to be located at Suite 101, 608
South Washington Street, Naperville, Illinois, 60540. This new office is 420
square feet and will be used for training of nursing and clinical staff, on-
going supervision of clinics, marketing, billing and collections and general
administration. The Company has entered into a one year lease at a rate of
$825.00 per month. With the establishment of these offices, the Company intends
to terminate its month-to-month lease on the office at Suite 600 Warrenville
Road, Lisle, Illinois, 60532 effective June 30, 1997. At this same time, the
Company's executive office in Canada will be relocated from 1408-400 Burrard
Street, Vancouver, B.C., V6C 3G2 Canada to 217-1628 West 1st Avenue, Vancouver,
B.C. This new office is owned by Kundan S. Rayat, a director of the Company,
and Tajinder Chohan-Rayat, wife of Harmel S. Rayat, a director of the Company
and its President and Chief Executive Officer. The Company has entered into a
one year lease for the new Canadian office at a rent of Canadian $2,000 per
month. This new office will be used primarily as the Company's executive
offices.
Each new MedCare Program clinic will cost approximately $30,000. A breakdown of
the opening expenses is listed below:
17
<PAGE>
EMG Biofeedback Equipment $14,000
Bladder Scan $ 6,000
Miscellaneous (furniture, supplies) $ 5,000
Training $ 5,000
-------
Total Start-Up Expenses $30,000
In order to establish an additional eight clinics (not including the three
current clinics and the planned clinic to open in late May 1997 in Denver,
Colorado) and meet the Company's anticipated working capital needs, as shown in
the attached 12 month pro forma financial projections for 1997, the Company
estimates that it will require $513,329 in capital ($240,000 for clinical
openings and $273,329 for working capital deficiency). At December 31, 1996,
the Company has cash reserves of $220,000 and on February 4, 1997 the Company
agreed to a private placement for 176,000 shares of its common stock at $6.25
per share for a total of $1,100,000. At March 31, 1997, the Company had cash
reserves of $1,203,418, more than double the anticipated cash required.
Despite these cash reserves, additional funds may be required in order to
proceed with the business plan outlined above. These funds would be raised
through additional private placements. There is no assurance that such
additional financing will be available when required in order to proceed with
the business plan or that the Company's ability to respond to competition or
changes in the market place or to exploit opportunities will not be limited by
lack of available capital financing. If the Company is unsuccessful in securing
the additional capital needed to continue operations within the time required,
the Company will not be in a position to continue operations and the
stockholders may lose their entire investment.
Assumptions used in Preparing Twelve Month Plan
- -----------------------------------------------
The assumptions relied upon in preparing the Twelve Month Plan are as
follows:
Clinic Openings: As listed in table above.
Number of Patient Visits: As listed in 12 Month Plan (it is anticipated
that, on average, each patient will require 6 to
8 visits over a 3 to 4 month period).
Number of Days Per Month: 22
Revenue per Patient: $160 per visit
Advertising and Marketing: $7,500 per clinic, per month
Clinician Salary: $3,000 per month per clinci (Clinics operating
for longer than 6 months will have 2 clinicians
at $3,000 each for a total of $6,000 per month)
Receptionist/Admin: $2,000 per month
Workers Compensation: 3% of gross wages
FICA/Medicare: 7.65% of gross wages
SUI/FUTA: $296 per employee
Clinician Continuing
Education: $1,500 per clinician per year
18
<PAGE>
Amortization,
Depreciation and Goodwill: Depreciation of medical equipment on a straight
line method ($16,000 per clinician) at $3,250
per year or $267 per month
Miscellaneous Costs: $4,000 per year per clinician for costs of
treating patients such as probes, electrodes,
disinfectant, gel, gloves, etc.
Management: Salary for President at $6,000 per month, for
Clinical Director/Trainer at $3,500 per month,
for Clinical Salesman at $3,500 per month and
for Director of Administration at $3,500 per
month
Financial Relations: Includes annual audit, SEC filings, public
relations, etc.
Office Rent
and Operations: $2,000 for executive offices and $825 for
training and clinical center
Other: 5% of revenues for miscellaneous costs
Employees
- ---------
The Company and its subsidiaries have a total of 6 employees, of whom 4 are
full-time.
ITEM 7. DESCRIPTION OF PROPERTY
The Company currently has the use of approximately 500 square feet of
office space, the use of 2 board rooms, and all office equipment, including a
photocopier and telephone equipment, on a shared basis with one of the Company's
directors. The offices are located at Suite 1408 - 400 Burrard Street,
Vancouver, British Columbia, Canada, and are used primarily as the Company's
executive offices. No rent is paid by the Company and there is no lease
agreement in place. A second office is located at 2443 Warrenville Road, Suite
600, Lisle, Illinois, 60532. These offices consist of a mailing address,
secretarial service and telephone answering service and are rented on a month-to
- -month basis for $160 per month, with no formal lease in place.
In anticipation of an expanded clinical system in fiscal 1997, the Company
plans to establish a new office on June 1, 1997 to be located at Suite 101, 608
South Washington Street, Naperville, Illinois, 60540. This new office is 420
square feet and will be used for training of nursing and clinical staff, on-
going supervision of clinics, marketing, billing and collections and general
administration. The Company has entered into a one year lease at a rate of
$825.00 per month. With the establishment of these offices, the Company intends
to terminate its month-to-month lease on the office at Suite 600 Warrenville
Road, Lisle, Illinois, 60532 effective June 30, 1997. At this same time, the
Company's executive office in Canada will be relocated from 1408-400 Burrard
Street, Vancouver, B.C., V6C 3G2 Canada to 217-1628 West 1st Avenue, Vancouver,
B.C. This new office is owned by Kundan S. Rayat, a director of the Company,
and Tajinder Chohan-Rayat, wife of Harmel S. Rayat, a director of the Company
and its President and Chief Executive Officer. The Company has entered into a
one year lease for the new Canadian office at a rent of Canadian $2,000 per
month. This new office is 964 square feet, fully furnished, and will be used
primarily as the Company's executive offices.
The Company also maintains a clinic currently being utilized as a
developmental facility for the MedCare UI System at 1133 Seventh Avenue, S.W.,
Calgary, Alberta, Canada. This clinic is 200
19
<PAGE>
square feet in size and is located within a senior citizens' health facility at
the Kerby Center for Seniors. The rent on this facility is approximately $300
per month (based on a fixed fee of $100 per patient completing treatment at the
facility) and it operates on a month-to-month basis with no existing formal
lease arrangement in place, nor contemplated. This clinic is a part-time
facility being operated one day per week and has been used, in part, to develop
the treatment and business protocols of the MedCare program. A nurse is
employed on a part-time basis to treat patients suffering from incontinence
using the MedCare program. Because the Canadian medical system does not allow
third party reimbursement, only three patients are seen on an average monthly
basis. While this facility has the capacity to treat a greater number of
patients, the Company has chosen not to pursue a more aggressive advertising
program which would draw a greater number of patients. Instead, the Company has
chosen to concentrate its efforts on the U.S. marketplace.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following information sets forth the names of the officers and
directors of the Company, their present positions with the Company and
biographical information.
HARMEL S. RAYAT (Age 35) President and Chief Executive Officer. Mr. Rayat is
one of the co-developers of the MedCare UI System. Mr. Rayat has been in the
venture capital industry since 1981 and since January 1993 has been the
president of Hartford Capital Corporation, a company which specializes in
providing early stage funding and investment banking services to emerging growth
corporations. From January 1989 through December 1992 Mr. Rayat was the
President and CEO of K.S. Rayat & Company, an investment banking and venture
capital company, where he was responsible for research, due diligence and
investment strategy in early stage, start-up venture capital investments. From
April 1996 to the present he has been President and CEO of Hartford Capital
Management, Inc., an investment management company where he is responsible for
researching and making direct equity investment in emerging growth public
corporations. Mr. Rayat has been a director of the Company since September 1995
and the President since June 18, 1996. Mr. Rayat is also a director of Far West
Resources, Inc., a non-reporting company trading on the NASDAQ OTC Bulletin
Board.
VALERIE BOELDTt-UMBRIGHT (Age 31) Director of Clinical Services, Director. Mrs.
Boeldt-Umbright is a registered nurse, with a Bachelors of Science degree in
community health education from Northern Illinois University. With over two
years of actual management experience in the day-to-day operation of the
Incontinence Clinic in Chicago, Mrs. Boeldt-Umbright has supervised personnel,
dealt with insurance and reimbursement matters, marketing and physician
interaction and referrals. She has instructed patients in biofeedback for their
pelvic floor muscles, established individualized neuromuscular reeducation
programs, written new clinical protocols and articles for publication and has
worked as a member of a university team to provide excellent care and medical
treatment for patients. Ms. Boeldt-Umbright was a nurse insurance examiner in
the PMI Division of Equifax Systems from October 1991 to September 1992. From
June 1992 to July 1994 she was
20
<PAGE>
employed at the Premier Rehabilitation Center of Chicago, where she established
a nursing and health education program and was the sole nurse responsible for
traumatic brain injury and spinal cord injury clients. At this facility she
also established a medication program and bowel/bladder programs, monitored
vital signs and dressing changes, and taught inservices, training classes and
health care classes for clients and staff. From March 1994 to September 1996
Ms. Boeldt-Umbright was the Manager of Incontinence Control Services. In this
position she handled all manager responsibilities, including supervising
personnel, insurance claims, marketing and physician interaction and referral,
wrote articles for publication and assisted in research. She also explained
biofeedback for incontinence and demonsrated techniques to visiting physicians,
residents, nurses and fellows. Since March 1996, she has been a director of
the Company and Director of Clinical Services. Her responsibilities include the
continued development and refinement of the MedCare program and ongoing
research, training of all clinicians, writing treatment protocols, training
physicians, teaching biofeedback for incontinence, attending advanced
conferences and writing articles.
DIANE NUNZIATO (Age 42) Director. Ms. Nunziato has a Bachelors of Science and
a Masters of Clinical Science from the University of Western Ontario, as well
as numerous certifications in courses ranging from adult learning, clinical
supervision and instruction, group dynamics, learning theories, and management.
Ms. Nunziato has been instrumental in developing and refining the clinical
protocols for the MedCare UI System and in structuring and organizing training
courses, developing new teaching techniques and methods of presentation, quality
assurance and evaluation of clinical and support staff and has in-depth
knowledge of every aspect of establishing a clinical system, including
marketing, billing, medical products and equipment, patient and physician
interaction, and the training and supervision of personnel. Since July 1990 Ms.
Nunziato has been one of 21 instructors internationally of the Hanen Resource
Center, where she is responsible for the presentation of intensive adult
learning certification courses offered in Canada, the United States and
internationally, as well as evaluating other instructors in teaching styles and
methods of presentation. Ms. Nunziato has been a director of the Company since
November 1995.
KUNDAN S. RAYAT (Age 68) Director/Secretary. Mr. Rayat has over 45 years of
experience as an entrepreneur and owner of a diverse spectrum of businesses,
ranging from automotive to heavy construction, on three different continents.
Since 1985, Mr. Rayat has primarily devoted his time to venture capital,
investing in numerous start up ventures, and provides seasoned senior management
advice to emerging market companies as a consultant. He has been a consultant
for K.S. Rayat & Company from January 1985 through the present, where he has
been an early stage venture capital investor in numerous start-up ventures and
a consultant to emerging market corporations. Mr. Rayat has been a director
and the secretary of the Company since August 1995 and provides seasoned
management advise on such matters as growth strategy, finance, marketing
strategies and selection of personnel. He is also a director of Far West
Resources, Inc., a non-reporting company trading on the NASDAQ OTC Bulletin
Board. He is the father of Harmel S. Rayat, president of the Company.
21
<PAGE>
MICHAEL M. BLUE, M.D. Director. Dr. Blue is a Board-certified urologist who
has practiced general urology for twenty years. He is a member of the American
Medical Association, Oklahoma State Medical Association, South Central
Urological Association and the American Urological Association. Dr. Blue has
been a sole practitioner in private practice for the past twenty years. Dr.
Blue joined the Board of Directors of the Company on August 15, 1996 and is
responsible for supervising and continuing the development of all medical
aspects of the MedCare program, as well as interacting and answering questions
from other doctors within the MedCare system.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth certain information as to the Company's five
highest paid executive officers and directors for the fiscal year ended December
31, 1995 and for the fiscal year which will end on December 31, 1996. No other
compensation was paid or will be paid to any such officers other than the cash
compensation set forth below.
Summary Compensation Table
- ------------------------------------------------------------------------------
Name and principal position | Year | Salary
- ------------------------------------------------------------------------------
| |
Harmel S. Rayat, President & CEO | 1995 | $2,500.00
Valerie Boeldt-Umbright, Director | 1995 | $43,500.00
Harmel S. Rayat, President & CEO | 1996 | $0.00
Valerie Boeldt-Umbright, Director | 1996 | $43,500.00
| |
- -------------------------------------------------------------------------------
In fiscal 1995, the aggregate amount of compensation paid to all executive
officers and directors as a group for services in all capacities was
approximately $46,000.00. Compensation of $43,500 will be paid executive
officers and directors for services in fiscal 1996.
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY
HOLDERS
The following table sets forth, as of June 26, 1996, the beneficial ownership of
the Company's Common Stock by each person known by the Company to beneficially
own more than 5% of the Company's Common Stock outstanding as of such date and
by the officers and directors of the Company as a group. Except as otherwise
indicated, all shares are owned directly.
- -------------------------------------------------------------------------------
(1) (2) (3) (4)
Name and address of Amount and Nature Percent
Title of Class beneficial owner of beneficial owner of class
22
<PAGE>
- -------------------------------------------------------------------------------
Common stock Harmel S. Rayat 2,000,000 31.7%
5131 Highgate Street
Vancouver, B.C., V5R 3G9
Common stock Directors and Officers 2,000,000 31.7%
as a group
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The Company maintains its executive offices on a shared basis with its
President and Chief Executive Officer.
On October 1, 1995, the Company acquired 100% of Manon Consulting Ltd. for
nominal value. Diane Nunziato, a director of the Company, was a director and
minority shareholder of Manon Consulting at the time of the transaction, which
was approved by both boards after disclosure. The Company operates its Calgary
clinic through Manon Consulting. Since Manon Consulting has no historical
profitability and is partially responsible for the development of the MedCare
program through Manon Consulting's clinical activities, the Company acquired
Manon Consulting for nominal value.
ITEM 12. SECURITIES BEING OFFERED
PREFERRED STOCK
The Company has 1,000,000 preferred shares authorized, with none issued at
this time. The Board of Directors may issue the preferred shares from time to
time in one or more series, each series to have voting rights, preference in
dividends and in liquidation and such other rights, preferences and conditions
as the Board of Directors may designate by an amendment to the Company's
Articles of Incorporation by action duly adopted without shareholder action and
shareholder action shall not be required thereof.
COMMON STOCK
The Company has 100,000,000 common shares authorized. The Company has
500,000 shares reserved under its 1995 Stock Option Plan for issuance at $3.00
per share until December 31, 2001. The optionees and numbers of shares optioned
are as follows:
Harmel S. Rayat 150,000
Bhupinder Mann* 100,000
Ranijit Bhogal* 100,000
23
<PAGE>
Herdev S. Rayat* 100,000
Frank Mueller 10,000
Sarbjit Thouli 10,000
Grant Mackney 10,000
Todd Weaver 10,000
Dave Gamache 10,000
* As of June 30, 1996, each of these optinees have exercised options on 11,666
of their shares at $3.00 each.
The Company has 300,000 shares reserved under its 1996 Stock Option Plan
for issuance at $4.50 per share until June 20, 2001. None of these shares have
been exercised. The optionees are as follows:
Harmel S. Rayat 160,000
Terry Johnston 60,000
Valerie J. Boeldt-Umbright 40,000
Dr. Michael M. Blue 40,000*
* These shares are for issuance at $5.00 per share until August 15, 2001.
The Company has 500,000 shares reserved under its 1997 Stock Option Plan
for issuance at $4.50 per share until November 18, 2001. None of these shares
have been exercised. Only 200,000 of these shares have been assigned to
directors and employees of the Company to date. These optionees are as
follows:
Valerie Boeldt-Umbright 100,000
Terry Johnson 20,000
Michael M. Blue 60,000
Nicole Alagich 10,000
Charles Grahn 10,000
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS
The shares of the Company's stock are traded on the OTC Bulletin Board and
the following have been the average High and Low prices for the times indicated:
24
<PAGE>
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
January-March 1997 $8.1875 $5.125
October-December 1996 $5.125 $4.375
July-September 1996 $5.625 $4.75
April-June 1996 $5.625 $4.75
January-March 1996 $4.785 $4.25
October-December 1995 $6.00 $3.75
</TABLE>
The table above reflects the high and low bids beginning with the fiscal
quarter after the 1200:1 reverse stock split of August 11, 1995. Prior to this
period, the Company traded as Multi Spectrum Group, Inc. and traded between
$0.02 and $0.03 per share for many years.
There are no outstanding warrants or convertible securities other than
stock options currently outstanding.
As of June 30, 1996 there were 143 registered shareholders in the Company.
There are no dividend restrictions in the Company. Market makers who have
posted bids or offers during the period July 1995 through June 1996 are as
follows: Wilson Davis & Co., Inc., Paragon Capital Corp., Wein Securities Corp.,
Troster Singer Corp. and Niab Trading Corporation.
ITEM 2. LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against the
Corporation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On August 25, 1995, the accounting firm of Jones, Thomas, Jenson and
Associates was replaced by William L. Clancy, CPA, as the Company's independent
accounting firm. There were and are no disagreements with Jones, Thomas, Jensen
and Associates. Although the former accountant had not been engaged as the
Company's accountant since the completion of the 1989 audit early in 1990,
25
<PAGE>
the Company sent the letter to the former accountant as a courtesy. The Company
did not have an accountant during the fiscal years 1990 through 1992.
The Company's former accountant did not issue a report on the Company's
financial statements for either of the past two years.
The Company's decision to change accountants was approved by the Board of
Directors on August 25, 1995.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On August 14, 1995, the Company acquired the MedCare UI system assets for
2,000,000 shares of the Company's common stock for a total value of $300,000. On
August 15, 1995, the Company authorized in a Regulation D, Rule 504 Disclosure
Memorandum the sale of 4,200,000 shares of its common stock at an offering price
of $0.15. On September 20, 1995, the offering was completed with all shares
being issued for a total value of $630,000, less offering costs of $30,000.
These sales were made to Canadian and American citizens and a Form D was filed.
On December 31, 1995, the Company issued 16,666 shares of its common stock for
$50,000 cash and 25,000 shares of its common stock in exchange for consulting
services to Cambridge Capital Corporation of Grand Turk, Turks & Caicos Islands,
British West Indies, for a total value of $75,000. Cambridge Capital provided
$75,000 of consulting services, paid by issuing 25,000 restricted common shares
of the Company at a deemed value of $3.00 per share. These consulting services
included advice, consultation and recommendations regarding European, Asian and
Middle Eastern markets for urinary and fecal incontinence. In addition,
Cambridge Capital made several introductions to potential joint venture
partnerships in Asia, as well as potential sources of clinical expansion
capital.
The Company has just completed, on August 15, 1996, an offering via a
Private Placement Memorandum pursuant to Regulation D, Rule 504. This offering
was for a total of 50,000 shares 4of common stock at an offering price of $4.75
per share for a total offering of $237,500.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on November 18, 1996 and completed on
December 24, 1996. This offering was for 56,000 shares of common stock at $4.50
per share for a total offering of $252,000. The proceeds from this offering
were used for equipment purchases, advertising and marketing and working
capital.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The officers and directors of the Company are indemnified as provided under
the Delaware General Corporation Law. No additional indemnification has been
authorized.
26
<PAGE>
PART F/S
FINANCIAL STATEMENTS
The Company's audited Financial Statements are attached hereto.
PART III
INDEX TO EXHIBITS
Page
Exhibit 1: Articles of Incorporation and Amendments E-2
Exhibit 2: Bylaws E-22
Exhibit 3: Plan of Merger with Multi-Spectrum Group E-52
Exhibit 4: Board Meeting Minutes for Reverse Stock Split of 8/11/95 E-117
Exhibit 5: Board Meeting Minutes for Increase in Capital of 8/25/95 E-120
Exhibit 6: Acquisition Agreement for Assets of MedCare Corporation E-122
Exhibit 7: 504 Memorandum of 8/31/95 E-125
Exhibit 8: 504 Memorandum of 6/22/96 E-140
Exhibit 9: Articles of Merger E-163
Exhibit 10: 504 Memorandum of 11/18/96 E-165
Exhibit 11: Letter from former Accountant E-185
Exhibit 12: Letter regarding acquisition of MedCare Protocol E-186
27
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
CONTENTS
Independent Auditors Report............................................... F-1
Consolidated Balance Sheet at December 31,
1996 and 1995 ...................................................... F-2-F-3
Consolidated Statement of Operations for the
years ended December 31, 1996, 1995 and 1994............................ F-4
Consolidated Statement of Stockholders' Equity
from Inception (January 17, 1986) Through
December 31, 1996................................................... F-5-F-7
Consolidated Statement of Cash Flows for the
years ended December 31, 1996, 1995 and 1994........................ F-8-F-9
Notes to the Consolidated Financial Statements...................... F-10-F-15
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
<PAGE>
26th Place
2601 East Thomas Road PH: (602) 266-2646
Suite 110 FAX: (602) 224-9496
Clancy and Co., P.L.L.C. Phoenix, Arizona 85016 E-MAIL: [email protected]
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS REPORT
Board of Directors
MedCare Technologies, Inc. and
Subsidiaries
Lisle, Illinois 60532
We have audited the acccompanying consolidated balance sheet of MedCare
Technologies, Inc. and Subsidiaries (A Development Stage Company),
(the Company), as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flow for the years
then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit of the
consolidated financial statements provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1996 and the consolidated results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is a development stage Company as
defined in Financial Accounting Standards Board Statement No. 7. The Company
is devoting substantially all of its present efforts in establishing a new
business and although planned principal operations have commenced, there have
been no significant revenues. Management's plans regarding the matters which
raise doubts about the Company's ability to continue as a going concern are
disclosed in Note 1 to the financial statements. These factors raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/CLANCY AND CO.
- --------------------
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 21, 1997
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<CAPTION>
1996 1995
<S> <C> <C>
Current Assets
Cash $ 220,562 $ 44,975
Accounts Receivable -- Trade 7,351 640
Prepaid Expenses 29,007 0
------- ------
Total Current Assets 256,920 45,615
Property and Equipment
Office Equipment 5,274 4,103
Medical Equipment 31,597 16,799
------- -------
36,871 20,902
Less Accumulated Depreciation 20,237 8,575
------- -------
Net Book Value 16,634 12,327
Other Assets
Organization Costs
- Net of Amortization 64 188
Intangible Assets
- The MedCare Program
- Note 3 1,000 1,000
--------- ---------
Total Other Assets 1,064 1,188
---------- ----------
Total Assets $ 274,618 $ 59,130
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1996 1995
<S> <C> <C>
Current Liabilities
Accounts Payable $ 20,372 $ 979
Notes Payable 48,135 23,135
Notes Payable - Officers 12,500 0
------- ------
Total Current Liabilities 81,007 24,114
Stockholders' Equity
Preferred Stock,
$.25 Par Value, Authorized
1,000,000; Issued and
Outstanding, at
December 31, 1996
and 1995, NONE 0 0
Common Stock: $0.001 Par
Value, Authorized
100,000,000; Issued
and Outstanding,
6,445,185 Shares at
December 31, 1996 and
6,300,185 at December
31, 1995 6,445 6,300
Additional Paid
In Capital 1,372,631 761,776
Loss Accumulated
During The Development
Stage (1,185,465) (733,060)
------------ ------------
Total Stockholders' Equity 193,611 35,016
------------ ------------
Total Liabilities and
Stockholders' Equity $ 274,618 $ 59,130
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Loss
Accumulated
Year ended Year ended Year ended During The
December December December Development
31, 1996 31, 1996 31, 1996 Stage
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 8,118 $ 1,729 $ 0 $ 9,847
Expenses
General and
Administrative 463,324 692,762 0 1,200,900
_______ _______ ________ _________
Total Expenses 463,324 692,762 0 1,200,900
Other Income
Interest Income 2,801 0 0 5,588
_______ ________ ________ __________
Net Loss $ (452,405) $ (691,033) $ 0 $ (1,185,465)
========= ========= ======== ===========
Net (Loss) Per
Share of Common
Stock $ (0.07) $ (0.11) $ NIL $ 0.18
========= ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance,
January 17, 1986 0 $ 0 $ 0 $ 0 $ 0
Issued to officers and
directors at $.002
per share 2,500,000 2,500 2,500 5,000
Issued pursuant
to public
offering at $.01 3,645,000 3,645 32,805 36,450
Cost of offering (7,946) (7,946)
Net loss from
inception on
January 17,
1986 through
December 31, 1987 (316) (316)
----------- ------- -------- -------- --------
Balance, December
31, 1987 6,145,000 6,145 27,359 (316) 33,188
Escrow fee for
public offering (200) (200)
Net loss year ended
December 31, 1988 (1,030) (1,030)
---------- ------- -------- --------- ---------
Balance, December
31, 1988 6,145,000 6,145 27,159 (1,346) 31,958
Net loss year ended
December 31, 1989 (21,707) (21,707)
---------- ------- -------- --------- -----------
Balance, December
31, 1989 6,145,000 6,145 27,159 (23,053) 10,251
Issuance of
stock in
accordance
with plan of
merger with
Multi Spectrum
Group, Inc.
February
28, 1990 55,305,000 55,305 (55,305)
Net loss year ended
December 31, 1990
Unaudited (10,201) (10,201)
---------- ------ -------- ----------- ----------
Balance,
December
31, 1990 61,450,000 61,450 (28,146) (33,254) 50
Net loss
year ended
December
31, 1991
Unaudited 0 0
---------- ------- -------- --------- ----------
Balance, December
31, 1991 61,450,000 61,450 (28,146) (33,254) 50
The accompanying notes are an integral part of these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
(Unaudited)
<S> <C> <C> <C> <C> <C>
Issued to
Group of
Five, Inc.
November
13, 1992 8,772,800 $ 8,773 $ 0 $ $ 8773
Net loss
year ended
December
31, 1992
Unaudited (8,773) (8,773)
---------- ------- -------- ---------- ---------
Balance, December
31, 1992 70,222,800 70,223 (28,146) (42,027) 50
Net loss
year ended
December
31, 1993 0 0
----------- ------- -------- --------- ---------
Balance, December
31, 1993 70,222,800 70,223 (28,146) (42,027) 50
Net loss
year ended
December
31, 1994 0 0
---------- ------ ---------- ---------- ---------
Balance, December
31, 1994 70,222,800 70,223 (28,146) (42,027) 50
Reverse Split
1200:1,
August
11, 1995 (70,164,281) (70,164) 70,164
Acquisition
of MedCare UI
System Assets
August 4, 1995 2,000,000 2,000 (1,000) 1,000
Issued pursuant
to a public
offering at
$.001 per
share September
20, 1995 4,200,000 4,200 625,800 630,000
Cost of offering (30,000) (30,000)
Purchase of
100% of the
outstanding
stock of Manon
Consulting, Ltd. on
October 1, 1995
- Note 1 0 0
Issued for
cash December
31, 1995 16,666 17 49,983 50,000
Issued for
services
December
31, 1995 25,000 25 74,975 75,000
Net loss
year ended
December
31, 1995 (691,033) (691,033)
------------ ------- ---------- ---------- ---------
Balance,
December
31, 1995 6,300,185 6,301 761,776 (733,060) 35,016
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
(Unaudited)
<S> <C> <C> <C> <C> <C>
Issuance of
common stock
under 1995
Stock Option
Plan at
$3.00 per share
during 1996 36,000 $ 36 $ 107,964 $ $108,000
Issuance of
common stock
under 1996
Stock Option
Plan at $4.50
per share
during 1996 3,000 3 13,497 13,500
Issuance of
common stock
under Private
Placement at
$4.75 per share
dated June
22, 1996 50,000 50 237,450 237,500
Issuance of
common stock
under Private
Placement at
$4.50 per
share dated
December, 1996 56,000 56 251,944 252,000
Net loss for
year ended
December
31, 1996 (452,405) (452,405)
-------- ------- -------- --------- ---------
Balance, December
31, 1996 6,445,185 $ 6,445 $ 1,372,631 $(1,185,465) $193,611
==== ===== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
AND FROM (INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Year Ended Year Ended Year Ended From
December December December Inception
31, 1996 31, 1995 31, 1994 Through
December 31,
1996
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows
from Operating
Activities
Net (Loss) $ (452,405) $ (691,033) $ 0 $(1,185,465)
Common Stock issued
for services 0 0 0 8,773
Adjustments to
reconcile net
(loss) to net
cash provided
by operating activities
Depreciation and
Amortization 11,662 8,575 0 20,237
Changes in Assets
and Liabilities
(Increase) Decrease in
Accounts Receivable (6,711) (640) (7,351)
(Increase) Decrease in
Prepaid Expenses (29,007) 0 0 (29,007)
(Increase) Decrease in
Organizational Costs 124 (138) 0 (64)
Increase (Decrease) in
Accounts Payable 19,393 978 0 20,371
---------- --------- ------ --------
Total Adjustments (4,539) 8,775 0 12,959
---------- --------- ------ --------
Net cash provided
(used) by
operating
Activities (456,944) (682,258) 0 (1,172,506)
Cash Flows from
Investing Activities
Purchase of Property
and Equipment (15,969) (20,902) 0 (36,871)
---------- --------- ------ --------
Net cash flows from
investing activities (15,969) (20,902) 0 (36,871)
Cash Flows from
Financing Activities
Proceeds from Sale
of Common Stock 611,000 755,000 0 1,407,450
Offering Costs (30,000) 0 (38,146)
Notes Payable 25,000 23,135 0 48,135
Notes Payable - Officers 12,500 0 0 12,500
---------- --------- ------ --------
Net cash provided by
financing activities 648,500 748,135 0 1,429,939
---------- --------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
AND FROM (INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Year Ended Year Ended Year Ended From
December December December Inception
31, 1996 31, 1995 31, 1994 Through
December 31,
1996 (Unaudited)
<S> <C> <C> <C> <C>
Increase (decrease)
in cash
and cash
equivalents $ 175,587 $ 44,975 $ 0 $ 220,562
Cash and cash
equivalents at
beginning of period 44,975 0 0 0
Cash and cash
equivalents at
end of period $ 220,562 $ 44,975 $ 0 $ 220,562
====== ===== === ======
Supplemental Information
Cash paid for:
Interest $ 0 $ 0 $ 0 $ 0
====== ===== === ======
Income taxes $ 0 $ 0 $ 0 $ 0
====== ===== === ======
Non-cash financing
Intangible assets
purchased with
Common Stock $ 0 $ 1,000 $ 0 $ 1,000
====== ======= === =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - ORGANIZATION
MedCare Technologies, Inc. (The Company), formerly known as Multi-Spectrum
Group, Inc., was incorporated under the name Santa Lucia Funding, Inc., under
the laws of the State of Utah on January 17, 1986 with an authorized capital
of 50,000,000 common shares with a par value of $.001. On February 8, 1990,
the Company adopted a plan of merger with Multi-Spectrum Group, Inc., a
Delaware Corporation, in which Multi-Spectrum Group, Inc. would be dissolved
and the name of Santa Lucia Funding, Inc. would be changed to Multi-Spectrum
Group, Inc. The Company authorized a reverse split of 1200:1 to be effective
August 11, 1995. On August 29, 1995, the Company approved an increase in the
authorized capital to 101,000,000 of which 100,000,000 shares shall be Common
Stock with a par value of $.001 and 1,000,000 shares shall be Preferred Stock
with a par value of $.25 per share, and a name change to MedCare Technologies,
Inc. On August 1, 1996, an agreement and plan of merger was entered into
between the Company and MedCare Technologies, Inc ( A Delaware Corporation)
whereby the state of incorporation was changed to Delaware from the state of
Utah. The effective date of the agreement is August 27, 1996, the date
accepted by the state of Delaware. The Company was inactive during the year
1991, issued stock for prior years services during 1992, and was inactive
during 1993 and 1994. The Company had no revenues nor incurred any operating
expenses during these inactive periods, other than the transaction during 1992.
On November 13, 1992, the Company issued 8,772,800 shares of common stock to
Group of Five, Inc. in exchange for services rendered at $.001 per share or
$8,773.
On August 11, 1995, the Stockholders authorized a reverse split of 1200:1
reducing the outstanding common shares to 58,519.
On August 11, 1995, the Company purchased 100% of the outstanding shares of
MedCare Technologies, Corporation, a Nevada corporation that was incorporated
on April 26, 1995 for $1.00. MedCare Technologies, Corporation was inactive
from the date of incorporation through August 11, 1995, the date the Company
purchased it. MedCare Technologies, Corporation will be a wholly owned
subsidiary of the company.
On August 14, 1995, the Company, acquired the MedCare Protocol, a urinary
incontinence procedure in exchange for 2,000,000 shares of the Company's
common stock at $0.0005 for a total value of $1,000.
On September 20, 1995, the Company authorized in a 504D Disclosure
Memorandum, 4,200,000 shares of its common stock at an offering price of $0.15.
On September 20, 1995, the offering was completed with all shares being issued
for a total value of $630,000, less offering costs of $30,000.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - ORGANIZATION (CONTINUED)
On October 1, 1995, the Company purchased 100% of the outstanding shares of
Manon Consulting, Ltd. Manon Consulting, Ltd. will be a wholly owned
subsidiary of the Company. Manon Consulting, Ltd. operates a clinic in
Calgary, Canada. Since its purchase by the Company, it has been partially
responsible for the development of the MedCare program.
The following is a condensed balance sheet of Manon Consulting, Ltd. at
October 31, 1995:
<TABLE>
<S> <C>
Total Assets $ 12,558
======
Total Liabilities 23,841
Total Capital
Common Stock 7
Retained Earnings-A Deficit (11,290)
-----------
Total Liabilities and Capital $ 12,558
======
</TABLE>
The Company paid $7 for the outstanding common stock and assumed liabilities
in excess of assets of $11,290. The excess was charged to operations during
1995.
On December 31, 1995, the Company issued 16,666 shares of its common stock
for $50,000 cash.
On December 31, 1995, the Company issued 25,000 shares of its common stock in
exchange for consulting services for a total value of $75,000.
During 1996, the Company issued 44,000 shares of its common stock at $3.00
per share under its 1995 Stock Option Plan, or $132,000.
During 1996, the Company issued 3,000 shares of its common stock at $4.50 per
share under its 1996 Stock Option Plan, or $13,500.
On June 22, 1996, the Company issued 50,000 shares of its common stock at
$4.75 per share in a 504D private place memorandum or $237,500.
On November 18, 1996, the Company issued 56,000 shares of its common stock at
$4.50 per share a 504D private placement memorandum or $252,000.
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - ORGANIZATION (CONTINUED)
The Company is a development stage company, as defined in the Financial
Accounting Standards Board No. 7. The Company is devoting substantially all
of its present efforts in securing and establishing a new business, and although
planned principal operations have commenced, there have been no significant
revenues. This factor raises substantial doubt about its ability to continue
as a going concern.
The financial statements have been prepared on the basis of accounting
principles applicable to a going concern. Accordingly, they do not purport to
give effect to adjustments, if any, that may be necessary should the Company
be unable to continue as a going concern. The continuation of the Company as
a going concern, is dependent upon its ability to establish itself as a
profitable business. The Company's ability to achieve these objectives cannot
be determined at this time. It is the Company's belief that it will continue
to incur losses for at least 12 months, and as a result will require additional
funds. The additional funding will be accomplished by seeking additional funds
from private or public equity investments, with possible future additional
funds from private or public equity investments, and possible future
collaborative agreements to meet such needs and the Company will be a viable
entity.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Method of Accounting
The Company's financial statements are prepared using the accrual method of
accounting.
B. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
C. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, MedCare Technologies Corporation
and Manon Consulting, Ltd. Intercompany transactions have been eliminated in
consolidation.
D. Equity Method
Investments in companies have been included in the financial report using the
equity method of accounting. The Company's wholly owned subsidiaries, MedCare
Technologies, Corporation and Manon Consulting, Ltd., are engaged in the
business of medical consulting and services in Canada and the United States.
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
E. Deferred Charges
The Company has incurred start up costs from January 1, 1995 to September 30,
1995 amounting to $542,706. The total amount was charged to operations during
the year ended December 31, 1995.
F. Organizational Expenses
Organizational expenses represent legal and filing fees. The Company is
amortizing its organization costs over sixty (60) months using the straight
line method.
G. Property and Equipment
Property and equipment, stated at cost, is depreciated under the
straight-line method over their estimated useful lives as follows:
Office Equipment: 3 to 5 years
Medical Equipment: 3 to 5 years
Depreciation charged to expense during the period was $ 11,662 in 1996 and
$8,575 in 1995.
H. Income Taxes
There has been no provision for income taxes, because of the losses that the
Company has incurred to date. The Company has net operating losses that will
expire, beginning with the years 2003 through 2008, in the amount of
$1,200,691 and $575,960, in 1996 and 1995, respectively, unless utilized by
the Company.
I. Earnings or (Loss) Per Share
Earnings or loss per share is computed based on the weighted average number
of
common shares and common share equivalents outstanding. Stock options are
included as common share equivalents using the treasury stock method. The
number of shares used in computing earnings (loss) per common share was
6,749,935 in 1996 and 6,497,155 in 1995.
J. Leases
The Company currently has the use of approximately 500 square feet of of fice
space, the use of 2 board rooms, and all office equipment, including a
photocopier and telephone equipment, on a shared basis with one of the
Company's directors. The
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
offices are located at Suite 1408-400 Burrard Street, Vancouver, British
Columbia, Canada. No rent is paid. There is no lease agreement in place. A
second office is located at 2443 Warrenville Road, Suite 600, Lisle, Ilinois,
60532. These offices are rented on a month-to-month basis for $ 160 per month.
Additional offices are located in Kansas City, Missouri and Oklahoma City,
Oklahoma. No rent is currently being paid on these offices.
The Company also maintains a clinic currently being utilized as a
developmental facility for The MedCare Program at 1133 Seventh Street, S.W.,
Calgary, Alberta, Canada. This clinic is 200 square feet in size and is
located within a senior citizens' health facility at the Kerby Center for
Seniors. The rent on this facility is approximately Canadian $400 per month.
NOTE 3 - THE MEDCARE PROGRAM
On August 14, 1995, the Company acquired the rights to MedCare Protocol, a
urinary incontinence procedure in exchange for 2,000,000 shares of its common
stock. The transaction was accounted for in accordance with the process for
valuation of intangible assets as described in Statement No. 17 of the
Accounting Principles Board. The Company has continued to further enhance the
MedCare Protocol for the treatment of urinary incontinence that significantly
reduces or completely eliminates the majority of UI cases using a non-drug, non
surgical protocol that takes into account the clinical, cognitive, functional
and residential status of the patient. The Company intends to amortize the cost
of the system over 15 years, based on Management's estimated useful life of the
protocol, beginning with the first year in which commercial sales occur.
Management reassesses annually the estimated useful life. Such amortization
will result in charges against earnings of $66 per year for each of the years.
NOTE 4 - NOTES PAYABLE
The Company has loans payable to officers of related Companies in amount of
$23,135 that are paid back as cash flows allow. The notes are demand notes
with no interest rate currently applicable. On March 7, 1996, the Company
borrowed $25,000 from a nonrelated company. The note is a demand note with no
interest rate currently applicable.
TRANSACTIONS WITH RELATED PARTIES
Notes payable represent advances from related of ficers that are paid back as
cash flows allow. The notes are demand notes with no interest rate currently
applicable. The President of Company loaned the Company $12,500 on August 8,
1996. The note is a demand notes with no interest rate currently applicable.
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 6 - STOCK OPTIONS
The Company has issued stock options to various directors, officers and
employees. The option prices are based on the fair market value of the stock
at the date grant. The Company maker no charge to operations in relation to
option grants.
The Company's stock option transactions for the years ended December 31, 1996
and 1995 are summarized as follows:
<TABLE>
<C> <S> <S>
Number of Option
Shares Price
Options outstanding and exercisable at 500,000 $3.00
December 31, 1995
Options granted in 1996 300,000 $4.50
Options exercised during 1996 under
the 1995 Stock Option Plan (36,000) $3.00
Options exercised during 1996 under
the 1996 Stock Option Plan (3,000) $4.50
----------- -----
Options outstanding and exercisable at
December 31, 1996 758,000 $3.00-4.50
=========== ==========
</TABLE>
NOTE 7 - SUBSEQUENT EVENTS
1. On February 4, 1997, the Company authorized in a 144 Disclosure Memorandum,
176,000 shares of its common stock at an offering price of $6.25 per share
for a total value of $1,100,000.
