<PAGE>
As filed with the Securities and Exchange Commission on June 21, 1999
Registration No. 333-
---------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------
MEDCARE TECHNOLOGIES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0429962B
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1515 West 22nd Street, Suite 1210
Oak Brook, Illinois 60523
(630) 472-5300
(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:
Michael J. Legamaro
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement, as determined by
market conditions.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each Proposed
class of Amount maximum Proposed Amount of
securities to to be offering price maximum aggregate registration
be registered registered (1) per share (2) offering price (2) fee
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Common Stock
par value $0.001,
underlying Series B 1,360,000 $5.50 $7,480,000 $2,080
Preferred Stock
Common Stock,
par value $0.001, 240,000 $5.50 $1,320,000 $ 368
underlying Warrants
TOTAL: 1,600,000
- ----------------------------------------------------------------------------------------
</TABLE>
(1) 1,600,000 shares of Common Stock are required to be registered by the
Registration Rights Agreement dated May 18, 1999.
(2) Estimated solely for calculation of the amount of the registration fee
calculated pursuant to Rule 457(c), based on the average high and low prices of
the registrant's Common Stock as reported by the Nasdaq SmallCap Market on June
14, 1999.
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 statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
<PAGE>
PROSPECTUS
MEDCARE TECHNOLOGIES, INC.
1515 WEST 22ND STREET, SUITE 1210
OAK BROOK, ILLINOIS 60523
(630) 472-5300
1,600,000 SHARES
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up to
1,600,000 shares of Common Stock of Medcare Technologies, inc., a Delaware
corporation. We may issue these shares pursuant to the conversion of 400 shares
of our Series B Convertible Preferred Stock and the exercise of related warrants
to purchase 240,000 shares of Common Stock, which we sold through a private
placement on May 18, 1999. The number of shares that we actually issue may be
more or less than the 1,600,000 shares being offered by the selling stockholders
through this prospectus, because the conversion of the Series B Preferred Stock
is based on a formula that is dependent upon the market price of our Common
Stock.
Pursuant to this prospectus, the selling stockholders may offer the Common
Stock from time to time on the Nasdaq SmallCap Market, in privately negotiated
transactions or otherwise. Any of the stockholders may sell their Common Stock
at the then-market price or at a price greater or less than market price, which
may affect the market for our Common Stock. We will not receive any of the
proceeds from the resale of Common Stock by the selling stockholders.
Our Common Stock is currently listed on the Nasdaq SmallCap Market under
the symbol "MCAR." on June 14, 1999, the last reported sale price of the Common
Stock was $5.6875 per share.
--------------------------
There are certain risk factors that you should consider before purchasing
shares in this Offering. We urge you to carefully read the "RISK FACTORS"
section beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is June , 1999.
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<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.................................... 3
The Company.......................................... 3
The Offering......................................... 3
RISK FACTORS.......................................... 5
No Market Studies.................................... 5
Lack of Operating History............................ 5
Inability to Obtain Funding.......................... 5
Continued Control by Existing Management............. 5
Dividends............................................ 5
Dependence on Executive Officers
and Key Personnel................................... 6
Dilution............................................. 6
Other Adverse Effects of Series B
Preferred Stock and Warrants........................ 6
Nasdaq Eligibility and Maintenance................... 6
Risk of low Priced Stocks............................ 7
Adverse Effect of Shares Eligible for
Future Sale......................................... 7
Protection of Proprietary Treatment
Program............................................. 7
Reimbursement and Related Matters.................... 7
Regulation by Federal and
State Government.................................... 8
Potential Fluctuations in Quarterly Results.......... 8
Medcareonline.com.................................... 8
Competition.......................................... 9
THE COMPANY........................................... 9
USE OF PROCEEDS....................................... 9
DETERMINATION OF OFFERING PRICE....................... 9
SELLING STOCKHOLDERS.................................. 10
PLAN OF DISTRIBUTION.................................. 12
DESCRIPTION OF SECURITIES
Common Stock......................................... 13
Preferred Stock...................................... 14
Warrants............................................. 19
EXPERTS AND LEGAL MATTERS............................. 20
INCORPORATION BY REFERENCE............................ 20
AVAILABLE INFORMATION................................. 21
FORWARD-LOOKING STATEMENTS............................ 21
INDEMNIFICATION....................................... 22
--------------------------
We have not authorized any person to make a statement that differs
from what is in this prospectus. If any person does not make a statement that
differs from what is in this prospectus, you should not rely on it. This
prospectus is not an offer to sell, nor is it seeking an offer to buy, these
securities in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is complete and accurate as of its
date, but the information may change after that date.
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<PAGE>
PROSPECTUS SUMMARY
Throughout this prospectus, the words "we," "our," "ours" and "us" refer to
Medcare Technologies, Inc. together with its subsidiaries, MedCare Technologies,
Corporation and Medcareonline.com, Inc.
The items in the following summary are described in more detail later in
this prospectus. Therefore, for a complete understanding of this offering, we
encourage you to read the more detailed information set forth in this
prospectus, our financial statements and the other information that is
incorporated by reference in this prospectus.
The Company
We are a Delaware corporation engaged in the business of managing and/or
supporting urinary incontinence clinics throughout the United States. Our
principal business activity is the development and expansion of the MedCare
Program, which is a proprietary product of our company. The MedCare Program
consists of software and services which we have developed in order to assist
physicians in providing non-pharmaceutical, non-invasive treatment to
individuals suffering from urinary incontinence and other pelvic disorders.
Our executive offices are located at 1515 West 22nd Avenue, Suite 1210, Oak
Brook, Illinois 60523. Our telephone number is (630) 472-5300.
The Offering
Description and Amount of Securities to be Offered
The shares offered by this prospectus consist of up to 1,600,000 shares
(the "Conversion Shares") of our Common Stock, par value $0.001 per share, which
we may issue to certain stockholders (the "Selling Stockholders") upon
conversion of 400 shares of Series B Convertible Preferred Stock and exercise of
Warrants to purchase 240,000 shares of Common Stock. We issued the Series B
Preferred Stock and the Warrants in a private placement on May 18, 1999,
pursuant to a Securities Purchase Agreement between us and the Selling
Stockholders. For a further description of the terms of the Series B Preferred
Stock and the Warrants, see "DESCRIPTION OF SECURITIES."
We determined the number of Conversion Shares initially to be registered
for resale by agreement with the Selling Stockholders. The number of Conversion
Shares that will actually be issued may be more or less than the 1,600,000
shares being offered by this prospectus, because the conversion of the Series B
Preferred Stock into Common Stock is based on a formula that depends upon the
market price of our Common Stock. If the market price of our Common Stock falls,
we will be required to issue more shares of Common Stock upon conversion of the
Series B Preferred Stock. We determined the number of shares covered by this
prospectus in order to adequately cover a reasonable increase in the number of
shares required. See "SELLING STOCKHOLDERS."
This prospectus does not cover the initial issuance of the Conversion
Shares to the Selling Stockholders. Rather, this prospectus covers only the
resale of the Conversion Shares by the Selling Stockholders. We will not receive
any proceeds from the sale of the Conversion Shares by the Selling Stockholders.
Distribution of Securities
The Selling Stockholders have not advised us of any specific plans for the
distribution of the Common Stock covered by this prospectus. However, we
anticipate that the Conversion Shares will be sold from time to time, primarily
in transactions on the Nasdaq SmallCap Market at the then-current market price,
although sales may also be made in negotiated transactions or otherwise. See
"PLAN OF DISTRIBUTION."
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<PAGE>
Offering Price
This prospectus relates only to the resale of the Conversion Shares.
Therefore, the Selling Stockholders will determine the offering price on an
individual basis.
Common Stock Outstanding
As of June 14, 1999, we had 7,831,160 shares of Common Stock outstanding.
Because this prospectus relates only to the resale of Common Stock previously
issued to the Selling Stockholders, this offering will not result in the
introduction of any new shares into the marketplace. However, the conversion of
the Series B Preferred Stock and the exercise of the Warrants will introduce
additional shares of Common Stock in the market. For the purposes of this
prospectus, we have assumed that 1,600,000 shares will enter the market as
follows:
<TABLE>
<S> <C>
Shares issued upon conversion of the Series B Preferred Stock 1,360,000
Shares issued upon exercise of the Warrants 240,000
---------
Total 1,600,000
=========
</TABLE>
Because the number of shares issuable upon conversion of the Series B Preferred
Stock is based on a variable formula that depends on the market price of our
Common Stock, the number of shares that we will ultimately issue upon conversion
of the Series B Preferred Stock may be higher or lower than the 1,360,000 shares
indicated.
