As filed with the Securities and Exchange Commission on December 29, 1998
Registration No. 333-52761
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
Amendment No. 1
to
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
GLOBAL MED TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Colorado 8741; 8071; 7372 84-1116894
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification Number)
organization)
Global Med Technologies, Inc.
12600 West Colfax
Suite A-500
Lakewood, Colorado 80215
(303) 238-2000
(Address and telephone number of principal executive offices
and principal place of business)
------------------
Michael I. Ruxin, M.D.
Global Med Technologies, Inc.
12600 West Colfax
Suite A-500
Lakewood, Colorado 80215
(303) 238-2000
(Name, address and telephone number of agent for service)
Copies of all communications to:
Albert Brenman, Esq.
Brenman Bromberg & Tenenbaum, P.C.
Mellon Financial Center
1775 Sherman Street, Suite 1001
Denver, Colorado 80203
(303) 894-0234
(303) 839-1633 FAX
Approximate date of proposed sale to public: As soon as practicable after
the effective date of the Registration Statement.
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.|_|
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 Commission, acting pursuant to said section 8(a),
may determine.
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CALCULATION OF REGISTRATION FEE
=================================================================================================================
Title of each Proposed
class of Amount Proposed maximum Amount of
securities to to be maximum aggregate registration
be registered registered offering price (1) offering price (1) fee (2)
- --------------------------------------- --------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Common Stock Purchase Warrants 12,000,000 $ .91 (3) $10,920,000 (3) $ 3,221 (4)
======================================= =============== =================== ================== ===============
Common Stock Underlying Common Stock
Purchase Warrants 12,000,000 $ .25 (4) $ 3,000,000 (4) $ 885 (4)
======================================= =============== =================== ================== ===============
Common Stock 563,624 $ .91 (3) $ 512,898 (3) $ 151
======================================= =============== =================== ================== ===============
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) In connection with the filing of the original Registration Statement, a
filing fee of $6,102 was paid. The filing fee is recalculated in accordance
with Rule 457(a).
(3) Based upon the average of the closing bid and asked prices on December 24,
1998, i.e., within 5 business days prior to the filing of this Amendment
pursuant to Rule 457(c).
(4) Because both the Common Stock Purchase Warrants and the Common Stock
underlying the Common Stock Purchase Warrants are being registered by this
Registration Statement, pursuant to Rule 457(i), the fee is calculated
based upon the offering price of the Warrants alone, plus the maximum
amount received upon exercise of the Warrants, i.e., $.25 per share for a
total of $3,000,0000.
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<TABLE>
<CAPTION>
Cross Reference Sheet
Form SB-2
Item No. Sections in Prospectus
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<S> <C> <C>
1 Front of Registration Statement and Outside
Front Cover of Prospectus................................. Cover Page
2 Inside Front and Outside Back Cover Pages of
Prospectus................................................ Inside Front Cover Pages (i)(ii);
Table of Contents
3 Summary Information and Risk Factors...................... Prospectus Summary; Risk Factors
4 Use of Proceeds........................................... Prospectus Summary; Use of Proceeds
5 Determination of Offering Price........................... Cover Page; Plan of Distribution
6 Selling Security Holders.................................. Selling Security Holders
7 Plan of Distribution...................................... Prospectus Summary; Plan of Distribution
8 Legal Proceedings......................................... Legal Proceedings
9 Directors, Executive Officers, Promoters and
Control Persons........................................... Management - Directors and Executive
Officers
10 Security Ownership of Certain Beneficial
Owners and Management..................................... Security Ownership of Certain Beneficial
Owners and Management
11 Description of Securities................................. Description of Securities
12 Interest of Named Experts and Counsel..................... Experts
13 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................................... Statement as to Indemnification
14 Organization within Last Five Years....................... The Company; Interests of Management and
Others in Certain Transactions
15 Description of Business................................... Prospectus Summary; Risk Factors; The
Company
16 Management's Discussion and Analysis or
Plan of Operation......................................... Management's Discussion and Analysis or
Plan of Operation
17 Description of Property................................... The Company
<PAGE>
18 Certain Relationships and Related
Transactions.............................................. Interests of Management and Others in
Certain Transactions
19 Market for Common Equity and Related
Stockholder Matters....................................... Risk Factors; Market for Common Equity,
Dividend Policy and Related Shareholder
Matters
20 Executive Compensation.................................... Management - Executive Compensation
21 Financial Statements...................................... Index to Financial Statements
22 Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure................................................ Experts
23 Indemnification of Directors and Officers................. Indemnification of Directors and Officers
24 Other Expenses of Issuance and Distribution............... Other Expenses of Issuance and Distribution
25 Recent Sales of Unregistered Securities................... Recent Sales of Unregistered Securities
26 Exhibits.................................................. Exhibits
27 Undertakings.............................................. Undertakings
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<PAGE>
PROSPECTUS Subject to Completion
GLOBAL MED TECHNOLOGIES, INC.
12,000,000 Warrants
12,563,624 Shares
This Prospectus of Global Med Technologies, Inc. (the "Company") relates to
the resale by the holders (the "Selling Security Holders") named herein, for
their own accounts, of 12,000,000 warrants (the "Warrants") exercisable at $.25
per share, 12,000,000 shares of Common Stock which underlie the Warrants and
563,624 shares of previously unregistered Common Stock (collectively, the
"Shares"). The Company's Common Stock and Class A Common Stock Purchase Warrants
(the "Class A Warrants") are currently traded on the Bulletin Board under the
trading symbols GLOB and GLOBW, respectively. The Warrants will be traded under
the trading symbol GLOBZ. See Market for Common Equity, Dividend Policy and
Related Stockholder Matters and Description of Securities.
The Warrants and Shares being offered hereby are not being underwritten in
this offering, and the Company will not receive any proceeds from their sale.
The Company may receive up to approximately $3,000,000 if the Selling Security
Holders exercise their Warrants at $.25 per share. However, there is no
assurance that the Selling Security Holders will exercise their Warrants. See
Selling Security Holders.
These securities are speculative and involve a high degree of risk to
investors. Prospective purchasers should consider carefully the discussion under
Risk Factors commencing on Page 4 of this Prospectus.
Brokers and dealers who propose to effect transactions in the Warrants
and/or Shares should assure themselves of the existence of appropriate
exemptions from the securities registration requirements of the securities laws
of the applicable jurisdictions or effectuate such registrations in connection
with any offers or sales of the Warrants or Shares.
--------------------
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this Prospectus. Any representation to the
contrary is a criminal offense.
--------------------
The date of this Prospectus is December 29, 1998.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
Summary................................1 Security Ownership of Certain
Risk Factors...........................4 Beneficial Owners and Management....61
Use of Proceeds.......................16 Certain Relationships and Related
Market For Common Equity, Transactions........................65
Dividend Policy and Related Description of Securities.............67
Shareholder Matters.................16 Selling Security Holders..............70
Selected Financial Data ..............17 Plan of Distribution..................71
Management's Discussion and Legal Matters.........................72
Analysis or Plan of Operations..... 20 Experts...............................72
The Company...........................30 Shares Eligible for Future Sale.......72
Legal Proceedings.....................45 Additional Information................73
Management............................45 Glossary..............................74
Executive Compensation................51 Financial Statements.................F-1
ii
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<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or solicitation of
an offer to buy any of the securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date of this Prospectus.
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus.
The Company
Global Med Technologies, Inc. (the "Company") was organized under the laws
of the State of Colorado in December 1989. The Company completed its initial
public offering of securities in the first quarter of 1997, from which it
received net proceeds of approximately $8.2 million from the sale of 1,456,988
Units, each of which consisted of two shares of Common Stock and one Class A
Common Stock Purchase Warrant (the "Class A Warrants").