2. As of March 21, 1997, 24,000 shares of common stock at $3.00 have been
exercised under the Company's 1995 stock option plan and 7,500 shares at
$4.50 have been exercised under the Company's 1996 stock option plan.
3. On November 1, 1996, the Company authorized the 1997 Stock Option Plan and
reserved 500,000 shares of its common stock for issuance thereunder subject
to stockholder approval at the next annual general meeting.
4. In February, 1997, the Company opened another facility in Winter Park,
Florida.
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
SIGNATURES
The issuer has duly caused this offering statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Vancouver,
Province of British Columbia, Canada, on October 25, 1997.
MEDCARE TECHNOLOGIES, INC.
By /s/ Harmel S. Rayat
________________________________________
Harmel S. Rayat, Chief Executive Officer
This offering statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Harmel S. Rayat 10/25/97
___________________________________________ ________________________
Harmel S. Rayat, Director Date
/s/ Jeff Aronin 10/25/97
___________________________________________ ________________________
Jeff Aronin, President and Director Date
/s/ Kundan S. Rayat 10/25/97
___________________________________________ ________________________
Kundan S. Rayat, Secretary and Director Date
/s/ Valerie Boeldt-Umbright 10/25/97
___________________________________________ ________________________
Valerie Boeldt-Umbright, Director Date
/s/ Michael M. Blue 10/25/97
- -------------------------------------------- ------------------------
Dr. Michael M. Blue Date
/s/ Jake Jacobo 10/25/97
____________________________________________ ________________________
Dr. Jake Jacobo, Director Date
<PAGE>
[NOTE: Articles II, III, V, VI, VII, VIII and IX are still effective as of
12/31/96.]
EXHIBIT 1:
ARTICLES OF INCORPORATION
AND AMENDMENTS
<PAGE>
ARTICLES OF INCORPORATION
OF
SANTA LUCIA FUNDING, INC.
We, the undersigned, natural persons of the age of eighteen years or
more, acting as incorporators of a corporation under the Utah Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation:
ARTICLE I - NAME
The name of this corporation is Santa Lucia Funding, Inc.
ARTICLE II - DURATION
The period of its duration is perpetual.
ARTICLE III - PURPOSES
The corporation is primarily organized for the purpose of being a blind
pool and conducting a blind pool offering of its securities, and establishing,
acquiring, merging with or into, or being acquired by, another business in the
field of high
E-3
<PAGE>
technology, manufacturing and marketing, or another type of industry, and to
transact any or all lawful business for which corporations may be incorporated
under the Utah Business Corporation Act and, in aid thereof, the corporation
shall have unlimited power to engage in and to do any lawful act concerning
any or all business for which corporations my be organized under the said Act,
including but not limited to the following:
(a) To enter into any lawful arrangement for sharing profits, a union
of interests, reciprocal association or cooperative association with any
corporation, association, partnership, individual or other legal entity for
the carrying on of any business and to enter into any general or limited
partnership for the carrying on of any business;
(b) To lease, sell, exchange and trade real and personal property,
either tangible or intangible;
(c) To conduct business anywhere in the world;
(d) To guarantee the obligations of others' with or without
consideration.
E-4
<PAGE>
ARTICLE IV - STOCK
The aggregate number of shares which the corporation shall be authorized
to issue is 50,000,000 shares or the par value of $0.001 per share. All stock
of this corporation shall be of the same class, common, and shall have the
same rights and preferences. Fully paid stock of this corporation shall not
be liable to any call and is non-assessable.
ARTICLE V - PREEMPTIVE RIGHTS
A shareholder shall have no preemptive rights to acquire any securities
of this corporation.
ARTICLE VI - INITIAL CAPITALIZATION
This corporation will not commence business until consideration of a
balance of at least $1,000.00 has been received for the issuance of shares.
ARTICLE VII - INITIAL OFFICE AND AGENT
The address of this corporation's initial registered office and the name
of its initial registered agent at such address is:
E-5
<PAGE>
Name of Agent Address of Registered Office
- ------------------ ----------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
ARTICLE VIII - DIRECTORS
The number of directors constituting the initial Board of Directors of
this corporation is three. The names and addresses of persons who are to
serve as directors until the first annual meeting of stockholders, or until
their successors are elected and qualify, are:
Name Address
- -------------------- ------------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
Wayne D. Smith 720 Terrace Hills Drive
Salt Lake City, Utah 84103
Donald Allan Bostrom 5256 Spring Gate Drive
Holladay, Utah 84117
The number of directors may be changed from time to time by amendment of
the By-Laws, but there shall be not more than 25 not less than three
directors.
E-6
<PAGE>
ARTICLE IX - INCORPORATORS
The name and address of each incorporator is :
Name Address
- --------------------- ---------------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
Wayne D. Smith 720 Terrace Hills Drive
Salt Lake City, Utah 84103
Donald Allan Bostrom 5256 Spring Gate Drive
Holladay, Utah 84117
DATED this 17th day of January, 1986.
INCORPORATORS:
/S/FREDRICK L. ELLIOT
--------------------------
Fredrick L. Elliott
/S/WAYNE D. SMITH
--------------------------
Wayne D. Smith
/S/DONALD ALLAN BOSTROM
--------------------------
Donald Allan Bostrom
E-7
<PAGE>
REGISTERED AGENT:
/S/FREDRICK L. ELLIOT
--------------------------
Fredrick L. Elliott
STATE OF UTAH )
)ss.
COUNTY OF SALT LAKE )
On the 17th day of January, 1986, Fredirck L. Elliott, Wayne D. Smith and
Donald Allan Bostrom personally appeared befor me who, being by me first duly
sworn, severally declared that they are the persons who signed the foregoing
document as incorporators, and Fredrick L. Elliott who signed as registered
agent, and that the statements therein contained are true.
DATED this 17th day of January, 1986.
/S/
------------------------------
NOTARY PUBLIC
My Commission Expires: Residing At:
July 7, 1988 Salt Lake City, Utah
- ---------------------- --------------------
E-8
<PAGE>
CERTIFICATE OF INCORPORATION OF
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, hereby certify as follows:
1. The name of the corporation is: Multi-Spectrum Group,
Incorporated
2. The address of the registered office of the corporation in the State
of Delaware is: 710 Yorklyn Road
Hockessin, Delaware
County of New Castle
The registered agent in charge thereof is:
Registered Agents, Ltd.
3. The purpose of the corporation is:
to develop a Print/Diversified Business Center with the intent of
establishing Franchises.
4. The corporation is authorized to issue capital stock to the extent of
1000 Shares of no par value.
5. The Board of Directors is authorized and empowered to make,
alter, amend and rescind the By-Laws of the corporation, but
By-Laws made by the board may be altered or repealed, and new
By-Laws made, by the stockholders.
E-9
<PAGE>
The name and address of the incorporator(s) is (are) as follows:
NAME Patrick J. Ellis ADDRESS 1055 W. Germantown Pike
Norristown, PA 19403
IN WITNESS WHEREOF, the incorporator(s) has (have) hereunto set his hand
and seal this 30th day of March, A.S. 1986.
/S/
----------------------------
E-10
<PAGE>
State of Delaware
Office of Secretary of State
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO
HEREBY
CERTIFY MULTI SPECTRUM GROUP. INC. IS DULY INCORPORATED UNDE THE
LAWS OF THE
STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL
CORPORATED EXISTENCE
SO FAR AS THE RECORDS OF THIS OFICE SHOW, AS OF THE DATE SHOWN BELOW.
/S/MICHAEL HARKINS
-----------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION: 2122752
679089006 DATE: 03/30/1989
E-12
<PAGE>
ARTICLES OF MERGER
OF DOMESTIC AND FOREIGN CORPORATIONS
INTO
SANTA LUCIA FUNDING, INC.
Pursuant to the provisions of § 16-10-72 of the Utah Business
Corporation Act, the undersigned domestic and foreign corporations adopt the
following Articles of Merger for the purpose of merging them into one of such
corporations:
FIRST: Then names of the undersigned corporations and the states under
the laws of which they are respectively organized are:
Name of Corporation State
------------------------ --------
Santa Lucia Funding, Inc. Utah
Multi-Spectrum Group, Inc. Delaware
SECOND: The laws of the state under which such foreign corporation is
organized permit such merger.
THIRD: The name of the surviving corporation is Multi-Spectrum Group,
Inc. The surviving corporation is to be governed by the laws of the State of
Utah.
FOURTH: The following Agreement and Plan of Merger ("Plan") was approved
by the shareholders of the undersigned domestic corporation isn the manner
prescribed by the Utah Business Corporation Act, and was approved by the
undersigned foreign corporation in the manner prescribed by the laws of the
state under which it is organized:
See attached Exhibit "A"."
FIFTH: As to each of the undersigned corporations, the number of shares
outstanding, and the designation and number of outstanding shares of each
class entitled to vote as a class on such Plan, are as follows:
Entitled to Vote as a Class
Number of ---------------------------
Shares Designation Number
Name of Corporation Outstanding of Class of Shares
- ------------------- ----------- ----------- ---------
Santa Lucia Funding, Inc. 6,145,000 Common 6,145,000
Multi-Spectrum Group, Inc. 1,000 Common 1,000
SIXTH: As to each of the undersigned corporations, the total number of
shares voted for and against such Plan, respectively, and, as to each class
entitled to vote thereon as a class, the number of shares of such class votd
for and against such Plan, respectively, are as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
Entitled to Vote as a Class
Total Total ---------------------------
Name of Voted Voted Voted Voted
Corporation For Against Class For Against
- --------------------- ------ ------- ----- ----- -------
<S> <C> <C> <C> <C> <C>
Santa Lucia
Funding, Inc. 3,452,500 -0- Common 3,452,500 -0-
Multi-Spectrum
Group, Inc. 1,000 -0- Common 1,000 -0-
</TABLE>
E-13
<PAGE>
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
On the 24th day of January, 1990, personally appeared before me Fredrick
L. Elliott, XXX XXXXXXXXXXX, who being by me duly sworn did say that they
are the President and Secretary of Santa Lucia Funding, Inc., the corporation
that executed the above and foregoing instrument and that said instrument was
signed on behalf of said corporation by authority of its bylaws and said
Fredrick L. Elliott XXX XXXXXXXXXXX acknowledged to me that said
corporation executed the same.
/S/ Shana L. Wahl
----------------------------------------
Notary Public
Residing at Salt Lake City
My Commission Expires:
______________________
STATE OF PENNSYLVANIA )
:ss.
COUNTY OF MONTGOMERY )
Be it remembered, that on this 18th day of January, A.D. 1990, personally
came before me, Barbara A. Kring, a notary public in an for the county and
state aforesaid, David E. Taylor and Charles Cannon, the President and
Secretary of Multi-Spectrum Group, Inc., a corporation of the State of
Delaware, the corporation described in and which executed the foregoing
certificate, know to me personally to be such, and they, they, the said David
E. Taylor and Charles Cannon, as such President an Secretary, duly executed
said certificate before me and acknowledged the said certificate to be their
acts and deeds and the act and deed of said corporation to said foregoing
certificate are in the handwriting of the said President and Secretary of said
corporation, respectively.
In witness whereof, I have hereunto set my hand and seal of office that
day and year aforesaid.
/S/ BARBARA A. KRING
---------------------------
Notary Public
Residing at 165 W. Ridge Pk,
Limerick, PA
My Commission Expires: 5-27-91
_______________________
E-14
<PAGE>
SEVENTH: If the surviving corporation is to be governed by the laws of
any other state, such surviving corporation hereby: (a) agrees that is may be
served with process in the State of Utah in any proceeding for the enforcement
of any obligation of the undersigned domestic corporation and in any
proceeding for the enforcement of the rights of a dissenting shareholder of
such domestic corporation against the surviving corporation; (b) irrevocable
appoints the Secretary of State of Utah as its agent to accept servce of
process in any such proceeding and (c) agrees that it will promptly pay to the
dissenting shareholders of such domestic corporation the amount, if any, to
which they shall be entitled under the provisions of the Utah Business
Corporation Act with respect to the rights of dissenting shareholder:
DATED: January 19, 1990
By: --------------------------
Its President
/S/ WAYNE D. SMITH
And:---------------------------
Its Secretary
MULTI-SPECTRUM GROUP, INC.
By: --------------------------
Its President
And: --------------------------
Its Secretary
E-15
<PAGE>
STATE OF CALIFORNIA )
:ss.
COUNTY OF )
On the 31st day of January, 1990, personally appeared before me Wayne D.
Smith, who being by me duly sworn did sya that he is the Secretary of Santa
Lucia Funding, Inc., the corporation that executed the above and foregoing
instrument and that said instrument was signed on behalf of said corporation
by authority of its bylaws and said Wayne D. Smith acknowledged to me that
said corporation executed the same.
/S/ CYNTHIA M. STAFFORD
----------------------------
Notary Public
Residing at 2965 Sunrise Blvd #102
Rancho Cardova, CA 95742
My Commission Expires: July 1, 1991
E-16
<PAGE>
Utah State Tax Commission
TC-784
Letter of Good Standing Rev. 2/94
Corporation Representatives Name and Address Issue Date
August 16, 1995
Account Number
MULTI-SPECTRUM INC 0001187258
1348 EAST 3300 SOUTH #101
SALT LAKE CITY, UTAH 84106
Tax Type
Corporation
Utah Charter Number
118725
The Utah State Tax Commission Certifies that:
MULTI-SPECTRUM INC
has filed all income or franchise tax returns required and paid all taxes
thereon to be due. The status of the account is current as of the date of
this letter.
The account is subject to audit, and if a liability exists, it may be
assessed at any time. The issuance of this letter does not fix, abate,
modify, or cancel any liability for payment of money due or an obligation
to the State of Utah.
This letter does not fulfill the requirements for dissolving or withdrawing
a corporation from the State of Utah. Please contact the Department of
Commerce, Division of Corporation for information regarding corporate
dissolution or withdrawal.
/S/CINDY LOVE
- ---------------------------------
Cindy Love, Customer Service Agent
Customer Service Counter
Customer Service Division
Inquiries regarding this letter should be directed to: Customer Service
Counter, Utah State Tax Commission, 210 North 1950 West, Salt Lake City,
UT, 84134 or call (801) 297-7540.
E-17
<PAGE>
STATE OF UTAH
DEPARTMENT OF COMMERCE
CERTIFICATION
OF GOOD STANDING
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL CODE HEREBY
CERTIFIES THAT
SANTA LUCIA FUNDING, INC.
is a Utah corporation and is qualified to transact business in the State of
Utah, and that its most recent annual report required by Utah law has been
filed, and that Articles of Dissolution have not been field. A Certificate of
Incorporation was issued from this office on January 17, 1986 and said
corporation is in good standing, as appears of record in the offices of the
Division.
The certification is not intended to reflect the financial condition, business
activity or practices of this corporation.
File Number: CO 118725
Dated this 24th day of August, 1995.
/s/KORIA T. WOODS
By:-------------------------------
Koria T. Woods
Director, Division of
Corporations and Commercial Code
E-18
<PAGE>
[Note: These amendments to the Articles are still effective as of 12/31/96]
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
MULTI SPECTRUM GROUP, INC.
(aka Santa Lucia Funding, Inc.)
Multi Spectrum Group, Inc., (aka Santa Lucia Funding, Inc.), a corporation
organized and existing under and by virtue of the General Corporation and
Business Laws of the State of Utah (hereinafter "Corporation").
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted setting forth two proposed amendments of the
Certificate of Incorporation of Corporation, declaring said amendments to be
advisable and calling a meeting of the stockholders of Corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED: that the Certificate of Incorporation be amended by changing
Article I thereof so that, as amended, said Article shall be and read as
follows:
"The name of the corporation is MedCare Technologies, Inc."
And be it,
FURTHER RESOLVED: that the Certificate of Incorporation be amended by
changing Article IV thereof so that, as amended, said Article shall read as
follows:
"The aggregate number of share which this corporation shall have authority
to issue is 101,000,000 shares, of which 100,000,000 shares shall be $.001
par value Common Stock and 1,000,000 share shall be $.25 pare value
Preferred Stock. The Common Stock shall have voting rights of one vote per
share. The Board of directors may issue the Preferred Stock from time to
time in one or more series, each series to have such voting rights,
preference in dividends and in liquidation and such other rights,
preferences and conditions as the Board of Directors may designate by an
amendment to these Articles of Incorporation by action duly adopted without
shareholder action shall not be required therefor. Fully-paid stock of
this Corporation shall not be liable to any further call or assessment."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a meeting of the stockholders of said corporation was dully called and
held, upon notice in accordance with Section S. 16-10a-705 of the General
Corporation and Business Laws of the State of Utah at which meeting the
necessary number of shares as required by statute wre voted in favor of the
amendments.
E-19
<PAGE>
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section S. 16-10a-1003 of the General Corporation and Business
Laws of the State of Utah.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said Board of Directors has caused this certificate to
be signed by Kudan S. Rayat, its Secretary, this 25th day of August, 1995.
Multi-Spectrum Group, Inc.
/S/ KUNDAN S. RAYAT
- ---------------------------
Kundan S. Rayat, Secretary
E-20
<PAGE>
STATE OF UTAH
DEPARTMENT OF COMMERCE
CERTIFICATION
OF GOOD STANDING
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL
CODE HEREBY CERTIFIES THAT
MEDCARE TECHNOLOGIES, INC.
is a Utah corporation and is qualified to transact business in the State of
Utah, and that its most recent annual report required by Utah law has been
filed, and that Articles of Dissolution have not been field. A Certificate of
Incorporation was issued from this office on January 17, 1986 and said
corporation is in good standing, as appears of record in the offices of the
Division.
The certification is not intended to reflect the financial condition, business
activity or practices of this corporation.
File Number: CO 118725
Dated this 28th day of August,1995.
/S/ KORIA T. WOODS
----------------------------------
Koria T. Woods
Director, Division of
Corporations and Commercial Code
E-21
<PAGE>
[Note: These bylaws are still effective as of 12/31/96.]
EXHIBIT 2:
BYLAWS
<PAGE>
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 710 Yorklyn Rd., Hockessin, Delaware, County of New
Castle
The registered agent in charge thereof shall be Registered Agents, Ltd.
Section 2. The corporation may also have offices at such ocher places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETING
Section 1. Meetings of stockholders-shall be held at the registered
office of the corporation in this state or at such place, either within or
without this state, as may be selected from time to time by the Board of
Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders
shall be held on the fifteenth day of May in each year if not a legal holiday,
and if a legal holiday, then on the next secular day following at two o'clock
p.m.
E-23
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. ,If the annual meeting for
election of directors is not held on the date designated therefor, the
directors shall cause the meeting co be held as soon thereafter as convenient.
Section 3. ELECTION OF DIRECTORS: Elections of the directors of the
corporation shall be by written ballot.
Section 4. SPECIAL MEETINGS: Special meetings of the stockholders
may be called at any time by the President, or the Board of Directors, or
stockholders entitled to cast at least one-fifth of the votes which all
stockholders are entitled to cast at the particular meeting. At any time, upon
written request of any person or persons who have duly called a special
meeting, it shall be the duty of the Secretary to fix the date of the meeting,
to be held not more than sixty days after receipt of the request, and to give
due notice thereof. If the Secretary shall neglect or refuse to fix the date
of the meeting and give notice thereof, the person or persons calling the
meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all
stockholders entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stock holder entitled co voce
thereof at least 14 days before such meeting, unless a greater period of
notice is required by statute in a particular case.
E-24
<PAGE>
Section 5. QUORUM: A majority outstanding shares of the corporation
entitled to voce, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding
shares entitled to vote is represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further ed.
The stockholders present ac a duly organized meeting may continue co transact
business until adjournment. notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 6. PROXIES: Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for
him by proxy, but no such proxy shall be voted or acted upon after three years
from its duce, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
E-25
<PAGE>
shall be filed which the Secretary of the meeting before being voted upon.
Section 7. NOTICE OF MEETINGS: Whenever stockholders are required or
permitted co cake any action ac a meeting, a written notice of the meeting
shall be given which shall state the place, dace and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the dace of the
meeting to each stockholder entitled to vote at such meeting.
Section 8. CONSENT IN LIEU OF MEETINGS: Any action required to be
taken at any annual or special meeting of stockholders of a corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setti less than the minimum number of votes
that would be necessary to authorize or take such act notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
E-26
<PAGE>
Section 9. LIST OF STOCKHOLDERS: The officer who has charge or the
stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address or each stockholder and the number of shares registered in the
name or each stockholder No share of stock upon which any installment is due
and unpaid shall be voted at any meeting The list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be
managed by its Board of Directors, five in number. The directors need not be
residents of this state or stockholders in the corporation. They shall be
elected by the stockholders at the annual meeting of stockholders of the
corporation, and each director shall be elected for the term of one year, and
until his
E-27
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation
or removal.
Section 2. REGULAR MEETINGS: Regular meetings of the. Board shall be
held without notice ever three months, on the first Monday of the quarter at
the registered office of the corporation, or at such other time and place as
shall be determined by the Board.
Section 3. SPECIAL MEETINGS: Special Meetings of the Board may be
called by the President on 10 days notice to each director, either personally
or by mail or by telegram; special meetings shall be called by the President
or Secretary in like manner and on like notice on the written request of a
majority of the directors in office.
Section 4. QUORUM: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. CONSENT IN LIEU OF MEETING: Any action required or
permitted to be taken at any meeting of the Board of Directors. Or of any
committee thereof, may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent thereof in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee. The Board of Directors may hold its meetings, and have an office or
offices, outside of this state.
Section 6. CONFERENCE TELEPHONE: One or more directors may
participate I a meeting of the Board, of a committee of the Board
E-28
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each ocher; participation in this manner shall constitute
presence in person at such meeting.
Section 7. COMPENSATION: Directors as such, shall not receive any
stated salary for their services. but by resolution of the Board, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board PROVIDED, that nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 8. REMOVAL: Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors, except that when
cumulative voting is permitted, if less than the entire Board is to be
removed, no director may be removed without cause if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire Board of Directors, or, if there be classes of
directors, at an election of the class of directors of which he is a part. .
ARTICLE V - OFFICERS
Section. 1. The executive-officers of the corporation shall be
chosen by the directors and shall be a President, Secretary
E-29
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. SALARIES: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. TERM OF OFFICE: The officers of the corporation shall
hold office for one year and until their successors are chosen and have
qualified. Any officer or agent elected or appointed by the Board may be
removed by the Board of Directors whenever in its judgment the best interest
of the corporation will be served thereby.
Section 4. PRESIDENT: The President shall be the chief executive
officer of the corporation; he shall preside at all meetings of the
stockholders and directors; he shall have general and active management of the
business of the corporation, shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the President, to any other officer or officers of the
corporation; He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation. He shall be EX-OFFICIO a member of
all committees, and shall nave the general power and duties of supervision and
management usually vested in the office or President of. a corporation.
E-30
<PAGE>
Section 5. SECRETARY: The Secretary shall attend all sessions of the
Board and all meetings of the stockholders and act as clerk thereof. and
record all the voces of the Corporation and the minutes or all its
transactions in a book to be kept for that purpose, and shall perform like
duties for all committees of the Board of Directors when required. He shall
give, or cause to be given, notice of all meetings of the stockholders and of
the Board of Directors, and shallt requiring it.
Section 6. TREASURER: The Treasurer shall have custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation, and shall
keep the moneys of the corporation in a separate account to the credit of the
corporation. He shall disburse the funds of the corporation as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render
to the President and directors, ac the regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the corporation.
ARTICLE VI - VACANCIES
Section 1.Any vacancy occurring in any office of the
E-31
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by
the Board of Directors. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. If at any time, by reason of death or resignation or
ocher cause, the corporation should have no directors in office, then any
officer or any stockholder or an executor, administrator, trustee or guardian
of a stockholder. or ocher fiduciary encrusted with like responsibility for
the person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of these By-Laws.
Section 2. RESIGNATIONS EFFECTIVE AT FUTURE DATE: When one or more
directors shall resign from the Board, effective at a future date, a majority
of the directors then in office, including those who have so resigned, shall
have power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or
other agency, shall, upon written demand under oath stating the purpose
thereof, have the right during the usual hours for business co inspect for any
proper purpose the corporation's stock ledger, a list of its stockholders and
its other books and records, and to make copies or extracts therefrom.
E-32
<PAGE>
A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks he right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation ac its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered
and registered in the share ledger and transfer books of the corporation as
they are issued. They shall bear the corporate seal and shall be signed by the
President and Secretary
Section 2 TRANSFERS: Transfers of shares shall be made on the
books of the corporation upon surrender of the certificates therefor, endorsed
by the person named in the certificate or by attorney, lawfully constituted in
writing. No transfer shall be made which is inconsistent with law.
Section 3. LOST CERTIFICATE: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative.
E-33
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 4 RECORD DATE: In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed:
(a) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the day on which the meeting
is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no-prior action
by the Board of
E-34
<PAGE>
Directors is necessary, shall be the day on which the first written consent is
expressed.
(c) The record date tor determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution replacing thereto.
(d) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors may declare and
pay dividends upon the outstanding shares of the corporation from time to time
and to such extent as they deem advisable, in the manner and upon the terms
and conditions provided by statute and the Certificate of Incorporation.
Section 6. RESERVES: : Before payment of any dividend there may
be set-aside out of the net profits of the corporation such sum or sums as the
directors, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conductive to the interests of the
corporation, and their director may abolish any such reserve in the manner in
which it was created.
E-35
<PAGE>
Directors is necessary, shall be the day on which the first written consent is
expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors may declare and pay
dividends upon the outstanding shares of the corporation from time to time
and to such extent as they deem advisable, in the manner and upon the terms and
conditions provided by statute and the Certificate of Incorporation.
Section 6. RESERVES: Before payment of any dividend there may be set
aside out of the net profits of the corporation such sum or sums as the
directors, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conductive to the interests of the
corporation, and the directors may abolish any such reserve in the manner in
which it was created.
E-36
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section l. CHECKS: All checks or demands for money and notes of
the corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. FISCAL YEAR: The fiscal year shall begin on the
first day of April 1989
Section 3. NOTICE: Whenever written notice is required to be
given co any person, it may be given to such person, either personally or by
sending a copy thereof through the mail, or by telegram, charges prepaid, to
his address appearing on the books of the corporation, or supplied by him to
the corporation for the purpose of notice. If the notice is sent by mail or by
telegraph, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office
for transmission to such person. Such notice shall specify the place, day and
hour of the meeting and, in the case of special meeting of stockholders, the
general nature of the business to be transacted.
Section 4 WAIVER OF NOTICE: Whenever any written notice is required
by stature, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
E-37
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting was not lawfully called or convened.
Section 5. DISALLOWED COMPENSATION: Any payments made to an
officer or employee of the corporation such as a salary. commission, bonus,
interest, rent, travel or entertainment expense incurred by him, which shall
be disallowed in whole or in parc as a deductible expense by the Internal
Revenue Service, shall be reimbursed by such officer or employee to the
corporation to the full extent of such disallowance. It shall be the duty of
the directors, as a Board, to enforce payment of each such amount disallowed.
In lieu of payment by the officer or employee, subject to the determination of
the directors, proportionate amounts may be withheld from his future
compensation payments until the amount owed to the corporation has been
recovered.
Section 6. RESIGNATIONS: Any director or other officer may
resign at anytime, such resignation to be in writing, and to take effect from
the time of its receipt by the corporation, unless some time be fixed in the
resignation and then from that date. The acceptance of a resignation shall not
be required to make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1.The President and Board of Directors shall
E-38
<PAGE>
present at each annual meeting a full and complete statement of the business
and affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the voce of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cost thereon, at any regular or special meeting
of the stockholders. duly convened after notice to the stockholders of that
purpose.
E-39
<PAGE>
BY-LAWS
OF
SANTA LUCIA FUNDING, INC.
ARTICLE I
OFFICES
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake City, County of Salt Lake. The corporation
may have such other offices, either within or without the State of Utah, as
the Board of Directors may designate or as the Business of the corporation may
require from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on the Fourth Thursday in the month of March in each year,
beginning with the year 1986, at the hour of 2:00 o'clock p.m., for the
purpose of electing Directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual meeting shall
be a legal holiday in the State of Utah, such meeting shall be held on the
next succeeding business day. If the election of Directors shall not be held
on the day designated herein for any annual meeting of the shareholders, or at
any adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the shareholders as soon thereafter as
conveniently may be.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose or purposes, unless other wise prescribed by
statute, may be called by the President or by the Board of Directors, and
shall be called by the President at the request of the holders of not less
than ten percent (10.0%) of all the outstanding shares of the corporation
entitled to vote at the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate
any place, either within or without the State of Utah, unless otherwise
prescribed by statute, as the place of meeting for any annual meeting or for
any special meeting. A
E-40
<PAGE>
waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Utah, unless
otherwise prescribed by statute, as the place for the holding of such meeting.
If no designation is made, the place of meeting shall be the principal office
of the corporation is in the State of Utah.
SECTION 4. NOTICE OF MEETING. Written notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for whichhe stock transfer books of the corporation, with postage
thereon prepaid.
SECTION 5. CLOSING OF TRANSFER BOOKS OF FIXING OF RECORD. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to received payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period, but not to exceed in any case fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books
shall be closed for at least ten (10) day immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such data in any case to be not more than fifty (50) day and , in case of a
meeting of shareholders, not less than ten (10) day, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of shareholders. When a determination of shareholders entitled to vote at
provided in this
E-41
<PAGE>
section, such determination shall apply to any adjournment thereof.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make a complete list
of the shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each. Such list shall be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting for the purposes
thereof.
SECTION 7. QUORUM. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 8. PROXIES. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after eleven (22) months from the date of
its execution, unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing
in the name of another corporation may be voted by such officer, agent or
proxy as the By-Laws of such corporation may prescribe or, in the absence of
such provision, as the Board of Directors of such corporation may
determine.
E-42
<PAGE>
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name, if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Shares of its own stock belonging to the corporation shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares at any given time.
SECTION 11. INFORMAL ACTION BY SHAREHOLDERS. Unless otherwise
provided by law, any action required to be taken at a meeting of the
shareholders, or any other action which may be taken at a meeting of the
shareholders, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWER. The business and affairs of the
corporation shall be managed by its Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
directors of the corporation shall be fixed by the Board of Directors, but in
no event shall be less than three (3). Each director shall hold office until
the next annual meeting of shareholders and until his successor shall have
been elected and qualified.
E-43
<PAGE>
SECTION 3. REGULAR MEETING. A regular meeting of the Board of
Directors shall be held without other notices than this By-Law immediately
after, and at the same place as, the annual meeting of shareholders. The
Board of Directors may provide, by resolution, the time and place for the
holding of additional regular meetings without notice other than such
resolution.
SECTION 4. SPECIAL MEETINGS. Special meeting of the Board of
Directors may be called by of at the request of the President or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given
at least one (1) day previous thereto by written notice delivered personally
or mailed to each director at his business address, or by telegram. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States Mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to e delivered when the
telegram is delivered to the telegraph company. Any directors may waive
notice of any meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 6. QUORUM. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 8. ACTION WITHOUT A MEETING. Any action that may be taken by the
Board of Directors at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so to be taken, shall be signed before such
action by all of the Directors.
E-44
<PAGE>
SECTION 9. VACANCIES. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors, unless otherwise provided
by law. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. Any directorship to be filled by
reason of an increase in the number of directors may be filled by election by
the Board of Directors for a term of office continuing only until the next
election of Directors by the shareholders.
SECTION 10. COMPENSATION. By resolution of the Board of
Directors, each Director may be paid his expenses, if nay, of attendance at
each meeting of the Board of Directors, and may be paid a stated salary as
director or a fixed sum for attendance at each meeting of the Board of
Directors or both. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
SECTION 11. PRESUMPTION OF ASSENT. A director of the
corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof,
or shall forward such dissent by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a
President, one or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by
the Board of Directors, including a Chairman of the Board. in its discretion,
the Board of Directors may leave unfilled for any such period as it may
determine any office except those of President and Secretary. Any two or more
offices may be held by the same person, except for the offices of President
and Secretary which may not be held by the same person. Officers mayor may
not be directors or shareholders of the Corporation.
E-45
<PAGE>
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation to be elected by the Board of Directors shall be elected annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of the shareholders. If the election of the
officers shall not be held at such meeting, such election shall be held as
soon thereafter as conveniently may be. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified, or until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3. REMOVAL. Any officer or agent may be removed by the
Board of Directors whenever, in its judgment, the best interests of the
corporation will be served thereby, but such removal shall b without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 5. PRESIDENT. The president shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. he shall, when present, preside at all meetings of
the sharesholders and of the Board of Directors, unless there is a Chairman of
the Board, in which case the Chairman shall preside. He may sign, with the
secretary or any other Board of officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of President and such other duties
as may be prescribed by the Board of Directors from time to time.
SECTION 6. VICE PRESIDENT. In the absence of the President or in
the event of his death, inability or refusal to act, the Vice President shall
perform the duties of the
E-46
<PAGE>
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. The Vice President shall perform
such other duties as from time to time may be assigned to him by the President
or by the Board of Directors. If there is more than one Vice President, each
Vice President shall succeed to the duties of the President in order of rank
as determined by the Board of Directors. If no such rank has been determined,
then each Vice President shall succeed to the duties of the President in order
of the date of election, the earliest date having the first rank.
SECTION 7. SECRETARY. The Secretary shall: (a) keep the minutes
of the proceedings of the shareholders and of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by
law; (c) be custodian of the corporate records and of the seal of the
corporation and see that the seal of the corporation is affixed to all
documents, the execution of which on behalf of the corporation under its seal
is duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(e) sign with the President certificates for share of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
the Secretary and such other duties as from time to time may be assigned to
him by the President or by the Board of Directors.
SECTION 8. TREASURER. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the
corporation; (b) receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the
name of the corporation in such banks, trust companies or other depositories
as shall be selected in accordance with the provisions of Article VI of these
By-Laws; and (c) in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the President or by the Board of Directors. If required by the board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such sureties as the Board of Directors shall
determine.
SECTION 9. SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors, and no
E-47
<PAGE>
officer shall be prevented from receiving such salary by reason of the
fact that he is also a director of the corporation.
ARTICLE V
INDEMNITY
The corporation shall indemnify its directors, officers, and employees as
follows:
(a) Every director, officer, or employee of the corporation shall be
indemnified by the corporation against all expenses and liabilities, including
counsel fees, reasonably incurred by or imposed upon him in connection with
any proceeding to which he may be made a party, or in which he may become
involved, by reason of his being or having been 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 the corporation,
partnership, joint venture, trust or enterprise, or any settlement thereof,
whether or not he is a director, officer, or employee is adjudged guilty or
willful misfeasance or malfeasance in the performance of his duties; provided
that in the event of a settlement the indemnification herein shall apply only
when the Board of Directors approves such settlement and reimbursement as
being for the best interests of the corporation.
(b) the corporation shall provide to 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
the corporation, partnership, joint venture, trust or enterprise, the
indemnity against expenses of suit, litigation or other proceedings which is
specifically permissible under the Utah Business Corporation At.
(c) the Board of Directors may, in its discretion, direct the
purchase of liability insurance by way of implementing the provisions of this
Article V.
E-48
<PAGE>
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize nay
officer or officers, agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority
may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the corporation, shall be signed by such officer or
officers, agent or agents of the corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing
share of the corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be determined by the Board of
Directors. Such certificates shall be signed by the President and by the
Secretary or by such other officers authorized by law and by the Board of
Directors so to do, and sealed with the corporate seal. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or militated certificate, a
new one may be issued
E-49
<PAGE>
therefor upon such terms and indemnity to the corporation as the Board of
directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the
corporation shall be made only on the stock transfer books of the corporation
by the holder of record thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender of or cancellation of the certificate for
such shares. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day of January
and end on the 31st day of December of each year.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE X
CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
ARTICLE XI
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or director of the corporation under the provisions
of these By-Laws or under the provisions of the Articles of Incorporation or
under the
E-50
<PAGE>
provisions of the Utah Business Corporation Act, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XIII
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
The above By-Laws are certified to have been adopted by the Board of
Directors or the corporation on the 22nd day of January, 1986.
/s/ WAYNE D. SMITH
------------------------
Wayne D. Smith/ Secretary
CDN1276W
<PAGE>
EXHIBIT 3:
PLAN OF MERGER
WITH MULTI-SPECTRUM GROUP
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
MULTI-SPECTRUM GROUP, INC.
AND
SANTA LUCIA FUNDING, INC.
Dated as of December 20, 1989
E-53
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated December 20, 1989, by and
between SANTA LUCIA FUNDING, INC., a Utah corporation ("Santa Lucia"), and
MULTI-SPECTRUM GROUP, INC., a Delaware corporation ("MAGI"), (Santa Lucia and
MSGI are herein collectively referred to as the "Constituent Corporations").
WHEREAS, the Board of Directors of MSGI and Santa Lucia desire to enter
into this Agreement and have approved the merger of MSGI with and into Santa
Lucia (the "Merger"), upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants, representations
and warranties herein set forth, and for the purpose of setting forth certain
terms and conditions of the Merger, and the mode of carrying the same into
effect, MSGI and Santa Lucia hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01.THE MERGER. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.02), MSGI shall be merged
with and into Santa Lucia in accordance with the Business Corporation Act of the
State of Utah ("BCA") and the General Corporation Law of the State of Delaware
("DGCL"), whereupon the separate existence of MSGI shall cease and Santa Lucia
shall be the surviving corporation (the "Surviving Corporation") and shall
continue its corporate existence under the laws of the State of Utah. From and
after the Effective Time, the status, rights and liabilities of, and the effect
of the Merger on, each of the corporations which is a party to the Merger and
the Surviving Corporation shall be as provided in S. 16-10-71 of the BCA.
SECTION 1.02. FILING OF CERTIFICATE OF MERGER AND ARTICLES OF
MERGER:
EFECTIVE TIME. As soon as practicable after the satisfaction of waiver of the
conditions to the consummation of the Merger set forth in Articles VII, VIII
AND IX hereof (except Sections 7.02, 8.02 and 9.01(i), Santa Lucia will deliver
for filing, or cause to be delivered for filing, with the Secretary of the State
of Delaware, a Certificate of Merger and (ii) the parties will deliver for
filing, or cause to be delivered for filing with the Utah Department of
Commerce, Division of Corporations and Commercial Code ("UDOC"), duly executed
Articles of Merger and such other instruments as may be required by Section
16-10-72 of the BCA to effect the Merger. The Merger shall become effective on
the later of the date and time when (i) the Certificate of Merger has been filed
with the State of Delaware of (ii) the issuance by the UDOC of the Certificate
of merger. The date and time of such effectiveness is herein referred to as the
"Effective Time."
SECTION 1.03.CONVERSION OF OUTSTANDING SHARES.
(a)From and after the Effective Time, each share of common stock of MSGI
("MSGI Stock") outstanding immediately prior to the Effective Time, except
E-54
<PAGE>
shares held by MSGI in treasury and shares with respect to which appraisal
rights have been properly exercised in accordance with the DGLC, shall, by
virtue of the Merger and without any action on the part of MSGI, Santa Lucia or
any holder thereof, cease to exist and be converted into and become 55,305
shares of common stock of the Surviving Corporation, $.001 par value per share
("Surviving Corporation Stock"). The consideration referred to above, together
with any cash payments in lieu of fractional shares as provided herein, is
hereinafter referred to as the "Merger Consideration." The stock certificates
representing the Surviving Corporation Stock issued to the Shareholders of MSGI
shall bear the following, or a similar, restrictive legend:
The shares represented by this certificate have not been registered under
the Securities Act of 1933. The shares have been acquired for investment
and may not be offered, sold or otherwise transferred in the absence of an
effective Registration Statement for the shares under the Securities Act of
1933 or a prior opinion of counsel, satisfactory to the issuer, that
registration is not required under the Act.
(b)Each share of capital stock of Santa Lucia ("Santa Lucia Stock")
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, cease to exist
and be converted into one share of the Surviving Corporation Stock, $.01 par
value per share.
(c)No fractional shares of Surviving Corporation Stock shall be issued
pursuant to the Merger and no holder of MSGI Stock of Santa Lucia Stock
immediately prior to the Effective Time shall, by reason of such ownership, be
entitled to any rights or privileges pertaining to any fraction of any share of
Surviving Corporation Stock. Any person (as hereinafter defined) who, by reason
of the ownership of MSGI Stock or santa Lucia Stock, shall be entitled, but for
the provisions of this Section, to receive a fractional share of Surviving
Corporation Stock, shall be entitled to receive a fractional share of Surviving
g Corporation an amount in cash equal to the fractional interest multiplied by
the fair market value of the Surviving Corporation Stock at the Effective Time.
