As filed with the Securities and Exchange Commission on April 15, 1998
Registration No. 333-41611
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM SB-2/A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------
MEDCARE TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0429962B 8093
- -------------------------- ------------- ------
(State or other jurisdiction (IRS Employer (Primary Standard Industrial
of incorporation or organization) Identification Classification Code Number)
Number)
1515 West 22nd Street, Suite 1210
Oak Brook, Illinois 60521
(800) 611-3388
(Address, including zip code, and telephone number,
including area code, registrant's
principal executive offices)
__________________________
Corporate Creation Enterprises, Inc.
686 North DuPont Boulevard, Suite 302
Milford, Delaware 19963
(302) 424-4866
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications to:
Gary R. Blume, Esq.
Blume & Associates, P.C.
11801 North Tatum Boulevard, Suite 108
Phoenix, Arizona 85028-1612
Approximate date of commencement of proposed public offering: This is for
the resale of securities previously sold.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration state-
ment shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become effect-
ive on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier effect-
ive registration statement for the same offering. [ ]
1
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================
Title of each Proposed Proposed
class of Amount Maximum Maximum Amount of
Securities to to be Offering Price Offering Registration
be registered Registered Per Share(1) Price(1) Fee
______________________________________________________________________________
<S> <C> <C> <C> <C>
Common Stock, 1,500,000 $7.346 $11,019,000.00 $3,443.44
Par Value $0.001,
estimate of shares
underlying conver-
sion of Regulation D
offering dated June
1997. Includes com-
mon stock underlying
conversion of pre-
ferred, conversion war-
rants, placement agent
warrants and preferred
warrants.
Common Stock, Par Value 500,000 $3.00 $ 1,500,000.00 $ 468.75
$0.001, Underlying
1995 Stock Option Plan
Common Stock, Par Value 300,000 $4.50 $ 1,350,000.00 $ 421.88
$0.001, Underlying
1996 Stock Option Plan
Common Stock, Par Value 500,000 $4.50-$6.50 $ 2,250,000.00 $ 703.13
$0.001, Underlying
1997 Stock Option Plan
Common Stock, Par Value 176,000 $6.25 $ 1,100,000.00 $ 343.75
$0.001, Underlying Private
Placement, Regulation D
sold February 4, 1997
Common Stock, Par Value 600,000 $6.00 $ 3,600,000.00 $1,125.00
$0.001, Underlying War-
rants (300,000) and Com-
mon Stock sold in reli-
ance on Regulation D,
July 7, 1997
TOTALS: 3,576,000 $19,116,486.40 $6,505.95
</TABLE>
______________________________________________________________________________
(1) Estimated solely for calculation of the amount of the registration fee cal-
culated pursuant to Rule 457.
The Exhibit Index appears on page 70 of the sequentially numbered pages of
this Registration Statement. This Registration Statement, including exhibits,
contains 328 pages.
2
<PAGE>
CROSS REFERENCE SHEET
ITEM NO. SECTIONS IN PROSPECTUS
1 Front of the Registration Statement and
Outside Front Cover of Prospectus . . . . . . . . Cover Page
2 Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . . . . . Inside Front Cover Pages;
Table of Contents
3 Summary Information and Risk Factors. . . . . . . . Summary Information
and Risk Factors
4 Use of Proceeds . . . . . . . . . . . . . . . . . . Use of Proceeds
5 Determination of Offering Price . . . . . . . . . . Determination of Offering
Price
6 Dilution . . . . . . . . . . . . . . . . . . . . . Dilution
7 Selling Security Holders. . . . . . . . . . . . . . Selling Security Holders
8 Plan of Distribution. . . . . . . . . . . . . . . . Plan of Distribution
9 Legal Proceedings . . . . . . . . . . . . . . . . . Legal Proceedings
10 Directors, Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . . . . . Management
11 Security Ownership of Certain Beneficial
Owners and Management Principal Shareholders
12 Description of Securities . . . . . . . . . . . . . Description of Securities
13 Interest of Named Experts and Counsel . . . . . . . Interest of Named Experts
and Counsel
14 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities. . . . . . . . . . . . . . . . . . . . Statement as to
Indemnification
15 Organization within Last Five Years . . . . . . . . Organization within Last
Five Years
16 Description of Business. . . . . . . . . . . . . . Description of Business
17 Management's Discussion and Analysis
or Plan of Operations. . . . . . . . . . . . . . . Management's Discussion
and Analysis or Plan of
Operation
18 Description of Property . . . . . . . . . . . . . . Description of Property
19 Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . Certain Transactions
20 Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . Market for Common Equity
Related Stockholder
Matters
21 Executive Compensation. . . . . . . . . . . . . . . Executive Compensation
22 Financial Statements. . . . . . . . . . . . . . . . Index to Financial
Statements
23 Changes In and Disagreements With
Accountants on Accountanting and
Financial Disclosure. . . . . . . . . . . . . . . . Changes In and
Disagreements With
Accountants on Accounting
and Financial Disclosure
24 Indemnification of Directors and Officers. . . . . Indemnification of
Directors and Officers
25 Other Expenses of Issuance and Distribution. . . . Other Expenses of
Issuance and Distribution
26 Recent Sales of Unregistered Securities . . . . . . Recent Sales of
Unregistered Securities
27 Exhibits . . . . . . . . . . . . . . . . . . . . . Exhibits
28 Undertakings . . . . . . . . . . . . . . . . . . . Undertakings
3
<PAGE>
MEDCARE TECHNOLOGIES, INC.
RESALE OF SECURITIES
MedCare Technologies, Inc. (the "Company") is registering for the resale of
1,500,000 shares of Common Stock reserved pursuant to a Certificate of Desig-
nation filed with the State of Delaware and the terms of a sale of securities
in reliance on Regulation D, Rule 506 (the "Offering"). The common stock is
comprised of common stock converted under the terms of the preferred shares
("Common"), common stock issued under conversion warrants ("Conversion
Warrants") , common stock underlying the preferred warrants ("Preferred
Warrants") and common stock underlying the placement agent warrants ("Placement
Warrants"). Also registered for resale is 1,300,000 Shares of Common Stock
issued pursuant to Stock Option Plans for 1995, 1996 and 1997 (the "Option
Securities"). Registration of the common stock underlying two private place-
ments of 776,000 shares of common stock in reliance on Regulation D, Rule 506
is also sought ("Offering Common"). The Common, Conversion Warrants, Preferred
Warrants, Option Securities and Offering Common (collectively, the "Secur-
ities") were each offered separately and are separately transferable at any
time from the dates of the agreements through which they were issued. This
registration statement is for the resale of the above listed Securities.
The offering prices of the securities have been determined by the Company,
have been previously issued and sold in reliance on certain exemptions from
registration and bear no relationship to the Company's asset value, net worth
or other established criteria of value. See "RISK FACTORS."
Prior to this Registration, the Common Stock of the Company has been traded
on the OTC Bulletin Board. It is anticipated that upon completion of this
Registration the Securities of the Company will be listed on The Nasdaq Small
Cap MarketTM ("Nasdaq") under the symbol MCAR. The application has been filed
and an amendment filed to that application on March 31, 1998. The Company is
required to file, and has filed, periodic reports with the Securities and
Exchange Commission. The most recent filing has been the Company's Form 10KSB,
annual report for the year ended December 31, 1997.
THE SUMMARY OF THE PROSPECTUS REQUIRED BY ITEM 503 OF REGULATION
S-B REGARDING MATERIAL RISKS IN CONNECTION WITH THE PURCHASE OF
THE SECURITIES MAY BE FOUND UNDER ITEM 3 OF THIS FORM SB-2.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================
Price to Public Proceeds to Company
<S> <C> <C>
- --------------------------------------------------------------------------------
Total $N/A $N/A
===============================================================================
</TABLE>
The securities registered pursuant to this SB-2 are for resale only and will not
be offered to the public. The underlying sales have been complete and only
the resale of these securities is being registered.
THE DATE OF THIS REGISTRATION STATEMENT IS APRIL 15, 1998
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
ANY OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
CONSTITUTE AN OFFER OF ANY SECURITIES OR AN OFFER OF THE SHARES
IN ANY JURISDICTION WHERE SUCH OFFER WOULD BEUNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other infor-
mation with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information filed by the Company with the Commission
can be inspected at Room 1024 of the office of the Commission, 450 Fifth Street
N.W., Washington, D.C. 20549, or at its Regional Offices located at Suite 1300,
7 World Trade Center, New York, New York 10048, and Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of
such material can be obtained at prescribed rates by writing to the Public Re-
ference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Electronic filing made through the Electronic Data Gathering Analysis
and Retrieval System are also publicly available through the Securities and
Exchange Commission's Web site (http://www.sec.gov).
4
<PAGE>
Investors are cautioned that this registration statement contains certain
trend analysis and other forward looking statements that involve risks and
uncertainties. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates", variations of such words and similar expres-
sions are intended to identify such forward looking statements. These statements
are based on current expectations and projections about the semiconductor
industry and assumptions made by the management and are not guarantees of future
performance. Therefore, actual events and results may differ materially from
those expressed or forecasted in the forward looking statements due to factors
such as the effect of changing economic conditions, material changes in currency
exchange rates, conditions in the overall semiconductor market (including the
historic cyclicality of the industry), risks associated with product demand and
market acceptance risks, the impact of competitive products and pricing, delays
in new product development and technological risks and other risk factors
identified in the Company's filings with the Securities and Exchange Commis-
sion, including the Company's Form 10-K Report.
5
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere
in this Prospectus.
THE COMPANY
MedCare Technologies, Inc. (the "Company") manages urinary incontinence
clinics throughout the United States utilizing a proprietary biofeedback-
based protocol known as the MedCare Program. The Company's executive offices
are located at 1515 West 22nd Avenue, Suite 1210, Oak Brook, Illinois,
60521. Its telephone number is (630) 428-2859.
THE REGISTRATION
SECURITIES TO BE REGISTERED: MedCare Technologies, Inc. (the "Company")
is registering for the resale of 1,500,000
shares of Common Stock reserved pursuant
to a Certificate of Designation filed with
the State of Delaware and the terms of a
sale of securities in reliance on
Regulation D, Rule 506 (the "Offering").
The common stock is comprised of common
stock converted under the terms of the
preferred shares ("Common"), common stock
issued under conversion warrants
("Conversion Warrants") common stock
underlying the preferred warrants
("Preferred Warrants") and common stock
underlying the placement agent warrants
("Placement Warrants"). Also registered
for resale are 1,300,000 Shares of Common
Stock issued pursuant to Stock Option
Plans for 1995, 1996 and 1997 (the "Option
Securities"). Registration of the common
stock underlying two private placements of
776,000 shares of common stock in reliance
on Regulation D, Rule 506 is also sought
("Offering Common"). The Common Stock,
Conversion Warrants, Preferred Warrants,
Option Securities and Offering Common
Stock (collectively, the "Securities")
were each offered separately and are
separately transferable at any time from
the dates of the agreements through which
they were issued. This registration
statement is for the resale of the above
listed Securities. The Securities were
each offered separately and are separately
transferable at any time from the dates of
the agreements through which they were
issued.
OFFERING PRICE: All shares were offered under the terms of
their individual offerings and proceeds
have been received by the Company. This
registration is for the resale of those
Securities.
SHARES OF COMMON STOCK OUTSTANDING: As of December 31, 1997 there are
6,992,185 outstanding shares of common
stock. If all options, warrants and other
instruments are exercised as detailed in
this Registration Statement there will be
9,124,505 shares outstanding. An
additional 3,576,000 shares will be issued
if all employee stock options are
exercised for the 1995, 1996 and 1997
stock option plans and an additional
970,320 shares will be issued if the
conversion, warrants and preferred
warrants are all exercised.
USE OF PROCEEDS: The Category "Use of Proceeds" is not
applicable to this registration, as it is
being conducted for purposes of resale of
previously offered securities.
RISK FACTORS: Investment in the Company involves certain
general business risks and risks
specifically inherent in the medical
industry. As detailed elsewhere, this is
a start-up company subject to federal and
state regulation. If all shares are
issued under the various warrants and
options discussed in this registration it
may have a negative effect on the market
price of the shares of the common stock of
the Company. Past investors received the
protection of the regulations regarding
restricted securities and the inability of
the holder to freely trade those
securities. With this registration the
securities will be freely tradeable and
may
6
<PAGE>
cause a negative impact on the market if
exercised and traded. See "Risk Factors."
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables set forth the summary financial information and other
equity information of the Company. The summary financial information in the
tables is derived from the financial statements of the Company and should be
read in conjunction with the financial statements, related notes and other
financial information included herein. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS" and "FINANCIAL STATEMENTS."
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1996 1997
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 91,802
Expenses
General and Administrative 689,713 452,037 1,515,459
------- ------- ---------
Total Expenses 689,713 452,037 1,515,459
Other Income and Expenses
Interest Income 0 2,801 119,146
Loss from Discontinued
Operations 0 0 (4,489)
Gain on Sale of Subsidiary 0 0 15,770
- - ------
Net Loss $(689,713) $(449,236) $(1,293,230)
========== ========== ============
Net (Loss) Per Share of
Common Stock $(0.11) $(0.07) $(0.18)
======= ======= =======
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of 12/31/96 As of 12/31/97
<S> <C> <C>
Cash $219,775 $3,440,791
Accounts Receivable - Trade 7,351 47,286
Prepaid Expenses 29,696 63,813
------- ---------
Total Current Assets 256,822 3,551,890
Property and Equipment
Office Equipment 2,429 21,069
Medical Equipment 14,798 24,799
------- ---------
17,227 45,868
Less Accumulated Depreciation 7,796 17,342
Net Book Value 9,431 33,526
Other Assets
Intangible Assets-The MedCare
Program - Note 3 1,000 1,000
Security Deposits 0 0
- -
Total Other Assets 1,000 1,000
Total Assets $267,253 $3,586,416
======== ==========
</TABLE>
8
<PAGE>
RISK FACTORS
The securities being registered for resale hereby are speculative and involve
a high degree of risk of loss of part or all of the investment. Exercise of the
options, warrants and other conversions of the Securities could result in
variations in the market price for the common stock of the Company. This
variation in the market price of the common stock may have negative effects on
all holders of common stock, those covered by this registration statement and
those other shareholders of the Company. Resale of the Securities registered
may cause market volatility that the Company cannot predict.
NO MARKET STUDIES
In formulating its business plan, the Company has relied on the judgment of
its officers, directors and consultants. No formal independent market studies
concerning the demand for the Company's proposed services have been conducted,
nor are any planned. The effect of the resale of the Securities has not been
analyzed for its effect on the operations of the Company, the ability of the
Company to obtain funds or financing or the variations in share price do to
additional shares being available for resale.
LACK OF OPERATING HISTORY
Although the Company was organized in 1986, it did not become active until
1995 and has been continually developing its Program since that time. Since the
Company has not proven the essential elements of profitable operations,
investors will be furnishing venture capital to the Company and will bear the
risk of complete loss of their investment in the event the Company's business
plan is unsuccessful. The resale of the securities may cause difficulty in the
Company obtaining funding to continue to go forward. This may impede the
operations in a negative way. The Company has only limited experience in
managing the clinics and is expanding its operations which may or may not
provide profits to the Company.
CONTINUED CONTROL BY EXISTING MANAGEMENT
The Company's management currently owns a majority stake in the Company's
outstanding Common Stock. Many of the shares of Common Stock will be issued as
a result of the exercise of the Options, Warrants and other instruments will
provide that management will obtain additional shares in the common stock of the
Company. Accordingly, new shareholders will lack an effective vote with respect
to the election of directors and other corporate matters.
DIVIDENDS
The Company's Board of Directors presently intends to cause the Company to
follow a policy of retaining earnings, if any, for the purpose of increasing the
net worth and reserves of the Company. Therefore, there can be no assurance
that any holder of Common Stock will receive any cash, stock or other dividends
on his shares of Common Stock. Future dividends on Common Stock, if any, will
depend on future earnings, financing requirements and other factors. Since the
time of inception the Company has paid no dividends to shareholders.
DEPENDANCE ON EXECUTIVE OFFICERS
The Company is highly dependent on the services of its officers. Attracting
and retaining qualified personnel is critical to the Company's business plan.
No assurances can be given that the Company will be able to retain or attract
such qualified personnel or agents, or to implement its business plan
successfully. Should the Company be unable to attract and retain the qualified
personnel necessary, the ability of the Company to implement its business plan
successfully would be limited.
DILUTION TO SHAREHOLDERS
The securities currently held by investors will be subject to dilution in
market value as more securities are available for trading. If all the
securities, options, warrants and employee stock options were to be exercised it
would result in an additional 2,132,320 shares being brought into the market.
These shares will be free trading and will cause the market price of the shares
of common stock of the Company to decrease. This registration for resale
removes the protection afforded to current shareholders under Rule 144,
regarding the issuance and resale of restricted securities. Under that rule
securities were required to be held for a period of time and only resold under
the provisions of the rule.
9
<PAGE>
NASDAQ ELIGIBILITY AND MAINTENANCE
Under the current rules promulgated by the Securities and Exchange Commission
(the "Commission"), for NASDAQ SmallCap listing, a company must have at least
$4,000,000 in total assets, at least $2,000,000 in stockholders' equity, and a
minimum bid price of $3.00 per share. For continued listing, a company must
maintain at least $2,000,000 in total assets, at least $1,000,000 in
stockholders' equity and a minimum bid price of $1.00 per share. The Company's
Common Stock is expected to be eligible for listing on Nasdaq SmallCap Market.
The Company is currently trading on the NASDAQ bulletin board and has made
application to be accepted in the SmallCap Market. This application was amended
April 15, 1998 and it is hoped the listing will be accepted. If, at any time
after issuance, the Company's Common Stock is not listed on NASDAQ, and no other
exclusion from the definition of a "penny stock" under the Securities and
Exchange Act of 1934, as amended, were available, transactions in the Securities
would become subject to the penny stock regulations which impose additional
sales practice requirements on broker-dealers who sell securities.
If, after approval of the Small Cap application, the Company should
experience losses from operations, it may be unable to maintain the standards
for continued listing and the listed securities could be subject to delisting
from NASDAQ Trading, if any, in the listed securities would thereafter be
conducted in the over-the-counter market on an electronic bulletin board
established for securities that do not meet the NASDAQ listing requirements or
in what are commonly referred to as the "pink sheets." As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, the Company's Securities.
RISK OF LOW PRICED STOCKS
If the Company's Securities were delisted from NASDAQ, and no other exclusion
from the definition of a "penny stock" under applicable Securities and Exchange
Commission regulations were available, such Securities would be subject to the
penny stock rules that impose additional sales practice requirements on broker-
dealers who sell such securities to persons other than established customers and
accredited investors (generally defined as investors with net worth in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with a
spouse). For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase and must have received the
purchaser's written consent to the transaction prior to sale.
ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Substantially all of the 6,992,185 outstanding shares of Common Stock of the
Company are freely tradeable, without restriction or registration under the
Securities Act (other than the sale volume restrictions of Rule 144 applicable
to shares held beneficially by persons who may be deemed to be affiliates of the
Company). The Company's Directors, Officers and family members of the Officers
and Directors are under no lockup letters or other form of restriction on the
sale of their securities. Following this registration an additional 2,132,000
shares will be available for sale by the affiliates and other persons. This is
an estimate of the probable number of shares to be resold. Under the terms
of this registration statement, up to 3,576,000 shares may be resold, depending
on the various terms and agreements in place and the occurrence of certain
contingencies. Any sale of these securities could have a detrimental effect on
existing shareholders.
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 certain proprietary aspects of its treatment
program for bladder and bowel incontinence and its business and marketing models
and strategies. The Company relies on an unpatented proprietary treatment
protocol and there can be no assurances that others may not independently
develop the same or similar program or otherwise obtain access to the Company's
unpatented proprietary protocols. 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. While certain
proprietary aspects of MedCare's clinical and business protocols remain an
important part of the business, the Company believes its long term success as a
business will depend primarily upon its high quality clinical outcomes and
service, continued business development and marketing skills.
REIMBURSEMENT AND RELATED MATTERS
In both the United States and elsewhere, sales of health care products and
services are dependent, in part, on the availability of reimbursement from third
party payors, such as government and private insurance plans. 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,
10
<PAGE>
and urethral plugs. While the Company's treatment program is currently covered
by third party payers, there can be no assurances that such coverage will remain
in effect in the future.
REGULATIONS AND CHANGES IN HEALTH CARE PROGRAMS
The business of the Company is heavily regulated at a federal and state
level. Legislation relating to the manner in which patients receive treatment
is being enacted on a continuous basis. This legislation may have a negative
effect on the way the Company does business in ways that cannot be predicted by
the Company. This poses a serious risk to the viability of the programs of the
Company and whether or not the Company can do business in the future. Should
legislation be enacted negative to the programs of the Company it could cause
the business of the Company to terminate.
PRICE RANGE OF COMMON STOCK
The following table sets forth for the periods indicated the high and low
closing prices for the common stock, $0.0001 per value, of the Company (the
"Common Stock") in transactions on the OTC Bulletin Board.
<TABLE>
<CAPTION>
1997 1996 1995
Quarter High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
1st $8.1875 $5.125 $4.785 $4.25
2nd $8.25 $6.25 $5.625 $4.75
3rd $9.00 $6.25 $5.625 $4.75
4th $8.125 $7.625 $5.125 $4.375 $6.00 $3.75
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and 1997.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
<S> <C> <C>
Current Liabilities
Accounts Payable $ 57,343 $ 15,796
Notes Payable - Officers 13,500 0
----------- ----------
Total Current Liabilities 70,843 16,796
Stockholders' Equity:
Preferred Stock, $.25 Par Value,
Series A, Authorized 1,000,000
Shares; Issued and Outstanding, at
July 31, 1997, 165 Shares and
at December 31, 1996, NONE 0 41
Common Stock, $0.001 Par Value,
Authorized 100,000,000 Shares;
Issued and Outstanding,
6,992,185 Shares at December 31,
1997 and 6,445,185 Shares at
December 31, 1996 6,445 6,992
Additional Paid in Capital 1,671,631 6,107,314
Loss Accumulated During
The Development Stage (1,182,296) (2,554,727)
----------- -----------
Total Stockholders' Equity 495,780 3,596,620
----------- -----------
Total Liabilities and
Stockholders' Equity $ 566,623 $ 3,586,416
=========== ===========
</TABLE>
11
<PAGE>
USE OF PROCEEDS
This registration is for purposes of resale of issued shares only. As a
result, there are no use of proceeds to be disclosed. The uses of proceeds
obtained from the offerings of which these securities were a part are disclosed
in the section entitled "Description of Business." The Company will not receive
any proceeds from the sale of the selling security holders' securities. The
Company will receive proceeds from the exercise of warrants and stock options as
discussed elsewhere in this registration statement. The use of those proceeds
has been detailed in each of their offering memorandums.
DETERMINATION OF OFFERING PRICE
Because this registration is for purposes of resale of issued shares only,
there was no determination of offering price. The manner in which the offering
prices for the offerings, warrants and options of which these securities are a
part have been previously disclosed under the terms of each of the offerings,
warrants and options.
DILUTION
This registration statement is for the resale of certain securities as
defined elsewhere. An additional 2,132,320 shares of common stock will be
available for various shareholders to sell on the market without restriction,
other than restrictions to affiliates and control persons. As of December 31,
1997, 6,992,185 shares were of common stock of the Company was outstanding. The
shares have been trading at a range of $7.625 to $8.125 for the fourth quarter
of 1997, making the market value of the Company between $53,315,410 and
$56,811,503. If we assume all additional shares are to be exercised and made
available for sale and that the market value of the Company remains set, the
introduction of additional shares to the market could have a detrimental effect
on the price of the shares. Assuming a linear relationship the per share price
could be reduced to a range of $5.843 to $6.226.
SELLING SECURITY HOLDERS
The following table sets for the number and percentages of shares of Common
Stock that are being registered by this Prospectus for the account of Series A
Preferred Selling Shareholders. The Series A Preferred Selling Shareholders
will receive shares of Common Stock upon conversion of the Series A Convertible
Preferred Stock. They also have the option of obtaining additional shares of
common stock under "Conversion Warrants". The Series A Preferred Shareholders
can also exercise what are termed "Preferred Warrants" providing additional
shares of preferred stock can be purchased under the same basic terms of the
initial offering. At present 165 shares of the Series A Preferred Stock have
been sold. The Preferred Warrants provide that an additional 165 shares may be
purchased by the previous buyers. The Preferred Shares have an additional
conversion feature to allow for the obtaining of common stock in exchange for
the Preferred Shares. This registration statement is for the resale of the
common stock underlying the Series A Preferred Stock.
This paragraph will detail the assumptions and attempt to calculate the
number of shares to be registered in relation to the terms of the private
offering. The previous private placement offering has been closed and 165
actual shares have been sold. As detailed below, an additional 165 shares can
be sold pursuant to "Preferred Warrants" as defined in the Subscription
Agreement of the Regulation D offering the 20th of June 1997. The formula for
the conversion provides a method for determining the number of shares of common
stock resulting from the conversion of preferred shares. The formula is (.08)
times the number of days since the close divided by 365 times 10,000 plus
10,000 divided by the conversion price equals the number of shares of common
stock provided for each preferred share purchased. The conversion price is the
lower of $7.346 or a price based on the number of months between the last
closing and the date of conversion times the Closing Bid Price of the Company's
common stock for five days preceding the conversion reduced 10% to 20%,
depending on the number of months between the last closing and the date of
conversion. The 3 month range for the price of the common stock of the Company
from January 6, 1998 to April 6, 1998 was approximately $7.65 to $9.375. This
range is in excess of the minimum price of $7.346, causing the minimum price to
be used in the calculations. Only 165 of the possible 1000 shares were sold and
no additional shares will be sold. In this estimate of the range, $7.346 will
be used as the denominator. If these numbers are inserted in the equation, the
total number of shares of common stock required to be issued is 242,580,
assuming full conversion. The number could be as low as 0 if none are
converted. The nine, twelve and fifteen month warrants also provide that an
additional 242,580 shares could be converted under those separate warrant
agreements. Under terms of the offering, an additional warrant to purchase the
same number of shares of preferred shares exists under similar terms with
limitations on the sale of the underlying common stock. This would provide an
additional 485,160 shares of common stock could be
12
<PAGE>
issued, if all preferred warrants are exercised and the 9, 12 and 15 month
warrants are exercised. The Registration Rights Agreement provides that
1,500,000 shares of common stock are to be registered for resale as a part of
this registration statement. This amount is in excess of the 970,320 calculated
above, but is required as part of the Registration Rights agreement and to
provide excess shares in the event of miscalculation or alteration in the
underlying assumptions.
The following table lists the purchasers of the Preferred Stock and an estimate
of the Common Stock registered for resale:
<TABLE>
<CAPTION>
Number of Total Number Percentage
Shares of of Preferred of Common
Common Stock Shares Owned Stock Owned Total Amount Percentage
to be Prior to Prior to Owned After Owned After
Name Registered(1) Registration Offering(2) Offering(3) Offering(4)
<S> <C> <C> <C> <C> <C>
Lakeshore
International 147,018 25 -0- 147,018 1.60
Queensway
International 588,072 100 -0- 588,072 6.40
Concordia
Partners L.P. 147,018 25 -0- 147,018 1.60
The Matthew
Fund N.V. 88,212 15 -0- 88,212 0.97
------- -- --- ------- -----
Totals 970,320 165 970,320 10.57
Overage
Shares(5) 529,680
</TABLE>
(1) The shares depend on various factors contained below and in the
Preferred Stock offering documents. These totals reflect the conversion
of the preferred, the conversion warrants and the preferred warrants all
being exercised.
(2) Percentage of shares owned prior to this offering is equal to less than
one percent of the shares outstanding prior to this offering.
(3) Assuming that all shares are sold by the Series A Preferred Selling
Shareholders and that all conversions and warrants are exercised.
(4) Based on 9,124,505 shares outstanding; assumes all of the shares are
sold by Series A Preferred Selling Shareholders and all conversions and
warrants are exercised.
(5) Excess shares required as part of the Registration Rights agreement in
the event of miscalculation or alteration in the underlying assumptions
Warrants held by promoter:
<TABLE>
<CAPTION>
Number Exercise Expiration
Price
<S> <C> <C> <C>
Swartz Investments, L.L.P. Common Stock 33,692 $7.346 June 20, 2002
</TABLE>
These warrants have been issued pursuant to a Placement Agent Agreement
between the Company and Swartz Investments, LLC, a Georgia limited liability
company, as Placement Agent. According to this agreement, the Placement Agent
agreed to find subscribers for the Company's Preferred Stock Series A offering
in exchange for a placement fee of 5-1/2% of the aggregate gross subscription
proceeds of the offering, a non-accountable expense allowance of 2% of the
aggregate gross subscription proceeds, and, if a subscriber exercises a
preferred warrant, a fee consisting of 7-1/2% of the aggregate exercise price,
as defined in the Preferred Warrant. The Placement Agent Agreement also grants
to the Placement Agent three sets of warrants (i) warrants to purchase stock
equal to 7-1/2% times the aggregate gross subscription proceeds divided by the
Fixed Conversion Price (as defined in the Certificate of Disclosure), (ii)
warrants to purchase stock equal to 7-1/2% of the number of Conversion Warrants
placed in the offering (as defined in the Subscription Agreement) and (iii) upon
the exercise of a Preferred Warrant by a Stockholder, warrants to purchase stock
equal to 7-1/2% of the gross proceeds received by the Company upon the exercise
of the Preferred Warrant divided by the Exercise Price (as defined in the
Preferred Warrant). All three of these warrants are for a period of five years
at a fixed conversion price of $7.346 per share, as defined in the Certificate
of Disclosure. The Placement Agent Agreement also contains cashless exercise
and reset provisions. This registration statement is for the common stock that
underlies these warrants. The total has been included in the estimate of common
stock to be registered.
SERIES A PREFERRED SELLING SHAREHOLDER PLAN OF DISTRIBUTION
The Series A Preferred Selling Shareholders are not restricted as to the
prices at which they may sell their shares and sales of such shares at less than
the market price may depress the market price of the Company's Common Stock.
Further, the Series A Preferred Selling Shareholders are not restricted as to
the number of shares which may be sold at any one time, and it is possible that
a significant number of shares could be sold at the same time which may also
have a depressive effect on the market price of the Company's Common Stock.
However, it is anticipated that the sale of the Common Stock being
13
<PAGE>
offered hereby will be made through customary brokerage channels either through
broker-dealers acting as agents or brokers for the seller, or through broker-
dealers acting as principals, who may then resell the shares in the over-the-
counter market, or a private sale in the over-the-counter market or otherwise,
as negotiated prices related to prevailing market prices and customary brokerage
commissions at the time of the sales, or by a combination of such methods. Thus,
the period for sale of such shares by the Series A Preferred Selling
Shareholders may occur over an extended period of time.
There are no contractual arrangements between or among any of the Series A
Preferred Selling Shareholders and the Company with regard to the sale of the
shares and no professional underwriter in its capacity as such will be acting
for the Series A Preferred Selling Shareholders. The terms of the offer and sale
of the Preferred Shares is detailed in the attached exhibits 3 through 9.
1995 STOCK OPTION PLAN. The 1995 Stock Option Plan has 500,000 shares reserved
for issuance at $3.00 per share until December 31, 2001 and have no vesting
period. The options have been authorized by the Company to be issued to
employees of the Company at the discretion of the board of directors. The
following table summarizes the options that have been granted and the current
number that have been exercised:
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Number Exercised Year Exercised
- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C>
Harmel S. Rayat 150,000 None N/A
Bhupinder Mann 100,000 13,000 1996
17,000 1997
6,000 1998*
Ranjit Bhogal 100,000 11,000 1996
17,000 1997
6,000 1998*
Herdev S. Rayat 100,000 13,000 1996
18,500 1997
6,000 1998*
Frank Mueller 10,000 None N/A
Sarbjit Thouli 10,000 1,500 1997
Grant Mackney 10,000 None N/A
Todd Weaver 10,000 None N/A
Dave Gamache 10,000 None N/A
</TABLE>
1996 STOCK OPTION PLAN. The 1996 Stock Option Plan has 300,000 shares reserved
for issuance at $4.50 per share until June 20, 2001 and have no vesting period.
The options have been authorized by the Company to be issued to employees of the
Company at the discretion of the board of directors. The following table
summarizes the options that have been granted and the current number that have
been exercised:
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Number Exercised Year Exercised
- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C>
Valerie Boeldt-Umbright 40,000 None N/A
Terry Johnson 60,000 3,000 1996
17,000 1997
6,000 1998*
Harmel S. Rayat 160,000 None N/A
Michael M. Blue 40,000 None N/A
</TABLE>
1997 STOCK OPTION PLAN. The 1997 Stock Option Plan has 500,000 shares reserved
for issuance. 200,000 options are exercisable at $4.50 per share until November
18, 2001 and 300,000 options are exercisable at $6.50 per share until July 1,
2005. The options have been authorized by the Company to be issued to employees
of the Company at the discretion of the board of directors. The following table
summarizes the options that have been granted and the current number that have
been exercised:
<TABLE>
<CAPTION>
Total Exercise Number Year
Name of Optionee Reserved Price Exercised Exercised
- ---------------- -------- -------- --------- ----------
<S> <C> <C> <C> <C>
Valerie Boeldt-Umbright 100,000 $4.50 None N/A
15,000 $6.50 None N/A
Terry Johnson** 40,000 $4.50 3,000 1997
$4.50 6,000 1998*
20,000 $6.50 None N/A
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Michael M. Blue 60,000 $4.50 None N/A
15,000 $6.50 None N/A
Jeff Aronin*** 250,000 $6.50 None N/A
</TABLE>
* Exercised in the first quarter of 1998.
** Transferred from Nicole Alagich and Charles Grahn and approved by Board on
March 16, 1998.
*** Subject to employment agreement with 100,000 options already vested and
100,000 vesting each year for 4 years beginning July 1998. 100,000 options is a
bonus if sales of $10,000,000 are reached by December 31, 1998.
PRIVATE PLACEMENT FEBRUARY 4, 1997
Under the terms of a private placement done by the Company in reliance on
Regulation D, Rule 506 176,000 shares of common stock of the Company was sold
to Greystone Management, Ltd. The offering was closed on February 28, 1997 and
resulted in receipt by the Company of $1,100,000. Greystone Management was an
accredited investor and is located in Belize City, Belize. This registration is
for the resale of those shares of common stock.
PRIVATE PLACEMENT JULY 7, 1997
Under the terms of a private placement done by the Company in reliance on
Regulation D, Rule 506 300,000 shares of common stock of the Company and 300,000
warrants to purchase shares of common stock of the Company were sold to Matrix.
The offering was closed on July 7, 1997 and resulted in receipt by the Company
of $1,800,000. Matrix was an accredited investor and is a corporation existing
under the laws of the British West Indies. This registration is for the resale
of those shares of common stock. The two Rule 506 offerings were within 6
months of each other and subject to the integration provisions of Rule 502.
Fewer than 35 unaccredited investors acquired the shares and the requirements of
Rule 506 have been met with both offerings separately or together.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries or Divisions has any legal
proceedings against it.
MANAGEMENT
Directors and Executive Officers
- --------------------------------
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name/Age Title
- -------- -----
<S> <C>
Harmel S. Rayat Chief Executive Officer, Chairman of the Board
Jeffrey Aronin President, Chief Operating Officer, Director
Valerie Boeldt-Umbright,
Bsc, RN, CCCN Director of Clinical Services, Director
Kundan S. Rayat Secretary, Director
Michael M. Blue, Bsc, M.D. Director
Jake Jacobo, M.D. Director
</TABLE>
Mr. Harmel Rayat and Mr. Kundan Rayat were elected to the board of
directors in 1995. Ms. Boeldt-Umbright and Dr. Blue were elected directors in
1996. Dr. Jacobo was elected to the board in 1997.
HARMEL S. RAYAT (Age 36) CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE
BOARD. Mr.
Rayat is one of the co-developers of the MedCare Program. Mr. Rayat has been in
the venture capital industry since 1981 and since January 1993 has been the
president of Hartford Capital Corporation, a company which specializes in
providing early stage funding and investment banking services to emerging
growth corporations. From January 1989 through December 1992 Mr. Rayat was the
President and CEO of K.S. Rayat & Company, an investment banking and venture
capital company, where he was responsible for research, due diligence and
investment strategy in early stage, start-up venture capital investments. From
April 1996 to the present he has been President and CEO of Hartford Capital
Management, Inc., an investment management company where he is responsible for
researching and making direct equity investment in emerging growth public
corporations. Mr. Rayat has been a director of the Company since September
1995, President from June 1996 until June 1997 and is currently Chief Executive
Officer and Chairman. Mr. Rayat is also a director of Far West Resources, Inc.,
a non-reporting company trading on the NASDAQ OTC Bulletin Board.
15
<PAGE>
JEFFREY S. ARONIN (Age 30) PRESIDENT AND CHIEF OPERATING OFFICER,
DIRECTOR. Mr.
Aronin has extensive experience in the health care industry, with particular
expertise in Corporate Development, Sales Management, Health Care Marketing and
Managed Health Care. Mr. Aronin joined Carter Wallace, a major pharmaceutical
firm, in May of 1989. At Carter Wallace, Mr. Aronin held many positions as he
advanced through management in sales marketing and managed care. In September
1995, Mr. Aronin left Carter Wallace to join American Health Products
Corporation, where he ran the Marketing division and focused on Marketing and
Business Development and made significant contributions toward the growth of
AHPC's business. Mr. Aronin joined MedCare Technologies as its President and
Chief Operating Officer on July 8, 1997, at which time he also became a member
of the Board of Directors of the Company. He holds a degree in marketing and
financing, as well as an MBA in management.
VALERIE BOELDT-UMBRIGHT (Age 32) DIRECTOR OF CLINICAL SERVICES,
DIRECTOR. Mrs. Boeldt-Umbright is a registered nurse, with a Bachelors of
Science degree in community health education from Northern Illinois University.
With over two years of actual management experience in the day-to-day opedration
of the Incontinence Clinic in Chicago, Mrs. Boeldt-Umbright has supervised
personnel, dealt with insurance and reimbursement matters, marketing and
physician interaction and referrals. She has instructed patients in biofeedback
for their pelvic floor muscles, established individualized neuromuscular
reeducation programs, written new clinical protocols and articles for
publication and has worked as a member of a university team to provide excellent
care and medical treatment for patients. Ms. Boeldt-Umbright was a nurse
insurance examiner in the PMI Division of Equifax Systems from October 1991 to
September 1992. From June 1992 to July 1994 she was employed at the Premier
Rehabilitation Center of Chicago, where she established a nursing and health
education program and was the sole nurse responsible for traumatic brain injury
and spinal cord injury clients. At this facility she also established a
medication program and bowel/bladder programs, monitored vital signs and
dressing changes, and taught inservices, training classes and health care
classes for clients and staff. From March 1994 to September 1996 Ms. Boeldt-
Umbright was the Manager of Incontinence Control Services. In this position she
handled all manager responsibilities, including supervising personnel, insurance
claims, marketing and physician interaction and referral, wrote articles for
publication and assisted in research. She also explained biofeedback for
incontinence and demonsrated techniques to visiting physicians, residents,
nurses and fellows. Since March 1996, she has been a director of the Company
and Director of Clinical Services. Her responsibilities include the continued
development and refinement of the MedCare program and ongoing research, training
of all clinicians, writing treatment protocols, training physicians, teaching
biofeed-back for incontinence, attending advanced conferences and writing
articles.
KUNDAN S. RAYAT (Age 69) DIRECTOR/SECRETARY. Mr. Rayat has over 45 years of
experience as an entrepreneur and owner of a diverse spectrum of businesses,
ranging from automotive to heavy construction, on three different continents.
Since 1985, Mr. Rayat has primarily devoted his time to venture capital,
investing in numerous start up ventures, and provides seasoned senior management
advice to emerging market companies as a consultant. He has been a principal of
K.S. Rayat & Company from January 1985 through the present, where he has been an
early stage venture capital investor in numerous start-up ventures and a
consultant to emerging market corporations. Mr. Rayat has been a director and
the secretary of the Company since August 1995 and provides seasoned management
advise on such matters as growth strategy, finance, marketing strategies and
selection of personnel. He is also a director of Far West Resources, Inc., a
non-reporting company trading on the NASDAQ OTC Bulletin Board. He is the
father of Harmel S. Rayat, president of the Company.
MICHAEL M. BLUE, M.D. DIRECTOR. Dr. Blue is a Board-certified urologist who has
practiced general urology for twenty years. He is a member of the American
Medical Association, Oklahoma State Medical Association, South Central
Urological Association and the American Urological Association. Dr. Blue has
been a sole practitioner in private practice for the past twenty years. Dr.
Blue joined the Board of Directors of the Company on August 15, 1996 and is
responsible for supervising and continuing the development of all medical
aspects of the MedCare program, as well as interacting and answering questions
from other doctors within the MedCare system.
JAKE JACOBO, M.D. (Age 53) DIRECTOR. After completing his Residency in Urology
at the University of Iowa Hospitals and Clinics, Dr. Jacobo participated as a
Clinical Investigator with the National Prostatic Cancer Project and the
National Bladder Cancer Project during 1975 and 1976. In July of 1977, he
joined Northern Iowa Urology Associates in Waterloo, Iowa and remained in
private practice until 1989. During his tenure with Urology Associates, Dr.
Jacobo initiated the Urodynamic program for Covenant Medical Center and in 1986
introduced Prostate Ultrasonography for the diagnosis of prostate lesions, this
being the first Prostate Ultrasound Program for the state of Iowa and started a
new modality, together with PSA testing, for the early diagnosis of prostate
cancer. In April of 1989, Dr. Jacobo started Urology Consultants in the
Orlando, Florida area. Urology Consultants has since expanded to five clinics
and three urologists, and in 1997 Urology Consultants opened the first MedCare
Program site in the state of Florida. Dr. Jacobo joined the Board of Directors
on September 17, 1997.
16
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of December 31, 1997, the beneficial
ownership of the Company's Common Stock by each person known by the Company to
beneficially own more than 5% of the Company's Common Stock outstanding as of
such date and by the officers and directors of the Company as a group. Except
as otherwise indicated, all shares are owned directly.
<TABLE>
<CAPTION>
______________________________________________________________________________
(1) (2) (3) (4)
Name and address of
Title of Class beneficial owner Shares Issued Options Held
______________________________________________________________________________
<S> <C>
Common stock Harmel S. Rayat 2,000,000 310,000
Common stock Michael Blue 4,000 115,000
Common stock Valerie Boeldt-Umbright -0- 155,000
Common stock Jeff Aronin -0- 250,000
Common stock Directors and Officers 2,004,000 830,000
as a group (4 persons)
</TABLE>
DESCRIPTION OF SECURITIES
Common Stock
- ------------
Holders of the Common Stock are entitled to one vote for each share held by
them of record on the books of the Company in all matters to be voted on by the
stockholders. Holders of Common Stock are entitled to receive such dividends as
may be declared from time to time by the Board of Directors out of funds legally
available, and in the event of liquidation, dissolution or winding up of the
Company, to share ratably in all assets remaining after payment of liabilities.
Declaration of dividends on Common Stock is subject to the discretion of the
Board of Directors and will depend upon a number of factors, including the
future earnings, capital requirements and financial condition of the Company.
The Company has not declared dividends on its Common Stock in the past and the
management currently anticipates that retained earnings, if any, in the future
will be applied to the expansion and development of the Company rather than the
payment of dividends.
The holders of Common Stock have no preemptive or conversion rights and are
not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
Common Stock currently outstanding is, and the Common Stock offered by the
Company hereby will, when issued, be validly issued, fully paid and
nonassessable.