On April 14, 1998, the Company entered into two debt financing agreements
(the "April 1998 Financing Agreements") which, as amended on April 16, 1998 and
April 20, 1998, provided the Company up to $3 million in borrowings in exchange
for up to 12 million warrants (the "Warrants") convertible into Common Stock at
$0.25 per share. Should the Company not repay the financing proceeds and accrued
interest thereon on or before April 15, 1999, the financing proceeds, including
interest thereon, are convertible into approximately 70 million shares of Common
Stock at $0.05 per share. See The Company - Financing Agreements and Security
Ownership of Certain Beneficial Owners and Management, below, for a further
discussion of these agreements. The shares of Common Stock included in this
registration statement are the 12,000,000 shares of Common Stock underlying the
Warrants and 563,624 shares of Common Stock owned by Robert M. Kassenbrock and
John D. Prudden which were issued in connection with the exercise of warrants in
December 1998. (The 12,000,000 shares of Common Stock which underlie the
Warrants and the 563,624 shares of Common Stock owned by Messrs. Kassenbrock and
Prudden are referred to, collectively, as the "Shares.") See Selling Security
Holders, below.
Formerly known as National MRO, Inc., which was founded in 1989, the
Company changed its name to Global Data Technologies, Inc., in 1995 in
connection with the merger of National MRO, Inc., and The Wyndgate Group, Ltd.,
in May 1995. The Company changed its name again in May 1996 to Global Med
Technologies, Inc.
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<PAGE>
The Company, through its one operating division Wyndgate Technologies
("Wyndgate"), designs, develops, markets and supports information management
software products for blood banks, hospitals, centralized transfusion centers
and other healthcare related facilities. Pursuant to an agreement with eight
California blood centers, Wyndgate developed a blood tracking system
("SAFETRACE(R)") to assist community blood centers, plasma centers, hospitals
and outpatient clinics in the U.S. in complying with the quality and safety
standards of the United States Food and Drug Administration ("FDA") for the
collection and management of blood and blood products. Wyndgate, through its
SAFETRACE(R) software, incorporates and integrates products and services for the
management of the blood supply and blood products from donor recruitment to
shipment from blood centers to hospitals, clinics, medical research institutions
and other healthcare related facilities.
The Offering
Common Stock Purchase
Warrants Offered for Selling
Security Holders.................... 12,000,000 Warrants exercisable at $.25
per share.
Common Stock underlying
Warrants Offered for
Selling Security Holders............ 12,000,000 shares of Common Stock.
Previously Unregistered
Common Stock Offered for
Selling Security Holders............ 563,624 shares of Common Stock.
Use of Proceeds..................... The Company will not receive any
proceeds from the sale of the Warrants
and/or Shares. However, the Company may
receive up to $3,000,000 from the
exercise of Warrants to purchase the
Shares. See Use of Proceeds and The
Company.
Risk Factors........................ An investment in the securities offered
by this Prospectus involves a high
degree of risk and should be considered
only by persons who can afford the loss
of their entire investment. Prospective
purchasers should review carefully the
entire Prospectus and should consider,
among other things the matters set forth
under Risk Factors.
Trading Symbols..................... Common Stock: GLOB
Class A Common Stock Purchase Warrants:
GLOBW Common Stock Purchase Warrants for
Selling Warrant Holders: GLOBZ
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<PAGE>
Summary Financial Information
The following selected financial data should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Prospectus. The consolidated statement of operations data for the years
ended December 31, 1997 and 1996, and the consolidated balance sheet data at
December 31, 1997 and 1996 are derived from and should be read in conjunction
with the consolidated financial statements of the Company and notes thereto
audited by Ernst & Young LLP, independent auditors.
The selected financial data as of, and for the nine months ended September
30, 1998 and 1997, are derived from the unaudited financial statements of the
Company, which, in the opinion of the Company reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
for the results for the nine months ended September 30, 1998 and 1997, which are
not necessarily indicative of the results for a full year.
Nine Months Ended
Summary Consolidated September 30,
Statement of Operations Data: Years Ended December 31, (Unaudited)
(In Thousands, except per ------------------------ -----------
common share amounts)
1997 1996 1998 1997
---- ---- ---- ----
Revenues $ 2,506 $ 4,576 $ 3,542 $ 2,195
Cost of revenues 1,597 1,883 1,832 1,257
------- ------- ------- -------
Gross profit 909 2,693 1,710 938
Selling, general and
administrative and other 8,325 5,504 6,697 5,509
------- ------- ------- -------
Loss from continuing operations
before other income (expense) (7,417) (2,377) (2,284) (4,570)
Loss from continuing operations (7,416) (2,811) (4,987) (4,571)
Loss from discontinued
operations(2) (880) (1,681) -- (880)
Gain on sale of discontinued
operations(2) 1,013 -- -- --
------- ------- ------- -------
Net loss $(7,283) $(4,492) $(4,987) $(5,451)
======= ======= ======= =======
Net loss from continuing
operations per common share(1) $ (0.96) $ (0.63) $ (0.61) $ (0.61)
======= ======= ======= =======
Weighted average of common
shares outstanding(1) 7,728 4,499 8,172 7,484
======= ======= ======= =======
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Summary Consolidated Balance September
Sheet Data: ---------
(In Thousands) December 31 30,
----------- ---
(Unaudited)
1997 1996 1998
---- ---- ----
Cash and cash equivalents $ 2,370 $ 489 $ 517
Working capital deficit $(2,582) $(3,995) $(4,657)
Total assets $ 4,266 $ 3,239 $ 6,636
Net liabilities of discontinued $ 631 $ 1,132 --
operations(2)
Long-term liabilities $ 198 $ 232 $ 115
Stockholders' equity (deficit) $(1,473) $(3,360) $ 1,081
- ----------
(1) See Note 1 to the consolidated financial statements for a description of
the computation of net loss from continuing operations per common share.
(2) See Note 2 to the consolidated financial statements for a description of
the December 15, 1997 sale of the Company's DataMed International division
("DataMed"). The consolidated financial statements and notes thereto also
reflect DataMed as discontinued operations.
RISK FACTORS
The Warrants and Shares offered hereby are speculative in nature and
involve a high degree of risk. The Warrants and Shares should be purchased only
by persons who can afford to lose their entire investment. Therefore, prior to
making any purchase, each prospective investor should consider very carefully
the following risk factors, as well as all of the other information set forth
elsewhere in this Prospectus, including the information contained in the
financial statements.
Significant Operating Losses; Net Working Capital Deficit; Cumulative Net Losses
For the fiscal years ended December 31, 1997 and 1996 and the nine months
ended September 30, 1998, the Company incurred a net loss of approximately $7.3
million, $4.5 million and $5.0 million, respectively. For the fiscal years ended
December 31, 1997 and 1996 and the nine months ended September 30, 1998, the
Company incurred a net loss from continuing operations of approximately $7.4
million, $2.8 million and $5.0 million, respectively. The net loss from
continuing operations in 1996 of approximately $2.8 million was primarily due to
increases in overall staffing and related expenses necessary to operate
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<PAGE>
Wyndgate's research and development programs and the anticipated future growth
of the Company. The increased net loss from continuing operations in 1997 and
the nine months ended September 30, 1998 was primarily due to a substantial
decrease in SAFETRACE(R) license sales, relative increases in revenues derived
from lower margin SAFETRACE(R) related implementation and customer support
services, increases in sales and marketing expenses for Wyndgate's current and
future software products and services, and a substantial increase in research
and development expenses incurred for the software development of SAFETRACE
Tx(TM), which entered beta testing on April 6, 1998. At December 31, 1997 and
September 30, 1998, the Company had a net working capital deficit of
approximately $2.6 million and $4.7 million, respectively, and cumulative net
losses of approximately $15 million and $20 million, respectively. The Company
may not be able to generate sufficient revenues to operate profitably in the
future or to pay its debts and liabilities as they become due. See Management's
Discussion and Analysis or Plan of Operations.
Anticipated Negative Cash Flow
Management anticipates that the Company will continue to generate negative
cash flows from operations and from investing activities through 1999 and
possibly thereafter. Accordingly, the Company may be required to substantially
reduce its software development programs and/or substantially reduce its other
operating expenses to enable it to continue its planned operations with
available cash resources. The Company may not achieve profitability or positive
cash flow. If the Company is unable to substantially reduce its negative cash
flows from continuing operations during 1998 and generate positive cash flows
beginning in 1999 and beyond, management will be required to substantially
reduce the Company's software development programs and other operating expenses.