The Surviving Corporation will pay the respective amounts to the persons
entitled thereto in accordance with Section 1.04.
(d)No person who after the Effective Time holds an option to acquire MSGI
Stock, for which a right to acquire Surviving Corporation Stock is substituted
in accordance with the provisions of this Section, shall be entitled by reason
thereof to any fractional share of Surviving Corporation Stock, but shall
receive in lieu thereof an amount in cash equal to the fractional interest
multiplied by the fair market value of Surviving Corporation Stock on the date
of exercise of such option less the exercise price for such fractional interest.
(e) Each share of MSGI Stock and Santa Lucia Stock held by MSGI and Santa
Lucia, respectively, as treasury stock immediately prior to the Effective Time,
shall be canceled, and no payment shall be made with respect thereto; and
(f) Notwithstanding anything in this Agreement to the contrary, shares of
Santa Lucia Stock outstanding immediately prior to the Effective Time and which
E-55
<PAGE>
are held by shareholders who have not voted such shares in favor of the approval
and adoption of this Agreement and shall have delivered to Santa Lucia, prior to
or at the meeting of Santa Lucia shareholders to be held pursuant to Section
6.01, a written objection to the Merger and, delivered to Santa Lucia or the
Surviving Corporation, within ten days after such meeting, a written demand
for appraisal of such shares in the manner and otherwise in accordance with
Section 16-10-76 of the BCA ("Dissenting Santa Lucia Shares"), shall not be
converted into or be exchangeable for the Merger Consideration pursuant to
Section 1.03(a), but shall instead be entitled to receive such consideration
pursuant to Section 16-10-76 of the BCA: PROVIDED, HOWEVER, that if such holder
shall have failed to perfect or shall have withdrawn or lost his right to
appraisal and payment under the BCA, his Santa Lucia Stock shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the Merger Consideration, without any
interest thereon, in accordance with Section 1.03(a) of this Agreement. Santa
Lucia shall give MSGI prompt notice of any demands received by Santa Lucia for
appraisal, and MSGI shall have the right to participate in all negotiations and
proceedings with respect to such demands. Santa Lucia shall not, except with
the prior written consent of MSGI, settle or offer to settle any such demands or
make any payment with respect thereto, except as shall be required by a final,
non-appealable judgment of a court of competent jurisdiction.
(g)Notwithstanding anything in this Agreement to the contrary, shares of
Santa Lucia Stock outstanding immediately prior to the Effective Time and which
are held by shareholder who have voted such shares in favor of or consented to
the adoption of this Agreement and shall have delivered to MSGI, before the
taking of the vote on the Merger, a written demand for appraisal of such shares
delivered to the Surviving Corporation, in the manner and otherwise in
accordance with Section 262 of the DGCL ("Dissenting Santa Lucia Shares"), shall
not be converted into or be exchangeable for the Merger Consideration pursuant
Section 1.03(a) , but shall instead by entitled to receive such consideration as
shall be determined pursuant to Section 262 of the DGCL; PROVIDED, HOWEVER, that
is such holder shall have failed to perfect or shall have withdrawn or lost his
right to appraisal and payment under the DGCL, his MSGI Stock shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the Merger Consideration, without any
interest thereon, in accordance with Section 1.03(a) of this Agreement. MSGI
shall give Santa Lucia prompt notice of any demands received by MSGI for
payment, and Santa Lucia shall have the right to participate in all negotiations
and proceedings with respect to such demands. MSGI shall not, except with the
prior written consent of Santa Lucia, settle or offer to settle any such demands
or make any payment with respect thereto, except as shall be required by a
final, non-appealable judgment of a court of competent jurisdiction.
SECTION 1.04. EXCHANGE OF MSGI STOCK; SURRENDER OF CERTIFICATES.
(a)After the Effective Time, each holder of an outstanding certificate of
certificates, which immediately prior to the Effective Time represented MSGI
Stock, may surrender such certificate to an exchange agent appointed by the
Surviving Corporation (the "Exchange Agent") and receive one or more stock
certificates for the number of full shares of Surviving Corporation Stock into
E-56
<PAGE>
which the MSGI Stock represented by the certificate or certificates so
surrendered have been converted as a result of the Merger; provided, however,
that the holder is otherwise entitled hereby to receive the Merger
Consideration. Subject to the next subsection hereof, until so surrendered for
exchange, each such certificate nominally representing MSGI Stock shall be
deemed for all corporate purposes to evidence the ownership of the number of
full shares of Surviving Corporation which the holder thereof would be entitled
to receive upon its surrender to the Exchange Agent; provided, however, that
holders of MSGI Dissenting Shares or Santa Lucia Dissenting Shares who have
properly exercised their appraisal rights in accordance with the DGCL or BCA,
as applicable, shall not be entitled to vote or to exercise any other rights as
a shareholder.
(b) Unless and until such outstanding certificate or certificates shall be
so surrendered for exchange, no holder thereof shall be entitled to receive any
payment for any fractional share interest or any dividend or distribution
whether in cash or otherwise, payable to holders of record of Surviving
Corporation Stock, but upon the surrender and exchange of such certificate or
certificates there shall be paid to the record holder of the certificate or
certificates of Surviving Corporation Stock issued and exchanged therefor, the
amount of any cash payable in lieu of a fractional share and all such dividends
and distributions (without interest thereof) which have become payable with
respect to Surviving Corporation Stock represented by the certificate or
certificates issued upon such surrender and exchange as if such certificates of
Surviving Corporation Stock had been issued at the Effective Time. Promptly
after the Effective Time, Santa Lucia and MSGI will, in accordance with Section
6.01, cause the Exchange Agent to send to all holders of MSGI Stock a letter of
transmittal for use in exchanging their certificates for certificates
representing Surviving Corporation Stock.
(c) If any shares of Surviving Corporation Stock are to be issued in a
name other than that in which the certificate representing MSGI Stock
surrendered for exchange is registered, it shall be a condition of such exchange
that (i) the certificate so surrendered by properly endorsed or otherwise in
proper form for transfer and that the person requesting such exchange either pay
to the Exchange Agent any transfer or other taxes required by reason of the
issuance of Surviving Corporation Stock to persons other than the Exchange Agent
that such tax has been paid or is not payable and (ii) upon request by Surviving
Corporation, the person requesting such exchange shall provide to Surviving
Corporation an opinion of counsel, satisfactory to Surviving Corporation, to the
effect that the transfer does not require registration under the Securities Act
of 1933, as amended ("Securities Act"), or that an exemption from the
requirement of such registration is available.
(d) The stock transfer books of MSGI shall be permanently closed at the
Effective Time. Holders of MSGI Stock who have lost their stock certificates
evidencing MSGI Stock will be entitled to receive certificates evidencing the
Surviving Corporation into which their MSGI Stock has been converted upon
compliance with the procedures, which may include requests for the furnishing of
appropriate indemnification, affidavits and bonds, established by Surviving
Corporation pursuant to its Bylaws, or otherwise, for replacement of lost
Surviving Corporation Stock certificates.
E-57
<PAGE>
(e) Notwithstanding the foregoing, neither the Surviving Corporation nor
any other party hereto shall be liable to a holder of MSGI Stock for any amount
paid to a public official pursuant to applicable abandoned property laws. If
any holders of certificates representing shares of MSGI Stock are entitled to
receive certificates prior to the seventh anniversary date on which any payment
of respect therefor of any governmental agency or other governmental entity) the
amount receivable in remitted by applicable law, become the property of
Surviving Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(f) MSGI agrees to use its best efforts to cut the effect that he is
acquiring the MSGI Stock as an investment, solely for his own account and not
with a view to or for the intent of resale, fractionalization or any further
distribution.
SECTION 1.05. ARTICLES OF INCORPORATION. The Articles of Incorporation of
Santa Lucia, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation except that, subject to
the approval of the Merger Agreement by the shareholders of the MSGI and Santa
Lucia, such Articles of Incorporation shall be amended to (i) change the name of
the Corporation to Multi-Spectrum Group, Incorporated; (ii) increase the number
of authorized common shares to 100,000,000 par value $.001; (iii) limit the
personal liability of the directors of the Surviving Corporation; and (iv) to
make such other changes as the Board of Directors deems to be in the best
interests of the Surviving Corporation. The text of these amendments to the
Articles of Incorporation of Santa Lucia are as set forth on Appendix "A"
attached hereto and by this reference made a part hereof.
SECTION 1.06. BYLAWS. The Bylaws of Santa Lucia, as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until amended in accordance with applicable law.
SECTION 1.07.DIRECTORS AND OFFICERS.
(a) The directors of the Surviving Corporation immediately after the
Effective Time shall be Edward V. Ellis (Chairman of the Board), Charles Cannon,
Patrick J. Ellis, Edward O. Lauman and David E. Taylor.
The directors shall hold office from and after the Effective Time until
their respective successors are duly elected or appointed and qualified in the
manner provided in the Articles of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law. If at or after the Effective Time
a vacancy shall exist on the Board of Directors of, or in respect of the
officers of, the Surviving Corporation, such vacancy may thereafter be filled in
the manner provided in the Bylaws of the Surviving Corporation.
E-58
<PAGE>
(b) The officers of the Surviving Corporation immediately after the
Effective Time shall be:
David E. Taylor President
Edward 0. Lauman Executive Vice President
Edward S. Delong Vice President-Communications
Charles J. SmrykalVice President - Operations
John J. Keating Vice President - Franchise Development
Ed Boyle Vice President - Public Relations
Michael E. Ellis Vice President - Franchise Marketing
Charles Cannon Secretary
Edward V. Ellis Treasurer
The officers shall hold office from and after the Effective Time at the pleasure
of the board of Directors of the Surviving Corporation, subject to the
provisions set forth in the bylaws of the Surviving Corporation.
SECTION 1.08.CERTAIN EFFECTS OF THE MERGER. From and after the Effective
Time, the Surviving Corporation shall (a) possess all the rights, privileges,
powers and franchises, of a public or of a private nature, of the Constituent
Corporations, (b) be subject to all restrictions, disabilities, liabilities and
duties of each of Santa Lucia and MSGI, all with the effect and to the extent
provided in the BCA and (c) continue its corporate existence as a Utah
corporation.
SECTION 1.09.INCENTIVE PLAN. The Surviving Corporation shall use its best
efforts to adopt an incentive plan ("Incentive Plan") pursuant to which
employees, directors and officers of the Surviving Corporation and other persons
who perform substantial services for or on behalf of the Surviving Corporation
will be eligible to receive stock options and other awards. A copy of the
Incentive Plan is attached hereto as Appendix "B".
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MSGI
MSGI represents and warrants to Santa Lucia, except as set forth on the
Disclosure Schedules attached hereto (the "Schedules"), that:
SECTION 2.01.CORPORATE EXISTANCE AND POWER. MSGI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all corporate power, authority and legal right to conduct its
business as it is now being conducted and to own the properties and assets it
now owns. MSGI is duly qualified or licensed to do business as a foreign
corporation and is in good standing in every jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualifications necessary, except for those jurisdictions where the failure to be
so qualified would not, in the aggregate, have a material adverse effect on the
condition (financial or otherwise), business, assets or results of operations
(a "Material Adverse Effect") of MSGI.
<PAGE>
SECTION 2.02.CORPORATE AUTHORIZATION. Subject to shareholder
approval, as required under the DGCL, (a) MSGI has full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby, (b) the Board of Directors of MSGI has taken all action r
equired by law, its Articles of Incorporation and Bylaws or otherwise to a
uthorized the execution and delivery by MSGI of this Agreement and the
performance by MSGI of the transactions contemplated hereby, (c) this Agreement
has been duly and validly executed and delivered by MSGI and no other corporate
action is necessary in connection therewith and (d) to the best knowledge of
MSGI after conducting diligent inquiry, this Agreement is a valid and binding
agreement of MSGI enforceable against MSGI in accordance with its terms, except
to the extent that enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally and by general equitable principles (regardless of whether enforcement
is sought in equity or at law).
SECTION 2.03. CONSENTS AND APPROVALS OF GOVERNMENT
AUTHORITIES. To the best knowledge of MSGI after conducting diligent
inquiry, except for the requirements of (a) the Securities Act of 1933, as
amended (the "Securities Act"), (b) the filing and recordation of the
Certificate of Merger as required by the DGCL and (c) the filing and recordation
of Articles of Merger and certain other instruments as required by the BCA, no
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority, United States or foreign, is
required in connection with the execution, delivery and performance of this
Agreement by MSGI and the consummation of the transactions contemplated hereby.
SECTION 2.04 NO VIOLATION. To the best knowledge of MSGI after
conducting diligent inquiry, the execution, delivery and performance of this
Agreement by MSGI (a) will not violate MSGI's Articles of Incorporation or
Bylaws, (b) will not violate, or be in conflict with, or constitute a default
(or an event which, with or without due notice or lapse of time, or both,
would constitute a default) (a "Default") under, or result in the termination
of or accelerate the performance required by, or result in the creation or
imposition of any security interest, lien or other encumbrance upon, any p
roperties or assets of MSGI under any debt, obligation, contract, lease,
commitment, license, permit or other agreement to which MSGI is a party or by
which any is bound or to which any is subject, nor result in the loss of any
rights by MSGI and (c) will not violate any law, judgment, decree, order,
regulation or rule of any court or governmental authority.
SECTION 2.05.CAPITALIZATION.The authorized capital stock of MSGI
consists of 1,00 shares of MSGI Stock. As of December 15, 1989, there were
issued and outstanding 1,000 shares of MSGI Stock. As of December 15, 1989,
they have been duly authorized and validly issued and are fully paid and
non-assessable. There are no other outstanding shares of, no securities of MSGI
convertible into or exchangeable for, no options or other rights (including any
pre-emptive rights) to acquire from MSGI, and no other contracts, understanding,
arrangements or obligations (whether or not contingent) providing for the
issuance or sale by MSGI, directly or indirectly, of any capital stock or other
equity or debt security of MSGI. There are no outstanding
E-60
<PAGE>
contractual obligations of MSGI to repurchase, redeem or otherwise acquire
an outstanding shares of MSGI Stock or other securities issued by MSGI.
SECTION 2.06. FINANCIAL STATEMENTS. To the best knowledge of MSGI
after conducting diligent inquiry, the unaudited financial statements of
MSGI for the period ended November 30, 1989 (the "MSGI Financial
Statements"), a copy of which has been delivered to Santa Lucia, fairly
present the financial position of MSGI as of the date thereof and its
results of operations and cash flows or changes in financial position for
the periods then ended, all in conformity with generally accepted
accounting principles applied on a consistent basis.
SECTION 2.07. NO UNDISCLOSED LIABILITIES. To the best knowledge of
MSGI after conducting diligent inquiry, except as set forth on Schedule
2.07, MSGI has no liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) (herein "Liabilities"), required by
generally accepted accounting principles to be disclosed, except (a)
Liabilities which are accrued in the MSGI Financial Statements, (b)
Liabilities incurred in the ordinary course of business and consistent, in
type and amount, with past practice since November 30, 1989, (c)
Liabilities MSGI has heretofore disclosed in writing to Santa Lucia and
which in, the aggregate, are not material and (d) expenses incurred in
connection with this Agreement.
SECTION 2.08. NO MATERIAL ADVERSE CHANGE. To the best knowledge of
MSGI after conducting diligent inquiry, since November 30, 1989, there has
been no material adverse change in the business, financial position,
results of operations, operations or prospects of MSGI taken as a whole,
from that reflected in the MSGI Financial Statements.
SECTION 2.09. ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule
2.09, and except as otherwise permitted in this Agreement, since
November 30, 1989, MSGI has not:
(a) borrowed or agreed to borrow any funds or incurred, or assumed or
become subject to, whether directly or by way of guarantee or otherwise,
any obligation or liability (absolute or contingent) except Liabilities
incurred in the ordinary course of business and consistent with past
practice;
(b) paid, discharged or satisfied any Liabilities (in excess of
$25,000) other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of Liabilities
reflected or reserved against in the MSGI Financial Statements or incurred
in the ordinary course of business and consistent with past practice, since
November 30, 1989;
(c) permitted or allowed any of its property or assets to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, except MSGI Permitted Exceptions under
Section 2.10 hereof;
(d) written off as uncollectible any notes or accounts receivable in
excess of $25,000, in the aggregate, for MSGI (other than those reserved
against in the MSGI Financial Statements) except for write-offs in the
ordinary course of business and consistent with past practice, none of
which is material;
E-61
<PAGE>
(e) canceled any debts or waived any claims or rights of substantial
value, or sold, transferred or otherwise disposed of any of its properties
or assets, except in the ordinary course of business and consistent with
past practice;
(f) disposed of or disclosed to any person (other than an employee or
representative of Santa Lucia, agents of Santa Lucia, or otherwise in the
ordinary course of business) any trade secret not previously a matter of
public knowledge;
(g) made any loan to or investment in, or acquired the assets,
business or securities of, any person;
(h) paid or granted nay increase in the compensation of directors,
officers, agents or employees (including any such increase pursuant to any
bonus, insurance, pension, profit-sharing or other employee benefit plan or
commitment) or any increase in the compensation payable to any director,
officer, agent or employee, except for normal periodic increases made
pursuant to MSGI's established compensation policies applied on a basis
consistent with that of the prior two years or otherwise in the ordinary
course of business;
(i) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or ownership interest, or,
directly or indirectly, redeemed, purchased or otherwise acquired any
shares of its capital stock, ownership interest or other securities;
(j) made any change in any accounting principles or practices, except
as required by the financial Accounting Standards Board or its foreign
equivalent and reflected in the MSGI Financial Statements;
(k) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or
arrangement with, any of its officers or directors or any "affiliate" or
"associate"of any of its officers or directors (as such terms are defined
in the rules and regulations of the SEC under the Securities Act), except
for (i) directors' fees and compensation to officers at rates not exceeding
the rates of compensation paid during the fiscal quarter ended September
30, 1989, (ii) payments contemplated in subsection (h) hereof, and (iii)
advances for business expenses in the ordinary course of business; or
(l) agreed, whether in writing or otherwise, to take any action
described in this Section 2.9, except as otherwise contemplate herein.
SECTION 2.10. TITLE TO PROPERTIES; ENCUMBRANCES.
(a) Except as set forth on Schedule 2.10, to the best knowledge of
MSGI after conducting diligent inquiry, MSGI has good and marketable title
to all its properties and assets, including without limitation, all such
properties reflected in the MSGI Financial Statements and all such
properties and assets purchased by MSGI since November 30, 1989, except in
each case for properties and assets sold or disposed of since November 30,
1989, in the ordinary course of business and consistent with past practice.
E-62
<PAGE>
(b) Except for the Disclosed Liabilities and except as set forth on
Schedule 2.10, to the best knowledge of MSGI after conducting diligent
inquiry, none of such properties or assets is subject to any mortgage,
pledge, lien, security interest, encumbrance or charge of any kind except
the following (herein called "MSGI Permitted Exception"): (i) as shown on
the MSGI Financial Statements, securing Liabilities with respect to which
no Default exists, (ii) arising in the ordinary course of business since
November 30, 1989 and consistent with past practice, (iii) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the existing use of the
property subject thereto, or impairs the operations of MSGI, (iv) current
taxes, assessments and charges not yet due, and (v) taxes, assessments and
charges being contested in good faith by MSGI in appropriate proceedings,
and with respect to which adequate reserves have been set aside, and if
arising hereafter, will promptly so advise Santa Lucia.
SECTION 2.11. PATENTS; TRADEMARKS; TRADE NAMES; INTELLECTUAL
PROPERTY. Section 2.11 correctly sets forth a list of all letters patent,
patent applications, inventions upon which patent applications have not yet
been filed, trade names, trade name registrations and applications,
trademarks, trademark registrations and applications, copyrights, copyright
registrations and applications, both domestic and foreign, presently owned,
possessed, used or held by MSGI. Unless otherwise indicated in such
schedule. MSGI owns the entire right, title and interest in and to the
same. Such schedule also correctly sets forth a list of all licenses
granted to MSGI by others and to others by MSGI. All letters patents,
patent applications, trade names, trade name registrations and applications,
trademarks, trademark registrations and applications,
copyrights, copyright registrations, and applications, and pending or, to
the best knowledge of MSGI, threatened challenge except as set forth in
said schedule, and neither the execution and delivery of this Agreement or
the consummation of this Agreement will give any licensor or licensee or
MSGI any right to change the terms or provisions of, or terminate or
cancel, any license to which MSGI is a party. MSGI has not agreed to
indemnify any person for or against any infringement of any patent,
trademark, or copyright except as shown on Schedule 2.11.
SECTION 2.12. LITIGATION. There are no actions, suits or proceedings
pending against or, to the knowledge of MSGI, threat governmental body,
agency or official, and MSGI does not know or have reason to know of any
valid basis for any such action, suit, proceeding or claim.
SECTION 2.13. TAXES. Except as set forth on Schedule 2.13:
(a) MSGI has duly filed or caused to be filed with the appropriate
governmental authorities all federal, state, local and foreign tax reports
and returns required to be filed by it, subject to any allowable extension
periods, and has maintained, or caused to be maintained, all required
records with respect to taxes, and has duly paid in full or caused to be
duly paid in full, or has established or caused to be established reserves
for taxes specifically reflected in the MSGI Financial Statements adequate
for payment of all federal, state, local and foreign
E-63
<PAGE>
taxes and other changes due or claimed to be due from it by federal, state,
local or foreign taxing authorities for all periods up to and including the
date of this Agreement. Except as set forth on Schedule 2.13, as of the
time of filing, the foregoing tax reports and returns correctly reflected
the facts regarding the income, business, assets, operations and activities
of MSGI or any other information to be shown thereon. Except as set forth
on Schedule 2.13, MSGI has timely paid all taxes that have been shown as
due and payable on such tax reports and returns. MSGI is not delinquent in
the payment of any taxes.
(b) None of the federal, state and local tax returns of MSGI have
been audited by the respective governmental authorities, nor have the
statutes of limitations with respect to income taxes expired for any
taxable periods ending prior to the date hereof.
(c) All deficiencies and assessments resulting form any examination
of the federal, state and local tax returns and reports of MSGI have been
paid, finally settled, or adequately provided for in the MSGI Financial
Statements, and no issue resulting in an adjustment has been raised by the
IRS or relevant state or local authorities in any examination which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined.
(d) To the best knowledge of MSGI after conducting diligent inquiry,
no deficiency for any taxes has been proposed, asserted or assessed against
MSGI (other than deficiencies or assessments referred to in subparagraph
(c) hereof, which deficiencies or assessments have either been paid,
finally settled or adequately provided fro in the MSGI Financial
Statements), and MSGI has no reason to believe that any such deficiency
will be proposed, asserted or assessed. There has been no intentional
disregard of any statute, regulation, rule or revenue ruling in the
preparation of any tax return that would result in a material increase in
any tax liability for any period that remains open to adjustment.
(e) To the best knowledge of MSGI after conducting diligent inquiry,
amounts have been withheld and paid over to the appropriate governmental
authorities by MSGI from their respective employees for all prior periods
in compliance with the tax withholding provisions of all applicable
federal, state, local and foreign laws.
(f) To the best knowledge of MSGI after conducting diligent inquiry,
amounts have been withheld and paid over to the appropriate governmental
authorities by MSGI from any payments made in respect of which a withholding
obligation is imposed, in compliance with the withholding
provisions or "collection at source" provisions of all applicable federal,
state, local and foreign laws.
SECTION 2.14. COMPLIANCE WITH LAW. To the best knowledge of MSGI
after conducting diligent inquiry, neither MSGI no any director, officer,
agent, employee or other person associated with or acting on behalf of MSGI
has (i) used any corporate funds for unlawful activity, nor (ii) made any
direct or indirect unlawful payments to government officials or others, nor
(iii) participated or cooperated in any boycott activities in violation of
any statute or law, nor
E-64
<PAGE>
which must be disclosed under applicable disclosure regulations and
policies of applications, such noncompliance will not have an adverse
affect on its business, financial position, results of operations,
operations or prospects.
SECTION 2.15. INSURANCE. Set forth on Schedule 2.15 is an acurate
and complete description of all material terms of policies on fire,
liability, workmen's compensation and other forms of insurance owned or
held by MSGI or under which MSGI is covered. Except as set forth on
Schedule 2.15, such policies are (a) in full force and effect, (b)
sufficient for compliance with all requirements of law and of all
agreements to which MSGI is a party, or to which assets are subject, (c)
provide adequate insurance coverage for the assets and operations of MSGI
in accordance with customary industry practice, (d) will remain in full
force and effect through the respective dates MSGI herertofore disclosed in
writing to Santa Lucia and (e) will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement.
SECTION 2.16. BENEFIT PLANS.
(a) MSGI does not maintain or contribute to any "employee pension
benefit plan", as such term is defined in S. 3(2) of the Employee Retire
excluded from coverage by S. 4(b)(4) or S. 4(b)(5) of ERISA.
(b) MSGI does not maintain or contribute to an "employee welfare
benefit plan", as such term is defined in S. 3(1) of ERISA (including a
plan excluded from coverage by S. 4(b)(4) of ERISA), whether insured or
otherwise. MSGI has not established nor contributed to any "voluntary
employees' beneficiary association" within the meaning of S. 501(c)(9) of
the Internal Revenue Code of 1986, as amended (the "Code").
(c) Except as set forth on Schedule 2.16, MSGI does not maintain or
contribute to any bonus, incentive compensation, stock option, stock
purchase or other fringe benefit plan or program, whether formal or
informal.
SECTION 2.17. BANK ACCOUNTS. Schedule 2.17 sets forth the names and
locations for all banks, trust companies, savings and loan associations and
other financial institutions at which MSGI maintains accounts of any
nature, the names of all persons authorized to draw thereon or make
withdrawals therefrom and the account numbers for all such accounts.
SECTION 2.18. CONTRACTS AND COMMITMENTS. Except as set forth in
Schedule 2.18, with respect to subsections (a) through (k) below, or as set
forth in the MSGI Financial Statements, MSGI:
(a) does not have any contract, arrangement or commitment which is
material to its business, operation or prospects (for the purpose of this
subsection, any contract, or arrangement or commitment shall be deemed
"material" if it calls for fixed and/or contingent payments thereunder of
more than $25,000 in the aggregate) except those which (i) are cancelable
by MSGI on notice of not
E-65
<PAGE>
longer than thirty (30) days an without liability, penalty or premium or
(ii) are excepted from disclosure pursuant to other sections in this
Agreement;
(b) does not have any contract, arrangement or commitment which may
result in a loss exceeding $25,000;
(c) does not have any contract, arrangement or commitment with any
director, officer, employee, agent, consultant, advisor, salesman or
representative providing for future compensation of more than $25,000
that is not cancellable by it on notice of not longer than thirty (30) days and
without liability, penalty or premium;
(d) does not have any employment agreement with any officer, employee
or agent, nor any agreement that contains any severance or termination pay
liabilities or obligations;
(e) does not have any collective bargaining or union contracts or
agreements;
(f) is not in Default of or in material breach or violation of, nor
is there any basis known to MSGI for any valid claim therefor, under any
contract, arrangement or commitment of MSGI involving more than $25,000;
(g) does not have any agreement restricting it from carrying on its
business or any part thereof anywhere in the world or from competing in any
line of business with any person;
(h) does not have any debt obligation for borrowed money, including
guarantees of or agreements to acquire any such debt obligation of others;
(i) does not have any outstanding loans to any person and advances to
directors, officers and employees of MSGI for business expenses in the
ordinary course of business exceeding $10,000 in the aggregate;
(j) does not have any obligation or liability as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any other person including MSGI; or
(k) does not have any irrevocable power of attorney to, or appointed
as agent for service of process, any person except any agent for service of
process in foreign jurisdictions, the qualification of which is necessary
to comply with the provisions of this Agreement.
SECTION 2.19. ACCOUNTS RECEIVABLE. Except as set forth on Schedule
2.19, to the best of MSGI's knowledge after conducting diligent inquiry,
all accounts receivable of MSGI are not subject to any conditions to
payment, offsets, counterclaims, defenses of any kind, allowances or
credits which together with
E-66
<PAGE>
uncollectible accounts exceed the bad debt reserves shown on the MSGI
Financial Statements (which reserves are adequate and were calculated
consistent with past practice).
SECTION 2.20. PROXY MATERIALS. The information regarding MSGI to be
contained in the proxy statement to be mailed to the shareholders of MSGI
and Santa Lucia pursuant to Section 6.02 hereof ( the "Proxy Statement")
will, to the best of MSGI's knowledge, be correct in all material respects
and will not omit any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; provided,
however , that no representation or warranty is made hereby with respect to
Santa Lucia.
SECTION 2.21. PERMITS AND OTHER OPERATING RIGHTS. Except as set
forth on Schedule 2.21, to the best knowledge of MSGI after conducting
diligent inquiry, MSGI does not (a) require the consent of any third party
to permit it to operate its business in the manner in which it presently
is being conducted, except as heretofore obtained and presently
in effect, (b) MSGI possesses all permits and other authorizations from third
parties, including without limitation, federal, foreign, state and local
governmental authorities, presently required by applicable provisions of
law, including statutes, regulations and existing judicial decisions, and
by the property and contract rights of third parties, necessary to permit
them to operate their businesses in the manner in which they presently are
being conducted, or in which it is contemplated that they will be
conducted, except where the failure to obtain such permits or
authorizations would not, in the aggregate, result in a Material Adverse
Effect and (c) none of the permits and authorizations are dependent on
retention of any person, organization, agent or employee or the maintenance
of any relationship or arrangement, other than performance of contractual
obligations under contracts disclosed elsewhere herein.
SECTION 2.22 DISCLOSURE. To the best knowledge of MSGI after
conducting diligent inquiry, no representation or warranty made by MSGI in
this Agreement or the Schedules and no statement, certificate or other
writing furnished or to be furnished by MSGI to Santa Lucia and/or any
other persons pursuant to the provisions hereof or in connection with the
transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omit or will omit to state any material
fact required to be stated therein or herein or necessary in order to make
the statements herein or therein not misleading; provided, however, that no
representation or warranty is made hereby with respect to Santa Lucia. To
the best knowledge of MSGI after conducting diligent inquiry, none of the
information with respect to MSGI in the Proxy Statement contains or will
contain any untrue statement of a material fact or omit or will omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
SECTION 2.23. NUMBER OF SHAREHOLDERS. To the best knowledge of MSGI
after conducting diligent inquiry, MSGI has thirty-five (35) or fewer
unaccredited shareholders. For purposes of this Section 2.24, the term
"unaccredited investors" shall mean any investor who does not fall within
the definition of an accredited investor as set forth in Rule 501 (a) of
Regulation D of the Securities Act.
E-67
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SANTA LUCIA
Santa Lucia represents and warrants to MSGI, except as set forth
on the Disclosure Schedules attached hereto ("Schedules"), that:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. Santa Lucia is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Utah and has all corporate power, authority and legal
right to conduct its business as it is now being conducted and to own the
properties and assets it now owns. Santa Lucia is duly qualified or
licensed to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except
for those jurisdictions where the failure to be so qualified would not, in
the aggregate, have a Material Adverse Effect.
SECTION 3.02. CORPORATE AUTHORIZATION. Subject to shareholder
approval, as required under the BCA, (a) Santa Lucia has full corporate
power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby, (b) the Board of Directors of Santa Lucia
has taken all actions required by law, its Certificate of Incorporation and
Bylaws or otherwise to authorize the execution and delivery of this
Agreement and the performance by Santa Lucia of the transactions
contemplated hereby, (c) this Agreement has been duly and validly executed
and delivered by Santa Lucia and no other corporate action is necessary in
connection therewith and (d) to the best knowledge of Santa Lucia after
conducting diligent inquiry, this Agreement is a valid and binding
Agreement of Santa Lucia enforceable against Santa Lucia in accordance with
its terms, except to the extent that enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general equitable principles
(regardless of whether enforcement is sought in equity or at law).
SECTION 3.03. CONSENTS AND APPROVALS OF GOVERNMENT AUTHORITIES. To
the best knowledge of Santa Lucia after conducting diligent inquiry, except
for the requirements of (a) the Securities Act of 1934, as amended (the "
Exchange Act"), (b) the Securities Act , (c) the filing and recordation of
the Certificate of Merger as required by the DGCL and (d) the filing and
recordation of Articles of Merger and certain other instruments as required
by the BCA, no consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority,
United States or foreign, is required in connection with execution,
delivery and performance or this Agreement by Santa Lucia and the
consummation of the transactions contemplated hereby.
SECTION 3.04. NO VIOLATION. To the best knowledge of Santa Lucia
after conducting diligent inquiry, the execution, delivery and performance
of this Agreement by Santa Lucia (a) will not violate Santa Lucia's
Articles of Incorporation or Bylaws, (b) will not violate, or be in
conflict with or constitute a Default under, or result in the termination
of, or accelerate the performance required by, or result in the creation or
imposition of any security interest, lien or
E-68
<PAGE>
other encumbrance upon, any properties or assets of Santa Lucia under any
debt, obligation, contract, lease, commitment, license, permit or other
agreement to which Santa Lucia is a party, or by which either is bound or
to which either is subject, nor the loss of any rights by Santa Lucia and
(c) will not violate any law, judgment, decree, order, regulation or rule
of any court or governmental authority.
SECTION 3.05. CAPITALIZATION OF SANTA LUCIA. The authorized capital
stock of Santa Lucia consists of 50,000,000 share of Santa Lucia Stock, par
value $.001. As of December 15, 1989, there were issued and outstanding
6,145,000 shares of Santa Lucia Stock. As of December 15, 1989, there were
no outstanding options to purchase the shares of Santa Lucia Stock. To the
best knowledge of Santa Lucia after conducting diligent inquiry, all issued
and outstanding shares of Santa Lucia Stock have been duly authorized and
validly issued and assessable. There are no other outstanding shares of, no
securities of Santa Lucia convertible into or exchangeable for, no
options or other rights (including any pre-emptive rights) to acquire from
Santa Lucia, and no other contracts, understandings, arrangements or
obligations (whether or not contingent) providing for the issuance or sale
by Santa Lucia, directly or indirectly, of any capital stock or other
equity or debt security of Santa Lucia, other than pursuant to this
Agreement. There are no outstanding contractual obligations of Santa Lucia
to repurchase, redeem or otherwise acquire any outstanding shares of Santa
Lucia Stock or other securities issued by Santa Lucia.
SECTION 3.06. CONDUCT OF PUBLIC OFFERING. To the best knowledge of
Santa Lucia after conducting diligent inquiry, the offering of Santa
Lucia's securities, as described in Santa Lucia's prospectus, and the sale
of Santa Lucia's securities, as described in Santa Lucia's prospectus, and
the sale of the securities thereunder were carried out in accordance with
(a) the terms and conditions of the prospectus, (b) the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission (the "Commission") adopted thereunder and (c) the securities
laws of all states and other jurisdictions in which the securities were
offered or sold and the rules and regulations of the securities
administrators of any such states or other jurisdictions. To the best
knowledge of Santa Lucia after conducting reasonable inquiry, the
securities were duly registered an necessary government authority was
obtained with respect to the offer and sale of the securities in the state
of Utah, and in no other jurisdictions. To the best knowledge of Santa
Lucia after conducting reasonable inquiry, the registration statement with
respect to the securities, at the time it became effective under the
Securities Act, the prospectus, of all times during which it was delivered
in connection with the offer an sale of the securities, did not contain
a misstatement of a material fact, nor omitted to state any material fact
necessary to make the statements therein not misleading, within the meaning
of the Securities Act and the rules and regulations of the Commission
adopted thereunder.
SECTION 3.07. FINANCIAL STATEMENTS. To the best knowledge of
Santa Lucia after conducting diligent inquiry, the audited financial statements
of Santa Lucia for the year ended December 31, 1988 (the "Santa Lucia
Financial Statements"), a copy of which has been delivered to MSGI, fairly
present the financial position of Santa Lucia as of the date thereof and
its results of operations and cash flows or changes in financial position
for the periods then ended, all in conformity with generally accepted
accounting principles applied on a consistent basis.
SECTION 3.08. NO UNDISCLOSED LIABILITIES. To the best knowledge of
Santa Lucia after conducting diligent inquiry, except as set forth on
Schedule 3.08, Santa Lucia has no liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) (herein "Santa Lucia
Liabilities"), required by generally accepted accounting principles to be
disclosed, except (a) Santa Lucia Liabilities which are accrued in the
Santa Lucia Financial Statements, (b) Santa Lucia Liabilities incurred in
the ordinary course of business and consistent, in type and amount, with past
practice sinceDecember 31, 1988, (c) Santa Lucia Liabilities which
Santa Lucia has heretofore disclosed in writing to .MSGI, and which, in the
aggregate, are not material, and (d) expenses incurred in connection with
this Agreement.
SECTION 3.09. NO MATERIAL ADVERSE CHANGE. Since December 31, 1988,
there has been no material adverse change in the business, financial
position, results of operations, operations or prospects of Santa Lucia
taken as a whole, from that reflected in the Santa Lucia Financial
Statements.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES. Except as set forth on
Schedule 3.10, and except as otherwise permitted in this Agreement,
since December 31, 1988, Santa Luc a has not:
(a) borrowed or agreed to borrow any funds or incurred, or assumed or
become subject to, whether directly or by way of guarantee or otherwise,
any obligation or liability (absolute or contingent) except Santa Lucia
Liabilities incurred in the ordinary course of business and consistent with
past practice;
(b) paid, discharged or satisfied any Santa Lucia Liabilities (in
excess of $25,000) other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of Santa Lucia
Financial Statements or incurred in the ordinary course of business
and consistent with past practice of Santa Lucia Liabilities reflected or
reserved against in the Santa Lucia Financial Statements or incurred in the
ordinary course of business and consistent with past practice, since
December 31, 1988;
(c) permitted or allowed any of its property or assets to be subject
to any mortgage, pledge, lien, security interest, encumbrance, restriction
or charge of any kind, except Santa Lucia Permitted Exceptions under
Section 3.11 hereof;
(d) written off as uncollectible any notes or accounts receivable in
excess of $25,000, in the aggregate, for Santa Lucia (other than those
reserved against in the Santa Lucia Financial Statements) except for write-
offs in the ordinary course of business and consistent with past practice,
none of which is material;
(e) canceled any debts or waived nay claims or rights of substantial
value, or sold, transferred or otherwise disposed of any of its properties
or assets, except in the ordinary course of business and consistent with
past practice;
(f) disposed of or disclosed to any person (other than an employee or
representative of Santa Lucia, agents or Santa Lucia, or otherwise in the
ordinary course of business) any trade secret not previously a matter of
public knowledge;
E-70
<PAGE>
(g) made any loan to or investment in, or acquired the assets,
business or securities of, any person;
(h) paid or granted any increase in the compensation or directors,
officers, agents or employees (including any such increase pursuant to any
bonus, insurance, pension, profit-sharing or other employee benefit plan or
commitment) or any increase in the compensation payable or to become
payable to any director, officer, agent or employee, except for normal
periodic increases made pursuant to Santa Lucia's established compensation
policies applied on a basis consistent with that of the prior two years or
otherwise in the ordinary course of business;
(i) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or ownership interest, or,
directly or indirectly, redeemed, purchased or otherwise acquired any
shares of its capital stock, ownership interest or other securities;
(j) made any change in any accounting principles or practices,
except as required by the Financial Accounting Standards Board or its
foreign equivalent and reflected in the Santa Lucia Financial Statements;
(k) paid, loaned or advanced any amount to, or sold, transferred or
leased an properties or assets to, or entered into any agreement or
arrangement with any of its officers or directors or any "affiliate" or
"associate" of any of its officers or directors (as such terms are defined
in the rules and regulations of the SEC under the Securities Act), except
for (i) directors' fees and compensation to officers at rates not exceeding
the rates of compensation paid during the fiscal quarter ended September
30, 1989, (ii) payments contemplated in subsection (h) hereof and (iii)
advances for business expenses in the ordinary course of business; or
(l) agreed, whether in writing or otherwise, to take any action
described in this Section 3.10, except as otherwise contemplated herein.
SECTION 3.11. TITLE TO PROPERTIES; ENCUMBRANCES.
(a) Except as set forth on Schedule 3.11, to the best knowledge of
Santa Lucia, after conducting diligent inquiry, Santa Lucia has good and
marketable title to all its properties and assets, including without
limitation, all such properties and assets purchased by Santa Lucia since
December 31, 1988, except in each case for properties and assets sold or
disposed of since December 31, 1988, in the ordinary course of business and
consistent with past practice.
