UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
------ SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1997 (Unaudited)
------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number: 0-28790
-------
MEDCARE TECHNOLOGIES, INC.
(exact name of registrant as specified in its charter)
DELAWARE 87-0429962 B
- -------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 100 - 608 South Washington, Naperville, Illinois 60540
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 428-2859
--------------
Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for the
past 90 days.
Yes X No
____ _____
The number of shares of the Registrant's Common Stock, $0.001 par value, as of
September 30, 1997: 6,984,185.
----------
<PAGE>
MEDCARE TECHNOLOGIES, INC.
FORM 10-Q, QUARTER ENDED SEPTEMBER 30, 1997
(Unaudited)
INDEX
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheet at September 30, 1997 and 1996................ 3-4
Consolidated Statement of Operations for the Three Months and Nine Months
Period Ended September 30, 1997 and September 1996 and From
Inception (January 17, 1986) Through September 30, 1997............ 5
Consolidated Statement of Stockholders' Equity from Inception
(January 17, 1986) Through September 30, 1996....................... 6-10
Consolidated Statement of Cash Flows for the Nine Months Period Ended
September 30, 1997 and September 30, 1996 and From Inception
(January 17, 1986) Through September 30, 1997...................... 11-12
Notes to Consolidated Financial Statements.............................. 13-21
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .......................... 22
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
PART II OTHER INFORMATION
Item 1 Legal Proceedings.............................................. 24
Item 2 Changes in Securities.......................................... 24
Item 3 Defaults Upon Senior Securities................................ 24
Item 4 Submission of Matters to a Vote of Security Holders............ 24
Item 5 Other Information.............................................. 24
Item 6 Exhibits and Reports on Form 8-K............................... 24-25
Signature Page................................................. 26
Page 2
<PAGE>
Item 1 Financial Statements
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
INTERIM CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
1997 1996
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $4,041,324 $140,891
Accounts Receivable - Trade $60,115 $7,287
Receivable - Other $5,400 $19,000
Prepaid Expense $27,494 $17,450
------------- ---------
Total Current Assets $4,134,333 $184,628
Property and Equipment
Office Equipment $13,307 $4,103
Medical Equipment $29,733 $16,799
------- -------
$43,106 $20,902
Less Accumulated Depreciation $11,132 $12,863
------- -------
Net Property and Equipment $31,974 $8,039
Other Assets
Organization Costs - Net of Amortization $0 $170
Intangible Assets - The MedCare Program $1,000 $1,000
Security Deposits $1,500 $0
------ ------
Total Other Assets $2,500 $1,170
---------- --------
Total Assets $4,168,807 $193,837
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
INTERIM CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
Current Liabilities
Accounts Payable $159,740 $9,429
Long Term Liabilities
Notes Payable $0 $23,135
Notes Payable - Officers $13,500 $0
------- -------
Total Long Term Liabilities $13,500 $23,135
Total Current Liabilities $173,240 $32,564
Stockholders' Equity
Preferred Stock, $0.25 Par Value,
Authorized 1,000,000 Issued and
Outstanding, at September 30,
1997, 165 Shares and at September
30, 1996, None $41 $0
Common Stock: $0.001 Par Value,
Authorized 100,000,000; Issued and
Outstanding, 6,984,185 shares at
September 30, 1997 and 6,400,185 at
September 30, 1996 $6,984 $6,401
Additional Paid-In Capital $6,009,801 $1,153,676
Loss Accumulated During Development Stage ($2,021,259) ($998,804)
------------ ----------
Total Stockholders' Equity $3,995,567 $161,273
------------ ----------
Total Liabilities and
Stockholders' Equity $4,168,807 $193,837
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS PERIOD ENDED SEPTEMBER 30,
1997
AND SEPTEMBER 30, 1996 AND FROM INCEPTION (JANUARY 17, 1986)
THROUGH SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
For For For For
The Three The Three The Nine The Nine Deficit
Months Months Months Months Accumulated
Period Period Period Period During The
Ended Ended Ended Ended Development
September September September September Stage
30, 1997 30, 1996 30, 1997 30, 1996
<S> <C> <C> <C> <C> <C>
Revenues $8,366 $1,880 $56,175 $6,758 $56,175
Expenses
General $442,104 $127,188 $973,345 $273,533 $2,161,229
Administrative
-------- -------- -------- -------- ----------
Total $442,104 $127,188 $973,345 $273,533 $2,161,229
Expenses
Other Income (Expense)
Interest Income &
Others $53,969 $894 $66,926 $1,031 $72,514
Loss from
Discontinued
Operations $0 $0 ($4,489) $0 ($4,489)
Gain on Sale of
Subsidiary $0 $0 $15,770 $0 $15,770
Net Loss ($379,769) ($124,414) ($838,963) ($265,744) ($2,021,259)
---------- ---------- ---------- ---------- ------------
Net (Loss) Per Share of
Common Stock ($0.05) ($0.02) ($0.12) ($0.04) ($0.20)
========== ========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount Additional Loss Total
Paid In Accumulated
Capital During the
Development
Stage
<S> <C> <C> <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 $36,400
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 0 $0 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 0 $0 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 0 $0 6,145,000 $6,145 $27,159 ($23,053) $10,251
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount Additional Loss Total
Paid In Accumulated
Capital During the
Development
Stage
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of
stock in
accordance
with plan
of merger
with Multi-
Spectrum
Group, Inc.
February 28,
1990 55,305,000 $55,305 ($55,305) $0
Net loss
year ended
December 31,
1990 - Unaudited ($10,201) ($10,201)
--- ---- ---------- ------ --------- --------- ---------
Balance,
December 31,
1990 0 $0 61,450,000 $61,450 ($28,146) ($33,254) $50
Net loss
year ended
December 31,
1991 - Unaudited $0 $0
--- ---- ---------- -------- --------- --------- ---------
Balance,
December 31,
1991 0 $0 61,450,000 $61,450 ($28,146) ($33,254) $0
Issued to
Group of
Five, Inc.
November
13, 1992 8,772,800 $8,773 $0 $8,773
Net loss
year ended
December 31,
1992
- - Unaudited ($8,773) ($8,773)
---- ---- --------- ------ ---------- -------- --------
Balance,
December 31,
1992 0 $0 70,222,800 $70,223 ($28,146) ($42,027) $50
Net loss
year ended
December 31,
1993 $0 $0
----- ----- ---------- -------- --------- --------- -------
Balance,
December 31,
1993 0 $0 70,222,800 $70,223 ($28,146) ($42,027) $50
Net loss
year ended
December 31,
1994 $0 $0
----- ----- ---------- -------- --------- -------- -------
Balance,
December 31,
1994 0 $0 70,222,800 $70,223 ($28,146) ($42,027) $50
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount Additional Loss Total
Paid In Accumulated
Capital During the
Development
Stage
<S> <C> <C> <C> <C> <C> <C> <C>
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 0 $0 6,300,185 $6,301 $761,776 ($733,060) $33,696
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount Additional Loss Total
Paid In Accumulated
Capital During the
Development
Stage
<S> <C> <C> <C> <C> <C> <C> <C>
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 ($449,236) ($449,236)
---- ----- ------ ------- --------- ---------- ----------
Balance,
December 31,
1996 0 $0 6,445,185 $6,445 $1,372,631 ($1,182,296) $195,460
Issuance of
common stock
under 1996
Stock Option
Plan at $4.50
per share
through
September 30,
1997 15,000 $15 $67,485 $67,500
Issuance of
common stock
under 1995
Stock Option
Plan at $3.00
per share
through
September 30,
1997 48,000 $48 $143,952 $144,000
Issuance of
common stock
under a
Private
Placement dated
March 25,
1997 176,000 $176 $1,099,824 $1,100,000
Issuance of
preferred stock
under a Private
Placement dated
July 31,
1997 165 $41 $1,649,959 $1,650,000
Less Cost
of Private
Placement ($123,750) ($123,750)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount Additional Loss Total
Paid In Accumulated
Capital During the
Development
Stage
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock
under a
Private
Placement
dated July
31, 1997 300,000 $300 $1,799,700 $1,800,000
Net loss for
the seven
months period
ended September
30, 1997 ($838,963) ($838,963)
---- ----- -------- ------ ----------- ---------- ----------
Balance -
September 30,
1997 165 $41 6,984,185 $6,984 $6,009,801 ($2,021,259) $3,995,566
==== ===== ========= ====== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 1997 AND SEPTEMBER
30,
1996 AND FROM INCEPTION (JANUARY 17, 1996)
THROUGH SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
For The Nine For The Nine From
Months Months Inception
Period Ended Period Ended Through
September September September
30, 1997 30, 1996 30, 1997
<C> <S> <S> <S>
Cash Flows from Operating Activities: ($838,963) ($265,744) ($2,021,259)
Net (Loss)
Common Stock issued for services $0 $0 $8,773
Adjustments to reconcile net (loss) to net
cash provided by operating activities
Depreciation and Amortization $3,336 $4,306 $11,132
Change in Assets and Liabilities
(Increase) Decrease in
Accounts Receivable ($58,164) ($25,647) ($65,515)
(Increase) Decrease in
Prepaid Expenses $2,202 ($17,450) ($27,494)
(Increase) Decrease in
Organizational Costs $0 $0 $0
(Increase) Decrease in
Security Deposit ($1,500) $0 ($1,500)
(Increase) Decrease in
Accounts Payable $102,767 $8,451 $157,972
--------- --------- ---------
Total Adjustments $48,641 ($30,340) $74,595
Net cash provided (used) by
Operating Activities ($790,322) ($296,084) ($1,937,891)
Cash Flows from Investing Activities
Purchase of Property & Equipment ($25,879) $0 ($43,106)
---------- ---------- ------------
Net Cash Flows from
Investing Activities ($25,849) $0 ($43,106)
---------- ---------- ------------
Cash Flows from Financing Activities
Proceeds from Sale of Common Stock $4,761,500 $392,000 $6,170,717
Offering Costs ($123,750) $0 ($161,896)
Notes Payable - Officers $0 $13,500
---------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 11
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 1997 AND SEPTEMBER
30,
1996 AND FROM INCEPTION (JANUARY 17, 1996)
THROUGH SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
For The Nine For The Nine From
Months Months Inception
Period Ended Period Ended Through
September September September
30, 1997 30, 1996 30, 1997
<C> <S> <S> <S>
Net cash provided by
financing Activities $4,637,750 $392,000 $6,022,321
---------- -------- -----------
Increase (decrease) in cash and Cash
Equivalents $3,821,549 $95,916 $4,041,324
Cash and cash equivalents at
beginning of period $219,775 $44,975 $0
Cash and cash equivalents at end
of period $4,041,324 $140,891 $4,041,324
---------- -------- ----------
Supplemental Information Cash paid For:
Interest $0 $0 $0
---------- -------- -----------
Income Taxes $0 $0 $0
---------- -------- -----------
Non-cash financing
Intangible assets purchased with
Common Stock $0 $1,000 $1,000
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 12
<PAGE>
MEDCARE TECHNOLOGIES,INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
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. 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 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 UI System (now, The
MedCare Program) assets in exchange for 2,000,000 shares of the Company's common
stock at $0.0005 for a total value of $1,000.
The accompanying notes are an integral part of these financial statements.
Page 13
<PAGE>
MEDCARE TECHNOLOGIES,INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
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.
On October 1, 1995, the Company purchased 100% of the outstanding shares of
Manon Consulting, Ltd. 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 January 1, 1997, the Company sold Manon Consulting,
Ltd. and recorded a gain on the sale of $15,770. See Note 8- Discontinued
Operations.
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 36,000 shares of its common stock at $3.00
per share under its 1995 Stock Option Plan, or $108,000.
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.
The accompanying notes are an integral part of these financial statements.
Page 14
<PAGE>
MEDCARE TECHNOLOGIES,INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
On June 22, 1996, the Company issued 50,000 shares of its common stock at
$4.75 per share in a 504D private placement memorandum, or $237,500.
On November 18, 1996, the Company issued 56,000 shares of its common stock
at $4.50 per share in a 504D private placement memorandum, or $252,000.
On January 1, 1997, the Company discontinued the operations of Manon
Consulting, Ltd and transferred its research and development function to the
Company's office in Naperville, IL.
On January 28, 1997, the Company issued 6,000 shares of its common stock at
$3.00 per share and 2,000 shares of its common stock at $4.50 per share under
its Stock Option Plan for $27,000 cash.
On February 4, 1997, the Company issued 176,000 shares of common stock at
$6.25 per share under a private placement memorandum or $1,100,000.
On February 18, 1997, the Company issued 9,000 shares of its common stock
at $3.00 per share and 3,000 shares at $4.50 per share under its Stock Option
Plan for $40,500 cash.
On March 18, 1997, the Company issued 6,500 shares of its common stock at
$3.00 per share under its Stock Option Plan for $19,500.
On March 25, 1997, the Company issued 17,600 shares of its common stock at
$6.25 per share in Private Placement for $1,100,000.
On April 1, 1997, the Company issued 2,500 shares of its common stock at
$3.00 per share and another 2,500 shares of its common stock at $4.50 per share
under its Stock Option Plan for $18,750 cash.
On May 20, 1997, the Company issued 1,500 shares of its common stock at
$3.00 per share under its Stock Option Plan for $4,500.
During March 1997, the Company issued 300,000 shares of common stock at
$6.00 per share under the private placement memorandum or $1,800,000.
The accompanying notes are an integral part of these financial statements.
Page 15
<PAGE>
MEDCARE TECHNOLOGIES,INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
On July 31, 1997, the Company issued 165 shares of Preferred Stock - Series
A at $10,000 per shares or $1,650,000, less offering costs of $123,750.
As of September 30, 1997, the Company issued 15,000 shares of common stock
at $4.50 per share under the 1996 Stock Option Plan or $67,500.
As of September 30, 1997, the Company issued 48,000 shares of common stock
at $3.00 per share under the 1995 Stock Option Plan or $144,000.
The Company is a development stage company, as defined in the Financial
Accounting Standard 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 the next 12 months, and as a result will require
addtional funds. The additional funding has been accomplished by seeking
additional funds from private or public equity investments to meet such needs.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
A. Method of Accounting
--------------------
The Company maintains its books and prepares its financial statements on
the accrual basis 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. Equity Method
-------------
Investments in companies is using the equity method of accounting.
D. Organizational Expenses
-----------------------
Organizational expenses represent legal and filing fees. The Company will
amortize its organization costs over sixty (60) months using the straight
line method.
E. 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 ended September 30, 1997
was $860.00 in 1997.
F. 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 year 2003 through 2008, in the amount
of $1,200,691 and $575,960, in 1996 and 1995, respectively, unless utilized
by the Company.
G. 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
7,052,442 at September 30, 1997, 6,749,935 in 1996 and 6,497,155 in 1995.
H. Leases
------
The Company currently has the use of approximately 1,500 square feet of
office space, the use of meeting rooms, and all office equipment, including
a photocopier and telephone
The accompanying notes are an integral part of these financial statements.
Page 17
<PAGE>
MEDCARE TECHNOLOGIES,INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
equipment. The office space is owned by one of the Company's directors and
the Chairman's wife. The offices are located at Suite 216 - 1628 West 1st
Avenue, Vancouver, British Columbia, Canada. The monthly rent is $2,000
per month. There is an option to renew for an additional year. A second
office is located at 608 South Washington, Suite 101, Naperville, Illinois
60540. These offices are leased for a one year period with the option to
renew for an additional year, at a monthly rate of $1,550 per month.
I. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, MedCare Technologies, Corporation.
Intercompany transactions have been eliminated in consolidation.
J. Purchase Method
---------------
Investments in companies have been included in the financial report using
the equity method of accounting. The Company's wholly owned subsidiary, MedCare
Technologies, Corporation is engaged in the business of medical consulting and
management in the United States.
K. 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.
L. MedCare Program Sites
---------------------
The Company has operating MedCare Program sites under the direct
supervision of physicians in Norman, OK, Winter Park, FL, Denver, Colorado,
Raleigh, North Carolina, and Kankakee, Illinois. Additional MedCare Program
sites are expected to be established in Phoenix, Arizona, Toledo, Ohio, Houston,
Texas and Cleveland, Texas.
M. Use of Estimates
----------------
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the
The accompanying notes are an integral part of these financial statements.
Page 18
<PAGE>
MEDCARE TECHNOLOGIES,INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual results could
vary from the estimates that were assumed in preparing the financial statements.
N. Presentation
------------
Certain accounts from prior years have been reclassified to conform with
the currents year's presentation.
O. Pending Accounting Pronouncements
---------------------------------
It is anticipated that current pending accounting pronouncements will not
have an adverse impact on the financial statements of the Company.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
---------------------------------
Notes payable represent advance from related officers that are paid back as
cash flows allow. The notes are demand notes with no interest rate
currently applicable. The President of the Company loaned the Company
$12,500 on August 18, 1996. The note is a demand note with no interest
rate currently applicable.
NOTE 4 - LONG-LIVED ASSETS - 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.
The accompanying notes are an integral part of these financial statements.
Page 19
<PAGE>
MEDCARE TECHNOLOGIES,INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
NOTE 5 - NOTES PAYABLE - OFFICERS - TRANSACTIONS WITH RELATED PARTIES
------------------------------------------------------------
An officer of the Company loaned the Company $1,000 and $12,500 during
1996. The notes are demand notes with no interest rate currently applicable.
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 period ended September 30,
1997 and for the years ended December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
Number of Option
Shares Price
<S> <C> <C>
Options outstanding and exercisable at December 31, 1995 500,000 $3.00
Options granted in 1996 300,000 $4.50
Options exercise 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 761,000
Options granted in 1997 200,000 $4.50
Options granted in 1997 300,000 $6.50
-------
Options exercised during 1997 under the 1995 Stock Option
Plan (48,000) $3.00
Options exercised during 1997 under the 1996 Stock Option
Plan (15,000) $4.50
--------- -------
Options outstanding and exercisable at September 30, 1997 1,198,000 $3-$6.50
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 20
<PAGE>
MEDCARE TECHNOLOGIES,INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
The Company has authorized the 1998 Stock Option Plan and reserved 500,000
shares of its common stock, of which 290,000 shares will be offered at
$6.50 and the balance of 210,000 shares at a price to be determined, for
issuance thereunder subject to stockholder approval at the next annual
general meeting.
NOTE 7- DISCONTINUED OPERATIONS
-----------------------
On January 1, 1997, the Company sold Manon Consulting, Ltd. at book value.
No revenues or expenses are included in the consolidated financial statements
for the nine months period ended September 30, 1997. The statement of
operations for the period ended September 30, 1996 are included net losses of
$512 and gross revenue of $6,691 of Manon Consulting Ltd. The Company reported
a gain on the transaction of $15,770 in 1997.
The following is a condensed balance sheet of Manon Consulting, Ltd., as of
December 31, 1996:
Condensed Balance Sheet
Current Assets $787
Equipment, Net $7,203
Other Assets $64
-------
$8,054
=======
Current Liabilities $23,825
Common Stock $7
Deficit ($15,778)
---------
$8,054
=========
The accompanying notes are an integral part of these financial statements.
Page 21
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
When used in this discussion, the words "believes", "anticipates", "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which would could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
republish revised forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Readers are also urged to carefully review and consider the various disclosures
made by the Company which attempt to advise interested parties of the factors
which affect the Company's business, in this report, as well as the Company's
periodic reports on Forms 10-K, 10Q and 8-K filed with the Securities and
Exchange Commission.
Overview
The Company has developed The MedCare Program, a non-surgical, non-drug,
non-invasive and cost effective treatment program for urinary incontinence, as
well as pelvic pain, chronic constipation, fecal incontinence, and disordered
defecation. The MedCare Program is a multi-modality program based primarily
on behavioural 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 on operant conditioning strategies whereby specific
physiological responses are progressively shaped, strengthened, and coordinated.
The Company currently has five recently opened MedCare Program centers operating
under the direct supervision of physicians in Norman, OK, Winter Park, FL,
Denver, Colorado, Raleigh, North Carolina, and Kankakee, Illinois. Additional
MedCare Program sites are expected to be established in Phoenix, Arizona,
Toledo, Ohio, Houston, Texas and Cleveland, Texas.
The Company plans to devote the majority of its resources to establishing these
new sites and in operating existing centres. Additionally, the Company is in
the process of introducing MedCare Program to nursing homes, hospitals and other
institutions.
Results of Operations
The Company had revenues of $56,175 for the nine month period ending September
30, 1997 compared to $6,758 for the nine month period ending September 30, 1996,
an increase of 831%. To date, the Company has not relied on any revenues for
funding its activities, and because the majoirty of its MedCare Program sites
have been recently opened, the Company does not expect to receive significant
revenues from operation
Page 22
<PAGE>
in the near future . During the next several years, the Company expects to
derive the majority of its potential revenues from the opening of new MedCare
Program centres in the United States.
For the nine month period ending September 30, 1997, the Company's general and
administrative expenses increased to $973,345, compared to $273,533 for the
corresponding period in 1996. The 1997 amount represents an increase of 356% due
primarily to the hiring of additional staff, incurring greater advertising
and marketing expenses at newly opened MedCare centers, and increased expenses
related to financial public relations.
The Company's net loss was $838,963, or $0.12 per share, for the nine month
period ending September 30, 1997, compared to a net loss of $265,744, or $0.04
per share, for the corresponding period in 1996. This increase was primarily due
to the increase in general and administrative costs described above.
Liquidity and Capital Resources
As at September 30, 1997, the Company's cash balance was $4,041,324, compared to
$140,891 as at September 30, 1996. The Company has financed its operations
primarily through private placements of common and preferred shares and the
exercise of Stock Options totalling $4,761,500, less $123,750 in offering
expenses, for the nine month period ending September 30, 1997.
Page 23
<PAGE>
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
As detailed in the financial statements, during the nine month period ending
September 30, 1997, the Company issued 63,000 common shares for the exercise of
stock options ranging in prices from $3.00 to $4.50, 176,000 common shares for a
private placement completed at $6.25 per share, 300,000 common shares for a
private placement completed at $6.00 per share and 165 Series A preferred shares
for a private placement of $1,650,000, less offering expenses of $123,750.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
On October 14, 1997, the Company filed a Form 8-K which reported the hiring of
Jeff Aronin as President and Chief Operating Officer and a Director of the
Company of the Company on June 26, 1997 (this event was previously reported in
the Form 10-Q for the period ended June 30, 1997) and the resignation for
personal reasons of Diane Nunziato as a Director of the Corporation and her
replacement by Dr. Jake Jacobo, both on September 17, 1997. This report also
detailed the filing of a Certificate of Designation with the State of Delaware
on July 7, 1997 designating 1,000 shares of the Company's one million shares of
authorized preferred stock to be Series A stock and the subsequent closing of
the offering associated with the Certificate of Designation on July 8, 1997.
The Company received $1,650,000 in gross proceeds from the offering. The
resignation letter and board meeting minutes regarding the resignation of Diane
Nunziato and election of Dr. Jake Jacobo to the Board of Directors are attached
hereto as Exhibit A. The Certificate of Designation and
Page 24
<PAGE>
related offering documents are attached hereto as Exhibits B through L. The
Certificate of Designation is also described in more detail above under Item 2
- - Changes in Securities.
EXHIBITS
Exhibit A Letter and Meeting Minutes Regarding Resignation of Diane
Nunziato and Election of Jake Jacobo to the Board of Directors
Exhibit B Certificate of Designation
Exhibit C Subscription Agreement
Exhibit D Nine-Month Warrant
Exhibit E Twelve-Month Warrant
Exhibit F Fifteen-Month Warrant
Exhibit G Preferred Warrants
Exhibit H Registration Rights
Exhibit I Opinion of Counsel
Exhibit J Instructions to Transfer Agent
Exhibit K Officer's Certificate
Exhibit L Form of Specimen Preferred Stock Certificate
Page 25
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDCARE TECHNOLOGIES, INC.
Dated: November 11, 1997 /s/ Harmel S. Rayat
------------------------
Harmel S. Rayat
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer
Page 26
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,041,324
<SECURITIES> 0
<RECEIVABLES> 60,115
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,134,333
<PP&E> 43,106
<DEPRECIATION> 11,132
<TOTAL-ASSETS> 4,168,807
<CURRENT-LIABILITIES> 159,740
<BONDS> 0
0
41
<COMMON> 6984
<OTHER-SE> 6,009,801
<TOTAL-LIABILITY-AND-EQUITY> 4,168,807
<SALES> 56,175
<TOTAL-REVENUES> 56,175
<CGS> 0
<TOTAL-COSTS> 973,345
<OTHER-EXPENSES> 11,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,926
<INCOME-PRETAX> (838,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (838,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (838,963)
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
MINUTES OF DIRECTORS MEETING
OF
MEDCARE TECHNOLOGIES, INC.
_________________________________
A meeting of the Board of Directors of MedCare Technologies, Inc. was held
on the 17th day of September, 1997 at 10:00 a.m. at the offices located at Suite
216, 1628 West 1st Avenue, Vancouver, B.C., V6J 1G1.
Present and participating at the meeting, either in person or
telephonically, were Mr. Harmel S. Rayat, Mr. Jeff Aronin, Ms. Valerie Boeldt-
Umbright, Dr. Michael Blue, Ms. Diane Nunziato and Mr. Kundan S. Rayat, being
all of the Directors of the Company. Mr. Harmel S. Rayat, the Chairman, chaired
the meeting and Mr. Kundan S. Rayat, the Secretary, read the minutes of the
last regular meeting and they were approved.