Revenue Fluctuations
The Company has experienced revenue fluctuations when SAFETRACE(R) has been
delivered. SAFETRACE(R) license fees have historically been recognized as
revenue upon delivery of the software if no significant vendor obligations exist
as of the delivery date. Therefore revenue fluctuations are affected by delays
of the delivery service and customer delayed delivery requests. Revenue
fluctuations could also be affected by the decision on whether or not to
recognize revenues based upon the length of time the licensees take to implement
SAFETRACE(R). The implementation cycle of Wyndgate's SAFETRACE(R) software
product is currently taking approximately 12 months. Implementation cycles are
dependent on various items, including the blood center's size and the complexity
of the blood center's standard operating procedures. Further, special
development projects required by customers, concurrent with the licensing of the
Company's software products, and other significant obligations, could result in
revenue recognition delays. As a result, the Company's operating results could
fluctuate significantly.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2 ("SOP 97-2"), which changed the
requirements for revenue recognition effective for transactions that the Company
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<PAGE>
entered into beginning January 1, 1998. Prior years were not required to be
restated. Management addressed the revenue recognition requirements of SOP 97-2
by making substantial revisions to Wyndgate's standard terms and conditions
included as part of Wyndgate's SAFETRACE(R) software license agreements.
Management has also indicated its willingness to assist other businesses in the
provision of SAFETRACE(R) implementation and other support services. There can
be no assurance that substantial revisions to Wyndgate's existing standard terms
and conditions included as part of Wyndgate's SAFETRACE(R) software license
agreements will be accepted by potential SAFETRACE(R) licensees or that changes
to Wyndgate's provision of implementation and customer support services will be
accepted by potential SAFETRACE(R) licensees. Failure to effectively address the
revenue recognition requirements of SOP 97-2 and future revenue recognition
guidance regarding the software industry will have a material adverse affect on
the timing of revenue recognition, gross margins and operating results. As a
result, future capital raising efforts may also be adversely affected.
Lack of Significant Operating History and Difficulties in Anticipating Revenues,
Expenses and Net Cash Flows
The Company has been in existence since 1989. As such, the Company is
subject to many of the risks common to enterprises with a limited operating
history, including potential under-capitalization, limitations with respect to
personnel, financial and other resources and limited customers and revenues.
Currently, nineteen of the twenty-five SAFETRACE(R) licensees have SAFETRACE(R)
in operation. There is no assurance that the additional six SAFETRACE(R)
licensees will ever become operational using SAFETRACE(R), that the Company will
be able to license SAFETRACE(R) to additional customers, that the Company will
be able to develop and license new products or that the Company will be
successful. Additionally, the development and marketing of new software products
may cause difficulties in accurately anticipating implementation and development
schedules, future revenues, expenses, financial condition and net cash flows.
The likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the development and marketing of new software
products and related services.
Possible Complete Change in Management and Control
In April 1998, the Company entered into financing agreements (the "April
1998 Financing Agreements") with two related companies, Heng Fung Finance
Company Limited ("Heng Fung") and Fronteer Capital, Inc. ("Fronteer Capital"),
which were not previously related to the Company. Pursuant to the April 1998
Financing Agreements, among other things, certain members of the Company's Board
of Directors and management were required to execute resignation letters, which
were delivered to Heng Fung, who is holding such letters in escrow pending any
default under the terms of the April 1998 Financing Agreements. Included in the
Officers, Directors and employees who have submitted resignations to Heng Fung
are Michael I. Ruxin, William J. Collard, Gerald F. Willman, Gordon E. Segal,
Thomas F. Marcinek, Hollis Gailey, the wife of William J. Collard who has since
resigned her position with the Company, Lori Willman, the wife of Gerald F.
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<PAGE>
Willman, Timothy Pellegrini and Bradley V. Maberto. Pursuant to the April 1998
Financing Agreements, Heng Fung appointed the following five directors to the
Company's Board of Directors: Fai H. Chan, Jeffrey M. Busch, Robert L. Trapp,
Kwok Jen Fong and Gary L. Cook. Heng Fung has also the right to veto any future
contracts not in the ordinary course of business, and any contract for
employment, loans, leases or with a value in excess of $250,000. Since
completion of the April 1998 Financing Agreements and the appointment of the
additional directors by Heng Fung, new employment contracts approved by the
Board have been entered into with Dr. Ruxin and Messrs. Marcinek, Alan K. Geddes
and Miklos Csore. See The Company - Financing Agreements, Management and
Security Ownership of Certain Beneficial Owners and Management.
Possible Substantial Dilution to Current Shareholders
As consideration for a $1.5 million loan and $1.65 million line of credit
extended to the Company pursuant to the April 1998 Financing Agreements, the
Company has issued the lenders warrants to purchase 12,000,000 shares of Common
Stock, exercisable over a ten year period at $.25 per share. If the lenders
exercise their warrants, the Company could issue an additional 12,000,000 shares
of Common Stock. In addition, in the event the Company were to default under the
terms of the loan or the line of credit, the outstanding principal and any
unpaid interest may be converted, at the option of the lenders, into
approximately 70 million shares of the Company's Common Stock on the basis of
one share of Common Stock for each $.05 of debt. If the lenders exercise their
warrants, or convert any of the outstanding debt into Common Stock upon default,
the ownership of the present shareholders of the Company would be significantly
diluted.
Increased Net Loss Related to Issuance of Discounted Warrants
In connection with the April 1998 Financing Agreements, the Company issued
the lenders warrants to purchase 12,000,000 shares of the Company's Common Stock
exercisable at $.25 per share, which was substantially below the market price
for the Company's Common Stock when issued. The issuance of these discounted
warrants has resulted and will continue to result in a significant noncash
charge to the Company's 1998 and 1999 statement of operations, which, based on a
preliminary managerial assessment using the Black-Scholes pricing model, could
range as high as $12.72 million. See Management's Discussion and Analysis or
Plan of Operation, below.
Government Regulation
The Company's products and services are subject to regulations adopted by
governmental authorities, including the FDA, which governs blood center computer
software products regulated as medical devices. Compliance with government
regulations can be burdensome and may result in delays and substantial costs
incurred by the Company. In addition, modifications to such regulations could
materially and adversely affect the timing and cost of new products and services
introduced by the Company. Failure to comply with applicable regulatory
requirements can result in, among other things, operating restrictions and
fines. For instance, since the Company's SAFETRACE Tx(TM) transfusion management
software system requires FDA clearance prior to the marketing of such product,
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<PAGE>
the time delay to market SAFETRACE Tx(TM) could materially and adversely affect
the Company's business, financial condition and results of operations. The
Company cannot predict the effect of possible future legislation and regulation.
The Company also will be required to follow applicable Good Manufacturing
Practices ("GMP") regulations of the FDA, which include testing, control and
documentation requirements, as well as similar requirements in other countries,
including International Standards Organization ("ISO") 9001 standards. Failure
to meet these requirements would preclude the Company from marketing its
products on a commercial basis, and therefore would materially and adversely
affect the Company's business, financial condition and results of operations.
Fluctuations in Operating Results
Results of operations are expected to fluctuate substantially depending
upon numerous factors, including: demand for the Company's products; the timing
of new software license agreements with Wyndgate customers; the ability of the
Company to develop, introduce and market new and enhanced versions of the
Company's products on a timely basis; personnel changes; changes in Company
strategy; and, the level of international sales. Operating results could also be
affected by the timing of the receipt of individual customer orders and other
revenue fluctuation factors discussed above.
Limited Sales, Marketing and Distribution Systems
The Company's Wyndgate division has made limited sales of SAFETRACE(R) to
date. The Company currently markets SAFETRACE(R) through a small direct sales
force, both in the U.S. and internationally. Establishment of a complete sales
force capable of effectively commercializing SAFETRACE(R) and SAFETRACE Tx(TM),
which was submitted to the FDA for pre-market notification on July 22, 1998 and
is not available for sale in the United States, will require substantial efforts
and management and financial resources. The Company is evaluating various
strategic business alliances, which may assist in the development of a national
and international sales, marketing and distribution system. Any alliance which
is developed by the Company could require substantial capital and financial
resources. The Company may not be able to establish such a sales capability on a
timely basis, if at all. Moreover, there can be no assurance that any business
alliance entered into by the Company would be successful in such
commercialization efforts.