Preferred Stock
- ---------------
The Company is authorized to issue up to one million (1,000,000) shares of
Preferred Stock, par value $0.25 per share. Pursuant to a Certificate of
Designation filed with the State of Delaware on July 7, 1997, one thousand of
those shares have been designated as Series A Preferred Stock, par value $0.25
per share and with a purchase price of $10,000 per share plus an 8% per annum
accretion rate. This stock ranks senior to all Common Stock of the Company,
senior to any series or class of stock so designated in the future, junior to
any series or class of stock designated as such in the future, and in parity
with any series or class of stock so designated in the future. There are no
dividends or dividend rights provided for this stock. The Preferred
Stockholders also have no voting rights, but must receive notice of all
shareholders' meetings.
17
<PAGE>
The liquidation ranking of the Preferred Stock Series A is after any senior
securities, prior to any junior securities and on a par with any parity
securities. Upon liquidation, holders of Series A Preferred Stock shall receive
an amount per share equal to the original Issue Price per outstanding share plus
an amount equal to eight percent of the original Series A Issue Price per annum
for the period that has passed since that date in connection with the
consummation of the purchase by the Holder of shares of Series A Preferred Stock
from the Company. If the Company does not possess sufficient funds, assets and
other holdings to provide for the complete liquidation price, holders of Series
A Preferred Stock shall receive funds based upon the ranking of the stock.
Holders of Series A Preferred Stock may convert their shares into shares of
Common Stock via the following formula:
(.08)(N/365)(10,000) + 10,000
-----------------------------
Conversion Price
where N is equal to the number of days between the date full payment was
received by the Escrow Agent or the Company for the shares in question and the
Date of Conversion and where "Conversion Price" is equal to the lesser of
115% of the average Closing Bid Price for the five trading days ending on June
6, 1997, which is $7.346 or X% of the average Closing Bid Price of the Company's
Common Stock for the five trading days immediately preceding the Date of
Conversion, as defined below:
<TABLE>
<CAPTION>
# of months between Last Closing
and Date of Conversion "X"
- --------------------------- ----
<S> <C>
4-6 months 90%
6 months-1 year 87.5%
9 months, 1 day-12 months 85%
more than 12 months 80%
</TABLE>
To convert shares, the shareholder must send via facsimile a copy of the
Notice of Conversion to both the Company and the Transfer Agent by 11:59 p.m.
New York City time on the date of conversion. No fractional shares will be
issued.
Three years after the Last Closing Date, or the first business day
thereafter, all Series A Preferred Stock will be automatically converted into
Common Stock, or will be redeemed for cash in an amount equal to the Stated
Value, at the Company's discretion, where the Stated Value is equal to the
Original Series A Issue Price plus the accreted by unpaid Premium. The
Redemption price is calculated as follows:
<TABLE>
<CAPTION>
Date of Notice of Redemption at Company's Election % of Stated Value
- ------------------------------------------------------- -----------------
<S> <C>
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 1 day to 36 months following Last Closing Date 115%
</TABLE>
The following Preferred Stock warrants have been issued:
<TABLE>
<CAPTION>
Number of Price per
Warrantee Shares Share Exercise Date
- --------- -------- ------ ------------
<S> <C> <C> <C>
Lakeshore International 25 $10,000 June 20, 1998
Queensway International 100 $10,000 June 20, 1998
Concordia Partners L.P. 25 $10,000 June 20, 1998
The Matthew Fund N.V. 15 $10,000 June 20, 1998
TOTAL: 165 PREFERRED SHARE WARRANTS
</TABLE>
The complete text of the Certificate of Designation is attached hereto as
Exhibit 3.
COMMON STOCK WARRANTS
Each purchaser of Series A Preferred Stock pursuant to the Preferred Offering
of July 1997 also received certain warrants for the purchase of shares of common
stock. These include (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
18
<PAGE>
price of the Subscriber's Preferred Stock 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; (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; 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 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. 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. 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. The Preferred Stock is also accompanied by a warrant
or warrant to purchase, anytime during the first twelve (12) months following
the Last Closing a number of additional shares of Preferred Stock up to the
number purchased by Subscriber in the Offering (the "Preferred Warrants").
The Company has issued the following warrants in connection with its offering
of Series A Preferred Stock:
<TABLE>
<CAPTION>
Number of Price per
Warrantee Type of Stock Shares Share Exercise Date
- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Swartz Investments, L.L.P. Common Stock 33,692 $7.346 June 20, 2002
Lakeshore International Common-9 months 22,688 $7.346 June 20, 2002
The Matthew Fund N.V. Common-9 months 6,806 $7.346 June 20, 2002
Concordia Partners L.P. Common-9 months 11,344 $7.346 June 20, 2002
Queenway Financial Holdings Common-9 months 45,376 $7.346 June 20, 2002
Lakeshore International Common-12 months 22,688 $7.346 June 20, 2002
The Matthew Fund N.V. Common-12 months 6,806 $7.346 June 20, 2002
Concordia Partners L.P. Common-12 months 11,344 $7.346 June 20, 2002
Queenway Financial Holdings Common-12 months 45,376 $7.346 June 20, 2002
Lakeshore International Common-15 months 22,688 $7.346 June 20, 2002
The Matthew Fund N.V. Common-15 months 6,806 $7.346 June 20, 2002
Concordia Partners L.P. Common-15 months 11,344 $7.346 June 20, 2002
Queenway Financial Holdings Common-15 months 45,376 $7.346 June 20, 2002
TOTAL: 258,302 COMMON SHARE WARRANTS
</TABLE>
The Company has also issued warrants for 300,000 shares of Common Stock
pursuant to the issuance of 300,000 shares of Common Stock via a Private
Placement Memorandum pursuant to Regulation D, Rule 506 dated July 7, 1996.
These warrants are exercisable at $6.00 per share until July 7, 2002.
When exercised, all warrants will be converted into Common Stock and holders
thereof will have all of the rights and prerogatives of all holders of Common
Stock of the Company (see "Common Stock" above). The complete texts of the
warrants issued in connection with the Preferred Stock offering are listed in
Exhibits 5 through 7.
Reserved Common Stock
- ---------------------
The Reserved Common Stock shall be issued in exchange for shares of Series A
Preferred Stock upon Notice of Conversion by the Shareholder or at the Company's
discretion on a date three years after the Last Closing Date. The Reserved
Common Stock shall have all of the rights and privileges of the Common Stock of
the Company (see "Common Stock" above).
Voting Requirements
- -------------------
The Articles of Incorporation require the approval of the holders of a
majority of the Company's voting securities for the election of directors and
for certain fundamental corporate actions, such as mergers and sales of
substantial assets, or for an amendment to the Articles of Incorporation.
19
<PAGE>
There exists no provision in the Articles of Incorporation or Bylaws that
would delay, defer or prevent a change in control of the Company.
Transfer Agent
- --------------
The transfer agent and registrar for the Company's Common Stock is Holladay
Stock Transfer, Inc., 4350 East Camelback Road, Suite 100F, Phoenix, Arizona,
85018. Its telephone number is (602) 840-9019.
SHARES ELIGIBLE FOR FUTURE SALE
As of December 31, 1997, the Company will have 6,992,185 shares of Common
Stock and 165 shares of Preferred Stock outstanding. Of the 6,992,185 shares of
Common Stock outstanding, 2,004,000 shares of Common Stock are beneficially held
by "affiliates" of the Company. In addition, options and warrants to purchase
2,132,320 shares of Common Stock will be outstanding. All shares of Common
Stock registered pursuant to this Registration Statement will be freely
transferable without restriction or registration under the Securities Act,
except to the extent purchased or owned by "affiliates" of the Company as
defined for purposes of the Securities Act.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned "restricted" securities for at least two years, including
persons who may be deemed to be "affiliates" of the Company, may sell publicly
without registration under the Securities Act, within any three-month period,
assuming compliance with other provisions of the Rule, a number of shares that
do not exceed the greater of (i) one percent of the Common Stock then
outstanding or, (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale. A person who is not deemed
an "affiliate" of the Company and who has beneficially owned shares for at least
three years would be entitled to sell such shares under Rule 144 without regard
to the volume and other limitations described above.
Prior to this registration, the Common Stock has traded on the OTC Bulletin
Board under the symbol "MCAR." No prediction can be made of the effect, if any,
of future public sales of "restricted" shares or the availability of
"restricted" shares for sale in the public market at the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of the Company's
"restricted" shares in any public market that may develop could adversely
affect prevailing market prices.
INTEREST OF NAMED EXPERTS AND COUNSEL
Because this registration is for purposes of resale of securities only, this
section is not applicable.
STATEMENT AS TO INDEMNIFICATION
The Company has indemnified all officers, directors and controlling persons
of the Company against all liabilities from the sale of securities which might
arise under the Securities Act of 1933 other than as stated under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to such persons pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
THE COMPANY AND BACKGROUND
The Company, formerly known as Multi-Spectrum Group, Inc., was incorporated
under the name Santa Lucia Funding, Inc., in the State of Utah on January 17,
1986, with an authorized capital of 50,000,000 common shares with a par value of
$0.001 for the purposes of raising capital in order to seek business
opportunities believed to hold potential for profit. On February 8, 1990, the
Company adopted a plan of merger with Multi-Spectrum Group, Inc., a Delaware
corporation, and Santa Lucia Funding, Inc., a Utah corporation, which then
changed its name to Multi-Spectrum Group, Inc. The outstanding shares of Multi-
Spectrum Group, Inc. were converted into common shares of Santa Lucia Funding,
Inc. at the exchange rate of 55,305 shares of Santa Lucia for each common share
of Multi-Spectrum then issued and outstanding. In addition, the number of
common shares authorized was increased from 50,000,000 to 100,000,000 with
the par value remaining at $0.001. On November 13, 1992, the Company issued
8,7722,800 shares of its Common Stock to Group of Five, Inc. in exchange for
services rendered.
20
<PAGE>
The Company was inactive during the period from February 1990 to August 1995,
at which point the Company acquired the MedCare program for treating
incontinence.
On August 11, 1995, a reverse split of the common stock by a ratio of one new
for 1,200 old was effected, with the par value remaining at $0.001. This
reduced the total number of shares issued and outstanding to 58,519. On
August 14, 1995, the Company acquired the rights to the MedCare Program, a
urinary incontinence procedure, in exchange for 2,000,000 shares of its common
stock. On August 25, 1995, the Company approved an increase in the authorized
capital to 101,000,000 shares of stock, comprised of 100,000,000 common shares
with a par value of $0.001 per share and 1,000,000 preferred shares with a par
value of $0.25 per share, and approved a name change to MedCare Technologies,
Inc.
On October 1, 1995, the Company's wholly owned subsidiary, MedCare
Technologies Corporation, acquired 100% of Manon Consulting Ltd., an Alberta,
Canada, corporation, for a nominal value from its owners, Diane Nunziato, a
MedCare Technologies, Inc. director, and Philip Tolley and Mel Tolley. The
operations of Manon Consulting were terminated on December 31, 1996.
Narinder Thouli, a member of the Board of Directors, resigned on November 1,
1996. He resigned for personal reasons and did not have any disagreements with
the Company. On October 4, 1996 a migratory merger was completed changing the
Company's domicile from Utah to Delaware.
On July 8, 1997, Jeffrey Aronin joined the Company as its President and Chief
Operating Officer. He was also elected a Director of the Company. Harmel S.
Rayat, the previous president, remains with the Company in the capacity of
Chief Executive Officer and Chairman of the Board.
On September 17, 1997, Diane Nunziato resigned as a director of the Company
and Dr. Jake Jacobo joined the Company as a director. Ms. Nunziato resigned for
personal reasons and did not have any disagreements with the Company.
DESCRIPTION OF BUSINESS
MedCare Technologies, Inc. ("MedCare" or the "Company") has developed The
MedCare Program, a non-surgical, non-drug, non-invasive and cost effective
treatment program for urinary incontinence (UI), as well as pelvic pain, chronic
constipation, fecal incontinence, and disordered defecation. The MedCare Program
is a multi-modality program based primarily on behavioral techniques for
treatment. These techniques include biofeedback using electromyography (EMG),
pelvic floor muscle exercises, and bladder and bowel retraining. 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 EMG biofeedback and is based on operant conditioning strategies
whereby specific physiological responses are progressively shaped, strengthened,
and coordinated.
Affecting an estimated 25 million Americans, urinary incontinence is the
involuntary loss of bladder control and represents a significant cause of
disability and dependence. Incontinence is one of the most prevalent, yet
severely unrecognized problems in health care today. And as society ages, the
physical, emotional and financial costs to those suffering and the costs to
their caregivers, as well as the health care system, is expected to increase
dramatically.
Despite the prevalence of incontinence, it is widely under diagnosed and
under reported primarily because of the social stigma attached to UI. Many
individuals are either too ashamed or too embarrassed to report the problem to
their doctor or to a health care professional. Instead, a large number of people
prematurely turn to the use of absorbent materials and supportive aids without
having their condition properly diagnosed and treated. When sufferers do
inquire, they discover that very few doctors are knowledgeable about UI. In
fact, so few medical professionals have the adequate training to diagnose and
offer treatment options that the U.S. Department of Health and Human Services,
Agency for Health Care and Policy and Research, has recommended that information
about UI be included in the curricula of undergraduate and graduate health
professional schools.
URINARY INCONTINENCE
In March 1996, the US. Department of Health and Human Services published a
Clinical Practice Guideline which estimated that urinary incontinence affects
approximately 13 million Americans (of which 85% are woman) at an annual cost of
$16 billion. Because the incidence of incontinence is so widely under reported
and under diagnosed, many industry
21
<PAGE>
observers believe that the total number of sufferers is well over 25 million,
with approximately one third of these individuals also experiencing problems
with bowel control.
While most people associate the lack of bladder control with very old
people, urinary incontinence affects adults of all ages and crosses all social,
economic, racial and gender lines. Ingrid Nygaard, Assistant Professor of
Obstetrics and Gynecology at the University of Iowa, conducted a study with 144
female exercisers between the ages of 18 and 21. An amazing 28% of these
relatively young individuals experienced urine loss at some point.
The psychosocial impact of UI imposes a tremendous burden on individuals,
their families and health care providers. Patients experience odor, dampness,
discomfort, depression, withdrawal from daily activities and a significant
quality of life problem. Social interaction with friends and family, and even
sexual activity, is restricted or avoided in the presence of incontinence. Many
UI sufferers eventually confine themselves to a life of exile in their own
homes. The U.S. Department of Health states that urinary incontinence is one of
the major reasons why people institutionalize elderly family members, accounting
for upwards of 50% of all admissions into nursing homes.
Incontinence is a symptom rather than a disease. UI can be caused from a
variety of pathologic, anatomic and physiological factors including: Damage to
pelvic muscles from pregnancy; spina bifida; spinal injury; bladder infections;
drug side effects; multiple sclerosis; Parkinson's disease; stroke; diabetes;
age related changes in lower urinary tract; obesity and surgery (hysterectomy,
cesarean section or prostatectomy) that may damage the bladder or urinary tract.
For example, each year about 500,000 men undergo surgery for prostate cancer and
approximately 10% of these patients suffer sphincter damage during the
procedure, leading to incontinence.
There are six types of UI: urge, stress, overflow, reflex, functional and
mixed. Of these six, urge and stress incontinence account for over 90% of all
urinary incontinence.
THE MEDCARE PROGRAM FOR INCONTINENCE
The MedCare Program is individualized for each patient's needs and
circumstances. It focuses on their clinical, cognitive, and residential status
to produce a comprehensive program for bladder and bowel disorder sufferers. The
MedCare Program is a multi-modality program based primarily on behavioral
techniques for treatment. These techniques include biofeedback using EMG, pelvic
floor muscle exercises, and bladder and bowel retraining. 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 EMG (electromyography) biofeedback and is based on operant
conditioning strategies whereby specific physiological responses are
progressively shaped, strengthened, and coordinated. All patients entering the
MedCare Program are initially evaluated by a physician and a biofeedback
clinician whose expertise is in bowel and bladder control.
The MedCare Program is individualized for each patient's needs and
circumstances. It focuses on their clinical, cognitive, and residential status
to produce a comprehensive program for bladder and bowel disorder sufferers. The
fundamental goals for the MedCare Program, as they relate to bladder and bowel
function, are:
1. Increase the strength and tone of the pelvic floor muscles that prevent
incontinence;
2. Augment the motor efficiency of the striated pelvic floor muscles;
3. Enhance sensory-response systems that trigger motor activity that prevent
or limit incontinence;
4. Decrease abnormal motor substitutions that are ineffective in preventing
incontinence;
5. Reestablish normal muscle activity that may contribute to voiding and
defecation dysfunction;
6. Provide patients with strategies that establish normal bowel and bladder
habits;
7. Reduce incontinence and symptoms of urgency and frequency.
To reach these goals the MedCare Program may use the following treatments or
procedures:
1. Biofeedback using EMG (electromyography);
2. Bladder ultrasound;
3. Aerodynamicist;
4. Electrical stimulation of the pelvic floor muscles;
5. Anorectal Manometry;
6. Weighted vaginal cones;
22
<PAGE>
7. Rectal pressure balloons;
8. Pelvic floor muscle exercises;
9. Various behavioral programs for bladder and bowel re-training;
10. Behavioral strategies and home programs which generalize gains made within
each treatment session to the patient's life situation.
The following disorders respond to this treatment:
Urinary Dysfunction
- -------------------
1. Stress incontinence;
2. Urge incontinence;
3. Mixed stress and urge incontinence;
4. Bladder disorders secondary to neurologic disorders;
5. Urinary frequency and urgency;
6. Hyperactive or dyssynergic sphincters;
7. Pelvic floor muscle strengthening prior to bladder suspension surgery;
Bowel Dysfunction
- -----------------
1. Fecal incontinence, idiopathic, or due to muscle or nerve damage from
obstetrical trauma, or surgery;
2. Disordered defecation caused by excessive spasm or activity of the pelvic
floor muscles, i.e. constipation, acquired megacolon;
3. Bowel disorders secondary to neurologic disorders, i.e. CVA (stroke),
incomplete spinal cord injury, multiple sclerosis, spina bifida, etc.;
4. Hirschbrung's disease;
5. Irritable bowel syndrome;
6. Adjunct to surgical procedures such as muscle transpositions, ostomy
reversal surgeries, anal spincteroplasty, and imperforated anus;
Pelvic Floor Disorders
- ----------------------
1. Levator ani syndrome;
2. Perineal descent syndrome;
3. Spastic floor syndrome.
ADMISSION TO THE MEDCARE PROGRAM
Admission into The MedCare's Program is by a physician's order for pelvic
floor muscle strengthening or pelvic floor muscle spasm. The referral may come
from a physician who has completely evaluated the patient and has determined
that EMG biofeedback therapy in conjunction with behavioral programs is a
reasonable treatment for the patient. The referral may also come from a
physician who would like more assessment of the patient. In that case, the
patient would be referred to the physician working with MedCare's program for
evaluation to see if he or she is an appropriate candidate for EMG biofeedback
therapy. A patient can also self refer to the MedCare program, but must first be
evaluated by the physician working with MedCare's program to see if they are
appropriate. The cost of the MedCare program is covered by most insurance
companies.
COURSE OF TREATMENT
The MedCare Program begins by having the clinician review the patients
medical history. The clinician then conducts an in depth verbal interview with
the patient regarding his or her bladder or bowel dysfunction. A patient diary
is then given to the patient to fill out for a week at a time to better keep
track of their symptoms. This diary is reviewed each visit and helps to track
patient progress and improvement. The patient then undergoes a physical
assessment which varies according to the patient's disorder and symptoms. In the
case of bladder dysfunction the physical assessment may include EMG measures of
the pelvic floor showing baselines, maximum contraction/relaxation, and degree
of maladaptive abdominal substitution with attempts at pelvic floor muscle
contraction. A bladder scan, catheterization, or aerodynamicist may also be
done. These help to evaluate the patients post void residual volumes, bladder
compliance, presence of uninhibited bladder contractions, and sensation related
to increasing levels of bladder infusion. In the case of bowel dysfunction the
physical assessment consists of EMG measures of the pelvic floor muscles showing
baselines, maximum contraction/relaxation, degree of maladaptive
23
<PAGE>
abdominal substitution with attempts at pelvic floor muscle contractions, and
the ability to relax with defecation maneuvers. Anal manometry, may also be
done, to show the dynamic characteristics of the pelvic floor, coordination and
synchrony of the internal and external anal sphincters, and sensation in
response to varying degrees of rectal distention.
After the evaluation identifies the patients dysfunctional motor patterns,
the MedCare treatment program is then individualized to include the modalities
that will be used and a home exercise program. At each consecutive treatment
session the patient's progress is reviewed, new goals are set, and the patient's
program is changed to accommodate their current situation and symptoms.
LENGTH OF TREATMENT
Treatment sessions are usually one hour in length, one week apart initially
with the inter treatment interval increasing thereafter for most ambulatory non
neurological compromised outpatients. As a result most patients will be seen
over a three to four month period with an average of six to eight treatment
sessions. MedCare's program relies on patients following a specific individual
home exercise program that is updated during each treatment session. However, if
the patient's condition demands more intensive therapy (e.g. neurologic
disorders, cognitive dysfunction, pediatric patients), or if the patient's
ability to perform the home program is compromised the treatment sessions may
need to be scheduled more frequently and over a longer period of time.
CONTRADICTIONS TO TREATMENT
The most significant contradictions to MedCare's program is the patient's
lack of motivation, inability to follow directions, and failure to remember to
do their home exercise program. However, since each patient is assessed
carefully and followed closely, the clinician can determine if the patient will
benefit from the program. If the patient is found to be inappropriate for
therapy, other methods of treatment will be offered such as regular toileting or
adaptive equipment. In addition, the evaluating physician may also determine
contradictions to therapy such as anatomic obstruction, severe descensus,
prolapse, or severe neurologic disorder.
EFFECTIVENESS OF THE MEDCARE PROGRAM
The value and effectiveness of neuromuscular reeducation therapy and
behavioral techniques has been well documented by many notable and respected
researchers. Studies in the various application of biofeedback (EMG) combined
with behavioural treatments report a range of 54% to 95% improvement in
incontinence across different patient groups. The researchers of one such study
were able to obtain a mean 82% reduction in stress incontinence and a range of
30% to 100% reduction in urge incontinence. With regard to fecal incontinence
with various age groups, including geriatric patients and children with spina
bifida, reports indicate a range of 66% to 77% using behavioural and
neuromuscular re-education techniques.
A combined analyses of 22 articles that dealt with behavioral techniques in
community dwelling adults were reviewed by a subcommittee of behavioral experts
and then by external reviewers. The number of patients (both male and female)
studied in the combined analyses was 887, with an average age of 53 years. The
number of baseline incontinent episodes ranged from 4 to 21 per week, per
article, with an overall average of 6 per week. Based on the weighted combined
data, the average percent reduction in incontinence frequency at the end of
treatment was 64.6%, with a 95% confidence interval ranging from 58.8% to 70.4%.
Successful application of behavioural treatment and neuromuscular re-
education therapy using biofeedback is highly dependent on the knowledge and
skill of the health care provider. This very important factor is the principle
reason for such a wide percentage range in the studies mentioned above. In
contrast, MedCare's protocols are in depth, standardized and comprehensive. All
MedCare trained clinicians receive training in every aspect of the treatment
program, including familiarity with evaluation techniques, anatomic and
physiologic correlates of the different forms and symptoms of bladder
dysfunction, instrumentation and behavioral principles that guide the MedCare
program for incontinence.
EXPANSION OF THE MEDCARE PROGRAM
The MedCare Program is available through the practices of physicians
(urologist, urogynecologist, gastroenterologist, and/or colon rectal surgeon)
either in a private office, clinic, or a hospital setting.
24
<PAGE>
For the physician, the MedCare Program is a turn key system that includes
equipment, trained personnel, model policies and procedures, billing and
collections assistance and an active marketing program in each local community
where the Program is available. Inclusive of equipment and training costs, each
site is expected to cost around $20,000 to establish.
As of March 6, 1998, the Company had established (as noted with an "*") or
was in the process of opening a total of twenty four (24) MedCare Program sites
in the following cities: Norman, OK* (Dr. Michael M. Blue), Winter Park, FL*
(Dr. Jake Jacobo), Denver, CO* (Dr. Rueven Rosen), Raleigh, NC* (Dr. Richard D.
Kane), Kankakee, IL* (Dr. Joel Slutsky), Kingwood, TX* (Dr. Robert Rosen),
Toledo, OH* (Dr. Gregory Haselhahn), Lake Worth, FL* (Dr. Mark Lieberfarb),
Coral Springs, FL* (Dr. Michael Lazzopina), Phoenix, AZ* (Dr. William Crisp),
Fremont, CA* (Dr. Scott Kramer), New York, NY (Dr. Robert Gluck), New Rochelle,
NY (Dr. Larry Roberts), Roswell, GA (Dr. Omar Eubanks), Baltimore, MD (Dr. Marci
Roenneberg), Stanford, CT (Dr. Jon Waxberg), West Orange, NJ (Dr. Yitzhak
Berger), Clackamas, OR (Dr. Herbert Tirjer), Dallas, TX (Dr. Brian Feagins),
Amherst, OH (Dr. Steven Leslie), Columbus, OH (Dr. Stephen Richards),
Alexandria, VA(Dr. A. Roger Weiderhorn), Albany, NY (Dr. B. Orakondy), Mine
Hill, NJ (Dr. Marc Colton),
MARKETING OF THE MEDCARE PROGRAM
In a study of 3,638 patients over age 20 who saw their physicians during an
11 week period, 43% of women and 11% of men (33% overall) reported current UI.
75% of these patients had not yet informed a health care professional, however,
more than a third said they would see a physician if treatment were available.
In the meantime, many are prematurely drawn to the use of absorbent products as
a result of extremely effective marketing by major manufacturers, such as
Kimberly Clark, Procter & Gamble and Johnson & Johnson, thus allowing millions
of sufferers to hide their condition without anyone ever discovering their UI
and resulting in an average sufferer waiting between 7 and 9 years before
seeking help.
This study reveals the crux of the problem: a significant number of
incontinence sufferers do not seek medical guidance of any kind either because
they are too embarrassed, believe their condition is a normal part of aging or
bearing children or are not aware that a genuine medical treatment is available.
This general ignorance on the part of the patient is compounded by the fact that
so few people in the medical community are knowledgeable.
When an effort is made to educate and market to incontinence sufferers,
most are amazed at the significant drawing power of simple marketing and sales
programs. For example, The New York Times reported an incidence in which the
authors of "Staying Dry: A Practical Guide to Bladder Control" (Dr. Kathryn L.
Burgio, K. Lynette Pearce and Dr. Angelo J. Lucco) were rejected by 50
publishers before Johns Hopkins Press accepted the manuscript. Within several
days of a mention of the book in an Ann Landers column, Johns Hopkins Press was
flooded by over 20,000 letters. Within a matter of months, over 50,000 copies of
the book had been sold, becoming the biggest selling book of its kind in such a
short period of time.
MedCare's marketing and sales strategy is designed to promote general
awareness of incontinence and that an effective treatment program is readily
available. The majority of the Company's advertising is directed towards the
sufferer through a combination of brochures, print ads, direct mail, radio, TV,
doctor referrals, seminars and general public relations within a defined area.
The Company's past experience with such marketing has been favorable, with print
and referrals being the best source of new patient flow.
The Company targets much of its marketing and advertising to those
individuals that are prime candidates, namely women over the age of 35, men who
have undergone prostate surgery, nursing home residents, new mothers, female
athletes and current incontinence patients. A secondary audience for MedCare's
advertising will be friends and family and the professional audience, which
includes gynecologists/obstetricians, general practitioners, family
practitioners, geriatricians, gastroenterologists, nurse practitioners, and
nursing home administrators. Past experience indicates that once an effective
marketing program has been launched, continued draw comes from word of mouth
referrals from patients and doctor referrals.
COMPETITIVE TREATMENT OPTIONS FOR UI
Some currently available alternatives for the treatment of urinary
incontinence include:
Absorbent Products and Diapers: Similar to baby diapers, adult diapers and
pads capture urine upon leakage. While the product has improved over the last
few years, most users find the bulky size, inconvenience, lack of control over
urine flow, discomfort from wetness, embarrassment over the appearance and odor
of urine and ongoing cash outlay to be major disadvantages. It has been
estimated that the typical UI sufferer in the United States spends between $1200
to $1500 annually on these types of products. Retail sales of adult absorbent
products surpassed $1.6 billion last year according to industry
25
<PAGE>
sources, compared to $496 million in 1987 and just $173 million in 1982. Early
dependency on absorbent products is often a deterrent to continence by giving
the wearer a false sense of security and removes their motivation to seek
evaluation and treatment. When used improperly, absorbent products may
contribute to skin breakdown and urinary tract infections. As a result,
meticulous care and frequent changes are required.
Surgery: A variety of surgical procedures are utilized more for stress
incontinence than urge or mixed incontinence. Surgeries usually involve
elevating and stabilizing the urethra and the bladder neck in order prevent
hypermobility. These procedures are delicate, complicated procedures whose
success depends on a number of factors, including the degree of the pathology
and the operating physician's experience. Accordingly, outcomes are generally
varied. Surgery is quite an expensive and traumatic procedure requiring a
hospital stay and several weeks of recovery time. A typical bladder suspension,
for example, costs over $10,000 to perform. An estimated 60,000 bladder
suspension procedures are performed annually in America.
Indwelling Catheters: An indwelling, or Foley, catheter is a closed sterile
system inserted into the bladder through the urethra in order to allow for
drainage of the bladder directly through a tube into a urine collection bag.
While the individual typically remains dry, most experience the inconvenience of
the long tube and collection bag. For continuous users, urinary tract infections
are of concern.
Implanting Devices and Injectable Materials: Implantation of foreign
materials into the body, such as an artificial sphincter, are used relatively
infrequently due to the highly invasive and high complication rate as compared
with other procedures. Injectables, which include collagen,
polytetrafluoroethylene and other materials, are inserted into the tissue
surrounding the urethral sphincter using a small-gauge hypodermic needle under
local anaesthesia. The injection of the material increases muscle tone of the
sphincter by increasing bulk and offering greater resistance to urine flow.
Periurethral injections generally show promise when used in patients
suffering from specific anatomical defects, principally intrinsic sphincteric
deficiency, thus limiting its use to about 10% to 15% of the UI population. In
addition to the high cost of such injections, around $2,500, there is some
degree of side effects.
Electrical Stimulation: Electrical stimulation involves the application of
a low level electric current to stimulate or inhibit the pelvic muscles or their
nerve supply.
Mechanical Devices: Most mechanical devices, such as vaginal pessaries,
diaphragm rings and other inflatable and non-inflatable devices, work by
supporting the urethrovesical junction. Despite their wide availability, these
products have not gained wide acceptance among UI sufferers. In addition to the
difficulty of properly fitting patients with these devices, other potential
adverse side effects include vaginal discharge and tissue erosion.
Drugs: Drugs typically used for the treatment of incontinence act on the
nerve receptors associated with the bladder neurotransmitter system and
generally alleviate the symptoms in part but are seldom curative. Drugs also may
cause adverse side effects, often affecting the cardiovascular and circulatory
systems, along with the possibility of urinary retention and unwanted
interactions with other drugs. Currently, most drugs require continual, life
long usage in order to control urinary incontinence symptoms.
"Ma & Pa" Clinics: At present, there are a number of small incontinence
clinics, or ancillary programs, offered by doctors, hospitals or therapists,
scattered across North America that use a combination of currently available
non-invasive alternative treatment options to treat UI patients. While most of
these clinics have limited financial strength for adequate marketing and
advertising and often operate a "ma and pa" type of business, the Company
expects better financed and more sophisticated competition to emerge in the
future.
Ignorance of Sufferers And The Medical Community: The greatest competition,
by far, comes from the ignorance of the marketplace. A significant number of
incontinence sufferers do not seek medical guidance of any kind either because
they are too embarrassed, believe that their condition is a normal part of aging
or bearing children or are not aware that a genuine medical treatment is
available. Not only are UI sufferers ignorant of the care and treatment options
available for their condition, but so are a vast number of people in the medical
profession. In fact, so few doctors are knowledgeable about UI that the Agency
for Health Care Policy and Research recommended that information about UI be
included in the curricula of undergraduate and graduate health professional
schools.
26
<PAGE>
EMPLOYEES
At December 31, 1997, the Company employed 17 full time persons. As of
March 6, 1998, the Company employed 27 full time persons. To the best of the
Company's knowledge, none of the Company's officers or directors is bound by
restrictive covenants from prior employers. None of the Company's employees are
represented by labor unions or other collective bargaining groups.
YEAR 2000 ISSUES
All of the Company's computer systems, including hardware and software, in
both corporate and clinical use, utilize the date format specified in the
underlying operating system of Windows 95 and, as a result, are fully Year 2000
compliant. The Company's clinical software, the "Myoexerciser," can store
dates from year 0 to 9999. As a result, the Company does not anticipate any
Year 2000 issues to arise, nor will there be any expenses required in order to
resolve Year 2000 issues.
HISTORY OF THE COMPANY
Except for the historical information contained herein, the discussion in
this Registration Statement contains certain forward-looking statements that
involve risk and uncertainties, including, but not limited to, product and
service demand and acceptance, changes in technology, changes in insurance
reimbursement, economic conditions, the impact of competition and pricing,
government regulation, and other risks defined in this document and in
statements filed from time to time with the Securities and Exchange Commission.
The cautionary statements made in this document should be read as being
applicable to all related forward-looking statements wherever they appear in
this document. The Company's actual results could differ materially from those
discussed here.
The Company, formerly known as Multi-Spectrum Group, Inc., was
incorporated under the name Santa Lucia Funding, Inc., in the State of Utah on
January 17, 1986, with an authorized capital of 50,000,000 common shares with a
par value of $0.001 for the purposes of raising capital in order to seek
business opportunities believed to hold potential for profit. On February 8,
1990, the Company adopted a plan of merger with Multi-Spectrum Group, Inc., a
Delaware corporation, and Santa Lucia Funding, Inc., a Utah corporation, merged
into Santa Lucia Funding, Inc., a Utah corporation, which then changed its name
to Multi-Spectrum Group, Inc. The outstanding shares of Multi-Spectrum Group,
Inc. were converted into common shares of Santa Lucia Funding, Inc. at the
exchange rate of 55,305 shares of Santa Lucia for each common share of Multi-
Spectrum then issued and outstanding. In addition, the number of common shares
authorized was increased from 50,000,000 to 100,000,000 with the par value
remaining at $0.001. On November 13, 1992, the Company issued 8,7722,800 shares
of its Common Stock to Group of Five, Inc. in exchange for services rendered.
The Company was inactive during the period from February 1990 to August
1995, at which point the Company acquired the MedCare program for treating
incontinence.
On August 11, 1995, a reverse split of the common stock by a ratio of one
new for 1,200 old was effected, with the par value remaining at $0.001. This
reduced the total number of shares issued and outstanding to 58,519. On August
14, 1995, the Company acquired the rights to the MedCare Program, a urinary
incontinence procedure, in exchange for 2,000,000 shares of its common stock.
On August 25, 1995, the Company approved an increase in the authorized capital
to 101,000,000 shares of stock, comprised of 100,000,000 common shares with a
par value of $0.0001 per share and 1,000,000 preferred shares with a par value
of $0.25 per share, and approved a name change to MedCare Technologies, Inc.
On August 15, 1995, the Company authorized in a Private Placement
Memorandum, pursuant to Regulation D, Rule 504, offering 4,200,000 shares of its
common stock at a price of $0.15. This offering was conducted in order to raise
money for further research and development on the MedCare Program and was broken
down as follows: $300,000 for public relations and advertising, $155,000 for
market research and development, $45,000 for consulting, $25,000 for
miscellaneous expenses and $75,000 as a cash reserve. On September 20, 1995,
the offering was completed with all shares being issued for a total value of
$630,000, less offering costs of $30,000.
On October 1, 1995, the Company's wholly owned subsidiary, MedCare
Technologies Corporation, acquired 100% of Manon Consulting Ltd., an Alberta,
Canada, corporation, for a nominal value from its owners, Diane Nunzianto, a
MedCare Technologies, Inc. director and Philip Tolley and Mel Tolley. On
December 31, 1995, the Company issued 16,666 shares of its common stock for
$50,000 cash and 25,000 shares of its common stock in exchange for consulting
services with a value of $75,000. The operations of Manon Consulting were
terminated on December 31, 1996.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on June 20, 1996 and completed on August
15, 1996. This offering was for 50,000 shares of common stock at $4.75
27
<PAGE>
per share for a total offering of $237,500. The proceeds from this offering
were used for equipment purchase, advertising and marketing, and working
capital.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on November 18, 1996 and completed on
December 24, 1996. This offering was for 56,000 shares of common stock at $4.50
per share for a total offering of $252,000. The proceeds from this offering
were used for equipment purchases, advertising and marketing and working
capital.
Narinder Thouli, a member of the Board of Directors, resigned on November
1, 1996. He resigned for personal reasons and did not have any disagreements
with the Company. On October 4, 1996 a migratory merger was completed changing
the Company's domicile from Utah to Delaware.
During fiscal 1997, the Company issued three private placement memoranda.
On February 1, 1997, an offering was begun pursuant to Regulation D, Rule 506
for 176,000 shares of common stock at $6.25 per share for a total offering of
$1,100,000. This offering was completed on February 4, 1997. The proceeds were
used for working capital and expansion of the MedCare Program.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 506 on July 7, 1997 for 300,000 shares of common stock at
$6.00 per share, plus 300,000 warrants exercisable at $6.00 per warrant until
July 7, 2002 for a total offering of $1,800,000. This offering was completed on
July 30, 1997 and the proceeds used for working capital and expansion of the
MedCare Program.
On June 20, 1997, the Company began offering for sale a Regulation D
offering under Rule 506. This offering was for the Series A Preferred Stock of
the Company and was sold for $10,000 per share, in minimum subscription amounts
of at least ten shares ($100,000) and increments of five shares in excess
thereof. The total offering was for three hundred shares for a total of
$3,000,000, with a minimum offering of $1,650,000. The offering closed on July
8, 1997 with the minimum offering placed. The Preferred Stock was accompanied
by 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 each of nine,
twelve and fifteen months following the closing date of the offering, divided by
the Fixed Conversion Price as defined in the Certificate of Designation. In
conjunction with this offering, an Escrow Agreement was entered into with Swartz
Investments LLC, a Georgia limited liability company, as Placement Agent and
with First Union National Bank of Georgia as Escrow Agent.
At this time, the Company also filed a Certificate of Designation with the
State of Delaware in conjunction with this offering. This Certificate was
approved on July 7, 1997 and designates 1,000 shares of the Company's one
million shares of authorized preferred stock to be Series A stock. This stock
has been assigned an issue price of $10,000 per share with an eight percent (8%)
per annum accretion rate. The rank of this stock has been assigned as being
senior to all Common Stock of the Company, 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, senior to any class or series of
capital stock of the Company hereafter created not specifically ranking by its
terms senior to or on par with any Series A Preferred Stock of whatever
subdivision, and 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. No dividend rights have been granted to this stock.
The conversion terms outlined in the Certificate of Designation state that
holders of the Series A Preferred Stock can convert their stock on or after a
period of no less than four months from the closing date into Common Stock using
the formula per share of Series A Preferred Stock:
(.08)(N/365)(10,000) + 10,000
-------------------------------
Conversion Price
The Conversion Price is determined as the lesser of 115% of the average Closing
Bid Price for the five trading days ending on June 6, 1997, which is $7.346 or
X% of the average Closing Bid Price of the Company's Common Stock for the five
trading days immediately preceding the Date of Conversion, where X is determined
as follows:
# of months between Last Closing
and Date of Conversion "X"
------------------------ ---
4-6 months 90%
6 months-1 year 87.5%
28
<PAGE>
9 months, 1 day-12 months 85%
more than 12 months 80%
The Company also has the right to redeem the Series A Preferred Stock upon
receipt of Notice of Conversion at a rate of the Stated Value times 1.10 to 1.2
or may redeem the stock at its own election at 115% to 130%, depending on the
length of time.
The Placement Agent and its employees and affiliates were granted a total
of 165 Preferred Stock options and 258,302 Common Stock options in conjunction
with this offering. These warrants have been issued pursuant to a Placement
Agent Agreement between the Company and Swartz Investments, LLC, a Georgia
limited liability company, as Placement Agent. According to this agreement, the
Placement Agent agreed to find subscribers for the Company's Preferred Stock
Series A offering in exchange for a placement fee of 5-1/2% of the aggregate
gross subscription proceeds of the offering, a non-accountable expense allowance
of 2% of the aggregate gross subscription proceeds, and, if a subscriber
exercises a preferred warrant, a fee consisting of 7-1/2% of the aggregate
exercise price, as defined in the Preferred Warrant. The Placement Agent
Agreement also grants to the Placement Agent three sets of warrants (i) warrants
to purchase stock equal to 7-1/2% times the aggregate gross subscription
proceeds divided by the Fixed Conversion Price (as defined in the Certificate of
Disclosure), (ii) warrants to purchase stock equal to 7-1/2% of the number of
Conversion Warrants placed in the offering (as defined in the Subscription
Agreement) and (iii) upon the exercise of a Preferred Warrant by a Stockholder,
warrants to purchase stock equal to 7-1/2% of the gross proceeds received by the
Company upon the exercise of the Preferred Warrant divided by the Exercise Price
(as defined in the Preferred Warrant). All three of these warrants are for a
period of five years at a fixed conversion price of $7.346 per share, as defined
in the Certificate of Disclosure. The Placement Agent Agreement also contains
cashless exercise and reset provisions.
On July 8, 1997, Jeffrey Aronin joined the Company as its President and
Chief Operating Officer. He was also elected a Director of the Company. Harmel
S. Rayat, the previous president, remains with the Company in the capacity of
Chief Executive Officer and Chairman of the Board.
On September 17, 1997, Diane Nunziato resigned as a director of the Company
and Dr. Jake Jacobo joined the Company as a director. Ms. Nunziato resigned for
personal reasons and did not have any disagreements with the Company.
On November 7, 1997, Mr. Greg Wujek joined the Company as its Vice
President of Managed Care.
The Company has also issued shares pursuant to the following stock option
plans:
1995 Stock Option Plan (500,000 shares exercisable at $3.00 until December
31, 2001)
1996 Stock Option Plan (300,000 shares exercisable at $4.50 until June 20,
2001)
1997 Stock Option Plan (200,000 out of 500,000 shares exercisable at $4.50
until November 18, 2001)
1997 Stock Option Plan (300,000 out of 500,000 shares exercisable at $6.50
until July 1, 2005)
GOING CONCERN
The going concern opinion of the independent accountant, as disclosed in
the Company's Independent Auditors Report attached to Part F/S, is as follows:
"The Company is a development stage Company as defined in Financial
Accounting Standards Board Statement No. 7. The Company is devoting
substantially all of its present efforts in establishing a new business and
although planned principal operations have commenced, there have been no
significant revenues. Management's plans regarding the matters which raise
doubts about the Company's ability to continue as a going concern are
disclosed in Note 1 to the financial statements. These factors raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty."
The Company's executive offices are located at 608 South Washington Street,
Suite 101, Naperville, Illinois, 60540. Its telephone number is (630) 428-2859.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the financial
statements and notes thereto included with this Form SB-2. Except for the
historical information contained herein, the discussion in this Registration
Statement contains certain forward-looking statements that involve risk and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this document
should be read as being applicable to all related forward-looking statements
wherever they appear in this document. The Company's actual results could differ
materially from those discussed here. Factors that could cause differences
include those discussed above in "Risk Factors", as well as discussed elsewhere
herein.