The first item of discussion brought before the board was the resignation
of Ms. Diane Nunziato as a Director and the appointment of Dr. Jake Jacobo to
the Board of Directors. After motion duly made, seconded and unanimously
carried with all in favor, it was;
RESOLVED, that the resignation of Diane Nunziato as a Director be accepted
and Jake Jacobo be appointed as a Director of the Company.
There being no further business and upon motion duly made and seconded, the
meeting was adjourned.
/s/ Kundan S. Rayat
- ------------------------------
Mr. Kundan S. Rayat, Secretary
<PAGE>
September 17, 1997
Dear Harmel:
It is with deep regret that I must ask you to accept my resignation from the
Board of Directors for MedCare Technologies, Inc. I have thoroughly enjoyed my
time as part of this innovative and exciting company. However, I need to now
spend more time with family and so I must resign for personal, family reasons.
Please accept this letter of resignation as of today, September 17, 1997.
Sincerely,
/s/ Diane Nunziato
Diane Nunziato, MCISc(CD)
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:35 PM 07/07/1997
971217070 -- 2632701
CERTIFICATE OF DESIGNATION OF
SERIES A PREFERRED STOCK
OF
MEDCARE TECHNOLOGIES, INC.
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is Medcare
Technologies, Inc., a Delaware corporation.
2. The certificate of incorporation of the Company authorizes the
issuance of one million (1,000,000) shares of preferred stock, $.25 par value
per share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one (l) or more
series and by resolution or resolutions to establish the designation and number
and to fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series A issue of Preferred Stock:
RESOLVED, that one thousand (1,000) of the one million (1,000,000)
authorized shares of Preferred Stock of the Company shall be designated Series
A Preferred Stock, $.25 par value per share, and shall possess the rights and
preferences set forth below:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall have a
par value of $.25 per share and shall be designated as Series A Preferred Stock
(the "Series A Preferred Stock") and the number of shares constituting the
Series A Preferred Stock shall be one thousand (1,000). The Series A Preferred
Stock shall be offered at a purchase price of Ten Thousand Dollars ($10,000) per
share (the "Original Series A Issue Price"), with an eight percent (8%) per
annum accretion rate as set forth herein.
Section 2. RANK. The Series A Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series A Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock, $.001 par value per share ("Common Stock"); (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series A Preferred Stock ("Parity Securities") in each case as
to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. DIVIDENDS. The Series A Preferred Stock will bear no dividends,
and the holders of the Series A Preferred Stock ("Holders") shall not be
entitled to receive dividends on the Series A Preferred Stock.
Section 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the Holders of
shares of Series A Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Company's
Certificate of Incorporation or any certificate of designation, and prior in
preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the sum of
(i) the Original Series A Issue Price for each outstanding share of Series A
Preferred Stock and (ii) an amount equal to eight percent (8%) of the Original
Series A Issue Price per annum for the period that has passed since the date
that, in connection with the consummation of the purchase by Holder of shares
of Series A Preferred Stock from the Company,
<PAGE>
the escrow agent (or the Company, in the case of exercise of warrants to
acquire, the Series A Preferred Stock (the "Preferred Warrants")) first had in
its possession funds representing full payment for the shares of Series A
Preferred Stock (such amount being referred to herein as the "Premium"). If
upon the occurrence of such event, and after payment in full of the preferential
amounts with respect to the Senior Securities, the assets and funds available to
be distributed among the Holders of the Series A Preferred Stock and Parity
Securities shall be insufficient to permit the payment to such Holders of the
full preferential amounts due to the Holders of the Series A Preferred Stock and
the Parity Secunties, respectively, then the entire assets and funds of the
Company legally available for distribution shall be distributed among the
Holders of the Series A Preferred Stock and the Parity Securities, pro rata,
based on the respective liquidation amounts to which each such series of stock
is entitled by the Company's Certificate of Incorporation and any certificate(s)
of designation relating thereto.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of
all or substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of shall be
deemed to be a Liquidation Event as defined in Section 4(a); provided further
that (i) a consolidation, merger, acquisition, or other business combination of
the Company with or into any other publicly traded company or companies shall
not be treated as a Liquidation Event as defined in Section 4(a) but instead
stroll be treated pursuant to Section 5(d) hereof, and (ii) a consolidation,
merger, acquisition, or other business combination of the Company with or into
any other non-publicly traded company or companies shad be treated as a
Liquidation Event as defined in Section 4(a). The Company shall not effect any
transaction described in subsection 4(c)(ii) unless it first gives thirty (30)
business days prior notice of such transaction (during which time the Holder
shall be entitled to immediately convert any or all of its shares of Series A
Preferred Stock into Common Stock at the Conversion Price, as defined below,
then in effect, which conversion shall not be subject to the conversion
restrictions set forth in Section 5(a); provided however, that, if such
conversion takes place prior to the end of the four (4) month holding period set
forth in Section 5(a), for purposes of calculating the Variable Conversion Price
(as defined in Section 5(a)), "X" shall equal eighty-five percent (85%)).
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a liquidation
event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either (i) cause such closing to be postponed until
such cash distributions have been made, or (ii) cancel such transaction, in
which event the rights of the Holders of Series A Preferred Stock shall be the
same as existing immediately prior to such proposed transaction.
Section 5. CONVERSION. Subject to Section 4(c) herein, the record Holders
of this Series A Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) RIGHT TO CONVERT. The record Holder of the Series A Preferred
Stock shall be entitled to convert, subject to the Company's right of redemption
set forth in Section 6(a), any or all the shares of the Series A Preferred Stock
on or after the date that is four (4) months after the Last Closing Date, as
defined below, at the office of the Company or its designated transfer agent
(the "Transfer Agent"), into that number of fully-paid and non-assessable
shares of Common Stock calculated in accordance with the following formula (the
"Conversion Rate"):
Number of shares issued upon conversion of one (1) share of Series A
Preferred Stock =
(.08) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
<PAGE>
where,
N=the number of days between (i) the date that, in connection with the
consummation of the initial purchase by Holder of shares of Series A Preferred
Stock from the Company, the escrow agent (or the Company, in the case of
exercise of the Preferred Warrants) first had in its possession funds
representing full payment for the shares of Series A Preferred Stock for which
conversion is being elected, and (ii) the applicable Date of Conversion (as
defined in Section 5(b)(iv) below) for the shares of Series A Preferred Stock
for which conversion is being elected, and
Conversion Price = the lesser of (x) 115% of the average Closing Bid Price, as
defined below, for the five (5) trading days ending on June 6, 1997, which is
$7.346 (the "Fixed Conversion Price"), or (y) X9to of the average Closing Bid
Price, as that term is defined below, of the Company's Common Stock for the five
(5) trading days immediately preceding the Date of Conversion, as defined below
(the "Variable Conversion Price"), where X is determined as follows;
No. Months Between Last
Closing and Date of Conversion "X"
-------------------------------- -----
4 months-6 months 90%
6 months and 1 day-9 months 87.5%
9 months and 1 day-12 months 85%
more than 12 months 80%
provided, however, that, unless otherwise indicated herein, beginning on the
date that is four (4) months following the Last Closing Date, as defined below,
the right of the Holder to convert into Common Stock using the Variable
Conversion Price initially shall be limited to a maximum of fifteen percent
(15%) of the aggregate number of shares of the Series A Preferred Stock issued
to such Holder, including, if applicable, Series A Preferred Stock issued upon
exercise of the Preferred Warrants, and for each one (1) month period which
expires thereafter, the Holder shah accrue the right to convert into Common
Stock an additional fifteen percent (1S%) of the aggregate number of shares of
the Series A Preferred Stock issued to such Holder, including, if applicable,
Series A Preferred Stock issued upon exercise of the Preferred Warrants (the
number of shares that may be converted at any given time using the Variable
Conversion Price, in the aggregate, is referred to hereinafter as the
"Conversion Quota"); and provided, further, in the event that the Holder elects
not to convert its full Conversion Quota during any one (1) month period, the
unconverted amount shall be earned forward and added to the Conversion Quota,
and thereafter the Holder may, from time to time, convert any portion of the
Conversion Quota at the Variable Conversion Price; and provided further, that
subsequent to the date that is ten (10) months following the Last Closing Date,
there shall be no restrictions on the number of shares of Series A Preferred
Stock that may be converted into Common Stock using the Variable Conversion
Price; and provided, further, that a Holder can convert one hundred percent
(100%) of the Series A Preferred Stock or any portion thereof, into Common Stock
using the Fixed Conversion Price on or after the date that is four (4) months
after the Last Closing Date whether or not the Fixed Conversion Price is less
than the Variable Conversion Price.
As used herein, "Last Closing Date" shall mean the date of the last closing
of a purchase and sale of the Series A Preferred Stock that occurs pursuant to
the offering of the Series A Preferred Stock by the Company and accompanying
warrants (for purposes of this definition, the Series A Preferred Stock
obtained upon exercise of the Preferred Warrants shall be deemed to be acquired
at the closing when such Preferred Warrants were issued).
For purposes hereof, any Holder which acquires shares of Series A Preferred
Stock and/or Preferred Warrants from another Holder (the "Transferor") and not
upon original issuance from the Company shall be entitled to exercise its
conversion right as to the percentages of such shares specified under Section
5(a) in such amounts and at such times such that the number of shares eligible
for conversion by such Holder at any time shall be in the same proportion that
the number of shares of Series A Preferred Stock (assuming all Preferred
Warrants are exercised) acquired by such Holder from its Transferor bears to the
total number of shares of Series A Preferred Stock (assuming
<PAGE>
all Preferred Warrants are exercised) originally issued by the Company to such
Transferor (or its predecessor Transferor).
For purposes hereof, the term "Closing Bid Price" shall mean the closing bid
price of the Company's Common Stock on the OTC Bulletin Board, or if no longer
traded on the OTC Bulletin Board, the closing bid price on the principal
national securities exchange or the National Market System on which the Common
Stock is so traded and if not available, the mean of the high and low prices on
the principal national securities exchange or the National Market System on
which the Common Stock is so traded.
(b) MECHANICS OF CONVERSION. In order to convert Series A Preferred
Stock into full shares of Common Stock, the Holder shall (i) send via facsimile,
on or prior to 11:59 p.m., New York City time (the "Conversion Notice Deadline")
on the Date of Conversion, a copy of the fully executed notice of conversion
("Notice of Conversion") to the Company at the office of the Company and to its
designated transfer agent (the "Transfer Agent") for the Series A Preferred
Stock stating that the Holder elects to convert, which notice shall specify the
Date of Conversion, the number of shares of Series A Preferred Stock to be
converted, the applicable conversion price and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a copy of
the front page of each certificate to be converted) and (ii) surrender to a c
ommon courier for delivery to the office of the Company or the Transfer Agent,
the original certificates representing the Series A Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed for transfer
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
either the Preferred Stock Certificates are delivered to the Company or its
Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (i) below). Upon receipt by Company
of a facsimile copy of a Notice of Conversion, Company shall immediately send,
via facsimile, a confirmation of receipt of the Notice of Conversion to Holder
which shall specify that the Notice of Conversion has been received and the name
and telephone number of a contact person at the Company whom the Holder should
contact regarding information related to the Conversion. In the case of a
dispute as to the calculation of the Conversion Rate, the Company shall promptly
issue to the Holder the number of Shares that are not disputed and shall submit
the disputed calculations to its outside accountant via facsimile within three
(3) days of receipt of Holder's Notice of Conversion. The Company shall cause
the accountant to perform the calculations and notify Company and Holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed calculations. Accountant's calculation shall be deemed conclusive
absent manifest error.
(i) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series A Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, Company shall
not eve obligated to re-issue such lost or stolen Preferred Stock Certificates
if Holder contemporaneously requests Company to convert such Series A Preferred
Stock into Common Stock.
(ii) DELIVERY OF COMMON STOCK UPON CONVERSION. The Company shall
or shall cause the Transfer Agent to, no later than the close of business on
the second (2nd) business day (the "Deadline") after receipt by the Company or
the Transfer Agent of a facsimile copy of a Notice of Conversion and receipt by
Company or the Transfer Agent of all necessary documentation duly executed and
in proper form required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or indemnification
in the case of lost or destroyed certificates, if required), issue and surrender
to a common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery to the Holder at the address of the Holder as shown
on the stock records of the Company a certificate for the number of shares of
Common Stock to which the Holder shall be entitled as aforesaid.
(iii) NO FRACTIONAL SHARES. If any conversion of the Series A
Preferred Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of
<PAGE>
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion, in the aggregate, shall be the
next higher number of shares.
(iv) DATE OF CONVERSION. The date on which conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
sent via facsimile to the Company before 11:59 p.m., New York City time, on the
Date of Conversion, and (ii) that the original Preferred Stock Certificates
representing the shares of Series A Preferred Stock to be converted are
surrendered by depositing such certificates with a common courier, for delivery
to the Company or the Transfer Agent as provided above, as soon as practicable
after the Date of Conversion. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record Holder or Holders of such shares of Common Stock on the
Date of Conversion.
(c) AUTOMATIC CONVERSION OR REDEMPTION. Each share of Series A
Preferred Stock outstanding on the date which is three (3) years after the
Last Closing Date or, if not a business day, the first business day thereafter
("Termination Date") automatically shad, at the option of the Company, either
(i) be converted ("Automatic Conversion") into Common Stock on such date at the
Conversion Rate then in effect (calculated in accordance with the formula in
Section 5(a) above), and the Termination Date shall be deemed the Date of
Conversion with respect to such conversion for purposes of this Certificate of
Designation, or (ii) be redeemed ("Automatic Redemption") by the Company for
cash in an amount equal to the Stated Value (as defined in Section 6(b)(i)
below) of the shares of Series A Preferred Stock being redeemed. If the Company
elects to redeem, on the Termination late, the Company shall send to the Holders
of outstanding Series A Preferred Stock notice (the "Automatic Redemption
Notice") via facsimile of its intent to effect an Automatic Redemption of the
outstanding Series A Preferred Stocln If the Company does not send such notice
to Holder on such date, an Automatic Conversion shall be deemed to have
occurred. If an Automatic Conversion occurs, the Company and the Holders
shall follow the applicable conversion procedures set forth in this Certificate
of Designation; provided, however, that the Holders are not required to send the
Notice of Conversion contemplated by Section S(b). If the Company elects to
redeem, each Holder of outstanding Series A Preferred Stock shall send their
certificates representing the Series A Preferred Stock to the Company within
five (5) days of the date of receipt of the Automatic Redemption Notice from
the Company, and the Company shall pay the applicable redemption price to each
respective Holder within five (5) days of the receipt of such certificates. The
Company shall not be obligated to deliver the redemption price unless the
certificates representing the Series A Preferred Stock are delivered to the
Company, or, in the event one or more certificates have been lost, stolen,
mutilated or destroyed, unless the Holder has complied with Section 5(b)(i). If
the Company elects to redeem under this Section 5(c) and the Company fails to
pay the Holders the redemption price within five (5) days of the Termination
Date as required by this Section 5(c), then an Automatic Conversion shall be
deemed to have occurred and, upon receipt of the Preferred Stock Certificates,
the Company shall immediately deliver to the Holders the certificates
representing the number of shares of Common Stock to which the Holders would
have been entitled upon Automatic Conversion.
(d) ADJUSTMENT TO CONVERSION RATE.
(i) ADJUSTMENT TO FIXED CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If, prior to the conversion of all of the Series A Preferred
Stock, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, or other similar event, the Fixed Conversion Price shall
be proportionately reduced, or if the number of outstanding shares of Common
Stock is decreased by a combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately increased.
(ii) ADJUSTMENT TO VARIABLE CONVERSION PRICE. If, at any time when any
shares of the Series A Preferred Stock are issued and outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, or other similar event, which event shall have taken place
during the reference period for determination of the Conversion Price for any
conversion of the Series A Preferred Stock, then the Variable Conversion Price
shall be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event for all five (5)
trading days immediately preceding the Date of Conversion.
<PAGE>
(iii) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If prior to the
conversion of all Series A Preferred Stock, there shall be any merger,
consolidation;, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Company or another entity or
there is a sale of all or substantially all the Company's assets or there is a
change of control transaction not deemed to be a liquidation pursuant to Section
4(c), then the Holders of Series A Preferred Stock shall thereafter have the
right to receive upon conversion of Series A Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this subsection
5(d)(iii) unless (a) it first gives thirty (30) business days prior notice of
such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series A Preferred Stock into Common Stock)
and (b) the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligations of the Company under this Certificate of
Designation including this subsection 5(d)(iii).
(iv) NO FRACTIONAL SHARES. If any adjustment under this Section 5(d)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon conversion shall be the
next higher number of shares.
Section 6. REDEMPTION BY COMPANY.
(a) COMPANY'S RIGHT TO REDEEM UPON RECEIPT OF NOTICE OF CONVERSION. If
the Conversion Price of the Company's Common Stock is less than the Fixed
Conversion Price (as defined in Section 5(a)), at the time of receipt of a
Notice of Conversion pursuant to Section 5, the Company shall have the right,
in its sole discretion, to redeem in whole or in part any Series A Preferred
Stock submitted for conversion at the Redemption Rate (as defined below),
immediately prior to and in lieu of conversion ("Redemption Upon Receipt of
Notice of Conversion"). If the Company elects to redeem some, but not all, of
the Series A Preferred Stock submitted for conversion, the Company shall redeem
from among the Series A Preferred Stock submitted by the various shareholders
for conversion on the applicable date, a pro-rata amount from each such Holder
so submitting Series A Preferred Stock for conversion.
(i) REDEMPTION PRICE UPON RECEIPT OF A NOTICE OF CONVERSION. The
redemption price of Series A Preferred Stock under this Section 6(a) shall be
calculated as follows ("Redemption Rate"):
No. Months Between Last
Closing and Date of Conversion Redemption Rate
------------------------------ ---------------
4 months 6 months Stated Value x 1.10
6 months and 1 day -- 9 months Stated Value x 1.125
9 months and 1 day -- 12 months Stated Value x 1.15
more than 12 months Stated Value x 1.20
where,
"Stated Value" shall have the same meaning as defined in Section 6(b)
below.
<PAGE>
(ii) MECHANICS OF REDEMPTION UPON RECEIPT OF NOTICE OF CONVERSION.
The Company shall effect each such redemption by giving notice of its election
to redeem, by facsimile, by 5:00 p.m. New York City time the next business day
following receipt of a Notice of Conversion from a Holder, and the Company shall
provide a copy of such redemption notice by overnight or two (2) day courier, to
(A) the Holder of the Series A Preferred Stock submitted for conversion at the
address and facsimile number of such Holder appearing in the Company's register
for the Series A Preferred Stock and (B) the Company's Transfer Agent. Such
redemption notice shall indicate whether the Company will redeem all or part of
the Series A Preferred Stock submitted for conversion and the applicable
redemption price,
(b) COMPANY'S RIGHT TO REDEEM AT ITS ELECTION. At any time, commencing
twelve (12) months and one (1) day after the Last Closing Date, the Company
shall have the light, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series A Preferred
Stock, provided (i) Company shall first provide thirty (30) business days
advance written notice as provided in subparagraph 6(b)(ii) below (which can be
given beginning thirty (30) business days prior to the date which is twelve (12)
months and one (1) day after the Last Closing Date), and (ii) that the Company
shall only be entitled to redeem Series A Preferred Stock having an aggregate
Stated Value (as defined below) of at least Two Hundred Fifty Thousand Dollars
($250,000). If the Company elects to redeem some, but not all, of the Series A
Preferred Stock, the Company shall redeem a pro-rata amount from each Holder of
the Series A Preferred Stock.
(i) REDEMPTION PRICE AT COMPANY'S ELECTION. The "Redemption Price At
Company's Election" shall be calculated as a percentage of Stated Value, as that
term is defined below, of the Series A Preferred Stock redeemed pursuant to this
Section 6(b), which percentage shall vary depending on the date of Redemption at
Company's Election (as defined below), and shall be determined as follows:
Date of Notice of Redemption at Company's Election % of Stated Value
- -------------------------------------------------- -----------------
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
24 months and 1 day to 30 months following Last Closing Date 120%
30 months and I day to 36 months following Last Closing Date 115%
For purposes hereof, "Stated Value" shall mean the Original Series A Issue
Price (as defined in Section 1)) of the shares of Series A Preferred Stock being
redeemed pursuant to this Section 6(b), together with the accreted but unpaid
Premium (as defined in Section 4(a)).
(ii) MECHANICS OF REDEMPTION AT COMPANY'S ELECTION. The Company shall
effect each such redemption by giving at least thirty (30) business days prior
written notice ("Notice of Redemption At Company's Election") to (A) the Holders
of the Series A Preferred Stock selected for redemption, at the address and
facsimile number of such Holder appearing in the Company's Series A Preferred
Stock register and (B) the Transfer Agent, which Notice of Redemption At
Company's Election shall be deemed to have been delivered three (3) business
days after the Company's mailing (try overnight or two (2) day courier, with
a copy by facsimile) of such Notice of Redemption At Company's Election. Such
Notice of Redemption At Company's Election shall indicate (i) the number of
shares of Series A Preferred Stock that have been selected for redemption, (ii)
the date which such redemption is to become effective (the "Date of Redemption
At Company's Election") and (iii) the applicable Redemption Price At Company's
Election, as defined in subsection (b)(i) above. Notwithstanding the above,
Holder may convert into Common Stock pursuant to section 5, prior to the close
of business on the Date of Redemption at Company's Election, any Series A
Preferred Stock which it is otherwise entitled to convert, including Series A
Preceded Stock that has been selected for redemption at Company's election
pursuant to this subsection 6(b), provided, however, that the Company shall
still be entitled to exercise its right to redeem upon receipt of a Notice of
Conversion pursuant to section 6(a).
***** (c) COMPANY MUST HAVE IMMEDIATELY AVAILABLE
FUNDS OR CREDIT FACILITIES. The Company shall not be entitled to send
any Redemption Notice and begin the redemption procedure under Sections 6(a)
and 6(b) unless it has:
<PAGE>
(i) the full amount of the redemption price in cash, available in a
demand or other immediately available account in a bank or similar financial
institution; or
(ii) immediately available credit facilities, in the full amount of
the redemption price with a bark or similar financial institution; or
(iii) an agreement with a standby underwriter willing to purchase
from the Company a sufficient number of shares of stock to provide proceeds
necessary to redeem any stock that is not converted prior to redemption; or
(iv) a combination of the items set forth in (i), (ii) and (iii)
above, aggregating the full amount of the redemption price.
If the foregoing conditions of this Section 6(c) are satisfied and Company
complies with Section 6(d) hereof, then any shares of Series A Preferred Stock
called for by a Redemption at Company's Election shall cease to he outstanding
for all purposes hereunder (including the right to convert or to accrete
additional Premium or to exercise any other right or privilege hereunder) on the
Date of Redemption at Company's Election and shall instead represent the right
to receive the Redemption Price at Company's Election without interest from and
after the Date of Redemption at Company's Election.
(d) PAYMENT OF REDEMPTION PRICE.
(i) Each Holder submitting Preferred Stock being redeemed under this
Section 6 shall send their Series A Preferred Stock Certificates so redeemed to
the Company or its Transfer Agent, and the Company shall pay the applicable
redemption price to that Holder within five (5) business days of the Date of
Redemption at Company's Election. The Company shall not be obligated to deliver
the redemption price unless the Preferred Stock Certificates so redeemed are
delivered to the Company or its Transfer Agent, or, in the event one (1) or more
certificates have been lost, stolen, mutilated or destroyed, unless the Holder
has complied with Section 5(b)(i).
(ii) If Company elects to redeem pursuant to Section 6(a) hereof, and
Company fails to pay Holder the redemption price within the time frame as
required by this Section 6(d) then Company shall issue shares of Common Stock
to any such Holder who has submitted a Notice of Conversion in compliance with
Section 5(b) hereof. The shares to be issued to Holder pursuant to this
provision shall be the number of shares determined using the lowest Conversion
Price (as defined in Section 5 hereof) in effect during the period beginning on
the date Holder sends its Notice of Conversion to Company or Transfer Agent via
facsimile and ending on the date the Transfer Agent issues Common Stock pursuant
to this Section 6(d)(ii). Nothing in this Section 6(d) shall be construed to
limit Holder's ability to pursue Holder's rights under Section 13 hereof.
(e) BLACKOUT PERIOD. Notwithstanding the foregoing, the Company may not
either send out a redemption notice or effect a redemption pursuant to Section
6(b) above during a Blackout Period (defined as a period during which the
Company's officers or directors would not be entitled to buy or sell stock
because of their holding of material non-public information), unless the Company
shall first disclose the non-public information that resulted in the Blackout
Period; provided, however, that no redemption shall be effected until at least
ten (10) days after the Company shall have given the Holder written notice that
the Blackout Period has been lifted.
Section 7. VOTING RIGHTS. The Holders of the Series A Preferred Stock
shall have no voting power whatsoever, except as otherwise provided by the
General Corporation Law of the State of Delaware ("Delaware Law"), and no Holder
of Series A Preferred Stock shall vote or otherwise participate in any
proceeding in which actions shall be taken by the Company or the shareholders
thereof or be enticed to notification as to any meeting of the shareholders.
Notwithstanding the above, Company shall provide Holder with notification
of any meeting of the shareholders regarding any major corporate events
affecting the Company. In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders
<PAGE>
who are entitled to receive payment of any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any share of any class or
any other securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under Delaware Law the vote of the Holders of the Series
A Preferred Stock, voting separately as a class, is required to authorize a
given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series A Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series A Preferred Stock (except as otherwise may be
required under Delaware Law) shall constitute the approval of such action by the
class. To the extent that under Delaware Law the Holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one (1) class, each share of Series A Preferred Stock shall
be entitled to a number of votes equal to the number of shares of Common Stock
into which it is then convertible using the record date for the taking of such
vote of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Series A Preferred Stock also shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's
by-laws and applicable statutes.