Potential Difficulties in Managing Business Undergoing Rapid Growth
The Company's future success will depend to a significant extent on the
ability of its current and future management personnel to operate effectively,
both independently and as a group. Some of the Company's management team have no
prior experience as senior executives of a public corporation. There can be no
assurance that the management team will operate together effectively. In order
to compete successfully against current and future competitors, to timely
complete research and development projects and to develop future products, the
Company believes that it must continue to expand its operations, particularly in
the areas of research and development, sales and marketing and training. If the
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<PAGE>
Company were to experience significant growth in the future, such growth would
likely place significant strain upon the Company's management, operating and
financial systems and other resources. To accommodate such growth and compete
effectively, the Company must continue to implement and improve its information
systems, procedures and controls, and to expand, train, motivate and manage its
work force. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's future
operations. Any failure to implement and improve the Company's operational,
financial and management systems or to expand, train, motivate or manage its
work force could materially and adversely affect the Company's business,
financial condition and results of operations.
Rapidly Changing Technology
The market for applications software is characterized by rapidly changing
technology and by changes from mainframe to client/server computer technology,
including frequent new product introductions and technological enhancements in
the applications software business. During the last five years, the use of
computer technology in the information management industry has expanded
significantly to create intense competition. With rapidly expanding technology
there can be no assurance that the Company, with its limited resources, will be
able to acquire or maintain any technological advantage. The Company's success
will be in large part dependent on its ability to use developing technology to
its maximum advantage and to remain competitive in price and product
performance. If the Company is unable to acquire or maintain a technological
advantage, or if the Company fails to stay current and evolve in the
applications software and information management fields, it may not be
successful.
Royalty Agreements
Pursuant to certain royalty agreements, the Company is required to pay
certain of its sales proceeds directly to outside parties. Such payments may
adversely and materially affect the Company's available cash to fund future
operations and the Company's future profitability.
Possible Loss of Software Licenses Due to Failure to Meet Maintenance Service
Requirements
The Wyndgate software license agreements have license terms that vary, but
are typically multi-year licenses which are automatically renewable. The
software licenses may be terminated by customers if Wyndgate fails to deliver
various maintenance services consisting of product bug fixes, continued
regulatory compliance and product updates. Generally, Wyndgate may terminate its
software license agreements if customers fail to meet contractual obligations,
primarily the payment of usage fees. However, there can be no assurance that the
Company will be able to meet all of the maintenance services and contractual
commitments required to keep the license agreements in force or that customers
will continue to make usage fee payments.
-9-
<PAGE>
Possible Shrinkage of Market Due to Multiple Site Contracts and Due to Further
Consolidation Within the Blood Bank Industry
Presently, the Company has one agreement with Haemonetics Corporation,
Braintree, Massachusetts, which covers multiple blood banks. Since the Company
entered into the contract with Haemonetics, Haemonetics has announced that they
are exiting the blood bank business. Management believes that this will not
impact the Company's ability to contract directly with individual cites.
The potential number of available SAFETRACE(R) licensees could be reduced
if the Company were to enter into additional multiple site contracts. While the
Company believes the license fee charged for such multi-site arrangements is
comparable to the license fee which would be earned on an equivalent number of
single site licenses, there can be no assurance that the Company's revenues will
be equivalent to what it would have earned under single site licenses.
To date, approximately five of Wyndgate's SAFETRACE(R) licensees have or
are expected to merge to form two SAFETRACE(R) licensees. There can be no
assurance that further consolidation throughout the domestic blood bank industry
will not have a material adverse affect on the Company's ability to successfully
and timely market its software products. Further, there can be no assurance that
the existing and future consolidation throughout the blood bank industry, will
not cause substantial implementation cycle delays and delays in obtaining new
customer orders for Wyndgate's software products. Such delays due to
consolidation within the blood bank industry may cause additional and
unanticipated use of the Company's financial resources and may also have a
material and adverse affect on the Company's business, financial condition and
results of operations.
Penalties and Potential Limitations of Market Share Due to ITxM Development
Agreement
The Company has a software development agreement with ITxM which contains
certain potential limitations on the Company's right to market its products,
including, SAFETRACE Tx(TM), within the blood transfusion industry and grants
ITxM the ability to use SAFETRACE Tx(TM) pursuant to a non-exclusive, perpetual
license. The Company and ITxM have commenced negotiations relating to these
provisions, which the Company believes will have a material and adverse affect
on its business if not satisfactorily resolved. There can be no assurance that
the negotiations will result in the resolution of the Company's and ITxM's
respective rights to market and use SAFETRACE Tx(TM).
Product and Reporting Liability
As of the date hereof, nineteen of the twenty-five SAFETRACE(R) licensees
have SAFETRACE(R) in operation. Currently, the Company has product liability
exposure for defects in SAFETRACE(R) which may become apparent through
widespread use of SAFETRACE(R). To date, no claims have beeN filed against the
Company involving SAFETRACE(R) and the Company is not aware of any material
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<PAGE>
problems involving SAFETRACE(R). While the Company will continue to attempt to
take appropriate precautions, there can be no assurance that it will completely
avoid product liability exposure. The Company maintains product liability
insurance on a claims made basis for SAFETRACE(R) in the aggregate of at least
$4 million. There can be no assurance that such coverage will be available in
the future, that it will be available at reasonable prices, or that it will be
available in amounts adequate to cover any product liabilities that may be
incurred by the Company.
Dependence on Major Customers
During the year ended December 31, 1997, two Wyndgate customers, Belle
Bonfils Memorial Blood Center, Denver, Colorado and Haemonetics Corporation,
Braintree, Massachusetts each accounted for approximately 10% and 33% of the
Company's total revenues from continuing operations. During the year ended
December 31, 1996, one Wyndgate customer, Gulf Coast Regional Blood Center,
Houston, Texas, accounted for approximately 29% of the Company's total revenues
from continuing operations. Accounts receivable from the above customers as of
December 31, 1997, December 31, 1996 and September 30, 1998 was approximately
$60,000, $205,000 and $12,417, respectively. Unbilled revenues from the above
customers was approximately $160,000 as of December 31, 1997 and $0 as of
September 30, 1998. In order to attempt to reduce its credit risks, the Company
generally requires substantial down payments and progress payments during
SAFETRACE(R) implementations. Non-renewal or termination of the contractual
arrangements with these key and other Wyndgate customers could have a material
adverse effect on the Company. There can be no assurance that the Company will
be able to retain these or other customers or, if Wyndgate's 25 existing
customers are not retained, that the Company will be able to attract and retain
new customers to replace the revenues currently generated by these customers.
Haemonetics has recently announced that they are exiting the blood bank
business. Management believes that this will not impact the Company's ability to
contract directly with individual sites.
With the sale of DataMed, the Company has lost all of the revenues,
accounts receivable and unbilled revenue from that division's customers, and its
consolidated financial statements for the fiscal years ended December 31, 1997,
December 31, 1996 and nine months ended September 30, 1998 and related footnotes
reflect DataMed as discontinued operations.
Substantial Competition
There is substantial competition in all aspects of the blood bank and
hospital information management industry. Numerous companies are developing
technologies and marketing products and services in the healthcare information
management area. Many competitors in the blood bank industry have received FDA
clearance for their product. Many of these competitors have been in business
longer than the Company and have substantially greater personnel and financial
resources. There can be no assurance that the Company will be able to compete
with these competitors successfully.
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<PAGE>
Dependence on Development of New Businesses
Through the merger with The Wyndgate Group, Ltd., the Company became
engaged in the information management section of the blood bank industry. To
effect its plan of operations, which includes the generation of increased
revenues, the Company must expand its operations significantly beyond the
historical operations of Wyndgate to other markets which require similar
management information services. There is no assurance that the Company will be
able to expand its business operations. The current activities of Wyndgate in
the blood bank industry does not assure future business expansion, profitability
or long-term and sustainable success.
Proprietary Rights and Licenses
The Company's success depends in part on its ability to obtain and enforce
intellectual property rights for its technology and software, both in the United
States and in other countries. The Company's proprietary software is protected
by the use of copyrights, trademarks, confidentiality agreements and license
agreements that restrict the unauthorized distribution of the Company's
proprietary data and limit the Company's software products to the customer's
internal use only. While the Company has attempted to limit unauthorized use of
its software products or the dissemination of its proprietary information, there
can be no assurance that the Company will be able to retain its proprietary
software rights and prohibit the unauthorized use of proprietary information.