In addition, we have other convertible securities, options and warrants
outstanding that could bring additional shares of Common Stock into the
marketplace. See "DESCRIPTION OF SECURITIES."
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<PAGE>
RISK FACTORS
An investment in our Common Stock is speculative and involves a high degree
of risk of loss of part or all of your investment. You should carefully consider
the following factors and other information in this Prospectus before deciding
to invest in our Common Stock.
No Market Studies -- We may not be able to successfully market the MedCare
Program.
In formulating our business plan, we have relied on the judgment of our
officers, directors and consultants but have not conducted any formal
independent market studies concerning the demand for our services. To achieve
significant revenues and profitable operations in the future, we must
successfully develop and market the MedCare Program. Inability to successfully
market the MedCare Program to additional physicians would have an adverse effect
on our revenues, operations and financial condition.
Lack of Operating History -- We have a limited operating history and have not
been profitable.
Although Medcare was organized in 1986, we did not become active until 1995
and have been continually developing our MedCare Program since that time. As a
result, our business is subject to the risks inherent in the establishment of a
new business. We have only limited experience in managing the clinics in the
MedCare Program and are currently expanding operations, which may or may not
provide profits. In addition, the business model for Medcareonline.com is
evolving and relies substantially upon the sale of products and advertising on
the Internet, which is a developing industry in which we have no prior
experience. We had no revenues in 1995 or 1996 and $91,802 in 1997. In 1998, we
had revenues of $786,586. We have not been profitable, experiencing an
accumulated loss of $2,721,918 in 1997, which increased to an accumulated loss
of $6,491,871 in 1998. Even if we become profitable in the future, we cannot
accurately predict the level of, or our ability to sustain, profitability.
Because we have not yet been profitable and cannot predict any level of future
profitability, you bear the risk of a complete loss of your investment in the
event our business plan is unsuccessful.
Inability to Obtain Funding -- We may not be able to obtain additional funding
when needed.
We may require additional financing to expand and market the MedCare
Program. The resale of the Common Stock offered by the Selling Stockholders may
cause difficulty in our ability to obtain financing. In total, if all of the
currently outstanding options, warrants and Preferred Stock had been exercised
or converted into Common Stock, 13,108,868 shares of Common Stock would have
been outstanding as of June 14, 1999. These exercises and conversions could
cause a decrease in the market price of the Common Stock. If the market price of
the Common Stock declines, some potential financiers may either refuse to offer
us any financing or will offer financing at unacceptable rates or unfavorable
terms. If we are unable to obtain financing on favorable terms, or at all, such
unavailability could prevent us from expanding and marketing the MedCare Program
and therefore have an adverse effect on our revenues, operations and financial
condition. See "DESCRIPTION OF SECURITIES."
Continued Control by Existing Management -- You may lack an effective vote on
corporate matters.
Our management currently owns a substantial amount of our outstanding
Common Stock. As a result, new stockholders may lack an effective vote with
respect to the election of directors and other corporate matters.
Dividends -- We have not paid and do not currently intend to pay dividends.
Since inception, we have paid no dividends to our stockholders. Future
dividends on our Common Stock, if any, will depend on our future earnings,
capital requirements, financial condition and other factors. We currently intend
to retain earnings, if any, to increase our net worth and reserves. Therefore,
we do not anticipate
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<PAGE>
that any holder of Common Stock will receive any cash, stock or other dividends
on his shares of Common Stock at any time in the near future.
Dependence on Executive Officers and Key Personnel -- The success of our
business plan depends on attracting qualified personnel
We are highly dependent on the services of our executive officers and other
key personnel. Except for an employment agreement with our President, we do not
have any employment agreements with our executive officers and other key
personnel. Attracting and retaining qualified personnel is critical to our
business plan. Should we be unable to attract and retain the qualified personnel
necessary, our ability to implement our business plan successfully would be
limited.
Dilution -- The market price of your shares of Common Stock may decrease as more
shares of Common Stock become available for trading
The market price of our Common Stock may decrease as more shares of Common
Stock become available for trading. The number of shares of Common Stock that
the Selling Stockholders will receive upon conversion of their Series B
Preferred Stock is based on a formula, and under the formula there is no limit
on the number of shares of Common Stock that we may be required to issue. As
detailed elsewhere in this prospectus (see "SUMMARY--THE OFFERING" AND
"DESCRIPTION OF SECURITIES"), if all of the options, warrants and preferred
stock, including those not subject to this Prospectus, had been exercised or
converted, 13,108,868 shares of Common Stock would have been outstanding as of
June 14, 1999, as opposed to a total of 7,831,160 shares of Common Stock that
were actually outstanding on June 14, 1999. The issuance of any or all of these
additional shares upon exercise of options or warrants or conversion of
Preferred Stock will dilute the voting power of our current stockholders on
corporate matters and, as a result, may cause the market price of our Common
Stock to decrease.
Other Adverse Effects of Series B Preferred Stock and Warrants -- Conversions of
Series B Preferred Stock and exercise of Warrants may cause other detrimental
effects.
Change in Control. If the market price of the Common Stock declines
significantly, we could be required to issue a number of shares of Common Stock
sufficient to result in our current stockholders not having an effective vote in
the election of directors and other corporate matters.
Issuances at Less than Market Price. We are required to convert Series B
Preferred Stock based on a formula that applies the lesser of 125% of an
approximation of the market price of our Common Stock when the Series B
Preferred Stock was issued and an approximation of the market price of our
Common Stock at the time of conversion of the Series B Preferred Stock. As a
result, if the market price of our Common Stock increases after issuance of the
Series B Preferred Stock, we will be required to issue shares of Common Stock
based on 125% of the approximate market price of the Common Stock at the time of
issuance of the Series B Preferred Stock--in other words, possibly at a discount
to the then-current market price of the Common Stock. In addition, the Warrants
are exercisable at a fixed price. If the market price of our Common Stock
increases, we will be required to issue shares of Common Stock at a discount to
the then-current market price.
Redemption at the Option of the Selling Stockholders. If certain events
occur, the Selling Stockholders have the right to require us to redeem all or a
portion of their Series B Preferred Stock at a premium. See "DESCRIPTION OF
SECURITIES." Such a redemption would have an adverse effect on the financial
condition of the Company.
Nasdaq Eligibility and Maintenance -- If we do not maintain our Nasdaq SmallCap
Market listing, you may have difficulty selling your shares
Our Common Stock is currently listed on the Nasdaq SmallCap Market. Under
the current rules for initial listing on that market, a company must have at
least $4,000,000 in total assets, at least $2,000,000 in
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<PAGE>
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.
If we experience losses from operations, we may be unable to maintain the
standards for continued listing and our Common Stock could be delisted from the
Nasdaq SmallCap Market. Investors would thereafter be forced to trade our Common
Stock in the over-the-counter market on an electronic bulletin board established
for securities that do not meet the 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,
our Common Stock.
Risk of Low Priced Stocks -- If our Common Stock is considered a "penny stock,"
transactions in the Common Stock will be subject to additional regulations.
If the Nasdaq SmallCap Market delists our Common Stock and the Common Stock
did not fit into any other exclusion from the definition of a "penny stock"
under applicable SEC regulations, our Common Stock would become subject to the
penny stock rules that impose additional sales practice requirements on broker-
dealers who sell such stock 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 -- Future sales of large
amounts of Common Stock could adversely effect the market price and our ability
to raise capital.
Future sales of our Common Stock by existing stockholders pursuant to Rule
144 under the Securities Act, or following the exercise of outstanding options,
warrants, registration rights or otherwise, could adversely affect the market
price of our Common Stock. On June 14, 1999, we had 7,831,160 shares of Common
Stock outstanding. If all of the options, warrants and other securities
outstanding had been exercised for Common Stock, an additional 5,277,762 shares
of our Common Stock would have been outstanding as of June 14, 1999.