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
behavioral techniques for treatment. These techniques include biofeedback using
electromyography (EMG), pelvic floor muscle exercises, and bladder and bowel re-
training. The program is designed to activate and strengthen the various
sensory-response mechanisms that maintain bladder and bowel control. The
therapy is provided through computerized instrumental electromyography
biofeedback and is based on operant conditioning strategies whereby specific
physiological responses are progressively shaped, strengthened, and coordinated.
To date, MedCare has not received any significant revenues due to the early
stage nature of the Company's business and has incurred ongoing operating losses
due to costs related to research, business development, management and staff
recruitment, establishing training systems and providing ongoing training,
development of advertising and marketing programs, and other costs associated
with establishing corporate infrastructure necessary for expanding The MedCare
Program on a national basis. Although planned principal operations have
commenced, substantial revenues have yet to be realized.
RESULTS OF OPERATIONS
The Company had revenues of $91,802, $0 and $0 for the years ended December
31, 1997, 1996 and 1995. During 1997, the majority of the Company's revenues
were from three early stage MedCare Program sites, and while the revenues
generated were not significant, these first few sites provided much of the
Company's insight with regards to advertising, marketing, billing and business
development. The information gathered from these early stage developmental
centers is being used to establish additional MedCare sites, a few in late 1997,
but most of which are expected to open in 1998. To date, the Company has not
relied on any revenues for funding. During the next several years, the Company
expects to derive the majority of its potential revenues from the opening of new
MedCare Program centers in the United States, and possibly select foreign
markets.
During 1997, the Company incurred $1,515,459 in General and Administrative
expenses, an increase of 235% over 1996 expenses of $452,037, and resulted in
$.23 per share loss for the year ended December 31, 1997, versus a $.08 per
share loss for the year ended December 31, 1996. This increase is primarily
attributable to costs associated with the development of advertising and
marketing programs, public relations, hiring and training expenses of clinical
and managerial personnel, travel, legal and accounting, and ongoing general
operating expenses. Interest income was $119,146, $2,801 and $0 for the years
ended December 31, 1997, 1996 and 1995, respectively. Interest earned in the
future will be dependent on Company funding cycles and prevailing interest
rates. There was no interest expense incurred on notes payable of $1,000 and
$48,135 during the year ended December 31, 1997 and December 31, 1996. During
1997, the Company accrued a total interest payable of $70,521, compared to $0
and $0 during 1996 and 1995, respectively, on its 8%, Series A Preferred Shares.
The Company has incurred start up costs from January 1, 1995 to September
30, 1995 amounting to $542,706. This total amount, along with additional
operating expenses, was charged to operations during the year ended December 31,
1995, resulting in a total loss of $689,713 or $0.35 loss per share. Total
expenses decreased by 35% for the year ended December 31, 1996, resulting in a
total loss $449,236 or $0.08 per share. This decrease in expenses during 1996
compared to 1995 was a result of few clinical openings during the year, limited
managerial and personnel hiring expenses and limited advertising and marketing
charges.
As of December 31, 1997, the Company's accumulated deficit was
approximately $2,544,727, and as a result, there has been no provision for
income taxes. The Company has net operating losses that will expire beginning
with the years 2002
30
<PAGE>
through 2012, in the amount of $1,363,751, $449,236, $689,713 and $42,027 in
1997, 1996, 1995 and prior years, respectively, unless utilized by the Company.
LIQUIDITY AND CAPITAL RESOURCES
MedCare Technologies has financed its operations primarily through private
placements of Common Shares, Preferred Shares and the exercise of Stock Options
totaling $4,788,500, less offering expenses of $123,750, for the year ended
December 31, 1997, and $611,000 for the year ended December 31, 1996. At
December 31, 1997, the Company had a cash balance of $3,440,791, compared to a
cash balance of $220,562 at December 31, 1996.
The Company's future funding requirements will depend on numerous factors,
including the Company's ability to establish and operate profitability current
and future MedCare Program locations, recruiting and training qualified
management and clinical personnel, competing against any potential technological
advances in the treatment of urinary incontinence and other afflictions of the
pelvic floor area, and the Company's ability to compete against other better
capitalized corporations who offer alternative or similar treatment options for
urinary incontinence and other afflictions of the pelvic floor area.
PLAN OF OPERATIONS
General
- --------
The Company plans to establish approximately 90 MedCare Program sites in
calendar 1998. Each MedCare Program site costs approximately $25,000 to
$30,000, including training, equipment, travel and other miscellaneous costs.
The total start-up investment does not include any lease or office
infrastructure charges, as the Company's business model calls for its Program
sites to be located inside physician practices, with all building and other
incidental charges being covered. Best estimates of first year and second year
operating revenues, and profits before corporate expenses, based on limited
results of certain sites, are shown below for each individual MedCare Program
site:
<TABLE>
<CAPTION>
Year 1 Year 2
<S> <C> <C>
Revenues $ 193,500 $ 266,400
Expenses
Insurance 4,800 4,800
Advertising 24,000 24,000
Payroll 36,000 36,000
Telephone 2,400 2,400
Total Expenses 67,200 67,200
Income 126,300 199,200
</TABLE>
The Company estimates that start-up costs for the 90 new sites in calendar
1998 will total $2.7 million, corporate and head office expense will total
approximately $2.6 million. Together with approximately $4 million in cash,
anticipated revenues of approximately $8.2 million and resultant cash flows from
the Company's operating MedCare Program sites will allow the Company to operate
and execute its business plan without the need of any additional funding.
31
<PAGE>
Projected Statement of Operations January 1998-December 1999
- ------------------------------------------------------------
Calendar Year 1998
- ------------------
<TABLE>
<CAPTION>
Jan Feb Mar Apr
<S> <C> <C> <C> <C>
GROSS REVENUE OFFICES $ 61,100.00 $ 79,300.00 $117,000.00 $183,600.00
PROJECTED EXPENSES
Reg. Nurse Expense $ 10,615.00 $ 19,030.00 $ 27,445.00 $ 35,860.00
Conventions $ 5,600.00 $ 1,100.00 $ 1,100.00 $ 2,100.00
Lease Expenses $ 2,200.00 $ 5,200.00 $ 5,600.00 $ 6,900.00
Corporate Payroll $ 35,000.01 $ 35,000.01 $ 38,875.01 $ 53,375.00
Travel Expenses $ 7,350.00 $ 7,350.00 $ 7,350.00 $ 8,750.00
Office Equipment $ 4,060.00 $ 6,560.00 $ 13,560.00 $ 50,210.00
Insurance $ 7,174.67 $ 7,174.67 $ 7,174.67 $ 7,174.67
Training $ 5,225.00 $ 5,225.00 $ 5,225.00 $ 5,225.00
Corporate Phone $ 3,800.00 $ 3,800.00 $ 3,800.00 $ 3,800.00
Dues & Sub $ 95.00 $ 95.00 $ 95.00 $ 95.00
Corp. Advert & Mkt $ 1,750.00 $ 1,750.00 $ 1,750.00 $ 1,750.00
Investor Relations $ 47,500.00 $ 47,500.00 $ 47,500.00 $ 47,500.00
Physician Relations $ 2,200.00 $ 2,200.00 $ 2,200.00 $ 2,200.00
Outcomes $ 1,500.00 $ 1,500.00 $ 1,500.00 $ 1,500.00
Attorney Fees $ 1,100.00 $ 1,100.00 $ 1,100.00 $ 3,600.00
Office Site Expenses $ 63,945.22 $ 58,054.14 $ 78,653.52 $109,094.44
Miscellaneous $ 500.00 $ 500.00 $ 500.00 $ 500.00
TOTAL EXPENSES $ 199,614.90 $ 203,138.82 $243,428.20 $339,634.11
INCOME BEFORE TAXES $(138,514.90) $(123,838.82) $(126,428.20) $(156,034.11)
</TABLE>
<TABLE>
<CAPTION>
May June July August
<S> <C> <C> <C> <C>
GROSS REVENUE OFFICES $ 250,600.00 $ 356,400.00 $ 634,800.00 $ 834,600.00
PROJECTED EXPENSES
Reg. Nurse Expense $ 42,075.00 $ 52,690.00 $ 61,105.00 $ 69,520.00
Conventions $ 3,600.00 $ 100.00 $ 1,100.00 $ 1,100.00
Lease Expenses $ 6,900.00 $ 6,900.00 $ 6,900.00 $ 6,900.00
Corporate Payroll $ 79,209.31 $ 81,708.31 $ 81,708.31 $ 81,708.31
Travel Expenses $ 17,255.00 $ 17,255.00 $ 17,255.00 $ 17,255.00
Office Equipment $ 12,110.00 $ 8,100.00 $ 5,060.00 $ 5,060.00
Insurance $ 7,174.67 $ 7,174.67 $ 7,174.67 $ 7,174.67
Training $ 9,225.00 $ 9,225.00 $ 9,225.00 $ 11,725.00
Corporate Phone $ 4,350.00 $ 4,350.00 $ 4,350.00 $ 4,850.00
Dues & Sub $ 95.00 $ 95.00 $ 95.00 $ 95.00
Corp. Advert & Mkt $ 1,750.00 $ 1,750.00 $ 1,750.00 $ 1,750.00
Investor Relations $ 47,500.00 $ 47,500.00 $ 47,500.00 $ 47,500.00
Physician Relations $ 2,200.00 $ 2,200.00 $ 2,200.00 $ 2,200.00
Outcomes $ 1,500.00 $ 1,500.00 $ 1,500.00 $ 1,500.00
Attorney Fees $ 3,600.00 $ 3,600.00 $ 3,600.00 $ 3,600.00
Office Site Expenses $ 163,641.66 $ 225,981.34 $ 290,177.94 $ 372,023.00
Miscellaneous $ 500.00 $ 500.00 $ 500.00 $ 500.00
TOTAL EXPENSES $ 402,684.64 $ 470,639.32 $ 541,200.92 $ 634,460.98
INCOME BEFORE TAXES $(152,084.64) $(114,239.32) $ 93,599.08 $ 200,139.02
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Sep Oct Nov Dec
<S> <C> <C> <C> <C>
GROSS REVENUE OFFICES $1,022,400.00 $1,357,800.00 $1,565,400.00 $1,810,800.00
PROJECTED EXPENSES
Reg. Nurse Expense $ 77,935.00 $ 75,735.00 $ 75,735.00 $ 75,735.00
Conventions $ 3,100.00 $ 100.00 $ 1,100.00 $ 2,600.00
Lease Expenses $ 6,900.00 $ 6,900.00 $ 6,900.00 $ 6,900.00
Corporate Payroll $ 91,499.98 $ 91,499.98 $ 91,499.98 $ 91,499.98
Travel Expenses $ 17,255.00 $ 17,255.00 $ 17,255.00 $ 17,255.00
Office Equipment $ 8,060.00 $ 5,160.00 $ 5,160.00 $ 5,160.00
Insurance $ 7,174.67 $ 7,174.67 $ 7,174.67 $ 7,174.67
Training $ 11,725.00 $ 11,725.00 $ 11,725.00 $ 11,725.00
Corporate Phone $ 4,850.00 $ 4,850.00 $ 4,850.00 $ 4,850.00
Dues & Sub $ 95.00 $ 95.00 $ 95.00 $ 95.00
Corp. Advert & Mkt $ 1,750.00 $ 1,750.00 $ 1,750.00 $ 1,750.00
Investor Relations $ 47,500.00 $ 47,500.00 $ 47,500.00 $ 47,500.00
Physician Relations $ 2,200.00 $ 2,200.00 $ 2,200.00 $ 2,200.00
Outcomes $ 1,500.00 $ 1,500.00 $ 1,500.00 $ 1,500.00
Attorney Fees $ 3,600.00 $ 3,600.00 $ 3,600.00 $ 3,600.00
Office Site Expenses $ 425,746.68 $ 499,850.82 $ 574,455.42 $ 671,441.40
Miscellaneous $ 500.00 $ 500.00 $ 500.00 $ 500.00
TOTAL EXPENSES $ 711,391.33 $ 777,395.47 $ 853,000.07 $ 951,486.05
INCOME BEFORE TAXES $ 311,008.67 $ 580,404.53 $ 712,399.93 $ 859,313.95
</TABLE>
<TABLE>
<CAPTION>
Totals
<S> <C>
GROSS REVENUE OFFICES $ 8,273,800.00
PROJECTED EXPENSES
Reg. Nurse Expense $ 623,480.00
Conventions $ 22,700.00
Lease Expenses $ 75,100.00
Corporate Payroll $ 852,583.19
Travel Expenses $ 168,840.00
Office Equipment $ 128,270.00
Insurance $ 96,096.04
Training $ 107,200.00
Corporate Phone $ 52,500.00
Dues & Sub $ 1,140.00
Corp. Advert & Mkt $ 21,000.00
Investor Relations $ 570,000.00
Physician Relations $ 26,400.00
Outcomes $ 18,000.00
Attorney Fees $ 35,700.00
Office Site Expenses $ 3,533,065.58
Miscellaneous $ 6,000.00
TOTAL EXPENSES $ 6,328,074.81
INCOME BEFORE TAXES $ 1,945,725,19
</TABLE>
33
<PAGE>
Calendar Year 1999
- -------------------
<TABLE>
<CAPTION>
Jan Feb Mar Apr
<S> <C> <C> <C> <C>
GROSS REVENUE
OFFICES $ 2,044,800.00 $ 2,099,400.00 $ 2,161,800.00 $ 2,261,400.00
PROJECTED EXPENSES
Reg. Nurse Expense $ 109,133.03 $ 120,046.33 $ 130,959.64 $ 141,872.94
Conventions $ 5,600.00 $ 1,100.00 $ 1,100.00 $ 2,100.00
Lease Expenses $ 6,900.00 $ 6,900.00 $ 6,900.00 $ 6,900.00
Corporate Payroll $ 88,368.03 $ 88,194.42 $ 88,194.42 $ 88,194.42
Travel Expenses $ 7,350.00 $ 7,350.00 $ 7,350.00 $ 8,750.00
Office Equipment $ 4,060.00 $ 3,560.00 $ 3,560.00 $ 5,210.00
Insurance $ 7,174.67 $ 7,174.67 $ 7,174.67 $ 7,174.67
Training $ 11,725.00 $ 11,725.00 $ 11,725.00 $ 11,725.00
Corporate Phone $ 5,100.00 $ 5,100.00 $ 5,100.00 $ 5,100.00
Dues & Sub $ 95.00 $ 95.00 $ 95.00 $ 95.00
Corp. Advert & Mkt $ 1,750.00 $ 1,750.00 $ 1,750.00 $ 1,750.00
Investor Relations $ 47,500.00 $ 47,500.00 $ 47,500.00 $ 47,500.00
Physician Relations $ 2,200.00 $ 2,200.00 $ 2,200.00 $ 2,200.00
Outcomes $ 1,500.00 $ 1,500.00 $ 1,500.00 $ 1,500.00
Attorney Fees $ 1,100.00 $ 1,100.00 $ 1,100.00 $ 2,500.00
Office Site
Expenses $ 518,078.76 $ 56,781.52 $ 596,108.28 $ 674,555.96
Miscellaneous $ 600.00 $ 600.00 $ 600.00 $ 600.00
TOTAL EXPENSES $ 818,234.49 $ 862,676.94 $ 912,917.01 $ 1,007,727.99
INCOME BEFORE TAXES $ 1,226,565.51 $ 1,236,723.06 $ 1,248,882.99 $ 1,253,672.01
</TABLE>
<TABLE>
<CAPTION>
May June July August
<S> <C> <C> <C> <C>
GROSS REVENUE
OFFICES $ 2,363,600.00 $ 2,468,400.00 $ 2,627,200.00 $ 2,788,600.00
PROJECTED EXPENSES
Reg. Nurse Expense $ 152,786.24 $ 163,699.55 $ 174,612.85 $ 185,526.15
Conventions $ 3,600.00 $ 100.00 $ 1,100.00 $ 1,100.00
Lease Expenses $ 6,900.00 $ 6,900.00 $ 6,900.00 $ 6,900.00
Corporate Payroll $ 88,194.42 $ 88,194.42 $ 88,194.42 $ 88,194.42
Travel Expenses $ 10,180.00 $ 11,180.00 $ 11,180.00 $ 11,380.00
Office Equipment $ 6,110.00 $ 5,100.00 $ 5,060.00 $ 5,060.00
Insurance $ 7,174.67 $ 7,174.67 $ 7,174.67 $ 7,174.67
Training $ 11,725.00 $ 12,225.00 $ 13,225.00 $ 13,725.00
Corporate Phone $ 5,100.00 $ 5,600.00 $ 5,600.00 $ 5,600.00
Dues & Sub $ 95.00 $ 95.00 $ 95.00 $ 95.00
Corp. Advert & Mkt $ 1,750.00 $ 1,750.00 $ 1,750.00 $ 1,750.00
Investor Relations $ 47,500.00 $ 47,500.00 $ 47,500.00 $ 47,500.00
Physician Relations $ 2,200.00 $ 2,200.00 $ 2,200.00 $ 2,200.00
Outcomes $ 1,500.00 $ 1,500.00 $ 1,500.00 $ 1,500.00
Attorney Fees $ 2,500.00 $ 2,500.00 $ 3,500.00 $ 3,500.00
Office Site
Expenses $ 734,211.64 $ 794,075.32 $ 885,995.92 $ 959,124.52
Miscellaneous $ 600.00 $ 600.00 $ 600.00 $ 600.00
TOTAL EXPENSES $ 1,082,126.97 $ 1,150,403.96 $ 1,256,187.86 $ 1,340,929.76
INCOME BEFORE TAXES $ 1,281,473.03 $ 1,317,996.04 $ 1,371,012.14 $ 1,447,670.24
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Sep Oct Nov Dec
<C> <C> <C> <C> <C>
GROSS REVENUE
OFFICES $ 2,952,600.00 $ 3,152,200.00 $ 3,351,800.00 $ 3,551,400.00
PROJECTED EXPENSES
Reg. Nurse Expense $ 196,439.46 $ 207,352.76 $ 207,352.76 $ 207,352.76
Conventions $ 3,100.00 $ 100.00 $ 1,100.00 $ 2,600.00
Lease Expenses $ 6,900.00 $ 6,900.00 $ 6,900.00 $ 6,900.00
Corporate Payroll $ 88,194.42 $ 88,194.42 $ 88,194.42 $ 88,194.42
Travel Expenses $ 11,380.00 $ 11,380.00 $ 11,380.00 $ 11,380.00
Office Equipment $ 8,060.00 $ 5,160.00 $ 5,160.00 $ 5,160.00
Insurance $ 7,174.67 $ 7,174.67 $ 7,174.67 $ 7,174.67
Training $ 13,725.00 $ 13,725.00 $ 13,725.00 $ 13,725.00
Corporate Phone $ 5,600.00 $ 5,600.00 $ 5,600.00 $ 5,600.00
Dues & Sub $ 95.00 $ 95.00 $ 95.00 $ 95.00
Corp. Advert & Mkt $ 1,750.00 $ 1,750.00 $ 1,750.00 $ 1,750.00
Investor Relations $ 47,500.00 $ 47,500.00 $ 47,500.00 $ 47,500.00
Physician
Relations $ 2,200.00 $ 2,200.00 $ 2,200.00 $ 2,200.00
Outcomes $ 1,500.00 $ 1,500.00 $ 1,500.00 $ 1,500.00
Attorney Fees $ 3,500.00 $ 4,000.00 $ 4,000.00 $ 4,000.00
Office Site
Expenses $ 1,031,861.12 $ 1,044,750.04 $ 1,182,318.32 $ 1,257,346.92
Miscellaneous $ 600.00 $ 600.00 $ 600.00 $ 600.00
TOTAL EXPENSES $ 1,426,579.67 $ 1,447,981.89 $ 1,586,550.17 $ 1,663,078.77
INCOME BEFORE TAXES $ 1,526,020.33 $ 1,704,218.11 $ 1,765,249.83 $ 1,888,321.23
</TABLE>
<TABLE>
<CAPTION>
Totals
<S> <C>
GROSS REVENUE OFFICES $ 31,823,200.00
PROJECTED EXPENSES
Reg. Nurse Expense $ 1,997,134.47
Conventions $ 22,700.00
Lease Expenses $ 82,800.00
Corporate Payroll $ 1,058,506.66
Travel Expenses $ 120,240.00
Office Equipment $ 58,270.00
Insurance $ 86,096.04
Training $ 152,700.00
Corporate Phone $ 64,700.00
Dues & Sub $ 1,140.00
Corp. Advert & Mkt $ 21,000.00
Investor Relations $ 570,000.00
Physician Relations $ 26,400.00
Outcomes $ 18,000.00
Attorney Fees $ 33,300.00
Office Site Expenses $ 10,235,208.32
Miscellaneous $ 7,200.00
TOTAL EXPENSES $ 14,555,395.48
INCOME BEFORE TAXES $ 1,945,725.19
</TABLE>
35
<PAGE>
DESCRIPTION OF PROPERTY
The Company's principal office is located at 1515 West 22nd Street, Suite
1210, Oak Brook, Illinois, 60521. This office is 2400 square feet and is
subleased for $4800 per month, plus operating expenses of approximately $400
per month, for one year, with an option to renew every year for 5 years. The
Company also leases 1,500 square feet of office space located in Vancouver,
British Columbia for $2,000 per month, plus operating expenses of approximately
$200 per month. This space has been leased for a period of one year, with an
option to renew for a second year, and is owned by one of the Company's
directors and by the Chairman's wife.
The Company does not purchase or lease property on behalf of its MedCare
Program participants. Instead, the Company typically enters into a "Practice
Management Agreement" ("PMA") with a physician, usually a urologist,
urogynaecologist or gynaecologist in order to manage the incontinence portion of
their practice. The PMA calls for the Company to provide a trained clinician,
usually a nurse, electromyography equipment and a comprehensive marketing
campaign that would include direct advertising, print, speeches, etc. The
physician is required to provide a dedicated examining room, typically 10' x 10'
or larger in size, at no charge and for the duration of the PMA, usually for a
five year term. Simply stated, the Company's advertising and marketing attracts
patients who suffer from urinary incontinence, who are then evaluated by the
physician, after which they are treated using the MedCare Program.
CERTAIN TRANSACTIONS
On October 1, 1995, the Company acquired 100% of Manon Consulting Ltd. for
nominal value. Diane Nunziato, a director of the Company until September 17,
1997, was a director and minority shareholder of Manon Consulting at the time of
the transaction, which was approved by both boards after disclosure. The
Company operated its Calgary clinic through Manon Consulting until the closure
of this clinic on December 31, 1996. Since Manon Consulting has no historical
profitability and is partially responsible for the development of the MedCare
program through Manon Consulting's clinical activities, the Company acquired
Manon Consulting for nominal value.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's common stock trades on the NASD Electronic Bulletin Board
under the symbol MCAR. The following table sets forth the high and low sale
price information as reported by America Online for the periods indicated:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
January-March 1997 $8.25 $6.75
April-June 1997 $8.0625 $6.25
July-September 1997 $9.25 $6.875
October-December 1997 $8.125 $7.625
</TABLE>
HOLDERS
As of February 17, 1998, there were approximately 255 stockholders of
record of the Company's Common Stock.
DIVIDEND POLICY
The Company has never paid a dividend and does not anticipate paying any
dividends in the foreseeable future. It is the present policy of the Board of
Directors to retain the Company's earnings, if any, for the development of the
Company's business.
36
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or awarded to the
Company's chief executive officer and to each of the Company's three most highly
compensated executive officers other than the chief executive officer whose
salary and bonus for the latest fiscal year exceeded $100,000, for services
rendered to the Company in 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Name and ------------------- Securities
Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
- ------------- ---- ------ ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Harmel S. Rayat,
President & CEO 1995 $0 $0 0 0 0
Valerie Boeldt-
Umbright,
Director 1995 $0 $0 0 0 0
Harmel S. Rayat,
President &
CEO 1996 $0 $0 0 0 0
Valerie Boeldt-
Umbright,
Director 1996 $12,687.50 $0 0 0 0
</TABLE>
1995 STOCK OPTION PLAN. The 1995 Stock Option Plan has 500,000 shares reserved
for issuance at $3.00 per share until December 31, 2001 and have no vesting
period. The individuals listed below have these options:
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Number Exercised Year Exercised
- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C>
Harmel S. Rayat 150,000 None N/A
Bhupinder Mann 100,000 13,000 1996
17,000 1997
6,000 1998*
Ranjit Bhogal 100,000 11,000 1996
17,000 1997
6,000 1998*
Herdev S. Rayat 100,000 13,000 1996
18,500 1997
6,000 1998*
Frank Mueller 10,000 None N/A
Sarbjit Thouli 10,000 1,500 1997
Grant Mackney 10,000 None N/A
Todd Weaver 10,000 None N/A
Dave Gamache 10,000 None N/A
</TABLE>
1996 STOCK OPTION PLAN. The 1996 Stock Option Plan has 300,000 shares reserved
for issuance at $4.50 per share until June 20, 2001 and have no vesting period.
The individuals below have these options:
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Number Exercised Year Exercised
- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C>
Valerie Boeldt-Umbright 40,000 None N/A
Terry Johnson 60,000 3,000 1996
17,000 1997
6,000 1998*
Harmel S. Rayat 160,000 None N/A
Michael M. Blue 40,000 None N/A
</TABLE>
1997 STOCK OPTION PLAN. The 1997 Stock Option Plan has 500,000 shares reserved
for issuance. 200,000 options are exercisable at $4.50 per share until November
18, 2001 and 300,000 options are exercisable at $6.50 per share until July 1,
2005. The individuals listed below have these options:
37
<PAGE>
<TABLE>
<CAPTION>
Total Exercise Number Year
Name of Optionee Reserved Price Exercised Exercised
- ---------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Valerie Boeldt-Umbright 100,000 $4.50 None N/A
15,000 $6.50 None N/A
Terry Johnson** 40,000 $4.50 3,000 1997
20,000 $6.50 None N/A
Michael M. Blue 60,000 $4.50 None N/A
15,000 $6.50 None N/A
Jeff Aronin*** 250,000 $6.50 None N/A
</TABLE>
* Exercised in the first quarter of 1998.
** Transferred from Nicole Alagich and Charles Grahn and approved by Board on
March 16, 1998.
*** Subject to employment agreement with 100,000 options already vested and
100,000 vesting each year for 4 years beginning July 1998. 100,000 options is a
bonus if sales of $10,000,000 are reached by December 31, 1998.
Directors' Compensation
- -----------------------
Director received no compensation for each meeting attended except for
out-of-pocket expenses.
FINANCIAL STATEMENTS
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet at December 31, 1997 and 1996. . . . . . F-2 F-3
Consolidated Statement of Operations for the years ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . F-4 F-5
Consolidated Statement of Stockholders' Equity (Common)
from Inception (January 17, 1986) Through December 31, 1997 . . . F-6 F-11
Consolidated Statement of Stockholders' Equity (Preferred)
from Inception (January 17, 1986) Through December 31, 1997 . . . F-12 F-15
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . F-16 F-17
Notes to the Consolidated Financial Statements . . . . . . . . . . . F-18 F-26
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
MedCare Technologies, Inc. and
Subsidiaries
Oak Brook, Illinois 60521
We have audited the accompanying consolidated balance sheet of MedCare
Technologies, Inc. and Subsidiaries (A Development Stage Company), (the
Company), as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997 and 1996
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 2, 1998
F-1
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current Assets
Cash $ 3,440,791 $ 219,775
Accounts Receivable - Trade 47,286 7,351
Prepaid Expenses 63,813 29,117
--------- -------
Total Current Assets 3,551,890 256,243
Property and Equipment
Office Equipment 21,069 5,274
Medical Equipment 29,799 11,953
--------- -------
50,868 17,227
Less Accumulated Depreciation 17,342 7,796
--------- -------
Net Book Value 33,526 9,431
Other Assets
Intangible Assets - The MedCare Program (Note 3) 1,000 1,000
--------- -------
Total Other Assets 1,000 1,000
--------- -------
Total Assets $3,586,416 $ 266,674
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS'
EQUITY
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 15,796 $ 19,791
Notes Payable - Related Parties 1,000 25,000
Notes Payable - Officers 0 12,500
---------- ---------
Total Current Liabilities 16,796 57,291
Stockholders' Equity
Preferred Stock: $.25 Par Value, Authorized
1,000,000; Issued and Outstanding, 165
Convertible Series A Shares at December 31,
1997 and None at December 31, 1996 41 0
Common Stock: $0.001 Par Value, Authorized
100,000,000; Issued and Outstanding, 6,992,185
Shares at December 31, 1997 and 6,445,185 at
December 31, 1996 6,992 6,445
Additional Paid In Capital 6,107,314 1,372,631
Loss Accumulated During The Development Stage (2,544,727) (1,169,693)
----------- -----------
Total Stockholders' Equity 3,596,620 209,383
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,586,416 $ 266,674
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, AND
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During The
Year ended Year ended Year ended Development
December December December Stage
31, 1997 31, 1996 31, 1995 (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 91,802 $ 0 $ 0 $ 91,802
Expenses
General and Administrative 1,515,459 452,037 689,713 2,699,236
---------- --------- ---------- ------------
Operating Loss (1,423,657) (452,037) (689,713) (2,607,434)
Other Income (Expense)
Interest Income 119,146 2,801 0 121,947
Loss From Discontinued
Operations (4,489) 0 0 (4,489)
Gain on Sale of Subsidiary 15,770 0 15,770
---------- ------- ------- ----------
Total Other Income (Expense) 130,427 2,801 133,228
---------- ------- ------- ----------
Net Loss $(1,293,230) $(449,236) $(689,713) $(2,474,206)
============ ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, AND
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During The
Year ended Year ended Year ended Development
December December December Stage
31, 1997 31, 1996 31, 1995 (Unaudited)
<S> <C> <C> <C> <C>
Primary Loss Per Common
Share and Common Share
Equivalents
Loss from Continuing
Operations $ (0.19) $ (0.08) $ (0.35) $ (0.43)
Loss from Operations of
Business Segment Disposed
of 0.00 0.00
Gain on Disposal of Business
Segment
Net Loss $ (0.19) $ (0.08) $ (0.35) $ (0.35)
=========== ========== =========== ==========
Number of Weighted Shares
Outstanding - Primary 7,270,185 5,884,019 1,992,294 7,270,185
=========== ========== =========== ==========
Fully Diluted Loss Per
Common Share and Common
Share Equivalents
Loss from Continuing
Operations $ (0.19) $ (0.08) $ (0.35) $ (0.36)
=========== ========== =========== ===========
Loss from Operations of
Business Segment Disposed of 0.00 0.00
Gain on Disposal of Business
Segment 0.01 0.01
----------- ----------
Net Loss $ (0.18) $ (0.08) $ (0.35) $ (0.35)
=========== ========== =========== ===========
Number of Weighted Shares
Outstanding - Fully Diluted 7,024,350 5,884,019 1,992,294 7,024,350
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-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 DECEMBER 31, 1997
COMMON STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Balance, January
17, 1986 0 $ 0 $ $ $ 0
Issued to Officers
and Directors at
$.002 per share 2,500,000 2,500 2,500 5,000
Issued Pursuant to
Public Offering
at $.01 3,645,000 3,645 32,805 36,450
Cost of Offering (7,946) (7,946)
Net Loss from
Inception on
January 17, 1986
Through December
31, 1987 (316) (316)
---------- ------- ------- --------- -------
Balance,
December 31, 1987 6,145,000 6,145 27,359 (316) 33,188
Escrow Fee for
Public Offering (200) (200)
Net Loss Year Ended
December 31, 1988 (1,030) (1,030)
--------- ------- ------- --------- -------
Balance,
December 31, 1988 6,145,000 6,145 27,159 (1,346) 31,958
Net Loss Year Ended
December 31, 1989 (21,707) (21,707)
--------- ------- ------- --------- --------
Balance,
December 31, 1989 6,145,000 6,145 27,159 (23,053) 10,251
</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 DECEMBER 31, 1997
COMMON STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
<S> <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 61,450,000 61,450 (28,146) (33,254) 50
Net Loss Year Ended
December 31, 1991
- Unaudited 0 0
------------ --------- ---------- ---------- ---------
Balance,
December 31, 1991 61,450,000 61,450 (28,146) (33,254) 50
Issued to Group
Five, Inc.
November 13, 1992 8,772,800 8,773 0 8773
Net Loss Year Ended
December 31, 1992
- Unaudited (8,773) (8,773)
----------- ---------- --------- ---------- --------
Balance,
December 31, 1992 70,222,800 70,223 (28,146) (42,027) 50
Net Loss Year Ended
December 31, 1993 0 0
----------- ---------- --------- ---------- --------
Balance,
December 31, 1993 70,222,800 70,223 (28,146) (42,027) 50
</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 DECEMBER 31, 1997
COMMON STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Net Loss Year Ended
December 31, 1994 $ $ $ 0 $ 0
----------- --------- ---------- ---------- ----------
Balance,
December 31, 1994 70,222,800 70,223 (28,146) (42,027) 50
Reverse Split 1200:1,
August 11, 1995 (70,164,281) (70,164) 70,164
Acquisition of
MedCare UI
System Assets
August 4, 1995 2,000,000 2,000 (1,000) 1,000
Issued Pursuant to
a Public Offering
at $.15 Per Share
September 20, 1995 4,200,000 4,200 625,800 630,000
Cost of Offering (30,000) (30,000)
Issued for Cash
at $3.00 Per
Share, December
31, 1995 16,666 17 49,983 50,000
Issued for Services
at $3.00 Per Share,
December 31, 1995 25,000 25 74,975 75,000
Net Loss Year Ended
December 31, 1995 (689,713) (689,713)
---------- -------- -------- ---------- ----------
</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 DECEMBER 31, 1997
COMMON STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 6,300,185 $ 6,301 $ 761,776 $ (731,740) $ 36,337
Issuance of
Common Stock
Under 1995 Stock
Option Plan at
$3.00 Per Share
During 1996 36,000 36 107,964 108,000
Issuance of Common
Stock Under 1996
Stock Option Plan
at $4.50 Per Share
During 1996 3,000 3 13,497 13,500
Issuance of Common
Stock Under Private
Placement at $4.75 Per
Share Dated
June 22, 1996 50,000 50 237,450 237,500
Issuance of Common
Stock Under Private
Placement at $4.50 Per
Share Dated
November 18, 1996 56,000 56 251,944 252,000
Write Off of Excess of
Liabilities over Assets
on Purchase of Manon
Consulting, Ltd. 11,283 11,283
Net Loss Year Ended
December 31, 1996 (449,236) (449,236)
----------- -------- ----------- --------- ---------
</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 DECEMBER 31, 1997
COMMON STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 6,445,185 $ 6,445 $ 1,372,631 $(1,169,693) $ 209,383
Recovery of Write
Off Of Excess of
Liabilities over
Assets on Sale of
Manon Consulting, Ltd. (11,283) (11,283)
Issuance of Common
Stock Under 1996
Stock Option Plan at
$4.50 Per Share through
December 31, 1997 17,000 17 76,483 76,500
Issuance of Common
Stock Under 1995
Stock Option Plan at
$3.00 Per Share Through
December 31, 1997 54,000 54 161,946 162,000
Issuance of Common
Stock Under a
Private Placement
Dated March 25, 1997 176,000 176 1,099,824 1,100,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
COMMON STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Issuance of
Common Stock
Under a Private
Placement Dated
July 7, 1997 300,000 300 1,799,700 1,800,000
Net Loss Year Ended
December 31, 1997 (1,293,230) (1,392,320)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
PREFERRED STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Preferred Stock Paid In Development
Shares Amount Capital Stage Total
(Common and (Common and (Common and
Preferred) Preferred) Preferred)
<S> <C> <C> <C> <C> <C>
Balance, January
17, 1986 0 $ 0 $ $ $ 0
Net Loss from
Inception on
January 17, 1986
Through December
31, 1987 (316) (316)
---------- ------- ------- --------- -------
Balance,
December 31, 1987 0 0 27,359 (316) 33,188
Net Loss Year Ended
December 31, 1988 (1,030) (1,030)
--------- ------- ------- --------- -------
Balance,
December 31, 1988 0 0 27,159 (1,346) 31,958
Net Loss Year Ended
December 31, 1989 (21,707) (21,707)
--------- ------- ------- --------- --------
Balance,
December 31, 1989 0 0 27,159 (23,053) 10,251
Net Loss Year Ended
December 31, 1990
- Unaudited (10,201) (10,201)
--------- -------- --------- ---------- --------
Balance,
December 31, 1990 0 0 (28,146) (33,254) 50
Net Loss Year Ended
December 31, 1991
- Unaudited 0 0
---------- --------- --------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
PREFERRED STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Preferred Stock Paid In Development
Shares Amount Capital Stage Total
(Common and (Common and (Common and
Preferred) Preferred) Preferred)
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1991 0 $ 0 (28,146) (33,254) 50
Net Loss Year Ended
December 31, 1992
- Unaudited 0 0 (8,773) (8,773)
----------- -------- ---------- -------- ----------
Balance,
December 31, 1992 0 0 (28,146) (42,027) 50
Net Loss Year Ended
December 31, 1993 0 0
----------- -------- ---------- -------- ----------
Balance,
December 31, 1993 0 0 (28,146) (42,027) 50
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
PREFERRED STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
(Common and (Common and (Common and (Common and (Common and
Preferred) Preferred) Preferred) Preferred) Preferred)
<S> <C> <C> <C> <C> <C>
Net Loss Year Ended
December 31, 1994 $ $ $ 0 $ 0
---------- ---------- ---------- --------- ----------
Balance,
December 31, 1994 0 0 (28,146) (42,027) 50
Net Loss Year Ended
December 31, 1995 (689,713) (689,713)
---------- ---------- ---------- --------- -----------
Balance,
December 31, 1995 0 $ 0 $ 761,776 $ (731,740) $ 36,337
Write Off of Excess
of Liabilities over
Assets on Purchase
of Manon Consulting, Ltd. 11,283 11,283
Net Loss Year Ended
December 31, 1996 (449,236) (449,236)
---------- ---------- ---------- ---------- ----------
Balance,
December 31, 1996 0 $ 0 $1,372,631 $(1,169,693) $ 209,383
Recovery of Write
Off Of Excess of
Liabilities over
Assets on Sale of
Manon Consulting, Ltd. (11,283) (11,283)
Issuance of Preferred
Stock Under a
Private Placement
Dated July 8, 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-14
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
PREFERRED STOCK
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Preferred Stock Paid In Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Periodic Imputed
Cost of Preferred
Stock Issued on
July 8, 1997
through December
31, 1997 70,521 (70,521) 0
Net Loss Year Ended
December 31, 1997 (1,293,230) (1,392,320)
</TABLE>
TOTALS
<TABLE>
<CAPTION>
Loss
Accumulated
Additional During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December
31, 1997 165 $41 6,992,185 $6,992 $6,107,314 $2,544,727 $3,569,620
=== ==== ========= ===== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
AND FROM (INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
From
Inception
Through
Year ended Year ended Year ended December
December December December 31, 1996
31, 1997 31, 1996 31, 1995 (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net Loss ($1,363,751) $(449,236) $ (689,713) $(2,544,727)
Adjustments to Reconcile
Net Loss to Net Cash
Provided by Operating
Activities
Depreciation and Amortization 9,546 7,733 63 17,342
Common Stock Issued for Services 0 0 75,000 83,773
Net Assets of Manon
Consulting, Ltd (11,281) 0 10,757 0
Changes in Assets and Liabilities
(Increase) Decrease in Accounts
Receivable (39,935) (6,711) (640) (47,286)
(Increase) Decrease in Prepaid
Expenses (34,696) (29,115) 0 (63,813)
(Increase) Decrease in
Organizational Costs 0 50 (57) 0
Increase (Decrease) in Accounts
Payable (3,995) 20,080 291 15,796
Total Adjustments (80,361) (7,963) 85,414 76,333
Net Cash Used by Operating
Activities (1,373,592) (457,199) (604,299) (2,468,394)
Cash Flows from Investing Activities
Purchase of Property and
Equipment (33,642) (15,969) (1,258) (50,869)
Net Cash Flows from Investing
Activities (33,642) (15,969) (1,258) (50,869)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
AND FROM (INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
From
Inception
Through
Year ended Year ended Year ended December
December December December 31, 1996
31, 1997 31, 1996 31, 1995 (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities
Proceeds from Sale of
Common Stock 3,138,500 611,000 680,000 4,470,950
Proceeds from the Sale of
Preferred Stock 1,650,000 0 0 1,650,000
Offering Costs (123,750) 0 (30,000) (161,896)
Advances (Repayments) Notes
Payable (24,000) 25,000 0 1,000
Advances (Repayements) To
Officers (12,500) 12,500 0 0
Net Cash Provided by Financing
Activities 4,628,250 648,500 650,000 5,960,054
Increase (decrease) in Cash
and Cash Equivalents 3,221,016 175,332 44,443 3,440,791
Cash and Cash Equivalents at
Beginning of Period 219,775 44,443 0 0
Cash and Cash Equivalents at
End of Period $ 3,440,791 $ 219,775 $ 44,443 $ 3,440,791
Supplemental Information
Cash paid for:
Interest $ 0 $ 0 $ 0 $ 0
Income taxes $ 0 $ 0 $ 0 $ 0
Noncash financing
Intangible assets purchased
with Common Stock $ 0 $ 0 $ 1,000 $ 1,000
Common Stock issued
for Services $ 0 $ 0 $ 75,000 $ 83,773
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION
------------
MedCare Technologies, Inc. (The Company), formerly known as Multi-Spectrum
Group, Inc.,was ncorporated under the name Santa Lucia Funding, Inc., under the
laws of the State of Utah on January 17, 1986, with an authorized capital of
50,000,000 common shares with a par value of $.001. On February 8, 1990, the
Company adopted a plan of merger with Multi-Spectrum Group, Inc., a Delaware
Corporation, in which Multi-Spectrum Group, Inc., would be dissolved and the
name of Santa Lucia Funding, Inc., would be changed to Multi-Spectrum Group,
Inc. The Company authorized a reverse split of 1200:1 to be effective August
11, 1995. On August 29, 1995, the Company approved an increase in the
authorized capital to 101,000,000 of which 100,000,000 shares shall be Common
Stock with a par value of $.001 and 1,000,000 shares shall be Preferred Stock
with a par value of $.25 per share, and a name change to MedCare Technologies,
Inc. On August 1, 1996, an agreement and plan of merger was entered into between
the Company and MedCare Technologies, Inc. (A Delaware Corporation) whereby the
state of incorporation was changed to Delaware from the state of Utah. The
effective date of the agreement is August 27, 1996, the date accepted by the
state of Delaware. The Company was inactive during the year 1991, issued stock
for prior years services during 1992, and was inactive during 1993 and 1994.
The Company had no revenues nor incurred any operating expenses during these
inactive periods, other than the transaction during 1992.
On November 13, 1992, the Company issued 8,772,800 shares of common stock to
Group 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 is a wholly owned subsidiary of
the company.
On August 14, 1995, the Company acquired the rights to The MedCare Program, a
urinary incontinence procedure in exchange for 2,000,000 shares of the Company's
common stock at $0.0005, for a total value of $1,000.
On September 20, 1995, the Company authorized in a 504D Disclosure Memorandum,
4,200,000 shares of its common stock at an offering price of $0.15. On
September 20, 1995, the offering was completed with all shares being issued for
a total value of $630,000, less offering costs of $30,000.
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
NOTE 1 - ORGANIZATION (CONTINUED)
------------------------
On October 1, 1995, the Company purchased 100% of the outstanding shares of
Manon Consulting, Ltd. Manon Consulting, Ltd., is a wholly owned subsidiary of
the Company. Manon Consulting, Ltd., operates a clinic in Calgary, Canada.