Section 8. PROTECTIVE PROVISION. So long as shares of Series A Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Delaware Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series A Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of the Series
A Preferred Stock or any securities so as to affect adversely the Series A
Preferred Stock;
(b) create any new class or series of stock having a preference over the
Series A Preferred Stock with respect to Distributions (as defined in Section 2
above) or increase the size of the authorized number of Series A Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series A Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to subsection (a} above, so as to affect the Senes A Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series A Preferred Stock that did not agree to such alteration
or change (the "Dissenting Holders"} and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the holding requirements set forth in Section 5(a) hereon, or
continue to hold shares of Series A Preferred Stock, as amended.
Section 9. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares
of Series A Preferred Stock shall be converted or redeemed pursuant to Section
5 or Section 6 hereof, the shares so converted or redeemed shall be canceled,
shall return to the status of authorized but unissued Preferred Stock of no
designated senes, and shall not be issuable by the Company as Series A Preferred
Stock.
<PAGE>
Section 10. PREFERENCE RIGHTS. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one
(1) or more series of Preferred Stock with dividend and/or liquidation
preferences junior to the dividend and liquidation preferences of the Series A
Preferred Stock.
Section 11. RESERVATION OF SHARES OF COMMON STOCK.
(a) RESERVED AMOUNT. The Company shall have authorized and reserved and
keep available for issuance one million five hundred thousand (1,500,000) shares
of Common Stock (the "Reserved Amount") solely for the purpose of effecting the
conversion of the Series A Preferred Stock, including Series A Preferred Stock
to be issued upon exercise of the Preferred Warrants, and exercise of the
warrants to acquire Common Stock (the "Common Warrants") issued or to be issued
to the Holders. The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock a sufficient number of
shares of Common Stock to provide for the full conversion of all outstanding
Series A Preferred Stock and the full conversion of Series A Preferred Stock
which may be issued upon exercise of the Preferred Warrants, and issuance of the
shares of Common Stock in connection therewith and the full exercise of the
Common Warrants and issuance of the shares of Common Stock in connection
therewith.
(b) INCREASES TO RESERVED AMOUNT. Without limiting any other provision
of this Section 11, if the Reserved Amount for any three (3) consecutive trading
days (the last of such three (3) trading days being the "Authorization Trigger
Date") shall be less than one hundred twenty-five percent (125%) of the number
of shares of Common Stock issuable upon conversion of this Series A Preferred
Stock, including Series A Preferred Stock which may be issued upon exercise of
the Preferred Warrants, and exercise of the Common Warrants on such trading days
(a "Share Authorization Failure"), the Company shall immediately notify all
Holders of such occurrence and shall take action as soon as possible, but in
any event within sixty (60) days after an Authorization Trigger Date (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to one
hundred fifty percent (150%) of the number of shares of Common Stock then
issuable upon conversion of the Series A Preferred Stock, including Series A
Preferred Stock which may be issued upon exercise of the Preferred Warrants, and
exercise of the Common Warrants.
(c) REDUCTION OF RESERVED AMOUNT UNDER CERTAIN CIRCUMSTANCES. Prior to
complete conversion of all Series A Preferred Stock, including Series A
Preferred Stock which may be issued upon exercise of the Preferred Warrants, the
Company shall not reduce the number of shares required to be reserved for
issuance under this Section 11 without the written consent of all Holders except
for a reduction proportionate to a reverse stock split effected for a business
purpose other than affecting the obligations of Company under this Section 11,
which reverse stock split affects all shares of Common Stock equally. Following
complete conversion of all the Series A Preferred Stock, including Series A
Preferred Stock which may be issued upon exercise of the Preferred Warrants,
the Company may, with fifteen (15) days prior written notice to Holder, reduce
the Reserved Amount to one hundred twenty-five percent (125%) of the number of
shares of Common Stock issuable upon the full exercise of the Common Warrants;
provided, however, that the Reserved Amount shall continue to be subject to
increase pursuant to Section 11 hereof.
(d) ALLOCATION OF RESERVED AMOUNT. Each increase to the Reserved Amount
shall be allocated pro rata among the Holders based on the number of Series A
Preferred Stock, including Series A Preferred Stock which may be issued upon
exercise of the Preferred Warrants, and Common Warrants held by each Holder at
the time of the establishment of or increase in the Reserved Amount. In the
event a Holder shall sell or otherwise transfer any of such Holder's Series A
Preferred Stock, Preferred Warrants or Common Warrants, each transferee shall
be allocated a pro rata portion of such transferor's Reserved Amount. Any
portion of the Reserved Amount which remains allocated to any person or entity
which does not hold any Series A Preferred Stock or Preferred Warrants shall be
allocated to the remaining Holders, pro rata based on the number of Series A
Preferred Stock, including Series A Preferred Stock which may be issued upon
exercise of the Preferred Warrants, and Common Warrants then held by such
Holders.
<PAGE>
Section 12. FAILURE TO SATISFY CONVERSIONS.
(a) CONVERSION FAILURE PAYMENTS. If, at any time, (x) a Holder submits a
Notice of Conversion (or is deemed to submit such notice pursuant to Section
5(c) hereof), and the Company fails for any reason to deliver, on or prior to
the expiration of the Deadline ("Delivery Period") for such conversion, such
number of shares of Common Stock to which such Converting Holder is entitled
upon such conversion, or (y) the Company provides notice to Holder at any time
of its intention not to issue shares of Common Stock upon exercise by Holder of
its conversion rights in accordance with the terms of this Certificate of
Designation (each of (x) and (y) being a "Conversion Failure"), then the Company
shall pay to such Holder damages in an amount equal to the lower of: (i) the
product of (A) the Damages Amount times (B) D times (C) .01 and (ii) the highest
interest rate permitted by applicable law, where:
"D" means the number of days beginning the date of the Conversion Failure
through and including the Cure Date with respect to such Conversion Failure;
"Damages Amount" means the Original Series A Issue Price for each share
of Series A Preferred Stock subject to conversion plus all accrued and unpaid
accretion thereon as of the first day of the Conversion Failure.
"Cure Date" means {i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
shares of Series A Preferred Stock submitted for conversion and (ii) with
respect to a Conversion Failure described in clause (y) of its definition, the
date the Company undertakes in writing to issue Common Stock in satisfaction of
all conversions of Series A Preferred Stock in accordance with the terms of this
Certificate of Designation.
The payments to which a Holder shall be entitled pursuant to this Section
are referred to herein as "Conversion Failure Payments." A Holder may elect to
receive accrued Conversion Failure Payments in cash or to convert all or any
portion of such accrued Conversion Failure Payments, at any time, into Common
Stock at the lowest Conversion Price in effect during the period beginning on
the date of the Conversion Failure through the Cure Date for such Conversion
Failure. In the event a Holder elects to receive any Conversion Failure
Payments in cash, it shall so notify the Company in writing. In the event a
Holder elects to convert all or any portion of the Conversion Failure Payments
such Holder shall indicate on a Notice of Conversion such portion of the
Conversion Failure Payments which such Holder elects to so convert and such
conversion shall otherwise be effected in accordance with provisions of Section
5.
(b) BUY-IN CURE. Unless a Conversion Failure described in clause (y)
of Section 12(a) hereof has occurred with respect to such a Holder, if (i) the
Company fails for any reason to deliver during the Delivery Period shams of
Common Stock to a Holder upon a conversion of the Series A Preferred Stock and
(ii) after the applicable Delivery Period with respect to such conversion, a
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to make delivery upon a sale by a Holder of the shares of Common Stock
(the "Sold Shares") which such Holder anticipated receiving upon such conversion
(a "Buy-In"), the Company shall pay such Holder (in addition to any other
remedies available to Holder) the amount by which (x) such Holder's total
purchase pace (including brokerage commission, if any) for the shares of Common
Stock so purchased exceeds (y) the net proceeds received by such Holder from the
sale of the Sold Shares. For example, if a Holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock sold for $10,000, the Company will be required to pay
such Holder $1,000. A Holder shall provide the Company written notification
indicating any amounts payable to Holder pursuant to this Section 12.
(c) ADJUSTMENT TO CONVERSION PRICE. If a Holder has not received
certificates for all shares of Common Stock within two (2) business days
following the expiration of the Delivery Period with respect to a conversion
of any portion of any of such Holder's Series A Preferred Stock for any reason,
then the Fixed Conversion Price applicable upon conversion of such portion of
the Series A Preferred Stock shall thereafter be the lesser of (i) the Fixed
Conversion Price on the Conversion Date specified in the Notice of Conversion
which resulted in the Conversion Failure and
<PAGE>
(ii) the lowest Conversion Price in effect during the period beginning on, and
including, such Conversion Date through and including the Cure Date. If there
shall occur a Conversion Failure of the type described in clause (y) of Section
12(a), then the Fixed Conversion Price with respect to a conversion thereafter
of any Series A Preferred Stock shall be the lowest Conversion Price in
effect at any time during the period beginning on, and including, the date of
the occurrence of such Conversion Failure through and including the Cure Date.
The Fixed Conversion Price shall thereafter be subject to further adjustment for
any events described in Section 5(d).
Section 13. EVENTS OF DEFAULT.
(a) HOLDER'S OPTION TO DEMAND PREPAYMENT. Upon the occurrence of an
Event of Default (as herein defined), each Holder shall have the right to elect
at any time and from time to time prior to the cure by Company of such Event of
Default to have all or any portion of such Holder's then outstanding Series A
Preferred Stock prepaid by the Company for an amount equal to the Holder Demand
Prepayment Amount (as herein defined).
(i) The right of a Holder to elect prepayment shall be exercisable
upon the occurrence of an Event of Default by such Holder in its sole discretion
by delivery of a Demand Prepayment Notice (as herein defined) in accordance with
the procedures set forth in this Section 13. Notwithstanding the exercise of
such right, the Holder shall be entitled to exercise all other rights and
remedies available under the provisions of this Certificate of Designation and
at law or in equity.
(ii) A Holder shall effect each demand for prepayment under this
Section 13 by giving at least two (2) business days prior to written notice (the
"Demand Prepayment Notice") of the date which such prepayment is to become
effective (the "Effective Date of Demand of Prepayment"), the Series A Preferred
Stock selected for prepayment and the Holder Demand Prepayment Amount to the
Company at the address and facsimile number provided in the stock records of the
Company, which Demand Prepayment Notice shall be deemed to have been delivered
on the business day after the date of transmission of Holder's facsimile (with a
copy sent by overnight courier to the Company) of such notice.
(iii) The Holder Demand Prepayment Amount shall be paid to a Holder
whose Series A Preferred Stock are being prepaid within one (1) business day
following the Effective Date of Demand of Prepayment, provided, however, that
the Company shall not be obligated to deliver any portion of the Holder Demand
Prepayment Amount until one (1) business day following either the date on which
the Series A Preferred Stock being prepaid are delivered to the office of the
Company or the Transfer Agent, or the date on which the Holder notifies the
Company or the Transfer Agent that such Series A Preferred Stock have been lost,
stolen or destroyed and delivers the documentation required in accordance with
Section 5(b)(i) hereof.
(b) HOLDER DEMAND PREPAYMENT AMOUNT. The "Holder Demand Prepayment
Amount" means the greater of: (a) 1.5 times the Stated Value of the Series A
Preferred Stock for which demand is being made, plus all accrued and unpaid
interest thereon and accrued and unpaid Conversion Failure Payments (if any)
through the date of prepayment and (b) the product of (1) the highest price at
which the Common Stock is traded on the date of the Event of Default (or on the
most recent trading date for the Common Stock if the Common Stock is not traded
on such date) divided by the Conversion Price in effect as of the date of the
Event of Default, and (2) the sum of the Stated Value and all accrued and unpaid
Conversion Failure Payments (if any) through the date of prepayment.
(c) EVENTS OF DEFAULT. An "Event of Default" means any one of the
following:
(i) a Conversion Failure described in Section 12(a) hereof;
(ii) a Share Authorization Failure described in Section ll(b)
hereof, if such Share Authorization Failure continues uncured for ninety (90)
days after the Authorization Trigger Date;
<PAGE>
(iii) the Company fails, and such failure continues uncured for
three (33 business days after the Company has been notified thereof in writing
by a Holder to satisfy the requirements of Section 11 hereof;
(iv) the Company fails to maintain an effective registration
statement as required by Section 2 and Section 3 of the Registration Rights
Agreement, between the Company and the Holder(s) (the "Registration Rights
Agreement") except where such failure lasts no longer than three (3) consecutive
trading days and is caused solely by failure of the Securities and Exchange
Commission to timely review the customary submission of or respond to the
customary requests of the Company;
(v) for three (3) consecutive trading days or for an aggregate
of ten (10) trading days in any nine (9) month period, the Common Stock
(including any of the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, including Series A Preferred Stock which may be
issued upon exercise of the Preferred Warrants, and exercise of the Common
Warrants) is (i) suspended from trading on any of NASDAQ SmallCap, NMS, NYSE,
AMEX or the OTC Bulletin Board, or (ii) is not qualified for trading on at
least one of NASDAQ SmallCap, NMS, NYSE, AMEX or the OTC Bulletin Board;
(vi) the Company fails, and such failure continues uncured for
three (3) business days after the Company has been notified thereof in writing
by a Holder, to remove any restrictive legend on any certificate for any shares
of Common Stock issued to a Holder upon conversion of any Series A Preferred
Stock, including Series A Preferred Stock which may be issued upon exercise of
the Preferred Warrants, or exercise of any Common Warrant as and when required
by this Certificate of Designation, the Preferred Warrants, the Common Warrants,
the Subscription Agreement, between the Company and the Holder(s) (the
"Subscription Agreement") or the Registration Rights Agreement;
(vii) the Company breaches, and such breach continues uncured for
three (3) business days after the Company has been notified thereof in writing
by a Holder, any significant covenant or other material term or condition of
this Certificate of Designation, the Subscription Agreement, the Preferred
Warrants, the Common Warrants or the Registration Rights Agreement;
(viii) any representation or warranty of the Company made herein
or in any agreement, statement or certificate given in writing pursuant hereto
or in connection herewith (including, without limitation, the Subscription
Agreement and Registration Rights Agreement), shall be false or misleading in
any material respect when made;
(ix) the Company or any subsidiary of the Company shall make
an assignment for the benefit or creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such receiver or trustee shall otherwise be appointed;
or
(x) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company or any
subsidiary of the Company (and such proceedings shall continue unstayed for
thirty (30) days).
(d) FAILURE TO PAY DAMAGES AMOUNT. If the Company fails to pay the
Holder Demand Prepayment Amount within five (5) business days of its receipt of
a Demand Prepayment Notice, then such Holder shall have the right, at any time
and from time to time prior to the payment of the Holder Demand Prepayment
Amount, to require the Company, upon written notice, to immediately convert (in
accordance with the terms of Section 5) all or any portion of the Holder Demand
Prepayment Amount, into shares of Common Stock at the then current Conversion
Price, provided that if the Company has not delivered the full number of shares
of Common Stock issuable upon such conversion within two (2) business days after
the Holder delivers written notice of such conversion, the Conversion Price with
respect to such Holder Demand Prepayment Amount shall thereafter be deemed to be
the lowest Conversion Price in effect during the period beginning on the date of
the Event of Default and ending on the date on which the Company delivers to the
Holder the
<PAGE>
full number of freely tradable shales of Common Stock issuable upon such
conversion. In the event the Company is not able to pay all amounts due and
payable with respect to all Series A Preferred Stock subject to Holder Demand
Prepayment Notices, the Company shall pay the Holders such amounts pro rata,
based on the total amounts payable to such Holder relative to the total amounts
payable to all Holders.
Signed on June 26, 1997
/s/ Harmel Rayat
--------------------------------
Harmel S. Rayat, President
Attest:
/s/ Kundan S. Rayat
- ------------------------------
Kundan S. Rayat, Secretary
MEDCARE TECHNOLOGIES, INC.
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR
OTHER SECURITIES AUTHORITIES. THEY ARE BEING OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
REGULATION D ("REGULATION "D") PROMULGATED UNDER THE ACT.
THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE
SECURITIES DESCRIBED HEREIN BY OR TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY
ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH
AUTHORITIES REVIEWED OR DETERS THE ACCURACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF
RISK. SUBSCRIBERS MUST RELY ON THEIR OWN ANALYSIS OF THE
INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED. SEE THE
RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE
DOCUMENTS AS EXHIBIT I.
SEE ADDITIONAL LEGENDS AT SECTIONS 3.7 and 9.
THIS REGULATION D SUBSCRIPTION AGREE (this "Agreement") is made as of the
20th day of June, 1997, by and between Medcare Technologies, Inc., a corporation
duly organized and existing under the laws of the State of Delaware (the
"Company"), and the undersigned subscriber executing this Agreement
("Subscriber").
THE PARTIES HEREBY AGREE AS FOLLOWS:
This Agreement is executed by Subscriber in connection with the offer by
the Company and the purchase by Subscriber of Series A Preferred Stock, $.25
par value (the "Preferred Stock"), of the Company. The Preferred Stock is being
offered at a purchase price of Ten Thousand Dollars ($10,000), U.S., per share,
in minimum subscription amounts of at least ten (10) shares ($100,000), and
increments of five (5) shares ($50,000) in excess thereof, with a minimum
aggregate offering amount of One Hundred Ninety (190) shares of Preferred Stock,
or One Million Nine Hundred Thousand Dollars ($1,900,000) (the "Minimum
Amount"), and up to a maximum aggregate amount of Three Hundred (300) shares of
Preferred Stock. or Three Million Dollars ($3,000,000) (the "Maximum Amount")
(collectively, the "Offering"). The terms of the Preferred Stock, including the
terms on which the Preferred Stock may be converted into common stock, $.001 par
value, of the Company (the "Common Stock"), are set forth in the Certificate of
Designation of Series A Preferred Stock (the "Certificate of Designation"),
substantially in the form attached hereto as Exhibit A. The Preferred Stock is
accompanied by (i) a warrant or warrants to purchase a number of shares of
Common Stock of the Company equal to thirty-three and one-third percent
(33 1/3%) multiplied by the aggregate purchase price of the Subscriber's
Preferred Stock
<PAGE>
outstanding on the date which is nine (9) months following the closing hereunder
divided by the Fixed Conversion Price, as defined in the Certificate of
Designation (the "Nine Month Warrants"); (ii) a warrant or warrants to purchase
a number of shares of Common Stock of the Company equal to thirty-three and
one-third percent (33 1/3%) multiplied by the aggregate purchase price of the
Subscriber's Preferred Stock outstanding on the date which is twelve (12) months
following the closing hereunder divided by the Fixed Conversion Price, as
defined in the Certificate of Designation (the "Twelve Month Warrants"); and
(iii) a warrant or warrants to purchase a number of shares of Common Stock of
the Company equal to thirty-three and one-third percent (33 1/3%) multiplied by
the aggregate purchase price of the Subscriber's Preferred Stock outstanding on
the date which is fifteen ( 15) months following the closing hereunder divided
by the Fixed Conversion Price, as defined in the Certificate of Designation (the
"Fifteen Month Warrants"). The terms of the Nine Month Warrants, including the
terms on which the Nine Month Warrants may be exercised for Common Stock, are
set forth in the form of the Nine Month Warrants attached hereto as Exhibit B.
The terms of the Twelve Month Warrants, including the terms on which the Twelve
Month Warrants may be exercised for Common Stock, are set forth in the form of
the Twelve Month Warrants attached hereto as Exhibit C. The terms of the Fifteen
Month Warrants, including the terms on which the Fifteen Month Warrants may be
exercised for Common Stock, are set forth in the form of the Fifteen Month
Warrants attached hereto as Exhibit D. The Nine Month Warrants, the Twelve Month
Warrants, and the Fifteen Month Warrants are hereinafter referred to
collectively as the "Conversion Warrants." The Preferred Stock is also
accompanied by a warrant or warrant to purchase, anytime during the first twelve
( 12) months following the Last Closing, as that term is defined in Section
4.12 below, a number of additional shares of Preferred Stock up to the number
purchased by Subscriber in the Offering (the "Preferred Warrants") . The
Conversion Warrants and the Preferred Warrants may be referred to hereinafter as
the "Warrants." The terms of the Preferred Warrants, including the terms on
which the Preferred Warrants may be exercised for Preferred Stock, are set
forth in the form of the Preferred Warrants attached hereto as Exhibit E. The
solicitation of this subscription and, if accepted by the Company, the offer and
sale of the Preferred Stock are being made in reliance upon the provisions of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended ("the Act"). The Preferred Stock, including the Preferred Stock issued
upon exercise of the Preferred Warrants, and the Common Stock issuable upon
conversion thereof (the "Conversion Shares"), together with the Conversion
Warrants and the Common Stock issuable upon exercise thereof (the "Warrant
Shares") and the Preferred Warrants, are sometimes referred to herein singularly
as "Security" and collectively as the "Securities."
It is agreed as follows:
1. OFFERING
1.1 OFFER TO SUBSCRIBE: PURCHASE PRICE AND CLOSING: AND PLACEMENT
FEES.
Subject to satisfaction of the conditions to closing set forth in Section
1.2 below, Subscriber hereby offers to subscribe for and purchase Preferred
Stock and accompanying Warrants, for the aggregate purchase price in the amount
set forth in Section 10 of this Agreement, in accordance with the terms and
conditions of this Agreement. Assuming that the Minimum Amount and corresponding
subscription agreements accepted by the Company are received into the Company's
designated escrow account for this Offering established pursuant to the Escrow
Agreement and Instructions (the "Escrow Agreement") by and among the Company,
First Union National Bank of Georgia (the "Escrow Agent") and the Placement
Agent (as defined below) (the "Escrow Account"), the closing of a sale and
purchase of Preferred Stock as to each Subscriber (the "Closing") shall be
deemed to occur when this Agreement has been executed by both Subscriber and the
Company and full payment shall have been made by Subscriber, by wire transfer to
the Escrow Account as set forth in Section 7.1(a) for payment in consideration
for the Company's delivery of certificates representing the Preferred Stock
subscribed for.
2
<PAGE>
The parties hereto acknowledge that Swartz Investments, LLC is acting as
placement agent (the "Placement Agent") for this Offering and will be
compensated by the Company in cash and warrants to purchase Common Stock. The
Placement Agent has acted solely as placement agent in connection with the
Offering by the Company of the Preferred Stock pursuant to this Agreement. The
information and data contained in the Disclosure Documents (as defined in
Section 2.2.4) have not been subjected to independent verification by the
Placement Agent, and no representation or warranty is made by the Placement
Agent as to the accuracy or completeness of the information contained in the
Disclosure Documents.
The Company and Subscriber acknowledge that the Matthew Fund, N.V. (the "Fund"),
which is managed by affiliates of the Placement Agent, may subscribe for
securities in the Offering. The parties acknowledge that neither the Placement
Agent nor any of its affiliates shall be under any obligation to advise the
Company or Subscriber of the activities of the Fund with respect to such
securities following the consummation of the Offering. Such acknowledgment shall
not act as a waiver of any obligation required by law or written agreement of
which the Fund is a party. It is understood that the Fund will act independently
of the Placement Agent and may take action with respect to such investment which
may be inconsistent or contrary to any action or interest of the Placement
Agent, the Company or any of the other Subscribers.
1.2 CONDITIONS TO SUBSCRIBER'S OBLIGATIONS. Subscriber's obligations
hereunder are conditioned upon all of the following:
(a) the following documents shall have been deposited with the Escrow
Agent the Registration Rights Agreement, substantially in the form attached
hereto as Exhibit F (the "Registration Rights Agreement") (executed by the
Company), an opinion of counsel, substantially in the form attached hereto as
Exhibit G (the "Opinion of Counsel") (signed by the Company's counsel), the
Irrevocable Instructions to Transfer Agent, substantially in the form attached
hereto as Exhibit H (the "Irrevocable Instructions to Transfer Agent" executed
by the Company and the Company's transfer agent [the "Transfer Agent"]), and the
Certificate of Designation, substantially in the form attached hereto as Exhibit
A (together with evidence showing that it has been filed with the Secretary of
State of Delaware); certificates representing the Preferred Stock issued in the
name of the Subscriber, the Conversion Warrants and the Preferred Warrants
issued in the name of the Subscriber;
(b) the Company's Common Stock shall be listed for and actively trading
on the OTC Bulletin Board;
(c) other than losses described in the Risk Factors as set forth in
Section 2.2.4 below there have been no material adverse changes in the Company's
business prospects or financial condition since the date of the last balance
sheet included in the Disclosure Documents (defined below in Section 2.2.4),
including but not limited to incurring material liabilities;
(d) the representations and warranties of the Company are true and
correct in all material respects at the Closing as if made on such date, and the
Company shall deliver a certificate, signed by an officer of the Company, to
such effect to the Escrow Agent;
(e) the Minimum Amount and corresponding subscription agreements accepted
by the Company shall have been received by the Escrow Agent; and
3
<PAGE>
(f) the Company shall have reserved for issuance a sufficient number of
shares of Common Stock to effect conversions of the Preferred; Stock, including
Preferred Stock issued upon exercise of the Preferred Warrants, and exercise of
the Conversion Warrants, which number of shares shall initially be equal to one
million five hundred thousand ( 1,500,000) shares.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. Subscriber hereby
represents and warrants to the Company as follows:
2.1 ACCREDITED INVESTOR. Subscriber is an accredited investor, as defined
in Rule 501 of Regulation D, and has checked the applicable box set forth in
Section 10 of this Agreement.