Substantially all of the outstanding shares of our Common Stock are freely
tradable, without restriction or registration under the Securities Act (other
than the sales volume restrictions of Rule 144 applicable to shares held
beneficially by persons who may be deemed to be affiliates). Our directors and
executive officers and their family members are not under lockup letters or
other forms of restriction on the sale of their Common Stock. As a result of
this offering, up to an additional 1,600,000 shares will be available for sale
and will be freely tradable. Sales of a large number of shares of Common Stock
in the public market could adversely affect the market price of the Common Stock
and could materially impair our future ability to generate funds through sales
of Common Stock or other equity securities. See "DESCRIPTION OF SECURITIES."
Protection of Proprietary Treatment Program -- Our ability to effectively
compete depends on protection of proprietary aspects of the MedCare Program.
Our ability to compete and expand effectively will depend, in part, on our
ability to develop and maintain proprietary aspects of the MedCare Program and
our business and marketing models. We rely on an unpatented proprietary
treatment protocol, and others may independently develop the same or a similar
program or otherwise obtain access to this protocol. We cannot ensure that the
confidentiality agreements between us and our employees will provide meaningful
protection for our trade secrets, know-how or other proprietary information in
the event of their unauthorized use or disclosure.
Reimbursement and Related Matters -- Market acceptance of the MedCare Program
depends in part on whether governments and third-party insurers provide
reimbursement.
Our ability to successfully market the MedCare Program will depend, in
part, on whether physicians using our program are reimbursed for the costs of
the program by third parties such as government health administration
authorities and private health coverage insurers. In the United States and in
some foreign countries, third-party reimbursement is currently generally
available for certain procedures, such as surgery and
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<PAGE>
biofeedback training by EMG application, and generally unavailable for patient
management products such as diapers, pads and urethral plugs. Governments and
other third parties are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement. We cannot ensure that
adequate third-party coverage will remain in effect in the future, and if such
coverage is not maintained, market acceptance of the MedCare Program could
decline.
Regulation by Federal and State Government -- Unfavorable governmental
regulation in the future could threaten our viability.
Our business is heavily regulated at a federal and state level. Legislators
continually enact new legislation relating to the manner in which patients
receive treatment. The process of obtaining regulatory approvals can be lengthy
and expensive, and the issuance of such approvals is uncertain. We may not be
able to obtain any necessary approvals on a timely basis, or at all, and failure
to comply with regulatory requirements can, among other things, result in fines,
suspensions of regulatory approvals, operating restrictions and criminal
prosecution. We cannot predict whether any health care reforms will be enacted
or the effect of any enacted reform on our business. Should legislators enact
new legislation that is unfavorable to our business, this would pose a serious
risk to the viability of our business.
Potential Fluctuations in Quarterly Results -- Significant variations in our
quarterly operating results may adversely affect the market price of our Common
Stock.
Our operating results have varied on a quarterly basis during our limited
operating history, and we expect to experience significant fluctuations in
future quarterly operating results. Such fluctuations have been and may in the
future be caused by numerous factors, many of which are outside of our control.
We believe that period-to-period comparisons of our results of operations will
not necessarily be meaningful and that you should not rely upon them as an
indication of future performance. Also, it is likely that our operating results
could be below the expectations of public market analysts and investors. In such
an event, the market price of our Common Stock may be adversely affected.
Medcareonline.com -- The Internet is a new and rapidly evolving market, and we
may not be able to create a market for Medcareonline.com's services.
Medcareonline.com will operate in a new and rapidly evolving market.
Medcareonline.com's business may be adversely affected if usage of the Internet
or other online services does not continue to grow. The Internet as an
advertising medium has not been available for enough time to gauge its
effectiveness as compared with traditional advertising media. Therefore, the
Internet is an unproven medium for advertising-supported services. As a result,
Medcareonline.com's future operating results will depend substantially upon the
increased use of the Internet for information, publication, distribution and
commerce and the emergence of the Internet as an effective advertising medium.
Medcareonline.com's ability to generate significant advertising revenues will
also depend on, among other things, the development of a large base of the types
of users that are attractive to advertisers, the ability of Medcareonline.com to
accurately measure its user base and the ability of Medcareonline.com to develop
or acquire effective advertising systems. Many of Medcareonline.com's potential
advertisers have only limited experience with the Internet, have not yet devoted
a significant portion of their advertising to the Internet, and may not find
Internet advertising to be effective for promoting their products and services
compared to traditional media. The adoption of Internet advertising requires the
acceptance of a new way of conducting business and exchanging information. The
market for Internet advertising may not continue to emerge. If the market fails
to develop or develops more slowly than expected, Medcareonline.com's business
may be materially and adversely affected. In addition, there is intense
competition in the sale of advertising on the Internet, resulting in a wide
range of rates and pricing. This makes it difficult to project future revenues
and rates. As a result of these risks, Medcareonline.com may not generate
significant future advertising revenues from Internet-based advertising. The
failure to do so may have a material adverse affect on our business.
In addition, the success of Medcareonline.com will depend, in part, on its
ability to generate a high volume of traffic to its website. Therefore, the
performance of the website is critical to Medcareonline.com's
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reputation and its ability to attract advertisers and achieve market acceptance
of Medcareonline.com. Any system failure that causes interruptions in the
availability or that increases response time of Medcareonline.com's services
could reduce user satisfaction and traffic to the website, and if the
interruption is lengthy or repeated, would reduce the attractiveness of
Medcareonline.com to advertisers and consumers.
Competition -- In the evolving healthcare field, if we do not continually
develop the MedCare Program, it could become uncompetitive or obsolete.
Healthcare is a rapidly evolving field in which other companies may have
greater financial and research and development resources than we do. We compete
directly with a number of small incontinence clinics, offered by doctors,
hospitals or therapists, that use a combination of non-invasive alternative
treatment options to treat urinary incontinence. We expect that better financed
and more sophisticated competition will emerge in the future. In addition, we
compete with other alternative treatments to urinary incontinence, including
absorbent products and diapers, surgery, indwelling catheters, implanting
devices, injectable materials, electrical stimulation, mechanical devices and
drugs. Our ability to compete effectively will depend, in part, on our ability
to develop and maintain a treatment program that offers therapeutic or cost
advantages over competitive offerings. Developments by others could render the
MedCare Program uncompetitive or obsolete.
THE COMPANY
We are a Delaware corporation engaged in the business of managing and/or
supporting urinary incontinence clinics throughout the United States. Our
principal business activity is the development and expansion of the MedCare
Program. The MedCare Program, a proprietary product of our company, is made up
of equipment, software and services which we have developed in order to assist
physicians in providing non-pharmaceutical, non-invasive treatment to
individuals suffering from urinary incontinence and other pelvic disorders.
We were originally incorporated in Utah in 1986, and changed our domicile
to Delaware in 1996 through a migratory merger. In 1995, we acquired the MedCare
Program, which we began to offer to doctors in 1996. We launched the MedCare
Program nationally in 1998. During 1998, our sole business was the offering of
the MedCare Program.
Doctors in private offices, clinics and hospitals are the main users of the
MedCare Program. These physicians use the MedCare Program to support a treatment
plan based primarily on behavioral modification techniques and to help their
patients activate and strengthen the body's various sensory response mechanisms
that maintain bladder and bowel control. Recent technological developments and
studies indicate that such behavioral techniques are effective methods in
treating urinary incontinence. Our goal is to continue to promote general
awareness of incontinence and to show that an effective treatment program is
readily available. We believe that our company is the leading source of
conservative incontinence treatment support systems in the country. Our
continued ability to compete and expand effectively will depend, in part, on our
ability to develop and maintain certain proprietary aspects of our treatment
program.
On January 21, 1999, we formed a new, wholly-owned subsidiary,
Medcareonline.com, Inc. Through Medcareonline.com, we intend to offer
comprehensive, gender-specific health information for adults, including health
travel advisories, health news, symposiums, journals and publications. We intend
to increase the content of this website over time, adding additional features
and services, and seek revenues from advertisers of pharmaceutical and other
healthcare related products and services. In addition, we plan to add e-
commerce, which may eventually include sales of a wide range of health related
products and services.
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USE OF PROCEEDS
This prospectus applies only to the resale of Conversion Shares, which
consist of previously issued shares of Common Stock. Therefore, we will not
receive any proceeds from the sale of the Conversion Shares by the Selling
Stockholders.