(b) Except for the Santa Lucia liabilities and except as set forth on
Schedule 3.11, to the best knowledge of Santa Lucia after conducting
diligent inquiry, none of such properties or assets is subject to any
mortgage, pledge, lien, security interest, encumbrance or charge of any
kind except the following (herein called "Santa Lucia Permitted
Exceptions"): (i) as shown on the Santa Lucia Financial Statements,
securing Liabilities with respect to which no Default exists, (ii) arising
in the ordinary course of business since December 31, 1988, and consistent
with past practice, (iii) minor imperfections of title, if any, none of
E-71
<PAGE>
which is substantial in amount, materially detracts from the value or
impairs the existing use of the property subject thereto, or impairs the
operations of Santa Lucia, (iv) current taxes, assessments and charges not
yet due and *v) taxes, assessments and charges being contested in good
faith by Santa Lucia in appropriate proceedings, and with respect to which
adequate reserves have been set aside, and if arising hereafter, will
promptly so advise MSGI.
SECTION 3.12. LITIGATION. There are no actions, suits or proceedings
pending against or, to the knowledge of Santa Lucia, threatened against
Santa Lucia, before an court or arbitrator or any governmental body, agency
or official, and Santa Lucia does not know or have reason to know of any
valid basis for any such action, suit, proceeding or claim.
SECTION 3.13. TAXES. Except as set forth on Schedule 3.13:
(a) Santa Lucia has duly filed or caused to be filed with the
appropriate governmental authorities all federal, state, local and foreign
tax reports and returns required to be filed by it subject to any allowable
extension periods, and has maintained, or caused to be maintained, all
required records with respect to taxes, and has duly paid in full or caused
to be duly paid in full, or has established or caused to be established
reserves for taxes specifically reflected in the Santa Lucia Financial
Statements adequate for payment of all federal, state, local and foreign
taxing authorities for all periods up to and including the date of this
Agreement. Except as set forth on Schedule 3.13, as of the time of filing,
the foregoing tax reports and returns correctly reflected the facts
regarding the income, business, assets, operations and activities of Santa
Lucia or any other information to be shown thereon. Except as set forth
on Schedule 3.13, Santa Lucia has timely paid all taxes that have been shown
as due and payable on such tax reports and returns. Santa Lucia is not
delinquent in the payment of any taxes.
(b) None of the federal, state and local tax returns of Santa Lucia
have been audited by the respective governmental authorities, nor have the
statutes of limitations with respect to income taxes expired for any
taxable periods ending prior to the date hereof.
(c) All deficiencies and assessments resulting from any examination
of the federal, state and local tax returns and reports of Santa Lucia have
bee paid, finally settled or adequately provided for in the Santa Lucia
Financial Statements, and no issue resulting in an adjustment has been
raised by the IRS or relevant state or local authorities in any examination
which, by application of similar principles, reasonably could be expected
to result in a proposed deficiency for any other period not so examined.
(d) To the best knowledge of Santa Lucia after conducting diligent
inquiry, no deficiency for any taxes has been proposed, asserted or
assessed against Santa Lucia (other than deficiencies of assessments
referred to in subparagraph (c), which deficiencies or assessments have
either been paid, finally settled or adequately provided for in the Santa
Lucia Financial Statements), and Santa Lucia has reason to believe that any
such deficiency will be proposed, asserted or
E-72
<PAGE>
assessed. There has been no intentional disregard of nay statue,
regulation, rule or revenue ruling in the preparation of any tax return
that would result in a material increase in any tax liability for any
period that remains open to adjustment.
(e) To the best knowledge of Santa Lucia after conducting diligent
inquiry, amounts have been withheld and paid over to the appropriate
governmental authorities by Santa Lucia from their respective employees for
all prior periods in compliance with the tax withholding provisions of all
applicable federal, state, local and foreign laws.
(f) To the best knowledge of Santa Lucia after conducting diligent
inquiry, amounts have been withheld and paid over to the appropriate
governmental authorities by Santa Lucia from any payments made in respect
of which a withholding obligation is imposed, in compliance with the
withholding provisions or "collection at source" provisions of all
applicable federal, state, local and foreign laws.
SECTION 3.14. COMPLIANCE WITH LAW. To the best knowledge of Santa
Lucia after conducting diligent inquiry, neither Santa Lucia nor any
director, officer, agent, employee or other person associated with or
acting on behalf of Santa Lucia has used any corporate funds for unlawful
contributions, payments, gifts, entertainment or other unlawful expenses
relating to political activity, or made any direct of indirect unlawful
payments to government officials or others, nor participated or cooperated
in any boycott activities in violation of any statute or law, or which must
be disclosed under applicable disclosure regulations and policies of
applicable law. To the extent, if any, that Santa Lucia is not in
compliance with all applicable laws and regulations, such noncompliance
will not have an adverse effect on its business, financial position,
results of operations, operations or prospects.
SECTION 3.15 INSURANCE. Santa Lucia maintains no policies of fire,
liability, workmen's compensation or other forms of insurance.
SECTION 3.16. BENEFIT PLANS.
(a) Santa Lucia does not maintain or contribute to any "employee
pension benefit plan", as such term is defined in S. 3(a) of ERISA
including, solely for the purpose of this subsection, a plan excluded from
coverage by S. 4(b)(4) or S. 4(b)(5) or ERISA.
(b) Santa Lucia does not maintain or contribute to any "employee
welfare benefit plan", as such term is defined in S. 3(1) of ERISA
(including a plan excluded from coverage by S. 4(b)(4) of ERISA), whether
insured or otherwise. Santa Lucia has not established nor contributed to
an "voluntary employees' beneficiary association" within the meaning of S.
501(c)(9) of the Code.
(c) Except as set forth on Schedule 3.16, Santa Lucia does not
maintain or contribute to any bonus, incentive compensation, stock option,
stock purchase or other fringe benefit plan or program, whether formal or
informal.
E-73
<PAGE>
SECTION 3.17. BANK ACCOUNTS. Schedule 3.17 sets forth the names and
locations for all banks, trust companies, savings and loan associations and
other financial institutions at which Santa Lucia maintains accounts of any
nature, the names of all persons authorized to draw thereon or make
withdrawals therefrom and the account numbers for all such accounts.
SECTION 3.18. CONTRACTS AND COMMITMENTS. Except as set forth in
Schedule 3.18, with respect to subsection (a) through (k) below, or as set
forth in the Santa Lucia Financial Statements, Santa Lucia:
(a) does not have any contract, arrangement or commitment which is
material to its business, operations or prospects (for the purpose of this
subsection, any contract, arrangement or commitment shall be deemed
"material" if it calls for fixed and/or contingent payments thereunder of
more than $25,000 in the aggregate) except those which (i) are cancelable
by Santa Lucia on notice of not longer than thirty (30) days and without
liability, penalty or premium or (ii) are excepted from disclosure pursuant
to other sections of this Agreement.
(b) does not have any contract, arrangement or commitment which may
result in a loss exceeding $25,000;
(c) does not have any contract, arrangement or commitment with any
director, officer, employee, agent, consultant, advisor, salesman or
representative providing for future compensation of more than
$25,000 that is not cancelable by it on notice of not longer than thirty (30)
days and without liability, penalty or premium;
(d) does not have nay employment agreement with any officer, employee
or agent, nor any agreement that contains any severance or termination pay
liabilities or obligations;
(e) does not have any collective bargaining or union contracts or
agreements;
(f) is not in Default of or in material breach or violation of, nor
is there any basis known to Santa Lucia for any valid claim therefor, under
any contract, arrangement or commitment of Santa Lucia involving more than
$25,000;
(g) does not have any agreement restricting it from carrying on its
business or any part thereof anywhere in the world or from competing in any
line of business with any person;
(h) does not have any debt obligation for borrowed money, including
guarantees of or agreements to acquire any such debt obligation of others;
E-74
<PAGE>
(i) does not have nay outstanding loans to any person and advances to
directors, officers and employees of Santa Lucia for business expenses in
the ordinary course of business exceeding $10,000 in the aggregate;
(j) does not have any obligation or liability as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any other person including Santa Lucia; or
(k) does not have any irrevocable power of attorney to, or appointed
as agent for service of process, any person except any agent for service of
process in foreign jurisdictions, the qualification of which is necessary
to comply with the provisions of this Agreement.
SECTION 3.19. ACCOUNTS RECEIVABLE. Except as set forth on Schedule
3.19, to the best knowledge of Santa Lucia after conducting diligent
inquiry, all accounts receivable of Santa Lucia are not subject to any
conditions to payment, offsets, counterclaims, defenses of any kind,
allowances or credits which together with uncollectible accounts exceed the
bad debt reserves shown on the Santa Lucia Financial Statements (which
reserves are adequate and were calculated consistent with past practice).
SECTION 3.20. PROXY MATERIALS. The information regarding Santa Lucia
to be contained in the Proxy Statement to be mailed to the shareholders of
MSGI and Santa Lucia, pursuant to Section 6.02 hereof, will , to the best
of Santa Lucia's knowledge, be correct in all material respects and will
not omit any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; provided, however,
that no representation or warranty is made hereby with respect to MSGI.
SECTION 3.21. PERMITS AND OTHER OPERATING RIGHTS. Except as set
forth on Schedule 3.21, to the best knowledge of Santa Lucia after
conducting diligent inquiry, Santa Lucia does not require the consent of
any third party to permit it to operate its business in the manner in which
it presently is being conducted, except as heretofore obtained and
presently in effect, (b) Santa Lucia possesses all permits and other
authorizations form third parties, including without limitation, federal,
foreign, state and local governmental are to obtain such permits or
authorizations would not, in the aggregate, result in a Material Adverse
Effect and (c) none of the permits and authorizations are dependent on
retention of any person, organization, agent or employee or the maintenance
of any relationship or arrangement, other than performance of contractual
obligations under contracts disclosed elsewhere herein.
SECTION 3.22. DISCLOSURE. To the best knowledge of Santa Lucia after
conducting diligent inquiry, no representation or warranty made by Santa
Lucia in this Agreement or the Schedules and no statement relating to Santa
Lucia contained in any document (including, without limitation, the Proxy
Statement
E-75
<PAGE>
referred to herein), financial statement, disclosure statement, certificate
or other writing furnished or to be furnished by Santa Lucia to MSGI
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact or omit to state any material fact required to be stated
herein or therein or necessary in order to make the statements herein or
therein not misleading; provided, however, that no representation or
warranty is made hereby with respect to MSGI, To the best knowledge of
Santa Lucia after conducting diligent inquiry, none of the information with
respect to Santa Lucia in the Proxy Statement contains or will contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
ARTICLE IV
CONDUCT ON MSGI BUSINESS PENDING THE EFFECTIVE TIME
Pending the Effective Time, and except as other wise consented to or
approved by Santa Lucia in writing, which consent or approval will not
be unreasonably withheld:
SECTION 4.01. REGULAR COURSE OF BUSINESS. MSGI will conduct its
business in the same manner as heretofore conducted and MSGI will not
engage in any transaction or activity, enter into any agreement or make any
commitment except in the ordinary course of business. MSGI will not take
any action the taking of which, or omit to take any action the omission of
which, would cause any of the representations or warranties contained in
Article II to fail to be true in any material respect at and as of any time
prior to the Effective Time, except as otherwise permitted by this
Agreement.
SECTION 4.02. CHARTER DOCUMENTS AND CAPITAL CHANGES. MSGI will not
(a) change or amend its Certificate of Incorporation, Bylaws or
organizational documents, (b) issue or sell, nor issue options, warrants to
purchase or rights to subscribe to, or enter into any arrangement or
contract with respect at and as of any time prior to the Effective Time,
except as otherwise permitted by this Agreement.
SECTION 4.03. COMPENSATION. MSGI will not adopt any new compensation
arrangement for the benefit of officers, directors, agents, consultants,
partners or employees.
SECTION 4.04 STOCK OPTOINS. No further options to acquire stock in
MSGI will be issued by the Board of Directors of MSGI at or before the
Effective Time.
SECTION 4.05. ORGANIZATION AND GOOD WILL. MSGI will use its
reasonable efforts, consistent with the terms of this Agreement, to
preserve its business, business organization and good will, keep available
to MSGI its present officers and key employees and preserve its present
relationships with persons having business dealings with it.
SECTION 4.06. CERTAIN CHANGES. From the date hereof until the
Effective Time, MSGI will not (a) take any action or permit to occur any
event referred to in Section 2.10 hereof or (b) enter into any contracts or
commitments referred to
E-76
<PAGE>
in Section 2.18 hereof, except (i) with the prior written consent of Santa
Lucia, which will not be unreasonably withheld, (ii) for matters not
required to be disclosed pursuant hereto or (iii) as otherwise permitted in
this Agreement.
SECTION 4.07. INSURANCE. MSGI will maintain insurance on all
property, real, personal and mixed, owned or leased by it in the manner
contemplated by Section 2.15 hereof.
SECTION 4.08 COMPLIANCE WITH LAWS. MSGI will use its best efforts
to duly comply with all laws applicable to it and its properties,
operations, business and employees.
SECTION 4.09. TAX RETURNS: CONSENT. MSGI will prepare and file all
federal, state, local and foreign tax returns and amendments thereto
required to be filed by it for all periods ending at the Effective Time,
subject to any extensions of time granted with respect thereto.
ARTICLE V
CONDUCT OF SANTA LUCIA BUSINESS PENDING EFFECTIVE TIME
Pending the Effective Time, and except as otherwise consented to or
approved by MSGI in writing, which consent or approval will not be
unreasonably withheld:
SECTION 5.01. REGULAR COURSE OF BUSINESS. Santa Lucia will conduct
its business in the same manner as heretofore conducted and Santa Lucia
will not engage in any transaction or activity, enter into any agreement or
make any commitment otherwise than in the ordinary course of business and
consistent with past practice. Santa Lucia will not take any action the
taking of which, or omit to take any action the omission of which, would
cause any of the representations or warranties contained in Article III to
fail to be true in any material respect at and as of any time prior to the
Effective Time, except as otherwise permitted by this Agreement.
SECTION 5.02. CHARTER DOCUMENTS AND CAPITAL CHANGES. Santa Lucia
will not (a) change or amend its Certificate of Incorporation, Bylaws or
organizational documents (b) issue or sell, nor issue options, warrants to
purchase or rights to subscribe to, or enter into any arrangement or
contract with respect to, any shares of its capital stock or any of its
other securities or ownership interests or (c) make any other changes in
its capital structure, except as otherwise permitted by this Agreement.
SECTION 5.03. COMPENSATION. Santa Lucia will not adopt any new
compensation arrangement for the benefit of officers, directors, agents,
consultants, partners or employees.
SECTION 5.04. STOCK OPTIONS. No further options to acquire stock in
Santa Lucia will be issued by the Board of Directors of Santa Lucia at or
before the Effective Time.
E-77
<PAGE>
SECTION 5.05. ORGANIZATION AND GOOD WILL. Santa Lucia will use its
reasonable efforts, consistent with the terms of this Agreement, to
preserve its business, business organization and good will, keep available
to Santa Lucia its present officers and key employees and preserve its
present relationships with persons having business dealings with it.
SECTION 5.06. CERTAIN CHANGES. From the date hereof until the
Effective Time, Santa Lucia will not (a) take any action or permit to occur
any event referred to in Section 3.10 hereof or (b) enter into any
contracts or commitments referred to in Section 3.18 hereof, except (i)
with the prior written consent of MSGI, which will not unreasonably be
withheld, (ii) for matters not required to be disclosed pursuant hereto or
(iii) as otherwise permitted in this Agreement.
SECTION 5.07. COMPLIANCE WITH LAWS. Santa Lucia will use its best
efforts to duly comply with all laws applicable to it and its properties,
operations, business and employees.
SECTION 5.08. TAX RETURNS: CONSENT. Santa Lucia will prepare and
file all federal, state, local and foreign tax returns and amendments
thereto required to be filed by it for all periods ending at the Effective
Time, subject to any extensions of time granted with respect thereto.
ARTICLE VI
COVENANTS OF MSGI AND SANTA LUCIA
MSGI hereby covenants and agrees with Santa Lucia and Santa Lucia
hereby covenants and agrees with MSGI that:
SECTION 6.01 APPROVAL OF SHAREHOLDERS. MSGI and Santa Lucia shall
each (a) cause a meeting of its shareholders to be duly called and held in
accordance with the laws of the states of Delaware and Utah, respectively,
and MSGI's and Santa Lucia's respective Certificate of Incorporation or
Articles of Incorporation and Bylaws as soon as reasonably practicable for
the purpose of voting on the adoption and approval of this Agreement and
the Merger (the "Proposal"), (b) recommend to its shareholders approval of
the Proposal, (c) use its best efforts to obtain the necessary approval of
its shareholders, (d) mail notice of shareholders' approval of the
Proposal, if approved, to all shareholders immediately following such
shareholders' meeting and (e) mail to shareholders of MSGI a transmittal
letter in form and substance reasonable satisfactory to MSGI and Santa
Lucia to be used by such shareholders in forwarding their certificates for
surrender and exchange.
SECTION 6.02 SECURITIES LAW COMPLIANCE. Santa Lucia and MSGI will
promptly prepare a joint Proxy Statement in connection with the vote of
MSGI's and Santa Lucia's shareholders with respect to the Proposal. MSGI
and Santa Lucia will take any actions required to be taken under applicable
state securities laws and MSGI and Santa Lucia will also take actions to
secure all necessary exemptions or clearances under all state securities
laws applicable to the Merger and the issuance of Surviving Corporation
Stock pursuant thereto.
E-78
<PAGE>
SECTION 6.03. FULL ACCESS/AUDIT. Each of MSGI and Santa Lucia has
afforded and will continue to afford to the other, its counsel, accountants
and other authorized representatives, full access to its offices,
properties, books and records in order that each may have full opportunity
to make such investigations as they shall desire to make of the affairs of
the other. Each of MSGI and Santa Lucia will also cause its officers,
accountants and attorneys to furnish such additional financial and
operating data and other information as the other shall from time to time
reasonably request.
SECTION 6.04. CONFIDENTIALITY. Until the Effective Time, or for a
period of one year in the event of the termination of this Agreement
pursuant to Article X, MSGI and Santa Lucia and their respective
consultants, advisors, officers and directors shall hold in confidence and
not divulge or use any confidential or proprietary information of the other
obtained from any investigation of the other referred to in the proceeding
Section or given to them by the other except to the extent (a) required by
law, (b) otherwise available from third parties or (c) previously known to
it. Neither MSGI nor Santa Lucia will misuse to the detriment of the other
material confidential or proprietary information obtained from the other.
Notwithstanding anything contained herein to the contrary, in the event of
a termination of this Agreement pursuant to Article X., Santa Lucia shall
acquire no rights or interest of any kind in or to any trademarks or trade
names owned or held by MSGI by virtue of the terms and conditions of this
Agreement.
SECTION 6.05. COOPERATION. MSGI and Santa Lucia will generally
cooperate with each other and take such reasonable action as may be
necessary to consummate the Merger in a manner advantageous to all parties
as soon as reasonably practicable, including furnishing to each other the
information relating to each of them required by applicable statutes, rules
and regulations for the purpose of preparing the Proxy Statement and state
securities law filings for solicitation of shareholders' approval of this
Agreement and MSGI and using their best efforts to cause the Proxy
Statement to be mailed to MSGI's and Santa Lucia's shareholders, all as
soon as practicable.
SECTION 6.06. FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. It is the
intent of the parties to consummate the Merger at the earliest practicable
time, and they respectively agree to exert their best efforts to that end,
including, without limitation, the preparation and filing of all requisite
applications, documents and notifications in connection with the
transactions contemplated herein required by applicable law and will use
their best efforts to respond as promptly as practicable to all inquiries
in connection therewith, the removal or satisfaction, if possible, of any
objections to the validity or legality of the Merger, and the satisfaction
of the conditions to consummation of the Merger, including, without
limitation, the obtaining of any consents necessary to the consummation of
the Merger, provided, however, that neither MSGI nor Santa Lucia shall be
obligated to (a) consent to any arrangement or undertake any obligation
which would in its reasonable judgment materially adversely affect its
business or properties.
E-79
<PAGE>
SECTION 6.07 PUBLIC ANNOUNCEMENTS. MSGI and Santa Lucia will consult
with each other before issuing any press release or making any public
statement with respect to the Merger and, except as may be required by
applicable law, will not issue any such press release or make any such
public statement prior to such consultation.
SECTION 6.08. NOTIFICATION OF CERTAIN MATTERS. MSGI and Santa Lucia
agree to give prompt notice to the other party of (k) the occurrence, or
failure to occur, of any event or circumstance where such occurrence or
failure to occur would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time and(ii) any
material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
SECTION 6.09. FURTHER ASSURANCES. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be authorized
to execute and deliver, in the name and on behalf of Santa Lucia or MSGI,
any other actions and things to vest, perfect or confirm or record or
otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of MSGI
acquired or to be acquired by the Surviving Corporation as a result of, or
in connection with, the Merger.
ARTICLE VII
CONDITIONS TO SANTA LUCIA'S OBLIGATION
TO MAKE THE MERGER EFFECTIVE
The obligation of Santa Lucia to cause the Merger to become effective
is subject to the satisfaction, at or before the Effective Time, of each of
the following conditions, all or any of which may be waived by Santa Lucia
in whole or in part except for Section 7.02:
SECTION 7.01. REPRESENTATIONS AND WARRANTIES TRUE: FULL
PERFORMANCE.
The representations and warranties of MSGI contained herein and in the
Schedules, and in the written disclosures heretofore provided by MSGI to
Santa Lucia in writing, and in all certificates and other documents
delivered by MSGI to Santa Lucia pursuant hereto or in connection with the
transactions contemplated hereby shall be in all material respects true and
accurate as of the date when made and at and as of the Effective Time as
though such representations and warranties were made at and as of such date
and time, except as otherwise permitted by this Agreement. MSGI shall have
fully performed and complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be performed or
complied with by it at or prior to the Effective Time, except as otherwise
permitted by this Agreement.
SECTION 7.02. APPROVAL OF MSGI SHAREHOLDERS. The approval of the
shareholders of MSGI to this Agreement and the Merger, required under the
DGCL and as contemplated by Section 6.01, shall have been obtained.
E-80
<PAGE>
SECTION 7.03. REGULATORY APPROVALS: LITIGATION. All permits and
consents required by state securities laws, if any, shall have been
obtained. No legal proceeding by any person shall have been instituted
which questions the validity or legality of the transactions contemplated
hereby, nor shall any court order or decree have been issued enjoining the
transactions contemplated hereby.
SECTION 7.04. MATERIAL ADVERSE CHANGES. No material adverse change
shall have occurred in the business, financial position, results of
operations, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, operations or prospects of MSGI, nor shall any event
or events have occurred which may reasonably be expected to have a material
adverse effect on MSGI.
SECTION 7.05. CERTIFICATE OF MSGI OFFICERS. MSGI shall have
delivered to Santa Lucia a certificate or certificates signed by its
officers dated the Effective Time, in form and substance satisfactory to
Santa Lucia and its counsel to the effect that, to the best of their
knowledge after conducting diligent inquiry, the representations and
warranties of MSGI contained in Article II hereof are true, accurate and
complete.
SECTION 7.06. LENDER APPROVALS. MSGI shall use its best efforts to
obtain, by the Effective Time, all approvals required from institutional
lenders to it, if any, to the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS TO MSGI'S OBLIGATION TO
MAKE THE MERGER EFFECTIVE
The obligation of MSGI to cause the Merger to become effective is
subjection to the satisfaction, on or before the Effective Time, of each of
the following conditions, all or any of which may be waived by MSGI
in whole or in part, except for Section 8.02:
SECTION 8.01. REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of Santa Lucia contained herein and in the
Schedules, and in all certificates and other documents delivered by Santa
Lucia to MSGI pursuant thereto or in connection with the transactions
contemplated hereby shall be in all material respects true and accurate as
of the date when made and at and as of the Effective Time as though such
representations and warranties were made at and as of such date and time,
except as otherwise permitted by this Agreement. Santa Lucia shall have
fully performed and complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be performed or
complied with by it at or prior to the Effective Time, except as otherwise
permitted by this Agreement.
SECTION 8.02. APPROVAL OF SANTA LUCIA SHAREHOLDERS: REGULATORY
APPROVALS. The approval of the shareholders of Santa Lucia to this
Agreement and the Merger, required under the BCA and as contemplated by
Section 6.01 shall have been obtained, and all regulatory obligations
administered by the SEC shall have been satisfied.
E-81
<PAGE>
SECTION 8.03. REGULATORY APPROVALS: LITIGATION. All permits and
consents required by state securities laws, if any, shall have been
obtained. No legal proceeding by any person shall have been instituted
which questions the validity or legality of the transactions contemplated
hereby, nor shall any court order of decree have been issued enjoining the
transactions contemplated hereby.
SECTION 8.04. MATERIAL ADVERSE CHANGES. No material adverse change
shall have occurred in the business, financial position, results of
operations, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, operations or prospects of Santa Lucia, nor shall any
event or events have occurred which may reasonably be expected to have a
Material Adverse Effect on Santa Lucia.
SECTION 8.05. CERTIFICATE OF SANTA LUCIA OFFICERS. Santa Lucia shall
have delivered to MSGI a certificate or certificates signed by its
president dated the Effective Time, in form and substance satisfactory to
MSGI and its counsel to the effect that, to the best of their knowledge
after conducting diligent inquiry, that the representations and warranties
of Santa Lucia contained in Article III hereof are true, accurate and complete.
ARTICLE IX
ADDITIONAL CONDITIONS TO THE MERGER
SECTION 9.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of each party to consummate the Merger are subject to the
satisfaction of the following conditions:
(i) there shall not be any statute, rule or regulation which makes
consummation of the Merger or performance of any of the transactions
contemplated hereby illegal or otherwise prohibited, or any order, decree,
injunction or judgment enjoining consummation of the Merger or performance
of such transaction: and
(ii) the issuance of the Surviving Corporation Stock to be issued in
exchange for MSGI Stock shall have received all Blue Sky Law authorizations
necessary to carry out the transactions contemplated thereby.
ARTICLE X
TERMINATION
SECTION 10.01. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (whether
before or after approval of this Agreement by the shareholders of MSGI and
Santa Lucia):
(a) by mutual written consent of MSGI and Santa Lucia;
(b) by either MSGI or Santa Lucia if there shall be any statute, rule
or regulation which make consummation of the Merger illegal or otherwise
prohibited or any order, decree, injunction or judgment enjoining MSGI or
Santa Lucia from consummating the Merger and such order, decree, injunction
or judgment shall have become final and non-appealable;
E-82
<PAGE>
(c) by Santa Lucia upon the occurrence of any event that would result
in a failure of any of the conditions set forth in Articles VII and IX hereof;
or
(d) by MSGI upon the occurrence of any event that would result
in a failure of any of the conditions set forth in Articles VIII and IX hereof.
SECTION 10.02. EFFECT OF TERMINATION. If this Agreement is
terminated pursuant to Section 10.01, this Agreement shall become void and
of no effect with no liability on the part of any party hereto, except that
(a) the agreements contained in Section 6.04 shall survive the termination
hereof and (b) nothing herein shall relieve any party of any liability for
will ful breach hereof.
ARTICLE XI
CLOSING
SECTION 11.01 CLOSING. Unless this Agreement shall have been
terminated and the Merger herein contemplated shall have been abandoned
as provided in Article X, a closing will be held, as soon as practicable at a
time and place agreed upon by the parties.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have
been given if delivered personally or by telecopier or if mailed, postage
prepaid, return receipt requested, in which the third business day
following the date of mailing shall be deemed the date such notice is
given, to the following address or to such other address as any party may
from time to time designate in writing to the other party hereto:
If to MSGI, to :
Multi-Spectrum Group, Incorporated
1055 Germantown Pike
Norristown, PA 19401
Attention: Edward V. Ellis
If to Santa Lucia, to:
Santa Lucia Funding, Inc.
2055 Greenbriar Circle
Salt Lake City, UT 84109
Attention: Fredrick L. Elliott
SECTION 12.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations or warranties contained herein shall survive the
Effective Time.
E-83
<PAGE>
SECTION 12.03 AMENDMENTS. Any provision of this Agreement may be
amended by mutual agreement of the parties hereto at any time prior to the
Effective Time; provided, that any such amendment made after the approval
of the Proposal by the shareholders of MSGI or Santa Lucia shall not,
without further approval of such shareholders, (i) alter or change the
amount or kind of consideration to be received in exchange for MSGI Stock,
(ii) alter or change any term of the Articles or Certificate of
Incorporation of the Surviving Corporation if it would adversely affect
such shareholders or (iii) alter or change any of the terms and conditions
of this Agreement if such alteration or change would adversely affect the
holders of any shares of MSGI Stock or Santa Lucia Stock. Any amendment to
this Agreement shall be in writing signed by all the parties hereto.
SECTION 12.04. WAIVERS. At any time prior to the Effective Time,
Santa Lucia, on the one hand, and MSGI, on the other hand, may (i) extend
the time for the performance of any agreement of another party hereto, (ii)
waive any inaccuracy in there presentations and warranties contained herein
or in any document delivered pursuant hereto or (iii) subject to the
provisions in Section 12.03, waive compliance with any agreement or
condition contained herein, except Sections 7.02, 8.02 and 9.01(i). Any
agreement on the part of any party to any such extension or waiver shall be
effective only if set forth in writing signed on behalf of such party and
delivered to the other parties.
SECTION 12.05. SUCCESSORS AND ASSIGNS. The provisions of this
agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided, that no party
may assign or otherwise transfer any of its rights or obligations under
this Agreement without the consent of each of the other parties hereto.
This Agreement shall be binding upon and is solely for the benefit of each
of the parties hereto and their respective successors and assigns, and
nothing in this Agreement is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason by this
Agreement.
SECTION 12.06 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Utah applicable to contracts made
and to be performed entirely therein. The parties hereby irrevocable
submit to the jurisdiction and venue of any Utah state or federal court
sitting in Salt Lake City, Utah, over any action or proceeding arising out
of or relating to this Agreement and the transactions contemplated hereby,
and irrevocable agree that all claims in respect of such action or
proceeding may be heard and determined in such Utah state or federal court.
The parties hereby irrevocable waive, to the fullest extent they may
effectively do so, the defense of an inconvenient forum to the maintenance
of such action or proceeding. In any such action or proceeding, the
prevailing party shall be entitled to reimbursement of reasonable
attorneys' fees and costs.
SECTION 12.07 COUNTERPART: EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by the other parties
hereto.
SECTION 12.08. ENTIRE AGREEMENT. This Agreement, including the
Schedules hereto, contain all of the terms, conditions and representations
and warranties agreed upon by the parties relating to the subject matter of
this Agreement and supersede all prior and contemporaneous agreements,
negotiations, correspondence, undertakings and communications of the
parties, oral or written, respecting such subject matter.
SECTION 12.09. EXPENSES. MSGI shall pay all expenses incurred in
connection with this Agreement and the transactions contemplated herein
provided, however, that if this Agreement shall terminate prior to the
Effective Time because of a failure by either party to perform or comply
with any of its obligations hereunder, such party shall pay the expenses of
the other party incurred thereby.
SECTION 12.10. EXHIBITS. The Exhibits and Schedules attached hereto
are made a part of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year
first above written.
MULTI-SPECTRUM GROUP, INC.
By: /s/ David E. Taylor
------------------------------
David E. Taylor
Its: President
SANTA LUCIA FUNDING, INC.
By: /s/ Fredrick L. Elliott
-------------------------------
Fredrick L. Elliott
Its: President
E-85
<PAGE>
STATE OF )
:ss.
COUNTY OF )
On the ______ day of _____________________, 1989, personally
appeared before me David E. Taylor, who being by me duly sworn did say that
he is the President of Multi-Spectrum Group Inc., the corporation that
executed the above and foregoing instrument and that said instrument was
signed on behalf of said corporation authority of its Bylaws and said XXX
David E. Taylor acknowledged to me that said corporation executed the same.
_________________________
Notary Public
Residing in _____________
My Commission Expires:
______________________
STATE OF Utah )
:ss.
COUNTY OF Salt Lake )
On the 27th day of December , 1989, personally appeared before me David
E. Taylor, who being by me duly sworn did say that he is the President of
Santa Lucia Funding, Inc., the corporation that executed the above and
foregoing instrument and that said instrument was signed on behalf of said
corporation authority of its Bylaws and said Fredrick L. Elliott
acknowledged to me that said corporation executed the same.
Shana L. Wahl
Notary Public
Residing in Salt Lake City, Ut.
My Commission Expires:
_______________________
[Seal of Shana L. Wahl, Notary Public]
E-86
<PAGE>
APPENDIX "A"
ARTICLE 1 - NAME
The name of the corporation is Multi-Spectrum Group, Inc.
ARTICLE IV - STOCK
The aggregate number of shares which the corporation shall have
authority to issue shall be 100,000,000 common shares, par value $0.001 per
share. All shares of the corporation shall be of the same class and shall
have the same rights and preferences. Fully paid shares of the
corporation shall not be liable to any further call or assessment.
ARTICLE X - INDEMNIFICATION
A. No director of the corporation shall have any liability to the
corporation of its shareholders for monetary damages for breach of
fiduciary duty, except that this Article X shall not eliminate or limit the
liability of a director (i) for any breach of such director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) for actions specified under Section 16-10-44 of the
Utah Business Corporation Act, or (iv) for any transaction from which the
director derived an improper personal benefit.
B. The corporation shall, to the fullest extent permitted by the
Utah Business Corporation Act, as the same may be amended and supplemented,
indemnify all directors, officers, employees and agents of the corporation
whom it shall have the power to indemnify thereunder from and against any
and all of the expenses, liabilities, or other matters referred to therein
or covered thereby. The corporation shall have the right to advance
expenses to its directors, officers, employees and agents to the full
extent permitted by the Utah Business Corporation Act, as the same may be
amended or supplemented. Such right to indemnification or advancement of
expenses shall continue as to a person who has ceased to be a director,
officer, employee or agent of the corporation, and shall inure to the
benefit of the heirs, executors and administrators of such persons. The
indemnification and advancement of expenses provided for herein shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement may be entitled under any bylaw, agreement,
vote of shareholders or of disinterested directors or otherwise. The
corporation shall have the right to purchase and maintain insurance on
behalf of its directors, officers, employees or agents to the full extent
permitted by the Utah Business Corporation Act, as the same may be amended
or supplemented.
E-87
<PAGE>
SCHEDULES OF MULTI-SPECTRUM GROUP, INC.
Schedule 2.11
Tradename "Creative Link"
Schedule 2.17
Union National Bank, Kulpsville, Pannsylvania
E-88
<PAGE>
SCHEDULE OF SANTA LUCIA FUNDING, INC.
Schedule 3.17
Utah Bank & Trust, 778 South Main Street, Salt Lake City, Utah
E-89
<PAGE>
DELAWARE GENERAL CORPORATION LAW
S. 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares
of stock on the date of the making of a demand pursuant to the provisions
of subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with the provisions of subsection
(d) of this Section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to S. 228 of this
Chapter shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this Section. As used in this Section, the word
"stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a non-stock corporation; the words "stock"
and "share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a non-stock corporation.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Sections 251, 252, 254, 257 or 258
of this Chapter;
(1) provided, however, that no appraisal rights under this
Section shall be available for the shares of any class or series of stock
which, at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act upon
the agreement of merger or consolidation, were either (i) listed on a
national securities exchange or (ii) held of record by more than 2,000
stockholders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving
a merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this
Section, appraisal rights under this Section shall be available for the
shares of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257 and 258 of this
Chapter to accept for such stock anything except (i) shares of stock of the
corporation surviving or resulting from such merger or consolidation; (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or held of record by more than 2,000 stockholders; (iii) cash in
lieu of fractional shares of the corporations described in the foregoing
clauses (i) and (ii); or (iv) any combination of the shares of stock and
cash in lieu of fractional shares described in the foregoing clauses (i),
(ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this chapter is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this Section shall be available for the shares
of any class or
EXHIBIT "B"
E-90
<PAGE>
series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the
assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this Section, including those set forth
in subsections (d) and (e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this Section is to be submitted for approval at
a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders entitled to such
appraisal rights that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such notice a
copy of this Section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote
on the merger of consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with the provisions of this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or section 253 of this Chapter, the surviving or resulting
corporation, either before the effective date of the merger or
consolidation or within 10 days thereafter, shall notify each of the
stockholders entitled to appraisal rights of the effective date of the
merger or consolidation and that appraisal rights are available for any or
all of the shares of the constituent corporation, and shall include in such
notice a copy of this Section. The notice shall be sent by certified or
registered mail, return receipt requested, addressed to the stockholder at
his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if
it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with the provisions of subsections (a) and (d) hereof and
who is otherwise entitled to appraisal rights, may file a petition in the
Court of Chancery demanding a determination of the value of the stock of
all such stockholders. Notwithstanding the foregoing, at any time within
60 days after the effective date of the merger or consolidation, any
stockholder shall have the right to withdraw his demand for appraisal and
to accept the terms offered upon the merger or consolidation. Within 120
days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation
-2-
E-91
<PAGE>
surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for the appraisal
have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days
after his written request for such a statement is received by the surviving
or resulting corporation or within 10 days after expiration of the period
for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment of their shares and with whom agreement as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register
in Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by one or more publications at least one week before the day of
the hearing in a newspaper of general circulation published in the City of
Wilmington, Delaware, or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provision of this Section and who
have become entitled to appraisal rights. The Court may require the
stockholders who have demanded an appraisal for their shares and who hold
stock represented by certificates to submit their certificates of stock to
the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors.
In determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the surviving or
resulting corporation would have had to pay to borrow money during the
pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
resulting corporation pursuant to subsection (f) fo this Section and who
has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is
finally determined that he is not entitled to appraisal rights under this
Section.
-3-
E-92
<PAGE>
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple
or compound, as the Court may direct. Payment shall be so made to each
such stockholder, in the case of holders of uncertificated stock forthwith,
and in the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any other state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all of the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in
subsection (d) of this Section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation; provided, however, that if no petition for an appraisal
shall be filed within the time provided in subsection (e) of this Section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this Section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting corporation into which
the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting corporation.
-4-
E-93
<PAGE>
UTAH BUSINESS CORPORATION ACT
16-10-75
Rights of Dissenting Shareholders upon Merger or Consolidation or
Sale or Exchange of Assets Right to Dissent Exception
Any shareholder of a corporation shall have the right to dissent from
any of the following corporate actions:
(a) Any plan of merger or consolidation to which the corporation is
a party; or
(b) Any sale or exchange of all or substantially all of the property
and assets of the corporation, otherwise than in the usual and
regular course of its business and other than a sale for cash
where the shareholder's approval thereof is conditional upon the
distribution of all or substantially all of the net proceeds of
the sale to shareholders in accordance with their respective
interests within one year after the date of sale.
This section shall not apply to the shareholders of the surviving
corporation in a merger if a vote of the shareholders of such corporation
is not necessary to authorize such merger; nor shall it apply to the
holders of shares of any class or series if the shares of such class or
series were registered on the New York Stock Exchange or the American Stock
Exchange on the date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which a plan of merger or consolidation
or a proposed sale or exchange of property and assets is to be acted upon
unless the articles of incorporation of the corporation shall otherwise
provide. (Amended by S.B. 91, L.'71, eff. 5-10-71)
16-10-76
Rights of Dissenting Shareholders upon Merger or Consolidation or
Sale or Exchange of Assets Filing Objections Payment of Fair Value
for Shares - Procedure
Any shareholder electing to exercise such right of dissent shall file
with the corporation, prior to or at the meeting of shareholders at which
such proposed corporate action is submitted to a vote, a written objection
to such proposed corporation action. If such proposed corporation action
be approved by the required vote and such shareholders shall not have voted
in favor thereof, such shareholder may, within ten days after the date on
which the vote was taken or if a corporation is to be merged without a vote
of its shareholders into another corporation, any of its shareholders may,
within fifteen days after the plan of such corporation, or, in the case of
a merger or consolidation, on the surviving or new corporation, domestic or
foreign, for payment of the fair value of such shareholder's shares, and,
if such proposed corporate action is effected, such corporation shall pay
to such shareholder, upon surrender of the certificate or
EXHIBIT "C"
E-94
<PAGE>
certificates representing such shares, the fair value thereof as of the day
prior to the date on which the vote was taken approving the proposed
corporation action, excluding any appreciation or depreciation in
anticipation of such corporate action. Any shareholder failing to make
demand within the applicable ten-day or fifteen-day period shall be bound
by the terms of the proposed corporate action. Any shareholder making such
demand shall thereafter be entitled only to payment as in this section
provided and shall not be entitled to vote or to exercise any other rights
of a shareholder.