2.2 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
2.2.1 ACCESS TO INFORMATION. Subscriber or Subscriber's professional
advisor has been granted the opportunity to ask questions of and receive answers
from representatives of the Company, its officers, directors, employees and
agents concerning the terms and conditions of this Offering, the Company and its
business and prospects, and to obtain any additional information which
Subscriber or Subscriber's professional advisor deems necessary to verify the
accuracy and completeness of the information received.
2.2.2 RELIANCE ON OWN ADVISORS. Subscriber has relied completely on
the advice of, or has consulted with, Subscriber's own personal tax, investment,
legal or other advisors and has not relied on the Company or any of its
affiliates, officers, directors, attorneys, accountants or any affiliates of any
thereof and each other person, if any, who controls any thereof, within the
meaning of Section I 5 of the Act for any tax or legal advice (other than
reliance on information in the Disclosure Documents as defined in Section 2.2.4
below and on the Opinion of Counsel). The foregoing, however, does not limit or
modify Subscriber's right to rely upon representations and warranties of the
Company in Section 4 of this Agreement.
2.2.3 CAPABILITY TO EVALUATE. Subscriber has such knowledge and
experience in financial and business matters so as to enable such Subscriber to
utilize the information made available to it in connection with the Offering in
order to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 2.2.4 below).
2.2.4 DISCLOSURE DOCUMENTS. Subscriber, in making Subscriber's
investment decision to subscribe for the Securities hereunder, represents that
(a) Subscriber has received and had an opportunity to review (i) the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 (ii) the
Company's quarterly report on Form I0-Q for the quarters ended March 31, 1997,
(iii) the Risk Factors, attached as Exhibit I, (iv) the Capitalization Schedule,
attached as Exhibit I, (the "Capitalization Schedule") and (v) the Use of
Proceeds Schedule, attached as Exhibit K, (the "Use of Proceeds Schedule") (b)
Subscriber has read, reviewed, and relied solely on the documents described in
(a) above, the Company's representations and warranties and other information in
this Agreement, including the exhibits, any other written information prepared
by the Company which has been specifically provided to Subscriber in connection
with this Offering (the documents described in Section 2.2.4 (a) and (b) are
collectively referred to as the "Disclosure Documents"), and an independent
investigation made by Subscriber and Subscriber's representatives, if any; (c)
Subscriber has, prior to the date of this Agreement, been given an opportunity
to review material contracts and documents of the Company which have been filed
as exhibits to the Company's filings under the Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and has had an opportunity to ask
questions of and receive answers from the Company's officers and directors; and
(d) is not relying
4
<PAGE>
on any oral representation of the Company or any other person, nor any written
representation or assurance from the Company other than those referred to in
Section 4 or otherwise contained in the Disclosure Documents or incorporated
herein or therein. The foregoing, however, does not limit or modify Subscriber's
right to rely upon representations and warranties of the Company in Section 4
4 of this Agreement. Subscriber acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and
Subscriber has not relied upon any Third Party Reports, including any provided
by the Placement Agent, in making the decision to invest.
2.2.5 INVESTMENT EXPERIENCE; FEND FOR SELF. Subscriber has
substantial experience in investing in securities and has made investments in
securities other than those of the Company. Subscriber acknowledges that
Subscriber is able to fend for Subscriber's self in the transaction contemplated
by this Agreement, that Subscriber has the ability to bear the economic risk of
Subscriber's investment pursuant to this Agreement and that Subscriber is an
"Accredited Investor" by virtue of the fact that Subscriber meets the investor
qualification standards set forth in Section 2.1 above. Subscriber has not been
organized for the purpose of investing in securities of the Company, although
such investment is consistent with Subscriber's purposes.
2.3 EXEMPT OFFERING UNDER REGULATION D.
2.3.1 INVESTMENT; NO DISTRIBUTION. Subscriber is acquiring the
Securities solely for Subscriber's own account for investment purposes as a
principal and not with a view to immediate resale or distribution of all or any
part thereof. Subscriber is aware that there are legal and practical limits on
Subscriber's ability to sell or dispose of the Securities and, therefore, that
Subscriber must bear the economic risk of the investment for an indefinite
period of time and has adequate means of providing for Subscriber's current
needs and possible personal contingencies and has need for only limited
liquidity of this investment. Subscriber's commitment to illiquid investments is
reasonable in relation to Subscriber's net worth. By making the representations
in this Section 2.3.1, the Subscriber does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from registration under the Act, except as otherwise
required in this Agreement or in the Registration Rights Agreement.
2.3.2 NO GENERAL SOLICITATION. The Securities were not offered to
Subscriber through, and Subscriber is not aware of, any form of general
solicitation or general advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
2.3.3 RESTRICTED SECURITIES. Subscriber understands that the Preferred
Stock issued at Closing. the Preferred Warrants, and the Conversion Warrants
are, and the Conversion Shares and the Preferred Stock issued upon exercise of
the Preferred Warrants will be, characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may not be transferred or resold
without registration under the Act or pursuant to an exemption therefrom. In
this connection, Subscriber represents that Subscriber is familiar with Rule 144
under the Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
5
<PAGE>
2.3.4 DISPOSITION. Without in any way limiting the representations set
forth above, Subscriber further agrees not to make any disposition of all or any
portion of the Securities unless and until:
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Subscriber shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement
of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, Subscriber shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of the
Securities under the Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
2.4 DUE AUTHORIZATION.
2.4.1 AUTHORITY. Subscriber, if executing this Agreement in a
representative or fiduciary capacity, has full power and authority to execute
and deliver this Agreement and each other document included herein for which a
signature is required in such capacity and on behalf of the subscribing
individual, partnership, trust, estate, corporation or other entity for whom or
which Subscriber is executing this Agreement. Subscriber has reached the age of
majority (if an individual) according to the laws of the state in which he
resides, has adequate means for providing for his current needs and personal
contingencies, is able to bear the economic risk of his investment in the
Securities for an indefinite period of time and could afford a complete loss of
such investment. Subscriber's commitment to illiquid investments is reasonable
in relation to Subscriber's net worth.
2.4.2 DUE AUTHORIZATION. If Subscriber is a corporation, Subscriber is
duly and validly organized, validly existing and in good tax and corporate
standing as a corporation under the laws of the jurisdiction of its
incorporation with full power and authority to purchase the Securities to be
purchased by Subscriber and to execute and deliver this Agreement.
2.4.3 PARTNERSHIPS. If Subscriber is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Subscriber (and if any such partner is
itself a partnership, all persons holding an interest in such partnership,
directly or indirectly, including through one or more partnerships), and the
person executing this Agreement has made due inquiry to determine the
truthfulness of the representations and warranties made hereby.
2.4.4 REPRESENTATIVES. If Subscriber is purchasing in a representative
or fiduciary capacity, the representations and warranties shall be deemed to
have been made on behalf of the person or persons for whom Subscriber is so
purchasing.
3. ACKNOWLEDGMENTS. Subscriber is aware that:
3.1 RISKS OF INVESTMENT. Subscriber recognizes that an investment in
the Company involves substantial risks, including the potential loss of
Subscriber's entire investment herein. Subscriber recognizes that this
Agreement and the exhibits hereto do not purport to contain all the information
which would be contained in a registration statement under the Act;
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3.2 NO GOVERNMENT APPROVAL. No federal or state agency has passed upon
the securities or made any finding or determination as to the fairness of this
transaction;
3.3 NO REGISTRATION. The Securities and any component thereof have not
been registered under the Act or any applicable state securities laws by reason
of exemptions from the registration requirements of the Act and such laws, and
may not be sold, pledged, assigned or otherwise disposed of in the absence of
an effective registration of the Securities and any component thereof under the
Act or unless an exemption from such registration is available;
3.4 RESTRICTIONS ON TRANSFER. Subscriber may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of
the Act and applicable state securities laws;
3.5 NO ASSURANCES OF REGISTRATION. There can be no assurance that any
registration statement will become effective at the scheduled time. Therefore,
Subscriber may bear the economic risk of Subscriber's investment for an
indefinite period of time;
3.6 EXEMPT TRANSACTION. Subscriber understands that the Securities are
being offered and sold in reliance on specific exemptions from the registration
requirements of federal and state law and that the representations, warranties,
agreements, acknowledgments and understandings set forth herein are being relied
upon by the Company in determining the applicability of such exemptions and the
suitability of Subscriber to acquire such Securities;
3.7 LEGENDS. It is understood that the certificates evidencing the
Preferred Stock, including the Preferred Stock issued upon exercise of the
Preferred Warrants, the Preferred Warrants, the Conversion Warrants, the
Conversion Shares and the Warrant Shares shall bear the following legend (the
"Legend") (prior to registration as provided in Section 5.1):
"The securities represented hereby have not been registered under the
Securities Act of 1933, or applicable state securities laws, nor the
securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement
under those securities laws or pursuant to an exemption therefrom."
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to Subscriber (which shall
be true at the signing of this Agreement, as of Closing, and as of any such
later date as contemplated hereunder) and agrees with Subscriber that:
4.1 ORGANIZATION, GOOD STANDING. AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware USA and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the business or properties of the Company and its subsidiaries taken
as a whole. The Company is not the subject of any pending, threatened or, to
its knowledge, contemplated investigation or administrative or legal proceeding
by the Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, or the Securities and Exchange Commission ("SEC"), or any state
securities commission, or any other governmental entity, which have not been
disclosed in the Disclosure Documents.
4.2 CORPORATE CONDITION. The Company's condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and
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normal year-end adjustments that are not, in the aggregate, materially adverse
to the Company. There have been no material adverse changes to the Company's
business, financial condition, prospects since the date of such reports. The
financial statements contained in the Disclosure Documents have been prepared
in accordance with generally accepted accounting principles, consistently
applied (except as otherwise permitted by Regulation S-X of the Exchange Act),
and fairly present the consolidated financial condition of the Company as of the
dates of the balance sheets included therein and the consolidated results of its
operations and cash flows for the periods then ended. Without limiting the
foregoing, there are no material liabilities, contingent or actual, that are not
disclosed in the Disclosure Documents (other than liabilities incurred by the
Company in the ordinary course of its business, consistent with its past
practice, after the period covered by the Disclosure Documents). The Company has
paid all material taxes which are due, except for taxes which it reasonably
disputes. There is no material claim, litigation, or administrative proceeding
pending, or, to the best of the Company's knowledge, threatened against the
Company, except as disclosed in the Disclosure Documents. This Agreement and the
Disclosure Documents do not contain any untrue statement of a material fact and
do not omit to state any material fact required to be stated therein or herein
necessary to make the statements contained therein or herein not misleading in
the light of the circumstances under which they were made.
4.3 AUTHORIZATION. Except for the filing of the Certificate of Designation,
all corporate action on the part of the Company by its officers, directors and
shareholders necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company hereunder and the
authorization, issuance and delivery of the Preferred Stock being sold hereunder
and the issuance (and/or the reservation for issuance) of the Conversion Shares,
the Preferred Warrants, the Conversion Warrants, the Warrant Shares and the
Preferred Stock to be issued upon exercise of the Preferred Warrants, have been
taken, and this Agreement, the Certificate of Designation, the Irrevocable
Instructions to Transfer Agent, the Escrow Agreement and the Registration Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, except insofar as the enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting creditors' rights generally or by principles governing
the availability of equitable remedies. The Company has obtained all consents
and approvals required for it to execute, deliver and perform each agreement
referenced in the previous sentence.
4.4 VALID ISSUANCE OF PREFERRED STOCK AND COMMON STOCK. The Preferred
Stock, and the Preferred Warrants and the Conversion Warrants, when issued, sold
and delivered in accordance with the terms hereof, for the consideration
expressed herein, will be validly issued, fully paid and nonassessable and,
based in part upon the representations of Subscriber in this Agreement, will be
issued in compliance with all applicable U.S. federal and state securities laws.
The Conversion Shares and the Warrant Shares and the Preferred Stock issued upon
exercise of the Preferred Warrants, when issued in accordance with the terms of
the Certificate of Designation or the Conversion Warrants or the Preferred
Warrants, as applicable, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Subscriber of the Preferred Stock, will be issued in compliance with all
applicable U.S. federal and state securities laws. The Preferred Stock, the
Conversion Shares, the Conversion Warrants, the Preferred Warrants, and the
Warrant Shares will be issued free of any preemptive rights. The Company
currently has one million five hundred thousand (1,500,000) Conversion Shares
reserved for issuance upon conversion of the Preferred Stock, including
Preferred Stock issued upon exercise of the Preferred Warrants, and upon
exercise of the Conversion Warrants.
4.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any provisions of its Certificate of Incorporation or Bylaws as
amended and in effect on and as of the date of the Agreement or of any material
provision of any material instrument or contract to which it is a party or by
which it is bound or, to its knowledge, of any provision of any
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federal or state judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company, which would have a material adverse
affect on the Company's business or prospects, except as described in the
Disclosure Documents. The execution, delivery and performance of this Agreement
and the other agreements entered into in conjunction with the Offering and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision, instrument
or contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company.
4.6 REPORTING COMPANY. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since November 13, 1996. The Company undertakes to furnish
Subscriber with copies of such reports as may be reasonably requested by
Subscriber prior to consummation of this Offering and thereafter as long as
Subscriber holds the Securities. The Company is not in violation of the listing
requirements of the OTC Bulletin Board and does not reasonably anticipate that
the Common Stock will be delisted by the OTC Bulletin Board for the foreseeable
future.
4.7 CAPITALIZATION. The capitalization of the Company as of March 31,
1997, is, and the capitalization as of the Closing, after taking into account
the offering of the Securities contemplated by this Agreement and all other
share issuances occurring prior to this Offering, will be, as set forth in the
Capitalization Schedule as set forth in Exhibit 1. Except as disclosed in the
Capitalization Schedule, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of its or their securities under the Act
(except the Registration Rights Agreement).
4.8 INTELLECTUAL PROPERTY. The Company has valid, unrestricted and
exclusive patents, trademarks, trademark registrations, trade names, copyrights,
know-how, technology and other intellectual property necessary to the conduct of
its business as set forth on Exhibit L-l. The Company has granted such licenses
or has assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business as set forth on Exhibit L-2. The
Company has been granted licenses, know-how, technology and/or other
intellectual property necessary to the conduct of its business as set forth on
Exhibit L-3. To the best of the Company's knowledge, the Company is not
infringing on the intellectual property rights of any third party, nor is any
third party infringing on the Company's intellectual property rights. There are
no restrictions in any agreements, licenses, franchises, or other instruments
which preclude the Company from engaging in its business as presently conducted.
4.9 USE OF PROCEEDS. As of the date hereof, the Company expects to use
the proceeds from this Offering (less fees and expenses) for the purposes and in
the approximate amounts set forth on the Use of Proceeds Schedule set forth as
Exhibit K hereto. These purposes and amounts are estimates and are subject to
change without notice to any Subscriber.
4.10 NO RIGHTS OF PARTICIPATION. No person or entity, including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the financing contemplated by this Agreement which has not been waived.
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4.11 COMPANY ACKNOWLEDGMENT. The Company hereby acknowledges that
Subscriber may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Certificate of Designation, the
Conversion Warrants, the Preferred Warrants and other agreements contemplated
thereby, and the Company further acknowledges that Subscriber and the
Placement Agent have made no representations or warranties, either written or
oral, as to how long the Securities will be held by Subscriber or regarding
Subscriber's trading history or investment strategies.
4.12 TERMINATION DATE OF OFFERING. In no event shall the last Closing
("Last Closing") of a sale and purchase of the Preferred Stock and accompanying
Conversion Warrants and Preferred Warrants occur later than July 15, 1997, which
date can be extended by up to ten (10) days upon written approval by the Company
and the Placement Agent.
4.13 UNDERWRITER'S FEES AND RIGHTS OF FIRST REFUSAL. The Company is
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Placement Agent in connection with this Offering.
4.14 CURRENT PUBLIC INFORMATION. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form S-1
under the Act.
4.15 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the Act pursuant to the provisions of Regulation D.
4.16 ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares
issuable upon conversion of the Preferred Stock may increase substantially in
certain circumstances, including the circumstance wherein the trading price of
the Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the Securities being sold hereunder
and recognize that they have a potential dilutive effect. The board of directors
of the Company has concluded in its good faith business Judgment that such
issuance is in the best interests of the Company. The Company acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Stock is binding upon it and enforceable regardless of the dilution that such
issuance may have on the ownership interests of the other stockholders.
4.17 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of its actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity: made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
4.18 KEY EMPLOYEES. Each Key Employee(as defined belong) is currently
serving the Company in the capacity disclosed in Exhibit M. No Key Employee, to
the best knowledge of the Company and its subsidiaries. is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the
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continued employment of each Key Employee does not subject the Company or any of
its subsidiaries to any liability with respect to any of the foregoing matters.
No Key Employee has, to the best knowledge of the Company and its subsidiaries,
any intention to terminate his employment with, or services to, the Company or
any of its subsidiaries. "Key Employee" means each of Harmel Rayat and Valerie
Boeldt-Umbright.
4.19 REPRESENTATIONS CORRECT. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive the Closing and the issuance of the shares of
Preferred Stock.
5. COVENANTS OF THE COMPANY
5.1 DEPENDENT AUDITORS. The Company shall, until at least three (3)
years after the date of the Last Closing, maintain as its independent auditors
an accounting firm authorized to practice before the SEC.
5.2 CORPORATE EXISTENCE AND TAXES. The Company shall, until at least
after the later of (i) the date that is three (3) years after the date of the
Last Closing or (ii) the conversion or redemption of all of the Preferred Stock
purchased pursuant to this Agreement, including Preferred Stock issued upon
exercise of the Preferred Warrants, and the exercise of the Conversion Warrants,
maintain its corporate existence in good standing (provided, however, that the
foregoing covenant shall not prevent the Company from entering into any merger
or corporate reorganization as long as the surviving entity in such transaction,
if not the Company, assumes the Company's obligations with respect to the
Preferred Stock and has Common Stock listed for trading on a stock exchange
or on Nasdaq and is a "Reporting Issuer") and shall pay all its taxes when due
except for taxes which the Company disputes.
5.3 REGISTRATION RIGHTS. The Company will enter into a registration
rights agreement covering the resale of the Conversion Shares and the Warrant
Shares substantially in the forth of the Registration Rights Agreement attached
as Exhibit F.
5.4 NOTIFICATION OF FINAL CLOSING DATE BY COMPANY. Within five (5)
business days after the Last Closing, the Company shall notify Subscriber in
writing that the Last Closing has occurred, the date of the Last Closing, the
dates that Subscriber is entitled to convert Subscriber's Preferred Stock, the
value of the Fixed Conversion Price, as that term is defined in the Certificate
of Designation, and the name and telephone number of an administrative contact
person at the Company whom Subscriber may contact regarding information related
to conversion of the Preferred Stock as contemplated by the Certificate of
Designation.
5.5 FILING OF S-1 REGISTRATION STATEMENT. The Company shall, no later
than sixty (60) days after the Last Closing, file a registration statement (the
"Registration Statement") on Form S-l (or other suitable form, at the Company's
discretion but subject to the reasonable approval of Subscribers) with the SEC,
covering the resale of the Conversion Shares and Warrant Shares issuable to all
Subscribers in this Offering. The Company shall, within ten ( 10) days of the
filing of the Registration Statement, send a copy of the Registration Statement
to Subscribers. Such Registration Statement shall initially cover a number of
Conversion Shares and Warrant Shares equal to at least one million five hundred
thousand (1,500,000) shares of Common Stock, allocated and reserved pro rata
among the Subscribers, and shall cover, to the extent allowable by applicable
law, such additional indeterminate number of shares of Common Stock as are
required to effect the full conversion of the Preferred Stock, including the
Preferred Stock issued upon exercise of the Preferred Warrants, and the full
exercise of the Conversion Warrants, due to fluctuations in the price of the
Company's Common Stock. The Company shall use its best efforts to have the
Registration Statement declared effective as soon as possible. In the event that
the Company determines or is notified by a Holder that the Registration
Statement does not cover a
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sufficient number of shares of Common Stock to effect conversion of all
outstanding Preferred Stock then eligible for conversion, including the
Preferred Stock issued upon the exercise of the Preferred Warrants, and exercise
of the outstanding Conversion Warrants, the Company shall, within five (5)
business days, amend the Registration Statement or file a new registration
statement to add such number of additional shares as would be necessary to
effect all such conversions of the Preferred Stock and exercises of the
Conversion Warrants. The rights of the holders of Common Stock and Warrant
Shares to have their securities registered under the Registration Statement
are set forth in the Registration Rights Agreement. If the Registration
Statement is not declared effective within five (5) calendar months after the
Last Closing or if any new or amended registration statement required to be
filed hereunder is not declared effective within two (2) calendar months of
the date it is required to be filed, the Company shall pay Subscribers an amount
equal to two percent (2%) per month of the aggregate amount of Preferred Stock
sold to Subscriber in the Offering, compounded monthly and accruing daily until
the Registration Statement or a registration statement filed pursuant to Section
2 or Section 3 of the Registration Rights Agreement is declared effective (the
"Late Registration Payment"), payable, at each Subscriber's option, in either
cash or Common Stock. If Subscriber elects to be paid in cash, such Late
Registration Payments shall be paid to such Subscriber within five (5) business
days following the end of the month in which such Late Registration Payment was
accrued. If Subscriber elects to be paid in Common Stock, such number of shares
of Common Stock shall be determined as follows:
Upon conversion of each share of Preferred Stock, the Company shall issue
to Subscriber the number of shares of Common Stock determined as set forth
in Section 5(a) of the Certificate of Designation plus an additional number
of shares of Common Stock (the "Additional Shares") determined as set forth
below:
Additional Shares = Late Registration Payment
-------------------------
Conversion Price
where, "Conversion Price" has the definition ascribed to it in the
Certificate of Designation.
Such Additional Shares shall also be deemed "Registrable Securities" as
defined in the Registration Rights Agreement. The Company covenants to use its
best efforts to remain eligible to use form S-1 for the registration required by
this Section 5.1 during all applicable times contemplated by this Agreement.
5.6 CAPITAL RAISING LIMITATIONS; RIGHTS OF FIRST REFUSAL.
5.6.1 CAPITAL RAISING LIMITATIONS. For a period of one hundred
eighty (180) days following the date of Last Closing, the Company shall not
issue or agree to issue, except (i) as contemplated hereunder, (ii) pursuant to
an offering or offerings which, combined with this Offering, do not, in the
aggregate, exceed five million dollars ($5,000,000 U.S.), as further limited
below (a "Limited Offering"), (iii) pursuant to any employee stock purchase plan
or employee stock option plan of the Company in effect on June 10, 1997, and
disclosed in the Disclosure Documents, or (iv) pursuant to any security, option,
warrant, scrip, call or commitment or right disclosed in the Capitalization
Schedule, any equity securities of the Company (or any security convertible into
or exercisable or exchangeable, directly or indirectly, for equity securities of
the Company) if such securities are issued at a price (or in the case of
securities which are convertible into or exercisable or exchangeable, directly
or indirectly, for Common Stock, if such securities are convertible, exercisable
or exchangeable, as appropriate, at a conversion price, exercise price or
exchange price) less than the current market price for Common Stock on the date
of issuance (in the case of Common Stock) or the conversion, exercise or
exchange date (in the case of securities convertible into or exercisable or
exchangeable, directly or indirectly, for Common Stock). In addition, during
such period, the Company shall not issue, or agree to issue, any debt securities
which are issued at a discount to the principal amount thereof. Notwithstanding
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the above, a Limited Offering is further limited as follows: the terms of the
securities in a Limited Offering must be on the same or substantially similar
terms as the Series A Preferred Stock being issued in this Offering; including
but not limited to the requirement that the securities in a Limited Offering (a)
shall not be convertible into Common Stock at a discount of less than 85% of the
market price and (b) shall not be convertible into Common Stock prior to the
date that is six (6) months after the Last Closing of this Offering.
5.6.2 RIGHT OF FIRST OFFER. The Company agrees that, during the
period beginning on the date hereof and terminating on the first anniversary
of the date of the Last Closing, the Company will not, without the prior written
consent of each Subscriber (which shall be deemed given for the warrants to
purchase Common Stock issued or to be issued to the Placement Agent in
consideration of its services in connection with this Agreement and the
transactions contemplated hereby) issue or sell, or agree to issue or sell any
equity or debt securities of the Company or any of its subsidiaries (or any
security convertible into or exercisable or exchangeable, directly or
indirectly, for equity or debt securities of the Company or any of its
subsidiaries) ("Future Offerings") unless the Company shall have first delivered
to each Subscriber at least thirty (30) business days prior to the closing of
such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Subscriber and
its affiliates an option during the twenty (20) business day period following
delivery of such notice to purchase up to the full amount of the securities
being offered in the Future Offering on the same terms as contemplated by such
Future Offering (the limitations referred to in this sentence are collectively
referred to as the "Capital Raising Limitations"). Notwithstanding the
foregoing, if the Subscriber chooses not to participate in any Future Offerings,
then any debt or equity security issued as a result of the Future Offerings
which, combined with this Offering, in the aggregate, exceed five million
dollars ($5,000,00.0 U.S.), will be ineligible for sale and/or conversion, as
the case may be, until the date which is twelve (12) months after the Last
Closing. The Capital Raising Limitations shall not apply to any transaction
involving issuances of securities in connection with a merger, consolidation,
acquisition or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity capital),
or in connection with the disposition or acquisition of a business, product or
license by the Company or exercise of options by employees, consultants or
directors. The Capital Raising Limitations also shall not apply to (a) the
issuance of securities pursuant to an underwritten public offering, (b) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or
(c) the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants.