The Company may file additional applications for patents, copyrights, and
trademarks as management deems appropriate. There can be no assurance that any
patents, copyrights, or trademarks the Company may obtain will be sufficiently
broad to protect the Company's products, or that applicable law will provide
effective legal or injunctive remedies to stop infringement on the Company's
patents (if obtained), trademarks, or copyrights. In addition, there can be no
assurance that any patent, trademark, or copyright obtained by the Company will
not be challenged, invalidated, or circumvented, that intellectual property
rights obtained by the Company will provide competitive advantages, or that the
Company's competitors will not independently develop technologies or products
that are substantially equivalent or superior to those of the Company. In
addition, if the Company's software products infringe upon the rights of others,
the Company may be subject to suit for damages or an injunction to cease the use
of such products. The Company is currently unaware of any claims or
infringements of the Company's software products upon the rights of others.
No Dividends
The Company does not anticipate paying any cash dividends for the
foreseeable future. The Company expects that future earnings, if any, will be
used to finance growth.
Authorized Stock Available for Issuance by the Company
The Company presently has 8,881,879 shares of Common Stock outstanding, out
of a total of 40,000,000 shares of Common Stock, and 10,000,000 shares of
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<PAGE>
Preferred Stock authorized for future issuance under the Company's Articles of
Incorporation. The amount of Common Stock outstanding, however, does not include
1,456,988 shares issuable upon exercise of publicly held Class A Common Stock
Purchase Warrants, 5,638,1185,114,494 shares issuable upon exercise of other
outstanding options and warrants, 2,399,802 shares issuable but not outstanding
in connection with the Company's stock option and stock compensation plans or
the Warrants to purchase 12,000,000 shares of Common Stock issued to the Selling
Security Holders. The remaining shares of Common Stock and Preferred Stock not
issued or reserved for specific purposes may be issued without any action or
approval of the Company's shareholders. As part of the Company's current capital
raising efforts, the Company will likely be required, if financing is obtained,
to issue or reserve additional shares of its Common Stock and/or Preferred
Stock. Although there are no existing agreements involving the issuance of such
shares, any such issuances could be used as a method of discouraging, delaying
or preventing a change in control of the Company or could dilute the public
ownership of the Company. There can be no assurance that the Company will not
undertake to issue such shares if it deems it appropriate to do so.
Limited Capitalization
The Company has only limited capitalization available to it. The Company
anticipates it may need additional capital to pursue its intended business plan;
however, the Company has received no commitment from any person for that
financing, and there can be no assurance that adequate financing will be
available on reasonable terms, if and when needed.
Control by Officers and Directors
The Company's officers and directors, own approximately 28% of the
outstanding Common Stock of the Company and will be able to substantially
influence all matters requiring approval by the shareholders of the Company,
including the election of directors. The Company's Articles do not provide for
cumulative voting in the election of directors; hence, other shareholders should
not expect to be able to elect any directors to the Company's Board of
Directors.
Possible Anti-takeover Effects of Preferred Stock, Severance Payments and
Below-Market Warrants
The Board of Directors of the Company may issue shares of Preferred Stock
without stockholder approval on such terms as the Board may determine. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. In addition, certain of the officers of the Company have
employment agreements with the Company which provide for lump-sum payments to
them of up to $2.5 million if the Company terminates their employment for any
reason other than cause or disability. Each of these officers have executed a
release of their employment contract in favor of the Company in connection with
the April 1998 Financing Agreements; however, until the releases are accepted by
the lenders, the employment contracts are still in effect. In addition, the
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<PAGE>
lenders have been issued warrants to purchase 12,000,000 shares of the Company's
Common Stock, exercisable at $.25 per share until April 14, 2008. The existence
of the severance payment provisions and the large number of outstanding
low-priced warrants increases the likelihood that a potential purchaser would
seek to negotiate directly with the holders of the warrants and/or the Board of
Directors in order to gain control of the Company or its assets rather than
approaching the Company's shareholders as a group. All of the foregoing could
have the effect of delaying, deferring or preventing a change in control of the
Company and could limit the price that certain investors might be willing to pay
in the future for shares of the Company's Common Stock.
Possible Volatility of Price of Shares of Common Stock and Class A Warrants
The Company's Common Stock and Class A Warrants are currently traded on the
OTC Electronic Bulletin Board. The prices of securities of publicly traded
corporations tend to fluctuate significantly. The trading price of the Common
Stock and Class A Warrants could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
developments, the Company's financial condition, as well as other events or
factors. Although a trading market for the Company's Common Stock and Class A
Warrants currently exists, there can be no assurance that a market will be
sustained. Currently, there is no market for the Warrants which are the subject
of this Registration Statement and there can be no assurance that a market for
the Warrants will ever develop.
Risks Related to Low-Priced Stocks
Since the Company's net tangible assets do not exceed $2 million, and its
Common Stock is trading for less than $5.00 per share, the Company's Common
Stock, Class A Warrants and the Warrants registered under this Registration
Statement are each considered to be a "penny stock" under federal securities
law. Additional regulatory requirements apply to trading by broker-dealers of
penny stocks which, oftentimes, deter broker-dealers from trading "penny
stocks."
Warrants to Representative
At the closing of the Company's February 1997 initial public offering, the
Company sold to American Fronteer Financial Corporation, formerly named RAF
Financial Corporation (the "Representative"), and its designees, for $100,
warrants (the "Representative's Warrants") to purchase up to 133,700 Units,
exercisable at $11.55 per Unit, each Unit consisting of two shares of Common
Stock and one Warrant to purchase one share of Common Stock at an exercise price
of $7.51. The Representative's Warrants are exercisable for a forty-nine month
period, which commenced January 14, 1998. The Representative will be given the
opportunity to profit from a rise in the market price of the Company's Common
Stock with a resulting dilution of the interest of stockholders. Furthermore,
the Company granted certain registration rights with regard to the shares of
Common Stock underlying the Representative's Warrants and issuable upon exercise
of the Warrants included in the Units, and such registration could result in
substantial expense to the Company. In addition, the Representative is a
majority-owned subsidiary of Heng Fung Finance Company Limited, one of the
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<PAGE>
lenders under the April 1998 Financing Agreements, which has been issued a
warrant to purchase 6,000,000 shares of the Company's Common Stock, exercisable
over a ten year period at $.25 per share. See The Company - Financing
Agreements; Plan of Distribution; Security Ownership of Certain Beneficial
Owners and Management.
Potential Litigation Due to the Sale of DataMed
DataMed's substance abuse testing service agreements have contract terms
that vary from one to five years and, unless canceled generally ninety days
prior to the end of the license term, most are automatically renewable.
Generally, such contracts are not assignable. The Asset Purchase Agreement for
the sale of DataMed provides that the Company will assign all of DataMed's
customer contracts to the purchaser, and if DataMed customers do not consent to
the assignment, the purchaser can require the Company to terminate any
non-consenting customers' contracts. The Company will not be in the substance
abuse testing business in the future. While the Company does not consider it
likely, it is possible, non-consenting customers could commence litigation
against the Company for failure to provide substance abuse testing pursuant to
such customers' contracts with DataMed.