No such demand may be withdrawn unless the corporation shall consent
thereto. If, however, such demand shall be withdrawn upon consent, or if
the proposed corporation action shall be abandoned or rescinded or the
shareholders shall revoke the authority to effect such action, or if, in
the case of a merger, on the date of the filing of the articles of merger
the surviving corporation is the owner of all the outstanding shares of the
other corporations, domestic and foreign, that are parties to the merger,
or if no demand or petition for the determination of fair value by a court
shall have been made or filed within the time provided in this section, or
if a court of competent jurisdiction shall determine that such shareholder
is not entitled to the relief provided by this section, then the right of
such shareholder to be paid the fair value of his shares shall cease and
his status as a shareholder shall be restored, without prejudice to any
corporate proceedings which may have been taken during the interim.
Within ten days after such corporate action is affected, the
corporation, or in the case of a merger or consolidation, the surviving or
new corporation, domestic or foreign, shall give written notice thereof to
each dissenting shareholder who has made demand as herein provided, and
shall make a written offer to each such shareholder to pay for such shares
at a specified price deemed by such corporation to be the fair value
thereof. Such notice and offer shall be accompanied by a balance sheet of
the corporation the shares of which the dissenting shareholder holds, as of
the latest available date and not more than twelve months prior to the
making of such offer, and a profit and loss statement of such corporation
for the twelve months' period ended on the date of such balance sheet.
If within thirty days after the date on which such corporate action
was effected the fair value of such shares is agreed upon between any such
dissenting shareholder and the corporation, payment therefore shall be made
within ninety days after the date on which such corporate action was
effected, upon surrender of the certificate or certificates representing
such shares. Upon payment of the agreed value the dissenting shareholder
shall cease to have any interest in such shares.
If within such period of thirty days a dissenting shareholder and the
corporation do not so agree, then the corporation, within thirty days after
receipt of written demand from any dissenting shareholder given within
sixty days after the date on which such corporate action was effected,
shall, or at its election at any time within such period of sixty days may,
file a petition in any court of competent jurisdiction in the county in
this state where the registered office of the corporation is located
praying that the fair value of such shares be found and
-2-
E-95
<PAGE>
determined. If, in the case of a merger or consolidation, the surviving or
new corporation is a foreign corporation without a registered office in
this state, such petition shall be filed in the county where the registered
office of the domestic corporation was last located. If the corporation
shall fail to institute the proceeding as herein provided, any dissenting
shareholder may do so in the name of the corporation. All dissenting
shareholders, wherever residing, shall be made parties to the proceeding as
an action against their shares quasi in rem. A copy of the petition shall
be served on each dissenting shareholder who is a resident of this state
and shall be served by registered or certified mail on each dissenting
shareholder who is nonresident. Service on nonresidents shall also be made
by publication as provided by law. The jurisdiction of the court shall
be plenary and exclusive. All shareholders who are parties to the proceeding
shall be entitled to judgment against the corporation for the amount of the
fair value of their shares. The court may, if it so elects, appoint one or
more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraiser shall have such power and
authority as shall be specified in order of their appointment or an
amendment thereof. The judgment shall be payable only upon and
concurrently with the surrender to the corporation of the certificate or
certificates representing such shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in such shares.
The judgment shall include an allowance for interest at such rate as
the court may find to be fair and equitable in all the circumstances, from
the date on which the vote was taken on the proposed corporate action to
the date of payment.
The costs and expenses of any such proceedings shall be determined by
the court and shall be assessed against the corporation, but all or any
part of such costs and expenses may be apportioned and assessed as the
court may deem equitable against any or all of the dissenting shareholders
who are parties to the proceeding to whom the corporation shall have made
an offer to pay for the shares if the court shall find that the action of
such shareholders in failing to accept such offer was arbitrary or
vexatious or not in good faith. Such expenses shall include reasonable
compensation for the reasonable expenses of the appraisers, but shall
exclude the fee and expenses of counsel for and experts employed by any
party; but if the fair value of the share as determined materially exceeds
the amount which the corporation offered to pay therefor, or if no offer
was made, the court in its discretion may award to any shareholder who is
a party to the proceeding such sum as the court may determine to be
reasonable compensation to any expert or expert employed by the shareholder
in the proceeding.
Within twenty days after demanding payment for his shares, each
shareholder demanding payment shall submit the certificate or certificates
representing his shares to the corporation for notation thereon that such
demand has been made. His failure to do so shall, at the option of the
corporation, terminate his rights under this section unless a court of
competent jurisdiction, for good and sufficient cause shown, shall
otherwise direct. If shares represented by a certificate on which notation
has been so made shall be transferred, each new certificate issued
therefore shall bear similar notation, together with the name of the
original dissenting holder of such shares, and a transferee of such shares shall
-3-
E-96
<PAGE>
acquire by such transfer no rights in the corporation other than those
which the original dissenting shareholder had after making demand for
payment of the fair value thereof.
Shares acquired by corporation pursuant to payment of the agreed value
therefor, or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by such corporation as in the
case of other treasury shares, except that, in the case of a merger or
consolidation, they may be held disposed of as the plan of merger or
consolidation may otherwise provide. (Amended by S.B. 91, L. '71, eff. 5-
10-71)
-4-
E-97
<PAGE>
MULTI-SPECTRUM GROUP, INC.
1990 INCENTIVE PLAN
Effective _____________________, 1990
E-98
<PAGE>
EXHIBIT "D"
MULTI-SPECTRUM GROUP, INC.
1990 INCENTIVE PLAN
Effective ___________________, 1990
1. Purpose.
----------
The purpose of the Multi-Spectrum Group, Inc. 1990 Incentive Plan is
to attract and retain persons of ability as employees of the Company,
motivate and reward good performance, encourage such employees to continue
to exert their best efforts on behalf of the Company and further
opportunities for Stock ownership by such employees in order to increase
their proprietary interest in the Company by providing incentive awards to
Key Employees (including officers and directors who are also employees, but
excluding those directors as specified by resolution of the Board of
Directors), whose responsibilities and decisions directly affect the
performance of the Company. Such incentive awards may consist of Stock of
the Company or, in the discretion of the Committee, other securities of the
Company convertible into such Stock, subject to such restrictions as the
Committee may determine or as provided herein, Performance Units or Stock
Appreciation Rights payable in such Stock or cash, or incentive or
nonqualified stock options to purchase such Stock, or any combination of
the foregoing, together with supplemental cash payments, all as the
Committee may determine.
2. Definitions.
---------------
When used herein, the following terms shall have the following
meanings:
"Award" means an award granted to any Key Employee in accordance with
the provisions of the Plan in the form of Options, SARs, Restricted Stock,
Deferred Stock or Performance Units, or any combination of the foregoing.
"Award Agreement" means the written agreement evidencing each Award
granted to a Key Employee under the Plan.
"Beneficiary" means the beneficiary or beneficiaries designated
pursuant to Section 11 below to receive the amount, if any, payable under
the Plan upon the death of a Key Employee.
"Board" means the Board of Directors of the Company.
"Change in Control" means the happening of any of the following:
(a) receipt by the Company of a report on Schedule 13D filed with the
Securities and Exchange Commission pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act") disclosing that any
person, group
E-99
<PAGE>
corporation or other entity (other than the Company or a wholly-owned
subsidiary of the Company) is the beneficial owner, directly or indirectly,
of 20 percent or more of the outstanding stock of the Company;
(b) purchase by any person (as defined in Section 13(d) of the 1934
Act), corporation or other entity other than the Company or a wholly-owned
subsidiary of the Company, of shares pursuant to a tender or exchange offer
to acquire any Stock of the Company (or securities convertible into Stock)
for cash, securities or any other consideration, provided that, after
consummation of the offer, such person, group, corporation or other entity
is the beneficial owner (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 20 percent or more of the outstanding Stock
(calculated as provided in paragraph (d) of Rule 13d-3 under the 1934 act
in the case of rights to acquire Stock);
(c) approval by the stockholders of the Company of any (i)
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Stock of
the Company would be converted into cash, securities or other property,
other than a consolidation or merger of the Company in which holders of its
Stock immediately prior to the consolidation or merger have substantially
the same proportionate ownership of common stock of the surviving
corporation immediately after the consolidation or merger as immediately
before, or (ii) sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all the assets
of the Company; or
(d) a change in the majority of the members of the Board of Directors
within a 12-month period unless the election or nomination for election by
the Company's stockholders of each new director was approved by the vote of
two-thirds of the directors then still in office who were in office at the
beginning of the 12-month period.
"CODE" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.)
"COMMITTEE" means the Committee appointed by the Board pursuant to
Section 12. As used herein, references to the Committee shall mean either
such Committee or the Board if no Committed has been established.
"COMPANY" means Multi-Spectrum Group, Inc. and its subsidiaries,
successors and assigns.
"DEFERRED STOCK" means Stock credited to a Key Employee under the Plan
subject to the requirements of Section 8 and such other restrictions as the
Committee deems appropriate or desirable.
"FAIR MARKET VALUE" mans, as of any date, the closing price based
upon composite transactions on the national stock exchanges for one share
of Stock on the exchanges or, if no sales of Stock have taken place on such
date, the closing price on the most recent date on which selling prices
were quoted; PROVIDED,
E-100
<PAGE>
however, that at the time of grant of any Award other than an incentive
stock option, the Committee, in its sole discretion, may elect to determine
Fair Market Value for all purposes under the Plan with respect to such
Award, based on the average of the closing prices, as of the date of
determination and a period of up to nine (9) trading days immediately
preceding such date. If no public trading market exists for the Company's
Stock, the Fair Market Value shall be determined in the sole discretion of
the Committee or the Company's Board of Directors.
"KEY EMPLOYEE" means an officer, director or other Key Employee of any
Participating Company who, in the judgment of the Committee, is responsible
for or contributes to the management, growth or profitability of the
business of any Participating Company, but excludes those directors as
specified by resolution of the Board of Directors.
"OPTION" means an option to purchase Stock, including Restricted Stock
or Deferred Stock, if the Committee so determines, subject to the
applicable provisions of Section 5 and awarded in accordance with the
terms of the Plan and which may be an incentive stock option qualified under
Section 422A of the Code or a nonqualified stock option.
"PARTICIPATING COMPANY" means the Company or any subsidiary or other
affiliate of the Company; provided, however, for incentive stock options
only, "Participating Company" means the Company or any corporation which at
the time such option is granted under the Plan qualifies as a subsidiary of
the Company under the definition of "subsidiary corporation" contained in
Section 425(f) of the Code.
"PERFORMANCE UNIT" means a performance unit subject to the
requirements of Section 6 and awarded in accordance with the terms of the
Plan.
"PLAN" means the Multi-Spectrum Group, Inc. 1990 Incentive Plan, as
the same may be amended, administered or interpreted from time to time.
"RESTRICTED STOCK" means Stock delivered under the Plan subject to the
requirements of Section 7 and such other restrictions as the Committee
deems appropriate or desirable.
"SAR" means a stock appreciation right subject to the appropriate
requirements under Section 5 and awarded in accordance with the terms of
the Plan.
"STOCK" means the common stock ($0.001 par value) of the Company.
"TOTAL DISABILITY" means the complete and permanent inability of a Key
Employee to perform all of his or her duties under the terms of his or her
employment with any Participating Company, as determined by the Committee
upon the basis of such evidence, including independent medical reports and
data, as the Committee deems appropriate or necessary.
E-101
<PAGE>
3. Shares Subject to the Plan.
--------------------------------
The aggregate number of shares of Stock which may be awarded under the
Plan or subject to purchase by exercising an Option shall not exceed five
million (5,000,000) shares. Such shares shall be made available either from
authorized and unissued shares or shares held by the Company in its
treasury. The Committee may, in its discretion, decide to award other
shares issued by the Company that are convertible into Stock or make such
shares subject to purchase by an Option, in whieh event the maximum number
of shares of Stock into which such Stock may be converted shall be used in
applying the aggregate share limit under this Section 3 and all provisions
of the Plan relating to Stock shall apply with full force and effect with
respect to such convertible shares. lf, for any reason, any shares or Stock
awarded or subject to purchase by exercising an Option under the Plan are
not delivered or are reacquired by the Company, for reasons including, but
not limited to, a forfeiture ot Restricted Stock or Deferred Stock or
termination, expiration or a cancellation with the consent or a key
Employee of an Option, SAR or a Performance Unit, such shares of Stock
shall again become available for award under the Plan.
4. Grant of Awards and Award Agreements.
--------------------------------------------------
(a) Subject to the provisions of the Plan, the Committee shall (i)
determine and designate from time to time those Key Employees or groups of
Key Employees to whom Awards are granted; (ii) determine the form or forms
of Award to be granted to any Key Employee; (iii) determine the amount or
number of shares of Stock, including Restricted Stock or Deferred Stock if
the Committee so determines, subject to each Award; (iv) determine the
terms and conditions of each Award; and (v) determine whether and to what
extent Key Employees shall be allowed or required to defer receipt of any
Awards or other amounts payable under the Plan to the occurrence of a
specified date or event; provided, however, that no Award shall be granted
after the expiration of ten (10) years from the effective date of the Plan.
(b) Each Award granted under the Plan shall be evidenced by a written
Award Agreement, in a form approved by the Committee. Such agreement shall
be subject to and incorporate the express terms and conditions, if any,
required under the Plan or as required by the Committee for the form of
Award granted and such other terms and conditions as the Committee may
specify.
5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
-------------------------------------------
(a) With respect to Options and SARs, the Committee shall (i)
authorize the granting of incentive stock options, nonqualified stock
options, SARs or a combination of incentive stock options, nonqualified
stock options and SARs; (ii) determine the number of shares of Stock
subject to each Option or the number of shares of Stock that shall be used
to determine the value of a SAR; (iii) determine whether such Stock shall
be Restricted Stock or, with respect to nonqualified stock options,
Deferred Stock; (iv) determine the time or times when and the duration of
the exercise period; and (v) determine whether or not all or
E-102
<PAGE>
part of each Option may be cancelled by the exercise of a SAR; PROVIDED,
however, that (A) no Option shall be granted after the expiration of ten
years from the effective date of the Plan and (B) the aggregate Fair Market
Value (determined as of the date an Option is granted) of the Stock
(disregarding any restrictions in the case of Restricted Stock) for which
incentive stock options granted to any Key Employee under this Plan may
first become exercisable in any calendar year shall not exceed One Hundred
Thousand Dollars ($100,000).
(b) The exercise period for a nonqualified stock option shall not
exceed ten years and one day from the date of grant, and the exercise
period for an incentive stock option or SAR, including any extension which
the Committee may from time to time decide to grant, shall not exceed ten
years from the date of grant; PROVIDED, HOWEVER, that, in the case of an
incentive stock option granted to a Key Employee who, at the time of grant,
owns stock possessing more than 10 percent of the total combined voting
power or all classes of stock of the Company (a "Ten Percent Stockholder"),
such period, including extensions, shall not exceed five years from the
date of Grant.
(c) The Option or SAR price per share shall be determined by the
Committee at the time any Option is granted and shall be not less than (i)
in the case of incentive stock options and any tandem SARs the Fair Market
Value, or in the case of an Option granted to a Ten Percent Stockholder,
110 percent of the Fair Market Value or (ii) in the case of any other
Options or SARs, at least 85 percent of Fair Market Value, disregarding any
restrictions in the case of Restricted Stock or Deferred Stock, on the date
the Option is granted, as determined by the Committee; PROVIDED, HOWEVER,
that such price shall be at least equal to the par value of one share of
Stock.
(d) No part of any Option or SAR may be exercised until (i) the Key
Employee who has been granted the Award shall have remained in the employ
of a Participating Company for such period, if any, after the date on which
the Option or SAR is granted, or (ii) achievement of such performance or
other criteria, if any, by the Key Employee, the Company or any subsidiary,
affiliate or division of the Company, as the Committee may specify, and the
Committee may further require exercisability in installments; PROVIDED,
HOWEVER, the period during which a SAR is exercisable shall commence no
earlier than six months following the date the Option or SAR is granted.
e) Subject to Section 10(c), except as otherwise provided in the
Plan, the purchase price of the shares as to which an Option shall be
exercised shall be paid to the Company at the time of exercise either in
cash or in such other consideration as the Committee deems appropriate,
including Stock, or, with respect to nonqualified options, Restricted Stock
or Deferred Stock, already owned by the optionee, having a total fair
market value, as determined by the Committee, equal to the purchase price,
or a combination of cash and such other consideration having a total fair
market value, as so determined, equal to the purchase price; PROVIDED,
HOWEVER, that if payment of the exercise price is made in whole or in part
in the form of Restricted Stock or Deferred Stock, the Stock received upon
the exercise of the Option shall be Restricted Stock or Deferred
E-103
<PAGE>
Stock, as the case may be, at least with respect to the same number of
shares and subject to the same restrictions or other limitations as the
Restricted Stock or Deferred Stock paid on the exercise of the Option.
(f) (i) lf a Key Employee who has been granted an Option or SAR dies
(A) while an employee of any Participating Company or (B) within three
months after termination of his or her employment with all Participating
Companies because of his or her Total Disability, his or her Options or
SARs may be exercised, to the extent that the Key Employee shall have been
entitled to do so on the date of his or her death or such termination of
employment, by the person or persons to whom the Key Employee's rights
under the Option or SAR pass by will, or if no such person has such rights,
by his or her executors or administrators, at any time, or from time to
time, within twelve months after the date of the Key Employee's death or
within such other period, and subject to such terms and conditions as the
Committee may specify, but not later than the expiration date specified in
Section 5(b) above.
(ii) If the Key Employee's employment by any Participating
Company terminates because of his or her Total Disability and such Key
Employee has not died within the following three months, he or she may
exercise his or her Options or SARs, to the extent that he or she shall
have been entitled to do so at the date of the termination of his or her
employment, at any time, or from time to time, within twelve months after
the date of the termination of his or her employment or within such other
period, and subject to such terms and conditions as the Committee may
specify, but not later than the expiration date specified in Section 5(b)
above.
(iii) If the Key Employee's employment terminates for any other
reason, he or she may exercise his or her Options or SARs to the extent
that he or she shall have been entitled to do so at the date of the
termination of his or her employment, at any time, or from time to time,
within three months after the date of the termination of his or her
employment or within such other period, and subject to such terms and
conditions as the Committee may specify, but not later than the expiration
date specified in Section 5(b) above.
(g) No Option or SAR granted under the Plan shall be transferable
other than by will or by the laws of descent and distribution. During the
lifetime of the optionee, an Option shall be exercisable only oy him or
her.
(h) With respect to an incentive stock option, the Committee shall
specify such terms and provisions as the Committee may determine to be
necessary or desirable in order to qualify such Option as an incentive
stock option within the meaning of Section 422A of the Code.
(i) Upon exercise of a SAR, the Key Employee shall be entitled,
subject to such terms and conditions as the Committee may specify, to
receive upon exercise thereof all or a portion of the excess of (i) the
Fair Market Value of a specified number of shares of Stock at the time of
exercise, as determined by the Committee, over (ii) a specified amount
which shall not, subject to Section 5(j), be less than the Fair Market
Value of such specified number of shares of
E-104
<PAGE>
Stock at the time the SAR is granted. Upon exercise of a SAR, payment of
such excess shall be made as the Committee shall specify at the time of the
grant of a SAR or otherwise (A) in cash, (B) through the issuance or
transfer to the Key Employee of whole shares of Stock, including Restricted
Stock or Deferred Stock, with a fair Market Value, disregarding any
restrictions in the case of Restricted Stock or Deferred Stock, at such time
equal to any such excess, or (C) a combination of cash and shares of
Stock with a combined fair market value at such time equal to any such
excess, all as determined by the Committee; PROVIDED, HOWEVER, a fractional
share of Stock shall be paid in cash equal to the Fair Market Value of the
fractional share of Stock, disregarding any restrictions in the case of
Restricted Stock or Deferred Stock, at such time. If the full amount of
such value is not paid in Stock, then the shares or Stock representing such
portion of the value of the SAR not paid in Stock shall again become
available for award under the Plan.
(j) If the Award granted to a Key Employee allows the Key Employee to
elect to cancel all or any portion of an unexercised Option by exercising
a related SAR, then the Option price per share of Stock shall be used as
the specified price in Section 5(i), to determine the value of the SAR, the
Company's obligation in respect of such Option or such portion thereor wiil
be discharged by payment of the SAR so exercised. In the event of such a
cancellation, the number of shares as to which such Option was canceled
shall become available for use under the Plan less the number of shares
received by the optionee upon such cancellation. .Any such SAR shall be
transferable only by will or by the laws of descent and distribution.
During the lifetime of the optionee, such SAR shall be exercisable only by
him or her.
6. Performance Units.
-----------------------
(a) The Committee shall determine a performance period (the
"Performance Period") of one or more years and shall determine the
performance objectives for grants of Performance Units. Performance
objectives may vary from Key Employee to Key Employee and between groups of
Key Employees and shall be based upon such performance criteria or
combination of factors as the Committee may deem appropriate, including,
but not limited to, minimum earnings per share or return on equity.
Performance Periods may overlap and Key Employees may participate
simultaneously with respect to Performance Units for which different
Performance Periods are prescribed.
(b) At the beginning of a Performance Period, the Committee shall
determine for each Key Employee or group of Key Employees eligible for
Performance Units with respect to that Performance Period the range of
dollar values, if any, which may be fixed or may vary in accordance with
such performance or other criteria specified by the Committee, which shall
be paid to a Key Employee as an Award if the relevant measure of Company
performance for the Performance Period is met.
E-105
<PAGE>
(c) If during the course of a Performance Period there shall occur
significant events as determined by the Committee, including, but not
limited to, a reorganization of the Company, which the Committee expects to
have a substantial effect on a performance objective during such period,
the Committee may revise such objective.
(d) If a Key Employee terminates service with all Participating
Companies during a Performance Period because of death, Total Disability,
retirement on or after age 65, or at an earlier age with the consent of the
company, or a significant event, as determined by the Committee, that Key
Employee shall be entitled to payment in settlement of each Performance
Unit for which the Performance Period was prescribed (i) based upon the
performance objectives satisfied at the end of such period and (ii)
prorated for the portion of the Performance Period during which the Key
Employee was employed by any Participating Company; PROVIDED, HOWEVER, the
Committee may provide for an earlier payment in settlement of such
Performance Unit in such amount; and under such terms and conditions as the
Committee deems appropriate or desirable with the consent of the Key
Employee. lf a Key Employee terminates service with all Participating
Companies during a Performance Period for any other reason, such Key
Employee shall not be entitled to any payment with respect to that
Performance Period unless the Committee shall otherwise determine.
(e) Each Performance Unit may be paid in whole shares of Stock,
including Restricted Stock or Deferred Stock (together with any cash
representing fractional shares of Stock), or cash, or a combination of
Stock and cash either as a lump sum payment or in annual installments, all
as the Committee shall determine, at the time of grant of the Performance
Unit or otherwise, commencing as soon as practicable after the end of the
relevant Performance Period. If and to the extent the full value of a
Performance Unit is not paid in Stock, then the shares of Stock
representing the potion of the value of the Performance Unit not paid in
Stock shall again become available for award under the Plan.
7. Restricted Stock.
--------------------
(a) Restricted Stock may be received by a Key Employee either as an
Award or as the result of an exercise of an Option or SAR or as payment for
a Performance Unit. Restricted Stock shall be subject to a restriction
period (after which restrictions shall lapse) which shall mean a period
commencing on the date the Award is granted and ending on such date or upon
the achievement of such performance or other criteria as the Committee
shall determine (the "Restriction Period"). The Committee may provide for
the lapse of restrictions in installments where deemed appropriate.
(b) Except as otherwise provided in this Section 7, no shares of
Restricted Stock received by a Key Employee shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period; PROVIDED, HOWEVER, the Restriction Period for any Key
Employee shall expire and all restrictions on shares of Restricted Stock
shall lapse upon the Key Employee's death, Total Disability or retirement
on or after age 60, or an earlier
E-106
<PAGE>
age with the consent of the Company, or upon some significant event, as
determined by the Committee, including, but not limited to, a
reorganization of the Company.
(c) If a Key Employee terminates employment with all Participating
Companies for any reason before the expiration of the Restriction Period,
all shares of Restricted Stock still subject to restriction shall, unless
the Committee otherwise determines, be forfeited by the Key Employee and
shall be reacquired by the Company, and, in the case of Restricted Stock
purchased through the exercise or an Option, the Company shall refund the
purchase price paid on the exercise of the Option. Upon such forfeiture,
such forfeited shares of Restricted Stock shall again become available
for award under the Plan.
(d) The Committee may require under such terms and conditions as it
deems appropriate or desirable that the certificates for Stock delivered
under the Plan may be held in custody by a bank or other institution, or
that the Company may itself hold such shares in custody until the
Restriction Period expires or until restrictions thereon otherwise lapse,
and may require, as a condition of any receipt of Restricted Stock that the
Key Employee shall have delivered a stock power endorsed in blank relating
to the Restricted Stock.
(e) Nothing in this Section 7 shall preclude a Key Employee from
exchanging any shares of Restricted Stock subject to the restrictions
contained herein for any other shares of Stock that are similarly
restricted.
8. Deferred Stock.
-------------------
(a) Deferred Stock may be credited to a Key Employee either as an
Award or as the result of an exercise or an Option or SAR or as payment for
a Performance Unit. Deferred Stock shall be subject to a deferral period
which shall mean a period commencing on the date the Award is granted and
ending on such date or upon the achievement of such performance or other
criteria as the Committee shall determine (the "Deferral Period"). The
Committee may provide for the expiration of the Deferral Period in
installments where deemed appropriate.
(b) Except as otherwise provided in this Section 8, no Deferred Stock
credited to a Key Employee shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Deferral Period; PROVIDED,
HOWEVER, the Deferral Period for any Key Employee shall expire upon the Key
Employee's death, Total Disability or retirement on or after age 65, or an
earlier age with the consent of the Company, or upon some significant
event, as determined by the Committee, including, but not limited to, a
reorganization or the Company.
(c) At the expiration of the Deferral Period, the Key Employee shall
be entitled to receive a certificate pursuant to Section 9 for the number
of shares of Stock equal to the number of shares of Deferred Stock credited
on his or her behalf. Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares of Deferred Stock
credited to a Key Employee
E-107
<PAGE>
shall be paid to such Key Employee within thirty (30) days after each
dividend was declared unless, at the time of the Award the Committee
determined that such dividends should be reinvested in additional shares of
Deferred Stock, in which case additional shares of Deferred Stock shall be
credited to the Key Employee based on the Stock's Fair Market Value at the
time of each such dividend.
(d) lf a Key Employee terminates employment with all Participating
Companies for any reason before the expiration of the Deferral Period, all
shares of Deferred Stock shall, unless the Committee otherwise determines,
be forfeited by the Key Employee, and, in the case of Deferred Stock
purchased through the exercise of an Option, the Company shall refund the
purchase price paid on the exercise of the Option. Upon such forfeiture,
such forfeited shares of Deferred Stock shall again become available for
award under the Plan.
9. Certificates for Awards of Stock.
---------------------------------------
(a) Subject to Section 7(d), each Key Employee entitled to receive
shares of Stock under the Plan shall be issued a certificate for such
shares. Such certificate shall be registered in the name or the Key
Employee, and shall bear an appropriate legend reciting the terms,
conditions and restrictions, if any, applicable to such shares and shall
be subject of appropriate stop-transfer orders.
(b) The Company shall not be required to issue or deliver any
certificates for shares of Stock prior to (i) the listing of such shares on
any stock exchange on which the Stock may be listed, if applicable, and
(ii) the completion of any registration, qualification or exemption from
registration of such shares under any federal or state law, or any ruling
or regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
(c) All certificates for shares of Stock delivered under the Plan
shall also be subject to such stop-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. The foregoing provisions of this Section 9(c) shalI not be
effective if and to the extent that the shares of Stock delivered under the
Plan are covered by an effective and current registration statement under
the Securities Act of 1933, or if and so long as the Committee determines
that application or such provisions is no longer required or desirable. In
making such determination, the Committee may rely upon an opinion of
counsel for the Company.
(d) Except for the restrictions on Restricted Stock or Deferred Stock
under Sections 7 and 8, each Key Employee who receives an award of Stock
shall have all of the rights of a shareholder with respect to such shares,
including the right to vote the shares and receive dividends and other
distributions. No Key Employee awarded an Option, a SAR, a Performance
Unit or Deferred Stock shall
E-108
<PAGE>
have any right as a shareholder with respect to any shares subject to such
Award prior to the date of issuance to him or her of a certificate or
certificates for such shares .
10. Loans and Supplemental Cash Payments.
--------------------------------------------------
(a) The Committee may provide for supplemental cash payments or loans
to Key Employees at such time and in such manner as the Committee may
determine in connection with Awards granted under the Plan.
(b) Supplemental cash payments shall be subject to such terms and
conditions as the Committee may specify; PROVIDED, HOWEVER, in no event
shall the amount of such payment exceed (i) in the case of an Option, the
excess of the Fair Market Value of the shares of Stock, disregarding any
restrictions in the case of Restricted Stock or Deferred Stock, purchased
through the Option on the date of exercise over the option price, or (i ) in
the case of an Award of a SAR, Performance Unit; or Restricted Stock or
Deferred Stock, the value of the shares of Stock and other consideration
issued in payment of such Award; and PROVIDED, FURTHER, in the case of an
incentive stock option, no supplemental cash payment shall be made if it
would disqualify such option under Section 422A of the Code.
(c) In the case of loans, any such loan shall be evidenced by a
written loan agreement or other instrument in such form and shall contain
such terms and conditions, including without limitation, provisions for
interest, payment schedules, collateral, forgiveness, events of default or
acceleration or such loans or parts thereof, as the Committee shall
specify; PROVIDED, HOWEVER, that in the case of an incentive stock option,
the interest rate set by the Committee under such an arrangement shall be
no lower than that required to avoid the imputation of unstated interest
under the Code and the Committee shall specify no such term or condition
that would result in such option failing to qualify as an incentive stock
option.
11. Beneficiary.
---------------
(a) Each Key Employee shall file with the Committee a written
designation of one or more persons as the beneficiary who shall be entitled
to receive the Award, if any, payable under the Plan upon his or her death.
A Key Employee may from time to time revoke or change his or her
Beneficiary designation without the consent of any prior Beneficiary by
filing a new designation with the Committee. The last such designation
received by the Committee shall be controlling; PROVIDED, HOWEVER, that no
designation, or change or revocation thereof, shall be effective
unless received by the Committee prior to the Key Employee's death, and in no
event shall it be effective as of a date prior to such receipt.
(b) If no such beneficiary designation is in effect at the time of a
Key Employee's death, or if no designated beneficiary survives the Key
Employee or if such designation conflicts with law, the Key Employee's
estate shall be entitled to receive the Award, if any, payable under the
plan upon his or her death. If the Committee is in doubt as to the right
of any person to receive such Award, the
E-109
<PAGE>
Company may retain such Award, without liability for any interest thereon,
until the Committee determines the rights thereto, or the Company may pay
such award into any court of appropriate jurisdiction and such payment
shall be a complete discharge of the liability of the Company therefor.
12. Administration of the Plan
--------------------------------
(a) The Plan shall be administered by the Committee, as appointed by
the board and serving at the Board's pleasure. If no Committee has been
appointed by the Board, the Board shall administer the plan until such a
Committee is appointed. If the Company has registered any of its
securities under the Securities Exchange Act of 1934 (the "Exchange Act
Registration"), the Committee shall have at least three (3) members and
each member of the Committee shall be both a member of the Board and, if
possible, a "disinterested person" within the meaning of Rule 16b-3 under
the Exchange Act or successor rule or regulation. By definition in Rule
16b-3, a "disinterested person" is one who shall not be, and shall not have
been, eligible to receive an Award under the Plan or any other plan
maintained by any Participating Company to acquire stock, stock options,
stock appreciation rights or restricted stock of a Participating Company at
any time within the one year immediately preceding the member's appointment
to the Committee. The Board may exclude any director from such eligibility
by resolution.
(b) All decisions, determinations or actions of the Committee made or
taken pursuant to grants of authority under the Plan shall be made or taken
in the sole discretion of the Committee and shall be final, conclusive and
binding on all persons for all purposes.
(c) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof, and its
interpretations and constructions thereor and actions taken thereunder
shall be, except as otherwise determined by the Board, final, conclusive
and binding on all persons for all purposes.
(d) The Committee's decisions and determinations under the Plan need
not be uniform and may be made selectively among Key Employees, whether or
not such Key Employees are similarly situated.
(e) The Committee shall keep minutes of its actions under the Plan.
The act of a majority of the members present at a meeting duly called and
held shall be the act of the Committee. Any decision or determination
reduced to writing and signed by all members of the Committee shall be
fully as effective as if made by unanimous vote at a meeting duly called
and held.
(f) The Committee may employ such legal counsel, including without
limitation, independent legal counsel and counsel regularly employed by the
Company, consultants and agents as the Committee may deem appropriate for
the administration of the Plan and may rely upon any opinion received from
any such
E-110
<PAGE>
counsel or consultant or agent. All expenses incurred by the Committee in
interpreting and administering the Plan, including without limitation,
meeting fees and expenses and professional fees, shnIl be paid by the
Company.
(g) No member or former member of the Committee of the Board shall be
liable for any action or determination made in good faith with respect to
the Plan or any Award granted under it. Each member or former member of the
Commitiee or the Board shall be indemnified and held harmless by the
Company against all cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Board) arising out of any act or omission to act in connection with the
Plan unless arising out of suen member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
members or former members may have as directors or under the bylaws of the
Company.
13. Amendment or Discontinuance.
--------------------------------------
The Board may, at any time, amend or terminate the Plan. The P!an may
also be amended by the Committee, provided that all such amendments shall
be reported to the Board. No amendment shall, without approval by a
majority of the Company's stockholders, (i) alter the group of persons
eligible to participate in the Plan, (ii) materially increase the benefits
provided under the Plan to the extent that stockholder approval would then
be required pursuant to Rule 16b-3 under the Securities Exchange Act of
1934 or successor rule or regulation, if such rule(s) or regulation(s) is
applicable at that time, (iii) increase the maximum number of shares of
Stock which are available for Awards under the Plan, or (iv) extend the
period during which Awards may be granted under the P!an beyond the
expiration of ten years from the effective date of the Plan. No amendment
or termination shall retroactively impair the rights of any person with
respect to an Award. On or after the occurrence of a Change in Control, the
Plan may not be amended or terminated until all payments required by
Section 15 are made.
14. Adjustments in Event of Change in Common Stock.
------------------------------------------------
In the event of any recapitalization, reclassification, split-up or
consolidation of shares of Stock, merger or consolidation of the Company or
sale by the Company of all or a portion of its assets, or other event which
could distort the implementation of the Plan or the realization of its
objectives, the Committee may make such appropriate adjustments in the
Stock subject to Awards, including Stock subject to purchase by an Option,
or the terms, conditions or restrictions on Stock or Awards as the
Committee deems equitable; provided, however, that no such adjustments
shall be made on or after the occurrence of a Change in Control without the
affected Key Employee's consent.
15. Change in Control.
-------------------
Notwithstanding anything else herein to the contrary, as soon as
practicable after the occurrence of a Change in Control, if any, the
following shall occur:
E-111
<PAGE>
(a) All Key Employees may, regardless of whether still an employee of
any Participating Company, elect to cancel all or any portion of any Option
no later than ninety (90) days after the Change in Control, in which event
the Company shall pay to such electing Key Employee, an amount in cash
equal to the excess, if any, of the Current Market Value (as defined below)
of the shares of Stock, including Restricted Stock or Deferred Stock,
subject to the Option or the portion thereof so canceled over the option
price for such shares; provided, however, that no Key Employee shall have
the right to elect cancellation unless and until at least six (6) months
have elapsed after the date of grant of the option and provided, further,
that, if the Key Employee is no longer an employee of any Participating
Company, the Option is exercisable at the time of the Change in Control.
(b) All Performance Periods shall end and the Company shall pay each
Key Employee an amount in cash equal to the value of such Key Employee's
Performance Units, if any, based upon the Stock's Current Market Value, in
full settlement of such Performance Units.
(c) All Restriction Periods shall end and the Company shall pay each
Key Employee an amount in cash equal to the Current Market Value of the
Restricted Stock held by, or on behalf of, each Key Employee in exchange
for such Restricted Stock.
(d) All Deferral Periods shall end and the Company shall pay to each
Key Employee an amount in cash equal to the current Market Value of the
number of shares of Stock equal to the number of shares of Deferred Stock
credited to such Key Employee in full settlement of such Deferred Stock.
(e) The Company shall pay to each Key Employee all amounts, if any,
deferred by such Key Employee under the Plan which are not Performance
Units, Restricted Stock or Deferred Stock.
(f) The Company may reduce the amount due any Key Employee under this
Section by the unpaid balance, if any, of the principal of any loans to
such Key Employee under Section 10.
(g) For purposes of this Section 15, "Current Market Value" means the
highest "Closing Price" during the period (the "Reference Period")
commencing thirty (30) days prior to the Change in Control and ending
thirty (30) days after the Change of Control; provided that, if the Change
in Control occurs as a result of a tender offer or exchange offer, or a
merger, purchase of assets or stock or other transaction approved by
stockholders of the Company, Current Market Value means the higher of (i)
the highest Closing Price during the Reference Period, or (ii) the highest
price paid per share pursuant to such tender offer, exchange offer or
transaction. The "Closing Price" on any day during the Reference Price
means the closing price per share of Stock based upon composite
transactions on the national stock exchanges that day. If there is no
public market for the Company's Stock at the applicable time, "Current
Market Value" shall be established at the discretion of the Board of
Directors.
E-112
<PAGE>
16. Restrictions on Shares.
---------------------------
At the discretion of the Committee or the Board, the Company may
reserve to itself or its assignee(s) in any Award (a) a right of first
refusal to purchase any Stock that a Key Employee (or a subsequent
transferee) may propose to transfer to a third party, (b) a right to
repurchase any or all Stock held by a Key Employee upon the Key Employee's
termination of employment or service with the Company or any Participating
Company for any reason within a specified time as determined by the
Committee or Board at the time of the Award at (i) the Key Employee's
original purchase price, (ii) the Fair Market Value of such Stock or (iii)
a price determined by a formula or other provision set forth in the Grant
and (c) if applicable, a market standoff agreement.
17. Miscellaneous.
-----------------
(a) Nothing in this Plan or any Award granted hereunder shall confer
upon any employee any right to continue in the employ of any Participating
Company or interfere in any way with the right of any Participating Company
to terminate his or her employrnent at any time.
(b) No Award payable under the Plan shall be deemed salary or
compensation of the purpose of computing benefits under any employee
benefit plan or other arrangement of any Participating Company for the
benef t of its employees unless the Company shall determine otherwise.
(c) No Key Employee shall have any claim to an Award until it is
actually granted under the Plan. To the extent that any person acquires a
right to receive payments from the Company under this Plan, such right
shall be no greater than the right of an unsecured general creditor or the
Company. All payments of awards provided for under the Plan shall be paid
in cash from the general funds of the Company; PROVIDED, HOWEVER, that such
payments shall be reduced by the amount of any payments made to the
participant or his or her dependents, beneficiaries or estate from any
trust or special or separate fund established by the Company to assure such
payments. The Company shall not be required to establish a special or
separate fund or other segregation of assets to assure such payments, and
if the Company shall make any investments to aid it in meeting its
obligations hereunder, the participant shall have no right, title or
interest whatsoever in or to any such investments except as may otherwise
be expressly provided in a separate written instrument relating to such
investments. Nothing contained in this Plan, and no action taken pursuant
to its provisions, shall create or be construed to create a trust of any
kind between the Company and any participants. To the extent that any
participant acquires a right to receive payment from the Company hereunder,
such right shall be no greater than the right of an unsecured creditor of
the Company.
(d) Absence on leave, when otherwise approved by the Board in
accordance with applicable laws, shall not be considered interruption or
termination of employment for any purposes of the Plan; PROVIDED, HOWEVER,
that no Award may be granted to an employee while he or she is absent on
leave.
E-113
<PAGE>
(e) If the Committee shall find that any person to whom any Award, or
portion thereof, is payable under the Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, then any payment due
him or her (unless a prior claim therefor has been made by a duly appointed
legal representative) may, if the Committee so directs the Company, be paid
to his or her spouse, a child, a relative, an institution maintaining or
having custody of such person, or any person deemed by the Committee to be
a proper recipient on behalf of such person otherwise entitled to payment.
Any such payment shall be a complete discharge of the liability of the
Company therefor.