5.7 FINANCIAL 10-K STATEMENTS, ETC. AND CURRENT REPORTS ON FORM 8-K.
The Company shall provide Subscriber with copies of its annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on form 8-K for as long
as the Preferred Stock may remain outstanding.
5.8 OPINION OF COUNSEL. Subscribers shall, upon purchase of the
Preferred Stock and accompanying Warrants pursuant to this Agreement, receive
an opinion letter from Gary R. Blume, P.C. ("Counsel"), counsel to the Company,
to the effect that (i) the Company is duly incorporated and validly existing;
(ii) this Agreement, the issuance of the Preferred Stock at Closing, the
issuance of the Conversion Warrants, the issuance of the Preferred Warrants, the
issuance of the Conversion Shares upon conversion of the Preferred Stock, the
issuance of the Warrant Shares upon exercise of the Conversion Warrants and the
issuance of the Preferred Stock Rights Agreement, the irrevocable Instructions
to Transfer Agent and the Escrow Agreement are
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valid and binding obligations of the Company, enforceable in accordance with
their terms, except as enforceability of the indemnification provisions may be
limited by principles of public policy, and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of laws governing specific performance and other equitable remedies; and
(iv) based upon the representations and acknowledgments of Subscribers contained
in Sections 2 and 3 hereof, the Preferred Stock, the Conversion Warrants and the
Preferred Warrants have been, and the Conversion Shares, the Warrant Shares, and
the Preferred Stock issued upon exercise of the Preferred Warrants will be,
issued in a transaction that is exempt from the registration requirements of the
Act and applicable state securities laws; and (v) the Conversion Shares are
authorized for listing on the OTC Bulletin Board subject to notice of issuance.
5.9 REMOVAL OF LEGEND UPON CONVERSION. As contemplated by the
Certificate of Designation, upon conversion of the Preferred Stock, Subscriber
shall submit a Notice of Conversion and Resale, substantially in the form
attached hereto as Exhibit N. The Legend shall be removed and the Company shall
issue a certificate without such Legend to the holder of any Security upon which
it is stamped, and a certificate for a security shall be originally issued
without the Legend, if, unless otherwise required by state securities laws, (a)
the sale of such Security is registered under the Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be home by the Company), to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Subscriber agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act. In the event the Legend is removed from
any Security or any Security is issued without the Legend and thereafter the
effectiveness of a registration statement covering the resale of such Security
is suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
Subscriber holding such Security, the Company may require that the Legend be
placed on any such Security that cannot then be sold pursuant to an effective
registration statement or Rule 144 or with respect to which the opinion referred
to in clause (b) next above has not been rendered, which Legend shall be removed
when such Security may be sold pursuant to an effective registration statement
or Rule 144 or such holder provides the opinion with respect thereto described
in clause (b) next above.
5.10 LISTING. Subject to the remainder of this Section 5.10, the
Company shall ensure that its shares of Common Stock (including all Conversion
Shares and Warrant Shares) are listed and available for trading on the OTC
Bulletin Board. The Company shall promptly following the Last Closing use its
best efforts to satisfy the listing requirements of, and secure the listing of
the Common Stock (including, without limitation, the Conversion Shares and
Warrant Shares) upon, the Nasdaq SmallCap Market ("NASDAQ"). Thereafter, the
Company shall (i) use its best efforts to continue the listing and trading of
its Common Stock on the NASDAQ, or on the Nasdaq National Market System ("NMS"),
the New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX");
(ii) take all action necessary to cause and maintain the listing and trading of
its Common Stock on the OTC Bulletin Board at any time the Common Stock is not
listed and traded on NASDAQ, NMS, NYSE or AMEX; and (iii) comply in all respects
with the Company's reporting, filing and other obligations under the by-laws or
rules of the National Association of Securities Dealers ("NASD") and such
exchanges, as applicable.
5.11 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company will
issue to its Transfer Agent the Irrevocable Instructions to Transfer Agent
substantially in the form of Exhibit H instructing the Transfer Agent to issue
certificates, registered in the name of each Subscriber or its nominee, for the
Conversion Shares and Warrant Shares in such amounts as
14
<PAGE>
specified from time to time by such Subscriber to the Company upon conversion of
the Preferred Stock. Such certificates shall bear a Legend only to the extent
permitted by Section 5.9 hereof. The Company warrants that no instruction,
other than such instructions referred to in Section 5.9 hereof or in this
Section 5.11 and stop transfer instructions to give effect to Section 3.7 hereof
in the case of Conversion Shares and Warrant Shares prior to registration of the
Conversion Shares and Warrant Shares under the Act, will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way each Subscriber's obligations and
agreement set forth in Section 5.10 hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. If (a) a Subscriber provides the
Company with an opinion of counsel, which opinion of counsel shall be in form,
substance and scope customary for opinions of counsel in comparable transactions
(the reasonable cost of which shall be borne by the Company), to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from registration or (b) a Subscriber transfers Securities to an
affiliate which is an accredited investor pursuant to Rule 144, the Company
shall permit the transfer, and, in the case of Conversion Shares and Warrant
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denomination as specified by such Subscriber. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Subscriber by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5.1 I will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5.1 1, that a Subscriber shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required. The Company hereby agrees that it will not unilaterally
terminate its relationship with the Transfer Agent for any reason prior to the
date which is three (3) years after the Last Closing or one (1) month after the
first date that no Preferred Stock and no Warrants are outstanding, whichever is
earlier (the "Ending Date"). In the event the Company's agency relationship with
the Transfer Agent should be terminated for any other reason prior to the date
which is three (3) years after the Last Closing, the Company's Transfer Agent
shall continue acting as transfer agent pursuant to the terms of the Irrevocable
Instructions to Transfer Agent until such time that a successor transfer agent
(i) is appointed by the Company; (ii) is approved by seventy-five percent (75%)
of the Subscribers of outstanding Preferred Stock; and (iii) executes and agrees
to be bound by the terms of the Irrevocable instructions to Transfer Agent.
6. SUBSCRIBER COVENANT/MISCELLANEOUS
6.1 REPRESENTATIONS AND WARRANTIES SURVIVE THE CLOSING; SEVERABILITY.
Subscriber's and the Company's representations and warranties shall survive the
Closing of the transactions contemplated by this Agreement notwithstanding any
due diligence investigation made by or on behalf of the party seeking to rely
thereon. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
6.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign Subscriber's rights hereunder, in
connection with any private sale of the
15
<PAGE>
Preferred Stock of such Subscriber, so long as, as a condition precedent to such
transfer, the transferee executes an acknowledgment agreeing to be bound by the
applicable provisions of this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware without respect to conflict of laws.
6.4 EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
6.5 TITLES AND SUBTITLES; GENDER. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
6.6 WRITTEN NOTICES, ETC. Any notice, demand or request required or
permitted to be given by the Company or Subscriber pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile (with a hard copy to follow by two (2) day courier),
addressed to the parties at the addresses and/or facsimile telephone number of
the parties set forth at the end of this Agreement or such other address as a
party may request by notifying the other in writing.
6.7 EXPENSES. Each of the Company and Subscriber shall pay all costs
and expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
6.8 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This Agreement,
the Certificate of Designation, the Preferred Stock certificates, the Conversion
Warrants, the Preferred Warrants, the Registration Rights Agreement, the Escrow
Agreement, the Irrevocable Instructions to Transfer Agent and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
6.9 ARBITRATION. Any controversy or claim arising out of or related to
this Agreement or the breach thereof, shall be settled by binding arbitration in
Delaware in accordance with the Expedited Procedures (Rules 53-57) of the
Commercial Arbitration Rules of the American Arbitration Association ("AAA").
A proceeding shall be commenced upon written demand by Company or any Subscriber
to the other. The arbitrator(s) shall enter a judgment by default against any
party which fails or refuses to appear in any properly noticed arbitration
proceeding. The proceeding shall be conducted by one (1) arbitrator, unless the
amount alleged to be in dispute exceeds two hundred fifty thousand dollars
($250,000), in which case three (3) arbitrators shall preside. The arbitrator(s)
will be chosen by the parties from a list provided by the AAA, and if they are
unable to agree within ten (10) days, the AAA shall select the arbitrator(s).
The arbitrators must be experts in securities law and financial transactions.
The arbitrators shall assess costs and expenses of the arbitration, including
all attorneys' and experts' fees, as the arbitrators believe is appropriate in
light of the merits of the parties' respective positions in the issues in
dispute. Each party submits irrevocably to the jurisdiction of any state court
sitting in Wilmington, Delaware or to the United States District Court sitting
in Delaware for purposes of enforcement of any discovery order, judgment or
award in connection with such arbitration. The award of the arbitrator(s) shall
16
<PAGE>
be final and binding upon the parties and may be enforced in any court having
jurisdiction. The arbitration shall be held in such place as set by the
arbitrator(s) in accordance with Rule 55.
7. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
7.1 SUBSCRIPTION
(a) WIRE TRANSFER OF SUBSCRIPTION FUNDS. Subscriber shall send this
signed Agreement by facsimile to the Placement Agent at
(770) 640-7150, and send the subscription funds by wire transfer,
to the Escrow Agent as follows:
First Union National Bank
ABA No. 053000219
Account No. 465946fTrust Ledger
ATTN: Claire Moore
Reference:
Acct Name: MedcaretSwartz Investments, LLC
Ref: Subscriber's Name
Account No. 3072236164
Contact: Nicole Stefaruni
Telephone No.: (404) 827-7326
SWIFT Code: FUNBUS33
(b) IRREVOCABLE SUBSCRIPTION. Subscriber hereby acknowledges and
agrees, subject to the provisions of any applicable laws providing
for the refund of subscription amounts submitted by Subscriber,
that this Agreement is irrevocable and that Subscriber is not
entitled to cancel, terminate or revoke this Agreement or any other
agreements executed by such Subscriber and delivered pursuant
hereto, and that this Agreement and such other agreements shall
survive the death or disability of such Subscriber and shall be
binding upon and inure to the benefit of the parties and their
heirs, executors, administrators, successors, legal representatives
and assigns. If the Securities subscribed for are to be owned by
more than one person, the obligations of all such owners under
this Agreement shall be joint and several, and the agreements,
representations, warranties and acknowledgments herein contained
shall be deemed to be made by and be binding upon each such person
and his heirs, executors, administrators, successors, legal
representatives and assigns. Notwithstanding the foregoing, (i) if
the conditions to Closing are not satisfied or (ii) if the
Disclosure Documents are discovered prior to Closing to contain
statements which are materially inaccurate, or omit statements of
material fact, Subscriber may revoke or cancel this Agreement.
(c) COMPANY'S RIGHT TO REJECT SUBSCRIPTION. Subscriber understands that
this Agreement is not binding on the Company until the Company
accepts it. This Agreement shall be accepted by the Company when
the Company countersigns this Agreement. Subscriber hereby confirms
that the Company has full right in its sole discretion to accept or
reject the subscription of Subscriber, in whole or in part,
provided that, if the Company decides to reject such subscription,
the Company must do so promptly and in writing. In the case of
rejection, the Company will promptly return any rejected payments
and (if rejected in whole) copies of all executed subscription
17
<PAGE>
documents without limitation this Agreement) to Subscriber (with
any earned interest).
7.2 ACCEPTANCE OF SUBSCRIPTION. In the case of acceptance of
Subscriber's subscription, ownership of the number of securities being purchased
hereby will pass to Subscriber upon the Closing.
7.3 SUBSCRIBER TO FORWARD ORIGINAL SIGNED SUBSCRIPTION AGREEMENT TO
COMPANY. Subscriber agrees to courier to Company his, her or its original inked
signed Subscription Agreement within two (2) days after faxing said signed
agreement to Placement Agent.
8. INDEMNIFICATION.
The Company agrees to indemnify and hold harmless Subscriber and the
Placement Agent and each of their officers, directors, employees and agents, and
each person who controls Subscriber or the Placement Agent within the meaning of
the Act or the Exchange Act (each, a "Subscriber Indemnified Party") against any
losses, claims, damages or liabilities, joint or several, to which it, they or
any of them, may become subject and not otherwise reimbursed arising from or due
to any untrue statement of a material fact or the omission to state any material
fact required to be stated in order to make the statements not misleading in any
representation or warranty made by the Company contained in this Agreement or in
any statements contained in the Disclosure Documents.
Subscriber agrees to indemnify and hold harmless Company and the Placement
Agent and each of their officers, directors, employees and agents, and each
person who controls Company or the Placement Agent within the meaning of the
Act or the Exchange Act (each, a "Company Indemnified Party") (a Subscriber
Indemnified Party or a Company Indemnified Party may be hereinafter referred
to singularly as "Indemnified Party") against any losses, claims, damages or
liabilities, joint or several, to which it, they or any of them, may become
subject and not otherwise reimbursed arising from or due to any untrue statement
of a material fact or the omission to state any material fact required to be
stated in order to make the statements not misleading in any representation or
warranty made by Subscriber contained in this Agreement.
Promptly after receipt by an Indemnified Party of notice of the commencement
of any action pursuant to which indemnification may be sought, such Indemnified
Party will, if a claim in respect thereof is to be made against the other party
(hereinafter "Indemnitor") under this Section 8, deliver to the Indemnitor a
written notice of the commencement thereof and the Indemnitor shall have the
right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the corornencement of any such action,
if prejudicial to the Indemnitor's ability to defend such action, shall relieve
the Indemnitor of any liability to the Indemnified Party under this Section 8,
but the omission to so deliver written notice to the Indemnitor will not relieve
it of any liability that it may have to any Indemnified Party other than under
this Section 8 to the extent it is prejudicial.
18
<PAGE>
9. CERTAIN ADDITIONAL LEGENDS AND INFORMATION.
FOR FLORIDA RESIDENTS:
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE
HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA SECURITIES
ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF
FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING
THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS
MADE BY SUCH SUBSCRIBER TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN ESCROW
AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS
COMMUNICATED TO SUCH SUBSCRIBER, WHICHEVER OCCURS LATER.
FOR MAINE RESIDENTS:
THESE SECURITIES ARE BEING SOLD PURSUANT TO AN EXEMPTION FROM REGISTRATION
WITH THE BANK SUPERINTENDENT OF THE STATE OF MAINE UNDER SECTION 10502(2)(R) OF
TITLE 32 OF THE MAINE REVISED STATUTES. THESE SECURITIES MAY BE DEEMED
RESTRICTED SECURITIES AND AS SUCH THE HOLDER MAY NOT BE ABLE TO RESELL THE
SECURITIES UNLESS PURSUANT TO REGISTRATION UNDER STATE OR FEDERAL SECURITIES
LAWS OR UNLESS AN EXEMPTION UNDER SUCH LAWS EXISTS.
FOR PENNSYLVANIA RESIDENTS:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURES BEING OFFERED
HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A PERIOD OF TWELVE MONTHS AFTER
THE DATE OF PURCHASE UNLESS SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE. UNDER
PROVISION OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (THE "1972 ACT'), EACH
PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT
INCURRING ANY LIABILITY, TO THE SELLER, UNDERWRITER (IF ANY) OR ANY PERSON,
WITHIN TWO (2) BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS
WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE CASE OF A TRANSACTION IN WHICH
THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER
HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED. TO ACCOMPLISH
THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO THE SELLING
AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE MEMORANDUM, INDICATING HIS OR
HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED
PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS DAY. IT IS PRUDENT TO
SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT
IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED. IF THE REQUEST IS
MADE ORALLY (IN PERSON OR BY TELEPHONE, TO THE SELLING AGENT AT THE NUMBER
LISTED IN THE TEXT OF THE MEMORANDUM) A WRITTEN CONFIRMATION THAT THE REQUEST
HAS BEEN RECEIVED SHOULD BE REQUESTED.
FOR NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION
l9
<PAGE>
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON TO MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
[INTENTIONALLY LEFT BLANK]
20
<PAGE>
10. NUMBER OF SHARES AND PURCHASE PRICE. Subscriber subscribes for shares
of Preferred Stock (in the amount of $10,000 per Share) and the accompanying
Conversion Warrants and Preferred Warrants against payment by wire transfer in
the amount of $__________ ("Purchase Price").
11. ACCREDITED INVESTOR. Subscriber is (check applicable box):
(a) [ ] a corporation, business trust, or partnership not formed for the
specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person who has such
knowledge and experience in financial and business matters that he
is capable of evaluating the merits and risks of the prospective
investment.
(c) [ ] an individual, who
[ ] is a director, executive officer or general partner of the issuer
of the securities being offered or sold or a director, executive
officer or general partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with that person's
spouse, at the time of his purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each of the two
most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity described in a-b
above or is an individual who could check one (1) of the last three
(3) boxes under subparagraph (c) above.
(e) [ ] other [specify] __________________________________________
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Subscriber by the following signature(s) executed this Agreement.
Dated this ______ day of ______________________, 1997.
__________________ _________________________
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
__________________ DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address where your security is
to be delivered
__________________ ATTN.:___________________
Title/Representative
Capacity (if applicable)
___________________ ___________________________
Name of Company You Street Address
Represent (if applicable)
___________________ ____________________________
Place of Execution of City, State or Province, Country, Offshore Postal Code
this Agreement
____________________________
Phone Number (For Federal Express) and
Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $____ ON
THE ____ DAY OF June, 1997.
Medcare Technologies, Inc.
By: ___________________
Name: _________________
Title: __________________
<PAGE>
MEDCARE TECHNOLOGIES, INC.
SIGNIFICANT RISKS
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
Since inception, MedCare Technologies has primarily been engaged in the research
and development of its treatment program for bladder and bowel incontinence.
While there is ample evidence that significant demand exists for a treatment
program such as MedCare's, there is no guarantee that MedCare will be successful
in achieving its operation goals or successful in gaining wide acceptance among
physicians or sufferers. As a result, the Company may continue to suffer losses
from operations in the future.
RELIANCE ON SKILLED AND KEY PERSONNEL
As a part of its expansion plans, the company plans to expend substantial
funds for recruiting and training highly skilled personnel, purchasing medical
equipment and for advertising and marketing. There can be no assurances that
these highly skilled individuals, such as registered nurses or nurse
practitioners, will be readily available and slower than anticipated sales
growth may adversely affect the company's ability to continue funding its
expansion program. The Company is also dependent upon a number of key management
personnel. The loss of the services of one or more key individuals would have a
material adverse effect on the Company. The Company's success will also
depend on its ability to attract and retain other highly qualified scientific
and management personnel. The company faces competition for such personnel and
there can be no assurance that the company will be able to attract or retain
such personnel.
PROTECTION OF PROPRIETARY TREATMENT PROGRAM
The Company's ability to compete and expand effectively will depend, in
part, on its ability to develop and maintain proprietary aspects of its
treatment program for bladder and bowel incontinence. The Company relies on an
unpatented proprietary treatment protocol and there can be no assurances that
others will not independently develop substantially equivalent or superseding
proprietary protocols, or that an equivalent program will not be marketed in
competition with the company's program, thereby substantially reducing the value
of the Company's proprietary treatment program. There can be no assurance that
any confidentiality agreements between the company and its employees will
provide meaningful protection for the Company's trade secrets, know-how or
other proprietary information in the event of any unauthorized use or disclosure
of such trade secrets, know-how or other proprietary information.
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT
In the United States and in certain foreign countries, third-party
reimbursement is currently generally available for certain procedures, such as
surgery and biofeedback training by EMG application and generally unavailable
for patient management products such as diapers, pads, and urethral plugs. While
the Company's treatment program is currently covered by the third party payers,
there can be no assurances that such coverage will remain in effect in the
future.
EXHIBIT I
<PAGE>
MEDCARE TECHNOLOGIES, INC.
CAPITALIZATION TABLE
100,000,000 common shares authorized with $0.001 par value As at March 31, 1997,
there were 6,445,185 issued and outstanding
1,000,000 Preferred shares authorized with $0.25 par value - between 200 and 300
shares of which are expected to be issued in conjunction with this Offering.
Current Outstanding Options:
434,500 Exercisable at $3.00 until December 31, 2001
292,000 Exercisable at $4.50 until June 20, 2001
500,000* 200,000 set aside at $4.50 until November 18th, 2001
*Subject to shareholder approval at AGM on June 17, 1997
EXHIBIT J
<PAGE>
MEDCARE TECHNOLOGIES, INC.
USE OF PROCEEDS STATEMENT
The net proceeds to the Company from the sale of the stock offered hereby are
estimated to be $1,850,000 if the principal amount of $2,000,000 of Preferred
Stock is placed and $2,775,000 if the principal amount of $3,000,000 of
Preferred Stock is placed, after deductng estimated offering expenses payable by
the Company.
<TABLE>
<CAPTION>
Net Proceeds Net Proceeds
Application of Proceeds of $1,850,000 of $2,775,000
- ----------------------------- ----------------- -----------------
<S> <C> <C>
MedCare Program Expansion $l,250,000 $1,250,000
Public (Financial) Relations $250,000 $250,000
Working Capital $350,000 $1,275,000
EXHIBIT K
<PAGE>
MEDCARE TECHNOLOGIES, INC.
PATENTS, TRADEMARKS, TRADENAMES, COPYRIGHTS,
KNOW-HOW, TECHNOLOGY AND OTHER INTELLECTUAL PROPERTIES
United States Trademark Application:
Medcare and design, filed April 21, 1997
Canadian Trademark Application:
Medcare and design, April 22, 1997
Exhibit L-1
<PAGE>
MEDCARE TECHNOLOGIES, INC.
LICENSES AND OTHER RIGHTS GRANTED TO OTHERS TO USE PATENTS, TRADEMARKS,
TRADENAMES, COPYRIGHTS, KNOW-HOW, TECHNOLOGY AND OTHER INTELLECTUAL PROPERTIES.
-NONE-
Exhibit L-2
<PAGE>
MEDCARE TECHNOLOGIES, INC.
LINCENSES AND OTHER RIGHTS GRANTED TO MEDCARE TO USE PATENTS, TRADEMARKS,
TRADENAMES, COPYRIGHTS, KNOW-HOW, TECHNOLOGY AND OTHER INTELLECTUAL PROPERTIES.
-NONE-
Exhibit L-3
<PAGE>
MEDCARE TECHNOLOGIES, INC.
CAPACITIES OF KEY EMPLOYEES
HARMEL S. RAYAT - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Primarily responsible for overall business strategy and expansion, negotiate all
contracts and agreements with physicians and medical management companies,
billing matters and communicating with the financial community.
VALERIE BOELDT-UMBRIGHT - VICE PRESIDENT AND DIRECTOR OF CLINICAL SERVICES
Primarily responsible for developing medical protocols and the ongoing
development of new medical protocols, teaching and training of clinical staff,
ongoing supervision of clinical staff and all matters relating to the
development of the MedCare Program.
EXHIBIT M
<PAGE>
NOTICE OF CONVERSION [AND RESALE]
(To be Executed by the Registered Holder
in order to Convent the Preferred Stock)
The undesigned hereby irrevocably elects to convert __________ shares of Series
A Preferred Stock, represented by stock certificate No(s). ________ (the
"Preferred Stock Certificates") into shares of common stock ("Common Stock") of
Medcare Technologies, Inc. (the "Company") according to the conditions of the
Certificate of Designation of Series A Preferred Stock, as of the date written
below [in connection with the resale of the underlying Common Stock unless
otherwise indicated below]. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the Holder for any conversion, except for transfer taxes, if any.
A copy of each of the Preferred Stock Certificates being converted is attached
hereto. The undersigned agrees to deliver a Prospectus in connection with any
sale made pursuant to the Registration Statement, as provided in Section 5.10 of
the Subscription Agreement.
_____ Check here if this conversion is not being made in connection with the
resale of the Common Stock.
Date of Conversion: ________________
Applicable Conversion Price: _______
Number of Shares of
Common Stock to be Issued: _________
Signature: __________________________
Name:________________________________
Address:_____________________________
* No shares of Common Stock will be issued until the original Series A
Preferred Stock Certificate(s) to be converted and the Notice of Conversion are
received by the Company or its Transfer Agent. The Holder shall (i) send via
facsimile, on or prior to 11:59 p.m., New York City time. on the date of
conversion, a copy of this completed and fully executed Notice of Conversion
to the Company at the office of the Company and its designated Transfer Agent
for the Series A Preferred Stock that the Holder elects to convert and (ii)
surrender, to a common courier for either overnight or two (2) day delivery to
the office of the Company or the Transfer Agent, the original Series A Preferred
Stock Certificate(s) representing the Series A Preferred Stock being convened,
duly endorsed for transfer. The Company or its Transfer Agent shall issue shares
of Common Stock and surrender them to a common courier for delivery to the
shareholder within two (2) business days following receipt of a facsimile of
this Notice of Conversion AND receipt by the Company or its Transfer Agent of
the original Series A Preferred Stock Certificate(s) to be convened, all in
accordance with the terms of the Certificate of Designation and the Subscription
Agreement, and shall make payments for the number of business days such issuance
and delivery is late, pursuant to the temms of the Certificate of Designation.
EXHIBIT N
<PAGE>
</TABLE>
MEDCARE TECHNOLOGIES, INC.
NINE (9) MONTH CONVERSION WARRANTS
<PAGE>
THIS WARRANT AND THE SECURITIES PURCHASED UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
_____ shares
Warrant to Purchase Common Stock
of
MEDCARE TECHNOLOGIES, INC.
THIS CERTIFIES that _____________________ or any subsequent holder hereof
("Holder"), has the right to purchase from MEDCARE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), up to _______ fully paid and nonassessable
shares of the Company's common stock, $.001 par value per share ("Common
Stock"), subject to adjustment as provided herein, at a price equal to the
Exercise Price as defined in Section 3 below, at any time beginning on the Date
of Issuance (defined below) and ending at 5:00 p.m., New York, New York time, on
June 20, 2002 (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common Stock of
Medcare Technologies, Inc. (this "Warrant") is issued and all rights hereunder
shall be held subject to all of the conditions, limitations and provisions set
forth herein.