The following is a condensed balance sheet of Manon Consulting, Ltd. at October
31, 1995:
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
========
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 at
$3.00 per share or $50,000 cash.
On December 31, 1995, the Company issued 25,000 shares of its common stock in
exchange for consulting services at $3.00 per share or $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.
On June 22, 1996, the Company issued 50,000 shares of its common stock at $4.75
per share in a 504D private place memorandum or $237,500.
On November 18, 1996, the Company issued 56,000 shares of its common stock at
$4.50 per share a 504D private placement memorandum or $252,000.
The accompanying notes are an integral part of these financial statements.
F-19
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION (CONTINUED)
------------------------
During 1997, the Company issued 17,000 shares of common stock at $4.50 per share
under the 1996 Stock Option Plan or $76,500.
During 1997, the Company issued 54,000 shares of common stock at $3.00 per share
under the 1995 Stock Option Plan or $162,000.
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 July 7, 1997, the Company issued 300,000 shares of common stock at $6.00 per
share under a private placement memorandum dated June 20, 1997 or $1,800,000.
On July 8, 1997, the Company issued 165 shares of Preferred Stock - Series A at
$10,000 per share or $1,650,000, less offering costs of $123,750. The Preferred
Stock has conversion features that allow for the conversion into 266,747 common
shares, at a discount range of 10% to 20% from June 20, 1997 through June 20,
1998. Additionally, the Company is recording the periodic imputed cost of the
Preferred Stock - Series A from the date of closing of the offering at 8% per
annum through December 31, 1997.
The Company is a development stage company, as defined in the Financial
Accounting Standards Board No. 7. The Company is devoting substantially all of
its present efforts in securing and establishing a new business, and although
planned principal operations have commenced, substantial revenues have yet to
be realized.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
A. Method of Accounting
--------------------
The Company's financial statements are prepared using the accrual method of
accounting.
B. Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
C. 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.
D. 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.
E. Deferred Charges
----------------
The Company has incurred start up costs from January 1, 1995 through September
30, 1995 amounting to $542,706. The total amount was charged to operations
during the year ended December 31, 1995.
F. 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 1997, 1996, and 1995 was $9,546, $7,733,
and $63 respectively.
G. Income Taxes
------------
There has been no provision for income taxes, because of the losses that the
Company has incurred to date. The Company has net operating losses that will
expire, beginning with the years 2002 through 2012, in the amount of $1,293,230,
$449,236, $689,713 and $42,027 in 1997, 1996, 1995 and prior years,
respectively, unless utilized by the Company.
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
H. 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 primary earnings (loss) per common share at
December 31, 1997, 1996, and 1995 was 7,270,185, 5,884,019, and 1,992,294,
respectively. The number of shares used in computing fully diluted earnings
(loss) per common share at December 31, 1997, 1996, and 1995 was 7,024,350,
5,884,019, and 1,992,294, respectively.
I. Leases
------
The Company's corporate offices are located at 608 South Washington, Suite 101,
Naperville, Ilinois 60523. 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. The Company currently has the use of a second office of approximately
1,500 square feet of office space, the use of one board room and all office
equipment, including a computer, a postage machine, filing cabinets, a
photocopier and telephone 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.
J. Medcare Program Sites
---------------------
Program sites are located in Norman, Oklahoma, Winter Park, Florida; Denver,
Colorado; Raleigh, North Carolina and Kankakee, Illinois. New locations to be
opened since December 31, 1997, include Kingwood, Texas; Toledo, Ohio; Lake
Worth, Florida; Coral Springs, Florida; Phoenix, Arizona; Freemont, California;
New York, New York; New Rochelle, New York; Roswell, Georgia; Baltimore,
Maryland; Stanford, Connecticut; West Orange, New Jersey and Clackamas, Oregon.
K. 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 reported amounts of assets and liabilities, the
disclosure of
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
K. Use of Estimates (Continued)
----------------------------
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.
L. Presentation
------------
Certain accounts from prior years have been reclassified to conform with the
current year's presentation.
M. 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 - LONG-LIVED ASSETS - THE MEDCARE PROGRAM
---------------------------------------
On August 14, 1995, the Company acquired the rights to The MedCare Program, 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 Program for the treatment of urinary incontinence that significantly
reduces or completely eliminates the majority of UI cases using a nondrug,
nonsurgical protocol that takes into account the clinical, cognitive,
functional, and residential status of the patient. The Company intends to
amortize the cost of the system over 15 years, based on Management's estimated
useful life of the protocol, beginning with the first year in which commercial
sales occur. Management reassesses annually the estimated useful life. Such
amortization will result in charges against earnings of $66 per year for each of
the years.
NOTE 4 - NOTES PAYABLE-OFFICERS (RELATED PARTIES TRANSACTIONS)
------------------------------------------------------
An Officer of the Company loaned the Company $1,000, which is due on demand and
with no interest rate currently applicable.
NOTE 5 - 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 of the grant. The Company makes no charge to operations in relation to
option grants, unless the options
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 5 - STOCK OPTIONS (CONTINUED)
-------------------------
granted are less than fair market, then a charge to operations would be made
over the vesting period. The Company's stock option transactions for the years
ended December 31, 1997, 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 exercised during 1996 under
the 1995 Stock Option Plan (36,000) 3.00
Options exercised during 1996 under
the 1996 Stock Option Plan (3,000) 4.50
-------
Options outstanding and exercisable
at December 31, 1996 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 (54,000) 3.00
Options exercised during 1997 under
the 1996 Stock Option Plan (17,000) 4.50
--------
Options outstanding and exercisable
at December 31, 1997 1,190,000 $3.00-$6.50
=========
</TABLE>
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 meeting.
NOTE 6 - STOCK WARRANTS
--------------
In July, 1997, the Company offered 300,000 shares of common stock at $6.00 each,
along with an additional 300,000 share purchase warrants at $6.00 each, good
until July 7, 2002.
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 7 - PREFERRED STOCK - SERIES A
--------------------------
On June 20, 1997, the Company began offering for sale a Regulation D offering
under Rule 506. This offering was for the Series A Preferred Stock of the
Company and was sold for $10,000 per share, in minimum subscription amounts of
at lease ten shares ($100,000) and in increments of five shares in excess
thereof. The total offering was for $3,000,000, with a minimum of $1,650,000.
The offering closed on July 8, 1997 with the minimum offering placed. The
preferred stock was accompanied by warrants to purchase a number of shares of
common stock of the Company equal to 33 1/3% multiplied by the aggregate
purchase price of the Subscriber's preferred stock outstanding on each of nine,
twelve and fifteen months following the closing date of the offering, divided by
the Fixed Conversion Price as herein defined. The Series A Preferred Shareholder
shall be entitled to convert, subject to the Company's right of redemption, if
the conversion price is less than the Fixed Conversion Price at the time of
receipt of a notice of conversion. The conversion price is equal to the lesser
of 115% of the average Closing Bid Price for five trading days ending on June 6,
1997, which is $7.346 (The Fixed Conversion Price) or a discount, ranging from
10% to 20% over a 12 months period beginning July 8, 1997, of the average
Closing Bid Price for five trading days immediately preceding the Date of
Conversion divided into the original purchase price of the preferred stock, plus
an 8% per annum accretion rate equal to the period that has passed since the
closing date. Assuming that all the of the warrants would be exercised, an
additional 266,747 shares of common would be issued.
NOTE 8 - DISCONTINUED OPERATIONS OF A BUSINESS SEGMENT
---------------------------------------------
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 year ended December 31, 1997 and 1996. The statement of operations for the
years ended December 31, 1996 and 1995 have been restated to remove the net
losses of $3,169 and $1,320, respectively. Gross revenues for the years ended
December 31, 1996 and 1995 were $8,118 and $1,729. The Company reported a gain
on the transaction of $15,770.
The following is a condensed balance sheet and statement of operations of Manon
Consulting, LTD, as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Condensed Balance Sheet
Current Assets $ 787 $ 533
Equipment, Net 7,203 11,132
Other Assets 64 138
--------- --------
$ 8,054 $ 11,803
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
NOTE 8 - DISCONTINUED OPERATIONS OF A BUSINESS SEGMENT (CONTINUED)
---------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current Liabilities $ 23,825 $ 24,405
Common Stock 7 7
Deficit (15,778) (12,609)
---------- -----------
$ 8,054 $ 11,803
========== ===========
Revenues $ 8,118 $ 1,729
Expenses 11,287 3,049
---------- -----------
Net Loss $ (3,169) $ (1,320)
========== ===========
</TABLE>
NOTE 9 - SUBSEQUENT EVENTS
- --------------------------
On January 5, 1998, 3 shares of preferred stock were converted to 4,851 shares
of common stock at $6.45131 per share.
On January 6, 1998, 3 shares of preferred stock were converted to 4,803 shares
of common stock at $6.51875 per share.
On February 16, 1998, 200,000 warrants to purchase common stock were exercised
at $6 per share, or $1,200,000.
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
EXPERTS AND LEGAL MATTERS
Legal matters will be passed upon for the Company by Gary R. Blume, Esq.,
Blume & Associates, P.C., 11801 North Tatum Boulevard, Suite 108, Phoenix,
Arizona 85028.
The financial statements of the Company for the seven months ended July 31,
1997 and the year ended December 31, 1996 appearing in this Form SB-2
Registration Statement have been audited by Clancy & Co., P.L.L.P., independent
auditors, as set forth in their report thereon appearing elsewhere herein and
are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
On August 25, 1995, the accounting firm of Jones, Thomas, Jenson and
Associates was replaced by William L. Clancy, CPA, as the Company's independent
accounting firm. There were and are no disagreements with Jones, Thomas, Jensen
and Associates. Although the former accountant had not been engaged as the
Company's accountant since the completion of the 1989 audit early in 1990, the
Company sent the letter to the former accountant as a courtesy. The Company did
not have an accountant during the fiscal years 1990 through 1992.
The Company's former accountant did not issue a report on the Company's
financial statements for either of the past two years.
The Company's decision to change accountants was approved by the Board of
Directors on August 25, 1995.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The officers and directors of the Company are indemnified as provided under
the Delaware General Corporation Law. No additional indemnification has been
authorized.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Because this registration is for purposes of resale only, there are no
expenses of issuance and distribution to be reported.
RECENT SALES OF UNREGISTERED SECURITIES
On August 15, 1995, the Company authorized in a Private Placement
Memorandum, pursuant to Regulation D, Rule 504, offering 4,200,000 shares of its
common stock at a price of $0.15. This offering was conducted in order to raise
money for further research and development on the MedCare Program and was broken
down as follows: $300,000 for public relations and advertising, $155,000 for
market research and development, $45,000 for consulting, $25,000 for
miscellaneous expenses and $75,000 as a cash reserve. On September 20, 1995,
the offering was completed with all shares being issued for a total value of
$630,000, less offering costs of $30,000.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on June 22, 1996 and completed on August
15, 1996. This offering was for 50,000 shares of common stock at $4.75 per
share for a total offering of $237,500. The proceeds from this offering were
used for equipment purchase and working capital.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on November 18, 1996 and completed on
December 24, 1996. This offering was for 56,000 shares of common stock at $4.50
per share for a total offering of $252,000. The proceeds from this offering
were used for advertising and marketing and working capital.
During fiscal 1997, the Company issued three private placement memoranda.
On February 1, 1997, an offering was begun pursuant to Regulation D, Rule 506
for 176,000 shares of common stock at $6.25 per share for a total offering of
39
<PAGE>
$1,100,000. This offering was completed on February 28, 1997. The proceeds
were used for working capital and expansion of the MedCare Program.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 506 on July 7, 1996 for 300,000 shares of common stock at
$6.00 per share, plus 300,000 warrants exercisable at $6.00 per warrant until
July 7, 2002 for a total offering of $1,800,000. This offering was completed on
July 30, 1997 and the proceeds used for working capital and expansion of the
MedCare Program.
On June 20, 1997, the Company began offering for sale a Regulation D
offering under Rule 506. This offering was for the Series A Preferred Stock of
the Company and was sold for $10,000 per share, in minimum subscription amounts
of at least ten shares ($100,000) and increments of five shares in excess
thereof. The total offering was for three hundred shares for a total of
$3,000,000, with a minimum offering of $1,650,000. The offering closed on July
8, 1997 with the minimum offering placed. The Preferred Stock was accompanied
by 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 each of nine,
twelve and fifteen months following the closing date of the offering, divided by
the Fixed Conversion Price as defined in the Certificate of Designation. In
conjunction with this offering, an Escrow Agreement was entered into with Swartz
Investments LLC, a Georgia limited liability company, as Placement Agent and
with First Union National Bank of Georgia as Escrow Agent.
The Company and Swartz Investments, LLC entered into a Placement Agent
Agreement to define the terms of their relationship for this offering.
According to this agreement, the Placement Agent agreed to find subscribers for
the Company's Preferred Stock Series A offering in exchange for a placement fee
of 5-1/2% of the aggregate gross subscription proceeds of the offering, a
non-accountable expense allowance of 2% of the aggregate gross subscription
proceeds, and, if a subscriber exercises a preferred warrant, a fee consisting
of 7-1/2% of the aggregate exercise price, as defined in the Preferred Warrant.
The Placement Agent Agreement also grants to the Placement Agent three sets of
warrants (i) warrants to purchase stock equal to 7-1/2% times the aggregate
gross subscription proceeds divided by the Fixed Conversion Price (as defined in
the Certificate of Disclosure), (ii) warrants to purchase stock equal to 7-
1/2% of the number of Conversion Warrants placed in the offering (as defined in
the Subscription Agreement) and (iii) upon the exercise of a Preferred Warrant
by a Stockholder, warrants to purchase stock equal to 7-1/2% of the gross
proceeds received by the Company upon the exercise of the Preferred Warrant
divided by the Exercise Price (as defined in the Preferred Warrant). All three
of these warrants are for a period of five years at a fixed conversion price of
$7.346 per share, as defined in the Certificate of Disclosure. The Placement
Agent Agreement also contains cashless exercise and reset provisions.
INTEGRATION DISCUSSION
1. Rule 504, offered 8/31/95, closed 9/30/95, amount sold $630,000;
2. Rule 504, offered 6/22/96, closed 8/15/96, amount sold $237,500;
3. Rule 504, offered 11/18/96, closed 12/24/96, amount sold $252,000;
4. Rule 506, offered 2/1/97, closed 2/28/97, amount sold $1,100,000; and
5. Rule 506, offered 7/7/97, closed 7/30/97, amount sold $1,800,000.
Offering 1 and offering 2 occurred more than 6 months from each other and
under the general provisions of Rule 502, integration do not apply. Offerings 1
and 2 were done while Medcare was non reporting, was not an investment company
and had a specific business plan. The aggregate offering price cannot exceed
$1,000,000 within the twelve months before and during the offering. This
aggregate offering from July 15, 1995 through July 15, 1996 was $867,500, less
than the maximum amount.
Offering 2 and offering 3 occurred more than 6 months from each other and
the general provisions of Rule 502, integration do apply. The offerings were not
a part of a single plan of financing, were made at different times as the
opportunities came available and were not made for the same general purpose.
Offerings 2 and 3 were done while Medcare was non reporting, was not an
investment company and had a specific business plan. The aggregate offering
price cannot exceed $1,000,000 within the twelve months before and during the
offering. This aggregate offering from November 18, 1995 through December 24,
1996 was $489,500, less than the maximum amount. Since the integration
provisions apply the amounts will be aggregated and examination under the
exemption will still be available because less than $1,000,000 was offered.
40
<PAGE>
Offerings 3 and 4 were in reliance on Rule 504 and 506 respectively. The
offerings were done within 6 months of each other and will be integrated as
provided under Rule 502. The offerings should not be integrated when examined
under the five factors test. Medcare has approached financing on an individual
basis as opportunities have come forth from various interested investors. The
offerings have not come as a result of any single plan of financing. As
detailed in the offering memoranda, additional capital was needed at each stage
of the funding with no plan as to the terms or the amount of funding required.
Since the sales were made within six months of each other, the safe harbor is
not available. The securities are common stock of the Company, but have been
sold for different prices. The sales have not been made for the same purpose.
The 504 offering was done essentially to provide working capital to the business
and the 506 offering was to provide capital funding to develop various sites and
the program. Considering the above comments, the integration provisions should
not apply.
Offerings 4 and 5 are both in reliance on Rule 506 and have been made
within 6 months of each other. Even if these offerings are integrated, the
exemption is available. The aggregate offerings have been sold to less than 35
unaccredited investors and all other provisions of Rule 506 have been met.
The Company also offered preferred stock for sale to four accredited
investors in reliance on Rule 506 of Regulation D. The offering was sold to the
following individuals and for the following amounts:
<TABLE>
<CAPTION>
Number of Price per
Warrantee Shares Share Exercise Date
<S> <C> <C> <C>
Lakeshore International 25 $10,000 June 20, 1998
Queensway International 100 $10,000 June 20, 1998
Concordia Partners L.P. 25 $10,000 June 20, 1998
The Matthew Fund N.V. 15 $10,000 June 20, 1998
</TABLE>
Total: 165 Preferred Share Warrants
At that time, the Company also filed a Certificate of Designation with the
State of Delaware in conjunction with this offering. This Certificate was
approved on July 7, 1997 and designates 1,000 shares of the Company's one
million shares of authorized preferred stock to be Series A stock. This stock
has been assigned an issue price of $10,000 per share with an eight percent (8%)
per annum accretion rate. The rank of this stock has been assigned as being
senior to all Common Stock of the Company, 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, senior to any class or series of
capital stock of the Company hereafter created not specifically ranking by its
terms senior to or on par with any Series A Preferred Stock of whatever
subdivision, and 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. No dividend rights have been granted to this stock.
41
<PAGE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Description
1. Articles of Incorporation and Amendments
2. Bylaws
3. Certificate of Designation
4. Subscription Agreement
5. Nine-Month Warrant
6. Twelve-Month Warrant
7. Fifteen-Month Warrant
8. Preferred Warrants
9. Registration Rights
10. Opinion of Counsel
11. Instructions to Transfer Agent
12. Officer's Certificate
13. Stock Option Plan 1995
14. Stock Option Plan 1996
15. Stock Option Plan 1997 -- $4.50 options
16. Stock Option Plan 1997 $6.50 options
17. Form of Specimen Preferred Stock Certificate
18. Consent of Independent Auditor
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The issuer will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to include
any prospectus required by section 10(a)(3) of the Securities Act, to reflect in
the prospectus any facts or events which represent a fundamental change in the
information in the registration statement and to include any additional or
changed material information on the plan of distribution.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Naperville, State of
Illinois.
MEDCARE TECHNOLOGIES, INC.
By /s/ Jeffrey S. Aronin
___________________________
Jeffrey S. Aronin, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary R. Blume, Esq. as true and lawful attorneys-
in-fact with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereon.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
/s/ Harmel S. Rayat CEO and Chairman 4/10/98
- ---------------------- --------
Harmel S. Rayat Date
/s/ Jeffrey S. Aronin President, COO, Director 4/10/98
- ---------------------- --------
Jeffrey S. Aronin Date
/s/ Kundan S. Rayat Director, Secretary 4/10/98
- ---------------------- --------
Kundan S. Rayat Date
/s/Valerie Boeldt-Umbright Director 4/10/98
- -------------------------- ---------
Valerie Boeldt-Umbright Date
/s/ Michael M. Blue Director 4/10/98
- --------------------- ---------
Michael M. Blue, M.D. Date
/s Jake Jacobo Director 4/10/98
- --------------------- ---------
Jake Jacobo, M.D. Date
43
<PAGE>
[NOTE: Articles II, III, V, VI, VII, VIII and IX are still effective as of
12/31/96.]
ARTICLES OF INCORPORATION
OF
SANTA LUCIA FUNDING, INC.
We, the undersigned, natural persons of the age of eighteen years or
more, acting as incorporators of a corporation under the Utah Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation:
ARTICLE I - NAME
The name of this corporation is Santa Lucia Funding, Inc.
ARTICLE II - DURATION
The period of its duration is perpetual.
ARTICLE III - PURPOSES
The corporation is primarily organized for the purpose of being a blind
pool and conducting a blind pool offering of its securities, and establishing,
acquiring, merging with or into, or being acquired by, another business in the
field of high
<PAGE>
technology, manufacturing and marketing, or another type of industry, and to
transact any or all lawful business for which corporations may be incorporated
under the Utah Business Corporation Act and, in aid thereof, the corporation
shall have unlimited power to engage in and to do any lawful act concerning
any or all business for which corporations my be organized under the said Act,
including but not limited to the following:
(a) To enter into any lawful arrangement for sharing profits, a union
of interests, reciprocal association or cooperative association with any
corporation, association, partnership, individual or other legal entity for
the carrying on of any business and to enter into any general or limited
partnership for the carrying on of any business;
(b) To lease, sell, exchange and trade real and personal property,
either tangible or intangible;
(c) To conduct business anywhere in the world;
(d) To guarantee the obligations of others' with or without
consideration.
<PAGE>
ARTICLE IV - STOCK
The aggregate number of shares which the corporation shall be authorized
to issue is 50,000,000 shares or the par value of $0.001 per share. All stock
of this corporation shall be of the same class, common, and shall have the
same rights and preferences. Fully paid stock of this corporation shall not
be liable to any call and is non-assessable.
ARTICLE V - PREEMPTIVE RIGHTS
A shareholder shall have no preemptive rights to acquire any securities
of this corporation.
ARTICLE VI - INITIAL CAPITALIZATION
This corporation will not commence business until consideration of a
balance of at least $1,000.00 has been received for the issuance of shares.
ARTICLE VII - INITIAL OFFICE AND AGENT
The address of this corporation's initial registered office and the name
of its initial registered agent at such address is:
<PAGE>
Name of Agent Address of Registered Office
- ------------------ ----------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
ARTICLE VIII - DIRECTORS
The number of directors constituting the initial Board of Directors of
this corporation is three. The names and addresses of persons who are to
serve as directors until the first annual meeting of stockholders, or until
their successors are elected and qualify, are:
Name Address
- -------------------- ------------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
Wayne D. Smith 720 Terrace Hills Drive
Salt Lake City, Utah 84103
Donald Allan Bostrom 5256 Spring Gate Drive
Holladay, Utah 84117
The number of directors may be changed from time to time by amendment of
the By-Laws, but there shall be not more than 25 not less than three
directors.
<PAGE>
ARTICLE IX - INCORPORATORS
The name and address of each incorporator is :
Name Address
- --------------------- ---------------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
Wayne D. Smith 720 Terrace Hills Drive
Salt Lake City, Utah 84103
Donald Allan Bostrom 5256 Spring Gate Drive
Holladay, Utah 84117
DATED this 17th day of January, 1986.
INCORPORATORS:
/S/FREDRICK L. ELLIOT
--------------------------
Fredrick L. Elliott
/S/WAYNE D. SMITH
--------------------------
Wayne D. Smith
/S/DONALD ALLAN BOSTROM
--------------------------
Donald Allan Bostrom
<PAGE>
REGISTERED AGENT:
/S/FREDRICK L. ELLIOT
--------------------------
Fredrick L. Elliott
STATE OF UTAH )
)ss.
COUNTY OF SALT LAKE )
On the 17th day of January, 1986, Fredirck L. Elliott, Wayne D. Smith and
Donald Allan Bostrom personally appeared befor me who, being by me first duly
sworn, severally declared that they are the persons who signed the foregoing
document as incorporators, and Fredrick L. Elliott who signed as registered
agent, and that the statements therein contained are true.
DATED this 17th day of January, 1986.
/S/
------------------------------
NOTARY PUBLIC
My Commission Expires: Residing At:
July 7, 1988 Salt Lake City, Utah
- ---------------------- --------------------
<PAGE>
CERTIFICATE OF INCORPORATION OF
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, hereby certify as follows:
1. The name of the corporation is: Multi-Spectrum Group,
Incorporated
2. The address of the registered office of the corporation in the State
of Delaware is: 710 Yorklyn Road
Hockessin, Delaware
County of New Castle
The registered agent in charge thereof is:
Registered Agents, Ltd.
3.The purpose of the corporation is:
to develop a Print/Diversified Business Center with the intent of
establishing Franchises.
4. The corporation is authorized to issue capital stock to the extent of
1000 Shares of no par value.
5. The Board of Directors is authorized and empowered to make,
alter, amend and rescind the By-Laws of the corporation, but
By-Laws made by the board may be altered or repealed, and new
By-Laws made, by the stockholders.
<PAGE>
The name and address of the incorporator(s) is (are) as follows:
NAME Patrick J. Ellis ADDRESS 1055 W. Germantown Pike
Norristown, PA 19403
IN WITNESS WHEREOF, the incorporator(s) has (have) hereunto set his hand
and seal this 30th day of March, A.S. 1986.
/S/
----------------------------
<PAGE>
State of Delaware
Office of Secretary of State
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO
HEREBY
CERTIFY MULTI SPECTRUM GROUP. INC. IS DULY INCORPORATED UNDE THE
LAWS OF THE
STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL
CORPORATED EXISTENCE
SO FAR AS THE RECORDS OF THIS OFICE SHOW, AS OF THE DATE SHOWN BELOW.
/S/MICHAEL HARKINS
----------------------------
Michael Harkins, Secretary of State
AUTHENTICATION: 2122752
679089006 DATE: 03/30/1989
<PAGE>
ARTICLES OF MERGER
OF DOMESTIC AND FOREIGN CORPORATIONS
INTO
SANTA LUCIA FUNDING, INC.
Pursuant to the provisions of § 16-10-72 of the Utah Business
Corporation Act, the undersigned domestic and foreign corporations adopt the
following Articles of Merger for the purpose of merging them into one of such
corporations:
FIRST: Then names of the undersigned corporations and the states under
the laws of which they are respectively organized are:
Name of Corporation State
------------------------ --------
Santa Lucia Funding, Inc. Utah
Multi-Spectrum Group, Inc. Delaware
SECOND: The laws of the state under which such foreign corporation is
organized permit such merger.
THIRD: The name of the surviving corporation is Multi-Spectrum Group,
Inc. The surviving corporation is to be governed by the laws of the State of
Utah.
FOURTH: The following Agreement and Plan of Merger ("Plan") was approved
by the shareholders of the undersigned domestic corporation isn the manner
prescribed by the Utah Business Corporation Act, and was approved by the
undersigned foreign corporation in the manner prescribed by the laws of the
state under which it is organized:
See attached Exhibit "A"."
FIFTH: As to each of the undersigned corporations, the number of shares
outstanding, and the designation and number of outstanding shares of each
class entitled to vote as a class on such Plan, are as follows:
Entitled to Vote as a Class
Number of ---------------------------
Shares Designation Number
Name of Corporation Outstanding of Class of Shares
- ------------------- ----------- ----------- ---------
Santa Lucia Funding, Inc. 6,145,000 Common 6,145,000
Multi-Spectrum Group, Inc. 1,000 Common 1,000
SIXTH: As to each of the undersigned corporations, the total number of
shares voted for and against such Plan, respectively, and, as to each class
entitled to vote thereon as a class, the number of shares of such class votd
for and against such Plan, respectively, are as follows:
Number of Shares
----------------
Entitled to Vote as a Class
Total Total ---------------------------
Name of Voted Voted Voted Voted
Corporation For Against Class For Against
- --------------------- ------ ------- ----- ----- -------
Santa Lucia
Funding, Inc. 3,452,500 -0- Common 3,452,500 -0-
Multi-Spectrum
Group, Inc. 1,000 -0- Common 1,000 -0-
<PAGE>STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
On the 24th day of January, 1990, personally appeared before me Fredrick
L. Elliott, XXX XXXXXXXXXXX, who being by me duly sworn did say that they
are the President and Secretary of Santa Lucia Funding, Inc., the corporation
that executed the above and foregoing instrument and that said instrument was
signed on behalf of said corporation by authority of its bylaws and said
Fredrick L. Elliott XXX XXXXXXXXXXX acknowledged to me that said
corporation executed the same.
/S/ Shana L. Wahl
----------------------------------------
Notary Public
Residing at Salt Lake City
My Commission Expires:
______________________
STATE OF PENNSYLVANIA )
:ss.
COUNTY OF MONTGOMERY )
Be it remembered, that on this 18th day of January, A.D. 1990, personally
came before me, Barbara A. Kring, a notary public in an for the county and
state aforesaid, David E. Taylor and Charles Cannon, the President and
Secretary of Multi-Spectrum Group, Inc., a corporation of the State of
Delaware, the corporation described in and which executed the foregoing
certificate, know to me personally to be such, and they, they, the said David
E. Taylor and Charles Cannon, as such President an Secretary, duly executed
said certificate before me and acknowledged the said certificate to be their
acts and deeds and the act and deed of said corporation to said foregoing
certificate are in the handwriting of the said President and Secretary of said
corporation, respectively.
In witness whereof, I have hereunto set my hand and seal of office that
day and year aforesaid.
/S/ BARBARA A. KRING
---------------------------
Notary Public
Residing at 165 W. Ridge Pk,
Limerick, PA
My Commission Expires: 5-27-91
_______________________
<PAGE>
SEVENTH: If the surviving corporation is to be governed by the laws of
any other state, such surviving corporation hereby: (a) agrees that is may be
served with process in the State of Utah in any proceeding for the enforcement
of any obligation of the undersigned domestic corporation and in any
proceeding for the enforcement of the rights of a dissenting shareholder of
such domestic corporation against the surviving corporation; (b) irrevocable
appoints the Secretary of State of Utah as its agent to accept servce of
process in any such proceeding and (c) agrees that it will promptly pay to the
dissenting shareholders of such domestic corporation the amount, if any, to
which they shall be entitled under the provisions of the Utah Business
Corporation Act with respect to the rights of dissenting shareholder:
DATED: January 19, 1990
By: --------------------------
Its President
/S/ WAYNE D. SMITH
And:---------------------------
Its Secretary
MULTI-SPECTRUM GROUP, INC.
By: --------------------------
Its President
And: --------------------------
Its Secretary
<PAGE>
STATE OF CALIFORNIA )
:ss.
COUNTY OF )
On the 31st day of January, 1990, personally appeared before me Wayne D.
Smith, who being by me duly sworn did sya that he is the Secretary of Santa
Lucia Funding, Inc., the corporation that executed the above and foregoing
instrument and that said instrument was signed on behalf of said corporation
by authority of its bylaws and said Wayne D. Smith acknowledged to me that
said corporation executed the same.
/S/ CYNTHIA M. STAFFORD
----------------------------
Notary Public
Residing at 2965 Sunrise Blvd #102
Rancho Cardova, CA 95742
My Commission Expires: July 1, 1991
<PAGE>
Utah State Tax Commission TC-784
Letter of Good Standing Rev. 2/94
Corporation Representatives Name and Address Issue Date
August 16,
1995
Account
Number
MULTI-SPECTRUM INC 0001187258
1348 EAST 3300 SOUTH #101
SALT LAKE CITY, UTAH 84106
Tax Type
Corporation
Utah Charter
Number
118725
The Utah State Tax Commission Certifies that:
MULTI-SPECTRUM INC
has filed all income or franchise tax returns required and paid all taxes
thereon to be due. The status of the account is current as of the date of
this letter.
The account is subject to audit, and if a liability exists, it may be
assessed at any time. The issuance of this letter does not fix, abate,
modify, or cancel any liability for payment of money due or an obligation
to the State of Utah.
This letter does not fulfill the requirements for dissolving or withdrawing
a corporation from the State of Utah. Please contact the Department of
Commerce, Division of Corporation for information regarding corporate
dissolution or withdrawal.
/S/CINDY LOVE
- ---------------------------------
Cindy Love, Customer Service Agent
Customer Service Counter
Customer Service Division
Inquiries regarding this letter should be directed to: Customer Service
Counter, Utah State Tax Commission, 210 North 1950 West, Salt Lake City,
UT, 84134 or call (801) 297-7540.
<PAGE>
STATE OF UTAH
DEPARTMENT OF COMMERCE
CERTIFICATION
OF GOOD STANDING
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL CODE HEREBY
CERTIFIES THAT
SANTA LUCIA FUNDING, INC.
is a Utah corporation and is qualified to transact business in the State of
Utah, and that its most recent annual report required by Utah law has been
filed, and that Articles of Dissolution have not been field. A Certificate of
Incorporation was issued from this office on January 17, 1986 and said
corporation is in good standing, as appears of record in the offices of the
Division.
The certification is not intended to reflect the financial condition, business
activity or practices of this corporation.
File Number: CO 118725
Dated this 24th day of August,1995.
/s/KORIA T. WOODS
By:-------------------------------
Koria T. Woods
Director, Division of
Corporations and Commercial Code
[Note: These amendments to the Articles are still effective as of 12/31/96]
CERTIFICATE OF AMENDMENT
OD
ARTICLES OF INCORPORATION
OF
MULTI SPECTRUM GROUP, INC.
(aka Santa Lucia Funding, Inc.)
Multi Spectrum Group, Inc., (aka Santa Lucia Funding, Inc.), a corporation
organized and existing under and by virtue of the General Corporation and
Business Laws of the State of Utah (hereinafter "Corporation").
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted setting forth two proposed amendments of the
Certificate of Incorporation of Corporation, declaring said amendments to be
advisable and calling a meeting of the stockholders of Corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED: that the Certificate of Incorporation be amended by changing
Article I thereof so that, as amended, said Article shall be and read as
follows:
"The name of the corporation is MedCare Technologies, Inc."
And be it,
FURTHER RESOLVED: that the Certificate of Incorporation be amended by
changing Article IV thereof so that, as amended, said Article shall read as
follows:
<PAGE>
"The aggregate number of share which this corporation shall have authority
to issue is 101,000,000 shares, of which 100,000,000 shares shall be $.001
par value Common Stock and 1,000,000 share shall be $.25 pare value
Preferred Stock. The Common Stock shall have voting rights of one vote per
share. The Board of directors may issue the Preferred Stock from time to
time in one or more series, each series to have such voting rights,
preference in dividends and in liquidation and such other rights,
preferences and conditions as the Board of Directors may designate by an
amendment to these Articles of Incorporation by action duly adopted without
shareholder action shall not be required therefor. Fully-paid stock of
this Corporation shall not be liable to any further call or assessment."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a meeting of the stockholders of said corporation was dully called and held,
upon notice in accordance with Section S. 16-10a-705 of the General Corporation
and Business Laws of the State of Utah at which meeting the necessary number of
shares as required by statute wre voted in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section S. 16-10a-1003 of the General Corporation and Business
Laws of the State of Utah.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said Board of Directors has caused this certificate to
be signed by Kudan S. Rayat, its Secretary, this 25th day of August, 1995.
Multi-Spectrum Group, Inc.
/S/ KUNDAN S. RAYAT
- ---------------------------
Kundan S. Rayat, Secretary
<PAGE>
STATE OF UTAH
DEPARTMENT OF COMMERCE
CERTIFICATION
OF GOOD STANDING
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL
CODE HEREBY CERTIFIES THAT
MEDCARE TECHNOLOGIES, INC.
is a Utah corporation and is qualified to transact business in the State of
Utah, and that its most recent annual report required by Utah law has been
filed, and that Articles of Dissolution have not been field. A Certificate of
Incorporation was issued from this office on January 17, 1986 and said
corporation is in good standing, as appears of record in the offices of the
Division.
The certification is not intended to reflect the financial condition, business
activity or practices of this corporation.
File Number: CO 118725
Dated this 28th day of August,1995.
/S/ KORIA T. WOODS
----------------------------------
Koria T. Woods
Director, Division of
Corporations and Commercial Code
[Note: These bylaws are still effective as of 12/31/96.]
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 710 Yorklyn Rd., Hockessin, Delaware, County of New
Castle
The registered agent in charge thereof shall be Registered Agents, Ltd.
Section 2. The corporation may also have offices at such ocher places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETING
Section 1. Meetings of stockholders-shall be held at the registered
office of the corporation in this state or at such place, either within or
without this state, as may be selected from time to time by the Board of
Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders
shall be held on the fifteenth day of May in each year if not a legal holiday,
and if a legal holiday, then on the next secular day following at two o'clock
p.m. when they shall elect a Board of Directors and transact such other business
as may properly be brought before the meeting. If the annual meeting for
election of directors is not held on the date designated therefor, the
directors shall cause the meeting co be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation shall be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders
may be called at any time by the President, or the Board of Directors, or
stockholders entitled to cast at least one-fifth of the votes which all
stockholders are entitled to cast at the particular meeting. At any time, upon
written request of any person or persons who have duly called a special
meeting, it shall be the duty of the Secretary to fix the date of the meeting,
to be held not more than sixty days after receipt of the request, and to give
due notice thereof. If the Secretary shall neglect or refuse to fix the date
of the meeting and give notice thereof, the person or persons calling the
meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all
stockholders entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stock holder entitled co voce
thereof at least 14 days before such meeting, unless a greater period of
notice is required by statute in a particular case.
<PAGE> Section 5. Quorum: A majority outstanding shares of the corporation
entitled to voce, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding
shares entitled to vote is represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further ed.
The stockholders present ac a duly organized meeting may continue co transact
business until adjournment. notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for
him by proxy, but no such proxy shall be voted or acted upon after three years
from its duce, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed wich the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted co cake any action ac a meeting, a written notice of the meeting
shall be given which shall state the place, dace and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the dace of the
meeting to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be
taken at any annual or special meeting of stockholders of a corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setti less than the minimum number of votes
that would be necessary to authorize or take such act notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented
<PAGE> Section 9. List of Stockholders: The officer who has charge or the
stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address or each stockholder and the number of shares registered in the
name or each stockholder No share of stock upon which any installment is due
and unpaid shall be voted at any meeting The list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be
managed by its Board of Directors, five in number. The directors need not be
residents of this state or stockholders in the corporation. They shall be
elected by the stockholders at the annual meeting of stockholders of the
corporation, and each director shall be elected for the term of one year, and
until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation
or removal.
Section 2. Regular Meetings: Regular meetings of the. Board shall be
held without notice ever three months, on the first Monday of the quarter at
the registered office of the corporation, or at such other time and place as
shall be determined by the Board.
Section 3. Special Meetings: Special Meetings of the Board may be
called by the President on 10 days notice to each director, either personally
or by mail or by telegram; special meetings shall be called by the President
or Secretary in like manner and on like notice on the written request of a
majority of the directors in office.
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or
permitted to be taken at any meeting of the Board of Directors. Or of any
committee thereof, may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent thereof in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee. The Board of Directors may hold its meetings, and have an office or
offices, outside of this state.
Section 6. Conference Telephone: One or more directors may
participate I a meeting of the Board, of a committee of the Board
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each ocher; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any
stated salary for their services. but by resolution of the Board, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board PROVIDED, that nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors, except that when
cumulative voting is permitted, if less than the entire Board is to be
removed, no director may be removed without cause if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire Board of Directors, or, if there be classes of
directors, at an election of the class of directors of which he is a part.
ARTICLE V - OFFICERS
Section. 1. The executive-officers of the corporation shall be
chosen by the directors and shall be a President, Secretary
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall
hold office for one year and until their successors are chosen and have
qualified. Any officer or agent elected or appointed by the Board may be
removed by the Board of Directors whenever in its judgment the best interest
of the corporation will be served thereby.
Section 4. President: The President shall be the chief executive
officer of the corporation; he shall preside at all meetings of the
stockholders and directors; he shall have general and active management of the
business of the corporation, shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the President, to any other officer or officers of the
corporation; He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation. He shall be EX-OFFICIO a member of
all committees, and shall nave the general power and duties of supervision and
management usually vested in the office or President of. a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the
Board and all meetings of the stockholders and act as clerk thereof. and
record all the voces of the Corporation and the minutes or all its
transactions in a book to be kept for that purpose, and shall perform like
duties for all committees of the Board of Directors when required. He shall
give, or cause to be given, notice of all meetings of the stockholders and of
the Board of Directors, and shallt requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation, and shall
keep the moneys of the corporation in a separate account to the credit of the
corporation. He shall disburse the funds of the corporation as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render
to the President and directors, ac the regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by
the Board of Directors. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. If at any time, by reason of death or resignation or
ocher cause, the corporation should have no directors in office, then any
officer or any stockholder or an executor, administrator, trustee or guardian
of a stockholder. or ocher fiduciary encrusted with like responsibility for
the person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority
of the directors then in office, including those who have so resigned, shall
have power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or
other agency, shall, upon written demand under oath stating the purpose
thereof, have the right during the usual hours for business co inspect for any
proper purpose the corporation's stock ledger, a list of its stockholders and
its other books and records, and to make copies or extracts therefrom.
<PAGE>A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks he right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation ac its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered
and registered in the share ledger and transfer books of the corporation as
they are issued. They shall bear the corporate seal and shall be signed by the
President and Secretary
Section 2 Transfers: Transfers of shares shall be made on the
books of the corporation upon surrender of the certificates therefor, endorsed
by the person named in the certificate or by attorney, lawfully constituted in
writing. No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative.
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 4 Record Date: In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed:
(a) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business ong,
when no-prior action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written consent is
expressed.
(c) The record date tor determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution replacing thereto.
(d) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and
pay dividends upon the outstanding shares of the corporation from time to time
and to such extent as they deem advisable, in the manner and upon the terms
and conditions provided by statute and the Certificate of Incorporation.
Section 6. Reserves: : Before payment of any dividend there may
be set-aside out of the net profits of the corporation such sum or sums as the
directors, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conductive to the interests of the
corporation, and their director may abolish any such reserve in the manner in
which it was created.
<PAGE>
Directors is necessary, shall be the day on which the first written consent is
expressed.
(c) The record date for determining stockholders for any ocher
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determine the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned m the corporation. from
time to time and to such extent as they deem advisable, in the manner and
upopayment of any dividend there may be set aside out of the net profits of
the corporation such sum or sums as the directors, from time co time, in their
absolute discretion, think proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purposes as the directors shall think
conductive to the interests of the corporation, and the directors may abolish
any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section l. Checks: All checks or demands for money and notes of
the corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate
Section 2. Fiscal Year: The fiscal year shall begin on the
first day of April 1989
Section 3. Notice: Whenever written notice is required to be
given co any person, it may be given to such person, either personally or by
sending a copy thereof through the mail, or by telegram, charges prepaid, to
his address appearing on the books of the corporation, or supplied by him to
the corporation for the purpose of notice. If the notice is sent by mail or by
telegraph, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office
for transmission to such person. Such notice shall specify the place, day and
hour of the meeting and, in the case of special meeting of stockholders, the
general nature of the business to be transacted.
Section 4 Waiver of Notice: Whenever any written notice is required
by stature, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting. Attendance
of a person either in person or by proxy, at any meeting shall constitute a
waiver of notice of such meeting, except where a person attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened
Section 5. Disallowed Compensation: Any payments made to an
officer or employee of the corporation such as a salary. commission, bonus,
interest, rent, travel or entertainment expense incurred by him, which shall
be disallowed in whole or in parc as a deductible expense by the Internal
Revenue Service, shall be reimbursed by such officer or employee to the
corporation to the full extent of such disallowance. It shall be the duty of
the directors, as a Board, to enforce payment of each such amount disallowed.
In lieu of payment by the officer or employee, subject to the determination of
the directors, proportionate amounts may be withheld from his future
compensation payments until the amount owed to the corporation has been
recovered.
Section 6. Resignations: Any director or other officer may
resign at anytime, such resignation to be in writing, and to take effect from
the time of its receipt by the corporation, unless some time be fixed in the
resignation and then from that date. The acceptance of a resignation shall not
be required to make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
present at each annual meeting a full and complete statement of the business
and affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the voce of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cost thereon, at any regular or special meeting
of the stockholders. duly convened after notice to the stockholders of that
purpose.
<PAGE>
BY-LAWS
OF
SANTA LUCIA FUNDING, INC.