DETERMINATION OF OFFERING PRICE
Because this prospectus relates only to the resale of previously issued
shares of Common Stock, we did not determine an offering price. The Selling
Stockholders will individually determine the offering price of the Conversion
Shares as they sell them. The sale price to the public may be the market price
prevailing at the time of the sale, a price related to such prevailing market
price or such other price as each Selling Stockholder determines from time to
time.
SELLING STOCKHOLDERS
The Conversion Shares being offered by the Selling Stockholders are
issuable (1) upon conversion of the Series B Preferred Stock or (2) upon
exercise of the Warrants, both of which were issued pursuant to the Securities
Purchase Agreement. We are registering the Conversion Shares in order to permit
the Selling Stockholders to offer these shares for resale from time to time.
Except for the ownership of the Series B Preferred Stock, the Warrants and any
Conversion Shares, the Selling Stockholders have not had any material
relationship with us within the past three years.
The table below lists the Selling Stockholders and other information
regarding the beneficial ownership of the Common Stock by each of the Selling
Stockholders. The second column lists, for each Selling Stockholder, the number
of shares of Common Stock (based on its ownership of Series B Preferred Stock
and Warrants) which would have been issuable to the Selling Stockholder on June
15, 1999 upon conversion of all of the Series B Preferred Stock (including any
shares of Series B Preferred Stock that were payable as dividends on the
outstanding Series B Preferred Stock) and exercise of the Warrants held by such
Selling Stockholder on that date. Our calculations of the number of shares of
Common Stock into which the Selling Stockholders may convert the Series B
Preferred Stock or exercise the Warrants in the second column assumes a
conversion price for the Series B Preferred Stock of $5.4375 (which represents
the lesser of (a) the average of the ten lowest closing bid prices during the 40
consecutive trading days immediately prior to June 15, 1999 and (b) the closing
bid price on June 15, 1999). Because the conversion of the Series B Preferred
Stock is based on a formula that is dependent upon the market price of our
Common Stock, the numbers listed in the second column may fluctuate from time to
time. The third column lists each Selling Stockholder's pro rata portion (based
on its ownership of Series B Preferred Stock) of the 1,600,000 shares of Common
Stock being offered by this prospectus. We determined the number of shares of
Common Stock to be offered for resale by this prospectus by agreement with the
Selling Stockholders. The number of shares that will actually be issued may be
more or less than the 1,600,000 shares being offered by this prospectus, because
the conversion of the Series B Preferred Stock into Common Stock is based on a
formula that depends upon the market price of our Common Stock. We determined
the number of shares covered by this prospectus in order to adequately cover a
reasonable increase in the number of shares required. The fourth column assumes
the sale of all of the shares offered by each Selling Stockholder.
Under the Certificate of Designations for the Series B Preferred Stock, no
Selling Stockholder can convert Series B Preferred Stock to the extent such
conversion would cause such Selling Stockholder's beneficial ownership of our
Common Stock (other than shares deemed beneficially owned through ownership of
unconverted shares of the Series B Preferred Stock or unexercised Warrants) to
exceed 4.99% of the outstanding shares of our Common Stock. We obtained the
information provided in the table below from the Selling Stockholders. The
Selling Stockholders may sell all, some or none of their shares in this
offering. See "Plan of Distribution."
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<TABLE>
<CAPTION>
Shares of Common Common
Preferred Stock Shares
Shares Owned Beneficially Shares of Owned
Prior to Owned on Common Stock After
Name Offering June 15, 1999 (4) Offered Hereby Offering
- ---------------- -------------- ----------------- -------------- ---------
<S> <C> <C> <C> <C>
HFTP Investment
L.L.C. (1) 200 369,509 800,000 0
Leonardo, L.P. (2) 110 203,230 440,000 0
GAM Arbitrage
Investments, Inc. (2) 15 27,713 60,000 0
AG Super Fund
Investments, Inc. (2) 15 27,713 60,000 0
Raphael, L.P. (2) 20 36,951 80,000 0
Ramius Fund, Ltd.(3) 40 73,902 160,000 0
</TABLE>
(1) Promethean Investment Group, LLC, a New York limited liability company
("Promethean"), serves as investment advisor to HFTP Investment, L.L.C. ("HFTP")
and may be deemed to share beneficial ownership of the shares beneficially owned
by HFTP by reason of shared power to vote and to dispose of the shares
beneficially owned by HFTP. Promethean disclaims beneficial ownership of the
shares beneficially owned by HFTP. Mr. James F. O'Brien, Jr. indirectly controls
Promethean. Mr. O'Brien disclaims beneficial ownership of the shares
beneficially owned by Promethean and HFTP.
(2) Angelo, Gordon & Co., L.P. ("Angelo Gordon") is a general partner of AG
Super Fund International Partners, L.P., Leonardo, L.P. and Raphael, L.P., and
is the investment advisor of GAM Arbitrage Investment, Inc. (collectively, the
"Angelo Gordon Entities") and consequently has voting control and investment
discretion over securities held by the Angelo Gordon Entities. The ownership
information for each of the Angelo Gordon Entities does not include the
ownership information for the other Angelo Gordon Entities. Angelo Gordon and
each of the Angelo Gordon Entities disclaim beneficial ownership of the shares
held by the other Angelo Gordon Entities. Mr. John M. Angelo, the Chief
Executive Officer of Angelo Gordon, and Mr. Michael R. Gordon, the Chief
Operating Officer of Angelo Gordon, are the sole general partners of A.G.
Partners, L.P., the sole general partner of Angelo Gordon. As a result, Mr.
Angelo and Mr. Gordon may be considered beneficial owners of any shares deemed
to be beneficially owned by Angelo Gordon.
(3) AG Ramius Partners, LLC ("AG Ramius") is the investment advisor to Ramius
Fund, Ltd. ("Ramius Fund"), and consequently has voting control and investment
discretion over securities held by Ramius Fund. AG Ramius Fund disclaims
beneficial ownership of the shares held by Ramius Fund. Mr. John M. Angelo and
Mr. Michael Gordon are sole general partners of AG Partners, L.P., the sole
general partner of Angelo Gordon (which is the investment managing member of AG
Ramius). As a result, Mr. Angelo and Mr. Gordon may be considered beneficial
owners of any shares deemed to be beneficially owned by AG Ramius.
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<PAGE>
(4) Does not include any shares of Common Stock issuable upon exercise of the
Warrants since the Warrants are not exercisable within 60 days of June 15, 1999.
PLAN OF DISTRIBUTION
The Selling Stockholders (or, subject to applicable law, their pledgees,
donees, distributees, transferees or successors in interest) are offering shares
of Common Stock, which are issuable to them upon conversion of the Series B
Preferred Stock and exercise of Warrants that they acquired from us in a private
placement transaction pursuant to the Securities Purchase Agreement. This
prospectus covers the Selling Stockholders' resale of up to 1,600,000 shares of
Common Stock that we may issue to them upon conversion of the Series B Preferred
Stock and exercise of the Warrants, as well as any additional shares that may
become issuable upon conversion of the Series B Preferred Stock or exercise of
the Warrants because of stock splits, stock dividends and other similar
transactions. Because the conversion of the Series B Preferred Stock into Common
Stock is based on a formula that depends upon the market price of our Common
Stock, we may issue to the Selling Stockholders more than the 1,600,000 shares
of Common Stock and the additional shares that may become issuable because of
stock splits, stock dividends and other similar transactions. This prospectus
does not cover any additional shares of Common Stock (in excess of the 1,600,000
shares) that we may issue to the Selling Stockholders as a result of
fluctuations in the market price of our Common Stock.
In connection with our issuance to the Selling Stockholders of the Series B
Preferred Stock, we provided to them certain registration rights and have
subsequently filed a registration statement on Form S-3 with the SEC. That
registration statement covers the resale of the common stock from time to time
on the Nasdaq SmallCap Market or in privately negotiated transactions. This
prospectus forms a part of that registration statement. We have also agreed to
prepare and file any amendments and supplements to the registration statement as
may be necessary to keep it effective until this prospectus is no longer
required for the Selling Stockholders to sell their shares of Common Stock and
to indemnify and hold the Selling Stockholders harmless against certain
liabilities under the Securities Act that could arise in connection with the
Selling Stockholders' sale of their shares. We have agreed to pay all reasonable
fees and expenses incident to the filing of the registration statement, except
that we have agreed to pay the fees and disbursements of legal counsel to the
Selling Stockholders only up to an aggregate of $10,000.