1. DATE OF ISSUANCE.
This Warrant shall be deemed to be issued on June 20, 1997 ("Date of
Issuance").
2. EXERCISE.
(a) MANNER OF EXERCISE. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby upon surrender of this Warrant, with the Exercise Form attached hereto as
Exhibit A (the "Exercise Form") duly executed, together with the full Exercise
Price (as defined below) for each share of Common Stock as to which this Warrant
is exercised, at the office of the Company, 608 S. Washington Street, Suite 101,
Naperville, Illinois 60540; Attention: President, Telephone No. (630) 428-2862,
Telecopy No. (630) 428-2864, or at such other office or agency as the Company
may designate in writing, by overnight mail, with an advance copy of the
Exercise Form sent to the Company by facsimile (such surrender and payment of
the Exercise Price hereinafter called the "Exercise of this Warrant"); provided,
however, that in the event a Series A Share Disposition, as defined below,
occurs prior to the expiration of the date which is nine (9) months from the
Date of Issuance (the "9 Month Date"), this Warrant shall, for each share of
Series A Preferred Stock transferred or converted in a Series A Share
Disposition during such period, terminate with respect to the right of the
Holder to purchase __________ (___) shares of Common Stock. "Series A Share
Disposition" shall mean a transaction whereby the Holder either (i) transfers
shares of the Series A Preferred Stock; or (ii) converts shares of the Series A
Preferred Stock pursuant to the terms of the Company's Certificate of
Designation of Series
1
<PAGE>
A Preferred Stock. Within thirty (30) days of the Month Date, the Company shall
provide written confirmation to the Holder of the number of shares of Common
Stock, as adjusted if applicable, which the Holder has the right to purchase
hereunder.
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise Form
are received by the Company as soon as practicable thereafter. Alternatively,
the Date of Exercise shall be defined as the date the original Exercise Form
is received by the Company, if Holder has not sent advance notice by facsimile.
(c) CANCELLATION OF WARRANT. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) HOLDER OF RECORD. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price shall equal $7.346 per share ("Exercise Price").
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) CASH EXERCISE: cash, certified check or cashiers check or wire
transfer, or
(ii) CASHLESS EXERCISE: subject to the last sentence of this Section
3, surrender of this Warrant at the principal office of the Company together
with notice of cashless election, in which event the Company shall issue Holder
a number of shares of Common Stock computed using the following formula
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one ( l ) share of Common Stock (for purposes
of this Section 3(ii), the "Market Price" shall be defined as the
average closing price of the Common Stock for the five (5)
trading days prior to the Date of Exercise of this Warrant (the
"Average Closing Price"), as reported by the National Association
of Securities Dealers Automated Quotation System ("Nasdaq"), or
if the Common Stock is not traded on the Nasdaq Small Cap Market,
the Average Closing Price in the over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shall be the Average Closing Price on
such exchange. If the Common Stock is/was not traded during the
2
<PAGE>
five) trading days prior to the Date of Exercise, then the
closing price for the last publicly traded day shall be deemed to
be the closing price for any and all (if applicable) days during
such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of
this Warrant in a cashless exercise transaction shall be deemed to have been
acquired at the tune this Warrant was issued. Moreover, it is intended,
understood and acknowledged that the holding period for the Common Stock
issuable upon exercise of this Warrant in a cashless exercise transaction shall
be deemed to have commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant may not
be exercised in a cashless exercise transaction if, on the Date of Exercise, the
shares of Common Stock to be issued upon exercise of this Warrant would upon
such issuance (x) be immediately transferable in the United States free of any
restrictive legend, including without limitation under Rule 144; (y) be then
registered pursuant to an effective registration statement filed pursuant to
that certain Registration Rights Agreement dated on or about June 20, 1997 by
and among the Company and certain investors; or (z) otherwise be registered
under the Securities Act of 1933, as amended.
4. TRANSFER AND REGISTRATION.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred and Holder shall be entitled to receive a new Warrant as to the
portion hereof retained.
(b) REGISTRABLE SECURITIES. The Common Stock issuable upon the exercise of
this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about June 20, 1997 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. ANTI-DILUTION ADJUSTMENTS.
(a) STOCK DIVIDEND. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock enticed
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be enticed
to purchase upon Exercise of this Warrant shall be increased or decreased, as
the case may be, in direct proportion to the increase or decrease in the number
of shares of Common Stock by reason of such recapitalization.
3
<PAGE>
reclassification or similar transaction. and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder same notice it provides to holders of Common Stock of
any transaction described in this Section 5(b).
(c) DISTRIBUTIONS. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding year) then, in
any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) business days notice to Holder hereof of any Corporate Change.
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in the Exercise Price.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
4
<PAGE>
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock, if, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. RESTRICT ON TRANSFER.
(a) REGISTRATION OR EXAMINATION REQUIRED. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by virtue
of Regulation D and exempt from state registration under applicable state laws.
The Warrant and the Common Stock issuable upon the Exercise of this Warrant may
not be sold except pursuant to an effective registration statement or an
exemption to the registration requirements of the Act and applicable state
laws.
(b) ASSIGNMENT. If Holder can provide the Company with seasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant. in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B. indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and Holder any legal or equitable right, remedy or claim
under this Warrant and this Warrant shall be for the sole and exclusive benefit
of the Company and Holder.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the state of Delaware, without
giving effect to conflict of law provisions thereof.
11 LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or
5
<PAGE>
security reasonably to the Company, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.
12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to Attention:
President, 608 S. Washington Street, Suite 101, Naperville, Illinois 60540,
Telephone No. (630) 428-2862, Telecopy No. (630) 428-2864. Notices or demands
pursuant to this Warrant to be given or made by the Company to or on Holder
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed, to the address of
Holder set forth in the Company's records, until another address is designated
in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
20th day of June, 1997.
MEDCARE TECHNOLOGIES, INC.
By:_______________________
Harmel S. Rayat, President
6
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: MEDCARE TECHNOLOGIES, INC.
The undersigned hereby irrevocably exercises the right to purchase of the
shares of common stock (the "Common Stock") of MEDCARE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), evidenced by the attached warrant (the
"Warrant"), and herewith makes payment of the exercise price with respect to
such stores in full, all in accordance with the conditions and provisions of
said Warrant.
1. The undersigned Sees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned request that stock certificates for such shares be Issued
free of any restrictive legend, if appropriate , and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undesigned at the address set forth below:
Dated:
____________________________________________
Signature
____________________________________________
Print Name
____________________________________________
Address
____________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
____________________________________________
7
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _____ shares of the common stock of MEDCARE
TECHNOLOGIES, INC., evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint ______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated: __________________________
Signature
Fill in for new registration of Warrant:
____________________________________________
Name
____________________________________________
Address
____________________________________________
Please print name and address of assignee
(including zip code number)
______________________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
_______________________________________________________________________________
<PAGE>
MEDCARE TECHNOLOGIES, INC.
TWELVE (12) MONTH CONVERSION WARRANTS
THIS WARRANT AND THE SECURITIES PURCHASED UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXERTION FROM REGISTRATION
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN
CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
______ shares
Warrant to Purchase Common Stock
of
MEDCARE TECHNOLOGIES, INC.
THIS CERTIFIES that ___________________ or any subsequent holder hereof
("Holder"), has the right to purchase from MEDCARE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), up to ______ fully paid and nonassessable
shares of the Company's common stock $.001 par value per share ("Common Stock"),
subject to adjustment as provided herein, at a price equal to the Exercise Price
as defined in Section 3 below, at any time beginning on the Date of Issuance
(defined below) and ending at 5:00 p.m., New York, New York time, on June 20,
2002 (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common Stock
of Mcdcare Technologies, Inc. (the "Warrant") is issued and all rights hereunder
shall be held subject to all of the conditions, limitations and provisions set
forth herein.
1. DATE OF ISSUANCE.
This Warrant shall be deemed to be issued on June 20, 1997 ("Date of
Issuance").
2. EXERCISE.
(a) MANNER OF EXERCISE. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby upon surrender of this Warrant, with the Exercise Form attached hereto as
Exhibit A (the "Exercise Form") duly executed together with the full Exercise
Price (as defined below) for each share of Common Stock as to which this Warrant
is exercised, at the office of the Company, 608 S. Washington Street, Suite 101,
Naperville, Illinois, 60540; Attention: President, Telephone No. (630) 428-2862,
Telecopy No. (630) 428-2864, or at such other office or agency as the Company
may designate in writing, by overnight mail, with an advance copy of the
Exercise Form sent to the Company by facsimile (such surrender and payment of
the Exercise Price hereinafter called the "Exercise of this Warrant"); provided,
however, that in the event a Series A Share Disposition, as defined below,
occurs prior to the expiration of the date which is twelve (12) months from the
Date of Issuance (the "12 Month Date"), this Warrant shall, for each share of
Series A Preferred Stock transferred or converted in a Series A Share
Disposition during such period, terminate with respect to the right of the
Holder to purchase ____________ (___) shares of Common Stock. "Series A Share
Disposition" shall mean a transaction whereby the Holder either (i) transfers
shares of the Series A Preferred Stock; or (ii) converts shares of the Series A
Preferred Stock pursuant of the terms of the Company's Certificate of
Designation of Series
1
<PAGE>
A Preferred Stock. Within thirty (30) days of the 12 Month Date, the Company
shall provide written confirmation to the Holder of the number of shares of
Common Stock, as adjusted if applicable, which the Holder has the right to
purchase hereunder.
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise Form
are received by the Company as soon as practicable thereafter. Altematively, the
Date of Exercise shall be defined as the date the original Exercise Form is
received by the Company, if Holder has not sent advance notice by facsimile.
(c) CANCELLATION OF WARRANT. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be enticed to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be enticed to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) HOLDER OF RECORD. Each person in whose none any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price shall equal $7.346 per share ("Exercise Price").
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) CASH EXERCISE: cash, certified check or cashiers check or wire
transfer, or
(ii) CASHLESS EXERCISE: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula
X=Y(A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes
of this Section 3(ii), the "Market Price" shall be defined as the
average closing price of the Common Stock for the five (5)
trading days prior to the Date of Exercise of this Warrant (the
"Average Closing Price"), as reported by the National Association
of Securities Dealers Automated Quotation System ("Nasdaq"), or
if the Common Stock is not traded on the Nasdaq Small Cap Market,
the Average Closing Price in the over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shall be the Average Closing Price on
such exchange. If the Common Stock is/was not traded during the
2
<PAGE>
five (5)trading days prior to the Date of Exercise, then the
closing price for the last publicly traded day shall be deemed to
be the closing price for any and all (if applicable) days during
such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant may not
be exercised in a cashless exercise transaction if, on the Date of Exercise, the
shares of Common Stock to be issued upon exercise of this Warrant would upon
such issuance (x) be immediately transferable in the United States free of any
restrictive legend, including without limitation under Rule 144; (y) be then
registered pursuant to an effective registration statement filed pursuant to
that certain Registration Rights Agreement dated on or about June 20, 1997 by
and among the Company and certain investors; or (z) otherwise be registered
under the Securities Act of 1933, as amended.
4. TRANSFER AND REGISTRATION.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred and Holder shall be entitled to receive a new Warrant as to the
portion hereof retained.
(b) REGISTRABLE SECURITIES. The Common Stock issuable upon the exercise of
this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about lune 20, 1997 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. ANTI-DILUTION ADJUSTMENTS.
(a) STOCK DIVIDEND. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
3
<PAGE>
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
(c) DISTRIBUTIONS. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding year) then, in
any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
xercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) business days notice to Holder hereof of any Corporate Change.
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in the Exercise Price.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
4
<PAGE>
6. FRACTIONAL INTERESTS
No fractional or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable
upon such exercise shall be duly and validly issued, fully paid, nonassessable
and not subject to preemptive rights, rights of first refusal or similar rights
of any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by virtue
of Regulation D and exempt from state registration under applicable state laws.
The Warrant and the Common Stock issuable upon the Exercise of this Warrant may
not be sold except pursuant to an effective registration statement or an
exemption to the registration requirements of the Act and applicable state laws.
(b) ASSIGNMENT. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the inspective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and Holder any legal or equitable right, remedy or claim
under this Warrant and this Warrant shall be for the sole and exclusive benefit
of the Company and Holder.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Delaware, without giving
effect to conflict of law provisions thereof.
11. LOSS OF WARRANT
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or
5
<PAGE>
security reasonably satisfactory to the Company, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed,
until another address is designated in writing by the Company, to Attention:
President, 608 S. Washington Street, Suite l01, Naperville, Illinois 60540,
Telephone No. (630) 428-2862, Telecopy No. (630) 428-2864. Notices or demands
pursuant to this Warrant to be given or made by the Company to or on Holder
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, potage prepaid. and addressed, to the address of
Holder set forth in the Company's records, until another address is designated
in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 20th
day of June, 1997.
MEDCARE TECHNOLOGIES, INC.
By:___________________________
Harmel S. Rayat, President
6
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: MEDCARE TECHNOLOGIES, INC.
The undersigned hereby irrevocably exercises the right to purchase ____ of
the shares of common stock (the "Common Stock") of MEDCARE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), evidenced by the attached warrant (the
"Warrant''), and herewith makes payment of the exercise price with respect to
such shares in full, all in accordance with the conditions and provisions of
said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
____________________________________________
Signature
____________________________________________
Print Name
____________________________________________
Address
________________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________________
7
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase shares of the common stock of MEDCARE TECHNOLOGIES,
INC., evidenced by the attached Warrant and does hereby irrevocably constitute
and appoint attorney to transfer the said Warrant on the books of the Company,
with full power of substitution in the premises.
Dated: __________________________
Signature
Fill in for new registration of Warrant:
____________________________________________
Name
____________________________________________
Address
____________________________________________
Please print name and address of assignee
(including zip code number)
________________________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
________________________________________________________________________________
<PAGE>
MEDCARE TECHNOLOGIES, INC.
FIFTEEN (15) MONTH CONVERSION WARRANTS
THIS WARRANT AND THE SECURITIES PURCHASED UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
______ shares
WARRANT TO PURCHASE COMMON STOCK
OF
MEDCARE TECHNOLOGIES, INC.
THIS CERTIFIES that __________________ or any subsequent holder hereof
("Holder"), has the right to purchase from MEDCARE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), up to ________ fully paid and
nonassessable shares of the Company's common stock, $.00l par value per share
("Common Stock"), subject to adjustment as provided herein, at a price equal to
the Exercise Price as defined in Section 3 below, at any time beginning on the
Date of Issuance (defined below) and ending at 5:00 p.m., New York, New York
time, on June 20, 2002 (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common Stock
of Medcare Technologies, Inc. (this "warrant") is issued and all rights
hereunder shall be held subject to all of the conditions, limitations and
provisions set for herein.
1. DATE OF ISSUANCE
This Warrant shall be deemed to be issued on June 20, 1997 ("Date of
Issuance").
2. EXERCISE.
(a) MANNER OF EXERCISE. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby upon surrender of this Warrant, with the Exercise Form attached hereto as
Exhibit A (the "Exercise Form") duly executed, together with the full Exercise
Price (as defined below) for each share of Common Stock as to which this Warrant
is exercised, at the office of the Company, 608 S. Washington Street, Suite 101,
Naperville, Illinois 60540; Attention: President, Telephone No. (630) 428-2862,
Telecopy No. (630) 428-2864, or at such other office or agency as the Company
may designate in writing, by overnight mail, with an advance copy of the
Exercise Form sent to the Company by facsimile (such surrender and payment of
the Exercise Price hereinafter called the "Exercise of this Warrant"); provided,
however, that in the event a Series A Share Disposition, as defined below,
occurs prior to the expiration of the date which is fifteen (15) months from the
Date of Issuance (the "15 Month Date"), this Warrant shall, for each share of
Series A Preferred Stock transferred or converted in a Series A Share
Disposition during such period, terminate with respect to the right of the
Holder to purchase _______________ (___) shares of Common Stock. "Series A Share
Disposition" shall mean a transaction whereby the Holder either (i) transfers
shares of the Series A Preferred Stock or (ii) convene shares of the Series A
Preferred Stock pursuant to the terms of the Company's Certificate of
Designation of Series
1
<PAGE>
A Preferred Stock. Within thirty (30) days of the 15 Month Date, the Company
shall provide written confirmation to the Holder of the number of shares of
Common Stock, as adjusted if applicable, which the Holder has the right to
purchase hereunder.
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise Form
are received by the Company as soon as practicable thereafter. Alternatively,
the Date of Exercise shall be defined as the date the original Exercise Form
is received by the Company, if Holder has not sent advance notice by facsimile.
(c) CANCELLATION OF WARRANT. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) HOLDER OF RECORD. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price shall equal $7.346 per share ("Exercise Price").
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder.
(i) CASH EXERCISE: cash, ceased check or cashiers check or wire transfer,
or
(ii) CASHLESS EXERCISE: subject to the last sentence of this Section
3, surrender of this Warrant at the principal office of the Company together
with notice of cashless election, in which event the Company shall issue Holder
a number of shares of Common Stock computed using the following formula
X=Y(A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes
of this Section 3(ii), the "Market Price" shall be deemed as the
average closing price of the Common Stock for the five (5)
trading days prior to the Date of Exercise of this Warrant (the
"Average Closing Price"), as reported by the National Association
of Securities Dealers Automated Quotation System ("Nasdaq"), or
if the Common Stock is not traded on the Nasdaq Small Cap Market,
the Average Closing Price in the over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shill be the Average Closing Price on
such exchange. If the Common Stock is/was not traded during the
2
<PAGE>
five (5) trading days prior to the Date of Exercise, then the
closing price for the last publicly traded day shall be deemed to
be the closing price for any and all (if applicable) days during
such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant may not
be exercised in a cashless exercise transaction if, on the Date of Exercise, the
shares of Common Stock to be issued upon exercise of this Warrant would upon
such issuance (x) be immediately transferable in the United States free of any
restrictive legend, including without limitation under Rule 144; (y) be then
registered pursuant to an effective registration statement filed pursuant to
that certain Registration Rights Agreement dated on or about June 20, 1997 by
and among the Company and certain investors; or (z) otherwise be registered
under the Securities Act of 1933, as amended.
4. TRANSFER AND REGISTRATION
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred and Holder shall be entitled to receive a new Warrant as to the
portion hereof retained.
(b) REGISTRABLE SECURITIES. The Common Stock issuable upon the exercise
of this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about June 20, 1997 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. ANTI-DILUTION ADJUSTMENTS.
(a) STOCK DIVIDEND. If the Company shall at any tune declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
3
<PAGE>
reclassification or similar transaction, and the Exercise price be, in the case
of an increase in the number of shares, proportionally decreased and, in the
case of decrease in the number of shares, proportionally increased. The Company
shall give Holder the same notice it provides to holders of Common Stock of any
transaction described in this Section 5(b).
(c) DISTRIBUTIONS. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding year) then, in
any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shad be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) business days notice to Holder hereof of any Corporate Change.
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01or more; provided, however, that all
adjustments not so made shall be defamed and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall halve the net effect of
increasing the Exercise Price. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in the Exercise Price.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
4
<PAGE>
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable
upon such exercise shall be duly and validly issued, fully paid, nonassessable
and not subject to preemptive rights, rights of first refusal or similar rights
of any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by virtue
of Regulation D and exempt from state registration under applicable state laws.
The Warrant and the Common Stock issuable upon the Exercise of this Warrant may
not be sold except pungent to an effective registration statement or an
exemption to the registration requirements of the Act and applicable state laws.
(b) ASSIGNMENT. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (l0) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and Holder any legal or equitable right, remedy or claim under
this Warrant and this Warrant shall be for the sole and exclusive benefit of the
Company and Holder.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Delaware, without giving
effect to conflict of law provisions thereof.
11. LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant. and (in the case of loss, then or destruction) of
indemnity or
5
<PAGE>
security reasonably satisfactory to the Company, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
12. NOTICE OR DEMANDS
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to Attention:
President, 608 S. Washington Street, Suite 101, Naperville, Illinois 60540,
Telephone No. (630) 428-2862, Telecopy No. (630) 428-2864. Notice or demands
pursuant to this Warrant to be given or made by the Company to or on Holder
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, postage prepaid. and addressed to the address of
Holder set forth in the Company's records, until another address is designated
in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
20th day of June, 1997.
MEDCARE TECHNOLOGIES, INC.
By: Harmel S. Rayat
----------------------------
Harmel S. Rayat, President
6
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: MEDCARE TECHNOLOGIES, INC.
The undersigned hereby irrevocably exercises the right to purchase ____ of
the shares of common stock (the "Common Stock") of MEDCARE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), evidenced by the attached warrant (the
"Warrant''), and herewith makes payment of the exercise price with respect to
such shares in full, all in accordance with the conditions and provisions of
said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
____________________________________________
Signature
____________________________________________
Print Name
____________________________________________
Address
______________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
______________________________________________________________________________
7
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase ____ shares of the common stock of MEDCARE
TECHNOLOGIES, INC., evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint ________________ attorney to transfer the
said Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: __________________________
Signature
Fill in for new registration of Warrant:
____________________________________________
Name
____________________________________________
Address
____________________________________________
Please print name and address of assignee
(including zip code number)
______________________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
______________________________________________________________________________
<PAGE>
THIS WARRANT AND THE SECURITIES PURCHASED UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
____ Shares
Warrant to Purchase Series A Preferred Stock
of
MEDCARE TECHNOLOGIES, INC.
THIS CERTIFIES that _________________ or any subsequent holder hereof
("Holder"), has the right to purchase from MEDCARE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), up to twenty-five (25) fully paid and
nonassessable shares of the Company's Series A Preferred Stock, $.25 par value
per share ("Preferred Stock"), subject to adjustment as provided herein, which
have the rights and preferences as set forth in the Certificate of Designation
of Series A Preferred Stock of the Company (the "Certificate of Designation"),
at a price equal to the Exercise Price as defined in Section 3 below, at any
time beginning on the Date of Issuance (defined below) and ending at 5:00 p.m.,
blew York, New York time, on June 20, 1998 (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Preferred
Stock of Medcare Technologies, Inc. (this "Warrant") is issued and all rights
hereunder shall be held subject to all of the conditions, limitations and
provisions set forth herein.
1. DATE OF ISSUANCE.
This Warrant shall be deemed to be issued on June 20, 1997 ("Date of
Issuance'').
2. EXERCISE.
(a) MANNER OF EXERCISE. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Preferred Stock
covered hereby upon surrender of this Warrant, with the Exercise Form attached
hereto as Exhibit A (the "Exercise Form") duly executed, together with the full
Exercise Price (as defined below) for each share of Preferred Stock as to which
this Warrant is exercised, at the office of the Company, 608 S. Washington
Street, Suite 101, Naperville, Illinois 60540; Attention: President, Telephone
No. (630) 428-2862, Telecopy No. (630) 428-2864, or at such other office or
agency as the Company may designate in writing, by overnight mail, with an
advance copy of the Exercise Form sent to the Company by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise of
this Warrant").
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise Form
are received by the Company as soon as practicable thereafter. Alternatively,
the Date of Exercise shall be defined as the date the
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original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile.
(c) CANCELLATION OF WARRANT. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Preferred Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Preferred Stock.
(d) HOLDER OF RECORD. Each person in whose name any Warrant for shares of
Preferred Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Preferred Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
(e) CONVERSION PERIOD OF PREFERRED STOCK. Notwithstanding the rights and
preferences of the Preferred Stock set forth in the Certificate of Designation,
Holder hereby agrees to limit conversions of the Preferred Stock obtained upon
exercise of this Warrant into Common Stock to a maximum of twenty percent (20%)
per month of the aggregate number of shares of Preferred Stock issuable upon
full exercise of this Warrant for a period of five (5) months following the Date
of Exercise (the number of shares that may be converted at any given time, in
the aggregate, is referred to hereinafter as the "Preferred Warrant Conversion
Quota"); and provided, further, in the event Holder elects not to convert its
full Preferred Warrant Conversion Quota during any one (1) month period, the
unconverted amount shall he carried forward and added to the Preferred Warrant
Conversion Quota, and thereafter Holder may, from time to time, convert any
portion of the Preferred Warrant Conversion Quota; and provided further, that
subsequent to the date that is five (5) months following the Date of Exercise,
there shall be no restrictions on the number of shares of Preferred Stock
obtained upon exercise of this Warrant that may be converted into Common Stock
other than as set forth in the Certificate of Designation, if applicable.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price shall equal Ten Thousand Dollars ($10,000) per share
("Exercise Price"). Payment of the Exercise Price may be made by cash, certified
check or cashier's check or wire transfer, at the election of Holder.
4. TRANSFER AND REGISTRATION.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred, and Holder shall be entitled to receive a new Warrant as to the
portion hereof retained.
(b) REGISTRABLE SECURITIES. The Common Stock issuable upon the conversion
of the Preferred Stock issuable upon the exercise of this Warrant constitutes
"Registrable Securities under that certain Registration Rights Agreement dated
on or about June 20, 1997 between the Company and certain investors and,
accordingly, has the benefit of the registration rights pursuant to that
agreement.
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5. ANTI-DILUTION ADJUSTMENTS. For purposes of this Section 5, the term
"Common Equivalents" shall mean (i) the number of shares of Common Stock issued
or distributed (as applicable) in any event listed in this Section 5, and (ii)
the number of shares of Common Stock into which any security, other than Common
Stock, issued or distributed (as applicable) in any event listed in this Section
5 is convertible or for which such security is exchangeable at any applicable
time during the term of this Warrant.