ARTICLE I
OFFICES
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake City, County of Salt Lake. The corporation
may have such other offices, either within or without the State of Utah, as
the Board of Directors may designate or as the Business of the corporation may
require from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the shareholders
shall be held on the Fourth Thursday in the month of March in each year,
beginning with the year 1986, at the hour of 2:00 o'clock p.m., for the
purpose of electing Directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual meeting shall
be a legal holiday in the State of Utah, such meeting shall be held on the
next succeeding business day. If the election of Directors shall not be held
on the day designated herein for any annual meeting of the shareholders, or at
any adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the shareholders as soon thereafter as
conveniently may be.
SECTION 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless other wise prescribed by
statute, may be called by the President or by the Board of Directors, and
shall be called by the President at the request of the holders of not less
than ten percent (10.0%) of all the outstanding shares of the corporation
entitled to vote at the meeting.
SECTION 3. Place of Meeting. The Board of Directors may designate
any place, either within or without the State of Utah, unless otherwise
prescribed by statute, as the place of meeting for any annual meeting or for
any special meeting.
<PAGE>
waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Utah, unless
otherwise prescribed by statute, as the place for the holding of such meeting.
If no designation is made, the place of meeting shall be the principal office
of the corporation is in the State of Utah.
SECTION 4. Notice of Meeting Written notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for whichhe stock transfer books of the corporation, with postage
thereon prepaid.
SECTION 5. Closing of Transfer Books of Fixing of Record. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to received payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period, but not to exceed in any case fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books
shall be closed for at least ten (10) day immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such data in any case to be not more than fifty (50) day and , in case of a
meeting of shareholders, not less than ten (10) day, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of shareholders. When a determination of shareholders entitled to vote at
provided in this
<PAGE>
section, such determination shall apply to any adjournment thereof.
SECTION 6. Voting Lists. The officer o agent having charge of the
stock transfer books for shares of the corporation shall make a complete list
of the shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each. Such list shall be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting for the purposes
thereof.
SECTION 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after eleven (22) months from the date of
its execution, unless otherwise provided in the proxy.
SECTION 9. Voting of Shares. Each outstanding share entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders.
SECTION 10. Voting of Shares by Certain Holders. Shares standing
in the name of another corporation may be voted by such officer, agent or
proxy as the By-Laws of such corporation may prescribe or, in the absence of
such provision, as the Board of Directors of such corporation may
determine.
<PAGE>
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name, if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Shares of its own stock belonging to the corporation shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares at any given time.
SECTION 11. Informal Action by Shareholders. Unless otherwise
provided by law, any action required to be taken at a meeting of the
shareholders, or any other action which may be taken at a meeting of the
shareholders, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Power. The business and affairs of the
corporation shall be managed by its Board of Directors.
SECTION 2. Number, Tenure and qualifications. The number of
directors of the corporation shall be fixed by the Board of Directors, but in
no event shall be less than three (3). Each director shall hold office until
the next annual meeting of shareholders and until his successor shall have
been elected and qualified.
<PAGE>
SECTION 3. Regular Meeting. A regular meeting of the Board of
Directors shall be held without other notices than this By-Law immediately
after, and at the same place as, the annual meeting of shareholders. The
Board of Directors may provide, by resolution, the time and place for the
holding of additional regular meetings without notice other than such
resolution.
SECTION 4. Special Meetings. Special meeting of the Board of
Directors may be called by of at the request of the President or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by them.
SECTION 5. Notice. Notice of any special meeting shall be given
at least one (1) day previous thereto by written notice delivered personally
or mailed to each director at his business address, or by telegram. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States Mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to e delivered when the
telegram is delivered to the telegraph company. Any directors may waive
notice of any meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 6. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
SECTION 7. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 8.cies. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors, unless otherwise provided
by law. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. any directorship to be filled by
reason of an increase in the number of directors may be filled by election by
the Board of Directors for a term of office continuing only until the next
election of Directors by the shareholders.
SECTION 10. Compensation By resolution of the Board of
Directors, each Director may be paid his expenses, if nay, of attendance at
each meeting of the Board of Directors, and may be paid a stated salary as
director or a fixed sum for attendance at each meeting of the Board of
Directors or both. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
SECTION 11. Presumption of Assent A director of the
corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof,
or shall forward such dissent by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director ho voted in favor of such action.
ARTICLE IV
OFFICERS
SECTION 1. Number The officers of the corporation shall be a
President, one or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by
the Board of Directors, including a Chairman of the Board. in its discretion,
the Board of Directors may leave unfilled for any such period as it may
determine any office except those of President and Secretary. Any two or more
offices may be held by the same person, except for the offices of President
and Secretary which may not be held by the same person. Officers mayor may
not be directors or shareholders of the Corporation.
<PAGE>
SECTION 2. Election and Term of Office. The officers of the
corporation to be elected by the Board of Directors shall be elected annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of the shareholders. If the election of the
officers shall not be held at such meeting, such election shall be held as
soon thereafter as conveniently may be. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified, or until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3. Removal. Any officer or agent may be removed by the
Board of Directors whenever, in its judgment, the best interests of the
corporation will be served thereby, but such removal shall b without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
S , in which case the chairman shall preside. He may sign, with the secretary
or any other Board of officer of the corporation thereunto authorized by the
Board of Directors, certificates for shares of the corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of President and such other duties
as may be prescribed by the Board of Directors from time to time.
SECTION 6. Vice President. In the absence of the President or in
the event of his death, inability or refusal to act, the Vice President shall
perform the duties of the
<PAGE>
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. The Vice President shall perform
such other duties as from time to time may be assigned to him by the President
or by the Board of Directors. If there is more than one Vice President, each
Vice President shall succeed to the duties of the President in order of rank
as determined by the Board of Directors. If no such rank has been determined,
then each Vice President shall succeed to the duties of the President in order
of the date of election, the earliest date having the first rank.
SECTION 7. Secretary. The Secretary shall: (a) keep the minutes
of the proceedings of the shareholders and of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by
law; (c) be custodian of the corporate records and of the seal of the
corporation and see that the seal of the corporation is affixed to all
documents, the execution of which on behalf of the corporation under its seal
is duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(e) sign with the President certificates for share of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
the Secretary and such other duties as from time to time may be assigned to
him by the President or by the Board of Directors.
SECTION 8. Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the
corporation; (b) receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the
name of the corporation in such banks, trust companies or other depositories
as shall be selected in accordance with the provisions of Article VI of these
By-Laws; and (c) in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the President or by the Board of Directors. If required by the board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such sureties as the Board of Directors shall
determine.
SECTION 9. Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors, and no
<PAGE>officer shall be prevented from receiving such salary by reason of the
fact that he is also a director of the corporation.
ARTICLE V
INDEMNITY
The corporation shall indemnify its directors, officers, and employees as
follows:
(a) Every director, officer, or employee of the corporation shall be
indemnified by the corporation against all expenses and liabilities, including
counsel fees, reasonably incurred by or imposed upon him in connection with
any proceeding to which he may be made a party, or in which he may become
involved, by reason of his being or having been a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of the corporation,
partnership, joint venture, trust or enterprise, or any settlement thereof,
whether or not he is a director, officer, or employee is adjudged guilty or
willful misfeasance or malfeasance in the performance of his duties; provided
that in the event of a settlement the indemnification herein shall apply only
when the Board of Directors approves such settlement and reimbursement as
being for the best interests of the corporation.
(b) the corporation shall provide to any person who is or was a
director, officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
the corporation, partnership, joint venture, trust or enterprise, the
indemnity against expenses of suit, litigation or other proceedings which is
specifically permissible under the Utah Business Corporation At.
(c) the Board of Directors may, in its discretion, direct the
purchase of liability insurance by way of implementing the provisions of this
Article V.
<PAGE>
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts The Board of Directors may authorize nay
officer or officers, agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority
may be general or confined to specific instances.
SECTION 3. Checks, drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the corporation, shall be signed by such officer or
officers, agent or agents of the corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
SECTION 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing
share of the corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be determined by the Board of
Directors. Such certificates shall be signed by the President and by the
Secretary or by such other officers authorized by law and by the Board of
Directors so to do, and sealed with the corporate seal. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or militated certificate, a
new one may be issued
<PAGE>
therefor upon such terms and indemnity to the corporation as the Board of
directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of the
corporation shall be made only on the stock transfer books of the corporation
by the holder of record thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender of or cancellation of the certificate for
such shares. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day of January
and end on the 31st day of December of each year.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE X
CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
ARTICLE XI
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or director of the corporation under the provisions
of these By-Laws or under the provisions of the Articles of Incorporation or
under the
<PAGE>
provisions of the Utah Business Corporation Act, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XIII
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
The above By-Laws are certified to have been adopted by the Board of
Directors or the corporation on the 22nd day of January, 1986.
Wayne D. Smith/ Secretary
CDN1276W
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;
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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.
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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
1
<PAGE>
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.
2
<PAGE>
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.
3
<PAGE>
(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.
4
<PAGE>
(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)
5
<PAGE>
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:________________________
6
<PAGE>
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.
______________________________________________________________________________
_
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 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
1
<PAGE>
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.
2
<PAGE>
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.
3
<PAGE>
(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,
4
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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]
6
<PAGE>
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:_________________________
7
<PAGE>
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>
1995 INCENTIVE STOCK OPTION PLAN AND 1995
NONSTATUTORY STOCK OPTION PLAN
1. NAMES AND PURPOSES OF THE PLANS. This Plan document is intended
to implement and govern two separate Stock Option Plans of Medcare Technologies,
Inc., a Utah corporation (the "Company"): the 1995 Incentive Stock Option Plan
("Plan A") and the 1995 Nonstatutory Stock Option Plan ("Plan B") (collectively
the "Plans"). Plan A provides for the granting of options that are intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422(b) of the Internal Revenue Code, as amended. Plan B
provides for the granting of options that are not intended to so qualify.
Unless specified otherwise, all the provisions of this Plan document relate
equally to both Plan A and Plan B, which Plans are condensed into one Plan
document solely for purposes of administrative convenience and are not intended
to constitute tandem plans. The purposes of the Plans are (a) to attract and
retain the best available people for positions of substantial responsibility,
and (b) to provide additional incentive to the Employees of the Company (and its
future parents and subsidiaries, if any) and to promote the success of the
Company's business.
2. DEFINITIONS. For purposes of the Plans, the following terms will
have the respective meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company;
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(c) "Common Stock" shall mean the Class A common stock of the
Company;
(d) "Company" shall mean Medcare Technologies, Inc., a Utah
corporation;
(e) "Committee" shall mean the committee appointed by the Board in
accordance with Paragraph 3(a) of this Plan document, if one is appointed;
(f) "Employee" shall mean any person, including an officer or
director, who is an employee (within the meaning of Section 422 of the Code) of
the Company, any parent, any subsidiary or any successors to any of the
foregoing;
(g) "Incentive Option" shall mean an incentive stock option as defined
in Section 422(b) of the Code;
(h) "Non-Statutory Option" shall mean an option which does not qualify
as an Incentive Option;
(i) "Option" shall mean a stock option granted pursuant to the Plan,
whether an Incentive Option or a Non-Statutory Option;
<PAGE>
(j) "Option Agreement" shall mean an agreement substantially in the
form attached hereto as Exhibit A or the form attached hereto as Exhibit B, or
such other form or forms as the Board (subject to the terms and conditions of
the Plans) may from time to time approve, evidencing an Option;
(k) "Option Grant Date" shall mean the date on which an Option is
granted by the Board;
(l) "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to a Plan;
(m) "Optionee" shall mean an Employee or other Eligible Person who
receives an Option;
(n) "Outstanding Incentive Option" shall mean any Incentive Stock
Option which has not yet been exercised in full or has not yet expired by lapse
of time;
(o) "Parent" shall mean a "parent corporation" as defined in Section
424(e) of the Code;
(p) "Plan A" shall mean the 1995 Incentive Stock Option Plan;
(q) "Plan B" shall mean the 1995 Non-Statutory Stock Option Plan;
(r) "Predecessor Corporation" shall mean a corporation which is a
party to a transaction described in Code Section 424(a) (or which would be so
described if a substitution or assumption under such section had been effected)
with the Company, a Parent, a Subsidiary or a predecessor corporation of any
such corporations;
(s) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 13 of this Plan document;
(t) "Stock Purchase Agreement" shall mean an agreement substantially
in the form attached hereto as Exhibit C or such other form or forms as the
Board (subject to the terms and conditions of this Plan) may from time to time
approve, which is to be executed as a condition of purchasing Optioned Stock
upon exercise of an Option as provided in a Plan; and,
(u) "Subsidiary" shall mean a subsidiary corporation as defined in
Section 424(f) of the Code.
3. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plans shall be administered by the Board.
The Board may appoint a Committee consisting of not less than two (2)
members of the Board to administer one or both of the Plans on behalf of the
Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the
2
<PAGE>
Committee and appoint additional members thereof, remove members of the
Committee, and thereafter, directly administer the Plans. Any references herein
to the Board shall refer to the Committee, if one is appointed, to the extent of
the Committee's authority.
(b) Limitations on Members of Board. Members of the Board who are
either eligible for options or have been granted Options may vote on any matters
affecting the administration of the Plans or the grant of any Options pursuant
to the Plans; except that no such member shall act in connection with an Option
to himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to Options of such member.
(c) Powers of the Board. Subject to the provisions of the Plan the
Board shall have the authority, in its discretion, to make ali determinations
necessary or advisable for the administration of the Plans, including without
limitation:
(i) to determine, upon review of relevant information, the then
fair market value per share of the Common Stock;
(ii) to determine the exercise price of the Options to be
granted, subject to the provisions of Paragraph 8 of this Plan document;
(iii) to determine the Employees to whom, and the time or times at
which, Options shall be granted, and the number of shares of Optioned Stock to
be represented by each Option;
(iv) to determine whether Options granted hereunder shall be
granted under Plan A as Incentive Options or Plan B as Non-statutory Options;
(v) to prescribe, amend and rescind rules and regulations
relating to the Plans;
(vi) to determine the terms and provisions of each Option granted
under the Plans (which need not be identical) and to modify or amend each Option
(with or without consent of the Optionee, if necessary);
(vii) to accelerate the exercise date of any Option;
(viii) to construe and interpret the Plans, the Option Agreements,
Stock Purchase Agreements and any other agreements provided for hereunder; and
(ix) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously granted
by the Board or to take such other actions as may be necessary or advisable with
respect to the Company's rights pursuant to the Option, Stock Purchase Agreement
or other agreement approved hereunder.
3
<PAGE>
(d) EFFECT OF THE BOARD'S OR COMMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other proper holders of any Options granted
under the Plan.
4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13of
this Plan document, the maximum aggregate number of shares which may be optioned
under these Plans is 500,000 shares of authorized Common Stock. This
constitutes an absolute cumulative limitation on the total number of shares that
may be optioned under Plan A and Plan B and, therefore, at any particular date
the maximum aggregate number of shares which may be optioned under Plan A is
equal to 300,000 minus the number of shares previously optioned under Plan A and
Plan B; and the maximum aggregate number of shares which may be optioned under
Plan B is equal to 300,000 minus the number of shares which have been previously
optioned under Plan A or Plan B. All shares to be optioned under either Plan A
or Plan B may be either authorized but unissued shares or shares held in the
treasury. Shares of Common Stock that (a) are repurchased by the Company after
issuance hereunder pursuant to the exercise of an Option or (b) are not
purchased by the Optionee prior to the expiration of the applicable Option
Period (as described hereinbelow) shall again become available to be covered by
Options to be issued hereunder and shall not, as of the effective date of such
repurchase or expiration, be counted as having been previously optioned for
purposes of the above-described maximum number of shares which may be optioned
hereunder.
5. ELIGIBILITY. Options under Plan A may be granted to any Employee who
is designated by the Board in its discretion. NonEmployees, including directors
of the Company or any Parent or Subsidiary, who are not regular employees of the
Company, are not eligible to receive Options under Plan A. Options under Plan B
may be granted to any Employee, any Non-Employee director of Company or any
Parent or Subsidiary, and any consultant or independent contractors who provide
valuable services to the Company (or its Parent or Subsidiary), all as
designated by the Board in its discretion. An Optionee who has been granted an
Option may, if otherwise eligible, be granted an additional Option or Options.
Options may be granted to one or more persons without being granted to other
eligible persons, as the Board may deem fit.
6. TERM OF THE PLAN. Plan A shall become effective immediately upon the
earlier to occur of its adoption by the Board or its approval by vote of a
majority of the outstanding shares of the Company entitled to vote on the
adoption of such Plan. Plan B shall become effective immediately upon its
adoption by the Board. Each Plan shall continue in effect until December 31,
2005 unless sooner terminated under Sections 15 or 18 of this Plan document. No
Option may be granted under a Plan after its expiration.
7. OPTION PERIOD. Each Option granted pursuant to either Plan shall be
evidenced by an Option Agreement. Each Option shall expire and all rights
thereunder shall end at the expiration of such period (which shall in no event
be more than ten (10) years) after the Option Grant Date as shall be fixed by
the Board, subject in all cases to earlier expiration as provided in Section 11
of this Plan document. Notwithstanding the foregoing, the term of each
Incentive Option granted to an Employee who, at the time the Incentive Option is
granted, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any
4
<PAGE>
Parent or Subsidiary (determined as required by the Code as applied to Incentive
Options) shall not be more than five (5) years from the Option Grant Date.
8. OPTION PRICE AND CONSIDERATION.
(a) PRICE. The per share Option price for the Shares to be issued
pursuant to an Option granted under either Plan shall be such price as is
determined by the Board in its sole discretion. Notwithstanding the foregoing,
with respect to Incentive Options granted under Plan A: (i) such price shall in
no event be less than one hundred percent (100%) of the fair market value per
Share of the Company's Common Stock on the Option Grant Date, as determined by
the Board; and (ii) in the case of an Incentive Option granted to an Employee
who, at the time the Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent, Subsidiary or Predecessor Corporation (determined as
required by the Code as applied to Incentive Options), the per share Option
price shall be at least one hundred ten percent (110%) of the fair market value
as of the Option Grant Date, as determined by the Board. The fair market value
shall be determined by the Board in its sole discretion, exercised in good
faith; provided, however, that where there is a public market for the Common
Stock, the fair market value per share shall be the mean of the reported bid and
asked price for the Common Stock on the date of the grant, or, in the event the
Common Stock is listed on a stock exchange, the fair market value per share
shall be the closing price on the exchange as of the date of grant of the
Option.
(b) FORM OF CONSIDERATION. The form of consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist of cash, promissory
notes, or the surrender of shares of Common Stock having a fair market value on
the date of surrender equal to the purchase price of the Shares as to which said
Option shall be exercised, a combination thereof, or such other consideration
and method of payment for the issuance of Shares as is permitted under
applicable law.
(c) PROMISSORY NOTES. If the consideration for the exercise of an
Option is a promissory note, such note shall be a full recourse promissory note
executed by the Optionee. If the option is an Incentive Option under Plan A,
such note shall bear interest at a per annum rate which is not less than the
greater of (i) the applicable "test rate" described in Treasury Regs. Section
1.4831(d) in effect on the date of exercise or (ii) a fair market interest rate,
as determined by the Board in its good faith discretion. If a promissory note
is given as consideration, the Company may retain the Shares purchased upon
exercise of the Option in escrow as security for payment of the promissory note.
(d) SURRENDERED COMMON STOCK. If the consideration for the exercise
of an Option is the surrender of previously acquired and owned shares of common
stock of the Company, the Optionee will be required to make representations and
warranties satisfactory to the Company regarding the Optionee's title to the
shares used to effect the purchase, including without limitation,
representations and warranties that the Optionee has good and marketable title
to such shares free and clear of any and all liens, encumbrances, charges,
equities, claims, security interests, options or restrictions and has full power
to deliver such shares without obtaining the consent or approval of any person
or governmental authority other than those which have already given consent or
approval in a form
5
<PAGE>
satisfactory to the Company. The value of the shares used to effect the
purchase shall be the fair market value of those shares as determined by the
Board in its sole discretion, exercised in good faith.
9. LIMIT ON VALUE OF OPTIONED STOCK ISSUED UNDER PLAN A. The aggregate
fair market value (determined as of the Option Grant Date of each Option) of the
Shares with respect to which Incentive Options are exercisable for the first
time by the Optionee during any calendar year under Plan A and all other
incentive stock option plans of the Company, any Parent or Subsidiary, or any
Predecessor Corporation of any such corporation shall not exceed One Hundred
Thousand Dollars ($100,000.00), as determined pursuant to Section 422(d) of the
Code.
10. EXERCISE OF OPTION.
(a) GENERAL TERMS. Any Option granted hereunder shall be exercisable
at such times and under such conditions as may be determined by the Board which
conditions may include performance criteria with respect to the Company and/or
the Optionee or provisions for vesting over a period of time conditioned upon
continued employment and shall include the contemporaneous execution of a Stock
Purchase Agreement in a form approved by the Board and as shall be permissible
under the terms of the Plan. In all events, in order to exercise an Option
hereunder the Optionee shall execute a Stock Purchase Agreement in a form
approved by the Board and shall deliver the required (or permitted) exercise
consideration to the Company. As a condition to the exercise of an Option, the
Board may require the Optionee pursuant to the Option Agreement to agree to
restrictions on the sale or other transfer of ownership of the Common Stock
acquired by an Optionee or to sell such Shares to the Company upon termination
of employment.
(b) PARTIAL EXERCISE. An Option may be exercised in accordance with
the provisions of either Plan as to all or any portion of the Shares then
exercisable under an Option, from time to time during the term of the Option.
An Option may not be exercised for a fraction of a Share.
(c) TIME OF EXERCISE. An Option shall be deemed to be exercised when
the Company has received at its principal business office: (i) written notice of
such exercise in accordance with the terms of the Option Agreement and given by
the person entitled to exercise the Option; (ii) full payment for the Shares
with respect to which the Option is exercised; (iii) the executed Stock Purchase
Agreement if required; and (iv) any other representations or agreements required
by the terms of this Plan or the Option Agreement. Full payment may consist of
such consideration as is authorized by the Board as provided hereunder.
(d) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. Until this Option is
properly exercised hereunder and the Company receives full payment for the
Shares with respect to which the Option is exercised, no right to receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Option is properly exercised and
payment in full is received, except as provided in Section 13 of this Plan
document.
6
<PAGE>
(e) ISSUANCE OF SHARE CERTIFICATES. As soon as practicable after any
proper exercise of an Option in accordance with the provisions of this Plan
document and payment in full for the exercised Shares, the Company shall,
without transfer or issue tax to the Optionee, deliver to the Optionee at the
principal business office of the Company, or such other place as shall be
mutually acceptable, a certificate or certificates representing the Shares of
Common Stock as to which the Option has been exercised. The time of issuance
and delivery of the certificates) representing the Shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirements of any
national or regional securities exchange and any law or regulation applicable to
the issuance and delivery of such Shares.
(f) REDUCTION OF SHARES UPON EXERCISE. Exercise of an Option in any
manner shall result in a decrease in the number of Shares which thereafter may
be available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
11. TERMINATION OF EMPLOYMENT.
(a) GENERAL. If an Optionee ceases to be an Employee then, except as
provided in Paragraph 11(a) or 11(b) hereof, any Option of the Optionee, whether
vested or non-vested, and if issued under Plan A, shall terminate as of the date
of termination of employment. Notwithstanding the foregoing, within the earlier
of (i) the date of termination of employment and (ii) the time the Option
expires by its terms, the Optionee may exercise the Option to the extent it was
vested and exercisable on the date of termination of employment, provided the
Optionee was not discharged for cause (in which event the Option shall not be
exercisable after the date of termination).
(b) DEATH OR DISABILITY. If Optionee dies or becomes disabled (within
the meaning of Code Section 422 and the rules and regulations thereunder) then,
within the earlier of thirty (30) days (or such other period of time not
exceeding six (6) months as set forth in the Option Agreement) following the
date of such death or disability and the time the Option expires by its terms,
the Optionee or such person or persons to whm the Optionee's rights under the
Option shall pass by the Optionee's will or by the laws of descent and
distribution, may exercise the Option to the extent it was vested and
exercisable on the date of death or disability.
(c) DEFINITION OF TERMINATION. For purposes of each Plan, an Employee
shall be deemed terminated as an employee when such Employee's employment is
deemed to no longer continue within the meaning of Code Section 422 and the
rules and regulations thereunder.
12. NON-TRANSFERABILITY OF OPTIONS. The Options and any rights and
privileges granted under any Option Agreement are not transferable by the
Optionee, either voluntarily or by operation of law, otherwise than by will and
the laws of descent and distribution and shall be exercisable during Optionee's
lifetime only by Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
7
<PAGE>
(a) REORGANIZATIONS, RECAPITALIZATION, ETC. If the outstanding
shares of Common Stock of the Company are increased, decreased, changed into or
exchanged for a different number or kind of shares or securities of the Company
through reorganization, recapitalization, reclassification, stock dividend (but
only on Common Stock), stock split, reverse stock split or other similar
transaction, or, if any other increase or decrease occurs in the number of
Shares of Common Stock of the Company without the receipt of consideration by
the Company, then an appropriate and proportional adjustment shall be made in
(i) the number and kind of shares of stock covered by each outstanding Option,
(ii) the number and kind of shares of stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted (or
which have been returned to the Plan upon cancellation of an Option), and (iii)
the exercise price per share of stock covered by each such outstanding Option.
The granting of stock options or bonuses to Employees of the Company and the
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without the receipt of consideration." Notwithstanding the
foregoing, no adjustment need be made under this paragraph if, upon the advice
of counsel, the Board determines that such adjustment may result in federal
taxable income to the holders of Options or Common Stock or other classes of the
Company's securities.
(b) DISSOLUTION, LIQUIDATION, ETC. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company with one or more corporations as a result of which the Company is
not the surviving corporation, or upon a sale (or exchange through merger) of
substantially all the property or more than fifty percent (50%) of the then
outstanding stock of the Company to another corporation, the Plan shall
terminate, and any Option theretofore granted hereunder shall terminate.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, such transaction for any, all or none of the
following alternatives (separately or in combination): (i) for all or a portion
of the Options theretofore granted to become immediately exercisable; (ii) for
the assumption by the successor corporation of the Options theretofore granted
or the substitution by such corporation for such Options of new options covering
the stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; or (iii)
for the continuance of the Plan by such successor corporation in which event the
Plan and the Options theretofore granted shall continue in the manner and under
the terms so provided.
(c) NO FRACTIONAL SHARES. No fractional shares of the Common Stock
shall be issuable on account of any action under this Paragraph 13, and the
aggregate number of shares into which Shares then covered by an Option, when
changed as the result of such action, shall be reduced to the largest number of
whole Shares resulting from such action. Notwithstanding the foregoing, the
Board, in its sole discretion, may determine to issue scrip certificates, in
respect to any fractional shares, which scrip certificates, in such event, shall
be in a form and have such terms and conditions as the Board in its discretion
shall prescribe.
(d) BINDING EFFECT OF BOARD DETERMINATIONS. All adjustments under
this Paragraph 13 shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive.
8
<PAGE>
(e) NO OTHER ADJUSTMENTS. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares of Common
Stock subject to the Plan or any Options.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time and from
time to time suspend or terminate either Plan. The Board may also amend or
revise either Plan from time to time in such respects as the Board may deem
advisable, except that, without approval of the holders of the majority of the
outstanding shares of the Company's Common Stock, no such revision or amendment
shall amend Plan A so as to:
(i) Increase the number of Shares subject to Plan A other than
in connection with an adjustment under Section 13 of this Plan document;
(ii) Permit the granting of Incentive Options to anyone other
than as provided in Paragraph 5;
(iii) Remove the administration of Plan A from the Board;
(iv) Extend the term of Plan A beyond that provided in Paragraph
6 hereof;
(v) Extend the term of any Incentive Option beyond the maximum
term set forth in Paragraph 7;
(vi) Permit the granting of Incentive Options which would not
qualify as Incentive Stock Options; or
(vii) Decrease the per share option price required with respect
to Incentive Options under Paragraph 8(a) hereof.
(b) EFFECT OF TERMINATION. Except as otherwise provided in Section
13, without the written consent of the Optionee, any such termination of the
Plan shall not affect Options already granted and such Options shall remain in
full force and effect as if the Plan had not been terminated.
15. CONDITIONS UPON ISSUANCE OF SHARES. Options granted under either Plan
are conditioned upon the Company obtaining any required permit, or exemption
from the qualification or registration provisions of any applicable state
securities law and other appropriate governmental agencies, authorizing the
Company to issue such Options and Optioned Stock upon terms and conditions
acceptable to the Company. Shares shall not be issued with respect to an Option
granted under either Plan unless the exercise of such Option and the issuance
and delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may
9
<PAGE>
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
Option, the Board may require the person exercising such Option to execute an
agreement approved by the Board, and may require the person exercising such
Option to make any representation and warranty to the Company as may, in the
judgment of counsel to the Company, be required under applicable laws or
regulations.
16. RESERVATION OF SHARES. During the term of the Plans, the Company will
at all times reserve and keep available the number of Shares as shall be
sufficient to satisfy the requirements of the Plans. During the term of the
Plans, the Company will use its best efforts to seek to obtain from appropriate
regulatory agencies any requisite authorization in order to issue and sell such
number of Shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Plan. The inability of the Company to obtain from any such
regulatory agency the requisite authorization(s) deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder, or the
inability of the Company to confirm to its satisfaction that any issuance and
sale of any Shares hereunder will meet applicable legal requirements, shall
relieve the Company of any liability in respect to the non-issuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
17. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) ISSUE AND TRANSFER TAXES. The Company shall pay all original
issue and transfer taxes (but not income taxes, if any) with respect to the
grant of Options and the issue and transfer of Shares pursuant to the exercise
of such Options, and all other fees and expenses necessarily incurred by the
Company in connection therewith, and will use its best efforts to comply with
all laws and regulations which, in the opinion of counsel for the Company, shall
be applicable thereto.
(b) WITHHOLDING. The grant of Options hereunder and the issuance of
Shares of Common Stock pursuant to the exercise of such Options are conditioned
upon the Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation payable to the Optionee any taxes required
to be withheld by federal, state or local law as a result of the grant or
exercise of such Option or the sale of the Shares issued upon exercise of the
Option.
18. SHAREHOLDER APPROVAL OF PLAN A. Continuance of Plan A and the
effectiveness of any Option granted under such Plan shall be subject to approval
by the holders of the outstanding voting stock of the Company in accordance with
applicable law within twelve (12) months before or after the date Plan A is
adopted by the Board. Any Options granted under Plan A prior to obtaining such
shareholder approval shall be granted upon the conditions that the Options so
granted: (i) shall not be exercisable prior to such approval and (ii) shall
become null and void ab initio if such shareholder approval is not obtained.
19. LIABILITY OF COMPANY. The Company, its Parent or any Subsidiary which
is in existence or hereafter comes into existence, will not be liable to an
Optionee granted an Incentive Option or other person if it is determined for any
reason by the Internal Revenue Service or any court having jurisdiction that any
Incentive Options granted hereunder are not Incentive Stock Options.
10
<PAGE>
20. NOTICES. Any notice to be given to the Company pursuant to the
provisions of the Plans shall be addressed to the Company in care of its
Secretary at its principal office, and any notice to be given to an Optionee
shall be delivered personally or addressed to such Optionee at the address given
beneath such Optionee's signature on such Optionee's Stock Option Agreement, or
at such other address as such Employee (or any transferee) upon the transfer of
the Optioned Stock may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited, postage
and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service. It shall be
the obligation of each Optionee and each transferee holding Shares purchased
upon exercise of an Option to provide the Secretary of the Company, by letter
mailed as provided hereinabove, with written notice of such person's direct
mailing address.
21. NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is purely voluntary on
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its Parent, Subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in Options authorized hereunder
prior to the grant of such Option to such employee, and upon such grant he or
she shall have only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's Certificate of
Incorporation, as the same may be amended from time to time.
22. LEGENDS ON CERTIFICATES.
(a) FEDERAL LAW. Unless an appropriate registration statement is
filed pursuant to the Federal Securities Act of 1933, as amended, with respect
to the Options and Shares issuable under the Plans, each certificate
representing such Options and Shares shall be endorsed on its face with a legend
substantially as follows:
"THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON
EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) STATE LEGEND. If required by applicable state authorities each
certificate representing the Options and Shares issuable under the Plans shall
be endorsedon its face with any legends required by such authorization.
11
<PAGE>
(c) ADDITIONAL LEGENDS. Each certificate representing the Options and
Shares issuable under the Plans shall also contain legends as are set forth in
any Stock Purchase Agreement or other agreement the execution of which is a
condition to the exercise of an Option under this Plan. In addition, each
Option Agreement shall be endorsed with a legend substantially as follows:
"THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION MAYBE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A
CONDITION TO EXERCISE OF THIS OPTION."
23. AVAILABILITY OF PLAN. A copy of the Plans shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.
24. INVALID PROVISIONS. In the event that any provision of the Plans is
found to be invalid or otherwise unenforcable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
25. APPLICABLE LAW. These Plans shall be governed and construed in
accordance with the laws of the State of Arizona applicable to contracts
executed, and to be fully performed, in Arizona.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of
these Plans by the Board on ______________, the Company has caused these Plans
to be duly executed by its duly authorized officers, effective as of ________.
Medcare Technologies, Inc.
a Utah corporation
By:
Title:
12
<PAGE>
EXHIBIT "A"
PLAN A
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER
OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY
BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE
AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE
ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS
OPTION.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the ___ day of __________, 19__, by and between
Medcare Technologies, Inc. a Utah corporation (hereinafter called "Company") and
________________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's
1995 Incentive Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors), who contribute to the financial success of the Company or
its parent or subsidiary corporations.
B. Optionee is a key member of the Company or its parent or subsidiary
corporations, and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Company's grant of a
stock option to the Optionee.
C. The granted option is intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, there is hereby granted to Optionee, as of the date of
this Agreement (the "Grant Date"),
13
<PAGE>
a stock option to purchase up to 20,000 shares of the Company's Common Stock
(the "Optioned Shares") from time to time during the option term at the option
price of $3.00 per share.
2. PLAN. The options granted hereunder are in all instances subject
to the terms and conditions of the Plan. In the event of any conflict between
this Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusinve and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. OPTION TERM. This option shall have a maximum term of five (5)
years measured from the Grant Date and shall accordingly expire at the close of
business on December 31, 2001 (the "Expiration Date"), unless sooner terminated
in accordance with Paragraph 7, 9(a) or 20.
4. OPTION NONTRANSFERABLE; EXCEPTION. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. CONDITION PRECEDENT TO EXERCISE. This option may not be exercised
in whole or in part at any time prior to the time the Company has satisfied the
following condition precedent: __________. In the event the foregoing condition
precedent has not been satisfied prior to the Expiration Date or prior to this
option's earlier termination in accordance with Paragraph 7, 9(a) or 20, then
this option shall terminate and cease to be outstanding.
6. DATES OF EXERCISE. This option may not be exercised in whole or
in part at any time prior to the time it is approved by the Company's
shareholders in accordance with Paragraph 20. Provided such shareholder
approval is obtained and the condition precedent to exercise set forth in
Paragraph 5 has been satisfied, this option shall become exercisable for 100% of
the Optioned Shares one (1) year from the Grant Date, provided that in no event
may options for more than One Hundred Thousand Dollars ($100,000) of Optioned
Shares, calculated at the exercise price, become exercisable for the first time
in any calendar year. Once exercisable, options shall remain so exercisable
until the expiration or sooner termination of the option term under Paragraph 7
or Paragraph 9(a) of this Agreement. In no event, however, shall this option be
exercisable for any fractional shares.
7. ACCELERATED TERMINATION OF OPTION TERM. The option term specified
in Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or
(iv) below, should Optionee cease to be an Employee of the Company at any time
during the option term, then the period for exercising this option shall be
reduced to a one (1) month period commencing with the date of such cessation of
Employee status, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such one (1) month period or
(if earlier) upon the Expiration Date, this option shall terminate and cease to
be outstanding.
14
<PAGE>
(ii) Should Optionee die while this option is outstanding, then
the executors or administrators of Optionee's estate or Optionee's heirs or
legatees (as the case may be) shall have the right to exercise this option for
the number of shares (if any) for which the option is exercisable on the date of
the optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to be an Employee of the Company at any time during the option
term, then Optionee shall have a period of six (6) months (commencing with the
date of such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any
time after the Expiration Date. Optionee shall be deemed to be permanently
disabled if Optionee is, by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration of
not less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for
cause (including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzle-ment or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 7 and for all other purposes
under this Agreement, Optionee shall be deemed to be an Employee of the Company
and to continue in the Company's employ for so long as Optionee remains an
Employee of the Company or one or more of its parent or subsidiary corporations
as such terms are defined in the Plan.
8. ADJUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, combination of
shares, or other change affecting the outstanding Common Stock as a class
without receipt of consideration (as set forth in the Plan), then appropriate
adjustments will be made to (i) the total number of Optioned Shares subject to
this option and (ii) the option price payable per share in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other
business combination, then this option, if outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to apply and pertain to the number and class of
securities to which Optionee immediately prior to such merger of other business
combination
15
<PAGE>
would have been entitled to receive in the consummation of such merger or other
business combination.
9. SPECIAL TERMINATION OF OPTION.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred, or exchanged through merger, to different holders
in a single transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent corporation and it
may occur that some options outstanding under the Plan will be assumed while
these options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at
its option, accelerate the vesting schedule contained in Section 6 hereof, but
shall have no obligation to do so. The Company shall have the right to
accelerate other options outstanding under the Plan or any other plan, even if
it does not accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the
Company to make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
10. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Optioned Shares
until such individual shall have exercised the option and paid the option price
in accordance with this Agreement.
11. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's
16
<PAGE>
death, Optionee's executor, administrator, heir or legatee, as the case may be)
must take the following actions:
(i) Execute and deliver to the Secretary of the Company a
stock purchase agreement in substantially the form of Exhibit C to this
Agreement (the "Purchase Agreement");
(ii) Pay the aggregate option price for the purchased shares
in cash, unless another form of consideration is permitted as described in
Exhibit B, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to
the number of Optioned Shares specified in the Purchase Agreement at such time
as the executed Purchase Agreement for such shares shall have been delivered to
the Company and all other conditions of this Section have been fulfilled.
Payment of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
12. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned Shares
upon such exercise shall be subject to compliance by the Company and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall
execute and deliver to the Company such representations in writing as may be
requested by the Company in order for it to comply with the applicable
requirements of federal and state securities laws.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 4 or 9(a), the provisions of this Agreement shall insure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
14. LIABILITY OF COMPANY.
(a) If the Optioned Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to
17
<PAGE>
the Company in its reasonable discretion shall relieve the Company of any
liability with respect to the non-issuance or sale of the Common Stock as to
which such approval shall not have been obtained. The Company, however, shall
use its best efforts to obtain all such approvals.
(c) Neither the Company nor any Parent, Subsidiary or successor
corporation will have any liability to Optionee or any other person if it is
determined for any reason that any options granted hereunder are not Incentive
Stock Options.
15. NO EMPLOYMENT CONTRACT. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
16. NOTICES. Any notice required to be given or delivered to the Company under
the terms of this Agreement shall be in writing and addressed to the Company in
care of its Secretary at its corporate offices. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on this Agreement. All
notices shall be deemed to have been given or delivered upon personal delivery
or upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
17. LOANS OR GUARANTEES. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. CONSTRUCTION. This Agreement and the option evidenced hereby are made and
granted pursuant to the Plan and are in all respects limited by and subject to
the Plan. All decisions of the Company with respect to any question or issue
arising under the Plan or this Agreement shall be conclusive and binding on all
persons having an interest in this option.
19. GOVERNING LAW. The interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Arizona.
20. SHAREHOLDER APPROVAL. The grant of this option is subject to approval of
the Plan by the Company's shareholders within twelve (12) months after the
adoption of the Plan by the Board of Directors, and this option may not be
exercised in whole or in part until such shareholder approval is obtained. In
the event that such shareholder approval is not obtained, then this option shall
thereupon terminate and Optionee shall have no further rights to acquire any
Optioned Shares hereunder.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and Optionee
has also executed this Agreement in duplicate, all as of the day and year
indicated above.
Medcare Technologies, Inc.
a Utah corporation
By:_____________________________________
Title:____________________________________
_______________________________________
NAME, Optionee
Address: ______________________________
______________________________
19
<PAGE>
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only
acceptable form of consideration for the exercise of the
options.]
_________________
"EXHIBIT B"
PLAN B
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER
OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
TATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH
REGISTRATION IS NOT REQUIRED. THE SHARES WHICH MAY BE PURCHASED
UPON EXERCISE OF
THIS OPTION MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS
OF A STOCK
PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE
COMPANY, TO BE ENTERED INTO BETWEEN OPTIONEE AND THE COMPANY AS A
CONDITION TO
EXERCISE OF THIS OPTION.
NON-STATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ___ day of __, 19__, by and between MedCare
Technologies, Inc., a Utah corporation (hereinafter called "Company"), and ___
(hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's
1995 Non-Statutory Stock Option Plan (the "Plan") for the purpose of attracting
and retaining the services of selected key employees (including officers and
employee directors) and others (collectively, "Eligible Persons"), who
contribute to the financial success of the Company or its parent or subsidiary
corporations.
B. Optionee is an Eligible Person and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Company's grant of a stock option to Optionee.
C. The granted option is not intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code, but is rather a non-statutory option.
20
<PAGE>
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set forth in
this Agreement, there is hereby granted to Optionee, as of the date of this
Agreement (the "Grant Date"), a stock option to purchase up to ___ shares of the
Company's Common Stock (the "Optioned Shares") from time to time during the
option term at the option price of $3.00 per share.
2. PLAN. The options granted hereunder are in all instances subject to the
terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. OPTION TERM. This option shall have a maximum term of years measured from
the Grant Date and shall accordingly expire at the close of business on December
31, 2001 (the "Expiration Date"), unless sooner terminated in accordance with
Paragraph 6 or 8(a).
4. OPTION NONTRANSFERABLE; EXCEPTION. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. DATES OF EXERCISE. This option shall be exercisable as follows: options for
____% of the Optioned Shares shall become exercisable one (1) year from the
Grant Date and an additional ____% of the Optioned Shares shall become
exercisable on each successive anniversary of the Grant Date. Once exercisable,
options shall remain so exercisable until the expiration or sooner termination
of the option term under Paragraph 6 or Paragraph 8(a) of this Agreement. In no
event, however, shall this option be exercisable for any fractional shares.
6. ACCELERATED TERMINATION OF OPTION TERM. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or (iv)
below, should Optionee cease to be an Employee of the Company at any time during
the option term, then the period for exercising this option shall be reduced to
a one (1) month period commencing with the date of such cessation of Employee
status, but in no event shall this option be exercisable at any time after the
Expiration Date. Upon the expiration of such one (1) month period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding.
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or legatees
(as the case may be) shall have the right to exercise this option for the number
of shares (if any) for which the option is exercisable on the date of the
optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
21
<PAGE>
(iii) Should Optionee become permanently disabled and cease by reason
thereof to be an Employee of the Company at any time during the option term,
then Optionee shall have a period of six (6) months (commencing with the date of
such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for cause
(including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzlement or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 6 and for all other purposes under
this Agreement, if Optionee is an Employee, Optionee shall be deemed to be an
Employee of the Company and to continue in the Company's employ for so long as
Optionee remains an Employee of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan. For purposes of
this Paragraph 6 and for all other purposes under this Agreement, if Optionee is
not an Employee, but is eligible because Optionee is a director, consultant or
contractor of Company or a parent or subsidiary corporation, Optionee shall be
deemed to be an Eligible Person for so long as Optionee remains a director,
consultant or contractor of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan.
7. ADJUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(ii) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other
business combination, then this option, if outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to apply and pertain to the number and class of
securities to which Optionee immediately prior to such merger or other business
combination would have been entitled to receive in the consummation of such
merger or other business combination.
22
<PAGE>
8. SPECIAL TERMINATION OF OPTION.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business combination
in which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred, or exchanged through merger, to different holders in a single
transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its
option, accelerate the vesting schedule contained in Section 5 hereof, but shall
have no obligation to do so. The Company shall have the right to accelerate
other options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the
Company to make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
9. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not have
any of the rights of a shareholder with respect to the Optioned Shares until
such individual shall have exercised the option and paid the option price in
accordance with this Agreement.
10. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part
of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Execute and deliver to the Secretary of the Company a stock
purchase agreement in substantially the form of Exhibit to this Agreement (the
"Purchase Agreement");
23
<PAGE>
(ii) Pay the aggregate option price for the purchased shares in
cash, unless another form of consideration is permited as described in Exhibit
B, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to
the number of Optioned Shares specified in the Purchase Agreement at such time
as the executed Purchase Agreement for such shares shall have been delivered to
the Company and all other conditions of this Section have been fulfilled.
Payment of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned Shares
upon such exercise shall be subject to compliance by the Company and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall
execute and deliver to the Company such representations in writing as may be
requested by the Company in order for it to comply with the applicable
requirements of federal and state securities laws.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
13. LIABILITY OF COMPANY.
(a) If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
nonissuance or sale of the Common Stock as to which such approval shall not have
been obtained. The Company, however, shall use its best efforts to obtain all
such approvals.
24
<PAGE>
14. NO EMPLOYMENT CONTRACT. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
15. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
16. WITHHOLDING. Optionee acknowledges that, upon any exercise of this option,
the Company shall have the right to require Optionee topay to the Company an
amount equal to the amount the Company is required to withhold as a result of
such exercise for federal and state income tax purposes.
17. LOANS OR GUARANTEES. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. CONSTRUCTION. This Agreement and the option evidenced hereby are made and
granted pursuant to the Plan and are in all respects limited by and subject to
the express terms and provisions of the Plan. All decisions of the Company with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
19. GOVERNING LAW. The interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of California.
20. REPURCHASE R1GHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED
SHARES
ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN
RIGHTS OF
THE COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN
ACCORDANCE WITH THE
TERMS AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT.
25
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and Optionee
has also executed this Agreement in duplicate, all as of the day and year
indicated above.
MEDCARE TECHNOLOGIES, INC.
a Utah corporation
By: ________________________________
Title: ______________________________
OPTIONEE: _______________________
Address: __________________________
____________________________
____________________________
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only acceptable form
of consideration for the exercise of the options.]
26
<PAGE>
EXHIBIT "C"
STOCK PURCHASE AGREEMENT
This Agreement is made as of this _____ day of __________ 19__, by and
among MedCare Technologies, Inc., a Utah corporation ("Corporation"), and the
holder of a stock option under the Corporation's 1995 Stock Option Plan
("Optionee").
1. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases shares of Class A Common Stock of
the Corporation ("Purchased Shares") pursuant to that certain option ("Option")
granted Optionee on ___________, 19__ ("Grant Date") under the Corporation's
__________ Stock Option Plan ("Plan") to purchase up to ___ shares of the
Corporation's Common Stock ("Total Purchasable Shares") at an option price
of $3.00 per share ("Option Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Option Price for the
Purchased Shares in accordance with the provisions of the agreement between the
Corporation and Optionee evidencing the Option ("Option Agreement") and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise.
2. INVESTMENT REPRESENTATIONS
2.1 INVESTMENT INTENT. Optionee hereby warrants and represents that
Optionee is acquiring the Purchased Shares for Optionee's own account and not
with a view to their resale or distribution and that Optionee is prepared to
hold the Purchased Shares for an indefinite period and has no present intention
to sell, distribute or grant any participating interests in the Purchase Shares.
Optionee hereby acknowledges the fact that the Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
that the Corporation is issuing the Purchased Shares to Optionee in reliance
on the representations made by Optionee herein.
2.2 RESTRICTED SECURITIES. Optionee hereby confirms that Optionee has been
informed that the Purchased Shares may not be resold or transferred unless the
Purchased Shares are first registered under the Federal securities laws or
unless an exemption from such registration is available. Accordingly, Optionee
hereby acknowledges that Optionee is prepared to hold the Purchased Shares
for an indefinite period and that Optionee is aware that Rule 144 of the
Securities and Exchange Commission issued under the 1933 Act is not presently
available to exempt the sale of the Purchased Shares from the registration
requirements of the 1933 Act. Should Rule 144 subsequently become available,
Optionee is aware that any sale of the Purchased Shares effected pursuant to the
Rule may, depending upon the status of Optionee as an ttaffiliate" or
"non-affiliate" under the Rule, be made only in limited amounts in accordance
with the provisions of the Rule, and that in no event may any Purchased Shares
be sold pursuant to the Rule until Optionee has held the Purchased Shares for
the requisite holding period following payment in cash of the Option Price for
the Purchased Shares.
27
<PAGE>
2.3 OPTIONEE KNOWLEDGE. Optionee represents and warrants that he or she
has a preexisting business or personal relationship with the officers and
directors of the Corporation, that he or she is aware of the business affairs
and financial condition of the Corporation and that he or she has such knowledge
and experience in business and financial matters with respect to companies in
business similar to the Corporation to enable him or her to evaluate the risks
of the prospective investment and to make an informed investment decision with
respect thereto. Optionee further represents and warrants that the Corporation
has made available to Optionee the opportunity to ask questions and receive
answers from the Corporation concerning the terms and conditions of the issuance
of the Purchased Shares and that he or she could be reasonably assumed to have
the capacity to protect his or her own interests in connection with such
investment.
2.4 SPECULATIVE INVESTMENT. Optionee represents and warrants that he or
she realizes that his or her purchase of the Purchased Shares will be a
speculative investment and that he or she is able, without impairing his or her
financial condition, to hold the Purchased Shares for an indefinite period of
time and to suffer a complete loss of his or her investment. Optionee
represents and warrants that he or she is aware and fully understands the
implications of the restrictions upon transfer imposed by the Plan and therefore
on the Purchased Shares.
2.5 RESTRICTIVE LEGEND. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER
OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER TO THEEFFECT THAT SUCH
REGISTRATION IS NOT
REQUIRED.
3. MISCELLANEOUS PROVISIONS
3.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
3.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
This Agreement is made pursuant to the provisions of the Plan and shall in all
respects be construed in conformity with the express terms and provisions of the
Plan.
3.3 GOVERNING LAW. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
28
<PAGE>
3.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Corporation and its successors and
assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transfer by operation of law, whether or not
any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
MEDCARE TECHNOLOGIES, INC.
a Utah corporation
By: _____________________________
Address: _________________________
__________________________
__________________________
<PAGE>
1996 INCENTIVE STOCK OPTION PLAN AND 1996
NONSTATUTORY STOCK OPTION PLAN
1. NAMES AND PURPOSES OF THE PLANS. This Plan document is intended to
implement and govern two separate Stock Option Plans of Medcare Technologies,
Inc., a Utah corporation (the "Company"): the 1996 Incentive Stock Option Plan
("Plan A") and the 1996 Nonstatutory Stock Option Plan ("Plan B") (collectively
the "Plans"). Plan A provides for the granting of options that are intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422(b) of the Internal Revenue Code, as amended. Plan B
provides for the granting of options that are not intended to so qualify.
Unless specified otherwise, all the provisions of this Plan document relate
equally to both Plan A and Plan B, which Plans are condensed into one Plan
document solely for purposes of administrative convenience and are not intended
to constitute tandem plans. The purposes of the Plans are (a) to attract and
retain the best available people for positions of substantial responsibility,
and (b) to provide additional incentive to the Employees of the Company (and its
future parents and subsidiaries, if any) and to promote the success of the
Company's business.
2. DEFINITIONS. For purposes of the Plans, the following terms will have
the respective meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company;
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(c) "Common Stock" shall mean the Class A common stock of the Company;
(d) "Company" shall mean Medcare Technologies, Inc., a Utah
corporation;
(e) "Committee" shall mean the committee appointed by the Board in
accordance with Paragraph 3(a) of this Plan document, if one is appointed;
(f) "Employee" shall mean any person, including an officer or
director, who is an employee (within the meaning of Section 422 of the Code) of
the Company, any parent, any subsidiary or any successors to any of the
foregoing;
(g) "Incentive Option" shall mean an incentive stock option as defined
in Section 422(b) of the Code;
(h) "Non-Statutory Option" shall mean an option which does not qualify
as an Incentive Option;
(i) "Option" shall mean a stock option granted pursuant to the Plan,
whether an Incentive Option or a Non-Statutory Option;
1
<PAGE>
(j) "Option Agreement" shall mean an agreement substantially in the
form attached hereto as Exhibit A or the form attached hereto as Exhibit B, or
such other form or forms as the Board (subject to the terms and conditions of
the Plans) may from time to time approve, evidencing an Option;
(k) "Option Grant Date" shall mean the date on which an Option is
granted by the Board;
(l) "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to a Plan;
(m) "Optionee" shall mean an Employee or other Eligible Person who
receives an Option;
(n) "Outstanding Incentive Option" shall mean any Incentive Stock
Option which has not yet been exercised in full or has not yet expired by lapse
of time;
(o) "Parent" shall mean a "parent corporation" as defined in Section
424(e) of the Code;
(p) "Plan A" shall mean the 1996 Incentive Stock Option Plan;
(q) "Plan B" shall mean the 1996 Non-Statutory Stock Option Plan;
(r) "Predecessor Corporation" shall mean a corporation which is a
party to a transaction described in Code Section 424(a) (or which would be so
described if a substitution or assumption under such section had been effected)
with the Company, a Parent, a Subsidiary or a predecessor corporation of any
such corporations.
(s) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 13 of this Plan document;
(t) "Stock Purchase Agreement" shall mean an agreement substantially
in the form attached hereto as Exhibit C or such other form or forms as the
Board (subject to the terms and conditions of this Plan) may from time to time
approve, which is to be executed as a condition of purchasing Optioned Stock
upon exercise of an Option as provided in a Plan; and,
(u) "Subsidiary" shall mean a subsidiary corporation as defined in
Section 424(f) of the Code.
3. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plans shall be administered by the Board.
The Board may appoint a Committee consisting of not less than two (2)
members of the Board to administer one or both of the Plans on behalf of the
Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the
2
<PAGE>
Committee and appoint additional members thereof, remove members of the
Committee, and thereafter, directly administer the Plans. Any references
herein to the Board shall refer to the Committee, if one is appointed, to the
extent of the Committee's authority.
(b) LIMITATIONS ON MEMBERS OF BOARD. Members of the Board who are
either eligible for options or have been granted Options may vote on any matters
affecting the administration of the Plans or the grant of any Options pursuant
to the Plans; except that no such member shall act in connection with an Option
to himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to Options of such member.
(c) POWERS OF THE BOARD. Subject to the provisions of the Plan the
Board shall have the authority, in its discretion, to make ali determinations
necessary or advisable for the administration of the Plans, including without
limitation:
(i) to determine, upon review of relevant information, the then
fair market value per share of the Common Stock;
(ii) to determine the exercise price of the Options to be
granted, subject to the provisions of Paragraph 8 of this Plan document;
(iii) to determine the Employees to whom, and the time or times at
which, Options shall be granted, and the number of shares of Optioned Stock to
be represented by each Option;
(iv) to determine whether Options granted hereunder shall be
granted under Plan A as Incentive Options or Plan B as Non-statutory Options;
(v) to prescribe, amend and rescind rules and regulations
relating to the Plans;
(vi) to determine the terms and provisions of each Option granted
under the Plans (which need not be identical) and to modify or amend each Option
(with or without consent of the Optionee, if necessary);
(vii) to accelerate the exercise date of any Option;
(viii) to construe and interpret the Plans, the Option Agreements,
Stock Purchase Agreements and any other agreements provided for hereunder; and
(ix) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously granted
by the Board or to take such other actions as may be necessary or advisable with
respect to the Company's rights pursuant to the Option, Stock Purchase Agreement
or other agreement approved hereunder.
3
<PAGE>
(d) EFFECT OF THE BOARD'S OR COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other proper holders of any Options granted
under the Plan.
4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13of
this Plan document, the maximum aggregate number of shares which may be optioned
under these Plans is 500,000 shares of authorized Common Stock. This
constitutes an absolute cumulative limitation on the total number of shares that
may be optioned under Plan A and Plan B and, therefore, at any particular date
the maximum aggregate number of shares which may be optioned under Plan A is
equal to 300,000 minus the number of shares previously optioned under Plan A and
Plan B; and the maximum aggregate number of shares which may be optioned under
Plan B is equal to 300,000 minus the number of shares which have been previously
optioned under Plan A or Plan B. All shares to be optioned under either Plan A
or Plan B may be either authorized but unissued shares or shares held in the
treasury. Shares of Common Stock that (a) are repurchased by the Company after
issuance hereunder pursuant to the exercise of an Option or (b) are not
purchased by the Optionee prior to the expiration of the applicable Option
Period (as described hereinbelow) shall again become available to be covered by
Options to be issued hereunder and shall not, as of the effective date of such
repurchase or expiration, be counted as having been previously optioned for
purposes of the above-described maximum number of shares which may be optioned
hereunder.
5. ELIGIBILITY. Options under Plan A may be granted to any Employee who
is designated by the Board in its discretion. NonEmployees, including directors
of the Company or any Parent or Subsidiary, who are not regular employees of the
Company, are not eligible to receive Options under Plan A. Options under Plan B
may be granted to any Employee, any Non-Employee director of Company or any
Parent or Subsidiary, and any consultant or independent contractors who provide
valuable services to the Company (or its Parent or Subsidiary), all as
designated by the Board in its discretion. An Optionee who has been granted an
Option may, if otherwise eligible, be granted an additional Option or Options.
Options may be granted to one or more persons without being granted to other
eligible persons, as the Board may deem fit.
6. TERM OF THE PLAN. Plan A shall become effective immediately upon the
earlier to occur of its adoption by the Board or its approval by vote of a
majority of the outstanding shares of the Company entitled to vote on the
adoption of such Plan. Plan B shall become effective immediately upon its
adoption by the Board. Each Plan shall continue in effect until December 31,
2005 unless sooner terminated under Sections 15 or 18 of this Plan document.
No Option may be granted under a Plan after its expiration.
7. OPTION PERIOD. Each Option granted pursuant to either Plan shall be
evidenced by an Option Agreement. Each Option shall expire and all rights
thereunder shall end at the expiration of such period (which shall in no event
be more than ten (10) years) after the Option Grant Date as shall be fixed by
the Board, subject in all cases to earlier expiration as provided in Section 11
of this Plan document. Notwithstanding the foregoing, the term of each
Incentive Option granted to an Employee who, at the time the Incentive Option is
granted, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any
4
<PAGE>
Parent or Subsidiary (determined as required by the Code as applied to Incentive
Options) shall not be more than five (5) years from the Option Grant Date.
8. OPTION PRICE AND CONSIDERATION.
(a) PRICE. The per share Option price for the Shares to be issued
pursuant to an Option granted under either Plan shall be such price as is
determined by the Board in its sole discretion. Notwithstanding the foregoing,
with respect to Incentive Options granted under Plan A: (i) such price shall in
no event be less than one hundred percent (100%) of the fair market value per
Share of the Company's Common Stock on the Option Grant Date, as determined by
the Board; and (ii) in the case of an Incentive Option granted to an Employee
who, at the time the Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent, Subsidiary or Predecessor Corporation (determined as
required by the Code as applied to Incentive Options), the per share Option
price shall be at least one hundred ten percent (110%) of the fair market value
as of the Option Grant Date, as determined by the Board. The fair market value
shall be determined by the Board in its sole discretion, exercised in good
faith; provided, however, that where there is a public market for the Common
Stock, the fair market value per share shall be the mean of the reported bid and
asked price for the Common Stock on the date of the grant, or, in the event the
Common Stock is listed on a stock exchange, the fair market value per share
shall be the closing price on the exchange as of the date of grant of the
Option.
(b) FORM OF CONSIDERATION. The form of consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist of cash, promissory
notes, or the surrender of shares of Common Stock having a fair market value on
the date of surrender equal to the purchase price of the Shares as to which said
Option shall be exercised, a combination thereof, or such other consideration
and method of payment for the issuance of Shares as is permitted under
applicable law.
(c) PROMISSORY NOTES. If the consideration for the exercise of an
Option is a promissory note, such note shall be a full recourse promissory note
executed by the Optionee. If the option is an Incentive Option under Plan A,
such note shall bear interest at a per annum rate which is not less than the
greater of (i) the applicable "test rate" described in Treasury Regs. Section
1.4831(d) in effect on the date of exercise or (ii) a fair market interest rate,
as determined by the Board in its good faith discretion. If a promissory note
is given as consideration, the Company may retain the Shares purchased upon
exercise of the Option in escrow as security for payment of the promissory note.
(d) SURRENDERED COMMON STOCK. If the consideration for the exercise
of an Option is the surrender of previously acquired and owned shares of common
stock of the Company, the Optionee will be required to make representations and
warranties satisfactory to the Company regarding the Optionee's title to the
shares used to effect the purchase, including without limitation,
representations and warranties that the Optionee has good and marketable title
to such shares free and clear of any and all liens, encumbrances, charges,
equities, claims, security interests, options or restrictions and has full power
to deliver such shares without obtaining the consent or approval of any person
or governmental authority other than those which have already given consent or
approval in a form
5
<PAGE>
satisfactory to the Company. The value of the shares used to effect the
purchase shall be the fair market value of those shares as determined by the
Board in its sole discretion, exercised in good faith.
9. LIMIT ON VALUE OF OPTIONED STOCK ISSUED UNDER PLAN A. The aggregate
fair market value (determined as of the Option Grant Date of each Option) of the
Shares with respect to which Incentive Options are exercisable for the first
time by the Optionee during any calendar year under Plan A and all other
incentive stock option plans of the Company, any Parent or Subsidiary, or any
Predecessor Corporation of any such corporation shall not exceed One Hundred
Thousand Dollars ($100,000.00), as determined pursuant to Section 422(d) of the
Code.
10. EXERCISE OF OPTION.
(a) GENERAL TERMS. Any Option granted hereunder shall be
exercisable at such times and under such conditions as may be determined by the
Board which conditions may include performance criteria with respect to the
Company and/or the Optionee or provisions for vesting over a period of time
conditioned upon continued employment and shall include the contemporaneous
execution of a Stock Purchase Agreement in a form approved by the Board and as
shall be permissible under the terms of the Plan. In all events, in order to
exercise an Option hereunder the Optionee shall execute a Stock Purchase
Agreement in a form approved by the Board and shall deliver the required (or
permitted) exercise consideration to the Company. As a condition to the
exercise of an Option, the Board may require the Optionee pursuant to the Option
Agreement to agree to restrictions on the sale or other transfer of ownership of
the Common Stock acquired by an Optionee or to sell such Shares to the Company
upon termination of employment.
(b) PARTIAL EXERCISE. An Option may be exercised in accordance with
the provisions of either Plan as to all or any portion of the Shares then
exercisable under an Option, from time to time during the term of the Option.
An Option may not be exercised for a fraction of a Share.
(c) TIME OF EXERCISE. An Option shall be deemed to be exercised when
the Company has received at its principal business office: (i) written notice of
such exercise in accordance with the terms of the Option Agreement and given by
the person entitled to exercise the Option; (ii) full payment for the Shares
with respect to which the Option is exercised; (iii) the executed Stock Purchase
Agreement if required; and (iv) any other representations or agreements required
by the terms of this Plan or the Option Agreement. Full payment may consist of
such consideration as is authorized by the Board as provided hereunder.
(d) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. Until this Option is
properly exercised hereunder and the Company receives full payment for the
Shares with respect to which the Option is exercised, no right to receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Option is properly exercised and
payment in full is received, except as provided in Section 13 of this Plan
document.
6
<PAGE>
(e) ISSUANCE OF SHARE CERTIFICATES. As soon as practicable after any
proper exercise of an Option in accordance with the provisions of this Plan
document and payment in full for the exercised Shares, the Company shall,
without transfer or issue tax to the Optionee, deliver to the Optionee at the
principal business office of the Company, or such other place as shall be
mutually acceptable, a certificate or certificates representing the Shares of
Common Stock as to which the Option has been exercised. The time of issuance
and delivery of the certificates) representing the Shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirements of any
national or regional securities exchange and any law or regulation applicable to
the issuance and delivery of such Shares.
(f) REDUCTION OF SHARES UPON EXERCISE. Exercise of an Option in any
manner shall result in a decrease in the number of Shares which thereafter may
be available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
11. TERMINATION OF EMPLOYMENT.
(a) GENERAL. If an Optionee ceases to be an Employee then, except as
provided in Paragraph 11(a) or 11(b) hereof, any Option of the Optionee, whether
vested or non-vested, and if issued under Plan A, shall terminate as of the date
of termination of employment. Notwithstanding the foregoing, within the earlier
of (i) the date of termination of employment and (ii) the time the Option
expires by its terms, the Optionee may exercise the Option to the extent it was
vested and exercisable on the date of termination of employment, provided the
Optionee was not discharged for cause (in which event the Option shall not be
exercisable after the date of termination).
(b) DEATH OR DISABILITY. If Optionee dies or becomes disabled (within
the meaning of Code Section 422 and the rules and regulations thereunder) then,
within the earlier of thirty (30) days (or such other period of time not
exceeding six (6) months as set forth in the Option Agreement) following the
date of such death or disability and the time the Option expires by its terms,
the Optionee or such person or persons to whom the Optionee's rights under the
Option shall pass by the Optionee's will or by the laws of descent and
distribution, may exercise the Option to the extent it was vested and
exercisable on the date of death or disability.
(c) DEFINITION OF TERMINATION. For purposes of each Plan, an Employee
shall be deemed terminated as an employee when such Employee's employment is
deemed to no longer continue within the meaning of Code Section 422 and the
rules and regulations thereunder.
12. NON-TRANSFERABILITY OF OPTIONS. The Options and any rights and
privileges granted under any Option Agreement are not transferable by the
Optionee, either voluntarily or by operation of law, otherwise than by will and
the laws of descent and distribution and shall be exercisable during Optionee's
lifetime only by Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) REORGANIZATIONS, RECAPITALZATION, ETC. If the outstanding shares
of Common Stock of the Company are increased, decreased, changed into or
exchanged for a different number or kind of shares or securities of the Company
through reorganization, recapitalization, reclassification, stock dividend (but
only on Common Stock), stock split, reverse stock split or other similar
transaction, or, if any other increase or decrease occurs in the number of
Shares of Common Stock of the Company without the receipt of consideration by
the Company, then an appropriate and proportional adjustment shall be made in
(i) the number and kind of shares of stock covered by each outstanding Option,
(ii) the number and kind of shares of stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted (or
which have been returned to the Plan upon cancellation of an Option), and (iii)
the exercise price per share of stock covered by each such outstanding Option.
The granting of stock options or bonuses to Employees of the Company and the
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without the receipt of consideration." Notwithstanding the
foregoing, no adjustment need be made under this paragraph if, upon the advice
of counsel, the Board determines that such adjustment may result in federal
taxable income to the holders of Options or Common Stock or other classes of the
Company's securities.
(b) DISSOLUTION, LIQUIDATION, ETC. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company with one or more corporations as a result of which the Company is
not the surviving corporation, or upon a sale (or exchange through merger) of
substantially all the property or more than fifty percent (50%) of the then
outstanding stock of the Company to another corporation, the Plan shall
terminate, and any Option theretofore granted hereunder shall terminate.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, such transaction for any, all or none of the
following alternatives (separately or in combination): (i) for all or a portion
of the Options theretofore granted to become immediately exercisable; (ii) for
the assumption by the successor corporation of the Options theretofore granted
or the substitution by such corporation for such Options of new options covering
the stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; or (iii)
for then continuance of the Plan by such successor corporation in which event
the Plan and the Options theretofore granted shall continue in the manner and
under the terms so provided.
(c) NO FRACTIONAL SHARES. No fractional shares of the Common Stock
shall be issuable on account of any action under this Paragraph 13, and the
aggregate number of shares into which Shares then covered by an Option, when
changed as the result of such action, shall be reduced to the largest number of
whole Shares resulting from such action. Notwithstanding the foregoing, the
Board, in its sole discretion, may determine to issue scrip certificates, in
respect to any fractional shares, which scrip certificates, in such event, shall
be in a form and have such terms and conditions as the Board in its discretion
shall prescribe.
(d) BINDING EFFECT OF BOARD DETERMINATIONS. All adjustments under
this Paragraph 13 shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive.
9
<PAGE>
(e) NO OTHER ADJUSTMENTS. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares of Common
Stock subject to the Plan or any Options.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time and from
time to time suspend or terminate either Plan. The Board may also amend or
revise either Plan from time to time in such respects as the Board may deem
advisable, except that, without approval of the holders of the majority of the
outstanding shares of the Company's Common Stock, no such revision or amendment
shall amend Plan A so as to:
(i) Increase the number of Shares subject to Plan A other than in
connection with an adjustment under Section 13 of this Plan document;
(ii) Permit the granting of Incentive Options to anyone other than
as provided in Paragraph 5;
(iii) Remove the administration of Plan A from the Board;
(iv) Extend the term of Plan A beyond that provided in Paragraph 6
hereof;
(v) Extend the term of any Incentive Option beyond the maximum
term set forth in Paragraph 7;
(vi) Permit the granting of Incentive Options which would not
qualify as Incentive Stock Options; or
(vii) Decrease the per share option price required with respect to
Incentive Options under Paragraph 8(a) hereof.
(b) EFFECT OF TERMINATION. Except as otherwise provided in Section
13, without the written consent of the Optionee, any such termination of the
Plan shall not affect Options already granted and such Options shall remain in
full force and effect as if the Plan had not been terminated.
15. CONDITIONS UPON ISSUANCE OF SHARES. Options granted under either Plan
are conditioned upon the Company obtaining any required permit, or exemption
from the qualification or registration provisions of any applicable state
securities law and other appropriate governmental agencies, authorizing the
Company to issue such Options and Optioned Stock upon terms and conditions
acceptable to the Company. Shares shall not be issued with respect to an Option
granted under either Plan unless the exercise of such Option and the issuance
and delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may
9
<PAGE>
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
Option, the Board may require the person exercising such Option to execute an
agreement approved by the Board, and may require the person exercising such
Option to make any representation and warranty to the Company as may, in the
judgment of counsel to the Company, be required under applicable laws or
regulations.
16. RESERVATION OF SHARES. During the term of the Plans, the Company will
at all times reserve and keep available the number of Shares as shall be
sufficient to satisfy the requirements of the Plans. During the term of the
Plans, the Company will use its best efforts to seek to obtain from appropriate
regulatory agencies any requisite authorization in order to issue and sell such
number of Shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Plan. The inability of the Company to obtain from any such
regulatory agency the requisite authorization(s) deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder, or the
inability of the Company to confirm to its satisfaction that any issuance and
sale of any Shares hereunder will meet applicable legal requirements, shall
relieve the Company of any liability in respect to the non-issuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
17. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) ISSUE AND TRANSFER TAXES. The Company shall pay all original
issue and transfer taxes (but not income taxes, if any) with respect to the
grant of Options and the issue and transfer of Shares pursuant to the exercise
of such Options, and all other fees and expenses necessarily incurred by the
Company in connection therewith, and will use its best efforts to comply with
all laws and regulations which, in the opinion of counsel for the Company, shall
be applicable thereto.
(b) WITHHOLDING. The grant of Options hereunder and the issuance of
Shares of Common Stock pursuant to the exercise of such Options are conditioned
upon the Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation payable to the Optionee any taxes required
to be withheld by federal, state or local law as a result of the grant or
exercise of such Option or the sale of the Shares issued upon exercise of the
Option.
18. SHAREHOLDER APPROVAL OF PLAN A. Continuance of Plan A and the
effectiveness of any Option granted under such Plan shall be subject to approval
by the holders of the outstanding voting stock of the Company in accordance with
applicable law within twelve (12) months before or after the date Plan A is
adopted by the Board. Any Options granted under Plan A prior to obtaining such
shareholder approval shall be granted upon the conditions that the Options so
granted: (i) shall not be exercisable prior to such approval and (ii) shall
become null and void ab initio if such shareholder approval is not obtained.
19. LIABILITY OF COMPANY. The Company, its Parent or any Subsidiary which
is in existence or hereafter comes into existence, will not be liable to an
Optionee granted an Incentive Option or other person if it is determined for
any reason by the Internal Revenue Service or any court having jurisdiction that
any Incentive Options granted hereunder are not Incentive Stock Options.
10
<PAGE>
20. NOTICES. Any notice to be given to the Company pursuant to the
provisions of the Plans shall be addressed to the Company in care of its
Secretary at its principal office, and any notice to be given to an Optionee
shall be delivered personally or addressed to such Optionee at the address given
beneath such Optionee's signature on such Optionee's Stock Option Agreement, or
at such other address as such Employee (or any transferee) upon the transfer of
the Optioned Stock may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited, postage
and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service. It shall be
the obligation of each Optionee and each transferee holding Shares purchased
upon exercise of an Option to provide the Secretary of the Company, by letter
mailed as provided hereinabove, with written notice of such person's direct
mailing address.
21. NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is purely voluntary on
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its Parent, Subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in Options authorized hereunder
prior to the grant of such Option to such employee, and upon such grant he or
she shall have only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's Certificate of
Incorporation, as the same may be amended from time to time.
22. LEGENDS ON CERTIFICATES.
(a) FEDERAL LAW. Unless an appropriate registration statement is
filed pursuant to the Federal Securities Act of 1933, as amended, with respect
to the Options and Shares issuable under the Plans, each certificate
representing such Options and Shares shall be endorsed on its face with a legend
substantially as follows:
"THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON
EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) STATE LEGEND. If required by applicable state authorities each
certificate representing the Options and Shares issuable under the Plans shall
be endorsed on its face with any legends required by such authorization.
11
<PAGE>
(c) ADDITIONAL LEGENDS. Each certificate representing the Options and
Shares issuable under the Plans shall also contain legends as are set forth in
any Stock Purchase Agreement or other agreement the execution of which is a
condition to the exercise of an Option under this Plan. In addition, each
Option Agreement shall be endorsed with a legend substantially as follows:
"THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION MAYBE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A
CONDITION TO EXERCISE OF THIS OPTION."
23. AVAILABILITY OF PLAN. A copy of the Plans shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.
24. INVALID PROVISIONS. In the event that any provision of the Plans is
found to be invalid or otherwise unenforcable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
25. APPLICABLE LAW. These Plans shall be governed and construed in
accordance with the laws of the State of Arizona applicable to contracts
executed, and to be fully performed, in Arizona.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of
these Plans by the Board on ______________, the Company has caused these Plans
to be duly executed by its duly authorized officers, effective as of __________
Medcare Technologies, Inc.
a Utah corporation
By:_______________________
Title:____________________
12
<PAGE>
EXHIBIT "A"
PLAN A
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER
OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY
BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE
AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE
ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS
OPTION.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the __ day of __________, 19__, by and between
Medcare Technologies, Inc. a Utah corporation (hereinafter called "Company") and
________________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's
1996 Incentive Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors), who contribute to the financial success of the Company or
its parent or subsidiary corporations.
B. Optionee is a key member of the Company or its parent or
subsidiary corporations, and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the Company's
grant of a stock option to the Optionee.
C. The granted option is intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, there is hereby granted to Optionee, as of the date of
this Agreement (the "Grant Date"),
13
<PAGE>
a stock option to purchase up to 20,000 shares of the Company's Common Stock
(the "Optioned Shares") from time to time during the option term at the option
price of $4.50 per share.
2. PLAN. The options granted hereunder are in all instances subject
to the terms and conditions of the Plan. In the event of any conflict between
this Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusinve and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. OPTION TERM. This option shall have a maximum term of five (5)
years measured from the Grant Date and shall accordingly expire at the close of
business on June 20, 2001 (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 7, 9(a) or 20.
4. OPTION NONTRANSFERABLE; EXCEPTION. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. CONDITION PRECEDENT TO EXERCISE. This option may not be exercised
in whole or in part at any time prior to the time the Company has satisfied the
following condition precedent: __________. In the event the foregoing condition
precedent has not been satisfied prior to the Expiration Date or prior to this
option's earlier termination in accordance with Paragraph 7, 9(a) or 20, then
this option shall terminate and cease to be outstanding.
6. DATES OF EXERCISE. This option may not be exercised in whole or
in part at any time prior to the time it is approved by the Company's
shareholders in accordance with Paragraph 20. Provided such shareholder
approval is obtained and the condition precedent to exercise set forth in
Paragraph 5 has been satisfied, this option shall become exercisable for 100% of
the Optioned Shares one (1) year from the Grant Date, provided that in no event
may options for more than One Hundred Thousand Dollars ($100,000) of Optioned
Shares, calculated at the exercise price, become exercisable for the first time
in any calendar year. Once exercisable, options shall remain so exercisable
until the expiration or sooner termination of the option term under Paragraph 7
or Paragraph 9(a) of this Agreement. In no event, however, shall this option be
exercisable for any fractional shares.
7. ACCELERATED TERMINATION OF OPTION TERM. The option term specified
in Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or
(iv) below, should Optionee cease to be an Employee of the Company at any time
during the option term, then the period for exercising this option shall be
reduced to a one (1) month period commencing with the date of such cessation of
Employee status, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such one (1) month period or
(if earlier) upon the Expiration Date, this option shall terminate and cease to
be outstanding.
14
<PAGE>
(ii) Should Optionee die while this option is outstanding, then
the executors or administrators of Optionee's estate or Optionee's heirs or
legatees (as the case may be) shall have the right to exercise this option for
the number of shares (if any) for which the option is exercisable on the date of
the optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to be an Employee of the Company at any time during the option
term, then Optionee shall have a period of six (6) months (commencing with the
date of such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for
cause (including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzle-ment or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 7 and for all other purposes
under this Agreement, Optionee shall be deemed to be an Employee of the Company
and to continue in the Company's employ for so long as Optionee remains an
Employee of the Company or one or more of its parent or subsidiary corporations
as such terms are defined in the Plan.
8. ADJUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(h) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other
business combination, then this option, if outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to apply and pertain to the number and class of
securities to which Optionee immediately prior to such merger of other business
combination
15
<PAGE>
would have been entitled to receive in the consummation of such merger or other
business combination.
9. SPECIAL TERMINATION OF OPTION.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business combination
in which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred, or exchanged through merger, to different holders in a single
transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its
option, accelerate the vesting schedule contained in Section 6 hereof, but shall
have no obligation to do so. The Company shall have the right to accelerate
other options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the
Company to make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
10. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not have
any of the rights of a shareholder with respect to the Optioned Shares until
such individual shall have exercised the option and paid the option price in
accordance with this Agreement.
11. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part
of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's
16
<PAGE>
death, Optionee's executor, administrator, heir or legatee, as the case may be)
must take the following actions:
(i) Execute and deliver to the Secretary of the Company a stock
purchase agreement in substantially the form of Exhibit C to this Agreement (the
"Purchase Agreement");
(ii) Pay the aggregate option price for the purchased shares in
cash, unless another form of consideration is permitted as described in Exhibit
B, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to
the number of Optioned Shares specified in the Purchase Agreement at such time
as the executed Purchase Agreement for such shares shall have been delivered to
the Company and all other conditions of this Section have been fulfilled.
Payment of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
12. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned Shares
upon such exercise shall be subject to compliance by the Company and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall
execute and deliver to the Company such representations in writing as may be
requested by the Company in order for it to comply with the applicable
requirements of federal and state securities laws.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 4 or 9(a), the provisions of this Agreement shall insure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
14. LIABILITY OF COMPANY.
(a) If the Optioned Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to
17
<PAGE>
the Company in its reasonable discretion shall relieve the Company of any
liability with respect to the non-issuance or sale of the Common Stock as to
which such approval shall not have been obtained. The Company, however, shall
use its best efforts to obtain all such approvals.
(c) Neither the Company nor any Parent, Subsidiary or successor
corporation will have any liability to Optionee or any other person if it is
determined for any reason that any options granted hereunder are not Incentive
Stock Options.
15. NO EMPLOYMENT CONTRACT. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
16. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
17. LOANS OR GUARANTEES. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. CONSTRUCTION. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the Plan. All decisions of the Company with respect to any question or issue
arising under the Plan or this Agreement shall be conclusive and binding on all
persons having an interest in this option.
19. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Utah.
20. SHAREHOLDER APPROVAL. The grant of this option is subject to approval
of the Plan by the Company's shareholders within twelve (12) months after the
adoption of the Plan by the Board of Directors, and this option may not be
exercised in whole or in part until such shareholder approval is obtained. In
the event that such shareholder approval is not obtained, then this option shall
thereupon terminate and Optionee shall have no further rights to acquire any
Optioned Shares hereunder.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and Optionee
has also executed this Agreement in duplicate, all as of the day and year
indicated above.
Medcare Technologies, Inc.
a Utah corporation
By:_____________________________________
Title:____________________________________
_______________________________________
NAME, Optionee
Address: ADDRESS
CITY, STATE ZIP
19
<PAGE>
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only
acceptable form of consideration for the exercise of the
options.]
_________________
"EXHIBIT B"
PLAN B
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER
OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
TATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH
REGISTRATION IS NOT REQUIRED. THE SHARES WHICH MAY BE PURCHASED
UPON EXERCISE OF
THIS OPTION MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS
OF A STOCK
PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE
COMPANY, TO BE ENTERED INTO BETWEEN OPTIONEE AND THE COMPANY AS A
CONDITION TO
EXERCISE OF THIS OPTION.
NON-STATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ___ day of __, 19__, by and between MedCare
Technologies, Inc., a Utah corporation (hereinafter called "Company"), and ___
(hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's
1996 Non-Statutory Stock Option Plan (the "Plan") for the purpose of attracting
and retaining the services of selected key employees (including officers and
employee directors) and others (collectively, "Eligible Persons"), who
contribute to the financial success of the Company or its parent or subsidiary
corporations.
B. Optionee is an Eligible Person and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Company's grant of a stock option to Optionee.
C. The granted option is not intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code, but is rather a non-statutory option.
20
<PAGE>
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, there is hereby granted to Optionee, as of the date of
this Agreement (the "Grant Date"), a stock option to purchase up to ___ shares
of the Company's Common Stock (the "Optioned Shares") from time to time during
the option term at the option price of $4.50 per share.
2. PLAN. The options granted hereunder are in all instances subject to
the terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. OPTION TERM. This option shall have a maximum term of years measured
from the Grant Date and shall accordingly expire at the close of business on
__________, 19___ (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 6 or 8(a).
4. OPTION NONTRANSFERABLE; EXCEPTION. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. DATES OF EXERCISE. This option shall be exercisable as follows:
options for ____% of the Optioned Shares shall become exercisable one (1) year
from the Grant Date and an additional ____% of the Optioned Shares shall become
exercisable on each successive anniversary of the Grant Date. Once exercisable,
options shall remain so exercisable until the expiration or sooner termination
of the option term under Paragraph 6 or Paragraph 8(a) of this Agreement. In no
event, however, shall this option be exercisable for any fractional shares.
6. ACCELERATED TERMINATION OF OPTION TERM. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or (iv)
below, should Optionee cease to be an Employee of the Company at any time during
the option term, then the period for exercising this option shall be reduced to
a one (1) month period commencing with the date of such cessation of Employee
status, but in no event shall this option be exercisable at any time after the
Expiration Date. Upon the expiration of such one (1) month period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding.
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or legatees
(as the case may be) shall have the right to exercise this option for the number
of shares (if any) for which the option is exercisable on the date of the
optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
21
<PAGE>
(iii) Should Optionee become permanently disabled and cease by reason
thereof to be an Employee of the Company at any time during the option term,
then Optionee shall have a period of six (6) months (commencing with the date of
such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for cause
(including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzlement or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 6 and for all other purposes under
this Agreement, if Optionee is an Employee, Optionee shall be deemed to be an
Employee of the Company and to continue in the Company's employ for so long as
Optionee remains an Employee of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan. For purposes of
this Paragraph 6 and for all other purposes under this Agreement, if Optionee is
not an Employee, but is eligible because Optionee is a director, consultant or
contractor of Company or a parent or subsidiary corporation, Optionee shall be
deemed to be an Eligible Person for so long as Optionee remains a director,
consultant or contractor of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan.
7. ADUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(ii) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other
business combination, then this option, if outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to apply and pertain to the number and class of
securities to which Optionee immediately prior to such merger or other business
combination would have been entitled to receive in the consummation of such
merger or other business combination.
8. SPECIAL TERMINATION OF OPTION.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business combination
in which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred, or exchanged through merger, to different holders in a single
transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its
option, accelerate the vesting schedule contained in Section 5 hereof, but shall
have no obligation to do so. The Company shall have the right to accelerate
other options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the
Company to make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
9. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not have
any of the rights of a shareholder with respect to the Optioned Shares until
such individual shall have exercised the option and paid the option price in
accordance with this Agreement.
10. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part
of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Execute and deliver to the Secretary of the Company a stock
purchase agreement in substantially the form of Exhibit to this Agreement (the
"Purchase Agreement");
23
<PAGE>
(ii) Pay the aggregate option price for the purchased shares in
cash, unless another form of consideration is permited as described in Exhibit
B, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to
the number of Optioned Shares specified in the Purchase Agreement at such time
as the executed Purchase Agreement for such shares shall have been delivered to
the Company and all other conditions of this Section have been fulfilled.
Payment of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned Shares
upon such exercise shall be subject to compliance by the Company and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall
execute and deliver to the Company such representations in writing as may be
requested by the Company in order for it to comply with the applicable
requirements of federal and state securities laws.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
13. LIABILITY OF COMPANY.
(a) If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
nonissuance or sale of the Common Stock as to which such approval shall not have
been obtained. The Company, however, shall use its best efforts to obtain all
such approvals.
24
<PAGE>
14. NO EMPLOYMENT CONTRACT. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
15. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
16. WITHHOLDING. Optionee acknowledges that, upon any exercise of this
option, the Company shall have the right to require Optionee topay to the
Company an amount equal to the amount the Company is required to withhold as a
result of such exercise for federal and state income tax purposes.
17. LOANS OR GUARANTEES. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. CONSTRUCTION. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of the Plan. All decisions of the Company
with respect to any question or issue arising under the Plan or this Agreement
shall be conclusive and binding on all persons having an interest in this
option.
19. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Utah.
20. REPURCHASE R1GHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED
SHARES
ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN
RIGHTS OF
THE COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN
ACCORDANCE WITH THE
TERMS AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT.
25
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, all as of the day and year indicated
above.
MEDCARE TECHNOLOGIES, INC.
a Utah corporation
By: ________________________________
Title: ______________________________
OPTIONEE: _______________________
Address: __________________________
____________________________
____________________________
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only acceptable form
of consideration for the exercise of the options.]
26
<PAGE>
EXHIBIT "C"
STOCK PURCHASE AGREEMENT
This Agreement is made as of this _____ day of __________ 19__, by and
among MedCare Technologies, Inc., a Utah corporation ("Corporation"), and the
holder of a stock option under the Corporation's 1996 Stock Option Plan
("Optionee").
1. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases shares of Class A Common
Stock of the Corporation ("Purchased Shares") pursuant to that certain option
("Option") granted Optionee on _______, 19__ ("Grant Date") under the
Corporation's __________ Stock Option Plan ("Plan") to purchase up to ___ shares
of the Corporation's Common Stock ("Total Purchasable Shares") at an option
price of $4.50 per share ("Option Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Option Price for the
Purchased Shares in accordance with the provisions of the agreement between the
Corporation and Optionee evidencing the Option ("Option Agreement") and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise.
2. INVESTMENT REPRESENTATIONS
2.1 INVESTMENT INTENT. Optionee hereby warrants and represents that
Optionee is acquiring the Purchased Shares for Optionee's own account and not
with a view to their resale or distribution and that Optionee is prepared to
hold the Purchased Shares for an indefinite period and has no present intention
to sell, distribute or grant any participating interests in the Purchase Shares.
Optionee hereby acknowledges the fact that the Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
that the Corporation is issuing the Purchased Shares to Optionee in reliance on
the representations made by Optionee herein.
2.2 RESTRICTED SECURITIES. Optionee hereby confirms that Optionee has
been informed that the Purchased Shares may not be resold or transferred unless
the Purchased Shares are first registered under the Federal securities laws or
unless an exemption from such registration is available. Accordingly, Optionee
hereby acknowledges that Optionee is prepared to hold the Purchased Shares for
an indefinite period and that Optionee is aware that Rule 144 of the Securities
and Exchange Commission issued under the 1933 Act is not presently available to
exempt the sale of the Purchased Shares from the registration requirements of
the 1933 Act. Should Rule 144 subsequently become available, Optionee is aware
that any sale of the Purchased Shares effected pursuant to the Rule may,
depending upon the status of Optionee as an ttaffiliate" or "non-affiliate"
under the Rule, be made only in limited amounts in accordance with the
provisions of the Rule, and that in no event may any Purchased Shares be sold
pursuant to the Rule until Optionee has held the Purchased Shares for the
requisite holding period following payment in cash of the Option Price for the
Purchased Shares.
27
<PAGE>
2.3 OPTIONEE KNOWLEDGE. Optionee represents and warrants that he or
she has a preexisting business or personal relationship with the officers and
directors of the Corporation, that he or she is aware of the business affairs
and financial condition of the Corporation and that he or she has such knowledge
and experience in business and financial matters with respect to companies in
business similar to the Corporation to enable him or her to evaluate the risks
of the prospective investment and to make an informed investment decision with
respect thereto. Optionee further represents and warrants that the Corporation
has made available to Optionee the opportunity to ask questions and receive
answers from the Corporation concerning the terms and conditions of the issuance
of the Purchased Shares and that he or she could be reasonably assumed to have
the capacity to protect his or her own interests in connection with such
investment.
2.4 SPECULATIVE INVESTMENT. Optionee represents and warrants that he
or she realizes that his or her purchase of the Purchased Shares will be a
speculative investment and that he or she is able, without impairing his or her
financial condition, to hold the Purchased Shares for an indefinite period of
time and to suffer a complete loss of his or her investment. Optionee
represents and warrants that he or she is aware and fully understands the
implications of the restrictions upon transfer imposed by the Plan and therefore
on the Purchased Shares.
2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED
OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
THEREUNDER OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO
THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
3. MISCELLANEOUS PROVISIONS
3.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
3.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
3.3 GOVERNING LAW. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
28
<PAGE>
3.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transfer by operation of law, whether or not
any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
MEDCARE TECHNOLOGIES, INC.
a Utah corporation
By: _____________________________
Address: _________________________
__________________________
__________________________
<PAGE>
1997 INCENTIVE STOCK OPTION PLAN AND 1997
NONSTATUTORY STOCK OPTION PLAN
1. NAMES AND PURPOSES OF THE PLANS. This Plan document is intended to
implement and govern two separate Stock Option Plans of Medcare Technologies,
Inc., a Utah corporation (the "Company"): the 1997 Incentive Stock Option Plan
("Plan A") and the 1997 Nonstatutory Stock Option Plan ("Plan B") (collectively
the "Plans"). Plan A provides for the granting of options that are intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422(b) of the Internal Revenue Code, as amended. Plan B
provides for the granting of options that are not intended to so qualify.
Unless specified otherwise, all the provisions of this Plan document relate
equally to both Plan A and Plan B, which Plans are condensed into one Plan
document solely for purposes of administrative convenience and are not intended
to constitute tandem plans. The purposes of the Plans are (a) to attract and
retain the best available people for positions of substantial responsibility,
and (b) to provide additional incentive to the Employees of the Company (and its
future parents and subsidiaries, if any) and to promote the success of the
Company's business.
2. DEFINITIONS. For purposes of the Plans, the following terms will have
the respective meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company;
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(c) "Common Stock" shall mean the Class A common stock of the Company;
(d) "Company" shall mean Medcare Technologies, Inc., a Delaware
corporation;
(e) "Committee" shall mean the committee appointed by the Board in
accordance with Paragraph 3(a) of this Plan document, if one is appointed;
(f) "Employee" shall mean any person, including an officer or director,
who is an employee (within the meaning of Section 422 of the Code) of the
Company, any parent, any subsidiary or any successors to any of the foregoing;
(g) "Incentive Option" shall mean an incentive stock option as defined
in Section 422(b) of the Code;
(h) "Non-Statutory Option" shall mean an option which does not qualify
as an Incentive Option;
(i) "Option" shall mean a stock option granted pursuant to the Plan,
whether an Incentive Option or a Non-Statutory Option;
1
<PAGE>
(j) "Option Agreement" shall mean an agreement substantially in the
form attached hereto as Exhibit A or the form attached hereto as Exhibit B, or
such other form or forms as the Board (subject to the terms and conditions of
the Plans) may from time to time approve, evidencing an Option;
(k) "Option Grant Date" shall mean the date on which an Option is
granted by the Board;
(l) "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to a Plan;
(m) "Optionee" shall mean an Employee or other Eligible Person who
receives an Option;
(n) "Outstanding Incentive Option" shall mean any Incentive Stock
Option which has not yet been exercised in full or has not yet expired by lapse
of time;
(o) "Parent" shall mean a "parent corporation" as defined in Section
424(e) of the Code;
(p) "Plan A" shall mean the 1997 Incentive Stock Option Plan;
(q) "Plan B" shall mean the 1997 Non-Statutory Stock Option Plan;
(r) "Predecessor Corporation" shall mean a corporation which is a party
to a transaction described in Code Section 424(a) (or which would be so
described if a substitution or assumption under such section had been effected)
with the Company, a Parent, a Subsidiary or a predecessor corporation of any
such corporations;
(s) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 13 of this Plan document;
(t) "Stock Purchase Agreement" shall mean an agreement substantially
in the form attached hereto as Exhibit C or such other form or forms as the
Board (subject to the terms and conditions of this Plan) may from time to time
approve, which is to be executed as a condition of purchasing Optioned Stock
upon exercise of an Option as provided in a Plan; and,
(u) "Subsidiary" shall mean a subsidiary corporation as defined in
Section 424(f) of the Code.
3. ADMINISTRATION OF PLAN.
(a) PROCEDURE. The Plans shall be administered by the Board.
The Board may appoint a Committee consisting of not less than two (2)
members of the Board to administer one or both of the Plans on behalf of the
Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the
2
<PAGE>
Committee and appoint additional members thereof, remove members of the
Committee, and thereafter, directly administer the Plans. Any references herein
to the Board shall refer to the Committee, if one is appointed, to the extent of
the Committee's authority.
(b) LIMITATIONS ON MEMBERS OF BOARD. Members of the Board who are
either eligible for options or have been granted Options may vote on any matters
affecting the administration of the Plans or the grant of any Options pursuant
to the Plans; except that no such member shall act in connection with an Option
to himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to Options of such member.
(c) POWERS OF THE BOARD. Subject to the provisions of the Plan the
Board shall have the authority, in its discretion, to make ali determinations
necessary or advisable for the administration of the Plans, including without
limitation:
(i) to determine, upon review of relevant information, the then
fair market value per share of the Common Stock;
(ii) to determine the exercise price of the Options to be
granted, subject to the provisions of Paragraph 8 of this Plan document;
(iii) to determine the Employees to whom, and the time or times at
which, Options shall be granted, and the number of shares of Optioned Stock to
be represented by each Option;
(iv) to determine whether Options granted hereunder shall be
granted under Plan A as Incentive Options or Plan B as Non-statutory Options;
(v) to prescribe, amend and rescind rules and regulations
relating to the Plans;
(vi) to determine the terms and provisions of each Option granted
under the Plans (which need not be identical) and to modify or amend each Option
(with or without consent of the Optionee, if necessary);
(vii) to accelerate the exercise date of any Option;
(viii) to construe and interpret the Plans, the Option Agreements,
Stock Purchase Agreements and any other agreements provided for hereunder; and
(ix) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously granted
by the Board or to take such other actions as may be necessary or advisable with
respect to the Company's rights pursuant to the Option, Stock Purchase Agreement
or other agreement approved hereunder.
3
<PAGE>
(d) EFFECT OF THE BOARD'S OR COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other proper holders of any Options granted
under the Plan.
4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
this Plan document, the maximum aggregate number of shares which may be optioned
under these Plans is 500,000 shares of authorized Common Stock. This
constitutes an absolute cumulative limitation on the total number of shares that
may be optioned under Plan A and Plan B and, therefore, at any particular date
the maximum aggregate number of shares which may be optioned under Plan A is
equal to 300,000 minus the number of shares previously optioned under Plan A and
Plan B; and the maximum aggregate number of shares which may be optioned under
Plan B is equal to 300,000 minus the number of shares which have been previously
optioned under Plan A or Plan B. All shares to be optioned under either Plan A
or Plan B may be either authorized but unissued shares or shares held in the
treasury. Shares of Common Stock that (a) are repurchased by the Company after
issuance hereunder pursuant to the exercise of an Option or (b) are not
purchased by the Optionee prior to the expiration of the applicable Option
Period (as described hereinbelow) shall again become available to be covered by
Options to be issued hereunder and shall not, as of the effective date of such
repurchase or expiration, be counted as having been previously optioned for
purposes of the above-described maximum number of shares which may be optioned
hereunder.
5. ELIGIBILITY. Options under Plan A may be granted to any Employee who
is designated by the Board in its discretion. NonEmployees, including directors
of the Company or any Parent or Subsidiary, who are not regular employees of the
Company, are not eligible to receive Options under Plan A. Options under Plan B
may be granted to any Employee, any Non-Employee director of Company or any
Parent or Subsidiary, and any consultant or independent contractors who provide
valuable services to the Company (or its Parent or Subsidiary), all as
designated by the Board in its discretion. An Optionee who has been granted an
Option may, if otherwise eligible, be granted an additional Option or Options.
Options may be granted to one or more persons without being granted to other
eligible persons, as the Board may deem fit.
6. TERM OF THE PLAN. Plan A shall become effective immediately upon the
earlier to occur of its adoption by the Board or its approval by vote of a
majority of the outstanding shares of the Company entitled to vote on the
adoption of such Plan. Plan B shall become effective immediately upon its
adoption by the Board. Each Plan shall continue in effect until December 31,
2005 unless sooner terminated under Sections 15 or 18 of this Plan document. No
Option may be granted under a Plan after its expiration.
7. OPTION PERIOD. Each Option granted pursuant to either Plan shall be
evidenced by an Option Agreement. Each Option shall expire and all rights
thereunder shall end at the expiration of such period (which shall in no event
be more than ten (10) years) after the Option Grant Date as shall be fixed by
the Board, subject in all cases to earlier expiration as provided in Section 11
of this Plan document. Notwithstanding the foregoing, the term of each
Incentive Option granted to an Employee who, at the time the Incentive Option is
granted, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any
4
<PAGE>
Parent or Subsidiary (determined as required by the Code as applied to Incentive
Options) shall not be more than five (5) years from the Option Grant Date.
8. OPTION PRICE AND CONSIDERATION.
(a) PRICE. The per share Option price for the Shares to be issued
pursuant to an Option granted under either Plan shall be such price as is
determined by the Board in its sole discretion. Notwithstanding the foregoing,
with respect to Incentive Options granted under Plan A: (i) such price shall in
no event be less than one hundred percent (100%) of the fair market value per
Share of the Company's Common Stock on the Option Grant Date, as determined by
the Board; and (ii) in the case of an Incentive Option granted to an Employee
who, at the time the Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent, Subsidiary or Predecessor Corporation (determined as
required by the Code as applied to Incentive Options), the per share Option
price shall be at least one hundred ten percent (110%) of the fair market value
as of the Option Grant Date, as determined by the Board. The fair market value
shall be determined by the Board in its sole discretion, exercised in good
faith; provided, however, that where there is a public market for the Common
Stock, the fair market value per share shall be the mean of the reported bid and
asked price for the Common Stock on the date of the grant, or, in the event the
Common Stock is listed on a stock exchange, the fair market value per share
shall be the closing price on the exchange as of the date of grant of the
Option.
(b) FORM OF CONSIDERATION. The form of consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist of cash, promissory
notes, or the surrender of shares of Common Stock having a fair market value on
the date of surrender equal to the purchase price of the Shares as to which said
Option shall be exercised, a combination thereof, or such other consideration
and method of payment for the issuance of Shares as is permitted under
applicable law.
(c) PROMISSORY NOTES. If the consideration for the exercise of an
Option is a promissory note, such note shall be a full recourse promissory note
executed by the Optionee. If the option is an Incentive Option under Plan A,
such note shall bear interest at a per annum rate which is not less than the
greater of (i) the applicable "test rate" described in Treasury Regs. Section
1.4831(d) in effect on the date of exercise or (ii) a fair market interest rate,
as determined by the Board in its good faith discretion. If a promissory note
is given as consideration, the Company may retain the Shares purchased upon
exercise of the Option in escrow as security for payment of the promissory note.
(d) SURRENDERED COMMON STOCK. If the consideration for the exercise
of an Option is the surrender of previously acquired and owned shares of common
stock of the Company, the Optionee will be required to make representations and
warranties satisfactory to the Company regarding the Optionee's title to the
shares used to effect the purchase, including without limitation,
representations and warranties that the Optionee has good and marketable title
to such shares free and clear of any and all liens, encumbrances, charges,
equities, claims, security interests, options or restrictions and has full power
to deliver such shares without obtaining the consent or approval of any person
or governmental authority other than those which have already given consent or
approval in a form
5
<PAGE>
satisfactory to the Company. The value of the shares used to effect the
purchase shall be the fair market value of those shares as determined by the
Board in its sole discretion, exercised in good faith.
9. LIMIT ON VALUE OF OPTIONED STOCK ISSUED UNDER PLAN A. The aggregate
fair market value (determined as of the Option Grant Date of each Option) of the
Shares with respect to which Incentive Options are exercisable for the first
time by the Optionee during any calendar year under Plan A and all other
incentive stock option plans of the Company, any Parent or Subsidiary, or any
Predecessor Corporation of any such corporation shall not exceed One Hundred
Thousand Dollars ($100,000.00), as determined pursuant to Section 422(d) of the
Code.
10. EXERCISE OF OPTION.
(a) GENERAL TERMS. Any Option granted hereunder shall be exercisable
at such times and under such conditions as may be determined by the Board which
conditions may include performance criteria with respect to the Company and/or
the Optionee or provisions for vesting over a period of time conditioned upon
continued employment and shall include the contemporaneous execution of a Stock
Purchase Agreement in a form approved by the Board and as shall be permissible
under the terms of the Plan. In all events, in order to exercise an Option
hereunder the Optionee shall execute a Stock Purchase Agreement in a form
approved by the Board and shall deliver the required (or permitted) exercise
consideration to the Company. As a condition to the exercise of an Option, the
Board may require the Optionee pursuant to the Option Agreement to agree to
restrictions on the sale or other transfer of ownership of the Common Stock
acquired by an Optionee or to sell such Shares to the Company upon termination
of employment.
(b) PARTIAL EXERCISE. An Option may be exercised in accordance with
the provisions of either Plan as to all or any portion of the Shares then
exercisable under an Option, from time to time during the term of the Option.
An Option may not be exercised for a fraction of a Share.
(c) TIME OF EXERCISE. An Option shall be deemed to be exercised when
the Company has received at its principal business office: (i) written notice of
such exercise in accordance with the terms of the Option Agreement and given by
the person entitled to exercise the Option; (ii) full payment for the Shares
with respect to which the Option is exercised; (iii) the executed Stock Purchase
Agreement if required; and (iv) any other representations or agreements required
by the terms of this Plan or the Option Agreement. Full payment may consist of
such consideration as is authorized by the Board as provided hereunder.
(d) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. Until this Option is
properly exercised hereunder and the Company receives full payment for the
Shares with respect to which the Option is exercised, no right to receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Option is properly exercised and
payment in full is received, except as provided in Section 13 of this Plan
document.
6
<PAGE>
(e) ISSUANCE OF SHARE CERTIFICATES. As soon as practicable after any
proper exercise of an Option in accordance with the provisions of this Plan
document and payment in full for the exercised Shares, the Company shall,
without transfer or issue tax to the Optionee, deliver to the Optionee at the
principal business office of the Company, or such other place as shall be
mutually acceptable, a certificate or certificates representing the Shares of
Common Stock as to which the Option has been exercised. The time of issuance
and delivery of the certificates) representing the Shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirements of any
national or regional securities exchange and any law or regulation applicable to
the issuance and delivery of such Shares.
(f) REDUCTION OF SHARES UPON EXERCISE. Exercise of an Option in any
manner shall result in a decrease in the number of Shares which thereafter may
be available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
11. TERMINATION OF EMPLOYMENT.
(a) GENERAL. If an Optionee ceases to be an Employee then, except as
provided in Paragraph 11(a) or 11(b) hereof, any Option of the Optionee, whether
vested or non-vested, and if issued under Plan A, shall terminate as of the date
of termination of employment. Notwithstanding the foregoing, within the earlier
of (i) the date of termination of employment and (ii) the time the Option
expires by its terms, the Optionee may exercise the Option to the extent it was
vested and exercisable on the date of termination of employment, provided the
Optionee was not discharged for cause (in which event the Option shall not be
exercisable after the date of termination).
(b) DEATH OR DISABILITY. If Optionee dies or becomes disabled (within
the meaning of Code Section 422 and the rules and regulations thereunder) then,
within the earlier of thirty (30) days (or such other period of time not
exceeding six (6) months as set forth in the Option Agreement) following the
date of such death or disability and the time the Option expires by its terms,
the Optionee or such person or persons to whm the Optionee's rights under the
Option shall pass by the Optionee's will or by the laws of descent and
distribution, may exercise the Option to the extent it was vested and
exercisable on the date of death or disability.
(c) DEFINITION OF TERMINATION. For purposes of each Plan, an Employee
shall be deemed terminated as an employee when such Employee's employment is
deemed to no longer continue within the meaning of Code Section 422 and the
rules and regulations thereunder.
12. NON-TRANSFERABILITY OF OPTIONS. The Options and any rights and
privileges granted under any Option Agreement are not transferable by the
Optionee, either voluntarily or by operation of law, otherwise than by will and
the laws of descent and distribution and shall be exercisable during Optionee's
lifetime only by Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
7
<PAGE>
(a) REORGANIZATIONS, RECAPITALIZATION, ETC. If the outstanding shares
of Common Stock of the Company are increased, decreased, changed into or
exchanged for a different number or kind of shares or securities of the Company
through reorganization, recapitalization, reclassification, stock dividend (but
only on Common Stock), stock split, reverse stock split or other similar
transaction, or, if any other increase or decrease occurs in the number of
Shares of Common Stock of the Company without the receipt of consideration by
the Company, then an appropriate and proportional adjustment shall be made in
(i) the number and kind of shares of stock covered by each outstanding Option,
(ii) the number and kind of shares of stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted (or
which have been returned to the Plan upon cancellation of an Option), and (iii)
the exercise price per share of stock covered by each such outstanding Option.
The granting of stock options or bonuses to Employees of the Company and the
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without the receipt of consideration." Notwithstanding the
foregoing, no adjustment need be made under this paragraph if, upon the advice
of counsel, the Board determines that such adjustment may result in federal
taxable income to the holders of Options or Common Stock or other classes of the
Company's securities.
(b) DISSOLUTION, LIQUIDATION, ETC. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company with one or more corporations as a result of which the Company is
not the surviving corporation, or upon a sale (or exchange through merger) of
substantially all the property or more than fifty percent (50%) of the then
outstanding stock of the Company to another corporation, the Plan shall
terminate, and any Option theretofore granted hereunder shall terminate.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, such transaction for any, all or none of the
following alternatives (separately or in combination): (i) for all or a portion
of the Options theretofore granted to become immediately exercisable; (ii) for
the assumption by the successor corporation of the Options theretofore granted
or the substitution by such corporation for such Options of new options covering
the stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; or (iii)
for the continuance of the Plan by such successor corporation in which event the
Plan and the Options theretofore granted shall continue in the manner and under
the terms so provided.
(c) NO FRACTIONAL SHARES. No fractional shares of the Common Stock
shall be issuable on account of any action under this Paragraph 13, and the
aggregate number of shares into which Shares then covered by an Option, when
changed as the result of such action, shall be reduced to the largest number of
whole Shares resulting from such action. Notwithstanding the foregoing, the
Board, in its sole discretion, may determine to issue scrip certificates, in
respect to any fractional shares, which scrip certificates, in such event, shall
be in a form and have such terms and conditions as the Board in its discretion
shall prescribe.
(d) BINDING EFFECT OF BOARD DETERMINATIONS. All adjustments under
this Paragraph 13 shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive.
8
<PAGE>
(e) NO OTHER ADJUSTMENTS. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares of Common
Stock subject to the Plan or any Options.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time and from
time to time suspend or terminate either Plan. The Board may also amend or
revise either Plan from time to time in such respects as the Board may deem
advisable, except that, without approval of the holders of the majority of the
outstanding shares of the Company's Common Stock, no such revision or amendment
shall amend Plan A so as to:
(i) Increase the number of Shares subject to Plan A other than in
connection with an adjustment under Section 13 of this Plan document;
(ii) Permit the granting of Incentive Options to anyone other than
as provided in Paragraph 5;
(iii) Remove the administration of Plan A from the Board;
(iv) Extend the term of Plan A beyond that provided in Paragraph 6
hereof;
(v) Extend the term of any Incentive Option beyond the maximum
term set forth in Paragraph 7;
(vi) Permit the granting of Incentive Options which would not
qualify as Incentive Stock Options; or
(vii) Decrease the per share option price required with
respect to Incentive Options under Paragraph 8(a) hereof.
(b) EFFECT OF TERMINATION. Except as otherwise provided in Section
13, without the written consent of the Optionee, any such termination of the
Plan shall not affect Options already granted and such Options shall remain in
full force and effect as if the Plan had not been terminated.
15. CONDITIONS UPON ISSUANCE OF SHARES. Options granted under either Plan
are conditioned upon the Company obtaining any required permit, or exemption
from the qualification or registration provisions of any applicable state
securities law and other appropriate governmental agencies, authorizing the
Company to issue such Options and Optioned Stock upon terms and conditions
acceptable to the Company. Shares shall not be issued with respect to an Option
granted under either Plan unless the exercise of such Option and the issuance
and delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may
9
<PAGE>
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
Option, the Board may require the person exercising such Option to execute an
agreement approved by the Board, and may require the person exercising such
Option to make any representation and warranty to the Company as may, in the
judgment of counsel to the Company, be required under applicable laws or
regulations.
16. RESERVATION OF SHARES. During the term of the Plans, the Company will
at all times reserve and keep available the number of Shares as shall be
sufficient to satisfy the requirements of the Plans. During the term of the
Plans, the Company will use its best efforts to seek to obtain from appropriate
regulatory agencies any requisite authorization in order to issue and sell such
number of Shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Plan. The inability of the Company to obtain from any such
regulatory agency the requisite authorization(s) deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder, or the
inability of the Company to confirm to its satisfaction that any issuance and
sale of any Shares hereunder will meet applicable legal requirements, shall
relieve the Company of any liability in respect to the non-issuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
17. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) ISSUE AND TRANSFER TAXES. The Company shall pay all original
issue and transfer taxes (but not income taxes, if any) with respect to the
grant of Options and the issue and transfer of Shares pursuant to the exercise
of such Options, and all other fees and expenses necessarily incurred by the
Company in connection therewith, and will use its best efforts to comply with
all laws and regulations which, in the opinion of counsel for the Company, shall
be applicable thereto.
(b) WITHHOLDING. The grant of Options hereunder and the issuance of
Shares of Common Stock pursuant to the exercise of such Options are conditioned
upon the Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation payable to the Optionee any taxes required
to be withheld by federal, state or local law as a result of the grant or
exercise of such Option or the sale of the Shares issued upon exercise of the
Option.
18. SHAREHOLDER APPROVAL OF PLAN A. Continuance of Plan A and the
effectiveness of any Optiongranted under such Plan shall be subject to approval
by the holders of the outstanding voting stock of the Company in accordance with
applicable law within twelve (12) months before or after the date Plan A is
adopted by the Board. Any Options granted under Plan A prior to obtaining such
shareholder approval shall be granted upon the conditions that the Options so
granted: (i) shall not be exercisable prior to such approval and (ii) shall
become null and void ab initio if such shareholder approval is not obtained.
19. LIABILITY OF COMPANY. The Company, its Parent or any Subsidiary which
is in existence or hereafter comes into existence, will not be liable to an
Optionee granted an Incentive Option or other person if it is determined for any
reason by the Internal Revenue Service or any court having jurisdiction that any
Incentive Options granted hereunder are not Incentive Stock Options.
10
<PAGE>
20. NOTICES. Any notice to be given to the Company pursuant to the
provisions of the Plans shall be addressed to the Company in care of its
Secretary at its principal office, and any notice to be given to an Optionee
shall be delivered personally or addressed to such Optionee at the address given
beneath such Optionee's signature on such Optionee's Stock Option Agreement, or
at such other address as such Employee (or any transferee) upon the transfer of
the Optioned Stock may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited, postage
and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service. It shall be
the obligation of each Optionee and each transferee holding Shares purchased
upon exercise of an Option to provide the Secretary of the Company, by letter
mailed as provided hereinabove, with written notice of such person's direct
mailing address.
21. NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is purely voluntary on
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its Parent, Subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in Options authorized hereunder
prior to the grant of such Option to such employee, and upon such grant he or
she shall have only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's Certificate of
Incorporation, as the same may be amended from time to time.
22. LEGENDS ON CERTIFICATES.
(a) FEDERAL LAW. Unless an appropriate registration statement is
filed pursuant to the Federal Securities Act of 1933, as amended, with respect
to the Options and Shares issuable under the Plans, each certificate
representing such Options and Shares shall be endorsed on its face with a legend
substantially as follows:
"THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON
EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) STATE LEGEND. If required by applicable state authorities each
certificate representing the Options and Shares issuable under the Plans shall
be endorsed on its face with any legends required by such authorization.
11
<PAGE>
(c) ADDITIONAL LEGENDS. Each certificate representing the Options and
Shares issuable under the Plans shall also contain legends as are set forth in
any Stock Purchase Agreement or other agreement the execution of which is a
condition to the exercise of an Option under this Plan. In addition, each
Option Agreement shall be endorsed with a legend substantially as follows:
"THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION MAYBE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A
CONDITION TO EXERCISE OF THIS OPTION."
23. AVAILABILITY OF PLAN. A copy of the Plans shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.
24. INVALID PROVISIONS. In the event that any provision of the Plans is
found to be invalid or otherwise unenforcable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
25. APPLICABLE LAW. These Plans shall be governed and construed in
accordance with the laws of the State of Arizona applicable to contracts
executed, and to be fully performed, in Arizona.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of
these Plans by the Board on ______________, 199_, the Company has caused these
Plans to be duly executed by its duly authorized officers, effective as of
______________, 199_.
Medcare Technologies, Inc.
a Delaware corporation
By:_______________________
Title:____________________
12
<PAGE>
EXHIBIT "A"
PLAN A
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER
OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY
BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE
AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE
ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS
OPTION.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the ___ day of ________, 19__, by and between
Medcare Technologies, Inc. a Delaware corporation (hereinafter called "Company")
and ________________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's
1997 Incentive Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors), who contribute to the financial success of the Company or
its parent or subsidiary corporations.
B. Optionee is a key member of the Company or its parent or subsidiary
corporations, and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Company's grant of a
stock option to the Optionee.
C. The granted option is intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, there is hereby granted to Optionee, as of the date of
this Agreement (the "Grant Date"),
13
<PAGE>
a stock option to purchase up to 20,000 shares of the Company's Common Stock
(the "Optioned Shares") from time to time during the option term at the option
price of $4.50 per share.
2. PLAN. The options granted hereunder are in all instances subject
to the terms and conditions of the Plan. In the event of any conflict between
this Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusinve and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. OPTION TERM. This option shall have a maximum term of five (5)
years measured from the Grant Date and shall accordingly expire at the close of
business on November 18, 2001 (the "Expiration Date"), unless sooner terminated
in accordance with Paragraph 7, 9(a) or 20.
4. OPTION NONTRANSFERABLE; EXCEPTION. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. CONDITION PRECEDENT TO EXERCISE. This option may not be exercised
in whole or in part at any time prior to the time the Company has satisfied the
following condition precedent: __________. In the event the foregoing condition
precedent has not been satisfied prior to the Expiration Date or prior to this
option's earlier termination in accordance with Paragraph 7, 9(a) or 20, then
this option shall terminate and cease to be outstanding.
6. DATES OF EXERCISE. This option may not be exercised in whole or in
part at any time prior to the time it is approved by the Company's shareholders
in accordance with Paragraph 20. Provided such shareholder approval is obtained
and the condition precedent to exercise set forth in Paragraph 5 has been
satisfied, this option shall become exercisable for 100% of the Optioned Shares
one (1) year from the Grant Date, provided that in no event may options for more
than One Hundred Thousand Dollars ($100,000) of Optioned Shares, calculated at
the exercise price, become exercisable for the first time in any calendar year.
Once exercisable, options shall remain so exercisable until the expiration or
sooner termination of the option term under Paragraph 7 or Paragraph 9(a) of
this Agreement. In no event, however, shall this option be exercisable for any
fractional shares.
7. ACCELERATED TERMINATION OF OPTION TERM. The option term specified
in Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or
(iv) below, should Optionee cease to be an Employee of the Company at any time
during the option term, then the period for exercising this option shall be
reduced to a one (1) month period commencing with the date of such cessation of
Employee status, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such one (1) month period or
(if earlier) upon the Expiration Date, this option shall terminate and cease to
be outstanding.
14
<PAGE>
(ii) Should Optionee die while this option is outstanding, then
the executors or administrators of Optionee's estate or Optionee's heirs or
legatees (as the case may be) shall have the right to exercise this option for
the number of shares (if any) for which the option is exercisable on the date of
the optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to be an Employee of the Company at any time during the option
term, then Optionee shall have a period of six (6) months (commencing with the
date of such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for
cause (including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzlement or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 7 and for all other purposes
under this Agreement, Optionee shall be deemed to be an Employee of the Company
and to continue in the Company's employ for so long as Optionee remains an
Employee of the Company or one or more of its parent or subsidiary corporations
as such terms are defined in the Plan.
8. ADJUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(ii) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other
business combination, then this option, if outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to apply and pertain to the number and class of
securities to which Optionee immediately prior to such merger of other business
combination
15
<PAGE>
would have been entitled to receive in the consummation of such merger or other
business combination.
9. SPECIAL TERMINATION OF OPTION.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred, or exchanged through merger, to different holders
in a single transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at
its option, accelerate the vesting schedule contained in Section 6 hereof, but
shall have no obligation to do so. The Company shall have the right to
accelerate other options outstanding under the Plan or any other plan, even if
it does not accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the
Company to make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
10. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Optioned Shares
until such individual shall have exercised the option and paid the option price
in accordance with this Agreement.
11. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part
of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's
16
<PAGE>
death, Optionee's executor, administrator, heir or legatee, as the case may be)
must take the following actions:
(i) Execute and deliver to the Secretary of the Company a stock
purchase agreement in substantially the form of Exhibit C to this Agreement (the
"Purchase Agreement");
(ii) Pay the aggregate option price for the purchased shares in
cash, unless another form of consideration is permitted as described in Exhibit
B, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect
to the number of Optioned Shares specified in the Purchase Agreement at such
time as the executed Purchase Agreement for such shares shall have been
delivered to the Company and all other conditions of this Section have been
fulfilled. Payment of the option price shall immediately become due and shall
accompany the Purchase Agreement. As soon thereafter as practical, the Company
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for.
12. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned Shares
upon such exercise shall be subject to compliance by the Company and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall
execute and deliver to the Company such representations in writing as may be
requested by the Company in order for it to comply with the applicable
requirements of federal and state securities laws.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 4 or 9(a), the provisions of this Agreement shall insure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
14. LIABILITY OF COMPANY.
(a) If the Optioned Shares covered by this Agreement exceed, as of
the Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to
17
<PAGE>
the Company in its reasonable discretion shall relieve the Company of any
liability with respect to the non-issuance or sale of the Common Stock as to
which such approval shall not have been obtained. The Company, however, shall
use its best efforts to obtain all such approvals.
(c) Neither the Company nor any Parent, Subsidiary or successor
corporation will have any liability to Optionee or any other person if it is
determined for any reason that any options granted hereunder are not Incentive
Stock Options.
15. NO EMPLOYMENT CONTRACT. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
16. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
17. LOANS OR GUARANTEES. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. CONSTRUCTION. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the Plan. All decisions of the Company with respect to any question or issue
arising under the Plan or this Agreement shall be conclusive and binding on all
persons having an interest in this option.
19. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Delaware.
20. SHAREHOLDER APPROVAL. The grant of this option is subject to approval
of the Plan by the Company's shareholders within twelve (12) months after the
adoption of the Plan by the Board of Directors, and this option may not be
exercised in whole or in part until such shareholder approval is obtained. In
the event that such shareholder approval is not obtained, then this option shall
thereupon terminate and Optionee shall have no further rights to acquire any
Optioned Shares hereunder.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and Optionee
has also executed this Agreement in duplicate, all as of the day and year
indicated above.
Medcare Technologies, Inc.
a Delaware corporation
By:_____________________________________
Title:__________________________________
_______________________________________
NAME, Optionee
Address: ______________________________
______________________________
19
<PAGE>
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only
acceptable form of consideration for the exercise of the
options.]
_________________
"EXHIBIT B"
PLAN B
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER
OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED. THE SHARES WHICH MAY BE PURCHASED
UPON EXERCISE
OF THIS OPTION MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF A STOCK
PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE
COMPANY, TO BE ENTERED INTO BETWEEN OPTIONEE AND THE COMPANY AS A
CONDITION TO
EXERCISE OF THIS OPTION.
NON-STATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ___ day of __, 19__, by and between MedCare
Technologies, Inc., a Delaware corporation (hereinafter called "Company"), and
_______________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's 1997
Non-Statutory Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors) and others (collectively, "Eligible Persons"), who
contribute to the financial success of the Company or its parent or subsidiary
corporations.
B. Optionee is an Eligible Person and this Agreement is executed pursuant
to, and is intended to carry out the purposes of, the Plan in connection with
the Company's grant of a stock option to Optionee.
C. The granted option is not intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code, but is rather a non-statutory option.
20
<PAGE>
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, there is hereby granted to Optionee, as of the date of
this Agreement (the "Grant Date"), a stock option to purchase up to ___ shares
of the Company's Common Stock (the "Optioned Shares") from time to time during
the option term at the option price of $4.50 per share.
2. PLAN. The options granted hereunder are in all instances subject to
the terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. OPTION TERM. This option shall have a maximum term of years measured
from the Grant Date and shall accordingly expire at the close of business on
November 18, 2001 (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 6 or 8(a).
4. OPTION NONTRANSFERABLE; EXCEPTION. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. DATES OF EXERCISE. This option shall be exercisable as follows:
options for ____% of the Optioned Shares shall become exercisable one (1) year
from the Grant Date and an additional ____% of the Optioned Shares shall become
exercisable on each successive anniversary of the Grant Date. Once exercisable,
options shall remain so exercisable until the expiration or sooner termination
of the option term under Paragraph 6 or Paragraph 8(a) of this Agreement. In
no event, however, shall this option be exercisable for any fractional shares.
6. ACCELERATED TERMINATION OF OPTION TERM. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or (iv)
below, should Optionee cease to be an Employee of the Company at any time during
the option term, then the period for exercising this option shall be reduced to
a one (1) month period commencing with the date of such cessation of Employee
status, but in no event shall this option be exercisable at any time after the
Expiration Date. Upon the expiration of such one (1) month period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding.
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or legatees
(as the case may be) shall have the right to exercise this option for the number
of shares (if any) for which the option is exercisable on the date of the
optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
21
<PAGE>
(iii) Should Optionee become permanently disabled and cease by reason
thereof to be an Employee of the Company at any time during the option term,
then Optionee shall have a period of six (6) months (commencing with the date of
such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for cause
(including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzlement or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 6 and for all other purposes under
this Agreement, if Optionee is an Employee, Optionee shall be deemed to be an
Employee of the Company and to continue in the Company's employ for so long as
Optionee remains an Employee of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan. For purposes of
this Paragraph 6 and for all other purposes under this Agreement, if Optionee is
not an Employee, but is eligible because Optionee is a director, consultant or
contractor of Company or a parent or subsidiary corporation, Optionee shall be
deemed to be an Eligible Person for so long as Optionee remains a director,
consultant or contractor of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan.
7. ADJUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(ii) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other
business combination, then this option, if outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to apply and pertain to the number and class of
securities to which Optionee immediately prior to such merger or other business
combination would have been entitled to receive in the consummation of such
merger or other business combination.
22
<PAGE>
8. SPECIAL TERMINATION OF OPTION.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business combination
in which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred, or exchanged through merger, to different holders in a single
transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its
option, accelerate the vesting schedule contained in Section 5 hereof, but shall
have no obligation to do so. The Company shall have the right to accelerate
other options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the
Company to make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
9. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not have
any of the rights of a shareholder with respect to the Optioned Shares until
such individual shall have exercised the option and paid the option price in
accordance with this Agreement.
10. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part
of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Execute and deliver to the Secretary of the Company a stock
purchase agreement in substantially the form of Exhibit to this Agreement (the
"Purchase Agreement");
23
<PAGE>
(ii) Pay the aggregate option price for the purchased shares in
cash, unless another form of consideration is permited as described in Exhibit
B, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to
the number of Optioned Shares specified in the Purchase Agreement at such time
as the executed Purchase Agreement for such shares shall have been delivered to
the Company and all other conditions of this Section have been fulfilled.
Payment of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned Shares
upon such exercise shall be subject to compliance by the Company and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall
execute and deliver to the Company such representations in writing as may be
requested by the Company in order for it to comply with the applicable
requirements of federal and state securities laws.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
13. LIABILITY OF COMPANY.
(a) If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
nonissuance or sale of the Common Stock as to which such approval shall not have
been obtained. The Company, however, shall use its best efforts to obtain all
such approvals.
24
<PAGE>
14. NO EMPLOYMENT CONTRACT. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
15. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
16. WITHHOLDING. Optionee acknowledges that, upon any exercise of this
option, the Company shall have the right to require Optionee topay to the
Company an amount equal to the amount the Company is required to withhold as a
result of such exercise for federal and state income tax purposes.
17. LOANS OR GUARANTEES. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. CONSTRUCTION. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of the Plan. All decisions of the Company
with respect to any question or issue arising under the Plan or this Agreement
shall be conclusive and binding on all persons having an interest in this
option.
19. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Delaware.
20. REPURCHASE R1GHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED
SHARES
ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN
RIGHTS OF
THE COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN
ACCORDANCE WITH THE
TERMS AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT.
25
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and Optionee
has also executed this Agreement in duplicate, all as of the day and year
indicated above.
MEDCARE TECHNOLOGIES, INC.
a Delaware corporation
By: ________________________________
Title: ______________________________
OPTIONEE: _______________________
Address: __________________________
____________________________
____________________________
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only acceptable form
of consideration for the exercise of the options.]
26
<PAGE>
EXHIBIT "C"
STOCK PURCHASE AGREEMENT
This Agreement is made as of this _____ day of __________ 19__, by and
among MedCare Technologies, Inc., a Delaware corporation ("Corporation"), and
the holder of a stock option under the Corporation's 1997 Stock Option Plan
("Optionee").
1. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases shares of Class A Common
Stock of the Corporation ("Purchased Shares") pursuant to that certain option
("Option") granted Optionee on ___________, 19__ ("Grant Date") under the
Corporation's __________ Stock Option Plan ("Plan") to purchase up to ___ shares
of the Corporation's Common Stock ("Total Purchasable Shares") at an option
price of $4.50 per share ("Option Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Option Price for the
Purchased Shares in accordance with the provisions of the agreement between the
Corporation and Optionee evidencing the Option ("Option Agreement") and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise.
2. INVESTMENT REPRESENTATIONS
2.1 INVESTMENT INTENT. Optionee hereby warrants and represents that
Optionee is acquiring the Purchased Shares for Optionee's own account and not
with a view to their resale or distribution and that Optionee is prepared to
hold the Purchased Shares for an indefinite period and has no present intention
to sell, distribute or grant any participating interests in the Purchase Shares.
Optionee hereby acknowledges the fact that the Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
that the Corporation is issuing the Purchased Shares to Optionee in reliance on
the representations made by Optionee herein.
2.2 RESTRICTED SECURITIES. Optionee hereby confirms that Optionee has
been informed that the Purchased Shares may not be resold or transferred unless
the Purchased Shares are first registered under the Federal securities laws or
unless an exemption from such registration is available. Accordingly, Optionee
hereby acknowledges that Optionee is prepared to hold the Purchased Shares for
an indefinite period and that Optionee is aware that Rule 144 of the Securities
and Exchange Commission issued under the 1933 Act is not presently available to
exempt the sale of the Purchased Shares from the registration requirements of
the 1933 Act. Should Rule 144 subsequently become available, Optionee is aware
that any sale of the Purchased Shares effected pursuant to the Rule may,
depending upon the status of Optionee as an ttaffiliate" or "non-affiliate"
under the Rule, be made only in limited amounts in accordance with the
provisions of the Rule, and that in no event may any Purchased Shares be sold
pursuant to the Rule until Optionee has held the Purchased Shares for the
requisite holding period following payment in cash of the Option Price for the
Purchased Shares.
27
<PAGE>
2.3 OPTIONEE KNOWLEDGE. Optionee represents and warrants that he or
she has a preexisting business or personal relationship with the officers and
directors of the Corporation, that he or she is aware of the business affairs
and financial condition of the Corporation and that he or she has such knowledge
and experience in business and financial matters with respect to companies in
business similar to the Corporation to enable him or her to evaluate the risks
of the prospective investment and to make an informed investment decision with
respect thereto. Optionee further represents and warrants that the Corporation
has made available to Optionee the opportunity to ask questions and receive
answers from the Corporation concerning the terms and conditions of the issuance
of the Purchased Shares and that he or she could be reasonably assumed to have
the capacity to protect his or her own interests in connection with such
investment.
2.4 SPECULATIVE INVESTMENT. Optionee represents and warrants that he
or she realizes that his or her purchase of the Purchased Shares will be a
speculative investment and that he or she is able, without impairing his or her
financial condition, to hold the Purchased Shares for an indefinite period of
time and to suffer a complete loss of his or her investment. Optionee
represents and warrants that he or she is aware and fully understands the
implications of the restrictions upon transfer imposed by the Plan and therefore
on the Purchased Shares.
2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER
OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH
REGISTRATION IS
NOT REQUIRED.