The Selling Stockholder may sell the shares of Common Stock described in
this prospectus directly or through underwriters, broker-dealers or agents. The
Selling Stockholders may also transfer, devise or gift their shares by other
means not described in this prospectus. As a result, pledgees, donees,
transferees or other successors in interest that receive such shares as a gift,
partnership distribution or other non-sale related transfer may offer shares of
Common Stock. In addition, if any shares covered by this prospectus qualify for
sale pursuant to Rule 144 under the Securities Act, the Selling Stockholders may
sell such shares under Rule 144 rather than pursuant to this prospectus.
The Selling Stockholders may sell shares of Common stock from time to time
in one or more transactions:
. at fixed prices that may be changed,
. at market prices prevailing at the time of sale, or
. at prices related to such prevailing market prices or at
negotiated prices.
The Selling Stockholders may offer their shares of Common Stock in one or
more of the following transactions:
. on any national securities exchange or quotation service on which
the Common Stock may be listed or quoted at the time of sale,
including the Nasdaq SmallCap Market,
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. in the over-the-counter market,
. in privately negotiated transactions,
. through options,
. by pledge to secure debts and other obligations,
. by a combination of the above methods of sale, or
. to cover short sales made pursuant to this prospectus.
In effecting sales, brokers or dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate in the resales. The
Selling Stockholders may enter into hedging transactions with broker-dealers,
and in connection with those transactions, broker-dealers may engage in short
sales of the shares. The Selling Stockholders also may sell shares short and
deliver the shares to close out such short positions. The Selling Stockholders
also may enter into option or other transactions with broker-dealers that
require the delivery to the broker-dealer of the shares, which the broker-dealer
may resell pursuant to this prospectus. The Selling Stockholders also may pledge
the shares to a broker or dealer, and upon a default, the broker or dealer may
effect sales of the pledged shares pursuant to this prospectus.
In order to comply with the securities laws of certain states, the Selling
Stockholders must offer or sell the shares only through registered or licensed
brokers or dealers. In addition, in certain states, the Selling Stockholders can
not offer or sell the shares unless the shares have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The SEC may deem the Selling Stockholders and any underwriters, broker-
dealers or agents that participate in the distribution of the shares of Common
Stock to be "underwriters" within the meaning of the Securities Act. The SEC may
deem any profits on the resale of the shares of Common Stock and any
compensation received by any underwriter, broker-dealer or agent to be
underwriting discounts and commission under the Securities Act.
Under the Exchange Act, any person engaged in the distribution of the
shares of Common Stock may not simultaneously engage in market-making activities
with respect to the Common Stock for five business days prior to the start of
the distribution. In addition, each Selling Stockholder and any other person
participating in a distribution will be subject to the Exchange Act, which may
limit the timing of purchases and sales of Common Stock by the Selling
Stockholder or any such other person.
DESCRIPTION OF SECURITIES
Common Stock
This prospectus relates to the issuance of up to 1,600,000 shares of our
Common Stock upon conversion of the Series B Preferred Stock and exercise of the
related Warrants.
Our authorized capital stock includes 100,000,000 shares of Common Stock,
with a par value of $0.001. As of June 14, 1999, 7,831,160 shares of Common
Stock were outstanding. The Common Stock currently outstanding is, and the
Common Stock offered hereby will be when issued, validly issued, fully paid and
nonassessable.
Holders of the Common Stock are entitled to one vote for each share held by
them of record on all matters to be voted on by the stockholders.
Subject to the preferences that may be applicable to the holders of any
outstanding shares of preferred stock (described below under "DESCRIPTION OF
SECURITIES--Preferred Stock"), holders of Common Stock are entitled to receive,
out of legally available funds, such dividends as our Board of Directors may
declare from time to time. Our decision to declare dividends depends upon a
number of factors, including our future earnings,
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capital requirements and financial condition. We have not declared dividends on
our Common Stock in the past, and we currently anticipate that we will retain
future earnings, if any, to increase our net worth and reserves rather than to
pay dividends.
The holders of Common Stock have no preemptive or conversion rights and are
not subject to further calls or assessments. There are no redemption or sinking
fund provisions applicable to the Common Stock.
Upon our liquidation, dissolution or winding up, all assets legally
available for distribution to stockholders are distributable ratably among the
holders of outstanding Common Stock, subject to the prior rights of our
creditors and the preferential rights of any of our preferred stockholders.
Preferred Stock
We are authorized to issue up to 1,000,000 shares of Preferred Stock, with
a par value of $0.25 per share. We may issue the Preferred Stock, without
further action by the stockholders, in one or more series. We may fix the
rights, preferences, privileges and restrictions granted to or imposed on any
wholly unissued shares of undesignated Preferred Stock, and we may fix the
number of shares constituting any series and the designation of such series. The
issuance of Preferred Stock, while providing flexibility in connection with the
expansion of our business, possible acquisitions and other corporate purposes,
could, among other things, have a detrimental effect on the rights of holders of
the Common Stock.
Of the 1,000,000 shares of Preferred Stock authorized, (1) 1,000 shares
have been designated as Series A Preferred Stock, of which 50 shares were
outstanding as of June 14, 1999 and (2) 800 shares have been designated as the
Series B Preferred Stock, of which 400 shares were outstanding as of June 14,
1999. The rights and preferences of each series are discussed further below.
The Series A Preferred Stock
Pursuant to a Certificate of Designations filed with the State of Delaware
on July 7, 1997, 1,000 shares of our authorized Preferred Stock have been
designated as Series A Preferred Stock, with an 8% annual interest rate.
This stock ranks senior to all Common Stock, 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 on parity with any series or class of
stock so designated in the future (including the Series B Preferred Stock).
There are no dividends or dividend rights provided for the Series B
Preferred Stock. The holders of the Series A Preferred Stock also have no voting
rights, but must receive notice of all stockholders' meetings.
The liquidation ranking of the Series A Preferred Stock is after any senior
securities, prior to any junior securities and on a par with any other preferred
stock (including the Series B Preferred Stock). Upon liquidation, holders of the
Series A Preferred Stock will receive an amount per share equal to the original
issue price per outstanding share plus an amount equal to 8% of the original
Series A Preferred Stock issue price per year for the period that has passed
since that date in connection with the consummation of the purchase by the
holder of shares of the Series A Preferred Stock. If we do not possess
sufficient funds, assets and other holdings to provide for the complete
liquidation price, holders of the Series A Preferred Stock will receive funds
based upon the ranking of the stock.
The Series A Preferred Stock is described further in our Registration
Statement on Form SB-2 (Reg. No. 333-41611).
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<PAGE>
The Series B Preferred Stock
Designation and Amount
Pursuant to a Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock, filed with the State of Delaware on May 17, 1999,
800 shares of our Preferred Stock have been designated as Series B Preferred
Stock. We issued 400 shares of the Series B Preferred Stock (along with Warrants
to purchase Common Stock, described below) under the Securities Purchase
Agreement. The aggregate purchase price of each share of the Series B Preferred
Stock (along with the related Warrants) is $10,000.
In addition, at any time from May 18, 2000 through June 7, 2000, the
Selling Stockholders will have the right to purchase up to an additional 400
shares of the Series B Preferred Stock and up to 240,000 additional Warrants.
Each Selling Stockholder will be entitled to purchase a number of additional
shares of Series B Preferred Stock equal to the sum of (1) the number of shares
of Series B Preferred Stock held by such stockholder on May 18, 2000 and (2) the
number of shares of Series B Preferred Stock converted by such stockholder
before May 18, 2000 at the Fixed Conversion Price (as defined below). The terms
of these as-yet issued shares and warrants would be identical to the terms
described in this prospectus.
Dividends
The holders of the Series B Preferred Stock are entitled to receive a 6%
annual dividend, which is cumulative and accrues daily from the date of
issuance. The dividend will be payable, at our option, either (1) in shares of
Common Stock upon conversion of the Series B Preferred Stock or (2) in cash on
the first day of each calendar quarter.
Voting Rights
Holders of the Series B Preferred Stock are not entitled to any voting
rights on any matter submitted to a vote of our stockholders, except as required
by law.