(a) STOCK DIVIDEND. If the Company shall at any time declare a dividend
payable in Common Equivalents on any class of its capital stock, then Holder,
upon Exercise of this Warrant after the record date for the determination of
shareholders entitled to receive such dividend, shall be entitled to receive
upon Exercise of this Warrant, in addition to the number of Common Equivalents
as to which this Warrant is exercised, such additional shares of Common
Equivalents as such Holder would have received had this Warrant been exercised
immediately prior to such record date and the Exercise Price will be
proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction
of such character that the Common Equivalents shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of Common Equivalents which Holder shall be entitled
to purchase upon Exercise of this Warrant shall be increased or decreased, as
the case may be, in direct proportion to the increase or decrease in the number
of Common Equivalents by reason of such recapitalization, reclassification or
similar transaction, and the Exercise Price shall be, in the case of an increase
in the number of shares, proportionally decreased and, in the case of decrease
in the number of shares, proportionally increased. The Company shall give Holder
the same notice it provides to shareholders of any class of capital stock of any
transaction described in this Section 5(b).
(c) DISTRIBUTIONS. If the Company shall at any time distribute for no
consideration to shareholders of any class of capital stock, cash, evidences of
indebtedness or other securities or assets (other than cash dividends or
distributions payable out of earned surplus or net profits for the current or
preceding year) then, in any such case, Holder shall be entitled to receive,
upon Exercise of this Warrant, with respect to each Common Equivalent issuable
upon such exercise, the amount of cash or evidences of indebtedness or other
securities or assets which Holder would have been entitled to receive with
respect to each such Common Equivalent as a result of the happening of such
event had this Warrant been exercised immediately prior to the record date or
other date fixing shareholders to be affected by such event (the "Determination
Date") or, in lieu thereof, if the Board of Directors of the Company should so
determine at the time of such distribution, a reduced Exercise Price determined
by multiplying the Exercise Price on the Determination Date by a fraction, the
numerator of which is the result of such Exercise Price reduced by the value of
such distribution applicable to one share of Common Stock (such value to be
determined by the Board of Directors of the Company in its discretion) and the
denominator of which is such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which capital stock shall be changed into the same
or a different number of shares of the same or another class or classes of stock
or securities or other assets of the Company or another entity or there is a
sale of all or substantially all the Company's assets (a "Corporate Change"),
then this Warrant shall be exercisable into such class and type of securities or
other assets as Holder would have received had Holder exercised this Warrant
immediately prior to such Corporate Change; provided, however, that Company may
not affect any Corporate Change unless it first shall have given thirty (30)
business days notice to Holder hereof of any Corporate Change.
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(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price. The number of Common Equivalents subject hereto
shall increase proportionately with each decrease in the Exercise Price.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Preferred Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Preferred Stock or a right to acquire a fractional share of Preferred Stock,
such fractional share shall be disregarded and the number of shares of Preferred
Stock issuable upon exercise shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Preferred Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and such number of shares of Common Stock as shall
be sufficient for the conversion of the Preferred Stock obtainable upon Exercise
of this Warrant. The Company covenants and agrees that upon the Exercise of
this Warrant, all shares of Preferred Stock issuable upon such exercise shall be
duly and validly issued, fully paid, nonassessable and not subject to preemptive
rights, rights of first refusal or similar rights of any person or entity. The
Company covenants and agrees that upon conversion of the Preferred Stock
issuable upon Exercise of this Warrant, all such shares of Common Stock issuable
upon such conversion shall be duly and validly issued, fully paid, nonassessable
and not subject to preemptive rights, rights of first refusal or similar rights
of any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued in a
transaction exempt from the registration requirements of the Act by virtue of
Regulation D and exempt from state registration under applicable state laws. The
Warrant and the Preferred Stock issuable upon the Exercise of this Warrant may
not be sold except pursuant to an effective registration statement or an
exemption to the registration requirements of the Act and applicable state laws.
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(b) ASSIGNMENT. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B. indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and Holder any legal or equitable right, remedy or claim under
this Warrant and this Warrant shall be for the sole and exclusive benefit of the
Company and Holder.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Delaware, without giving
effect to conflict of law provisions thereof.
11. LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed,
until another address is designated in writing by the Company, to Attention:
President, 608 S. Washington Street, Suite 101, Naperville, Illinois 60540,
Telephone No. (630) 428-2862, Telecopy No. (630) 428-2864. Notices or demands
pursuant to this Warrant to be given or made by the Company to or on Holder
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed, to the address of
Holder set forth in the Company's records, until another address is designated
in writing by Holder.
(INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, the undersigned have executed this Warrant as of the
20th day of June, 1997.
COMPANY:
MEDCARE TECHNOLOGIES, INC.
By: _________________________
Harmel S. Rayat, President
HOLDER:
Holder's Name: _______________
By:___________________________
Print Name:___________________
Title:________________________
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EXHIBIT A
EXERCISE FORM
TO: MEDCARE TECHNOLOGIES, INC.
The undersigned hereby irrevocably exercises the right to purchase ____ of
the shares of Series A Preferred Stock (the "Preferred Stock") of MEDCARE
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), evidenced by the
attached warrant (the "Warrant''), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Preferred Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
____________________________________________
Signature
___________________________________________
Print Name
____________________________________________
Address
______________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
_______________________________________________________________________________
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EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase __ shares of the Series A Preferred Stock of MEDCARE
TECHNOLOGIES, INC., evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint ________________ attorney to transfer the
said Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: __________________________
Signature
Fill in for new registration of Warrant:
____________________________________________
Name
____________________________________________
Address
____________________________________________
Please print name and address of assignee
(including zip code number)
_____________________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
______________________________________________________________________________
<PAGE>
MEDCARE TECHNOLOGIES, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of June
20, 1997, by and among Medcare Technologies, Inc., a Delaware corporation (the
"Company"), Swartz Investments, LLC, a Georgia limited liability company
("Swartz") and the subscribers (hereinafter referred to as "Subscribers") to the
Company's offering ("Offering") of up to Three Million Dollars ($3,000,000) of
Series A Preferred Stock (together with the Series A Preferred Stock issuable
upon exercise of warrants to purchase Series A Preferred Stock of the Company
issued in the Offering, the "Preferred Stock") pursuant to the Regulation D
Subscription Agreement between the Company and each of the Subscribers
("Subscription Agreement(s)").
1. DEFINITIONS. For purposes of this Agreement:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act"), and
pursuant to Rule 415 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) For purposes hereof, the term "Registrable Securities" means the
shares of common stock, $.001 par value per share, of the Company (the "Common
Stock") together with any capital stock issued in replacement of, in exchange
for or otherwise in respect of such Common Stock (i) issuable or issued to the
Subscribers upon conversion of the Preferred Stock and (ii) issuable or issued
upon exercise of the Warrants issued to the Subscribers and to Swartz or its
designees in the Offering.
Notwithstanding the above:
1. Common Stock which would otherwise be deemed to be Registrable
Securities shall not constitute Registrable Securities if those shares
of Common Stock may be resold in a public transaction not subject to
volume limitations without registration under the Act, including
without limitation, pursuant to Rule 144 under the Act; and
2. any Registrable Securities legally resold in a public transaction
shall cease to constitute Registrable Securities.
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock which have been
issued or are issuable in connection with the Offering and which are issuable
upon exercise of the Warrant(s) at the time of such determination;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The term "Due Date" means the date which is four (4) months after
the Last Closing (as defined in the Subscription Agreement) of the Offering;
(f) The terms "Warrant" and "Warrants" refer to the warrants to
purchase Common Stock of the Company issued or to be issued to Subscribers as
securities in connection with the Offering and the warrants granted to Swartz or
to persons designated by Swartz in connection with the Offering.
EXHIBIT F
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2. REQUIRED REGISTRATION.
(a) The Company shall, no later than sixty (60) days after the Last
Closing (as defined in the Subscription Agreements), file a registration
statement (the "Registration Statement") on Form S-l (or other suitable form, at
the Company's discretion but subject to the reasonable approval of Subscribers)
with the Securities and Exchange Commission (the "SEC"). The Company shall,
within ten (10) days of the filing of the Registration Statement, send a copy of
the Registration Statement to Subscribers. Such Registration Statement shall
initially cover the resale of a number of shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants equal to at least
one million five hundred thousand ( 1,500,000) shares of Common Stock, allocated
and reserved pro rata among the Subscribers and Swartz or designees of Swartz,
and shall cover, to the extent allowable by applicable law, such additional
indeterminate number of shares of Common Stock as are required to effect the
full conversion of the Preferred Stock and the full exercise of the Warrants,
due to fluctuations in the price of the Company's Common Stock. The Company
shall use its best efforts to have the Registration Statement declared effective
as soon as possible. In the event that the Company determines or is notified by
a Holder that the Registration Statement does not cover a sufficient number of
shares of Common Stock to effect conversion of all Preferred Stock then eligible
for conversion, including Preferred Stock issuable upon exercise of warrants to
purchase Series A Preferred Stock of the Company, and exercise of the
outstanding Warrants, the Company shall, within five (5) business days, amend
the Registration Statement or file a new registration statement to add such
number of additional shares as would be necessary to effect all such conversions
of the Preferred Stock and exercises of the Warrants. If the Registration
Statement is not declared effective within five (5) calendar months after the
Last Closing or if any new or amended registration statement required to be
filed hereunder is not declared effective within two (2) calendar months of the
date it is required to be filed, the Company shall pay Subscribers an amount
equal to two percent (2%) per month of the aggregate amount of Preferred Stock
sold to Subscriber in the Offering, compounded monthly and accruing daily until
the Registration Statement is declared effective (the "Late Registration
Payment"), payable, at each Subscriber's option, in either cash or Common Stock.
If Subscriber elects to be paid in cash, such Late Registration Payment shall
be paid to such Subscriber within five (5) business days following the end of
the month in which such Late Registration Payment was accrued. If Subscriber
elects to be paid in Common Stock, such number of shares shall be determined as
follows:
Upon conversion of each share of Preferred Stock, the Company shall issue
to Subscriber the number of shares of Common Stock determined as set forth
in Section 5(a) of the Certificate of Designation plus an additional number
of shares of Common Stock (the "Additional Shares") determined as set forth
below:
Additional Shares = Late Registration Payment
-------------------------
Conversion Price
where, "Conversion Price" has the definition ascribed to it in the Certificate
of Designation.
Such Additional Shares shall also be deemed "Registrable Securities" as defined
herein.
(b) The Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415, and shall be maintained effective until
the Holders of the Registrable Securities have completed a distribution of such
Securities.
(c) The Company represents that it is presently eligible to effect
the registration contemplated hereby on Form S- 1 and will use its best efforts
to continue to take such actions as are necessary to maintain such eligibility.
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3. PIGGYBACK REGISTRATION. If the Registration Statement is not
effective by the Due Date, and if (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its Common Stock
under the Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely for the sale of securities
to participants in a Company stock plan or a registration on Form S-4
promulgated under the Act or any successor or similar form registering stock
issuable upon a reclassification, upon a business combination involving an
exchange of securities or upon an exchange offer for securities of the issuer or
another entity), the Company shall, at such time, promptly give each Holder
written notice of such registration (a "Piggyback Registration Statement"). Upon
the written request of each Holder given by facsimile within ten (10) days after
mailing of such notice by the Company, the Company shall cause to be included in
such Piggyback Registration Statement all of the Registrable Securities that
each such Holder has requested to be registered ("Piggyback Registration") to
the extent such inclusion does not violate the registration rights of any other
securityholder of the Company granted prior to the date hereof; nothing herein
shall prevent the Company from withdrawing or abandoning the Piggyback
Registration Statement prior to its effectiveness. The election of initiating
Holders to participate in a Piggyback Registration Statement shall not impact
the amount payable to investors pursuant to Section 2(a) herein except that the
Late Registration Payment shall cease to accrue as of the date of the
effectiveness of the Piggyback Registration Statement.
4. LIMITATION ON OBLIGATIONS TO REGISTER.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the Piggyback Registration Statement of all
Registrable Securities proposed to be included would interfere with the
successful marketing of the securities proposed to be registered by the Company,
then the number of such Registrable Securities to be included in the Piggyback
Registration Statement, to the extent such Registrable Securities may be
included in such Piggyback Registration Statement shall be allocated among all
Holders who had requested Piggyback Registration pursuant to the terms hereof,
in the proportion that the number of Registrable Securities which each such
Holder, including Swartz, seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders, including Swartz.
(b) In the event the Company believes that shares sought to be
registered under Section 2 or Section 3 by Holders do not constitute
"Registrable Securities" by virtue of Section l(b) of this Agreement, and the
status of those shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an opinion of counsel, reasonably acceptable to the
Holders of the Registrable Securities at issue (and satisfactory to the
Company's transfer agent to permit the sale and transfer) that those securities
may be sold immediately, without a volume limitation and without registration
under the Act, by virtue of Rule 144 or similar provisions.
5. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
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(c) With respect to any registration statement filed pursuant to this
Agreement, keep such registration statement effective until the Holders of
Registrable Securities covered by such registration statement have completed the
distribution described in the registration statement.
(d) Furnish to the Holders of Registrable Securities covered by a
registration statement such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(g) As promptly as practicable after becoming aware of such event,
notify each Holder of Registrable Securities covered by a registration statement
of the happening of any event of which the Company has knowledge, as a result of
which the prospectus included in the registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
subject to Section 6 use its best efforts promptly to prepare a supplement or
amendment to the registration statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
such Holder as such Holder may reasonably request.
(h) Provide Holders of Registrable Securities covered by a
registration statement with written notice of the date that a registration
statement registering the resale of the Registrable Securities is declared
effective by the SEC, and the date or dates when the Registration Statement
is no longer effective.
(i) Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of Company's pertinent financial and
other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
(j) Provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto a reasonable period
of time prior to their filing with the SEC if so requested by Holder in writing.
6. BLACK OUT. In the event that, during the time that the
Registration Statement is effective, the Company reasonably determines, based
upon advice of counsel, that due to the existence of material non-public
information, disclosure of such material non-public information would be
required to make the statements contained in the Registration Statement not
misleading, and the Company has a bona fide business purpose for preserving as
confidential such material non-public information, the Company shall have the
right to suspend the effectiveness of the Registration Statement, and no Holder
shall be permitted to sell any Registrable Securities pursuant thereto, until
such time as such suspension is no longer advisable; provided, however,
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that such time shall not exceed a period of sixty (60) days. As soon as such
suspension is no longer advisable, the Company shall, if required, promptly, but
in no event later than the date the Company files any documents with the SEC
referencing such material information, file with the SEC an amendment to the
Registration Statement disclosing such information and use its best efforts to
have such amendment declared effective as soon as possible. In the event the
effectiveness of the Registration Statement is suspended by the Company pursuant
hereto, the Company shall promptly notify all Holders whose securities are
covered by the Registration Statement of such suspension, and shall promptly
notify each such Holder as soon as the effectiveness of the Registration
Statement has been resumed. Holders agree to comply with all requirements of SEC
Rule lOb-6, if applicable, or its successor rule during all applicable time
periods.
7. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holder shall furnish to the
Company such information regarding Holder, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of the Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
8. EXPENSES. All expenses other than underwriting discounts and
commissions and fees and expenses of counsel to the selling Holders incurred in
connection with registrations, filings or qualifications pursuant hereto,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees for the Company, and, fees and disbursements of
counsel for the Company, shall be borne by the Company.
9. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement or a Piggyback Registration Statement
under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements or
omissions (collectively or singularly, a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, and the Company will
reimburse each such Holder, officer or director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 9(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, officer, director, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder, severally
and not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed such registration statement,
each person, if any, who controls the Company
5
<PAGE>
within the meaning of the Act, any underwriter and any other Holder selling
securities in such registration statement or any of its directors or officers or
any person who controls such Holder, against any losses, claims, damages, or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, or underwriter or controlling person, or other such
Holder or director, officer or controlling person may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon a Violation to the extent (and only to the extent) that such
Violation is made in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration
statement; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company and any such director, officer, controlling
person, underwriter or controlling person, other Holder, officer, director, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
9, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree to
contribute to the aggregate claims, losses, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Holders may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and the Holders in connection with the Violations
which resulted in such Losses. Relative fault shall be determined by reference
to whether any alleged untrue statement or omission relates to information
provided by the Company or by the Holders. The Company and the Holders agree
that it would not be just and equitable if contribution were determined by pro
rata allocation or any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 9(d), no person guilty of fraudulent misrepresentation (within
the meaning of Section lO(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 9, each person who controls a Holder of Registrable Securities
within the meaning of either the Act or the 1934 Act and each director, officer,
partner, employee and agent of a Holder shall have the same rights to
contribution as such Holder, and each person who controls the Company within the
meaning of either the Act or the 1934 Act and each director of the Company, and
each officer of the Company who has signed the registration statement, shall
have the same
6
<PAGE>
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this Section 9(d).
(e) The obligations of the Company and Holders under this Section 9
shall survive the redemption and conversion, if any, of the Preferred Stock, the
completion of any offering of Registrable Securities in a Registration Statement
or Piggyback Registration Statement under this Agreement, and otherwise.
10. REPORT UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of SEC Rule 144, the
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
11. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
a majority of the Registrable Securities provided that the amendment treats all
Holders equally. Any amendment or waiver effected in accordance with this
Section 11 shall be binding upon each Holder and the Company.
12. NOTICES. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Medcare Technologies, Inc., 608 S.
Washington Street, Suite 101, Naperville, Illinois 60540, Telephone No.
(630) 428-2862, Facsimile No. (630) 428-2864, (ii) the Holders at their
respective last address as shown on the records of the Company, and (iii) Swartz
at: Swartz Investments, LLC, Attn. Eric Swartz, 200 Roswell Summit, Suite 285,
1080 Holcomb Bridge Road, Roswell, Georgia 30076, Telephone No. (770) 640-8130,
Facsimile No. (770) 640-7150. Any notice, except as otherwise provided in this
Agreement, shall be made by facsimile and shall be deemed given at the time of
transmission of the facsimile.
13. TERMINATION. This Agreement shall terminate on the date all
Registrable Securities cease to exist; but without prejudice to (i) the parties'
rights and obligations arising from breaches of this Agreement occurring prior
to such termination and (ii) the indemnification obligations under this
Agreement.
14. ASSIGNMENT. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be
7
<PAGE>
transferred to a subsequent holder of the Holder's Registrable Securities
(provided such transferee shall provide to the Company, together with or prior
to such transferee's request to have such Registrable Securities included in a
Registration Statement or Piggyback Registration Statement, a writing executed
by such transferee agreeing to be bound as a Holder by the terms of this
Agreement), and the Company hereby agrees to file a new registration statement
or an amended registration statement including such transferee as a selling
securityholder thereunder; and provided further that the Company may transfer
its rights and obligations under this Agreement to a purchaser of all or a
substantial portion of its business if the obligations of the Company under this
Agreement are assumed in connection with such transfer, either by merger or
other operation of law (which may include without limitation a transaction
whereby the Registrable Securities are converted into securities of the
successor in interest) or by specific assumption executed by the transferee.
15. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made in and wholly to be performed in that jurisdiction, except for matters
arising under the Act or the 1934 Act, which matters shall be construed and
interpreted in accordance with such laws.
16. EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
[INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
MEDCARE TECHNOLOGES, INC.
By: ______________________
Harmel S. Rayat, President
Address: Medcare Technologies, Inc.
608 S. Washington Street
Suite 101
Naperville, Illinois 60540
Telephone No. (630) 428-2862
Facsimile No. (630) 428-2864
SWARTZ INVESTMENTS, LLC
By: ________________________
Eric S. Swartz, President
Address: 200 Roswell Summit Suite 285
1080 Holcomb Bridge Road
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
INVESTOR(S)
________________________
Investor's Name
By:_____________________
(Signature)
Address: ________________________
________________________
________________________
9
<PAGE>
GARY R. BLUME, P.C.
A PROFESSIONAL CORPORATION
Attorneys At Law
11801 North Tatum Boulevard, Suite 108
Phoenix, Arizona 85028-1612
Telephone (602) 494-7976
Facsimile (602) 494-7313
Email [email protected]
Gary R. Blume* Steven M. Brechner
* Licensed in Arizona and Minnesota
October 10, 1997
To: Subscribers of Series A Preferred Stock of Medcare Technologies, Inc.,
a Delaware corporation (the "Company") in connection with the issuance
of 1,000 shares of Series A Preferred Stock, par value $0.25 per
share of the Company
Ladies and Gentlemen:
We have acted as counsel to Medcare Technologies, Inc., a Delaware
corporation (the "Company") in connection with the issuance of 1,000 shares of
Series A Preferred Stock, par value $0.25 per share of the Company (the
"Shares") in reliance on Rule 506 of the Securities Act of 1933 (the "Act") and
the acceptance of certain Subscription Agreements dated June 20, 1997 by and
between the Company and the Subscriber, executed between June 16 and June 18 of
1997. This opinion is being delivered to you pursuant to Section 5.8 of the
Subscription Agreements and Section 10.7 of the Placement Agent Agreement dated
June 20, 1997 between the Company and Swartz Investments, L.L.C. (the "Placement
Agent"). Capitalized terms used herein without definition have the respective
meanings assigned to them in the Subscription Agreements.
In connection with and as the basis for this opinion, we have examined,
originals or copies certified or otherwise identified to us, of certain
documents, corporate records and other instruments, including the following:
(i) the Certificate of Incorporation of the Company, as amended,
certified as of a recent date by an officer of the Company;
(ii) the by-laws of the company as in effect on June 23, 1997, as
certified by an officer of the Company
(iii) the Certificate of Designation of Series A Preferred Stock in the
form submitted for filing with the Secretary of State of the State of Delaware;
(iv) a certificate dated June 30, 1997 by the Secretary of State of the
State of Delaware regarding the existence and good standing of the Company as a
corporation under the laws of the State of Delaware;
<PAGE>
Subscriber of Shares
Swartz Investments, L.L.C.
July 8, 1997
Page 2
Reference: Series A Preferred Stock of Medcare Technologies, Inc.
(v) the minute books of the Company, including copies, certified to our
satisfaction, of resolutions adopted by the Board of Directors of the Company on
June 30, 1997 and by the unanimous written consent of the Board of Directors of
the Company executed on June 30, 1997;
(vi) various Subscription Agreements;
(vii) the Registration Rights Agreement by and among the Company, the
Placement Agent and the Subscribers (the "Registration Rights Agreement");
(viii) the Escrow Agreement and Instructions by and among the Company,
the Placement Agent, and First Union National Bank of Georgia (the "Escrow
Agreement");
(ix) the Placement Agent Agreement;
(x) the Irrevocable Instructions to Transfer Agent, by and among the
Company, the Company's transfer agent and the Subscribers (the "Irrevocable
Instructions to Transfer Agent");
(xi) certain warrants to purchase the Company's common stock, par value
$0.001 per share (the "Common Stock"), issued to Subscribers (the "Subscribers
Warrants");
(xii) certain warrants to purchase Series A Preferred Stock of the
Company issued to Subscribers (the "Preferred Warrants"); and
(xiii) certain warrants to purchase the Company's Common Stock issued to
certain designees of the Placement Agent (the "Swartz Warrant Holders") in
accordance with the Placement Agent Agreement (the "Swartz Warrants") (the
Subscribers' Warrants, the Preferred Warrants and the Swartz Warrants are
sometimes hereinafter collectively referred to as "Warrants").
We have also examined such other documents, records, certificates and questions
of law as we have considered necessary or appropriate for the purpose of this
opinion.
<PAGE>
Subscriber of Shares
Swartz Investments, L.L.C.
July 8, 1997
Page 3
Reference: Series A Preferred Stock of Medcare Technologies, Inc.
We have also examined, relied upon and assumed the accuracy, where
appropriate, of the representations and warranties of the Company and other
parties thereto contained in the Subscription Agreements as to the matters of
fact therein represented. As to certain questions of fact material to the
opinions contained herein, we have, when appropriate, relied upon certificates
of statements of public officials and officers and agents of the Company and
we have assumed that any certificates or statements of public officials dated
earlier than the date of this letter are accurate on the date of this letter as
if made on and as of such date.
In our examination of documents described above, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to authentic originals of all documents
submitted to us as copies.
In addition, we have assumed that the representations and warranties as to
factual matters and acknowledgments made by each Subscriber in Sections 2 and 3
of the Subscription Agreements are true and correct.
The opinions contained herein are limited to our interpretation of the laws
of the State of Delaware and the federal laws of the United States. Members of
this firm are licensed to practice law in the jurisdictions of Minnesota and
Arizona. We express no opinion as to the laws of any other state or
jurisdiction of the United States or of any foreign jurisdiction except our
interpretation as detailed above.
Based upon and subject to the foregoing and the qualifications, limitation
and assumptions set forth herein, it is our opinion that, as of the date hereof:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Delaware.
2. The Subscription Agreements, the issuance of the Preferred Stock, the
issuance of the Common Stock upon conversion of the Preferred Stock, the
issuance of the Preferred Warrants, the issuance of the Preferred Stock upon
exercise of the Preferred Warrants, the issuance of the Subscribers' Warrants,
the issuance of the Common Stock upon exercise of the Subscribers' Warrants, the
issuance of the Swartz Warrants, and the issuance of the Common Stock upon
exercise of the Swartz Warrants, have been duly approved by all required
corporate action on the part of the Company.
<PAGE>
Subscriber of Shares
Swartz Investments, L.L.C.
July 8, 1997
Page 4
Reference: Series A Preferred Stock of Medcare Technologies, Inc.