(f) The right of any Key Employee or other person to any Award
payable under the Plan may not be assigned, transferred, pledged or
encumbered, either voluntarily or by operation of law, except as provided
in Section 11 with respect to the designation of a Beneficiary or as may
otherwise be required by law. If, by reason of any attempted assignment,
transfer, pledge or encumbrance or any bankruptcy or other event happening
at any time, any amount payable under the Plan would be made subject to the
debts or liabilities of the Key Employee or his or her Beneficiary or would
otherwise devolve upon anyone else and not be enjoyed by the Key Employee
or his or her Beneficiary, then the Committee may terminate such person's
interest in any such payment and direct that the same be held and applied
to or for the benefit of the Key Employee, his or her Beneficiary or any
other person deemed to be the natural objects of his or her bounty,
taking into account the express wishes of the Key Employee (or, in the event of
his or her death, those of his or her Beneficiary) in such manner as the
Committee may deem proper.
(g) Copies of the Plan and all amendments, administrative rules and
procedures and interpretations shall be made available to all Key Employees
at all reasonable times at the Company's headquarters.
(h) The Committee may cause to be made, as a condition precedent to
the payment of any Award, or otherwise, aporopriate arrangements with the
Key Employee or his or her Beneficiary, for the withholding of any federal,
state, local or foreign taxes.
(i) The Plan and the grant of Awards shall be subject to all
applicable federal and state laws, rules and regulations and to such
approvals by any government or regulatory agency as may be required.
(j) All elections, designations, requests, notices, instructions and
other communications from a Key Employee, Beneficiary or other person to
the Committee, required or permitted under the Plan, shall be in such form
as is prescribed from time to time by the Committee and shall be mailed by
first class mail or delivered to such locations as shall be specified by
the Committee.
(k) The terms of the Plan shall be binding upon the Company and its
successors and assigns.
E-114
<PAGE>
(l) Captions preceding the section hereof are inserted solely as a
matter of convenience and in no way define or limit the scope or intent of
any provision hereof.
18. Effective Date, Term of Plan and Stockholder Approval
-------------------------------------------------------
The effective date of the Plan shall be ________________, 1990,
subject to approval by a majority of the Company's stockholders at an
Annual or Special Meeting or by their unanimous written consent.
Notwithstanding anything in the Plan to the contrary, if the Plan shall
have been approved by the Board prior to such Annual or Special Meeting or
unanimous written consent, Key Employees may be selected and Award criteria
may be determined as provided herein subject to such subsequent stockholder
approval.
APPROVED this _________ day of _____________________________, 1990.
MULTI-SPECTRUM GROUP, INC.
By: _______________________
David E. Taylor
Its: President
E-115
<PAGE>
EXHIBIT 4:
BOARD MEETING MINUTES
FOR REVERSE STOCK SPLIT
OF 8/11/95
<PAGE>
Minutes of Directors Meeting
Of
MULTI SPECTRUM GROUP, INC.
__________________________________________________________
A meeting of the Board of Directors of Multi Spectrum Group, Inc. was held
on the 11th day of August, 1995 at 10:00 a.m. at the offices located at 1348 E.
3300 S., Suite 101, Salt Lake City, Utah 84106.
There were present and participating at the meeting, either in person or
telephonically York Chandler, Kipp Chandler and Gayle Chandler being all of the
Directors of the Company. Telephonically attending as invited guests were Eric
Gable, Heather Robb, Kundan S. Rayat, all from Vancouver, BC and Allen Stout of
Phoenix, AZ. York Chandler, the President, chaired the meeting. Gayle
Chandler, the secretary, read the minutes of the last regular meeting and they
were approved.
The first item of discussion brought before the Board of Directors was a
discussion concerning a reverse split of the Company's common stock by a ratio
of 1 (one) new share for every 1200 (one thousand two hundred) old shares with
the par value to remain at $.001. The reverse split is to take effect on this
11th day of August, 1995. After motion duly made, seconded and unanimously
carried with all in favor; it was,
Resolved, that the Company reverse split its common stock by a ratio of
one (1) new share for every one thousand two hundred (1200) old shares with the
par value remaining $.001.
Further Resolved, that the effective date of the reverse split to be
August 11, 1995.
The second item of discussion related to the appointment of Dr. Eric
Gable, Mr. Kundan Rayat, and Ms. Heather Robb to serve as Directors of the
Company. After motion duly made, seconded and unanimously carried; it was,
Resolved, that Eric Gable, Heather Robb and Kundan S. Rayat be appointed
as Directors of the Company.
The next item of business to be brought before the Board of Directors was
election of new officers of the Company. After a thorough discussion, it was
agreed that Eric Gable be President, Allen Stout be Secretary, Heather Robb be
Treasurer, and Kundan Rayat be Vice President. Upon motion duly made, seconded
and unanimously carried, it was;
E-118
<PAGE>
Resolved, that Eric Gable be President; Allen Stout be Secretary; Heather
Robb be Treasurer, and Kundan S. Rayat be Vice President.
The last item to be discussed was concerning the possibilities of a
cquiring the MedCare UI System, a non-invasive, non-surgical, non-drug method
which can reduce or completely eliminate Urinary incontinence. After a
thorough discussion it was agreed to put the vote on hold until the next Board
of Directors meeting which was scheduled to be on Monday, August 14, 1995.
There being no further business and upon motion duly made and seconded,
the meeting was adjourned.
/s/ York Chandler /s/ Gayle Chandler
York Chandler, Director Gayle Chandler, Director
s/ Kundan S. Rayat /s/ Allen Stout
Kundan S. Rayat, VP, Director Allen Stout, Secretary
/s/ Eric Gable /s/ Heather Robb
Eric Gable, President, Director Heather Robb, Treasurer, Director
/s/ Kipp Chandler
Kipp Chandler, Director
<PAGE>
EXHIBIT 6:
ACQUISITION AGREEMENT
FOR ASSETS OF
MEDCARE CORPORATION
<PAGE>
HARMEL S. RAYAT
5131 Highgate Street
Vancouver, B.C., VSR 3G9
August 7. 1995
MEDCARE TECHNOLOGIES. INC.
Suite 1408 - 400 Burrard Street
Vancouver, B.C.. V6C 3G2
Dear Sirs:
RE: ACQUISITION OF THE MEDCARE UI RIGHTS FOR 2.000.000 RESTRICTED
SHARES
- ------------------------------------------------------------------------
This letter will confirm the sale of the above referenced world wide rights of
the MedCare Urinary Incontinence system to MedCare Technologies, Inc, for
2,000,000 restricted shares of MedCare Technologies, Inc.
Sincerely,
Harmel S. Rayat
E-123
<PAGE>
MINUTES OF DIRECTORS MEETING
OF
MULTI SPECTRUM GROUP, INC.
A meeting of the Board of Directors of Multi Spectrum Group, In. was held
on the 14th day of August, 1995 at 1:00 p.m. at the offices of the Company
located at 1348 E. 3300 S., Suite 1010, Salt Lake City, Utah 84106.
There were present and participating at the meeting, either in person or
telephonically, Eric Gable, Allen Stout, Kundan S. Radat, Heather Robb, York
Chandler, Kipp Chandler and Gayle Chandler. Eric Gable acted as Chairman.
The minutes of the last meeting were read and approved.
The first item of business brought before the Board was a discussion
concerning the acquisition of MedCare Technologies, Inc. After a long and
thorough discussion it was agreed that the Company acquire the business of the
MedCare UI System and issue 2,000,000 shares of its unissued common shares of
stock for the acquisition of MedCare Technologies, Inc. It was agreed that
1,750,000 shares be issued to Eric Gable and 250,000 shares issued to Harmal
Rayat. Upon motion duly made, seconded and unanimously carried with all in
favor, it was;
RESOLVED, the Company issue 2,200,000 shares of its unissued stock
to acquire the business of MedCare UI System as presented by MedCare
Technologies, Inc.
FURTHER RESOLVED, that 1,750,000 shares be issued in the name of
Eric Gable and 250,000 shares be to Harmel Rayat.
The second item of business to be discussed was concerning the
resignations of York Chandler, Kipp Chandler and Gayle Chandler. After a
short discussion it was agreed that the resignations of York Chandler and
Gayle Chandler be accepted and that said resignations be effective immediately.
Upon motoin duly made, seconded and unanimously carried; it was,
RESOLVED, that the resignations of York Chandler, Kepp Chandler and Gayle
Chandler be accepted.
FURHTER RESOLVED, that the said resignations be to effective as of this
date.
There being no further business, and upon motion duly made and seconded
the meeting was adjourned.
/s/ ERIC GABLE /s/ ALLEN STOUT
- ------------------------------ ----------------------
Eric Gable, President, Director Allen Stout, Secretary
/s KUNDAN S. RAYAT /s/ HEATHER ROBB
- ---------------------------- --------------------------------
Kundan S. Rayat, VP Director Heather Robb, Treasurer, Director
/s/ YORK CHANDLER /s/ GAYLE CHANDLER
- ------------------ ------------------
York Chandler Gayle Chandler
/s/ KIPP CHANDLER
- -------------------
Kipp Chandler
E-124
<PAGE>
HARMEL S. RAYAT
5131 Highgate Street
Vancouver, B.C., VSR 3G9
August 7. 1995
MEDCARE TECHNOLOGIES. INC.
Suite 1408 - 400 Burrard Street
Vancouver, B.C.. V6C 3G2
Dear Sirs:
RE: ACQUISITION OF THE MEDCARE UI RIGHTS FOR 2.000.000 RESTRICTED
SHARES
This letter will confirm the sale of the above referenced world wide rights of
the MedCare Urinary Incontinence system to MedCare Technologies, Inc, for
2,000,000 restricted shares of MedCare Technologies, Inc.
Sincerely,
<PAGE>
MINUTES OF DIRECTORS MEETING
OF
MULTI SPECTRUM GROUP, INC.
A meeting of the Board of Directors of Multi Spectrum Group, In. was held
on the 14th day of August, 1995 at 1:00 p.m. at the offices of the Company
located at 1348 E. 3300 S., Suite 1010, Salt Lake City, Utah 84106.
There were present and participating at the meeting, either in person or
telephonically, Eric Gable, Allen Stout, Kundan S. Radat, Heather Robb, York
Chandler, Kipp Chandler and Gayle Chandler. Eric Gable acted as Chairman.
The minutes of the last meeting were read and approved.
The first item of business brought before the Board was a discussion
concerning the acquisition of MedCare Technologies, Inc. After a long and
thorough discussion it was agreed that the Company acquire the business of
the MedCare UI System and issue 2,000,000 shares of its unissued common
shares of stock for the acquisition of MedCare Technologies, Inc. It was
agreed that 1,750,000 shares be issued to Eric Gable and 250,000 shares
issued to Hermal Rayat. Upon motion duly made, seconded and unanimously
carried with all in favor, it was;
Resolved that the resignations of York Chandler, Kepp Chandler and Gayle
Chandler be accepted.
Further Resolved that the said resignations be to effective as of this
date.
There being no further business, and upon motion duly made and seconded
the meeting was adjourned.
/s/ Eric Gable /s/ Allen Stout
Eric Gable, President, Director Allen Stout, Secretary
/s/ Kundan S. Rayat /s/ Heather Robb
Kundan S. Rayat, VP Director Heather Robb, Treasurer, Director
/s/ York Chandler /s/ Gayle Chandler
York Chandler Gayle Chandler
/s/ Kipp Chandler
Kipp Chandler
EXHIBIT 7:
504 MEMORANDUM
OF 8/31/95
<PAGE>
DISCLOSURE MEMORANDUM
MedCare Technologies, Inc.
A Utah Corporation
4,200,000 Shares
Common Stock, $.001 Par Value
Offering Price $0.15 per Share
MEDCARE TECHNOLOGIES, INC., a Utah Corporation (the "Company") is offering
up to 4,200,000 shares of its common stock, $.001 par value per share (the
"Shares"), on a "best efforts" basis, pursuant to the terms of this Disclosure
Memorandum ("Memorandum"). (See "OFFERING").
The Shares are being offered pursuant to an exemption provided by Rule
504 of Regulation D promulgated under the Securities Act of 1933, as amended.
The Shares are not registered for sale under the securities laws of any State.
PRIOR TO THIS OFFERING THERE HAS BEEN A LIMITED AND SPORADIC PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY AND THERE CAN BE NO
ASSURANCE THAT A MORE ACTIVE MARKET WILL RESULT FOLLOWING THE
SALE OF
THE SHARES OFFERED HEREBY OR THAT THE COMMON STOCK CAN BE SOLD AT
OR
NEAR THE OFFERING PRICE. SEE "PRICE RANGE OF COMMON STOCK." THE
OFFERING
PRICE HAS BEEN ARBITRARILY DETERMINED BY THE COMPANY BASED UPON
WHAT
IT BELIEVES PURCHASERS OF SPECULATIVE ISSUES WOULD BE WILLING TO PAY
FOR
THE SECURITIES OF THE COMPANY AND BEARS NO RELATIONSHIP WHATSOEVER
TO
ASSETS, BOOK VALUE OR ANY OTHER ESTABLISHED CRITERIA OF VALUE. THIS
IS NOT
A BLANK CHECK/BLIND POOL OFFERING. THE COMPANY INTENDS TO PURSUE
THE
BUSINESS ACTIVITY DESCRIBED HEREIN. PURCHASE OF THE SHARES IS HIGHLY
SPECULATIVE AND SHOULD NOT BE UNDERTAKEN BY ANYONE NOT CAPABLE
OF
SUSTAINING A TOTAL LOSS OF HIS OR HER INVESTMENT.
______________________________________________________________________________
Selling Proceeds To
Offering Price Commissions Company
______________________________________________________________________________
Per Share: $0.15 -0- $0.15
Total Maximum: (4,200,000) $630,000 -0- $630,000 (1)
(l) Does not include approximately 530,000 to cover offering expenses.
______________________________________________________________________________
MedCare Technologies, Inc.
1404-400 Burrard Street
Vancouver, BC V6C 3G2
The date of this Disclosure Memorandum is August 31, 1995
1
E-126
<PAGE>
THE SHARES ARE OFFERED BY THE COMPANY THROUGH ITS OFFICERS AND
DIRECTORS ON A "BEST EFFORTS" BASIS. NO COMMISSIONS WILL BE PAID TO
SUCH OFFICERS OR DIRECTORS.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD THE ENTIRE LOSS OF
THEIR INVESTMENT. (SEE "RISK FACTORS").
THE SHARES ARE OFFERED BY THE COMPANY SUBJECT TO PRIOR SALE,
ACCEPTANCE OF THE SUBSCRIPTIONS BY THE COMPANY AND APPROVAL OF
CERTAIN LEGAL MATTERS BY COUNSEL TO THE COMPANY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR THE SECURITIES DIVISION OF
ANY STATE NOR HAS THE COMMISSION OR ANY STATE PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
ALL OFFEREES AND SUBSCRIBERS WILL HAVE AN OPPORTUNITY TO MEET
WITH REPRESENTATIVES OF THE COMPANY TO VERIFY ANY OF THE INFORMATION
INCLUDED HEREIN AND TO OBTAIN ADDITIONAL INFORMATION REGARDING
THE COMPANY. COPIES OF ALL DOCUMENTS, CONTRACTS, FINANCIAL STATEMENTS
AND OTHER COMPANY RECORDS WILL BE MADE AVAILABLE FOR INSPECTION AT
ANY SUCH MEETING OR DURING NORMAL BUSINESS HOURS UPON REQUEST TO THE
COMPANY. OFFEREES AND SUBSCRIBERS WILL BE ASKED TO ACKNOWLEDGE IN
THE SUBSCRIPTION AGREEMENT THAT THEY HAVE READ THIS MEMORANDUM
CAREFULLY AND THOROUGHLY; THAT THEY WERE GIVEN THE OPPORTUNITY TO OBTAIN
ADDITIONAL INFORMATION; AND THEY DID SO TO THEIR SATISFACTION OR
REQUIRED NO FURTHER INFORMATION.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS MEMORANDUM AND THE EXHIBITS
HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED, THIS MEMORANDUM DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS MEMORANDUM
AT ANY TIME DOES NOT IMPLY THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
THE COMPANY HAS THE RIGHT, IN ITS SOLE DISCRETION, TO ACCEPT OR
REJECT SUBSCRIPTIONS IN WHOLE OR IN PART, FOR ANY REASON OR FOR NO
REASON.
2
E-127
<PAGE>
MEMORANDUM SUMMARY
The following summary is qualified in its entiretv by detailed information
appearing elsewhere in the Memorandum. Each prospective investor is urged to
read this Memorandum in its entirety.
THE COMPANY
MedCare Technologies, Inc. (the "Company"), formerly Multi-Spectrum
Group, Inc. (MSGI), was incorporated as Santa Lucia Funding, Inc. (SLFI) in
the state of Utah on January 17, 1986, for the purpose of creating a capital
resource fund to seek, investigate and. if warranted in the opinion of its
management, acquire, merge with or participate in a favorable business
opportunity. On January 19, 1990, SLFI merged with MSGI, a Delaware corporation
engaged in the business of operating, marketing and franchising combined
printing centers and office supplv outlets. Under the terms of the merger
agreement, Santa Lucia Funding, Inc. was the surviving corporation, a Utah
corporation; however, the name of the Company was changed to Multi-Spectrum
Group, Inc. The outstanding shares of MSGI were converted into common shares
of SLFI at the exchange ratio of 55,305 shares of SLFI for each common share of
MSGI then issued and outstanding. In addition, the number of common shares
authorized was increased from 50,000,000 to 100,000,000 with the par value
remaining $.001.
On August 11, 1995 the Company affected a reverse split of its $.001 par
value common stock by a ratio of one new share for every one thousand two
hundred old shares; thereby, reducing the total number of shares issued and
outstanding to 58,519. On August 14, 1995, a total of 2,000,000 post split
shares were issued in order to acquire MedCare Technologies, Inc. MedCare
Technologies, Inc. has developed the MedCare UI System, a non-surgical non-
invasive, non-drug and cost effective method to significantly reduce
and/or completely eliminate the majority of urinary incontinence cases. The
Company plans to test market the program within an established medical center
in the Pacific Northwest. At a Special Shareholders Meeting held on August
25, 1995 the Shareholders ratified the name change of the Company from
Multi-Spectrum Group, Inc. to MedCare Technologies, Inc. and amended the
Articles of Incorporation to allow the authorization of 101,000,000 shares
of which 1,000,000 shares are to be Preferred Shares with a par value of
$.25.. As of the date of this Disclosure Memorandum there are no Preferred
Shares issued and outstanding.
The Company maintains executive offices at 1404-400 Burrard Street, in
Vancouver, B.C. V6C 3G2. The telephone number is 604.643.1765, the telefax
number is 604.643.1776.
3
E-128
<PAGE>
THE OFFERING
SECURITIES OFFERED
Total Maximum 4,200,000 shares of common stock
OFFERING PRICE PER SHARE . . . . $0.15
SHARES OUTSTANDING
Prior to the offering 2,058,519 shares1
After the offering 6,258,519 shares
(1) Including post consolidation numbers and the issuance of 2,000,000
shares in consideration for the acquisition of MedCare Technologies, Inc.
USE OF NET PROCEEDS
The proceeds of this offering, assuming that all 4,200,000 shares offered
are sold, will be approximately $630.000 (less expenses of approximately
$30,000). Such proceeds will be utilized for the provision of working capital
for the Company, which will enable it to complete the final stage of developing
the MedCare UI System. The Company plans to test market the program within an
established medical center in the Pacific Northwest. (See "Use of Proceeds").
RISK FACTORS
The purchase of the shares offered hereby involves many risk factors
including those associated with a relatively new venture, risks associated
with the industry, substantial dilution from the offering price, and
other possible risks. Prospective investors should be prepared to suffer a
total loss of their investment. (See "Risk Factors").
DILUTION
The offering involves immediate substantial dilution in the book value per
share of common stock from the offering price. (See "Dilution").
4
E-129
<PAGE>
SUITABILITY STANDARDS
AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS
SUITABLE ONLY FOR THOSE INVESTORS WHO HAVE SUBSTANTIAL FINANCIAL
RESOURCES IN RELATION TO THEIR INVESTMENT, WHO UNDERSTAND THE
PARTICULAR RISK FACTORS OF THIS INVESTMENT AND WHO ARE PREPARED TO
SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT.
The Company has not established any standards for determining suitability
of investors in this offering. However, prospective purchasers of Shares should
be aware that an investment in the Company is highly speculative, that the
future success of the Company is dependent upon a number of factors in addition
to those usually associated with developmental companies in the health industry
and that an investment in the Shares may be totally lost.
RISK FACTORS
Before deciding whether to purchase Shares of the Company, prospective
investors should read this Memorandum in its entirety and carefully consider,
among others, the following risk factors:
Purchase of Shares involves a high degree of risk. Prospective purchasers
-------------------------------------------------------------------------
should consider carefully, among other factors set forth in this Memorandum,
- ----------------------------------------------------------------------------
the following:
- --------------
BUSINESS OF THE COMPANY
The Company has expended considerable resources on the research and
development of the MedCare UI System. At present, MedCare Technologies, Inc.
is in the final stages of Research & Development. And while all indications
are that the MedCare Ul System is a viable treatment process for those
individuals suffering from certain types of adult urinary incontinence, there
can be no assurances that the system will actually gain acceptance in the
marketplace.
POLITICAL AND ECONOMIC CONSIDERATIONS AFFECTING THE COMPANY
At present, there are no political risks anticipated by the Company since
all future R & D and clinical operations of MedCare are expected to be
undertaken in North America. The MedCare UI System has not applied to Medicare
in order to receive reimbursements for potential patients. As a result, many
sufferers may not seek treatment because of the costs associated with treatment.
RISK FACTORS RELATING TO THE BUSINESS OF THE COMPANY
1. NEW BUSINESS. Adult urinary incontinence, despite its prevalence
among the elderly as well as a large percentage of the female American
population, is such an embarrassing affliction that most sufferers resign
themselves to using absorbent products rather than seek treatment. As a result,
adult urinary incontinence has received little, if any, recognition from the
medical community. Based on the negative stigma and embarrassing nature of
the affliction, there may be a great deal of resistance from many sufferers
to "come out of the closet" in order to seek treatment.
5
E-130
<PAGE>
2. LIMITED FUNDS AVAILABLE FOR FEASIBILITY & DEVELOPMENT. Management
believes the net proceeds of this offering will be sufficient to implement the
Company's initial plan of finalizing the development of the MedCare UI System.
The Company does not have a track record of actual clinical treatment using the
MedCare UI System ant there can be no assurances that such treatment program
will become economically viable in the future. The Company plans to open its
first clinic in the near future and test market, on a limited scale, the
commercial viability of the MedCare UI System.
3. MANAGEMENT EXPERIENCE. The Company's management team consists of
seasoned individuals that have many years of experience in the requisite
fields necessary to build a successful enterprise. Collectively, the Company's
management has over sixty years of experience in medicine, management, finance
and employee development.
4. CONTINUED MANAGEMENT CONTROL. The Company's management team plans to
devote a substantial portion of their time on development of the Company's
MedCare UI clinical system. The clinics are to be operated by personnel trained
by senior management. None of the Company's directors have entered into
written agreements with the Company and none are expected to in the foreseeable
future. The Company has not obtained key man life insurance on any of its
officers or directors.
5. CONFLICTS OF INTEREST. The Company's directors and officers are not
involved in and do not plan to become involved with any firms that are directly
involved in the adult urinary incontinence market. Conflicts of interest and
non arms-length transactions may arise in the future in the event the Company's
officers or directors are involved in the management of any firm with which the
Company transacts business. When such conflicts occur, the Directors will make
any such declarations to the Shareholders as may be deemed fit by the Company s
legal advisors.
6. NO REQUIREMENT TO FILE EXCHANGE ACT REPORTS. The Company is not and
immediately following this offering will not be subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act").
Accordingly, the Company will not file quarterly and annual reports on forms
10-Q and 10-K in accordance with the provisions of the Exchange Act nor will
it be subject to the regulations promulgated by the Securities and Exchange
Commission pursuant to the Exchange Act. There can be no assurance that at
any time in the future the Company will become subject to the reporting
requirements of the Exchange Act and investors may have less access to
financial and other information concerning the Company than they would if
the Company were subject to the reporting requirements of the Exchange Act.
RISK FACTORS RELATING TO THIS OFFERING
1. No Assurance of Active Public Market for the Company's Shares. There
is currently a limited and sporadic public market for the Company's shares, and
there can be no assurance a more active market will develop at the conclusion
of this offering or, if developed. that such a market will continue. Purchasers
of the Company's Shares may, therefore, have difficulty in selling them should
they desire to do so. The number of shares available for public trading is very
limited compared to the total number of outstanding shares, most of which are
"restricted securities" which cannot presently be publicly traded.
2. NO UNDERWRITER. The Shares are being offered by the Company through
the efforts of its officers and directors and no underwriter has been
retained to assist in offering the Shares. The officers of the Company who
will participate in the selling effort have no experience in the offer and
sale of shares on behalf of an issuer, and, consequently, may be unable to
effect the sale of the Shares. There is no assurance the Company is capable
of selling all, or any, of the Shares offered.
6
E-131
<PAGE>
3. IMMEDIATE SUBSTANTIAL DILUTION - PRESENT SHAREHOLDERS OWN
CONTROLLING
INTEREST AT LOWER COST THAN PUBLIC. Present "inside" shareholders of the C
ompany have acquired their controlling interest in the Company for substantially
less than the offering price of $0.15 per Share. Assuming the maximum offering
of 4,200,000 shares are sold. present officers, directors and other controlling
shareholders will own approximately 32 % of the issued and outstanding shares.
Purchasers in this offering will own approximately 68% of the outstanding
shares for aggregate cash consideration of $630,000.
4. PUBLIC WILL BEAR RISK OF LOSS. The capital required by the Company to
carry on its business is being sought principally from the proceeds of this
offering. Therefore, public investors will bear most of the risk of the
Company's operations until such time as it attains profitable operations, if
ever.
5. PROCEEDS OF OFFERING MAY BE INADEQUATE. There is no minimum number of
Shares required to be sold in this offering, nor is there an escrow of funds.
The net proceeds of this offering (assuming all Shares offered are sold) are
budgeted for a four to six month period and, therefore, are sufficient to
conduct only a limited amount of activity. Continued operation of the Company
thereafter will be dependent on its ability to procure additional financing
via additional share offerings. There is no assurance that any number
of Shares will be sold or that any additional financing can be obtained on
terms favorable to the Company.
6. USE OF PROCEEDS NOT SPECIFIC. The proceeds of this offering have been
allocated only generally. Accordingly investors will entrust their funds with
management on whose judgment investors must depend, with only limited
information about management's specific intentions.
7. NO DIVIDENDS. No dividends have been paid on the Common Stock since
inception and none are contemplated at any time in the foreseeable future. See
"Description of Securities Dividends."
8. OFFERING PRICE ARBITRARILY DETERMINED. The offering price of the
Shares was established arbitrarily by the Company. There is no direct
relationship between the offering price and the assets or shareholders'
equity of the Company or any other recognized criterion of value.
9. NO COMMITMENT TO PURCHASE SHARES. No entity, including the Company,
has any obligation to purchase any of the Shares offered. Consequently, no
assurance can be given that any Shares will be sold. There is no minimum
number of Shares required to be sold in the offering and if only a small
number of Shares are sold the purchasers will have invested in a company
without sufficient capital to conduct its operations. Subscribers will not
be entitled to any refund of their subscriptions in such event. See "Offer
to Subscribe."
10. SHARES ELIGIBLE FOR FUTURE SALE. 2,004,079 outstanding Shares of
the Company (or 98% of the total number of outstanding shares) are "restricted
securities" and under certain circumstances may in the future be sold in
compliance with Rule 144 adopted under the Securities Act of 1933, as amended.
Future sales of these shares under Rule I Au, could severely depress the market
price of the Shares being offered hereby. Rule 144 provides, among other things,
that persons holding restricted securities for a period of two years may each
sell in brokerage transactions every three months an amount equal to 1% of the
Company's outstanding shares or the average weekly reported volume of trading
during the four calendar weeks preceding the filing of a notice of proposed
sale, whichever is greater. Substantially all of these shares will become
eligible for sale pursuant to Rule 144 beginning in August, 1997.
7
E-132
<PAGE>
CAPITALIZATION
The pro forma capitalization of the Company as of August 15, 1995 (based
upon its unaudited financial statements) and as adjusted to reflect the sale
of the maximum number of Shares offered hereby is as follows:
Amount After
Outstanding Maximum Sale
----------- ------------
Common stock, par value $.001 per share;
100,000,000 shares authorized;
2,058,519 shares outstanding,
6,258,519 shares (maximum)
to be issued (1) $ 20,585 $ 62,585
Additional paid in capital 279,415 837,415
Total Shareholders' Equity $ 300,000 $ 900,000
(I) For information regarding terms of the Common Stock of the Company and
options to purchase additional shares, see "Description of Securities -
Options."
THE COMPANY
MedCare Technologies, Inc.
MedCare Technologies, Inc. (the "Company"), formerly Multi-Spectrum Group,
Inc. (MSGI), was incorporated as Santa Lucia Funding, Inc. (SLFI) in the state
of Utah on January 17,1986, for the purpose of creating a capital resource
fund to seek, investigate and, if warranted in the opinion of its management,
acquire, merge with or participate in a favorable business opportunity. On
January 19, 1990, SLFI merged with MSGI, a Delaware corporation engaged in
the business of operating, marketing and franchising combined printing
centers and office supply outlets. Under the terms of the merger agreement.
Santa Lucia Funding, Inc. was the surviving corporation, a Utah corporation;
however, the name of the Company was changed to Multi-Spectrum Group, Inc.
The outstanding shares of MSGI were converted into common shares of SLFI at t
he exchange ratio of 55,305 shares of SLFI for each common share of MSGI then
issued and outstanding. In addition, the number of common shares authorized
was increased from 50,000,000 to 100,000,000 with the par value remaining
$.001.
On August 11, 1995 the Company affected a reverse split of its $.001 par
value common stock by a ratio of one new share for every one thousand two
hundred old shares: thereby, reducing the total number of shares issued and
outstanding to 58,519. On August 14, 1995, a total of 2,000,000 post split
shares were issued in order to acquire MedCare Technologies, Inc. MedCare
Technologies, Inc. has developed the MedCare UI System, a non-surgical,
non-invasive, non-drug and cost effective method to significantly reduce and/or
completely eliminate the majority of urinary incontinence cases. The Company
plans to test market the program within an established medical center in the
Pacific Northwest. At a Special Shareholders Meeting held on August 25, 1995
the Shareholders ratified the name change of the Company from Multi-Spectrum
Group, Inc. to MedCare Technologies, Inc. and amended the Articles of
Incorporation to allow the authorization of 101,000,000 shares of which
1,000,000 shares are to be Preferred Shares with a par value of $.25. As of
the date of this Disclosure Memorandum there are no Preferred Shares issued
and outstanding.
9
E-133
<PAGE>
MedCare Technologies, Inc. is in the final stage of developing the
MedCare Ul System, a non-surgical, noninvasive, non-drug and cost effective
method to significantly reduce and/or completely eliminate the majority of
urinary incontinence cases. The Company plans to test market the program
within an established medical center in the Pacific Northwest. Urinary
incontinence is a bladder disorder that affects approximately 11,000,000
people in the United States, with a market exceeding 510 billion per year.
MANAGEMENT
DIRECTORS
The officers and directors of the Company are as follows:
Name Position
Dr. Eric Gable President; Chairman; Director
Kundan Rayat Secretary; Director
Heather Robb Director
It is the intention of the existing Board of Directors to increase the
size of the board at the next stage of development of the Company in order
to strengthen its project financing and legal expertise.
DR. ERIC GABLE is a medical doctor with twenty nine years of experience.
He is the founder of the company and serves as its President and Chief
Executive Officer. Dr. Gable began his medical career in 1967 as a captain
in the Canadian Armed Forces and received a commendation for the development
of a Preventative Medicine Program during a time when such programs were
rare. During the period between 1970 and 1980, Dr. Gable developed the
largest medical practice in British Columbia, Canada, through the extensive
training and utilization of registered nurses. His protocol was subsequently
used as the basis of a completely new course of instruction at the University
of British Columbia. From 1982 to 1995, Dr. Gable developed a second medical
practice which was recently sold for the highest price ever paid in British
Columbia.
MR. KUNDAN S. RAYAT has over forty five years of business experience as an
owner/operator in a diverse range of businesses ranging from automotive to
heavy construction on three different continents. Since 1985, Mr. Rayat has
primarily devoted his time to venture capital investing in numerous start up
ventures and providing seasoned senior management advice to the companies
that he invests in.
HEATHER ROBB is on the Board of Directors, Management Team and Teaching
Faculty of the Leyline Center for Spiritual Development in Vancouver, British
Columbia. She teaches Energy Awareness, how to take self-responsibility and
how to take charge of self-creation/self-development. Previously she was a
human resources consultant and adult education teacher working with
corporations and individuals to maximize their organizational and personal
effectiveness through training in such areas as supervisory skills,
team building, negotiating skills, time management, conflict resolution,
situational leadership, customer service and stress management
10
E-134
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the shares of
Common Stock of the Company owned of record and beneficially as of the date of
this Memorandum by (I) each person known to the Company to own of record or
beneficially 5% or more of the 2,058,519 outstanding shares of Common Stock
of the Company, (ii) each Director of the Company, and (iii) all officers and
directors of the Company as a group, as of the date of this Memorandum and as
adjusted to reflect share holdings after the sale of the maximum number of
Shares offered hereby.
Ownership No. Shares % No. Shares %
Name and Position Pre Issue Post Issue
- ----------------- ---------- ----------
Dr. Eric Gable 1,750,000 85% 1,750,000 28%
Kundan Rayat 0 0
Heather Robb 0 0
MARKET FOR COMMON STOCK
There is a limited and sporadic market for the common stock of the
Company, which is currently listed on the "electronic bulletin board"
maintained by the National Association of Securities Dealers, Inc.
The following table sets forth the range of high and low prices for the c
ommon stock for the fiscal quarters indicated. These prices are without
mark-up, mark-down or commission and may not represent actual transactions.
1994 HIGH LOW
First Quarter . . . . . . . .$-0- -0-
Second Quarter. . . . . . . . -0- -0-
Third Quarter . . . . . . . . -0- -0-
Fourth Quarter. . . . . . . . -0- -0-
1995
First Quarter . . . . . . . . $.10 $.01
Second Quarter. . . . . . . . .10 .01
There are approximately 54,440 Shares of common stock of the Company
available for public-trading compared to an aggregate of 2,058,519 Shares
outstanding. See "Risk Factors - Shares Eligible for Future Sale."
As of August 11, 1995 there were approximately 136 record holders of the
Company's common stock.
DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorizes the issuance of
100,000,000 shares of common stock having a par value of $.001 per share and
1,000,000 shares of Preferred stock having a par value of $.25 per share.
COMMON STOCK
The holders of shares of common stock (I) have equal pro-rata rights to
dividends from funds legally available therefor, when, as and if declared by
the Board of Directors of the Company; (ii) are entitled toshare pro-
11
E-135
<PAGE>
rata in all of the assets of the Company available for distribution to holders
of common stock upon liquidation, dissolution or winding up of the affairs of
the Company; (iii) do not have preemptive, subscription or conversation rights
(although the Board of Directors may create such subscription rights) and
there are no redemption or sinking fund provisions applicable thereto; and
(iv) are entitled to one non-cumulative vote per share on all matters which
shareholders may vote on at all meetings of shareholders. All
shares of common stock outstanding are fully paid and non-assessable and all
shares of common stock which are the subject of this Offering, when issued,
will be fully paid and non-assessable.
The Board of Directors of the Company may, at its discretion, determine that
any unissued securities of the Company shall be offered for subscription solely
to the holders of Common Stock of the Company or solely to the holders of any
class or classes of such stock, in such proportions based on stock ownership
as the Board may determine.
PREFERRED STOCK
Following the approval by the shareholders and amendment of the Articles of
Incorporation, 1,000,000 shares of preferred stock of the corporation may be
issued from time to time in one or more classes or series, each of which shall
have a distinctive designation or title as shall be fixed by the Board of
Directors. No Preferred Shares have been issued as of the date of this filing.
NON-CUMULATIVE VOTING
The holders of shares of Common Stock of the Company do not have cumulative
voting rights, which means that the holders of more than 50% of such
outstanding shares voting for the election of directors can elect all of the
directors to be elected, if they so choose, and in such event, the holders of
the remaining shares will not be able to elect any of the Company's directors.
OPTIOND
Currently there are no options issued and outstanding.
DIVIDENDS
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid or
declared any dividends. Based upon the Company's present financial status and
its contemplated financial requirements, the Company does not contemplate or
anticipate paying any dividends on its common stock in the foreseeable future.
TRANSFER AGENT AND WARRANT AGENT
The Company's Transfer Agent is Holladay Stock Transfer, Inc., located at
4350 East Camelback Road, Suite 100F, in Phoenix, Arizona, 85018.
12
E-136
<PAGE>
PLAN OF DISTRIBUTION
The offering is being conducted by the Company through its officers and
Directors who will not be paid in excess of their regular compensation for
such services. No broker-dealers or other persons shall be employed by the
Company in connection with this offering. No sales commissions or other
compensation will be paid by the Company in connection with the sale of the
Shares.
All subscription payments should be made payable to "MedCare Technologies,
Inc." When subscriptions have been accepted by the Company, checks and
payment for the Shares will be deposited in the Company's corporate account
and will be utilized for the purposed described herein. See "Use of
Proceeds." Once accepted by the Company, subscriptions are not cancelable by
the subscriber and funds paid for Shares are not refundable.
The subscription price was arbitrarily determined by the Company and does
not bear any relationship to the assets, book value or other recognized
criteria or value.
The offering is being conducted pursuant to Rule 504 of Regulation D under
the Securities Act of 1933, as amended. The Shares are not "restricted
securities" as that term is defined under such Act and may be resold without
restriction by persons who are not affiliates of the Company as that term is
defined in the Act.
Each investor subscribing to the Shares offered hereby will be required
to execute a subscription agreement which, among other provisions, will
contain representations as to the investor's qualifications to purchase the
Shares and his ability to evaluate and bear the risk of an investment in the
common stock of the Company and will contain an acknowledgment of the receipt
of the opportunity to make inquiries of the Company and to obtain additional
information from the Company's management.
LITIGATION
The Company is not a party to any material pending legal proceedings.
FURTHER INFORMATION
The Memorandum does not purport to restate all of the relevant provisions
of the documents referred to or pertinent to the matters discussed herein,
all of which must be read for a complete description of the terms of the
matters relating to an investment in the Shares. These documents are available
for inspection during regulation business hours at the offices of the Company
in Vancouver, B.C., and upon written request copies of the documents, not
annexed to or contained with this Memorandum, will be provided to prospective
investors. Each prospective investor is invited to ask questions of and receive
answers from the Officer of the Company, and to obtain such information
concerning the terms and conditions of the offering to the extent the
Company possesses the same or can acquire it without unreasonable effort or
expense as such prospective investor deems necessary to verify the accuracy
of the information in this Memorandum. An appointment for such purposes will
be arranged upon request.
13
E-137
<PAGE>
FINANCIAL STATEMENTS
The following unaudited financial statements have been prepared from the
books and records of the Company without footnotes and not in accordance
with generally accepted accounting principles.
MEDCARE TECHOLOGIES, INC.
Balance Sheet
August 15, 1995
(Unaudited)
ASSETS
Assets
Intangible Assets (Rights to MedCare Ul System) $300,000
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Stockholders' Equity
Common Stock, $.001 par value
100,000,000 Authorized; Issued
and Outstanding 2,058,519 $ 20,585
Additional Paid In Capital 279,415
Total Liabilities & Stockholders' Equity $300,000
14
E-134
<PAGE>
MEDCARE TECHNOLOGIES, INC.
SUBSCRIPTION AGREEMENT
The undersigned hereby subscribes for the number of shares of common stock
(the "Shares") of MedCare Technologies, Inc. (the "Company") set forth below
at the purchase price of $0.15 per share and encloses a check payable to the
order of the Company in the amount set forth below to cover the aggregate
subscription price.
The undersigned has received and read the Disclosure Memorandum of the
Company dated August 31, 1995. The undersigned acknowledges that a purchase
of the Shares involves a high degree of risk and the undersigned has the
financial ability to suffer a total loss of the undersigned's investment
without incurring significant financial hardship.
The undersigned has had the opportunity to ask questions of and receive
answers from the Officer of the Company, and to obtain information
concerning the terms and conditions of the offering to the extent the Company
possesses the same or can acquire it without unreasonable effort or expense,
and the undersigned has availed himself or herself of such opportunity to
the extent he or she deems desirable.
Shares will be registered in the name or names set forth below.
_______________________________ ______________________________
Name(s) of Shareholder Signature
(Please type or print)
_______________________________ ______________________________
Street Address Social Security No. or Tax I.D. No.