Risks Associated with Forward-looking Statements
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended ("Securities
Act"), and Section 21E of the Securities Exchange Act of 1934, as amended
("Exchange Act"), and the Company intends that such forward-looking statements
be subject to the safe harbors for such statements under such sections. The
Company's forward-looking statements include the plans and objectives of
management for future operations, including plans and objectives relating to the
Company's future marketing efforts and future economic performance of the
Company. The forward-looking statements and associated risks set forth in this
Prospectus include or relate to: (i) the ability of the Company to obtain a
meaningful degree of consumer acceptance for its software products and proposed
software products; (ii) the ability of the Company to market its software
products and proposed software products on a national and international basis at
competitive prices; (iii) the ability of the Company's software products and
proposed software products to meet government regulations and standards; (iv)
the ability of the Company to develop and maintain an effective national and
international sales network; (v) success of the Company in forecasting demand
for its software products and proposed software products; (vi) the ability of
the Company to maintain pricing and thereby maintain adequate profit margins;
(vii) the ability of the Company to achieve adequate intellectual property
protection for the Company's software products and proposed software products;
and, (viii) the ability of the Company and its customers to successfully and
timely implement the Company's software products.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that the Company will market and provide
software products on a timely basis, that there will be no material adverse
competitive or technological change in condition of the Company's business, that
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<PAGE>
demand for the Company's software products will significantly increase, that the
Company's Chief Executive Officer will remain employed as such by the Company,
that the Company's forecasts accurately anticipate market demand and that there
will be no material adverse change in the Company's operations, business or
governmental regulation affecting the Company or its suppliers. The foregoing
assumptions are based on judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the Company's control. Accordingly, although the Company believes that
the assumptions underlying the forward-looking statements are reasonable, any
such assumption could prove to be inaccurate and therefore there can be no
assurance that the results contemplated in forward-looking statements will be
realized. In addition, as disclosed elsewhere in the "Risk Factors" section of
this Prospectus, there are a number of other risks inherent in the Company's
business and operations which could cause the Company's operating results to
vary markedly and adversely from prior results or the results contemplated by
the forward-looking statements. Growth in absolute and relative amounts of cost
of sales, research and development, sales and marketing and other operating
expenses or the occurrence of other events could cause actual results to vary
materially from the results contemplated by the forward-looking statements.
Management decisions, including budgeting, are subjective in many respects and
periodic revisions must be made to reflect actual conditions and business
developments, the impact of which may cause the Company to alter its marketing,
capital investment and other expenditures, may also materially and adversely
affect the Company's liquidity, financial position and results of operations. In
light of significant uncertainties inherent in the forward-looking information
included in this Prospectus, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
Company's objectives or plans will be achieved.
USE OF PROCEEDS
None of the proceeds from the sale of the Warrants or the Shares of Common
Stock by the Selling Security Holders will be received by the Company. See
Selling Security Holders and Plan of Distribution.
If the Selling Security Holders exercised their Warrants at $.25 per share,
of which there can be no assurance, the Company would receive approximately
$3,000,000 from such exercises. The Selling Security Holders are required to
exercise their Warrants prior to the sale of the shares of Common Stock offered
hereby.
MARKET FOR COMMON EQUITY, DIVIDEND POLICY AND
RELATED SHAREHOLDER MATTERS
Market Information. The following table sets forth the high and low bid
prices for the Company's Common Stock since the Common Stock commenced trading
on March 13, 1997. The quotations reflect inter-dealer prices, with retail
mark-up, mark-down or commissions, and may not represent actual transactions.
The information presented has been derived from the National Quotation Bureau,
Inc. Library.
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1997 Fiscal Year High Bid Low Bid
---------------- -------- -------
First Quarter (from March 13) . . . . . . $ 3.875 $ 3.00
Second Quarter . . . . . . . . . . . . . $ 3.00 $ 2.75
Third Quarter . . . . . . . . . . . . . . $ 2.9375 $ 1.8125
Fourth Quarter. . . . . . . . . . . . . . $ 3.0625 $ 2.125
1998 Fiscal Year
----------------
First Quarter. . . . . . . . . . . . . . . .$ 2.00 $ 0.78125
Second Quarter . . . . . . . . . . . . . . .$ 1.78125 $ 1.00
Third Quarter . . . . . . . . . . . . . . .$ 1.3125 $ .65625
Fourth Quarter (through November 30) . . . .$ 1.0625 $ .53125
On December 24, 1998, the last reported bid and asked prices for the Common
Stock were $.875 and $.9375, respectively, and the last reported bid and asked
prices for the Class A Common Stock Purchase Warrants were $.125 and $.21875,
respectively.
Dividend Policy. The payment of dividends by the Company is within the
discretion of its Board of Directors and depends in part upon the Company's
earnings, capital requirements and financial condition. Since its inception, the
Company has not paid any dividends on its Common Stock and does not anticipate
paying such dividends in the foreseeable future. The Company intends to retain
earnings, if any, to finance its operations.
Shareholder Information. As of November 30, 1998, the Company had
approximately 117 holders of record of the Company's Common Stock.
SELECTED FINANCIAL DATA
Set forth below is selected financial data with respect to the Company.
Financial data for the years ended December 31, 1997 and December 31, 1996 and
the nine months ended September 30, 1998 and September 30, 1997 is derived from
the consolidated financial statements included elsewhere in the Prospectus and
is qualified by reference to such financial statements and the notes related
thereto. The consolidated financial statements for the years ended December 31,
1997 and December 31, 1996 have been audited by Ernst & Young LLP, independent
public accountants. The consolidated financial statements for the nine months
ended September 30, 1998 and September 30, 1997 are unaudited. Additionally, the
following selected financial data should be read in conjunction with
Management's Discussion and Analysis or Plan of Operations appearing elsewhere
in this Prospectus.
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<TABLE>
<CAPTION>
Statement of Operations Data:
(In Thousands)
Years Ended Nine Months Ended
December 31, Ended September 30,
------------ -------------------
(Unaudited)
1997 1996 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Software sales and consulting $ 2,209 $ 3,648 $ 3,159 $ 1,929
Hardware and software, obtained from vendors 297 928 383 266
------- ------- ------- -------
Total revenues 2,506 4,576 3,542 2,195
Cost of revenues:
Software sales and consulting 1,373 937 1,532 1,067
Hardware and software, obtained from vendors 224 946 300 190
------- ------- ------- -------
Total cost of revenues 1,597 1,883 1,832 1,257
------- ------- ------- -------
Gross profit 909 2,693 1,710 938
Operating expenses:
General and administrative(1) 2,702 2,422 904 2,345
Sales and marketing 1,458 948 838 1,100
Research and development 3,757 1,538 1,687 1,794
Depreciation and amortization 409 162 427 269
Restructuring charges -- -- 138 --
------- ------- ------- -------
Loss from continuing operations before other
income (expense) $(7,417) $(2,377) $(2,284) $(4,570)
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Statement of Operations Data, continued
(In Thousands)
Years Ended Nine Months Ended
December 31, Ended Septembere30,
------------ -------------------
(Unaudited)
1997 1996 1998 1997
---- ---- ---- ----
Interest income $ 168 $ 25 $ 15 $ 147
Interest expense (86) (209) (85) (67)
Amortization of deferred financing costs -- -- 3,092 --
Other (81) (250) (459) (81)
------- ------- ------- -------
Loss from continuing operations (7,416) (2,811) (4,987) (4,571)
Loss from discontinued operations(2) (880) (1,681) -- (880)
Gain on sale of discontinued operations(2) 1,013 -- -- --
------- ------- ------- -------
Net loss $(7,283) $(4,492) $(4,987) $(5,451)
======= ======= ======= =======
</TABLE>
Balance Sheet Data:
(In Thousands)
December 31, September 30,
(Unaudited)
1997 1996 1998
---- ---- ----
Cash and cash equivalents $ 2,370 $ 489 $ 517
Working capital deficit $ (2,582) $ (3,995) $ (4,657)
Total assets $ 4,266 $ 3,239 $ 6,636
Net liabilities of discontinued operations(2) $ 631 $ 1,132 $ --
Accumulated deficit $(14,975) $ (7,692) $(19,962)
Stockholders' equity (deficit) $ (1,473) $ (3,360) $ 1081
- -----------------
(1) "General and administrative" expenses include "Payroll and other" and
"Provision for doubtful accounts."
(2) See Note 2 to the consolidated financial statements for a description of
the December 15, 1997 sale of the Company's DataMed International division
("DataMed"). The consolidated financial statements and notes thereto also
reflect DataMed as discontinued operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This Prospectus, including the disclosures below, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used herein, the terms "anticipates," "expects," "estimates," "believes"
and similar expressions as they relate to the Company or its management are
intended to identify such forward-looking statements. The Company's actual
results, performance or achievements may differ materially from those expressed
or implied by such forward-looking statements. Factors that could cause or
contribute to such material differences include the factors disclosed in the
"Risk Factors" section of this Prospectus, which prospective purchasers of the
Common Stock offered hereby should consider carefully.
General
Global Med Technologies, Inc. (the "Company"), through its one operating
division Wyndgate Technologies ("Wyndgate"), designs, develops, markets and
supports information management software products for blood banks, hospitals,
centralized transfusion centers and other healthcare related facilities.