Rank
The Series B Preferred Stock ranks senior to the Common Stock, and on
parity with the Series A Preferred Stock, in respect to dividend preferences and
payments upon liquidation and dissolution.
Restrictions on Future Issuances
We have agreed not to issue any additional or other capital stock that is
senior to or on parity with the Series B Preferred Stock without the prior
written consent of the holders of at least two-thirds of the Series B Preferred
Stock.
Under the Securities Purchase Agreement, we have also made the following
covenants restricting our right to issue any additional equity securities:
. Until the earlier of (1) November 14, 1999 and (2) the first date on
which we have satisfied certain conditions regarding the effectiveness
of a registration statement, stockholder approval of the issuance and
non-integration, we may not issue any equity securities or securities
convertible or exchangeable into equity securities (a "Future Offering")
unless we have the prior consent of at least two-thirds of the holders
of the Series B Preferred Stock then outstanding.
. Until May 18, 2000, we may not make any Future Offering, other than a
Variable Convertible Offering (as defined below), without the prior
approval of at least two-thirds of the holders of the
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Series B Preferred Stock, unless we first offer each holder of the
Series B Preferred Stock the option to purchase a stated percentage of
the shares to be issued in the Future Offering.
. Until the date which is 180 days after the date a registration statement
is declared effective, we may not, without prior written approval of at
least two-thirds of the holders of the Series B Preferred Stock, issue
any convertible securities which have a conversion price based on the
trading price of the Common Stock (a "Variable Convertible Offering"),
unless we offer each holder of the Series B Preferred Stock the option
to purchase a stated percentage of such securities.
The above covenants do not apply to certain traditional financing methods, such
as commercial financing with no equity component.
Conversion by Holders
Subject to certain limitations discussed below, holders of the Series B
Preferred Stock may convert their shares into shares of Common Stock at a
variable conversion rate (the "Conversion Rate") equal to the Conversion Amount
(as defined below) divided by the applicable Conversion Price (as defined
below).
. The "Conversion Price" is the lesser of the following:
(a) The Fixed Conversion Price: Equal to 125% of the average of the
closing bid prices for our Common Stock during the five
consecutive trading days immediately preceding the issuance date
of the applicable shares of the Series B Preferred Stock. The
Fixed Conversion Price for the 400 Series B Preferred Stock
issued on May 18, 1999 is $7.80.
(b) The Variable Conversion Price: Equal to the lower of (1) the
closing bid price on the day the holder delivers to us the
required notice of its intention to convert and (2) the average
of the ten lowest closing bid prices in the 40 trading days
immediately preceding the date such notice is given.
. The "Conversion Amount" is $10,000, plus any stock dividends that have
accrued but have not been paid, plus any default interest (equal to 15%
per annum) for dividends which we elected to pay in cash but have failed
to pay on a timely basis.
Limitations on Holders' Right to Convert
The holders' right to convert the Series B Preferred Stock is limited as
follows:
. From the date of issuance of the Series B Preferred Stock through and
including the date which is 120 days after the date of issuance, the
holders may not convert any shares of the Series B Preferred Stock.
. From the date which is 121 days after the date of issuance through and
including the date which is 150 days after the date of issuance, the
holders may convert up to one-third of their shares.
. From the date which is 151 days after the date of issuance through the
date which is 180 days after the date of issuance, the holders may
convert up to two-thirds of their shares.
. From and after the date which is 181 days following the date of
issuance, there are no such restrictions on conversion.
The foregoing restrictions do not apply if certain events occur, including
the delisting or suspension from trading of our Common Stock, the occurrence of
a Major Transaction or a Triggering Event (each as defined
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below), the conversion of the Series B Preferred Stock at the Fixed Conversion
Price, our delivery of a notice of our election to convert the shares, or in the
event that the average closing bid price of our Common Stock for the 20 trading
days immediately preceding the conversion date is less than $3.00.
In addition, no holder may convert any shares of the Series B Preferred
Stock in excess of the number of shares which, upon giving effect to such
conversion, would cause the beneficial ownership of the stockholder to exceed
4.99% of the Common Stock then issued and outstanding (excluding shares of
Series B Preferred Stock which have not been converted and warrants which have
not been exercised).
Adjustment of Conversion Price
We will adjust the Variable Conversion Price and the Fixed Conversion Price
of the Series B Preferred Stock in the event that we fail to obtain and/or
maintain the effectiveness of a registration statement covering the resale of
all applicable securities, which could have the effect of increasing the number
of shares of Common Stock issuable upon conversion.
In addition, the Conversion Price of the Series B Preferred Stock is
subject to customary anti-dilution provisions which take effect upon such events
as the issuance of Common Stock, options or other convertible securities, the
subdivision or combination of outstanding shares of Common Stock, our
recapitalization, merger or other reorganization, or any other similar events.
However, we will not make any such adjustment unless the adjustment would result
in a cumulative increase or decrease of at least 1% in the Conversion Price.
Maturity and Mandatory Conversion
The shares of Series B Preferred Stock mature five years after they are
issued, and any shares of the Series B Preferred Stock outstanding on the
applicable maturity date automatically convert into shares of Common Stock.
Redemption at the Option of Holders
The holders may redeem any outstanding share of the Series B Preferred
Stock in the event of any of the following transactions (each, a "Major
Transaction"):
. our consolidation, merger or other business combination with another
entity;
. the sale or transfer of all or substantially all of our assets; or
. a purchase, tender or exchange offer made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock.
Any such Major Transaction must have occurred or have been the subject of a
public announcement during the period beginning on the date of issuance of the
Series B Preferred Stock and ending on the later of (1) the first anniversary of
the date of issuance and (2) the date which is 270 days after the effective date
of the registration statement relating to this offering.
In the event of a Major Transaction, the redemption price per share will be
the greater of (1) 115% of the Liquidation Amount (as defined below) and (2) the
product of (a) the applicable Conversion Rate and (b) the closing bid price on
the date of the public announcement of the event.
In addition, in the event of the occurrence of certain events (the
"Triggering Events"), including the failure of a registration statement covering
the Conversion Shares to be declared effective within 180 days of the date of
issuance, the delisting of the Common Stock for a period of five consecutive
days and our breach of any representations, warranties or covenants in the
Securities Purchase Agreement or an related documents, the
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holders have the right to require us to redeem all or a portion of their Series
B Preferred Stock. The redemption price per share is the same as the redemption
price per share in the event of a Major Transaction.
Conversion at Our Election
We have the right to require conversion, at the applicable Conversion Rate,
of any or all of the outstanding shares of the Series B Preferred Stock on any
day immediately following an event where the closing bid price of our Common
Stock on each trading day during the 30 consecutive trading day period is at
least 200% of the applicable Fixed Conversion Price in effect on the first day
of such 30 trading day period. Among the conditions to our ability to so
convert the shares are the following:
. a registration statement covering the resale of at least 100% of the
number of shares issued and issuable upon conversion of the Series B
Preferred Stock and exercise of the related Warrants has been effective
for at least 90 days;
. the Common Stock has been listed on a national market or exchange for at
least the 30 trading days prior to such conversion; and
. we have, from the date of issuance through the date we deliver the notice
of our election to convert, timely delivered the shares of Common Stock
upon conversion of the Series B Preferred Stock.
Redemption in Lieu of Conversion
We may elect to redeem shares of Series B Preferred Stock submitted for
conversion, provided that we have given an appropriate notice to the holders of
the shares and provided that the Conversion Price for such shares is less than
the market price on the issuance date. The redemption price per share in this
case will be equal to the product of the applicable Conversion Rate and the
closing bid price on the conversion date.
We may only elect to redeem in lieu of conversion if we have given proper
notice to the holders of the Series B Preferred Stock, specifying the maximum
number of shares to be so redeemed and confirming the time period during which
we may redeem the shares. If we fail to redeem the shares in accordance with
this provision, we may not submit another notice of our election to redeem in
lieu of conversion without the prior written consent of the holders of at least
two-thirds of the shares of Series B Preferred Stock then outstanding.