3. The shares of Preferred Stock issued to the Subscribers are validly
issued, fully paid and non assessable.
4. The Common Stock, when duly issued upon conversion and cancellation of
the Preferred Stock in accordance with the Certificate of Incorporation and
Certificate of Designation, as then in effect, and in compliance with the
provisions of the Subscription Agreements, will be validly issued, fully paid
and non assessable.
5. The Common Stock, when duly issued upon exercise of the Subscribers'
Warrants and Swartz Warrants, will be validly issued, fully paid and non
assessable.
6. The Preferred Stock, when duly issued upon exercise of the Preferred
Warrants, will be validly issued, fully paid and non assessable.
7. The Subscription Agreements, the Registration Rights Agreement, the
Irrevocable Instructions to Transfer Agent, the Placement Agent Agreement, the
Escrow Agreement and the Warrants (the "Transaction Agreements") are valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, except as enforceability of the indemnification provisions may
be limited by principles of public policy, and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rule of laws governing specific performance and other equitable remedies.
8. Based, in part, upon the representations, warranties and acknowledgments
of the Subscribers contained in Sections 2 and 3 of the Subscription Agreement,
the Preferred Stock and the Warrants have been, and the Common Stock issuable
upon conversion of the Preferred Stock and upon exercise of the Subscribers'
Warrants and the Swartz Warrants, and the Preferred Stock issuable upon exercise
of the Preferred Warrants, will be, issued in transactions that are exempt from
the registration requirements of the Act, as amended, and applicable state
securities laws, assuming the filing of all Securities and Exchange Commission
and State Blue Sky documents subsequent to the writing of this opinion and that
the Company comply with the continuing requirements of the Act.
9. The shares of Common Stock issuable on conversion of the Preferred Stock
and exercise of the Subscribers' Warrants and the Swartz Warrants are authorized
for quotation on
<PAGE>
Subscriber of Shares
Swartz Investments, L.L.C.
July 8, 1997
Page 5
Reference: Series A Preferred Stock of Medcare Technologies, Inc.
the OTC Bulletin Board, subject to notice of issuance. This assumes the
requirements of Rule 144 and or the registration of the Common Stock is complete
as required under and in conformity with the Act.
10. For purposes of Rule 144 and sub section (d)(3)(ii) thereof, the Common
Stock issuable upon exercise of the Subscribers' Warrants and Swartz Warrants in
a cashless exercise transaction shall be deemed to have been acquired at the
time the warrants were issued. Moreover, the holding period for the Common
Stock issuable upon exercise of the warrants in a cashless exercise transactions
shall be deemed to have commenced on the date such warrants were issued.
11. The offering, sale and conversions of the Series A Preferred Stock will
not result in either (i) integration with any prior offering or placement of
securities of the Company or (ii) a violation of NASDAQ Rule 4460(i)(1)(d)(ii)
(the "NASDAQ 20% Rule").
The opinions set forth herein are subject to the following qualifications,
limitations and assumptions:
(A) We have assumed:
(i) that the Transaction Agreements constitute the legal, valid and
binding obligations of the parties thereto other than the Company,
enforceable in accordance with their respective terms,
(ii) that the parties to the Transaction Agreements other than the
company have the requisite corporate power and authority to enter into
such agreement and to perform their respective obligations thereunder and
(iii) that each of the parties to the Transaction Agreements other
than the Company has duly authorized, executed and delivered the
Transaction Agreements.
We have also assumed the legal capacity of all natural persons whose acts are
relevant to the opinion rendered herein.
(B) We express no opinion and assume no responsibility as to the effect or,
or
<PAGE>
Subscriber of Shares
Swartz Investments, L.L.C.
July 8, 1997
Page 6
Reference: Series A Preferred Stock of Medcare Technologies, Inc.
consequences resulting from any legislative act or other change in law occurring
after the date of this letter.
The foregoing opinion is intended solely for your benefit and is not to be
made available to or be relied upon by any other persons, firm, or entity
without our express prior written consent; provided, however, that the Swartz
Warrant Holders may rely hereon as if this letter were addressed to such Swartz
Warrant Holders.
Sincerely,
GARY R. BLUME, P.C.
/s/ Gary R. Blume
Gary R. Blume
Attorney at Law
GRB/dlj
MEDCARE TECHNOLOGIES, INC.
IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT
<PAGE>
MEDCARE TECHNOLOGIES, INC.
IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT
These Irrevocable Instructions to Transfer Agent ("Irrevocable
Instructions"), dated as of June 20, 1997, are made by and among Medcare
Technologies, Inc., a Delaware corporation (the "Company"), Holladay Stock
Transfer (the "Transfer Agent"), and those holders (the "Holders") of the
Company's Series A Preferred Stock (together with Series A Preferred Stock of
the Company issuable upon exercise of Warrants to Purchase Series A Preferred
Stock of the Company held by Holders, the "Preferred Stock"), with respect to
the following:
R E C I TA L S
A. The Company is offering (the "Offering") to sell up to three hundred
(300) shares of the Preferred Stock for an aggregate purchase price of up to
Three Million Dollars ($3,000,000) under the terms set forth in the Certificate
of Designation of Series A Preferred Stock (the "Certificate of Designation")
and the Regulation D Securities Subscription Agreements (the "Subscription
Agreement(s)") executed by the Company and the Holders, copies of each of which
are annexed to these Irrevocable Instructions as Exhibits A and B, respectively.
B. Any Holder issued Preferred Stock pursuant to a Subscription Agreement,
including Preferred Stock issuable upon exercise of Warrants to Purchase Series
A Preferred Stock of the Company, is entitled to convert its Preferred Stock
into shares of common stock of the Company, $.001 par value (the "Common
Stock"), on the terms and conditions set forth in the Certificate of
Designation.
C. The terms of the Certificate of Designation and the Subscription
Agreement provide that the Transfer Agent shall issue shares of Common Stock to
the Holders, which shall not bear any restrictive legend assuming that a
registration statement covering the resale of such shares of Common Stock (the
"Registration Statement") is effective or the shares of Common Stock are
eligible for resale under Rule 144, without volume limitations, provided that a
Holder delivers, within the applicable Unrestricted Conversion Period (as
defined below), to the Company and the Transfer Agent a Notice of Conversion
and Resale substantially in the form of Exhibit N to the Subscription Agreements
(the "Notice of Conversion") as follows (a "Conversion"):
the record Holder of the Preferred Stock shall be entitled to convert any
or all of the aggregate number of shares of Preferred Stock initially
issued to such Holder at any time beginning on the date that is four (4)
months following the date of the last closing of a purchase and sale of
Preferred Stock that occurs pursuant to the Offering (the "Last Closing
Date"):
The period beginning four (4) months after the Last Closing Date and any time
thereafter is referred to as the "Unrestricted Conversion Period".
D. Any conversion of the Preferred Stock shall be at the conversion rate
(the "Conversion Rate") specified in Section 5(a) of the Certificate of
Designation. Any such conversion shall be accomplished by delivering the shares
of Preferred Stock to be converted along with the Notice of Conversion to the
Transfer Agent or the Company. lithe shares of Preferred Stock so delivered will
be converted into Common Stock.
E. Pursuant to the terms of the Subscription Agreement, the Holders will
acquire Warrants (the "Conversion Warrants") to purchase Common Stock and the
Company and the
1
<PAGE>
Transfer Agent have agreed that the Transfer Agent will issue shares of Common
Stock upon exercise of the Conversion Warrants pursuant to the terms hereof.
F. The Transfer Agent has agreed to act as transfer agent on behalf of the
Company on the terms and conditions set forth in these Irrevocable Instructions.
TERMS
NOW, THEREFORE, in consideration of the premises, the parties hereto agree
and the Company irrevocably instructs the Transfer Agent as follows:
1. ISSUANCE OF UNRESTRICTED COMMON STOCK. Subject to the Company's valid
exercise of redemption rights under Section 6(a) of the Certificate of
Designation, upon receipt of (i) a Notice of Conversion specifying the number of
shares of Common Stock to which the Holder is entitled (determined in accordance
with the Certificate of Designation) and (ii) the original certificates
representing the Preferred Stock being converted (during the Unrestricted
Conversion Period as to such Preferred Stock, as defined above) by the Transfer
Agent from one or more of the Holders of the outstanding Preferred Stock (the
documents to be delivered under subclauses (i) and (ii) hereinafter are referred
to collectively as "Conversion Documents"), the Transfer Agent, shall no later
than two (2) business days after the receipt of the Conversion Documents from
the Holder(s), issue and deliver certificates (without a restrictive legend
assuming that a Registration Statement (as defined in the Subscription
Agreement) is effective or the shares of Common Stock are eligible for resale
under Rule 144, without volume limitations) representing the number of shares
of Common Stock to which the Holder(s) are entitled to a common courier for
overnight (if in the U.S.) or two-day delivery to the Holder(s).
2. LIMITED EXCEPTIONS TO IRREVOCABLE INSTRUCTIONS TO CONVERT PREFERRED
STOCK. Notwithstanding anything contained herein to the contrary:
(a) RESTRICTED PERIODS. The Transfer Agent shall not issue any shares of
Common Stock prior to the Unrestricted Conversion Period, as applicable, with
respect to the Preferred Stock to be converted. In the event the Transfer Agent
receives Conversion Documents with respect to the Preferred Stock prior to the
applicable Unrestricted Conversion Period, the Transfer Agent shall return the
Conversion Documents to the Holder within three (3) business days of its receipt
thereof and shall notify the Company of such actions.
(b) DISPUTE. In the event that the number of shares of Common Stock that
the Transfer Agent reasonably determines to be due to a Holder upon conversion
of the Preferred Stock is different from the number of shares claimed by the
Holder, by virtue of the conversion price or other information set forth in its
Notice of Conversion, the Transfer Agent shall issue and deliver to Holder a
number of shares equal to the lesser of the two (2) numbers as set forth above
and, with respect to the issuability of the remaining disputed number of shares
of Common Stock, shall submit the dispute via facsimile within three (3)
business days to the Company's usual outside accounting firm ("Accountant") for
determination of the number of shares of Common Stock to be issued. In the event
of such a dispute, the Company agrees to instruct Accountant, at the Company's
expense, to resolve any such dispute and notify the parties, including the
Transfer Agent, of the result by facsimile within forty-eight (48) hours after
receipt of notice of such dispute. Within two (2) business days of its receipt
of Accountant's results, the Transfer Agent shall issue and deliver to Holder
any additional shares to which the Holder is entitled, based upon Accountant's
results. The Transfer Agent is authorized to rely on Accountant's results.
(c) MAXIMUM NUMBER OF SHARES OF PREFERRED STOCK CONVERTIBLE DURING A ONE
MONTH PERIOD. Beginning on the date that is four (4) months following the Last
Closing Date, the right of
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a Holder to convert into Common Stock using the Variable Conversion Price (as
defined in the Certificate of Designation) initially shall be limited to a
maximum of fifteen percent (15%) of the aggregate number of shares of the
Preferred Stock initially issued to such Holder, and for each one (l) month
period which expires thereafter, the Holder shall accrue the right to convert
into Common Stock an additional fifteen percent (15%) of the aggregate number of
shares of the Preferred Stock initially issued to such Holder (the number of
shares that may be converted at any given time at the Variable Conversion Price,
in the aggregate, is referred to hereinafter as the "Conversion Quota"); and
provided, further, in the event that the Holder elects not to convert its full
Conversion Quota during any one (1) month period, the unconverted amount shall
be carried forward and added to the Conversion Quota, and thereafter each Holder
may, from time to time, convert any portion of the Conversion Quota at the
Variable Conversion Price; and provided, further, that subsequent to the date
that is ten (10) months following the Last Closing Date, there shall be no
restrictions on the aggregate number of shares of the Preferred Stock that may
be converted into Common Stock using the Variable Conversion Price.
(d) ADDITIONAL UNRESTRICTED CONVERSIONS. Notwithstanding the above, under
certain circumstances as contemplated by the Certificate of Designation, each
Holder shall be entitled to convert its shares of Preferred Stock into Common
Stock, without the conversion restrictions set forth above, pursuant to the
terms of Sections 4(c), 5(d)(iii), 12 and 13 of the Certificate of Designation.
3. AUTOMATIC CONVERSION OR REDEMPTION. Each share of Preferred Stock
outstanding on the date which is three (3) years after the Last Closing Date or,
if not a business day, the first business day thereafter (`'Termination Date")
automatically shall, at the option of the Company, either (i) be converted
("Automatic Conversion") into Common Stock on such date at the Conversion Rate
then in effect (calculated in accordance with the formula in Section 5(a) of the
Certificate of Designation), or (ii) be redeemed ("Automatic Redemption") by the
Company for cash in an amount equal to the Stated Value (as defined in the
Certificate of Designation) of the Preferred Stock being redeemed. If the
Company elects to redeem, on the Termination Date, the Company shall send to
the Holders of outstanding Preferred Stock notice (the "Automatic Redemption
Notice") via facsimile, with a copy to the Transfer Agent, of its intent to
effect an Automatic Redemption of the outstanding Preferred Stock. If the
Company does not send such notice to a Holder on such date, an Automatic
Conversion shall be deemed to have occurred. If an Automatic Conversion occurs,
the Transfer Agent shall, within three (3) business days of the Termination
Date, mail to each Holder of the Preferred Stock as of the Termination Date at
the address set forth on the books and records of the Company, a notice of the
number of shares of Common Stock into which such Holder's Preferred Stock are
convertible, and instruct such Holder to surrender such Holder's Preferred Stock
to the Transfer Agent (in a self-addressed envelope to be provided by the
Transfer Agent). Upon receipt of such surrendered Preferred Stock certificates,
the Transfer Agent shall issue certificates representing the Common Stock
issuable upon conversion of the Preferred Stock, without restrictive legends,
registered in the name of the Holder of the Preferred Stock. If the Company
elects to redeem under Section 5(c) of the Certificate of Designation, and the
Company fails to pay the Holders the redemption price within five (5) days of
the Termination Date as required by Section 5(c) of the Certificate of
Designation, then an Automatic Conversion shall be deemed to have occurred, and,
upon notice of such failure and receipt of the Preferred Stock Certificates by
the Company or the Transfer Agent, the Transfer Agent shall immediately deliver
to the Holders the certificates representing the number of shares of Common
Stock to which the Holders would have been entitled upon Automatic Conversion.
4. OPTIONAL CASH REDEMPTION.
(a) COMPANY'S OPTION UPON RECEIPT OF NOTICE OF CONVERSION. Pursuant to
Section 6(a) of the Certificate of Designation, the Company is entitled, at its
option, to redeem any Preferred Stock for cash following the submission of a
Notice of Conversion if the Conversion
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Price (as defined in the Certificate of Designation) of the Common Stock is less
than the Fixed Conversion Price (as defined in the Certificate of Designation).
If the Company elects to redeem any Preferred Stock for cash pursuant to the
terms of Section 6(a) of the Certificate of Designation, the Company shall
notify the Transfer Agent by providing the Transfer Agent with a copy of the
notice of Company's intention to redeem for cash ("Redemption Notice Response")
simultaneously with providing such notice to the Holder(s). Following receipt of
the Company's Redemption Notice Response within the required time period, the
Transfer Agent shall not issue any Common Stock with respect to the Preferred
Stock selected for redemption for cash to such Holder(s) of the Preferred Stock
pursuant to Section I above (notwithstanding the receipt of a Notice of
Conversion and the Preferred Stock certificates).
(b) COMPANY'S FAILURE TO PAY REDEMPTION PRICE. Notwithstanding the above,
if the Company elects to redeem for cash pursuant to Section 6(a) of the
Certificate of Designation, and the Holder notifies the Transfer Agent that the
Company has failed to pay Holder the redemption price, within the time frame as
required by Section 6(d) of the Certificate of Designation (and the Company,
after being notified in writing, has failed to certify to the Transfer Agent in
a writing executed by an officer of the Company, within two (2) business days of
receipt of such notice, that such redemption payment has been made), then the
Transfer Agent shall issue shares of Common Stock to any such Holder who has
submitted a Notice of Conversion in compliance with Section S(b) of the
Certificate of Designation. The number of shares to be issued to the Holder
pursuant to this provision shall be determined pursuant to Section 5(a) of the
Certificate of Designation at a Conversion Rate calculated using the lowest
Conversion Price (as defined in the Certificate of Designation) in effect during
the period beginning on the date the Holder sends its Notice of Conversion to
the Company or Transfer Agent via facsimile and ending on the date the Transfer
Agent issues Common Stock pursuant to this Section 4(b).
5. EXERCISE OF THE CONVERSION WARRANTS. Upon exercise of a Conversion
Warrant in accordance with its terms and payment of the exercise price, the
Transfer Agent shall, no later than two (2) business days after the Company's
receipt from a Holder of a Conversion Warrant and appropriate exercise form
substantially in the form of Exhibit A to the Conversion Warrant, issue and
deliver to the Holder of the Conversion Warrant so exercised certificate(s)
representing the shares of Common Stock obtained on exercise of the Conversion
Warrant (the "Warrants Shares") (without a restrictive legend assuming that a
Registration Statement (as defined in the Subscription Agreements) is effective
or the shares of Common Stock are eligible for resale under Rule 144, without
volume limitations).
6. FEES. The Company hereby agrees to pay the Transfer Agent for all
services rendered hereunder.
7. NOTICES. Any notice or demand to be given or that may be given under
these Irrevocable Instructions shall be in writing and shall be transmitted by
facsimile and (a) delivered by hand, or (b) delivered through or by expedited
mail or package service, in each case with personal delivery acknowledged,
addressed to the parties as follows (or at such other address as may be provided
in writing from time to time):
As to the Company:
Attn: Harmel S. Rayat
Medcare Technologies, Inc.
608 S. Washington Street, Suite 101
Naperville, Illinois 60540
Telephone: (630) 428-2862
Facsimile: (630) 428-2864
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As to the Transfer Agent:
Attn: Tom Lauck or Sharon Owen
Holladay Stock Transfer
4350 East Camelback Road
Suite 100F
Phoenix, Arizona 85018
Telephone: (602) 840-9019
Facsimile: (602) 852-3648
As to the Holders:
To the respective addresses of the Holders as set forth in the books and
records of the Company.
8. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the
Transfer Agent, each officer, director, employee and agent of the Transfer
Agent, and each person, if any, who controls the Transfer Agent within the
meaning of the Securities Act of 1933, as amended (the "Act") or the Securities
Exchange Act of 1934, as amended (the "Exchange Act") against any losses,
claims, damages or liabilities, joint or several, to which it, they or any of
them, or such controlling person, may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the performance by the Transfer
Agent of its duties pursuant to these Irrevocable Instructions; and will
reimburse the Transfer Agent, and each officer, director, employee and agent of
the Transfer Agent, and each such controlling person for any legal or other
expenses reasonably incurred by it or any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any case if such loss,
claim, damage or liability arises out of or is based upon any action not taken
in good faith, or any action or omission that constitutes gross negligence or
willful misconduct.
If a claim is made against the Company under this Section, then promptly
after receipt by an indemnified party under this Section of notice of the
commencement of any action, such indemnified party will notify the Company, in
writing, of the commencement thereof. The failure to so notify the Company will
relieve the Company from any liability under this Section as to the particular
item for which indemnification is then being sought, but not from any other
liability which it may have to any indemnified party. In case any such action is
brought against any indemnified party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate with the other
indemnifying party, similarly notified, to assume the defense thereof, with
counsel who shall be to the reasonable satisfaction of such indemnified party,
and after notice from indemnifying party to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The Company shall not be liable to any such indemnified
party on account of any settlement of any claim of action effected without the
consent of the Company.
9. GOVERNING LAW. These Irrevocable Instructions shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to conflicts of law provisions.
10. SUCCESSORS AND ASSIGNS. These Irrevocable Instructions shall inure to
the benefit of, and be binding upon, the successors and assigns of the parties
hereto. The Company hereby agrees that it will not unilaterally terminate its
relationship with the Transfer Agent for any reason prior to the date which is
three (3) years after the Last Closing Date. In the event that the Company's
agency relationship with the Transfer Agent should be terminated for any
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other reason prior to the date which is three (3) years after the Last Closing
Date, the Transfer Agent hereby agrees to continue acting as transfer agent
pursuant to the terms hereof until such time that a successor transfer agent
(i) is appointed by the Company, (ii) is approved by seventy-five percent (75%)
of the Holders of outstanding shares of Preferred Stock, and (iii) executes and
agrees to be bound by the terms hereof.
11. ENTIRE AGREEMENT; AMENDMENTS. These Irrevocable Instructions, together
with the Exhibits hereto, the Subscription Agreement and the Certificate of
Designation constitute the full and entire understanding of the parties with
respect to the subject matter hereof. Neither these Irrevocable Instructions nor
any term hereof may be amended, waived, discharged, or terminated other than by
a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge, or termination is sought. No provision herein
that adversely affects the rights of the Holders of the Preferred Stock or the
Common Stock issuable upon conversion of the Preferred Stock may be amended
without the consent of all Holders of the then outstanding Preferred Stock.
12. COUNTERPARTS. These Irrevocable Instructions and any certificate or
other instrument required hereunder may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. ARBITRATION. Any controversy or claim arising out of or related to
these Irrevocable Instructions or the breach thereof, shall be settled by
binding arbitration in Delaware in accordance with the Expedited Procedures
(Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). A proceeding shall be commenced upon written demand by
Company, the Transfer Agent or any Holder to the other. The arbitrator(s) shall
enter a judgment by default against any party which fails or refuses to appear
in any properly noticed arbitration proceeding. The proceeding shall be
conducted by one (l) arbitrator, unless the amount alleged to be in dispute
exceeds two hundred fifty thousand dollars ($250,000), in which case three (3)
arbitrators shall preside. The arbitrator(s) will be chosen by the parties from
a list provided by the AAA, and if they are unable to agree within ten (10)
days, the AAA shall select the arbitrator(s). The arbitrators must be experts
in securities law and financial transactions. The arbitrators shall assess
costs and expenses of the arbitration, including all attorneys' and experts'
fees, as the arbitrators believe is appropriate in light of the merits of
parties' respective positions in the issues in dispute. Each party submits
irrevocably to the jurisdiction of any state court sitting in Wilmington,
Delaware, or to the United States District Court sitting in Delaware for
purposes of enforcement of any discovery order, judgment or award in connection
with such arbitration. The award of the arbitrator(s) shall be final and binding
upon the parties and may be enforced in any court having jurisdiction. The
arbitration shall be held in such place as set by the arbitrator(s) in
accordance with Rule 55.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed these Irrevocable
Instructions as of the date first written above.
COMPANY:
MEDCARE TECHNOLOGIES, INC.
By:__________________________
_____________________________
Date Signed: ________________
TRANSFER AGENT:
HOLLADAY STOCK TRANSFER
By:__________________________
Name:________________________
Its:_________________________
HOLDER:
NAME OF HOLDER:______________
By:__________________________
Name:________________________
Its:_________________________
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MEDCARE TECHNOLOGIES, INC.
OFFICERS' CERTIFICATE
TO: Gary R. Blume, P.C. and the Subscribers of Series A Preferred Stock of
MedCare Technologies, Inc.
MedCare Technologies, Inc. (the "Company") has or intends to enter into
subscription agreements (the "Subscription Agreement") with the various
purchasers (the "Subscribers") in an offering of Series A Preferred Stock (the
"Preferred Stock") of the Company. The Company has entered or intends to enter
into various ancillary agreements, including the Registration Rights Agreement,
Irrevocable Instructions to Transfer Agent, Escrow Agreement and Placement Agent
Agreement (the "Ancillary Agreements").
Gary R. Blume, P.C. is required to provide an opinion to the Subscribers
pursuant to the Subscription Agreement and to Swartz Investments, LLC (the
"Opinion Letter"). Officers of the Company have been provided with a copy of
the Opinion Letter for review and comment. The Company is aware certain
elements of an Opinion Letter are made in reliance on this Certificate.
Each of the undersigned, Harmel S. Rayat and Kundan S. Rayat, signing in their
capacities as the President and Director/Secretary, respectively, of the Company
and not in their personal capacities, hereby certify to the best of their
knowledge, information and belief, after having made due inquiry, that:
1. The representations and warranties of the Company contained in the
Subscription Agreement (including all exhibits thereto) entered into between the
Company and the Subscribers, on or about June 20, 1997 in conjunction with the
offering by the Company of the Preferred Stock remain true and correct as of the
date set out below;
2. The Company's Annual Report on Form 10-K for the year ended December 31,
1996 together with the Company's Quarterly Report Form 10-Q for the quarter
ended March 31, 1997 are accurate and correct in all material respects, and
3. No material facts have come tot he attention of the undersigned which would
make the opinion letter to be issued to Subscribers of the offering untrue,
inaccurate, incorrect or misleading.
DATED as of the 8th day of July, 1997.
/s/ Harmel S. Rayat
-----------------------------
Harmel S. Rayat
President
/s/ Kundan S. Rayat
------------------------------
Print Name: Kundan S. Rayat
Title: Secretary
<PAGE>
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
NUMBER SHARES
________ MEDCARE TECHNOLOGIES, INC. _______
AUTHORIZED STOCK: 1,000,000
CUSIP # 58404T 10 6
THIS CERTIFIES THAT ____________________________
IS THE RECORD HOLDER OF ___________
transferable on the books of the Corporation in person or duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: June 24, 1997 PREFERRED SERIES A STOCK
Countersigned
HOLLADAY STOCK TRANSFER, INC.
4350 East Camelback Road, Suite 100F
Phoenix, Arizona 85018
(602) 840-9019
[SEAL] ----------------- ----------------- By:-------------------
SECRETARY PRESIDENT Authorized Signature
<PAGE>