Revenues for Wyndgate are derived from the licensing of software, the provision
of consulting and other value-added support services and the re-sale of hardware
and software obtained from vendors. On December 15, 1997, the Company sold its
DataMed International division ("DataMed") which is in the business of substance
abuse testing management services. The audited and unaudited financial
statements and related footnotes herein reflect DataMed as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30 ("APB
30").
On April 14, 1998, the Company entered into two financing agreements (the
"April 1998 Financing Agreements"), which, as amended on April 16, 1998 and
April 20, 1998, provide for a $1.5 million loan and a $1.65 million line of
credit to the Company in exchange for up to 12 million warrants convertible into
Common Stock at $.25 per share. The first loan in the amount of $1.5 million is
from Heng Fung Finance Company Limited ("Heng Fung") (the "Heng Fung Loan"),
bears interest at 12% per annum, which is payable monthly, and matures on April
15, 1999, and is senior to any other agreements, contracts or joint ventures to
which the Company is, or may be, a party. The $1.65 million line of credit is
from Fronteer Capital, Inc. ("Fronteer Capital") (the "Fronteer Line of Credit")
and also bears interest at the rate of 12% per annum, payable monthly, and
matures on April 15, 1999. 7,000,000 of the warrants were issued in connection
with the Heng Fung Loan and the commitment on the Fronteer Line of Credit. The
exercise price of the 7,000,000 warrants was significantly below market value.
The value of the 7,000,000 warrants was recorded as non-cash deferred financing
costs estimated at $7.42 million and will be amortized as additional interest
expense over the term of twelve months. 5,000,000 of these warrants were
subsequently issued on October 30, 1998 in connection with the first draw down
on the Fronteer Line of Credit. The Company intends to record the value of the
5,000,000 warrants in the fourth quarter at a value of up to $5.3 million to be
amortized through April 1999. Should the Company not repay the financing
proceeds and accrued interest thereon on or before April 15, 1999, the financing
proceeds, including interest thereon, are convertible into approximately 70
million shares of Common Stock at $0.05 per share. The issuance of the warrants
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will result in material, non-cash charges to the Company's statement of
operations. See The Company - Financing Agreements, and Security Ownership of
Certain Beneficial Owners and Management, below, for a further discussion of
these agreements.
The Company completed its initial public offering of securities in the
first quarter of 1997, from which it received net proceeds of approximately $8.2
million from the sale of 1,456,988 Units, each of which consisted of two shares
of Common Stock and one Class A Common Stock Purchase Warrant (the "February
1997 public offering"). As of June 30, 1998, the Company had used all of the net
proceeds from the February 1997 public offering. The proceeds were principally
expended to repay short-term debt, notes payable, accounts payable and other
accrued expenses; to fund Wyndgate's research and development of a transfusion
management information software product ("SAFETRACE Tx(TM)"); to fund Wyndgate's
sales and marketing efforts, as well as for general working capital purposes.
Delays in software license fee revenues, delays in the implementation cycles and
software development delays related to the SAFETRACE Tx(TM) software product,
contributed to the Company's use of net proceeds from the February 1997 public
offering prior to realization of significant revenue from operations.
In April 1998, SAFETRACE Tx(TM) entered beta testing at the Institute for
Transfusion Medicine in Pittsburgh, Pennsylvania. Beta testing was completed in
July 1998 and the transfusion service management information system product was
submitted to the FDA for 510(K) pre-market notification, required since
SAFETRACE Tx(TM) is a regulated medical device software product. FDA 510(K)
clearance is expected in early 1999.
On January 20, 1998, a Form 8-K was filed to report an instance of
non-compliance with new requirements for continued listing on NASDAQ, which
became effective February 23, 1998, whereby a Company must maintain at least $2
million of net tangible assets. In addition, the Company reported it would be
adopting SOP 97-2, "SOFTWARE REVENUE RECOGNITION" in 1998.
In 1996, the Company entered into an Exclusivity and Software Development
agreement (the "Exclusivity Agreement") with Ortho-Clinical Diagnostics, Inc.
("OCD") successor to Ortho Diagnostic Systems Inc. ("ODSI"), a wholly-owned
subsidiary of Johnson & Johnson. The Exclusivity Agreement provided ODSI the
exclusive right to negotiate with the Company with respect to the Company's
activities and developments in information technology and intellectual property
relating to donor and transfusion medicine.
In May 1997, the Company received a request from ODSI to continue its
evaluation of the Company's technology, on a non-exclusive basis, with the
intent of responding to the Company by July 14, 1997 regarding whether or not
ODSI would propose some form of transaction with the Company. The Company and
ODSI have agreed to further extensions of this non-exclusive agreement through
December 31, 1998. This additional time will enable OCD to complete its
strategic evaluation.
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The Company also agreed to perform certain software development services.
In connection with the extension to December 31, 1998, the parties agreed that
OCD has until June 30, 1999 to elect to require the Company to provide the
software development services as defined in the Exclusivity Agreement.
From inception to September 30, 1998, the Company incurred cumulative net
losses of approximately $20 million. The Company expects to continue to incur
losses until 1999, and possibly thereafter, until its existing SAFETRACE(R)
software product is fully implemented and fully operational within the Company's
customers information system environments and until SAFETRACE Tx(TM) is
established in its markets. The timing and amounts of the Company's expenditures
will depend upon a number of factors, including the progress of the Company's
research and development processes, the status and timing of regulatory
approval, the timing of market acceptance of the Company's products, the level
of support needed by the Company's customers to implement the software products
they license from Wyndgate, and the efforts required to develop the Company's
sales and marketing organization.
The results of operations and cash flows for the year ended December 31,
1997 and the nine months ended September 30, 1998 are not necessarily indicative
of the results of operations and cash flows that may be expected for the
remainder of 1998 or for any other year.
The following discussion of the Company's results of operations and of its
liquidity and capital resources are derived from and should be read in
conjunction with the audited and unaudited consolidated financial statements and
the related notes thereto, appearing elsewhere in this Prospectus.
Year Ended December 31, 1997 ("Fiscal 1997") as Compared to Year Ended December
31, 1996 ("Fiscal 1996") and the Nine Months Ended September 30, 1998 as
Compared to the Nine Months Ended September 30, 1997 (Unaudited)
Results of Operations
Revenues. Revenues are comprised of software sales and consulting revenues,
and the re-sale of hardware and software obtained from vendors.
Revenues from software sales and consulting decreased by $1.4 million, or
39%, to $2.2 million for Fiscal 1997 compared to $3.6 million for Fiscal 1996.
This decrease in software sales and consulting revenue is primarily the result
of substantially reduced sales and related deliveries of Wyndgate's SAFETRACE(R)
software product, which were partially due to the delays in software license fee
revenue previously expected from certain large internationally based hospitals
and blood centers (See Liquidity and Capital Resources and Risk Factors -
Revenue Fluctuations for a further discussion of these delays). Revenues from
software sales and consulting increased by $1.3 million, or 61%, to $3.5 million
for the nine months ended September 30, 1998 compared to $2.2 million for the
nine months ended September 30, 1997, due to the signing of new customers,
completing the installation for existing customers and increase of maintenance
fees.
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Revenues from the re-sale of hardware and software, obtained from vendors
decreased by $631,000, or 68%, to $297,000 for Fiscal 1997 compared to $928,000
for Fiscal 1996. This decrease was primarily due to decreases in the average
price per order and in the number of Wyndgate customers which ordered third
party hardware and software through Wyndgate. Revenues from the re-sale of
hardware and software, obtained from vendors increased $117,000, or 44%, to
$383,000 for the nine months ended September 30, 1998 compared to $266,000 for
the nine months ended September 30, 1997 due to the signing of new customers.
The Company's sales and marketing efforts and its software development
programs will continue to be focused on current and future Wyndgate software
products and services. If future sales of Wyndgate's SAFETRACE(R) licenses are
less than management anticipates; if future sales of Wyndgate's SAFETRACE(R)
licenses require Wyndgate to complete significant customization upon delivery;
if there are further delays in the currently anticipated implementation
schedules for Wyndgate's existing SAFETRACE(R) customers; if there are delays in
the currently anticipated beta testing schedule, regulatory clearance timing and
market acceptance for SAFETRACE Tx(TM) which is currently in beta testing, the
Company's revenues, gross margins, and liquidity may be materially and adversely
affected.