3. MISCELLANEOUS PROVISIONS
3.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
3.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
3.3 GOVERNING LAW. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
28
<PAGE>
3.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transfer by operation of law, whether or not
any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
MEDCARE TECHNOLOGIES, INC.
a Delaware corporation
By: _____________________________
Address: _________________________
__________________________
__________________________
<PAGE>
1997 INCENTIVE STOCK OPTION PLAN AND 1997
NONSTATUTORY STOCK OPTION PLAN
1. NAMES AND PURPOSES OF THE PLANS. This Plan document is intended to
implement and govern two separate Stock Option Plans of Medcare Technologies,
Inc., a Delaware corporation (the "Company"): the 1997 Incentive Stock Option
Plan ("Plan A") and the 1997 Nonstatutory Stock Option Plan ("Plan B")
(collectively the "Plans"). Plan A provides for the granting of options that
are intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422(b) of the Internal Revenue Code, as amended.
Plan B provides for the granting of options that are not intended to so qualify.
Unless specified otherwise, all the provisions of this Plan document relate
equally to both Plan A and Plan B, which Plans are condensed into one Plan
document solely for purposes of administrative convenience and are not intended
to constitute tandem plans. The purposes of the Plans are (a) to attract and
retain the best available people for positions of substantial responsibility,
and (b) to provide additional incentive to the Employees of the Company (and its
future parents and subsidiaries, if any) and to promote the success of the
Company's business.
2. DEFINITIONS. For purposes of the Plans, the following terms will have
the respective meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company;
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(c) "Common Stock" shall mean the Class A common stock of the Company;
(d) "Company" shall mean Medcare Technologies, Inc., a Delaware
corporation;
(e) "Committee" shall mean the committee appointed by the Board in
accordance with Paragraph 3(a) of this Plan document, if one is appointed;
(f) "Employee" shall mean any person, including an officer or director,
who is an employee (within the meaning of Section 422 of the Code) of the
Company, any parent, any subsidiary or any successors to any of the foregoing;
(g) "Incentive Option" shall mean an incentive stock option as defined
in Section 422(b) of the Code;
(h) "Non-Statutory Option" shall mean an option which does not qualify
as an Incentive Option;
(i) "Option" shall mean a stock option granted pursuant to the Plan,
whether an Incentive Option or a Non-Statutory Option;
1
<PAGE>
(j) "Option Agreement" shall mean an agreement substantially in the
form attached hereto as Exhibit A or the form attached hereto as Exhibit B, or
such other form or forms as the Board (subject to the terms and conditions of
the Plans) may from time to time approve, evidencing an Option;
(k) "Option Grant Date" shall mean the date on which an Option is
granted by the Board;
(l) "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to a Plan;
(m) "Optionee" shall mean an Employee or other Eligible Person who
receives an Option;
(n) "Outstanding Incentive Option" shall mean any Incentive Stock
Option which has not yet been exercised in full or has not yet expired by lapse
of time;
(o) "Parent" shall mean a "parent corporation" as defined in Section
424(e) of the Code;
(p) "Plan A" shall mean the 1997 Incentive Stock Option Plan;
(q) "Plan B" shall mean the 1997 Non-Statutory Stock Option Plan;
(r) "Predecessor Corporation" shall mean a corporation which is a
party to a transaction described in Code Section 424(a) (or which would be so
described if a substitution or assumption under such section had been effected)
with the Company, a Parent, a Subsidiary or a predecessor corporation of any
such corporations;
(s) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 13 of this Plan document;
(t) "Stock Purchase Agreement" shall mean an agreement substantially
in the form attached hereto as Exhibit C or such other form or forms as the
Board (subject to the terms and conditions of this Plan) may from time to time
approve, which is to be executed as a condition of purchasing Optioned Stock
upon exercise of an Option as provided in a Plan; and,
(u) "Subsidiary" shall mean a subsidiary corporation as defined in
Section 424(f) of the Code.
3. ADMINISTRATION OF PLAN.
(a) PROCEDURE. The Plans shall be administered by the Board.
The Board may appoint a Committee consisting of not less than two (2)
members of the Board to administer one or both of the Plans on behalf of the
Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the
2
<PAGE>
Committee and appoint additional members thereof, remove members of the
Committee, and thereafter, directly administer the Plans. Any references herein
to the Board shall refer to the Committee, if one is appointed, to the extent of
the Committee's authority.
(b) LIMITATIONS ON MEMBERS OF BOARD. Members of the Board who are
either eligible for options or have been granted Options may vote on any matters
affecting the administration of the Plans or the grant of any Options pursuant
to the Plans; except that no such member shall act in connection with an Option
to himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to Options of such member.
(c) POWERS OF THE BOARD. Subject to the provisions of the Plan the
Board shall have the authority, in its discretion, to make ali determinations
necessary or advisable for the administration of the Plans, including without
limitation:
(i) to determine, upon review of relevant information, the then
fair market value per share of the Common Stock;
(ii) to determine the exercise price of the Options to be
granted, subject to the provisions of Paragraph 8 of this Plan document;
(iii) to determine the Employees to whom, and the time or times at
which, Options shall be granted, and the number of shares of Optioned Stock to
be represented by each Option;
(iv) to determine whether Options granted hereunder shall be
granted under Plan A as Incentive Options or Plan B as Non-statutory Options;
(v) to prescribe, amend and rescind rules and regulations
relating to the Plans;
(vi) to determine the terms and provisions of each Option granted
under the Plans (which need not be identical) and to modify or amend each Option
(with or without consent of the Optionee, if necessary);
(vii) to accelerate the exercise date of any Option;
(viii) to construe and interpret the Plans, the Option Agreements,
Stock Purchase Agreements and any other agreements provided for hereunder; and
(ix) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously granted
by the Board or to take such other actions as may be necessary or advisable with
respect to the Company's rights pursuant to the Option, Stock Purchase Agreement
or other agreement approved hereunder.
3
<PAGE>
(d) EFFECT OF THE BOARD'S OR COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other proper holders of any Options granted
under the Plan.
4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13of
this Plan document, the maximum aggregate number of shares which may be optioned
under these Plans is 500,000 shares of authorized Common Stock. This
constitutes an absolute cumulative limitation on the total number of shares that
may be optioned under Plan A and Plan B and, therefore, at any particular date
the maximum aggregate number of shares which may be optioned under Plan A is
equal to 300,000 minus the number of shares previously optioned under Plan A and
Plan B; and the maximum aggregate number of shares which may be optioned under
Plan B is equal to 300,000 minus the number of shares which have been previously
optioned under Plan A or Plan B. All shares to be optioned under either Plan A
or Plan B may be either authorized but unissued shares or shares held in the
treasury. Shares of Common Stock that (a) are repurchased by the Company after
issuance hereunder pursuant to the exercise of an Option or (b) are not
purchased by the Optionee prior to the expiration of the applicable Option
Period (as described hereinbelow) shall again become available to be covered by
Options to be issued hereunder and shall not, as of the effective date of such
repurchase or expiration, be counted as having been previously optioned for
purposes of the above-described maximum number of shares which may be optioned
hereunder.
5. ELIGIBILITY. Options under Plan A may be granted to any Employee who
is designated by the Board in its discretion. NonEmployees, including directors
of the Company or any Parent or Subsidiary, who are not regular employees of the
Company, are not eligible to receive Options under Plan A. Options under Plan B
may be granted to any Employee, any Non-Employee director of Company or any
Parent or Subsidiary, and any consultant or independent contractors who provide
valuable services to the Company (or its Parent or Subsidiary), all as
designated by the Board in its discretion. An Optionee who has been granted an
Option may, if otherwise eligible, be granted an additional Option or Options.
Options may be granted to one or more persons without being granted to other
eligible persons, as the Board may deem fit.
6. TERM OF THE PLAN. Plan A shall become effective immediately upon the
earlier to occur of its adoption by the Board or its approval by vote of a
majority of the outstanding shares of the Company entitled to vote on the
adoption of such Plan. Plan B shall become effective immediately upon its
adoption by the Board. Each Plan shall continue in effect until July 1, 2005
unless sooner terminated under Sections 15 or 18 of this Plan document. No
Option may be granted under a Plan after its expiration.
7. OPTION PERIOD. Each Option granted pursuant to either Plan shall be
evidenced by an Option Agreement. Each Option shall expire and all rights
thereunder shall end at the expiration of such period (which shall in no event
be more than ten (10) years) after the Option Grant Date as shall be fixed by
the Board, subject in all cases to earlier expiration as provided in Section 11
of this Plan document. Notwithstanding the foregoing, the term of each
Incentive Option granted to an Employee who, at the time the Incentive Option is
granted, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any
4
<PAGE>
Parent or Subsidiary (determined as required by the Code as applied to Incentive
Options) shall not be more than five (5) years from the Option Grant Date.
8. OPTION PRICE AND CONSIDERATION.
(a) PRICE. The per share Option price for the Shares to be issued
pursuant to an Option granted under either Plan shall be such price as is
determined by the Board in its sole discretion. Notwithstanding the foregoing,
with respect to Incentive Options granted under Plan A: (i) such price shall in
no event be less than one hundred percent (100%) of the fair market value per
Share of the Company's Common Stock on the Option Grant Date, as determined by
the Board; and (ii) in the case of an Incentive Option granted to an Employee
who, at the time the Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent, Subsidiary or Predecessor Corporation (determined as
required by the Code as applied to Incentive Options), the per share Option
price shall be at least one hundred ten percent (110%) of the fair market value
as of the Option Grant Date, as determined by the Board. The fair market value
shall be determined by the Board in its sole discretion, exercised in good
faith; provided, however, that where there is a public market for the Common
Stock, the fair market value per share shall be the mean of the reported bid and
asked price for the Common Stock on the date of the grant, or, in the event the
Common Stock is listed on a stock exchange, the fair market value per share
shall be the closing price on the exchange as of the date of grant of the
Option.
(b) FORM OF CONSIDERATION. The form of consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist of cash, promissory
notes, or the surrender of shares of Common Stock having a fair market value on
the date of surrender equal to the purchase price of the Shares as to which said
Option shall be exercised, a combination thereof, or such other consideration
and method of payment for the issuance of Shares as is permitted under
applicable law.
(c) PROMISSORY NOTES. If the consideration for the exercise of an
Option is a promissory note, such note shall be a full recourse promissory note
executed by the Optionee. If the option is an Incentive Option under Plan A,
such note shall bear interest at a per annum rate which is not less than the
greater of (i) the applicable "test rate" described in Treasury Regs.
Section 1.4831(d) in effect on the date of exercise or (ii) a fair market
interest rate, as determined by the Board in its good faith discretion. If a
promissory note is given as consideration, the Company may retain the Shares
purchased upon exercise of the Option in escrow as security for payment of the
promissory note.
(d) SURRENDERED COMMON STOCK. If the consideration for the exercise
of an Option is the surrender of previously acquired and owned shares of common
stock of the Company, the Optionee will be required to make representations and
warranties satisfactory to the Company regarding the Optionee's title to the
shares used to effect the purchase, including without limitation,
representations and warranties that the Optionee has good and marketable title
to such shares free and clear of any and all liens, encumbrances, charges,
equities, claims, security interests, options or restrictions and has full power
to deliver such shares without obtaining the consent or approval of any person
or governmental authority other than those which have already given consent or
approval in a form
5
<PAGE>
satisfactory to the Company. The value of the shares used to effect the
purchase shall be the fair market value of those shares as determined by the
Board in its sole discretion, exercised in good faith.
9. LIMIT ON VALUE OF OPTIONED STOCK ISSUED UNDER PLAN A. The aggregate
fair market value (determined as of the Option Grant Date of each Option) of the
Shares with respect to which Incentive Options are exercisable for the first
time by the Optionee during any calendar year under Plan A and all other
incentive stock option plans of the Company, any Parent or Subsidiary, or any
Predecessor Corporation of any such corporation shall not exceed One Hundred
Thousand Dollars ($100,000.00), as determined pursuant to Section 422(d) of the
Code.
10. EXERCISE OF OPTION.
(a) GENERAL TERMS. Any Option granted hereunder shall be exercisable
at such times and under such conditions as may be determined by the Board which
conditions may include performance criteria with respect to the Company and/or
the Optionee or provisions for vesting over a period of time conditioned upon
continued employment and shall include the contemporaneous execution of a Stock
Purchase Agreement in a form approved by the Board and as shall be permissible
under the terms of the Plan. In all events, in order to exercise an Option
hereunder the Optionee shall execute a Stock Purchase Agreement in a form
approved by the Board and shall deliver the required (or permitted) exercise
consideration to the Company. As a condition to the exercise of an Option, the
Board may require the Optionee pursuant to the Option Agreement to agree to
restrictions on the sale or other transfer of ownership of the Common Stock
acquired by an Optionee or to sell such Shares to the Company upon termination
of employment.
(b) PARTIAL EXERCISE. An Option may be exercised in accordance with
the provisions of either Plan as to all or any portion of the Shares then
exercisable under an Option, from time to time during the term of the Option.
An Option may not be exercised for a fraction of a Share.
(c) TIME OF EXERCISE. An Option shall be deemed to be exercised when
the Company has received at its principal business office: (i) written notice of
such exercise in accordance with the terms of the Option Agreement and given by
the person entitled to exercise the Option; (ii) full payment for the Shares
with respect to which the Option is exercised; (iii) the executed Stock Purchase
Agreement if required; and (iv) any other representations or agreements required
by the terms of this Plan or the Option Agreement. Full payment may consist of
such consideration as is authorized by the Board as provided hereunder.
(d) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. Until this Option is
properly exercised hereunder and the Company receives full payment for the
Shares with respect to which the Option is exercised, no right to receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Option is properly exercised and
payment in full is received, except as provided in Section 13 of this Plan
document.
6
<PAGE>
(e) ISSUANCE OF SHARE CERTIFICATES. As soon as practicable after any
proper exercise of an Option in accordance with the provisions of this Plan
document and payment in full for the exercised Shares, the Company shall,
without transfer or issue tax to the Optionee, deliver to the Optionee at the
principal business office of the Company, or such other place as shall be
mutually acceptable, a certificate or certificates representing the Shares of
Common Stock as to which the Option has been exercised. The time of issuance
and delivery of the certificates) representing the Shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirements of any
national or regional securities exchange and any law or regulation applicable to
the issuance and delivery of such Shares.
(f) REDUCTION OF SHARES UPON EXERCISE. Exercise of an Option in any
manner shall result in a decrease in the number of Shares which thereafter may
be available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
11. TERMINATION OF EMPLOYMENT.
(a) GENERAL. If an Optionee ceases to be an Employee then, except as
provided in Paragraph 11(a) or 11(b) hereof, any Option of the Optionee, whether
vested or non-vested, and if issued under Plan A, shall terminate as of the date
of termination of employment. Notwithstanding the foregoing, within the earlier
of (i) the date of termination of employment and (ii) the time the Option
expires by its terms, the Optionee may exercise the Option to the extent it was
vested and exercisable on the date of termination of employment, provided the
Optionee was not discharged for cause (in which event the Option shall not be
exercisable after the date of termination).
(b) DEATH OR DISABILITY. If Optionee dies or becomes disabled (within
the meaning of Code Section 422 and the rules and regulations thereunder) then,
within the earlier of thirty (30) days (or such other period of time not
exceeding six (6) months as set forth in the Option Agreement) following the
date of such death or disability and the time the Option expires by its terms,
the Optionee or such person or persons to whm the Optionee's rights under the
Option shall pass by the Optionee's will or by the laws of descent and
distribution, may exercise the Option to the extent it was vested and
exercisable on the date of death or disability.
(c) DEFINITION OF TERMINATION. For purposes of each Plan, an Employee
shall be deemed terminated as an employee when such Employee's employment is
deemed to no longer continue within the meaning of Code Section 422 and the
rules and regulations thereunder.
12. NON-TRANSFERABILITY OF OPTIONS. The Options and any rights and
privileges granted under any Option Agreement are not transferable by the
Optionee, either voluntarily or by operation of law, otherwise than by will and
the laws of descent and distribution and shall be exercisable during Optionee's
lifetime only by Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
7
<PAGE>
(a) REORGANIZATIONS, RECAPITALIZATION, ETC. If the outstanding shares
of Common Stock of the Company are increased, decreased, changed into or
exchanged for a different number or kind of shares or securities of the Company
through reorganization, recapitalization, reclassification, stock dividend (but
only on Common Stock), stock split, reverse stock split or other similar
transaction, or, if any other increase or decrease occurs in the number of
Shares of Common Stock of the Company without the receipt of consideration by
the Company, then an appropriate and proportional adjustment shall be made in
(i) the number and kind of shares of stock covered by each outstanding Option,
(ii) the number and kind of shares of stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted (or
which have been returned to the Plan upon cancellation of an Option), and (iii)
the exercise price per share of stock covered by each such outstanding Option.
The granting of stock options or bonuses to Employees of the Company and the
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without the receipt of consideration." Notwithstanding the
foregoing, no adjustment need be made under this paragraph if, upon the advice
of counsel, the Board determines that such adjustment may result in federal
taxable income to the holders of Options or Common Stock or other classes of the
Company's securities.
(b) DISSOLUTION, LIQUIDATION, ETC. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company with one or more corporations as a result of which the Company is
not the surviving corporation, or upon a sale (or exchange through merger) of
substantially all the property or more than fifty percent (50%) of the then
outstanding stock of the Company to another corporation, the Plan shall
terminate, and any Option theretofore granted hereunder shall terminate.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, such transaction for any, all or none of the
following alternatives (separately or in combination): (i) for all or a portion
of the Options theretofore granted to become immediately exercisable; (ii) for
the assumption by the successor corporation of the Options theretofore granted
or the substitution by such corporation for such Options of new options covering
the stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; or (iii)
for the continuance of the Plan by such successor corporation in which event the
Plan and the Options theretofore granted shall continue in the manner and under
the terms so provided.
(c) NO FRACTIONAL SHARES. No fractional shares of the Common Stock
shall be issuable on account of any action under this Paragraph 13, and the
aggregate number of shares into which Shares then covered by an Option, when
changed as the result of such action, shall be reduced to the largest number of
whole Shares resulting from such action. Notwithstanding the foregoing, the
Board, in its sole discretion, may determine to issue scrip certificates, in
respect to any fractional shares, which scrip certificates, in such event, shall
be in a form and have such terms and conditions as the Board in its discretion
shall prescribe.
(d) BINDING EFFECT OF BOARD DETERMINATIONS. All adjustments under
this Paragraph 13 shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive.
8
<PAGE>
(e) NO OTHER ADJUSTMENTS. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares of Common
Stock subject to the Plan or any Options.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time and from
time to time suspend or terminate either Plan. The Board may also amend or
revise either Plan from time to time in such respects as the Board may deem
advisable, except that, without approval of the holders of the majority of the
outstanding shares of the Company's Common Stock, no such revision or amendment
shall amend Plan A so as to:
(i) Increase the number of Shares subject to Plan A other than in
connection with an adjustment under Section 13 of this Plan document;
(ii) Permit the granting of Incentive Options to anyone other than
as provided in Paragraph 5;
(iii) Remove the administration of Plan A from the Board;
(iv) Extend the term of Plan A beyond that provided in Paragraph
6 hereof;
(v) Extend the term of any Incentive Option beyond the maximum
term set forth in Paragraph 7;
(vi) Permit the granting of Incentive Options which would not
qualify as Incentive Stock Options; or
(vii) Decrease the per share option price required with
respect to Incentive Options under Paragraph 8(a) hereof.
(b) EFFECT OF TERMINATION. Except as otherwise provided in Section
13, without the written consent of the Optionee, any such termination of the
Plan shall not affect Options already granted and such Options shall remain in
full force and effect as if the Plan had not been terminated.
15. CONDITIONS UPON ISSUANCE OF SHARES. Options granted under either Plan
are conditioned upon the Company obtaining any required permit, or exemption
from the qualification or registration provisions of any applicable state
securities law and other appropriate governmental agencies, authorizing the
Company to issue such Options and Optioned Stock upon terms and conditions
acceptable to the Company. Shares shall not be issued with respect to an Option
granted under either Plan unless the exercise of such Option and the issuance
and delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may
9
<PAGE>
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
Option, the Board may require the person exercising such Option to execute an
agreement approved by the Board, and may require the person exercising such
Option to make any representation and warranty to the Company as may, in the
judgment of counsel to the Company, be required under applicable laws or
regulations.
16. RESERVATION OF SHARES. During the term of the Plans, the Company will
at all times reserve and keep available the number of Shares as shall be
sufficient to satisfy the requirements of the Plans. During the term of the
Plans, the Company will use its best efforts to seek to obtain from appropriate
regulatory agencies any requisite authorization in order to issue and sell such
number of Shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Plan. The inability of the Company to obtain from any such
regulatory agency the requisite authorization(s) deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder, or the
inability of the Company to confirm to its satisfaction that any issuance and
sale of any Shares hereunder will meet applicable legal requirements, shall
relieve the Company of any liability in respect to the non-issuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
17. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) ISSUE AND TRANSFER TAXES. The Company shall pay all original
issue and transfer taxes (but not income taxes, if any) with respect to the
grant of Options and the issue and transfer of Shares pursuant to the exercise
of such Options, and all other fees and expenses necessarily incurred by the
Company in connection therewith, and will use its best efforts to comply with
all laws and regulations which, in the opinion of counsel for the Company, shall
be applicable thereto.
(b) WITHHOLDING. The grant of Options hereunder and the issuance of
Shares of Common Stock pursuant to the exercise of such Options are conditioned
upon the Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation payable to the Optionee any taxes required
to be withheld by federal, state or local law as a result of the grant or
exercise of such Option or the sale of the Shares issued upon exercise of the
Option.
18. SHAREHOLDER APPROVAL OF PLAN A. Continuance of Plan A and the
effectiveness of any Option granted under such Plan shall be subject to approval
by the holders of the outstanding voting stock of the Company in accordance with
applicable law within twelve (12) months before or after the date Plan A is
adopted by the Board. Any Options granted under Plan A prior to obtaining such
shareholder approval shall be granted upon the conditions that the Options so
granted: (i) shall not be exercisable prior to such approval and (ii) shall
become null and void ab initio if such shareholder approval is not obtained.
19. LIABILITY OF COMPANY. The Company, its Parent or any Subsidiary which
is in existence or hereafter comes into existence, will not be liable to an
Optionee granted an Incentive Option or other person if it is determined for any
reason by the Internal Revenue Service or any court having jurisdiction that any
Incentive Options granted hereunder are not Incentive Stock Options.
10
<PAGE>
20. NOTICES. Any notice to be given to the Company pursuant to the
provisions of the Plans shall be addressed to the Company in care of its
Secretary at its principal office, and any notice to be given to an Optionee
shall be delivered personally or addressed to such Optionee at the address given
beneath such Optionee's signature on such Optionee's Stock Option Agreement, or
at such other address as such Employee (or any transferee) upon the transfer of
the Optioned Stock may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited, postage
and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service. It shall be
the obligation of each Optionee and each transferee holding Shares purchased
upon exercise of an Option to provide the Secretary of the Company, by letter
mailed as provided hereinabove, with written notice of such person's direct
mailing address.
21. NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is purely voluntary on
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its Parent, Subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in Options authorized hereunder
prior to the grant of such Option to such employee, and upon such grant he or
she shall have only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's Certificate of
Incorporation, as the same may be amended from time to time.
22. LEGENDS ON CERTIFICATES.
(a) FEDERAL LAW. Unless an appropriate registration statement is
filed pursuant to the Federal Securities Act of 1933, as amended, with respect
to the Options and Shares issuable under the Plans, each certificate
representing such Options and Shares shall be endorsed on its face with a legend
substantially as follows:
"THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON
EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) STATE LEGEND. If required by applicable state authorities each
certificate representing the Options and Shares issuable under the Plans shall
be endorsed on its face with any legends required by such authorization.
11
<PAGE>
(c) ADDITIONAL LEGENDS. Each certificate representing the Options and
Shares issuable under the Plans shall also contain legends as are set forth in
any Stock Purchase Agreement or other agreement the execution of which is a
condition to the exercise of an Option under this Plan. In addition, each
Option Agreement shall be endorsed with a legend substantially as follows:
"THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION MAYBE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A
CONDITION TO EXERCISE OF THIS OPTION."
23. AVAILABILITY OF PLAN. A copy of the Plans shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.
24. INVALID PROVISIONS. In the event that any provision of the Plans is
found to be invalid or otherwise unenforcable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
25. APPLICABLE LAW. These Plans shall be governed and construed in
accordance with the laws of the State of Arizona applicable to contracts
executed, and to be fully performed, in Arizona.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of
these Plans by the Board on _________, 199_, the Company has caused these Plans
to be duly executed by its duly authorized officers, effective as of _________,
199_.
Medcare Technologies, Inc.
a Delaware corporation
By:_______________________
Title:____________________
12
<PAGE>
EXHIBIT "A"
PLAN A
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER
OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY
BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE
AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE
ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS
OPTION.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the ___ day of ______________, 19__, by and
between Medcare Technologies, Inc. a Delaware corporation (hereinafter called
"Company") and ________________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's
1997 Incentive Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors), who contribute to the financial success of the Company or
its parent or subsidiary corporations.
B. Optionee is a key member of the Company or its parent or subsidiary
corporations, and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Company's grant of a
stock option to the Optionee.
C. The granted option is intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, there is hereby granted to Optionee, as of the date of
this Agreement (the "Grant Date"),
13
<PAGE>
a stock option to purchase up to 20,000 shares of the Company's Common Stock
(the "Optioned Shares") from time to time during the option term at the option
price of $6.50 per share.
2. PLAN. The options granted hereunder are in all instances subject
to the terms and conditions of the Plan. In the event of any conflict between
this Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusinve and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. OPTION TERM. This option shall have a maximum term of five (5)
years measured from the Grant Date and shall accordingly expire at the close of
business on July 1, 2005 (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 7, 9(a) or 20.
4. OPTION NONTRANSFERABLE; EXCEPTION. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. CONDITION PRECEDENT TO EXERCISE. This option may not be exercised
in whole or in part at any time prior to the time the Company has satisfied the
following condition precedent: __________. In the event the foregoing condition
precedent has not been satisfied prior to the Expiration Date or prior to this
option's earlier termination in accordance with Paragraph 7, 9(a) or 20, then
this option shall terminate and cease to be outstanding.
6. DATES OF EXERCISE. This option may not be exercised in whole or in
part at any time prior to the time it is approved by the Company's shareholders
in accordance with Paragraph 20. Provided such shareholder approval is obtained
and the condition precedent to exercise set forth in Paragraph 5 has been
satisfied, this option shall become exercisable for 100% of the Optioned Shares
one (1) year from the Grant Date, provided that in no event may options for more
than One Hundred Thousand Dollars ($100,000) of Optioned Shares, calculated at
the exercise price, become exercisable for the first time in any calendar year.
Once exercisable, options shall remain so exercisable until the expiration or
sooner termination of the option term under Paragraph 7 or Paragraph 9(a) of
this Agreement. In no event, however, shall this option be exercisable for any
fractional shares.
7. ACCELERATED TERMINATION OF OPTION TERM. The option term specified
in Paragraph 3 shallterminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or
(iv) below, should Optionee cease to be an Employee of the Company at any time
during the option term, then the period for exercising this option shall be
reduced to a one (1) month period commencing with the date of such cessation of
Employee status, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such one (1) month period or
(if earlier) upon the Expiration Date, this option shall terminate and cease to
be outstanding.
14
<PAGE>
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or legatees
(as the case may be) shall have the right to exercise this option for the number
of shares (if any) for which the option is exercisable on the date of the
optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to be an Employee of the Company at any time during the option
term, then Optionee shall have a period of six (6) months (commencing with the
date of such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any
time after the Expiration Date. Optionee shall be deemed to be permanently
disabled if Optionee is, by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration of
not less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for
cause (including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzlement or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 7 and for all other purposes
under this Agreement, Optionee shall be deemed to be an Employee of the Company
and to continue in the Company's employ for so long as Optionee remains an
Employee of the Company or one or more of its parent or subsidiary corporations
as such terms are defined in the Plan.
8. ADJUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, combination of
shares, or other change affecting the outstanding Common Stock as a class
without receipt of consideration (as set forth in the Plan), then appropriate
adjustments will be made to (i) the total number of Optioned Shares subject to
this option and (h) the option price payable per share in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other
business combination, then this option, if outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to apply and pertain to the number and class of
securities to which Optionee immediately prior to such merger of other business
combination
15
<PAGE>
would have been entitled to receive in the consummation of such merger or other
business combination.
9. SPECIAL TERMINATION OF OPTION.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred, or exchanged through merger, to different holders
in a single transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
optoins are terminated.
(b) In the event of a Corporate Transaction, the Company may, at
its option, accelerate the vesting schedule contained in Section 6 hereof, but
shall have no obligation to do so. The Company shall have the right to
accelerate other options outstanding under the Plan or any other plan, even if
it does not accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the
Company to make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
10. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Optioned Shares
until such individual shall have exercised the option and paid the option price
in accordance with this Agreement.
11. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's
16
<PAGE>
death, Optionee's executor, administrator, heir or legatee, as the case may be)
must take the following actions:
(i) Execute and deliver to the Secretary of the Company a
stock purchase agreement in substantially the form of Exhibit C to this
Agreement (the "Purchase Agreement");
(ii) Pay the aggregate option price for the purchased shares
in cash, unless another form of consideration is permitted as described in
Exhibit B, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with
respect to the number of Optioned Shares specified in the Purchase Agreement at
such time as the executed Purchase Agreement for such shares shall have been
delivered to the Company and all other conditions of this Section have been
fulfilled. Payment of the option price shall immediately become due and shall
accompany the Purchase Agreement. As soon thereafter as practical, the Company
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for.
12. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned
Shares upon such exercise shall be subject to compliance by the Company and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the Company's
Common Stock may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall
execute and deliver to the Company such representations in writing as may be
requested by the Company in order for it to comply with the applicable
requirements of federal and state securities laws.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 4 or 9(a), the provisions of this Agreement shall insure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
14. LIABILITY OF COMPANY.
(a) If the Optioned Shares covered by this Agreement exceed, as of
the Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to
17
<PAGE>
the Company in its reasonable discretion shall relieve the Company of any
liability with respect to the non-issuance or sale of the Common Stock as to
which such approval shall not have been obtained. The Company, however, shall
use its best efforts to obtain all such approvals.
(c) Neither the Company nor any Parent, Subsidiary or successor
corporation will have any liability to Optionee or any other person if it is
determined for any reason that any options granted hereunder are not Incentive
Stock Options.
15. NO EMPLOYMENT CONTRACT. Except to the extent the terms of any
written employment contract between the Company and Optionee may expressly
provide otherwise, the Company (or any parent or subsidiary corporation of the
Company employing Optionee) shall be under no obligation to continue the
employment of Optionee for any period of specific duration and may terminate
Optionee's status as an Employee at any time, with or without cause.
16. NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Company in care of its Secretary at its corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
17. LOANS OR GUARANTEES. The Company may, in its absolute discretion
and without any obligation to do so, assist Optionee in the exercise of this
option by (i) authorizing the extension of a loan to Optionee from the Company,
(ii) permitting Optionee to pay the option price for the purchased Common Stock
in installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the Plan. All decisions of the Company with respect to any question
or issue arising under the Plan or this Agreement shall be conclusive and
binding on all persons having an interest in this option.
19. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Delaware.
20. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Company's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors, and this option may
not be exercised in whole or in part until such shareholder approval is
obtained. In the event that such shareholder approval is not obtained, then
this option shall thereupon terminate and Optionee shall have no further rights
to acquire any Optioned Shares hereunder.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and Optionee
has also executed this Agreement in duplicate, all as of the day and year
indicated above.
Medcare Technologies, Inc.
a Delaware corporation
By:_____________________________________
Title:__________________________________
_______________________________________
NAME, Optionee
Address: _____________________
_____________________
19
<PAGE>
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only
acceptable form of consideration for the exercise of the
options.]
_________________
"EXHIBIT B"
PLAN B
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER
OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
TATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH
REGISTRATION IS NOT REQUIRED. THE SHARES WHICH MAY BE PURCHASED
UPON EXERCISE OF
THIS OPTION MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS
OF A STOCK
PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE
COMPANY, TO BE ENTERED INTO BETWEEN OPTIONEE AND THE COMPANY AS A
CONDITION TO
EXERCISE OF THIS OPTION.
NON-STATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ___ day of __, 19__, by and between MedCare
Technologies, Inc., a Delaware corporation (hereinafter called "Company"), and
___ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's
1997 Non-Statutory Stock Option Plan (the "Plan") for the purpose of attracting
and retaining the services of selected key employees (including officers and
employee directors) and others (collectively, "Eligible Persons"), who
contribute to the financial success of the Company or its parent or subsidiary
corporations.
B. Optionee is an Eligible Person and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Company's grant of a stock option to Optionee.
C. The granted option is not intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code, but is rather a non-statutory option.
20
<PAGE>
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set forth in
this Agreement, there is hereby granted to Optionee, as of the date of this
Agreement (the "Grant Date"), a stock option to purchase up to ___ shares of the
Company's Common Stock (the "Optioned Shares") from time to time during the
option term at the option price of $6.50 per share.
2. PLAN. The options granted hereunder are in all instances subject to the
terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. OPTION TERM. This option shall have a maximum term of years measured from
the Grant Date and shall accordingly expire at the close of business on July 1,
2005 (the "Expiration Date"), unless sooner terminated in accordance with
Paragraph 6 or 8(a).
4. OPTION NONTRANSFERABLE; EXCEPTION. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. DATES OF EXERCISE. This option shall be exercisable as follows: options for
____% of the Optioned Shares shall become exercisable one (1) year from the
Grant Date and an additional ____% of the Optioned Shares shall become
exercisable on each successive anniversary of the Grant Date. Once exercisable,
options shall remain so exercisable until the expiration or sooner termination
of the option term under Paragraph 6 or Paragraph 8(a) of this Agreement. In no
event, however, shall this option be exercisable for any fractional shares.
6. ACCELERATED TERMINATION OF OPTION TERM. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii), (iii) or (iv)
below, should Optionee cease to be an Employee of the Company at any time during
the option term, then the period for exercising this option shall be reduced to
a one (1) month period commencing with the date of such cessation of Employee
status, but in no event shall this option be exercisable at any time after the
Expiration Date. Upon the expiration of such one (1) month period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding.
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or legatees
(as the case may be) shall have the right to exercise this option for the number
of shares (if any) for which the option is exercisable on the date of the
optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
21
<PAGE>
(iii) Should Optionee become permanently disabled and cease by reason
thereof to be an Employee of the Company at any time during the option term,
then Optionee shall have a period of six (6) months (commencing with the date of
such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) Should Optionee's status as an Employee be terminated for cause
(including, but not limited to, any act of dishonesty, willful misconduct,
failure to perform material duties, fraud or embezzlement or any unauthorized
disclosure or use of confidential information or trade secrets) or should
Optionee make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any parent or
subsidiary corporations, then in any such event this option shall terminate and
cease to be exercisable immediately upon such termination of Employee status or
such unauthorized disclosure or use of confidential or secret information or
attempt thereat.
(v) For purposes of this Paragraph 6 and for all other purposes under
this Agreement, if Optionee is an Employee, Optionee shall be deemed to be an
Employee of the Company and to continue in the Company's employ for so long as
Optionee remains an Employee of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan. For purposes of
this Paragraph 6 and for all other purposes under this Agreement, if Optionee is
not an Employee, but is eligible because Optionee is a director, consultant or
contractor of Company or a parent or subsidiary corporation, Optionee shall be
deemed to be an Eligible Person for so long as Optionee remains a director,
consultant or contractor of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan.
7. ADJUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(ii) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other business
combination, then this option, if outstanding under the Plan immediately after
such merger or other business combination shall be appropriately adjusted to
apply and pertain to the number and class of securities to which Optionee
immediately prior to such merger or other business combination would have been
entitled to receive in the consummation of such merger or other business
combination.
22
<PAGE>
8. SPECIAL TERMINATION OF OPTION.
(a) In the event of one or more of the following transactions (a "Corporate
Transaction"):
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company; or
(iii) any other corporate reorganization or business combination in
which fifty percent (50%) or more of the Company's outstanding voting stock is
transferred, or exchanged through merger, to different holders in a single
transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its
option, accelerate the vesting schedule contained in Section 5 hereof, but shall
have no obligation to do so. The Company shall have the right to accelerate
other options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the Company to
make changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
9. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not have any
of the rights of a shareholder with respect to the Optioned Shares until such
individual shall have exercised the option and paid the option price in
accordance with this Agreement.
10. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part of the
Optioned Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) Execute and deliver to the Secretary of the Company a stock
purchase agreement in substantially the form of Exhibit to this Agreement (the
"Purchase Agreement");
23
<PAGE>
(ii) Pay the aggregate option price for the purchased shares in cash,
unless another form of consideration is permited as described in Exhibit B, if
any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to the
number of Optioned Shares specified in the Purchase Agreement at such time as
the executed Purchase Agreement for such shares shall have been delivered to the
Company and all other conditions of this Section have been fulfilled. Payment
of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned Shares upon
such exercise shall be subject to compliance by the Company and Optionee with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall execute
and deliver to the Company such representations in writing as may be requested
by the Company in order for it to comply with the applicable requirements of
federal and state securities laws.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
13. LIABILITY OF COMPANY.
(a) If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any regulatory
body having authority deemed by the Company to be necessary to the lawful
issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
nonissuance or sale of the Common Stock as to which such approval shall not have
been obtained. The Company, however, shall use its best efforts to obtain all
such approvals.
24
<PAGE>
14. NO EMPLOYMENT CONTRACT. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
15. NOTICES. Any notice required to be given or delivered to the Company under
the terms of this Agreement shall be in writing and addressed to the Company in
care of its Secretary at its corporate offices. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on this Agreement. All
notices shall be deemed to have been given or delivered upon personal delivery
or upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
16. WITHHOLDING. Optionee acknowledges that, upon any exercise of this option,
the Company shall have the right to require Optionee topay to the Company an
amount equal to the amount the Company is required to withhold as a result of
such exercise for federal and state income tax purposes.
17. LOANS OR GUARANTEES. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. CONSTRUCTION. This Agreement and the option evidenced hereby are made and
granted pursuant to the Plan and are in all respects limited by and subject to
the express terms and provisions of the Plan. All decisions of the Company with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
19. GOVERNING LAW. The interpretation, performance, and enforcement of this
Agreement shall begoverned by the laws of the State of Delaware.
20. REPURCHASE R1GHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED
SHARES ACQUIRED
UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF
THE
COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN ACCORDANCE
WITH THE TERMS
AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT.
25
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, all as of the day and year indicated
above.
MEDCARE TECHNOLOGIES, INC.
a Delaware corporation
By: ________________________________
Title: ______________________________
OPTIONEE: _______________________
Address: __________________________
____________________________
____________________________
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only acceptable form
of consideration for the exercise of the options.]
26
<PAGE>
EXHIBIT "C"
STOCK PURCHASE AGREEMENT
This Agreement is made as of this _____ day of __________ 19__, by and
among MedCare Technologies, Inc., a Delaware corporation ("Corporation"), and
the holder of a stock option under the Corporation's 1997 Stock Option Plan
("Optionee").
1. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases shares of Class A Common Stock of
the Corporation ("Purchased Shares") pursuant to that certain option ("Option")
granted Optionee on ____________, 19__, ("Grant Date") under the Corporation's
__________ Stock Option Plan ("Plan") to purchase up to ___ shares of the
Corporation's Common Stock ("Total Purchasable Shares") at an option price of
$6.50 per share ("Option Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Option Price for the
Purchased Shares in accordance with the provisions of the agreement between the
Corporation and Optionee evidencing the Option ("Option Agreement") and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise.
2. INVESTMENT REPRESENTATIONS
2.1 INVESTMETN INTENT. Optionee hereby warrants and represents that
Optionee is acquiring the Purchased Shares for Optionee's own account and not
with a view to their resale or distribution and that Optionee is prepared to
hold the Purchased Shares for an indefinite period and has no present intention
to sell, distribute or grant any participating interests in the Purchase Shares.
Optionee hereby acknowledges the fact that the Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
that the Corporation is issuing the Purchased Shares to Optionee in reliance on
the representations made by Optionee herein.
2.2 RESTRICTED SECURITIES. Optionee hereby confirms that Optionee has been
informed that the Purchased Shares may not be resold or transferred unless the
Purchased Shares are first registered under the Federal securities laws or
unless an exemption from such registration is available. Accordingly, Optionee
hereby acknowledges that Optionee is prepared to hold the Purchased Shares
for an indefinite period and that Optionee is aware that Rule 144 of the
Securities and Exchange Commission issued under the 1933 Act is not presently
available to exempt the sale of the Purchased Shares from the registration
requirements of the 1933 Act. Should Rule 144 subsequently become available,
Optionee is aware that any sale of the Purchased Shares effected pursuant to the
Rule may, depending upon the status of Optionee as an ttaffiliate" or
"non-affiliate" under the Rule, be made only in limited amounts in accordance
with the provisions of the Rule, and that in no event may any Purchased Shares
be sold pursuant to the Rule until Optionee has held the Purchased Shares for
the requisite holding period following payment in cash of the Option Price for
the Purchased Shares.
27
<PAGE>
2.3 OPTIONEE KNOWLEDGE. Optionee represents and warrants that he or she
has a preexisting business or personal relationship with the officers and
directors of the Corporation, that he or she is aware of the business affairs
and financial condition of the Corporation and that he or she has such knowledge
and experience in business and financial matters with respect to companies in
business similar to the Corporation to enable him or her to evaluate the risks
of the prospective investment and to make an informed investment decision with
respect thereto. Optionee further represents and warrants that the Corporation
has made available to Optionee the opportunity to ask questions and receive
answers from the Corporation concerning the terms and conditions of the issuance
of the Purchased Shares and that he or she could be reasonably assumed to have
the capacity to protect his or her own interests in connection with such
investment.
2.4 SPECULATIVE INVESTMENT. Optionee represents and warrants that he or
she realizes that his or her purchase of the Purchased Shares will be a
speculative investment and that he or she is able, without impairing his or her
financial condition, to hold the Purchased Shares for an indefinite period of
time and to suffer a complete loss of his or her investment. Optionee
represents and warrants that he or she is aware and fully understands the
implications of the restrictions upon transfer imposed by the Plan and therefore
on the Purchased Shares.
2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER
OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH
REGISTRATION IS
NOT REQUIRED.
3. MISCELLANEOUS PROVISIONS
3.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
3.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
This Agreement is made pursuant to the provisions of the Plan and shall in all
respects be construed in conformity with the express terms and provisions of the
Plan.
3.3 GOVERNING LAW. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
28
<PAGE>
3.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transfer by operation of law, whether or not
any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
MEDCARE TECHNOLOGIES, INC.
a Delaware corporation
By: _____________________________
Address: _________________________
__________________________
__________________________
<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>
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
April 1, 1998
As independent auditors, we hereby consent to the incorporation by reference
in this Form SB-2 Statement of our report, relating to the consolidated
financial statements and financial statement schedules of MedCare Technologies,
Inc. for the year ended December 31, 1997, included on Form SB-2 for the year
ended December 31, 1997. We also consent to the reference to this firm under
the heading "Experts" in this Registration Statement.
/s/ Clancy and Co.
------------------
CLANCY AND CO., P.L.L.C.
Certified Public Accountants
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,440,791
<SECURITIES> 0
<RECEIVABLES> 47,286
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,551,890
<PP&E> 50,868
<DEPRECIATION> 17,342
<TOTAL-ASSETS> 3,586,416
<CURRENT-LIABILITIES> 16,796
<BONDS> 0
0
41
<COMMON> 6,992
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,586,416
<SALES> 0
<TOTAL-REVENUES> 91,802
<CGS> 0
<TOTAL-COSTS> 1,515,459
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,423,657)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,293,230)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