Redemption at Our Election
Provided certain conditions are satisfied, we have the right, from the
third anniversary of the effective date of the registration statement for the
applicable shares of Series B Preferred Stock through maturity of the Series B
Preferred Stock, to require the redemption of all outstanding shares of the
Series B Preferred Stock at a redemption price of 115% of the Liquidation
Amount. The conditions to our right to redeem the shares include, among others:
. a registration statement covering the resale of at least 100% of the
number of shares issued or issuable upon conversion of the Series B
Preferred Stock and exercise of the related Warrants has been effective
for at least 30 trading days;
. the Common Stock has been listed on a national market or exchange for at
least the 30 trading days prior to such conversion; and
. we have, from the date of issuance through the date we deliver the notice
of our intention to redeem, timely delivered the shares of Common Stock
upon conversion of the Series B Preferred Stock by the holders thereof.
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Reservation of Shares
To ensure that the Series B Preferred Stock and the Warrants can at all
times be properly converted, while shares of the Series B Preferred Stock are
outstanding, we are required to reserve a number of shares of Common Stock equal
to the sum of (1) at least 200% of the number of shares of Common Stock for
which the Series B Preferred Stock is convertible and (2) at least 100% of the
number of shares of Common Stock for which the Warrants may be exercised.
Liquidation, Dissolution or Winding Up
In the event of our liquidation, dissolution or winding up, whether
voluntary or involuntary, the holders of Series B Preferred Stock are entitled
to receive, out of our assets, an amount per share (the "Liquidation Amount")
equal to $10,000 plus any stock dividends that have accrued but have not been
paid, plus any default interest (equal to 15% per year) for dividends which we
elected to pay in cash but failed to pay on a timely basis.
Amendment to the Certificate of Designations
We may not change the Certificate of Designations relating to the Series B
Preferred Stock without the affirmative vote of at least two-thirds of the
holders of the outstanding shares of Series B Preferred Stock.
Restrictions on Transfer
There will be no more than seven holders of the Series B Preferred Stock at
any one time. Therefore, with one limited exception, shares of the Series B
Preferred Stock may not be transferred, except to (1) an existing holder of the
Series B Preferred Stock, or (2) to any transferee who obtains all the shares of
the transferor.
Warrants
Previously Issued Options and Warrants
In connection with the issuance of the Series A Preferred Stock, we issued
warrants for the purchase of our Common Stock. As of June 14, 1999, warrants to
purchase 608,251 shares of Common Stock were outstanding. In addition, as of
June 14, 1999, there were options to purchase 2,048,000 shares of our Common
Stock outstanding, which options were issued in connection with our employee
stock option plans. These options and warrants are described further in our
Registration Statement on Form SB-2 (Reg. No. 333-41611).
Warrants Issued with the Series B Preferred Stock
Under the Securities Purchase Agreement, along with the Series B Preferred
Stock, we issued the Warrants to the Selling Stockholders. All Warrants issued
in connection with the Series B Preferred Stock expire five years after
issuance.
Vesting Schedule
The Warrants entitle the holders to 200 shares of Common Stock for (1) each
issued share of the Series B Preferred Stock held on the applicable vesting date
and (2) each share of the Series B Preferred Stock converted prior to the
applicable vesting date at the Fixed Conversion Price. The vesting dates of the
Warrants are (a) the date which is 120 days after the date of issuance of the
applicable Series B Preferred Stock, (b) the date which is 300 days after the
date of issuance of the applicable Series B Preferred Stock and (c) the date
which is 480 days after the date of issuance of the applicable Series B
Preferred Stock.
-19-
<PAGE>
Exercise Price
The exercise price of each Warrant is 125% of the average of the closing
bid prices of our Common Stock for the five consecutive trading days immediately
preceding the applicable vesting date.
The exercise price of the Warrants is subject to customary anti-dilution
adjustments upon such events as the issuance of Common Stock for a per-share
price less than the exercise price in effect immediately prior to such issuance,
the subdivision or combination of the Common Stock, our distribution of assets
to holders of Common Stock, and other similar events.
Cashless Exercise Option
If the Common Stock to be issued in exchange for the Warrants is not
properly registered for resale, or if a Triggering Event has occurred, the
Warrant holders are entitled to a "cashless exercise" option. This option
entitles the Warrant holders to elect to receive fewer shares of Common Stock
(the number of shares to be determined by a formula based on the total number of
shares to which the Warrant holder is entitled, the last reported sale price of
the Common Stock and the applicable exercise price of the Warrants) without
paying the cash exercise price.
Covenants
We made certain customary covenants with respect to the Warrants,
including, among others: (1) the Warrants, and any Common Stock to be issued
upon exercise of the Warrants, are and will be duly authorized and validly
issued; (2) we will reserve at least 100% of the number of shares of Common
Stock issuable upon exercise of the Warrants; (3) the Common Stock issuable upon
exercise of the Warrants will be listed on each national securities exchange or
automated quotation system on which our Common Stock is then issued; and (4) we
will act in good faith in carrying out the provisions of the Warrants.
Amendment
The provisions of the Warrants may be amended only after we obtain the
written consent of Warrant holders representing a majority of the shares of
Common Stock issuable upon exercise of the Warrants then outstanding. However,
we may not increase the exercise price of the Warrants or decrease the amount of
Common Stock issuable upon exercise of any Warrant without the written consent
of the holder of such Warrant.
EXPERTS AND LEGAL MATTERS
Our financial statements for the years ended December 31, 1998 and December
31, 1997, which are incorporated into this prospectus by reference, were audited
by Clancy & Co., P.L.L.C., independent auditors, as set forth in their report
thereon and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
Legal matters will be passed upon by Barack Ferrazzano Kirschbaum Perlman &
Nagelberg, 333 W. Wacker Drive, Suite 2700, Chicago, Illinois 60606.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. The
following documents, which we have filed with the SEC, are incorporated herein
by reference:
-20-
<PAGE>
1. Our Annual Report on Form 10-K for the year ended December 31, 1998;
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31,
1999;
3. Our Current Report on Form 8-K filed on February 9, 1999 regarding the
formation of Medcareonline.com, Inc.;
4. Our Current Report on Form 8-K, as amended, originally filed on May
17, 1999 regarding the change in our certifying accountants;
5. Our Current Report on Form 8-K, as amended, originally filed June 2,
1999 regarding the issuance of the Series B Preferred Stock and the
Warrants;
6. Our Proxy Statement dated June 4, 1999 regarding our 1999 Annual
Meeting of Stockholders; and
7. All other reports filed pursuant to Sections 13(a) or 15(d) of the
Exchange Act since December 31, 1998.
In addition, all documents we file pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
after the date of this prospectus and before the termination of this offering
will be deemed to be incorporated by reference into this prospectus and to be a
part hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
prospectus will be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or any
subsequently filed document that also is or is deemed to be incorporated by
reference modifies or replaces such statement.
We will provide to each person (including any beneficial owner) to whom
this prospectus is delivered a copy of any document incorporated by reference
(other than exhibits to such documents not specifically incorporated by
reference), at no cost, upon the oral or written request of any such person. In
addition, we will furnish you with a copy of our most recent annual report, at
no cost, on oral or written request. You may direct any requests for such
documents to us at Medcare Technologies, Inc., 1515 West 22nd Avenue, Suite
1210, Oak Brook, Illinois 60521, (630) 472-5300, Attention: Jeffrey S. Aronin.
AVAILABLE INFORMATION
This prospectus is a part of a Registration Statement on Form S-3 we filed
with the SEC under the Securities Act.
Statements contained herein concerning the provision of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the SEC.
We are subject to the informational requirements of the Exchange Act. In
accordance with the Exchange Act, we file reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at the Public Reference Room of the SEC at:
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
and at the following regional offices of the SEC:
Midwest Regional Office
-21-
<PAGE>
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
Northwest Regional Office
7 World Trade Center
Suite 1300
New York, New York 10048
Copies of our filings under the Exchange Act can also be obtained at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-
0330 for further information. Reports, proxy statements and other information
filed with the SEC is also available at the SEC's site on the World Wide Web at
http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus and the documents we incorporate
by reference that are considered "forward-looking statements" within the meaning
of the Exchange Act. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward looking statements. These
statements are based on our current expectations, assumptions and projections
about the healthcare industry and are not guarantees of future performance.
Therefore, actual events and results are subject to risks, uncertainties and
other important factors that could cause our actual performance to differ
materially from that expressed or forecasted in the forward looking statements.