_______________________________ ______________________________
City, State, Zip Total No. of Shares Being Purchased
_______________________________ ______________________________
Area Code and Telephone Number Total Purchase Price Being Tendered
E-139
<PAGE>
EXHIBIT 8:
504 MEMORANDUM
OF 6/22/96
<PAGE>
CONFIDENTIAL
NOT TO BE REPRODUCED OR DISTRIBUTED
Memorandum No.
Name of Offeree:
PRIVATE PLACEMENT MEMORANDUM
MedCare Technologies, Inc.
(a Utah Corporation) (" Company ")
50,000 Shares of Common Stock
$.001 Par Value
$4.75 Per Share
Minimum Investment
1,000 Shares
$4,750.00
Principal Executive Offices
400 Burrard Street, Suite 1408
Vancouver, B.C. V6C-3G2
(604) 643- 1 765
The date of this Memorandum is June 22nd, 1996
E-141
<PAGE>
MEDCARE TECHNOLOGIES, INC.
Type of securities offered: Share of the Company's common
stock, 40.001 par value
Number of Securities offered: 50,000 shares
Price per security: $4.75 per share
Total proceeds: If all shares sold: $237,500.00
Is a commissioned selling agent selling the securities in this offering ?
[ ] Yes [X] No
If yes, what percent is commission of price to public ?
Is there other compensation to selling agent(s) ?
[ ] Yes [ X ] No
Is there a finder's fee or similar pavment to anv person ?
[ ] Yes [X ] No
Is there an escrow of proceeds until minimum is obtained ?
[ ] Yes [ X ] No
Is this offenng limited to members of a special group, such as employees of
the Company or individuals ?
[ ] Yes [X ] No
Is transfer of the secunties restiicted ?
[ ] Yes [X] No
THIS OFFERING OF SECURITIES HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION. NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENCE. THE OFFERING WILL TERMINATE UPON
THE EARLIER OF ALL THE SHARES OR AUGUST 15TH, 1996. THE COMPANY IS NOT
REQUIRED TO SELL ANY MINIMUM NUMBER OF SHARES IN ORDER TO SELL
SHARES IN THE OFFERING. THE COMPANY MAY, IN ITS DISCRETION, CONDUCT MULTIPLE
CLOSINGS. (SEE "DESCRIPTION OF THE OFFERING.")
THIS MEMORANDUM HAS BEEN PREPARED SOLELY FOR USE IN CONNECTION
WITH THE PRIVATE PLACEMENT OF THE SHARES OFFERED HEREBY AND MAY NOT BE
E-142
<PAGE>
REPRODUCED OR USED FOR NAY OTHER PURPOSE. THE OFFEREE AGREES TO
RETURN TO THE COMPANY THIS MEMORANDUM AND ALL ATTACHMENTS AND RELATED
DOCUMENTATION IF THE OFFEREE DOES NOT SUBSCRIBE TO PURCHASE SHARES
IN THE OFFERING.
THESE SECURITIES ARE BEING OFFERED ONLY TO INVESTORS WHO THE OFFEROR BELIEVES
HAVE THE QUALIFICATIONS NECESSARY TO PERMIT THE SECURITIES TO BE OFFERED AND
SOLD UNDER APPLICABLE EXEMPTIONS FROM REGISTRATION UNDER THE ACT AND
QUALIFICATION UNDER APPLICABLE STATE STATUTES. THE OFFEROR WILL BE THE SOLE
JUDGE OF WHETHER AN INVESTOR POSSESSES SUCH QUALIFICATIONS. NOTWITHSTANDING
DELIVERY OF THIS MEMORANDUM AND ASSOCIATED DOCUMENTATION. THE OFFEROR
DOES NOT INTEND TO EXTEND AN OFFER TO SELL OR TO SOLICIT AN OFFER TO BUY THESE
SECURITIES UNTIL THE OFFEROR DETERMINES THAT THE OFFEREE IS QUALIFIED AND
COMMUNICATES SUCH DETERMINATION TO INVESTORS IN WRITING. THE SHARES ARE
BEING OFFERED IN A PRIVATE PLACEMENT TO A LIMITED NUMBER OF INVESTORS THIS
MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT PERMITTED UNDER APPLICABLE LAW OR
ANY FIRM OR INDIVIDUAL WHO DOES NOT POSSESS THE QUALIFICATIONS DESCRIBED IN
THIS MEMORANDUM.
THE SHARES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), OR THE SECURITIES LAWS OF UTAH OR OTHER STATES AND ARE
BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FRO THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS. THERE IS NO PUBLIC MARKET FOR
SECURITIES OF THE COMPANY EVEN IF SUCH MARKET EXISTED PURCHASERS OF SHARES
WILL BE REQUIRED TO REPRESENT THAT THE SHARES ARE BEING ACQUIRED FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO SALE OR DISTRIBUTION AND
PURCHASERS WILL NOT BE ABLE TO RESELL THE SHARES UNLESS THE SHARES ARE
REGISTERED UNDER THE ACT AND QUALIFIED UNDER THE APPLICABLE STATE STATUTES
(UNLESS AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION IS AVAILABLE).
PURCHASERS OF THE SHARES SHOULD BE PREPARED TO BEAR THE ECONOMIC RISK OF
THEIR FINITE PERIOD OF TIME.
THE PURCHASE OF THESE SECURITIES WILL ENTAIL A HIGH DEGREE OF RISK THESE
SECURITIES ARE SUITABLE ONLY FOR PERSONS WHO HAVE SUBSTANTIAL FINANCIAL
RESOURCES AND HAVE NO LIQUIDITY IN THIS INVESTMENT. NO ONE SHOULD INVEST IN THE
SHARES WHO IS NOT PREPARED TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE RISK FACTORS INDICATED UNDER "RISK
FACTORS."
INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM OR ANY
COMMUNICATION, WHETHER WRITTEN OR ORAL, FROM THE COMPANY, ITS FOUNDERS,
MANAGEMENT, EMPLOYEES OR AGENTS, AS LEGAL, TAX, ACCOUNTING
E-143
<PAGE>
OR OTHER EXPERT ADVICE. EACH INVESTOR SHOULD CONSULT THEIR OWN
COUNSEL, ACCOUNTANT AND OTHER PROFESSIONAL ADVISORS AS TO LEGAL, TAX,
ACCOUNTING, AND RELATED MATTERS CONCERNING HIS INVESTMENT AND ITS SUITABILITY
FOR THEM.
NO PERSON (OTHER THAN OFFICERS OF THE COMPANY TO WHOM REQUESTS ARE
DIRECTED FOR ADDITIONAL INFORMATION CONCERNING THIS OFFERING) IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
(WHETHER ORAL OR WRITTEN) IN CONNECTION WITH THIS OFFERING EXCEPT SUCH
INFORMATION AS IS CONTAINED IN THIS PRIVATE PLACEMENT MEMORANDUM AND
THE ATTACHMENTS THERETO AND DOCUMENTS REFERRED TO HEREIN. ONLY
INFORMATION OR REPRESENTATIONS CONTAINED HEREIN AND THEREIN MAY BE
RELIED UPON AS HAVING BEEN AUTHORIZED.
THE SECURITIES OFFERED HEREBY WILL BE SOLD TO SUBJECT TO THE STOCK
SUBSCRIPTION AGREEMENT ATTACHED AS ATTACHMENT A OF THIS MEMORANDUM.
WHICH CONTAINS CERTAIN REPRESENTATIONS, WARRANTIES, TERMS AND
CONDITIONS, EACH INVESTOR SHOULD CAREFULLY REVIEW THE PROVISIONS OF
THE SUBSCRIPTION AGREEMENT BEFORE INVESTING.
This Company:
[ ] Has never conducted operations.
[X ] Is in the development stage.
[ ] Is currently conducting operations.
[ ] Has shown a profit in the last fiscal year.
[ ] Other ( Specify )
( Check at one . as appropriate )
This offering has been registered for offer and sale in the following states:
State State File.No Effective Date
- ------- ------------- --------------
NO REGISTRATION HAS BEEN FILED.
This Offering Circular, together with Financial Statements and other
Attachments, consists of a total of 23 pages (including cover page).
E-144
<PAGE>
TABLE OF CONTENTS
Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Disclosure Statements. . . . . . . . . . . . . . . . . . . . . .2
Table of Contents. . . . . . . . . . . . . . . . . . . . . . . .5
Summary of the Offering. . . . . . . . . . . . . . . . . . . . .6
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . .7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . .8
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 12
Description of Securities. . . . . . . . . . . . . . . . . . . 13
Terms of the Offering. . . . . . . . . . . . . . . . . . . . . 13
Directors, Officers and key Personnel of the Company . . . . . 14
Remuneration of Directors and Officers . . . . . . . . . . . . 15
Principal Stockholders . . . . . . . . . . . . . . . . . . . . 15
Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . 16
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Additional Information . . . . . . . . . . . . . . . . . . . . 16
State Restrictions . . . . . . . . . . . . . . . . . . . . . . 18
EXHIBITS
Exhibit A Subscription Agreement
This is an original unpublished work protected under copyright laws of the
United States and other countries. All Rights Reserved. Should publication
occur, then the following notice shall apply: Copyright 1996 MedCare
Technologies, Inc., All Rights Reserved. No part of this document may be
reproduced, stored in a retrieval system or transmitted, in any form or any
means, electronic, mechanical, photocopying, recording or otherwise, without
the prior written permission of MedCare Technologies, Inc.
E-145
<PAGE>
SUMMARY OF THE OFFERING
The following material is intended to summarize information contained
elsewhere in this Memorandum. This summary is qualified in its entirety by
express reference to the Memorandum and the exhibits referred to therein.
Each prospective investor is urged to read this Memorandum in its entirety.
ISSUER: MedCare Technologies, Inc., a Utah corporation (the "Company"), is
the issuer of the Shares. The address of the company is 1408-400 Burrard
Street, Vancouver, BC V6C-3G2.
TERMS OF THE OFFERING: The Company is offering up to 50,000 of its common
stock, par value $.001 per share ( the "Share"). The Minimum investment for
an Investor is 1,000 Shares or $4,750.00 The Company, in its sole discretion,
may accept subscriptions for up to an aggregate of 50,000 or 237,500,000
until August 15th, 1996, or until such earlier date as the Company determines
that this Offering shall be terminated. In its sole discretion, the Company
may elect to terminate this Offering even if subscriptions for Shares have
been received and accepted by the Company. See "Terms of the Offering" and
"Subscription for Shares".
COMPANY'S BUSINESS: The Company is engaged in treatment of patients suffering
from urinary and fecal incontinence using a non-surgical, non-drug and non-
invasive treatment protocol in a clinical setting.
RISK FACTORS: The offering involves speculative investment with substantial
risks, including those associated with an unproven startup venture, risks
associated with the industry and economic risks associated with clinics in
different geographic locations and the uncertainty of obtaining managerial
staff to generate income and control costs in different locations. Although
the Company will use its best efforts to protect the investments of the
Investors, there is no assurance that the Company's efforts will be
successful. Accordingly. a prospective Investor should not view the Company
or its officers, directors, employees or agents as guarantors of the financial
success of an investment in the Shares. See "Risk Factors".
LIMITED TRANSFERABILITY OF THE SHARES: The Shares have not been registered
under the 1933 Act or the securities laws of any state. The Shares of common
stock purchased pursuant to this Offering will not be "restricted" shares
because the shares are offered under Rule 504 and this offering is excluded
from the provisions of Regulation D pertaining to restricted shares. This does
not mean, however, that a publiic market exists now, but may not exist in the
future. See "Risk Factors", "Terms of the Offering".
LIMITATION OF LIABILITY: Except for the amounts paid by Investors for their
purchase of any Shares, and as required by Utah State law, no investor will
be liable for any debts of the Company or be obligated to contribute any
additional capital or funds to the Company. See "Risk Factors".
E-146
<PAGE>
SUITABILITY STANDARDS: Each Investor must meet certain eligibility standards
established by the Company for the purchase of the Shares. See "Terms of the
Offering" and "Subscription for Shares".
USE OF PROCEEDS: The Company plans to use the money received from this
offering to cover the costs involved with setting up offices, working
capital, and promoting and marketing the Company's products and services.
The funds will not be deposited in an escrow account and will be available
to the Company immediately. No minimum amount of Shares is required to be
sold.
THE COMPANY
Exact corporate name: MedCare Technologies, Inc.
State and date of incorporation: Utah State January 17th, 1986
Street address of principal office: 400 Burrard Street, Suite 1408
Vancouver, BC V6C3G2
604-643-1765
Fiscal Year: December 31
Person(s) to contact with
respect to offering: Mr. Harmel S. Rayat
PRODUCTS
The Company has developed the MedCare UI system as a cost effective, non-
invasive protocol for the care and treatment of urinary incontinence.
Urinary incontinence (UI) is the involuntary loss of bladder control and
represents a significant cause of disability and dependence. Incontinence
is one of the most prevalent, yet severely unrecognized problems in health
care today. And as society ages, the physical, emotional and financial costs
to those suffering and the costs to their caregivers, as well as the health
care system, is expected to increase dramatically.
The psycho social impact of Ul imposes a tremendous burden on individuals,
their families and health care providers. Patients experience odor, dampness,
discomfort, depression, withdrawal from daily activities and a significant
quality of life problem. Social interaction with friends and family and even
sexual activity is restricted or avoided in the presence of incontinence.
Sadly, many UI sufferers eventually confine themselves to a life of exile in
their own homes. In fact, UI has also been cited as one of the major reasons
why people institutionalize elderly family members.
E-147
<PAGE>
Despite the prevalence of incontinence, it is widely under diagnosed and
under reported because of the social stigma attached to UI. Many individuals
are either too ashamed or too embarrassed to report the problem to their
doctor or to a health care professional. Instead, a large number of people
prematurely turn to the use of absorbent materials and supportive aids without
having their condition properly diagnosed and treated.
The MedCare UI System takes into account the individual's specific needs
and circumstances including their clinical, cognitive, functional and
residential status to offer a comprehensive program for all UI sufferers.
Through the Company's wholly owned operating subsidiary, Manon Consultants
Ltd. the MedCare UI treatment program has a two year track record and uses a
combination of electromyographic (EMG) bier retraining, coping strategies for
situations that precipitate incontinence, clinical visits and results in the
reduction or complete elimination of 70% to 100% of the most commonly found
urinary incontinence symptoms.
MATERIAL CONTRACTS
The Company has no contracts at the present time.
MARKETING APPROACHES
The Company plans to market its UI clinics through a combination of radio,
TV, print, direct mail seminars, doctor referral and guest interviews by
Company representatives in the local media.
RISK FACTORS
An investment in the Shares involves a high degree of risk. No prospective
Investor should acquire the Shares unless he can afford a complete loss of
his investment. The risks described below are those which the Company deems
most significant as of the date hereof. Other factors which may have a
material impact on the operations of the Company may not be foreseen. In
addition to the other factors set forth elsewhere in this Memorandum,
prospective Investors should carefully consider the following specific risk
factors:
A. OPERATING RISKS
GENERAL. The economic success of an investment in the Shares depends,
to a large degree, upon many factors over which the Company has no control.
These factors include general economic, industrial and international
conditions; inflation or deflation; fluctuation in interest rates; the
availability of, and fluctuations in the money supply. The extent, type and
sophistication of the Company's competition; and government regulations.
LACK OF OPERATIONS. The Company engages in limited business operations
at the present time. However, upon completion of the Offering, the Company
plans to use the proceeds to expand its clinical system in certain key
markets.
E-148
<PAGE>
DEVELOPMENT STAGE COMPANY. The Company was organized in 1986. The Company
has undertaken no business operation of any sort or type. Accordingly, the
Company is a development stage company as defined by Statement of Financial
Accounting Standards No.7.
DEPENDENCE ON KEY PERSONNEL. The Company's success will depend, in large
part, upon the talents and skills of key management personnel. To the extent
that any of its management personnel is unable or refuses to continue
association with the Company, a suitable replacement would have to be found.
There is no assurance that the Company would be able to find suitable
replacements for such personnel, or that suitable person.
LACK OF ADEQUATE CAPITAL. Additional capital will be required upon the
successful opening of the first few clinics. Ln the absence of any additional
funding, the Company's operations may be affected negatively. Therefore, the
Company's management will be careful in choosing those locations that
represent the best chances of success and, accordingly, the best chances of
raising future funding.
INHERENT BUSINESS RISKS. The business that the Company plans to engage in
involves substantial and inherent risks associated with a development company
with limited financial resources.
B. INVESTMENT RISKS
SPECULATIVE INVESTMENT. The Shares are a very speculative investment.
There can be no assurance that the Company will attain its objective and
it is very likely that the Company will not be able to advance any business
activities and Investors could lose their entire investments.
ARBITRARY PURCHASE PRICE. The purchase price for the Shares has been
arbitrarily determined by the Company, and is not necessarily indicative of
their value. No assurance is or can be given that the Shares, although
transferable, could be sold for the purchase price, or for any amount. There
currently exists a limited market for resale of the Shares.
RESTRICTION OF TRANFERABILITY. While the Compeing offered by the
Company, an investment in the Shares may be a long term investment. Investors
who do not wish or who are not financially able to hold the Shares for a
substantial period of time are advised against purchasing Shares. The Shares
are not registered under the 1933 Act or under the securities laws
of any state, but are being offered by the Company under the exemption from
registration provided by Rule 504 under Regulation D and related state and
foreign exceptions.
IMMEDIATE DILUTION FOR INVESTORS. An investor in this offering will
experience an immediate and substantial dilution.
"BEST EFFORTS" OFFERING. The Shares are being offered on a "best efforts"
basis by the Company. No person or entity is committed to purchase or take down
any of the Shares offered pursuant to this Offering. No escrow account is
maintained and no minimum amount is required to be sold. Funds will be
available to the Company upon receipt.
E-149
<PAGE>
MANAGEMENT AND OPERATION EXPERIENCE. The Company's officers, directors
and other personnel have engaged in a variety of businesses and have been
involved in business financing, operations and marketing, but their experience
in these fields is limited. There is no assurance that such experience will
result in the success of the Company.
OTHER RISKS. No assurance can be even that the Company will be successful
in achieving its stated objectives. that the Company's business is undertaken
by the Company, will generate cash sufficient to operate the business of the
Company or that other parties entering into agreements relating to the
Company's business will meet their respective obligations.
DIVIDENDS. The Company's Board of Directors presently intends to cause
the Company to follow a policy of retaining earnings, if any, for the purpose
of increasing the net worth and reserves of the Company. Therefore, there can
be no assurance that any holder of Common Stock will receive any cash, stock
or other dividends on his shares of Common Stock. Future dividends on Common
Stock, if any, will depend on the future earnings, financing requirements and
other factors.
ADDITIONAL SECURITIES AVAILABLE FOR ISSUANCE. The Company's Certificate
of Incorporation authorizes the issuance of l00,000,000 shares of Common
Stock. At this time, 6,300,185 shares of Common stock have been issued.
Accordingly, investors purchasing shares in this offering will be dependent
upon the judgement of management in connection with the future issuance and
sale of shares of the Company's capital stock, in the event purchasers can
be found for such securities.
USE OF PROCEEDS
The Company will incur expenses in connection with the Offering in an amount
anticipated not to exceed $1,000.00 for legal fees, accounting fees, filing
fees, printing co Shares are sold, the Company anticipates that the net
proceeds to it from the Offering will be as follows:
ITEM MAXIMUM SHARES SOLD
- ---- -------------------
Gross Proceeds of Offering $237,5000.00
OFFERING EXPENSES
- -----------------
Cost of Offering 1,000.00
TOTAL PROCEEDS RECEIVED: $236,500.00
Operating Expenses
- ------------------
E-150
<PAGE>
Equipment Purchases $75,000.00
Advertising & Marketing 75,000.00
Working Capital 86,5000.00
TOTAL NET FUNDS AVAILABLE TO COMPANY $236,5000.00
The Company estimates that the costs of the Offering will be as follows: (i)
legal fees of approximately 500.00, (ii) accounting fees of approximately
$400.00 and (iii) printing and other miscellaneous costs of approximately
5100.00. The sales commissions will be paid only to NASD broker-dealer and
no other person will receive any commissions or remuneration from the
Company.
he net proceeds of this offering, assuming all the Shares are sold, will be
sufficient to sustain the planned marketing and development activities of
the Company for a period of 6 months, depending upon the number of Shares
sold in the offering and other factors. Even if all the Shares offered
hereunder are sold, the Company will require additional capital in order to
fund continued development activities and capital expenditures that must be
made. The Company's business plan is based on the premise that additional
funding will be obtained through funds generated from operations, the
exercising of the options by shareholders, additional offerings of
its securities, or other arrangements. There can be no assurance that any
securities offerings will take place in the future, or that funds sufficient
to meet any of the foregoing needs or plans will be raised from operations or
any other source.
DESCRIPTION OF SECURITIES
The following discussion describes the stock and other securities of the
Company.
GENERAL. The Company currently has 100,000,000 authorized common shares,
par value $.001 per share, of which 6,300,185 common shares were issued and
outstanding as of the date of this Placement. All of the outstanding common
shares of the Company are fully paid for and nonassessable.
VOTING RIGHTS. Each share of the 6,300,185 shares of the Company's common
stock held by its current shareholders is entitled to one vote at shareholders
meetings.
DIVIDENDS. The Company has never paid a dividend and does not anticipate
doing so in the near future.
OPTIONS. The Company currently has 800,000 options outstanding in
relation to its common stock.
MISCELLANEOUS RIGHTS AND PROVISIONS. Shares of the Company's common stock
have no pre-emptive rights. The Shares do not have any conversion rights, no
redemption or sinking fund
E-151
<PAGE>
provisions, and are not liable to further call or assessment. The Shares,
when paid for by investors, will be fully paid and nonassessable. Each share
of the Company's common shares is entitled to a pro rata share in any asset
available for distribution to holders of equity securities upon the liquidation
of the Company.
TERMS OF THE OFFERING
The Company is offering to qualified investors a maximum of 50,000 Shares at a
purchase price of $4.75 per share of the Company's common stock. The Company
may, in its sole discretion, terminate the offering at any time. The Offering
will close on the earliest of August 15th, 1996 or the election of the Company
when all of the Shares are sold. in no event later than August 15th,
1996. The minimum subscription is 54,;'50.00 (1,000 Shares) per Investor,
although the Company, in its sole discretion. may accept subscriptions for l
esser amounts.
The Shares are being offered and sold by the Company under the exemption from
registration contained in Rule 504 under Regulation D and related exemptions
from state registration requirements. Rule 504 permits the Company to offer
and sell its stock in an amount not exceeding S 1.000.000 to an unlimited
number of persons. Until 1992. Rule 504(b)(2)(ii) imposed a limited disclosure
obligation of all issuers such as the Company which was intended to ensure that
investors in a Rule 504 transaction were clearly advised of the restricted
character of the securities being offered for sale. This requirement was
eliminated in July, 1992 at which time the Securities and Exchange Commission
adopted an amendment to Rule 504 that eliminated all limitations on the manner
of offering of stock under that rule and/or the resale of stock purchased in
reliance on that rule. Therefore. following adoption of the 1992 amendment,
the securities being offered and sold by the Company pursuant to the present
Offering are available for immediate resale by nonaffiliates of the issuer.
The Shares are being ordered on a "best efforts" basis by thrtain expenses of
the Offering will be paid from the proceeds of the Offering. The Company
anticipates that such expenses will not exceed 51,000 as detailed in the Use of
Proceeds.
DIRECTORS, OFFICERS AND KEY PERSONNEL OF THE COMPANY
OFFICERS AND DIRECTORS. The following information sets forth the names
of the officers and directors of the Company, their present position with
the Company and biographic information:
NAME POSITION HELD SINCE
Harmel S. Rayat President & Director October, 1995
Kundan S. Rayat Director & Secretary August, 1995
Valerie Boeldt-Umbright Director October, 1995
Diane Naziato Director October, 1995
Narinder Thouli Director & Treasurer October, 1995
HARMEL S. RAYAT (35)- President and Chief Executive Officer. Mr. Rayat is
one of the codevelopers of the MedCare UI System. Mr. Rayat has been in the
venture capital industry since 1981 and is the president of Hartford Capital
Corporation, a company that specializes in providing early stage funding and
investment banking services to emerging growth corporations.
VALERIE BOELDT-UMBRIGHT (31) - Director. Mrs. Boeldt-Umbright is a registered
nurse, with a Bachelors of Science degree in community health education from
Northen Illinois University. With over two years of actual management
experience in the day to day operation of the incontinence Clinic in Chicago,
Mrs. Boeldt-Umbright has supervised personnel dealt with insurance and
reimbursement matters, marketing and physician interaction and referrals.
She has instructed patients in biofeedback; for their pelvic floor muscles,
established individualized neuromuscular reeducation programs, written new
clinical protocols and articles for publication and has worked as a member
of a university team to provide excellent care and medical treatment for
patients.
NARINDER THOULI (32) - Director/Treasurer. Mr. Thouli has 5 years of experience
in medical technology companies, primarily as a consultant to emerging market
product developers. He is experienced in marketing, human resources. research
and development and clinical and regulatory affairs.
DIANE NUNZIATO (49) - Director. Ms. Nunziato has a Bachelors of Science and
a Masters of Clinical Science from the University of Western Ontario, as well
as numerous certifications in courses ranging from adult learning, clinical
supervision and instruction, group dynamics, learning theories, and management.
Ms. Nunziato has been instrumental in developing and refining the clinical
protocols for the MedCare UI System and has in-depth knowledge of every
aspect of establishing a clinical system, including marketing, billing,
medical products and equipment, patient and physician interaction, and the
training and supervision of personnel.
KUNDAN S. RAYAT (68) - Director/Secretary . .Mr. Rayat has over 45 years of
experience as an entrepreneur and owner of a diverse range of businesses
ranging from automotive to heavy construction on three different continents.
Since 1985, Mr. Rayat has primarily devoted his time to venture capital
investing in numerous start up ventures and provides seasoned senior
management advice to emerging market companies as a consultant.
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the shares of Common
Stock of the Company owned of record and beneficially held as of the date of
this Memorandum by (i) each person known to the Company to own of record or
beneficially 5% or more of the 6,300,185 outstanding shares of Common Stock
of the Company, (ii) each Director of the Company, and (iii) all officers and
directors of the Company as a group, as of the date of this Memorandum and
adjusted to reflect share holdings after the sale of the maximum number of
Shares offered hereby.
E-153
<PAGE>
<TABLE>
<CAPTION>
No of No of
Shares Shares
Person or Group (Pre) Percent (Post) Percent
- --------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C>
Harmel S. Rayat 2,000,000 31.7% 2,000,000 31.5%
5131 Highgate Street
Vancouver, B.C., VSR 3G9
Cede & Co 483,008* 7.67% 483,008* 7.61%
P.O. Box 222
Bowling Green Street
New York, NY. 10274
Philadep & Co. 379,169* 6.02% 379,169* 5.97%
1900 Market Street
2nd Floor
Philadelphia PA, 19103
</TABLE>
* Held in clearing company for the benefit of others
REMUNERATION OF DIRECTORS AND OFFICERS
irectors of the Company who are also employees of the Company receive no
additional compensation for their services as Directors. The Company intends,
in the future, to pay Directors who are not employees of the Company,
compensation of $500 per Director's Meeting, as well as reimbursements of
any out of pocket expenses incurred in the Company's behalf.
REPORTS
The books and records of the Company will be maintained by the Company. The
books of account and records shall be kept at the principal place of business
of MedCare Technologies, Inc. and each shareholder, or his duly authorized
representatives, shall have upon giving ten (10) days prior notice, access
during reasonable business hours to such books and records, and the right to
inspect and copy them. Within 120 days after the close of each fiscal year,
reports will be distributed to the shareholders which will include financial
statements (including a balance sheet and statements of income, shareholder's
equity, and cash flows) prepared in accordance with generally accepted
accounting principals, with a reconciliation to the tax information
supplementary supplied, accompanied by a copy of the accountant's report.
LEGAL MATTERS
Gary R. Blume, Esquire, 11801 North Tatum Boulevard, Suite 108, Phoenix,
Arizona 85028-1612 will pass upon certain matters for the Company.
E-154
<PAGE>
LITIGATION
The Company is not presently involved in any material litigation or other legal
proceedings.
ADDITIONAL INFORMATION
In the opinion of the Board of Directors of the Company, this memorandum
contains a fair presentation of the subjects discussed herein and does not
contain a misstatement of material fact or fail to state a material fact
necessary to make any statements made herein not misleading. Persons to
whom offers are made will be furnished with such additional information
concerning the Company and other matters discussed herein as they, or their
purchaser representative or other advisors, may reasonably request. The
Company shall, to the extent such information is available or can be acquired
without unreasonable effort or expense, endeavor to provide the information to
such persons. All Offeree are urged to make such personal investigations,
inspections or inquiries as they deem appropriate.
Questions or requests for additional information may be directed to Harmel S.
Rayat at (604) 643-1765. Requests for additional copies of this Memorandum or
assistance in executing subscription documents may be directed to the Company.
STATE RESTRICTIONS AND DISCLOSURES
FOR UNREGISTERED SECURITIES OFFERINGS
NOTICE TO ARIZONA RESIDENTS:
These securities are being sold in reliance upon Arizona's Limited Offing
exemption from registration pursuant to ARS 44 1844.
THE SHARES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
ARIZONA SECURITIES ACT, AS AMENDED, AND THEREFORE, CANNOT BE
TRANSFERRED OR RESOLD UNLESS THEY ARE REGISTERED UNDER SUCH ACT OR
AN EXEMPTION THEREFROM IS AVAILABLE.
As a purchaser of such securities hereby represent that I understand
these securities cannot be resold without registration under the Arizona
Securities Act or an exemption therefrom. I am not an underwriter within
the meaning of A.R.S 44 1801(17), and I am acquiring these securities for
myself, not for other persons. If qualifying as a non-accredited investor,
I further represent that this investment does not exceed 20% of my net worth
(excluding principal residence, furnishings therein and personal automobiles).
E-155
<PAGE>
NOTICE TO CALIFORNIA RESIDENTS:
These securities are being sold in reliance upon California's Limited
Offering Exemption.
251 02(f) of the California Code. as amended.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS
MEMORANDUM HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFROM PRIOR TO SUCH QUALIFICATIONS IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATIONS BY
SECTION 95100. 25102 OR 96105 OF THE CALIFORNIA CORPORATIONS CODE. THE
RIGHTS OF ALL PARTIES ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE SECURITIES.
NOTICE TO COLORADO RESIDENTS:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. OR THE COLORADO SECURITIES ACT OF 1981 BY
REASON OF SPECIFIC EXEMPTIONS THEREUNDER RELATI BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY
UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. OR THE COLORADO SECURITIES ACT OF 1981, IF SUCH REGISTRATION
IS REQUIRED.
NOTICE TO NEW YORK RESIDENTS:
THIS PRIVATE PLACEMENT MEMORANDUM HAS NOT BEEN FILED WITH OR
REVIEWED BY THE ATTORNEY GENERAL PRIOR TO ITS ISSUANCE AND USE. THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION OF THE
CONTRARY IS UNLAWFUL.
THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONTAIN AN
UNTRUE STATEMENT OF MATERIAL FACT AND DOES NOT OMIT ANY MATERIAL
FACT NECESSARY TO MAKE THE STATEMENTS MADE, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE ~\MADE, NOT MISLEADING. IT
CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS AND DOCUMENTS
PURPOSED TO BE SUMMARIZED HEREIN.
Purchaser Statement:
E-156
<PAGE>
I understand that this Offering of Shares has not been reviewed by the
Attorney General of the State of New York because of the offeror's
representation that this intended to be a non-public Offering pursuant to the
Regulation D Rule 505 or S06, and that if all of the conditions and
limitations of Regulation D are not complied with, the Offering will be
resubmitted to the Attorney General for amended exemption. I understand that
any literature used in connection with this Offering has not been previously
filed with the Attorney General and has not been reviewed by the Attorney
General. This Investment Unit is being purchased for my own account for
investment, and not for distribution or resale to others. I agree that I
will not sell or otherwise transfer these securities unless they are
registered under the Federal Securities Act of 1933 or unless an exemption
from such registration is available. I represent that I have adequate
means of providing for my current needs and possible personal contingencies of
financial problems, and that I have no need for liquidity of this investment.
It is understood that all documents, records and books pertaining to this
investment have been made available to my attorney, my accountant, or my
Offeree representative and myself, and that, upon reasonable notice, the
books and records of the issuer will be available for inspection by investors,
at reasonable hours at the principal place of business.
E-157
<PAGE>
EXHIBITS
E-158
<PAGE>
MedCare Technologies, Inc.
SUBSCRIPTION DOCUMENT
1. The undersigned hereby subscribes for _______ shares of common
stock (hereinafter "Shares"), as described in the Private Offering
Memorandum dated June 22, 1996 ("Memorandum"), of MedCare Technologies,
Inc., a Utah corporation (the "Company"), being offered by the Company
for a purchase price of $4.75 per share and tenders herewith the sum of
$_____________ in payment therefor, together with tender of this
Subscription Document.
2. The undersigned represents and warrants that he is a bona fide
resident of the State of _________________.
3. The undersigned acknowledges:
a. Receipt of a copy of the Private Offering Memorandum;
b. That this subscription, if acceptaed by the Company, is
legally binding and irrevocable;
c. That the Company has a very limited financial and operating
history;
d. That the Shares have not been registered under the Securities
Act of 1933, as amended, in reliance upon exemptions contained
in that Act, and that the Shares have not been registered under
the securities acts of any state in reliance upon exemptions
contained in certain state's securities laws; and
e. That the representations and warranties provided in this
Subscriptoin Document are being relied upon by the Company as
the basis for the exemption from the registration requirements
of the Securities Act of 1933 and of the applicable state's
securities laws.
4. The undersigned represents and warrants as follows:
a. That the undersigned subscriber is purchasing said Shares as an
investment and said Shares are purchased solely for the
undersigned's own account.
b. That the undersigned subscriber has sufficient knowledge and
experience in financial and business matters to evaluate the
merits and risks of an investment in the Shares;
E-159
<PAGE>
c. That the undersigned subscriber is able to bear the economic
risk of an investment in the Shares;
d. That the undersigned subscriber has read and is thoroughly
familiar with the Private Offering Memorandum and represents
and warrants that he is aware of the high degree of risk
involved in making investment in the Shares;
e. That the undersigned subscriber's decision to purchase the
Shares is based solely on the information contained in the
Private Offering Memorandum and on written answers to such
questions as he has raised concerning the transaction;
f. That the undersigned subscriber is purchasing the Shares
directly from the Company and understands that neither the
Company nor the Offering is associated with, endorsed by nor
related in any way with any investment company, national or
local brokerage firm or broker dealer. The undersigned
subscriber's decision to purchase the Shares is not based in
whole or in part on any assumption or understanding that an
investment company, national or local brokerage firm or other
broker dealer is involved in any way in this Offering or has
endorsed or otherwise recommended an investment in these
Shares.
g. That the undersigned subscriber has an investment portfolio of
sufficient value that he could suitably absorb a high risk
illiquid addition such as an investment in the Shares.
h. That the undersigned further represents that (INITIAL APPROPRIATE
CATEGORY):
[ ] I am a natural person whose individual net worth, or joint
worth with my spouse at the time of purchase, exceeds
$200,000;
[ ] I am a natural person who has an individual income in
excess of $50,000 or joint income with my spouse in
excess of $50,000 in each of the two most recent years and
who reasonably expects an income in excess of those
amounts in the current year;
i. That Regulation D requires the Company to conclude that each
investors has sufficient knowledge and experience in financial
and business matters as to be capable of evaluating the merits
and risks of an investment in the shares, or to verify that the
investor has retained the services of one or more purchaser
representatives for the purpose of evaluating the risks of
investment in the shares, and hereby represents and warrants
that he has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits
and risks of an investment in the shares and of making an
informed investment decision and will not require a purchaser
representative.
E-160
<PAGE>
5. The undersigned understands and agrees that this subscription is
made subject to each of the following terms and conditions:
a. The Company shall have the right to accept or reject this
subscription, in whole or part, for any reason. Upon receipt of
each Subscription Document, the Company shall have until August
15th, 1996 in which to accept or reject it. If no action is
taken by the Company within said period, the subscription shall
be deemed to have been accepted. In each case where the
subscription is rejected, the Company shall return the entire
amount tendered by the subscriber, without interest;
b. That the undersigned subscriber will, from time to time,
execute and deliver such documents or other instruments as may
by requested by the Company in order to aid the Company in the
consummation of the transactions contemplated by the
Memorandum.
6. The undersigned hereby constitutes and appoints the Company, with
full power of substitution, as attorney-in-fact for the purpose of
executing and delivering, swearing to and filing, any documents or
instruments related to or required to make any necessary clarifying
or confirming changes in the Subsription Document so that such
document is correct in all respects.
7. As used herein, the singular shall include the plural and the
masculine shall include the feminine where necessary to clarify
the meaning of this Subscription Document. All terms not defined herein
shall have the same meanings as in the Memorandum.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Document this ______ day of ___________________, 1996.
Number of Shares ____________________
Total amount tendered $____________
INDIVIDUAL OWNERSHIP: _______________________________
Name (Please type or print)
_______________________________
Signature
_______________________________
Social Security Number
E-161
<PAGE>
JOINT OWNERSHIP: ________________________________
Name (Please type or print)
________________________________
Signature
_________________________________
Social Security Number
OTHER OWNERSHIP: _________________________________
Name (Please type or print)
By: ___________________________
Signature
________________________________
Title
________________________________
Employer Identification Number
ADDRESS: ____________________________________________________________
Phone: (Residence):_________________; Phone (Busines) _______________
I, _______________________, do hereby certify that the
representations made herein concerning my financial status are true, and
that all other statements contained herein are true, accurate and
complete to the best of my knowledge.
Date: ___________________________, 1996 ______________________________
Signature
E-162
<PAGE>
CERTIFICATE OF DELIVERY
I hereby acknowledge that I delivered the foregoing Subsription
Document to ______________________ on the _____ day of _________________,
1996.
___________________________
Signature
ACCEPTANCE
This Subsription is accepted by MedCare Technologies, Inc., as of
the _______ day of ____________________, 1996.
MedCare Technologies, Inc.
By________________________
Harmel Rayat, President
E-163
<PAGE>
EXHIBIT 9:
ARTICLES OF MERGER
OF
MEDCARE TECHNOLOGIES, INC.
a Utah corporation,
INTO
MEDCARE TECHNOLOGIES, INC.
a Delaware corporation,
Pursuant to the Utah Revised Business Corporation Act S. 16-10a-1105 and
Delaware General Corporation Law Section 251, the undersigned corporations,
by and through the undersigned officers, hereby set forth the following
Articles of Merger:
1. Plan of Merger. The plan of merger is set forth on Exhibit A
attached hereto and is incorporated herein by this reference. Medcare
Technologies, Inc., a Delaware corporation, is the Surviving Corporation.
2. Outstanding Shares. The number of shares outstanding for each
corporation named in the plan of merger was as follows:
Medcare Technologies, Inc.,
a Utah corporation 6,335,185
Medcare Technologies, Inc.,
a Delaware corporation 0
3. Approvals. The annual meeting of the shareholders of Medcare
Technologies, Inc., a Utah corporation, was held on July 18, 1996 and a
majority of the shares represented were voted in favor of the plan of merger.
There are no shareholders of Medcare Technologies, Inc., a Delaware corporation.
4. Agreements. The Surviving Corporation hereby agrees that:
(a) it may be served with process in the State of Utah in any
proceeding for the enforcement of any obligation of the disappearing
corporation and in any proceeding for the enforcement of the rights of a
dissenting shareholder of such disappearing corporation against the Surviving
Corporation;
(b) the Utah Secretary of State may accept service in any such
proceeding on behalf of the Surviving Corporation, or service may be had on
this Corporation's agent as appointed in its application for authority to do
business in the state of Utah; and
E-163
<PAGE>
(c) it will pay to any dissenting shareholder of the disappearing
corporation the amount, if any, to which such dissenting shareholder may be
entitled under the provisions of the Utah Revised Statutes, as amended.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
____________ day of __________________, 19___.
Medcare Technologies, Inc.,
a Utah corporation
By:
___________________________________
Harmel S. Rayat, President
By:
_________________________________
Kundan S. Rayat, Secretary
Medcare Technologies, Inc.,
a Delaware corporation
By:
__________________________________
Harmel S. Rayat, President
By:
___________________________________
Kundan S. Rayat, Secretary
STATE OF _____________ )
)ss.
County of ______________)
On this, the ________________ day of ___________________, 19___, before
me, the undersigned Notary Public, personally appeared Harmel S. Rayat and
Kundan S. Rayat, the President and Secretary of Medcare Technologies, Inc.,
a Utah corporation, and acknowledged to me that they, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by themselves as such officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_____________________________________
Notary Public
My Commission Expires:
_____________________
STATE OF _____________ )
)ss.