These risks, uncertainties and factors include:
. the effect of changing economic conditions;
. conditions in the overall healthcare market;
. the impact of new healthcare legislation;
. 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 this prospectus.
INDEMNIFICATION
We have indemnified all of our officers, directors and controlling persons
against all liabilities from the sale of securities which might arise under the
Securities Act other than as stated under Delaware law. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to such persons pursuant to the foregoing provisions, we have been
informed that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
-22-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses relating to this registration, other than underwriting
discounts and commissions, if any, will be borne by the registrant. The
following table shows the amount of such expenses in connection with this
registration.
<TABLE>
<CAPTION>
Item Amount
---- --------
<S> <C>
Securities and Exchange Commission $ 2,448
Registration Fee
Estimated Legal Fees and Expenses 25,000
Printing and Engraving Expenses 500
Miscellaneous Expenses 2,500
--------
Total $ 30,448
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The officers and directors of the registrant are indemnified as provided
under the Delaware General Corporation Law. No additional indemnification has
been authorized.
ITEM 16. EXHIBITS
Exhibit Description
- ------- -----------
3. Articles of Incorporation and Bylaws
3a. Articles of Incorporation and Amendments*
3b. Bylaws*
4. Series B Preferred Stock Agreements*
4a. Certificate of Designation*
4b. Securities Purchase Agreement*
4c. Registration Rights Agreement*
4d. Form of Warrant*
4e. Escrow Agreement*
5. Opinion re Legality
5a. Opinion of Counsel regarding Registration
10. Material Contracts
10a. Certificate of Designation*
10b. Subscription Agreement*
10c. Nine-Month Warrant*
10d. Twelve-Month Warrant*
10e. Fifteen-Month Warrant*
10f. Preferred Warrants*
10g. Registration Rights*
10h. Instructions to Transfer Agent*
10i. Agreement and Amendment*
10j. Agreement and Amendment for Queensway Financial Holdings
Limited*
10k. Three-Month Warrant*
10l. Swartz Warrant*
10m. Program Management Agreement with Amendment*
10n. Employment and Stock Agreement, dated as of December 9, 1998
between Medcare Technologies, Inc. and Jeffrey S. Aronin*
10o. Sublease dated as of December 31, 1997 between Medcare
Technologies, Inc. and Delta Dental Association*
10p. Stock Option Plan 1995*
10q. Stock Option Plan 1996*
10r. Stock Option Plan 1997--$4.50 options*
10s. Stock Option Plan 1997--$6.50 options*
10t. Stock Option Plan 1998*
10u. Stock Option Plan 1999*
16. Letter from the Former Accountant*
23. Consent of Experts and Counsel
23a. Consent of Independent Auditor
23b. Consent of Counsel (included in Exhibit 5a)
27. Financial Data Schedule*
* indicates previously submitted exhibit
<PAGE>
ITEM 17. 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 registrant will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to include
any additional or changed material information on the plan of distribution.
For the purposes of determining liability under the Securities Act, the
registrant will treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
The registrant will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it meets all of the requirements for filing on Form S-3 and has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Brook, State of
Illinois on June 17, 1999.
MEDCARE TECHNOLOGIES, INC.
By: Jeffrey S. Aronin
---------------------
Jeffrey S. Aronin
CEO, President and Director (principal executive
officer)
By: Alan Jagiello
------------------
Alan Jagiello
CFO, Treasurer, Secretary and Director (principal
financial and accounting officer)
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey S. Aronin and Alan Jagiello and each of
them, his true and lawful attorneys-in-fact and agents, 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 SEC,
granting unto said attorneys-in-fact and agents, and each of them 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 and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on June 17, 1999, by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<S> <C>
/s/ Jeffrey S. Aronin President, Chief Executive Officer and Director
- ------------------------------- (principal executive officer)
Jeffrey S. Aronin
/s/ Alan P. Jagiello Chief Financial Officer, Secretary, Treasurer and
- ------------------------------- Director (principal financial and accounting officer)
Alan P. Jagiello
/s/ Gregory Wujek Vice President of Managed Care and Director
- -------------------------------
Gregory Wujek
- ------------------------------- Director
Dr. Michael M. Blue
- ------------------------------- Director
Harmel S. Rayat
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
3. Articles of Incorporation and Bylaws
3a. Articles of Incorporation and Amendments*
3b. Bylaws*
4. Series B Preferred Stock Agreements
4a. Certificate of Designation*
4b. Securities Purchase Agreement*
4c. Registration Rights Agreement*
4d. Form of Warrant*
4e. Escrow Agreement*
5. Opinion re Legality
5a. Opinion of Counsel regarding Registration
10. Material Contracts
10a. Certificate of Designation*
10b. Subscription Agreement*
10c. Nine-Month Warrant*
10d. Twelve-Month Warrant*
10e. Fifteen-Month Warrant*
10f. Preferred Warrants*
10g. Registration Rights*
10h. Instructions to Transfer Agent*
10i. Agreement and Amendment*
10j. Agreement and Amendment for Queensway Financial Holdings
Limited*
10k. Three-Month Warrant*
10l. Swartz Warrant*
10m. Program Management Agreement with Amendment*
10n. Employment and Stock Agreement, dated as of December 9, 1998
between Medcare Technologies, Inc. and Jeffrey S. Aronin*
10o. Sublease dated as of December 31, 1997 between Medcare
Technologies, Inc. and Delta Dental Association*
10p. Stock Option Plan 1995*
10q. Stock Option Plan 1996*
10r. Stock Option Plan 1997--$4.50 options*
10s. Stock Option Plan 1997--$6.50 options*
10t. Stock Option Plan 1998*
10u. Stock Option Plan 1999*
16. Letter from the Former Accountant*
23. Consent of Experts and Counsel
23a. Consent of Independent Auditor
23b. Consent of Counsel (included in Exhibit 5a)
27. Financial Data Schedule*
* indicates previously submitted exhibit
<PAGE>
Exhibit 5a.
June 17, 1999
Medcare Technologies, Inc.
1515 West 22nd Street, Suite 1210
Oak Brook, IL 60523
Ladies and Gentlemen:
We have acted as special counsel to Medcare Technologies, Inc., a
Delaware corporation (the "Company"), in connection with the offering (the
"Offering") by certain stockholders of the Company of the Company's common
stock, par value $0.001 per share (the "Common Stock") as described in the
Company's Registration Statement on Form S-3 (the "Registration Statement"). At
your request, this letter is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Incorporation of the Company, as amended, and
the Company's by-laws;
(b) The Registration Statement, including the prospectus constituting
a part thereof;
(c) Minutes and records of the corporate proceedings of the Company
relating to the Offering; and
(d) A form of stock certificate representing the Common Stock.
We have made such legal investigation as we deemed necessary for
purposes of this opinion. In that investigation, we have assumed the genuineness
of all signatures, the proper execution of all documents submitted to us as
originals, the conformity to the original documents of all documents submitted
to us as copies, and the authenticity and proper execution of the originals of
such copies. We have not made any independent factual investigation, have relied
without such investigation on all the listed documents, and disclaim any duty to
make such an independent factual investigation.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of Illinois, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America.
Based upon and subject to the foregoing qualifications, assumptions
and limitations and the further limitations set forth below, we are of the
opinion that when (i) the Registration Statement becomes effective and (ii) the
shares of Common Stock to be sold thereunder have been issued upon the terms and
conditions set forth in the Registration Statement (including, in the case of
shares issued pursuant to the exercise of warrants or options, the receipt by
the Company of payment therefor in accordance with the terms thereof), then such
shares of Common Stock will be legally issued, fully paid and non-assessable.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Experts and Legal Matters" in
the Prospectus. In giving the foregoing consents, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the
<PAGE>
rules and regulations of the Securities and Exchange Commission thereunder. This
opinion is based upon our knowledge of the law and facts as of the date hereof,
and we assume no duty to communicate with you with respect to any matter that
comes to our attention hereafter.
Very truly yours,
/s/ Barack Ferrazzano Kirschbaum Perlman & Nagelberg
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
<PAGE>
EXHIBIT 23a
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
As independent auditors, we hereby consent to the inclusion in this
Form S-3 our reports, relating to the consolidated financial statements of
Medcare Technologies, Inc. for the years ended December 31, 1998 and 1997 and
any amendments thereto. 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
June 15, 1999