County of ______________)
On this, the ________________ day of ___________________, 19___, before
me, the undersigned Notary Public, personally appeared Harmel S. Rayat and
Kundan S. Rayat, the President and Secretary of Medcare Technologies, Inc.,
a Delaware corporation, and acknowledged to me that they, being authorized to
do so, executed the foregoing instrument for the purposes therein contained
by signing the name of the corporation by themselves as such officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
____________________________________
Notary Public
My Commission Expires:
_____________________
E-164
<PAGE>
EXHIBIT 10:
504 MEMORANDUM OF
11/18/96
<PAGE>
CONFIDENTIAL
NOT TO BE REPRODUCED OR DISTRIBUTED
Memorandum No._______
Name of Offeree : ___________________________
PRIVATE PLACEMENT MEMORANDUM
MedCare Technologies, Inc.
(a Delaware Corporation) (" Company ")
56,000 Shares of Common Stock
$.001 Par Value
$4.50 Per Share
Minimum Investment
1,000 Shares
$4,500.00
Prinicipal Executive Offices
2443 Warrenville Rd., Suite 600
Lisle, Illinois 60532
(630) 955-3711
The date of this Memorandum is November 18, 1996
E-165
<PAGE>
MEDCARE TECHNOLOLGIES, INC.
Type of securities offered: Shares of the Company's common stock,
$0.001 par value
Number of Securities offered: 56,000 shares
Price per security: $4.50 per share
Total proceeds: If all
shares sold: $252,000.00
Is a commissioned selling agent selling the securities in this offering?
[ ] Yes[ X ] No
If yes , what percent is commission of price to public?
Is there other compensation to selling agent(s)?
[ ] Yes[ X ] No
Is there a finder's fee or similar payment to any person?
[ ] Yes[ X ] No
Is there an escrow of proceeds until minimum is obtained?
[ ] Yes[ X ] No
Is this offering limited to members of a special group, such as employees of
the Company or individuals?
[ ] Yes[ X ] No
Is transfer of the securities restricted?
[ ] Yes[ X ] No
THIS OFFERING OF SECURITIES HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENCE. THE OFFERING WILL TERMINATE UPON THE EARLIER OF
ALL OF THE SHARES OR DECEMBER 24th, 1996. THE COMPANY IS NOT REQUIRED TO
SELL ANY MINIMUM NUMBER OF SHARES IN ORDER TO SELL SHARES IN THE
OFFERING. THE COMPANY MAY, IN ITS DISCRETION, CONDUCT MULTIPLE CLOSINGS.
(SEE " DESCRIPTION OF THE OFFERING.")
E-165
<PAGE>
THIS MEMORANDOM HAS BEEN PREPARED SOLELY FOR USE IN CONNECTION WITH
THE PRIVATE PLCEMENT OF THE SHARES OFFERED HEREBY AND MAY NOT BE
REPRODUCED OR USED FOR ANY OTHER PURPOSE . THE OFFEREE AGREES TO
RETURN TO THE COMPANY THIS MEMORANDUM AND ALL ATTACHMENTS AND
RELATED DOCUMENTATION IF THE OFFEREE DOES NOT SUBSCRIBE TO PURCHASE
SHARES IN THE OFFERING.
THESE SECURITIES ARE BEING OFFERED ONLY TO INVESTORS WHO THE OFFEROR
BELIEVES HAVE THE QUALIFICATIONS NECESSARY TO PERMIT THE SECURITIES TO
BE OFFERED AND SOLD UNDER APPLICABLE EXEMPTIONS FROM REGISTRATION
UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE STATUTES. THE
OFFEROR WILL BE THE SOLE JUGDE OF WHETHER AN INVESTOR POSSESSES SUCH
QUALIFICATIONS. NOTWITHSTANDING DELIVERY OF THIS MEMORANDUM AND
ASSOCIATED DOCUMENTATION , THE OFFEROR DOES NOT INTEND TO EXTEND AN
OFFER TO SELL OR TO SOLICIT AN OFFER TO BUY THESE SECURITIES UNTIL THE
OFFEROR DETERMINES THAT THE OFFEREE IS QUALIFIED AND COMMUNICATES
SUCH DETERMINATION TO INVESTORS IN WRITING. THE SHARES ARE BEING
OFFERED IN A PRIVATE PLACEMENT TO A LIMITED NUMBER OF INVESTORS.THIS
MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT PERMITTED UNDER
APPLICABLE LAW OR ANY FIRM OR INDIVIDUAL WHO DOES NOT POSSESS THE
QUALIFICATIONS DESCRIBED IN THIS MEMORANDUM.
THE SHARES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURTIES ACT OF 1933 ( THE "ACT" ), OR THE SECURITIES LAWS OF UTAH OR
OTHER STATES, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. THERE IS
NO PUBLIC MARKET FOR SECURITIES OF THE COMPANY . EVEN IF SUCH MARKET
EXISTED, PURCHASERS OF SHARES WILL BE REQUIRED TO REPRESENT THAT THE
SHARES ARE BEING ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO SALE OR DISTRIBUTION, AND PURCHASERS WILL NOT BE ABLE TO RESELL THE
SHARES UNLESS THE SHARES ARE REGISTERED UNDER THE ACT AND QUALIFIED
UNDER THE APPLICABLE STATE STATUTES ( UNLESS AN EXEMPTION FROM SUCH
REGISTRATION AND QUALIFICATION IS AVAILABLE ). PURCHASERS OF THE SHARES
SHOULD BE PREPARED TO BEAR THE ECONOMIC RISK OF THEIR INVESTMENT FOR
AN INDEFINITE PERIOD OF TIME.
THE PURCHASE OF THESE SECURITIES WILL ENTAIL A HIGH DEGREE OF RISK. THESE
SECURITIES ARE SUITABLE ONLY FOR PERSONS WHO HAVE SUBSTANTIAL FINANCIAL
RESOURCES AND HAVE NO LIQUIDITY IN THIS INVESTMENT. NO ONE SHOULD INVEST
IN THE SHARES WHO IS NOT PREPARED TO LOSE THEIR ENTIRE INVESTMENT.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE RISK FACTORS
INDICATED UNDER "RISK FACTORS."
E-166
<PAGE>
INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM OR
ANY COMMUNICATION, WHETHER WRITTEN OR ORAL, FROM THE COMPANY, ITS
FOUNDERS, MANAGEMENT, EMPLOYEES OR AGENTS, AS LEGAL, TAX, ACCOUNTING
OR OTHER EXPERT ADVICE. EACH INVESTOR SHOULD CONSULT THEIR OWN
COUNSEL, ACCOUNTANT AND OTHER PROFESSIONAL ADVISORS AS TO LEGAL,TAX,
ACCOUNTING, AND RELATED MATTERS CONCERNING HIS INVESTMENT AND ITS
SUITABILITY FOR THEM.
NO PERSON (OTHER THAN OFFICERS OF THE COMPANY TO WHOM REQUESTS ARE
DIRECTED FOR ADDITIONAL INFORMATION CONCERNING THIS OFFERING) IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
(WHETHER ORAL OR WRITTEN) IN CONNECTION WITH THIS OFFERING EXCEPT SUCH
INFORMATION AS IS CONTAINED IN THIS PRIVATE PLACEMENT MEMORANDUM AND
THE ATTACHMENTS THERETO AND DOCUMENTS REFERRED TO HEREIN. ONLY
INFORMATION OR REPRESENTATIONS CONTAINED HEREIN AND THEREIN MAY BE
RELIED UPON AS HAVING BEEN AUTHORIZED.
THE SECURITIES OFFERED HEREBY WILL BE SOLD TO SUBJECT TO THE STOCK
SUBSCRIPTION AGREEMENT ATTACHED AS ATTACHMENT A OF THIS MEMORANDUM,
WHICH CONTAINS CERTAIN REPRESENTATIONS, WARRANTIES, TERMS AND
CONDITIONS. EACH INVESTOR SHOULD CAREFULLY REVIEW THE PROVISIONS OF
THE SUBSCRIPTION AGREEMENT BEFORE INVESTING.
This Company :
[ ] Has never conducted operations.
[X ] Is in the development stage.
[X ] Is currently conducting operations.
[ ] Has shown a profit in the last fiscal year.
[ ] Other ( Specify ) ______________________
( Check at one , as appropriate )
This offering has been registered for offer and sale in the following states :
State State File No Effective Date
No registration has been filed.
This Offering Circular, together with Financial Statements and other
Attachments, consists of a total of 21 pages (including cover page).
E-167
<PAGE>
TABLE OF CONTENTS
Cover Page 1
Disclosure Statements 2
Table of Contents 5
Summary of the Offering 6
The Company 7
Risk Factors 8
Use of Proceeds 10
Description of Securities 11
Terms of the Offering 11
Directors, Officers and key Personnel of the Company 12
Principal Stockholders 13
Remuneration of Directors and Officers 14
Reports 14
Legal Matters 14
Litigation 14
Additional Information 14
State Restrictions 15
EXHIBITS
Exhibit A Subscription Agreement
This is an original unpublished work protected under copyright laws of the
United States and other countries. All Rights Reserved. Should publication
occur, then the following notice shall apply: Copyright 1996 MedCare
Technologies, Inc., All Rights Reserved. No part of this document may be
reproduced, stored in a retrieval system or transmitted, in any form or any
E-168
<PAGE>
means, electronic, mechanical, photocopying , recording or otherwise, without
the prior written permission of MedCare Technologies, Inc.
SUMMARY OF THE OFFERING
The following material is intended to summarize information contained
elsewhere in this Memorandom. This summary is qualified in its entirety by
express reference to the Memorandum and the exhibits referred to therein.
Each prospective investor is urged to read this Memorandom in its entirety.
Issuer: MedCare Technologies, Inc., a Delaware corporation (the "Company"),
is the issuer of the Shares. The address of the Company is 600 - 2443
Warrenville Road, Lisle, Illinois, 60532.
Terms of the Offering: The Company is offering up to 56,000 of its common
stock, par value $.001 per share ( the " Shares " ). The Minimum investment
for an Investor is 1,000 Shares, or $4,500.00. The Company, in its sole
discretion, may accept subscriptions for up to an aggregate of 56,000 or
$252,000.00 until December 24th, 1996, or until such earlier date as the
Company determines that this Offering shall be terminated. In its sole
discretion, the Company may elect to terminate this Offering even if
subscriptions for Shares have been received and accepted by the Company. See
"Terms of the Offering" and "Subscription for Shares".
Company's Business: The Company is engaged in treatment of patients suffering
from urinary and fecal incontinence using a non-surgical, non-drug and
non-invasive treatment protocol in a clinical setting.
Risk Factors: The offering involves speculative investment with substantial
risks, including those associated with an unproven startup venture, risks
associated with the industry and economic risks associated with clinics in
different geographic locations and the uncertainty of obtaining managerial
staff to generate income and control costs in different locations. Although
the Company will use its best efforts to protect the investments of the
Investors, there is no assurance that the Company's efforts will be
successful. Accordingly, a prospective Investor should not view the Company
or its officers, directors, employees or agents as guarantors of the
financial success of an investment in the Shares. See "Risk Factors".
Limited Transferability of the Shares: The Shares have not been registered
under the 1933 Act or the securities laws of any state. The Shares of common
stock purchased pursuant to this Offering will not be "restricted" shares
because the shares are offered under Rule 504 and this offering is excluded
from the provisions of Regulation D pertaining to retricted shares. This does
not mean, however, that a public market exists for the Shares. A limited
public market exists now, but may not exist in the future. See "Risk Factors",
"Terms of the Offering".
Limitation of Liability: Except for the amounts paid by Investors for their
purchase of any Shares, and as required by Delaware State law, no investor
will be liable for any debts of the Company or be obligated to contribute
any additional capital or funds to the Company. See "Risk Factors".
E-169
<PAGE>
Suitability Standards: Each Investor must meet certain eligibility standards
established by the Company for the purchase of the Shares. See "Terms of the
Offering" and "Subscription for Shares".
Use of Proceeds: The Company plans to use the money received from this
offering to cover the costs involved with setting up offices, working
capital, and promoting and marketing the Company's products and services.
The funds will not be deposited in an escrow account and will be available to
the Company immediately. No minimum amount of Shares is required to be sold.
THE COMPANY
Exact corporate name: MedCare Technologies, Inc.
State and date of incorporation: Utah State - January 17/86
Merged with Delaware corporation -
October 4/96
Street address of
principal office: 2443 Warrenville Road, Suite 600
Lisle, Illinois 60532
(630) 955-3711
Fiscal Year: December 31st
Person(s) to contact
with respect to offering: Mr. Harmel S. Rayat
PRODUCTS
MedCare Technologies has developed a cost effective, non-drug,
non-surgical and non-invasive system for the care and treatment of patients
suffering from urinary incontinence. MedCare's treatment protocol does not
require FDA approval, is covered by most health insurance plans and results
in the reduction or complete elimination of 70% to 100% of the most commonly
found urinary incontinence symptoms. Unlike traditional treatment options,
which are costly, often unsuccessful or inadequate, MedCare's treatment program
is completely risk free and has a three year history with a proven success rate
in excess of 85%. MedCare Technologies offers a multi-modality program based
on behavioral techniques and neuromuscular electromyography biofeedback. The
MedCare Program is designed to mobilize and strengthen various sensory-
response systems and is based on operant conditioning strategies whereby
specific physiological responses are progressively shaped, strengthened and
coordinated.
MATERIAL CONTRACTS
The Company has no contracts at the present time.
E-170
<PAGE>
MARKETING APPROACHES
The Company plans to market its UI clinics through a combination of radio, TV,
print, direct mail, seminars, doctor referral and guest interviews by Company
representatives in the local media.
RISK FACTORS
An investment in the Shares involves a high degree of risk. No prospective
Investor should acquire the Shares unless he can afford a complete loss of
his investment. The risks described below are those which the Company deems
most significant as of the date hereof. Other factors which may have a material
impact on the operations of the Company may not be forseen. In addition to the
other factors set forth elsewhere in this Memorandum, prospective Investors
should carefully consider the following specific risk factors:
A. OPERATING RISKS
General. The economic success of an investment in the Shares depends, to
a large degree, upon many factors over which the Company has no control. These
factors include general economic, industrial and international conditions;
inflation or deflation; fluctuation in interest rates; the availability of,
and fluctuations in the money supply. The extent, type and sophistication of
the Company's competition; and government regulations.
Lack of Operations. The Company engages in limited business operations at
the present time. However, upon completion of the Offering, the Company plans
to use the proceeds to expand its clinical system in certain key markets.
Development Stage Company. The Company was organized in 1986 and
remained dormant until late 1995. The Company has engaged in no significant
business operations of any sort or type. Accordingly, the Company is a
development stage company as defined by Statement of Financial Accounting
Standards No.7.
Dependence on Key Personnel. The Company's success will depend, in large
part, upon the talents and skills of key management personnel. To the extent
that any of its management personnel is unable or refuses to continue
association with the Company, a suitable replacement would have to be found.
There is no assurance that the Company would be able to find suitable
replacements for such personnel, or that suitable personn.
Lack of Adequate Capital. Additional capiw clinics. In the absence of any
additional funding, the Company's operations may be affected negatively.
Therefore, the Company's management will be careful in choosing those
locations that represent the best chances of success and, accordingly, the
best chances of raising future funding.
E-173
<PAGE>
Inherent Business Risks. The business that the Company plans to engage in
involves substantial and inherent risks associated with a development company
with limited financial resources.
B. INVESTMENT RISKS
Speculative Investment. The Shares are a very speculative investment.
There can be no assurance that the Company will attain its objective and it
is very likely that the Company will not be able to advance any business
activities and Investors could lose their entire investments.
Arbitrary Purchase Price. The purchase price for the Shares has been
arbitrarily determined by the Company, and is not necessarily indicative of
their value. No assurance is or can be given that the Shares, although
transferable, could be sold for the purchase price, or for any amount. There
currently exists a limited market for resale of the Shares.
Restriction of Transferability. While the Company believes that no
restriction exists for the transfer of the Shares being offered by the
Company, an investment in the Shares may be a long term investment. Investors
who do not wish or who are not financially able to hold the Shares for a
substantial period of time are advised against purchasing Shares. The Shares
are not registered under the 1933 Act or under the securities laws of any
state, but are being offered by the Company under the exemption from
registration provided by Rule 504 under Regulation D and related state and
foreign exceptions.
Immediate Dilution for Investors. An investor in this offering will
experience an immediate and substantial dilution.
"Best Efforts" Offering. The Shares are being offered on a "best efforts"
basis by the Company. No person or entity is committed to purchase or take down
any of the Shares offered pursuant to this Offering. No escrow account is
maintained and no minimum amount is required to be sold. Funds will be
available to the Company upon receipt.
Management and Operation Experience. The Company's officers, directors
and other personnel have engaged in a variety of businesses and have been
involved in business financing, operations and marketing, but their
experience in these fields is limited. There is no assurance that such
experience will result in the success of the Company.
Other Risks. No assurance can be given that the Company will be
successful in achieving its stated objectives, that the Company's business
is undertaken by the Company, will generate cash sufficient to operate the
business of the Company or that other parties entering into agreements
relating to the Company's business will meet their respective obligations.
Dividends. The Company's Board of Directors presently intends to cause
the Company to follow a policy of retaining earnings, if any, for the
purpose of increasing the net worth and reserves of the Company. Therefore,
there can be no assurance that any holder of Common Stock will receive any
cash, stock or other dividends on his shares of Common Stock. Future dividends
E-172
<PAGE>
on Common Stock, if any, will depend on the future earnings, financing
requirements and other factors.
Additional Securities Available for Issuance. The Company's Certificate
of Incorporationauthorizes the issuance of 100,000,000 shares of Common Stock.
At this time, 6,400,185 shares of common stock have been issued. Accordingly,
investors purchasing shares in this offering will be dependent upon the
judgement of management in connection with the future issuance and sale
of shares of the Company's capital stock, in the event purchasers can be found
for such securities.
USE OF PROCEEDS
The Company will incur expenses in connection with the Offering in an amount
anticipated not to exceed $2,000.00 for legal fees, accounting fees, filing
fees, printing costs and other expenses. If the maximum number of Shares are
sold, the Company anticipates that the net proceeds to it from the Offering
will be as follows:
Maximum
Item Shares Sold
Gross Proceeds of Offering $252,000.00
Offering Expenses
Costs of Offering 2,000.00
TOTAL PROCEEDS RECEIVED: $250,000.00
Operating Expenses
Equipment Purchases $ 20,000.00
Advertising & Marketing 130,000.00
Working Capital 100,000.00
TOTAL $250,000.00
NET FUNDS AVAILABLE TO COMPANY
The Company estimates that the costs of the Offering will be as follows: (i)
legal fees of approximately $500.00, (ii) accounting fees of approximately
$500.00 and (iii) printing and other miscellaneous costs of approxmately
$1000.00. There will be no sales commission or remuneration paid by the
Company.
The net proceeds of this offering, assuming all the Shares are sold, will be
sufficient to sustain the planned marketing and development activities of
the Company for a period of 6 months, depending upon the number of Shares
sold in the offering and other factors. Even if all the Shares offered
hereunder are sold, the Company will require additional capital in order to
fund
E-173
<PAGE>
continued development activities and capital expenditures that must be
made. The Company's business plan is based on the premise that additional
funding will be obtained through funds generated from operations, the
exercising of the options by shareholders, additional offerings of its
securities, or other arrangements. There can be no assurance that any
securities offerings will take place in the future, or that funds sufficient
to meet any of the foregoing needs or plans will be raised from operations or
any other source.
DESCRIPTION OF SECURITIES
The following discussion describes the stock and other securities of the
Company.
General. The Company currently has 100,000,000 authorized common shares,
par value $.001 per share, of which 6,400,185 common shares were issued and
outstanding as of the date of this Placement. All of the outstanding common
shares of the Company are fully paid for and nonassessable.
Voting Rights. Each share of the 6,400,185 shares of the Company's
common stock held by its current shareholders is entitled to one vote at
shareholders meetings.
Dividends. The Company has never paid a dividend and does not anticipate
doing so in the never future.
Options. The Company currently has 750,000 options outstanding in
relation to its common stock.
Miscellaneous Rights and Provisions. Shares of the Company's common
stock have no pre-emptive rights. The Shares do not have any conversion
rights, no redemption or sinking fund provisions, and are not liable to
further call or assessment. The Shares, when paid for by Investors, will be
fully paid and nonassessable. Each share of the Company's common shares is
entitled to a pro rata share in any asset available for distribution to
holders of equity securities upon the liquidation of the Company.
TERMS OF THE OFFERING
The Company is offering to qualified investors a maximum of 56,000 Shares at a
purchase price of $4.50 per share of the Company's common stock. The Company
may, in its sole discretion, terminate the offering at any time. The Offering
will close on the earliest of December 24th, 1996 or the election of the
Company when all of the Shares are sold, in no event later than December
24th, 1996. The minimum subscription is $4,500.00 (1,000 Shares) per Investor,
although the Company, in its sole discretion, may accept subscriptions for
lesser amounts.
The Shares are being offered and sold by the Company under the exemption from
registration contained in Rule 504 under Regulation D and related exemptions
from state registration requirements. Rule 504 permits the Company to offer
and sell its stock in an amount not
E-174
<PAGE>
exceeding $1,000,000 to an unlimited number of persons. Until 1992, Rule 504(b)
(2)(ii) imposed a limited disclosure obligation of all issuers such as the
Company which was intended to ensure that investors in a Rule 504 transaction
were clearly advised of the retricted character of the securities being offered
for sale. This requirement was eliminated in July, 1992 at which time the
Securities and Exchange Commission adopted an amendment to Rule 504 that
eliminated all limitations on the manner of offering of stock under that
rule and/or the resale of stock purchased in reliance on that rule. Therefore,
following adoption of the 1992 amendment, the securities being offered and sold
by the Company pursuant to the present Offering are available for immediate
resale by nonaffiliates of the issuer.
The Shares are being offered on a "best efforts" basis by the Company and
certain expenses of the Offering will be paid from the proceeds of the
Offering. The Company anticipates that such expenses will not exceed $1,000
as detailed in the Use of Proceeds.
DIRECTORS, OFFICERS AND KEY PERSONNEL OF THE COMPANY
Officers and Directors. The following information sets forth the names
of the officers and directors of the Company, their present position with the
Company and biographic information:
NAME POSITION HELD SINCE
Harmel S. Rayat President & Director September 1, 1995
Kundan S. Rayat Director & Secretary August 25, 1995
Valerie Boeldt-Umbright Director March 29, 1996
Diane Nuziato Director November 1, 1995
Michael Blue Director August 15, 1996
Harmel S. Rayat - President and Chief Executive Officer. Mr. Rayat is one of
the co- developers of the MedCare Program. Mr. Rayat has been in the venture
capital industry since 1981 and is the president of Hartford Capital
Corporation, a company that specializes in providing early stage funding and
investment banking services to emerging growth corporations.
Valerie Boeldt-Umbright - Director. Mrs. Boeldt-Umbright is a registered
nurse, with a Bachelors of Science degree in community health education from
Northern Illinois University. With over two years of actual management
experience in the day to day operation of the Incontinence Clinic in Chicago,
Mrs. Boeldt-Umbright has supervised personnel, dealt with insurance and
reimbursement matters, marketing and physician interaction and referrals. She
has instructed patients in biofeedback for their pelvic floor muscles,
established individualized neuromuscular reeducation programs, written new
clinical protocols and articles for publication and has worked as a member of
a university team to provide excellent care and medical treatment for patients.
Diane Nunziato - Director. Ms. Nunziato has a Bachelors of Science and a
Masters of Clinical Science from the University of Western Ontario, as well
as numerous certifications in courses
E-175
<PAGE>
ranging from adult learning, clinical supervision and instruction, group
dynamics, learning theories, and management. Ms. Nunziato has been
instrumental in developing and refining the clinical protocols for the
MedCare UI System and has in-depth knowledge of every aspect of establishing
a clinical system, including marketing, billing, medical products and
equipment, patient and physician interaction, and the training and
supervision of personnel.
Kundan S. Rayat - Director/Secretary . Mr. Rayat has over 45 years of
experience as an entreprenuer and owner of a diverse range of businesses
ranging from automotive to heavy construction on three different continents.
Since 1985, Mr. Rayat has primarily devoted his time to venture capital
investing in numerous start up ventures and provides seasoned senior
management advice to emerging market companies as a consultant.
Michael Blue - Director. Dr. graduated from the University of Oklahoma School
of Medicine in 1970. After a year of general surgery and a fellowship year in
nephrology at the University of Oklahoma, Dr. Blue completed his urology
training at the Univeristy of New Mexico in 1976. He became board certified
in 1978 and has recently completed a voluntary recertification process
for the American Board of Urology. Dr. Blue has practiced general urology
for 20 years, seeing and treating many diverse urological conditions.
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the shares of Common
Stock of the Company owned of record and benefically held as of the date of
this Memorandum by (i) each person known to the Company to own of record or
beneficially 5% or more of the 6,400,185 outstanding shares of Common Stock
of the Company, (ii) each Director of the Company, and (iii) all officers and
directors of the Company as a group, as of the date of this Memorandum and
adjusted to reflect share holdings after the sale of the maximum number of
Shares offered hereby.
Person or Group No of Shares Percent No of Shares Percent
(Pre) (Post)
Harmel S. Rayat 2,000,000 31.2% 2,000,000 31.2%
5131 Highgate Street
Vancouver, B.C., V5R 3G9
Person or Group No of Shares Percent No of Shares Percent
(Pre) (Post)
Cede & Co 483,008* 7.67% 483,008* 7.61%
P.O. Box 222
Bowling Green Street
New York, NY, 10274
Philadep & Co. 379,169* 6.02% 379,169* 5.97%
1900 Market Street
2nd Floor
E-176
<PAGE>
Philadelphia, PA, 19103
* Held in clearing company for the benefit of others as at June 22nd, 1996.
REMUNERATION OF DIRECTORS AND OFFICERS
Directors of the Company who are also employees of the Company receive no
additional compensation for their services as Directors. The Company intends,
in the future, to pay Directors who are not employees of the Company,
compensation of $500 per Director's Meeting, as well as reimbursements of
any out of pocket expenses incurred in the Company's behalf.
REPORTS
The books and records of the Company will be maintained by the Company. The
books of account and records shall be kept at the principal place of business
of MedCare Technologies, Inc. and each shareholder, or his duly authorized
representatives, shall have upon giving ten (10) days prior notice, access
during reasonable business hours to such books and records, and the right to
inspect and copy them. Within 120 days after the close of each fiscal year,
reports will be distributed to the shareholders which will include financial
statements (including a balance sheet and statements of income, shareholder's
equity, and cash flows) prepared in accordance with generally accepted
accounting principals, with a reconciliation to the tax information
supplementary supplied, accompanied by a copy of the accountant's report.
LEGAL MATTERS
Gary R. Blume, Esquire, 11801 North Tatum Boulevard, Suite 108, Phoenix,
Arizona 85028-1611 will pass upon certain matters for the Company.
LITIGATION
The Company is not presently involved in any material litigation or other
legal proceedings.
ADDITIONAL INFORMATION
In the opinion of the Board of Directors of the Company, this memorandum
contains a fair presentation of the subjects discussed herein and does not
contain a misstatement of material fact or fail to state a material fact
necessary to make any statements made herein not misleading. Persons to whom
offers are made will be furnished with such additional information concerning
the Company and other matters discussed herein as they, or their purchaser
representative or other advisors, may reasonably request. The Company shall,
to the extent such information is available or can be acquired without
unreasonable effort or expense, endeavor to provide the information to such
persons. All offerees are urged to make such personal investigations,
inspections or inquiries as they deem appropriate.
E-177
<PAGE>
Questions or requests for additional information may be directed to Harmel S.
Rayat at (604) 643-1765. Requests for additional copies of this Memorandum or
assistance in executing subscription documents may be directed to the Company.
STATE RESTRICTIONS AND DISCLOSURES
FOR UNREGISTERED SECURITIES OFFERINGS
NOTICE TO ARIZONA RESIDENTS:
These securities are being sold in reliance upon Arizona's Limited
Offering exemption from registration pursuant to A.R.S. 44-1844.
THE SHARES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
ARIZONA SECURITIES ACT, AS AMENDED, AND THEREFORE, CANNOT BE
TRANSFERRED OR RESOLD UNLESS THEY ARE REGISTERED UNDER SUCH ACT
OR AN EXEMPTION THEREFROM IS AVAILABLE.
As a purchaser of such securities hereby represent that I understand
these securities cannot be resold without registration under the Arizona
Securities Act or an exemption therefrom. I am not an underwriter within the
meaning of A.R.S 44-1801(17), and I am acquiring these securities for myself,
not for other persons. If qualifying as a non-accredited investor, I further
represent that this investment does not exceed 20% of my net worth (excluding
principal residence, furnishings therein and personal automobiles).
NOTICE TO CALIFORNIA RESIDENTS:
These securities are being sold in reliance upon California's Limited
Offering Exemption, 25102(f) of the California Code, as amended.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS
MEMORANDUM HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFROM PRIOR TO SUCH QUALIFICATIONS IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATIONS BY
SECTION 25100, 25102 OR 26105 OF THE CALIFORNIA CORPORATIONS CODE. THE
RIGHTS OF ALL PARTIES ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE SECURITIES.
E-178
<PAGE>
NOTICE TO COLORADO RESIDENTS:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE COLORADO SECURTIES ACT OF 1981 BY
REASON OF SPECIFIC EXEMPTIONS THEREUNDER RELATING TO THE LIMITED
AVAILABILITY OF THE OFFERING. THESE SECURITIES CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY
UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE COLORADO SECURITIES ACT OF 1981, IF SUCH REGISTRATION
IS REQUIRED.
NOTICE TO NEW YORK RESIDENTS:
THIS PRIVATE PLACEMENT MEMORANDUM HAS NOT BEEN FILED WITH OR
REVIEWED BY THE ATTORNEY GENERAL PRIOR TO ITS ISSUANCE AND USE. THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION OF THE
CONTRARY IS UNLAWFUL.
THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONTAIN AN
UNTRUE STATEMENT OF MATERIAL FACT AND DOES NOT OMIT ANY MATERIAL
FACT NECESSARY TO MAKE THE STATEMENTS MADE, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. IT
CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS AND DOCUMENTS
PURPOSED TO BE SUMMARIZED HEREIN.
Purchaser Statement:
I understand that this Offering of Shares has not been reviewed by the
Attorney General of the State of New York because of the Offeror's
representations that this intended to be a non-public Offering pursuant to the
Regulation D Rule 505 or 506, and that if all of the conditions and limitations
of Regulation D are not complied with, the Offering will be resubmitted to the
Attorney General for amended exemption. I understand that any literature used
in connection with this Offering has not been previously filed with the
Attorney General and has not been reviewed by the Attorney General. This
Investment Unit is being purchased for my own account for investment, and not
for distribution or resale to others. I agree that I will not sell or otherwise
transfer these securities unless they are registered under the Fon from such
registration is available. I represent that I have adequate means of
providing for my current needs and possible personal contingencies of
financial problems, and that I have no need for liquidity of this investment.
It is understood that all documents, records and books pertaining to this
investment have been made available to my attorney, my accountant, or my
offeree representative and myself, and that, upon reasonable notice, the
books and records of the issuer will be available for inspection by investors,
at reasonable hours at the principal place of business.
EXHIBITS
MedCare Technologies, Inc.
SUBSCRIPTION DOCUMENT
1. The undersigned hereby subscribes for ____________ shares of common stock
(hereinafter "Shares"), as described in the Private Offering Memorandum dated
June 22, 1996 ("Memorandum"), of MedCare Technologies, Inc., a Delaware
corporation (the "Company"), being offered by the Company for a purchase
price of $4.50 per share and tenders herewith the sum of $__________ in
payment therefor, together with tender of this Subscription Document.
2. The undersigned represents and warrants that he is a bona fide resident
of the State of ___________________ .
3. The undersigned acknowledges:
a. Receipt of a copy of the Private Offering Memorandum;
b. That this subscription, if accepted by the Company, is legally
binding and irrevocable;
c. That the Company has a very limited financial and operating history;
d. That the Shares have not been registered under the Securities Act of
1933, as amended, in reliance upon exemptions contained in that Act,
and that the Shares have not been registered under the securities
acts of any state in reliance upon exemptions contained in certain
state's securities laws; and
e. That the representations and warranties provided in this Subscription
Document are being relied upon by the Company as the basis for the
exemption from the registration requirements of the Securities Act
of 1933 and of the applicable state's securities laws.
4. The undersigned represents and warrants as follows:
a. That the undersigned subscriber is purchasing said Shares as an
investment and said Shares are purchased solely for the undersigned's
own account.
b. That the undersigned subscriber has sufficient knowledge and
experience in financial and business matters to evaluate the merits
and risks of an investment in the Shares;
E-180
<PAGE>
c. That the undersigned subscriber is able to bear the economic risk of
an investment in the Shares;
d. That the undersigned subscriber has read and is thoroughly familiar
with the Private Offering Memorandum and represents and warrants that
he is aware of the high degree of risk involved in making investment
in the Shares;
e. That the undersigned subscriber's decision to purchase the Shares is
based solely on the information contained in the Private Offering
Memorandum and on written answers to such questions as he has raised
concerning the transaction;
f. That the undersigned subscriber is purchasing the Shares directly
from the Company and understands that neither the Company nor the
Offering is associated with; endorsed by nor related in any way
with any investment company, national or local brokerage firm or
broker dealer. The undersigned subscriber's decision to purchase the
Shares is not based in whole or in part on any assumption or
understanding that an investment company, national or local brokerage
firm or other broker dealer is involved in any way in this Offering
or has endorsed or otherwise recommended an investment in these
Shares.
g. That the undersigned subscriber has an investment portfolio of
sufficient value that he could suitably absorb a high risk illiquid
addition such as an investment in the Shares.
h. The undersigned further represents that (INITIAL APPROPRIATE
CATEGORY) :
[ ] I am a natural person whose individual net worth, or joint
worth with my spouse at the time of purchase, exceeds $200,000;
[ ] I am a natural person who had an individual income in excess of
$50,000 or joint income with my supose in excess of $50,000 in
each of the two most recent years and who reasonably expects an
income in excess of those amounts in the current year;
i. That Regulation D requires the Company to conclude that each investor
has sufficient knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an
investment in the shares, or to verify that the investor has retained
the services of one or more purchaser representatives for the purpose
of evaluating the risks of investment in the shares, and hereby
represents and warrants that he has such knowledge and experience in
financial and business matters that he is capable of evaluating the
merits and risks of an investment in the shares and of making an
informed investment decision and will not require a purchaser
representative.
E-181
<PAGE>
5. The undersigned understands and agrees that this subscription is made
subject to each of the following terms and conditions:
a. The Company shall have the right to accept or reject this
subscription, in whole or part, for any reason. Upon receipt of
each Subscription Document, the Company shall have until December
24th, 1996 in which to accept or reject it. If no action is
taken by the Company within said period, the subscription shall be
deemed to have been accepted. In each case where the subscription
is rejected, the Company shall return the entire amount tendered by
the subscriber, without interest;
b. That the undersigned subscriber will, from time to time, execute and
deliver such documents or other instruments as may be requested by
the Company in order to aid the Company in the consummation of the
transactions contemplated by the Memorandum.
6. The undersigned hereby constitutes and appoints the Company, with full
power of substitution, as attorney-in-fact for the purpose of executing and
delivering, swearing to and filing, any documents or instruments related to
or required to make any necessary clarifying or conforming changes in the
Subscription Document so that such document is correct in all respects.
7. As used herein, the singular shall include the plural and the masculine
shall include the feminine where necessary to clarify the meaning of this
Subscription Document. All terms not defined herein shall have the same
meanings as in the Memorandum.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Document this _____ day of ___________, 1996.
Number of Shares ___________________
Total amount tendered $__________________
INDIVIDUAL OWNERSHIP: __________________________________________
Name (Please Type or Print )
__________________________________________
Signature
__________________________________________
Social Security Number
E-182
<PAGE>
JOINT OWNERSHIP: __________________________________________
Name (Please Type or Print)
__________________________________________
Signature
__________________________________________
Social Security Number
OTHER OWNERSHIP __________________________________________
Name (Please Type or Print)
By:_______________________________________
(Signature)
__________________________________________
Title
_________________________________________
Employer Indentification Number
ADDRESS:____________________________________________________________________
Street City State Zip
Phone (Residence)_____________________ ; Phone (Business)
________________________
I,________________________________, do hereby certify that the
representations made herein concerning my financial status are true, and that
all other statements contained herein are true, accurate and complete to the
best of my knowledge.
Date: ___________________ , 1996. __________________________________________
Signature
E-183
<PAGE>
CERTIFICATE OF DELIVERY
I hereby acknowledg that I delivered the foregoing Subscription Document
to __________________________ on the _______ day of __________________ , 1996.
__________________________________________
Signature
ACCEPTANCE
This Subscription is accepted by MedCare Technologies, Inc., as of
the ______ day of _____________ , 1996.
MedCare Technologies, Inc.
By :______________________________________
Harmel Rayat, President
E-184
<PAGE>
EXHIBIT 11:
LETTER FROM FORMER ACCOUNTANT
<PAGE>
JONES, JENSEN
& COMPANY
-----------------
CERTIFIED PUBLIC ACCOUNTANTS
U.S. Securities and Exchange Commission
Washington, DC 20549
Re: MedCare Technologies, Inc.
(Formerly, Santa Lucia Funding, Inc.)
We are in agreement with the statements included in the document titled Item
4 - Change in Registrant's Certifying Accountants, above referenced.
Yours truly,
/s/ Jones, Jensen & Company
Jones, Jensen & Company
(formerly Jones, Thomas, Jensen and Associates)
E-185
<PAGE>
EXHIBIT 12:
LETTER FROM ISSUER REGARDING ACQUISITION OF
MEDCARE PROTOCOL FROM UNRELATED PARTY
<PAGE>
October 25, 1997
Richard Wulff
Chief, Office of Small Business Review
United States Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Dear Mr. Wulff:
As you requested, I am writing concerning whether or not MedCare
Technologies, Inc. acquired the MedCare Program from a party unrelated to the
Company. The MedCare Program was acquired by the Company from myself and Dr.
Eric Gable. At that time I was not an officer or director of the Company,
although my father was then on the board of directors, but Dr. Gable was
President and a director of the Company. The MedCare Program was acquired by
the Company on August 14, 1995 in exchange for 2,000,000 shares of the Company's
common stock at $0.15 per share, for a total value of $300,000, 1,750,000 of
these shares were issued to Dr. Gable and 250,000 were issued to me. This gave
Dr. Gable 85% ownership in the Company and myself 12.1% ownership, while the
remaining 58,159 shares of the total 2,058,519 outstanding were held by other
shareholders for a 2.9% stake in the Company.
On August 31, 1995 the Company completed a Regulation D, Rule 504 offering
of 4,200,000 shares at $0.15 per share for a total of $630,000. After the
offering, 6,258,519 shares were outstanding. This reduced the ownership
percentage of Dr. Gable and myself to 28% and 3.99%, respectively, while other
shareholders held a combined total of 4,258,519 shares for a 68.01% ownership
percentage.
After the acquisition by the Company of the MedCare Program, on September
1, 1995, I became a member of the board of the directors and the Company changed
its name from Multi-Spectrum Group, Inc. to MedCare Technologies, Inc. Also on
September 1, 1995, Dr. Eric Gable elected to step down as President and director
of the Company because of other business commitments and because the Company was
asking him to assign a significant amount of time to developing, promoting and
raising capital. I agreed that I would assign the required time to developing,
promoting and raising capital. On October 17, 1995 the Company accepted the
resignation of Dr. Gable as President and Director and I was selected to become
President of the Company. On November 20, 1995, I acquired the 1,750,000 shares
of common stock of the Company held by Dr. Gable. As this sequence of events
indicates, I did not have control of the Company before or after the initial
transaction, but Dr. Gable was related to the Company at the time of the
acquisition and benefitted therefrom.
Richard Wulff
Page Two
October 25, 1997
The details of this acquisition are also outlined in both the Company
history and financial statement notes portions of the Company's Form 10SB. Feel
free to contact me if you have any further questions regarding this matter.
Sincerely,
/s/ Harmel S. Rayat
Harmel S. Rayat
Chairman and CEO
E-186
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 220,562
<SECURITIES> 0
<RECEIVABLES> 7,351
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 256,920
<PP&E> 36,871
<DEPRECIATION> 20,237
<TOTAL-ASSETS> 274,618
<CURRENT-LIABILITIES> 81,007
<BONDS> 0
0
0
<COMMON> 6,446,185
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 274,618
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (452,405)
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0
</TABLE>