Cost of Revenue. Cost of revenue as a percentage of total revenues was 64%
and 41% for Fiscal 1997 and Fiscal 1996, respectively, and 52% and 57% for the
nine months ended September 30, 1998 and 1997, respectively.
Cost of software sales and consulting as a percentage of the related
revenue was 62% and 26% for Fiscal 1997 and Fiscal 1996, respectively. This
increase was primarily a result of decreased sales of Wyndgate's SAFETRACE(R)
software product licenses which are typically priced at higher profit margins
than revenues from consulting and implementation related services. Additionally,
relative increases in personnel and related benefit and travel expenses incurred
during Fiscal 1997 for the high number of SAFETRACE(R) implementations, customer
training and customer support services also contributed to the increase in the
cost of software sales and consulting. Cost of software sales and consulting as
a percentage of the related revenue was 49% and 55% for the nine months ended
September 30, 1998 and 1997, respectively.
Cost of hardware and software, obtained from vendors as a percentage of the
related revenue was 75% and 102% for Fiscal 1997 and Fiscal 1996, respectively,
and 78% and 71% for the nine months ended September 30, 1998 and 1997,
respectively. Typically, revenues from the re-sale of hardware and software,
obtained from vendors are priced at lower profit margins than revenues from
software sales and consulting.
Gross Profit. Gross profit as a percentage of total revenue was 36% and 59%
for Fiscal 1997 and Fiscal 1996, respectively. This decrease in gross profit was
primarily a result of the decreased sales of the higher margin SAFETrace(R)
software products discussed above. Additionally, relative increases in revenues
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derived from the provision of lower margin consulting, implementation and
customer support services also contributed to the decrease in gross profit
experienced by the Company during Fiscal 1997. Gross profit as a percentage of
total revenue was 48% and 43% for the nine months ended September 30, 1998 and
1997, respectively, due to higher levels of software sales.
General and Administrative. General and administrative expenses increased
$280,000, or 12%, to $2.702 million for Fiscal 1997 compared to $2.422 million
for Fiscal 1996. The increase in general and administrative expenses was
attributable primarily to expenses of approximately $136,000 related to grants
of certain stock options and increases in expenses for outside contract
services, various insurance related items, leased office space and other general
and administrative activities which were related to the increase in the number
of Wyndgate employees. General and administrative expenses decreased $1.4
million, or 60%, to $904,000 for the nine months ended September 30, 1998 due to
a cost reduction program implemented by management in March 1998. During the
remainder of 1998 and 1999, management does not anticipate substantial increases
in the Company's general and administrative expenses. If FDA clearance of the
SAFETRACE Tx(TM) software product is received, management anticipates increases
in administrative expenses in 1999.
Sales and Marketing. Sales and marketing expenses were $1.458 million and
$948,000 for Fiscal 1997 and Fiscal 1996, respectively, an increase of $510,000,
or 54%, compared to Fiscal 1996. The increase in sales and marketing expenses
was primarily due to expenses of approximately $301,000 related to grants of
certain stock options to a business advisory enterprise and to others involved
in corporate marketing efforts for the Company. Sales and marketing expenses
were $838,000 and $1.1 million for the nine months ended September 30, 1998 and
1997, respectively, a decrease of $262,000, or 24%, compared to September 30,
1997. Management anticipates there will be additional increases in sales and
marketing efforts during 1999 since the Company has successfully completed
SAFETRACE Tx(TM) beta testing and has submitted to the FDA 510(k) clearance for
SAFETRACE Tx(TM).
Research and Development. Research and development expenses increased $2.2
million, or 144%, from Fiscal 1996 to Fiscal 1997. The increase in research and
development expenses was primarily due to an increase in the number of employees
and contracted developers assigned to the development of Wyndgate's SAFETRACE
Tx(TM) transfusion management information system software product. Additionally,
the Company incurred $485,000 in research development expenses in Fiscal 1997 in
connection with a January 1998 agreement between the Company and The Institute
for Transfusion Medicine ("ITxM") regarding the Company's payment avoidance of
certain monetary penalties as a result of anticipated SAFETRACE Tx(TM)
development delays. Research and development expenses decreased $107,000, or 6%,
from the nine months ended September 30, 1997 to 1998. Management anticipates
research and development expenses to continue to be a substantial portion of the
Company's operating expenses. Management's plans for Wyndgate's future software
products and services require continual research and development expenditures in
order to continue to capitalize on Wyndgate's existing technological base and
its existing software development talent.
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Provision for Doubtful Accounts. The provision for doubtful accounts
increased $81,000, or 426%, from Fiscal 1996 to Fiscal 1997. The provision for
doubtful accounts decreased $125,000, or 71%, from the nine months ended
September 30, 1997 to the nine months ended September 30, 1998 due to successful
collection of most past due accounts. Management believes it prudent to reserve
for the potential uncollectability of certain accounts receivable due from
Wyndgate's SAFETRACE(R) customers. Management does not anticipate significant
increases in the provision for doubtful accounts during the remainder of 1998 as
management believes that its accounts receivable collection efforts and
SAFETRACE(R) implementation efforts will continue to improve the collectability
of accounts receivable and unbilled revenues.
Depreciation and Amortization. Depreciation and amortization increased
$247,000, or 152%, from Fiscal 1996 to Fiscal 1997. The increase in depreciation
and amortization expense is due to the increases in purchased fixed assets and
due to the increases in fixed assets underlying new capital lease financing
obtained during Fiscal 1997. Depreciation and amortization increased $24,000, or
21%, from the nine months ended September 30, 1997 to the nine months ended
September 30, 1998.
Interest Income. Interest income increased $143,000 from Fiscal 1996 to
Fiscal 1997. This increase was primarily due to interest income derived from the
net proceeds of the February 1997 public offering. Interest income decreased
$30,000 from the nine months ended September 30, 1997 to the nine months ended
September 30, 1998 due to reductions in cash.
Interest Expense. Interest expense decreased $123,000 from Fiscal 1996 to
Fiscal 1997. This decrease was primarily due to the repayment of approximately
$1.9 million in short term debt and notes payable from the net proceeds of the
February 1997 public offering, which was partially offset by an increase in
interest expense on capital lease obligations. Interest expense increased
$26,000 from the nine months ended September 30, 1997 to the nine months ended
September 30, 1998 due to increased borrowings.
Amortization of Deferred Financing Costs. Beginning in 1998, the Company
incurred a non-cash financing cost in conjunction with the April 1998 Financing
Agreements. Through September 30, 1998, amortization of deferred financing costs
was $3.1 million.
Other. Other expenses decreased $169,000 from Fiscal 1996 to Fiscal 1997.
This decrease was primarily due to Fiscal 1996 expenses of $250,000 incurred in
connection with the Company's allowance for a $250,000 note receivable, which
was partially offset by $79,000 of expenses incurred during the first quarter of
1997 in conjunction with the issuance and registration of warrants to two
unrelated investors who provided the Company with approximately $450,000 through
the January 1997 issuance of certain 12% notes. The 12% notes plus accrued
interest thereon were repaid in full from a portion of the net proceeds from the
February 1997 public offering. Other income increased $459,000 from the nine
months ended September 30, 1997 to the nine months ended September 30, 1998
primarily due to the revision of certain estimates of potential liabilities
related to the sale of Data Med.
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Loss from Continuing Operations. The Company's loss from continuing
operations during Fiscal 1997 as compared to Fiscal 1996 increased $4.6 million.
The increased loss experienced during Fiscal 1997 was primarily attributable to
a substantial decrease in sales and related deliveries SAFETRACE(R), relative
increases in revenue derived from the provision of lower margin services,
increased research and development expenses incurred for SAFETRACE Tx(TM)
development, and increased sales and marketing expenses. During the first
quarter of 1998, management began the implementation of a cost reduction program
which has assisted in management's efforts to reduce the Company's operating
expenses. However, there can be no assurance that management's cost reduction
program will be successful in the future. The Company's loss from continuing
operations during the nine months ended September 30, 1998 as compared to the
nine months ended September 30, 1997 increased $416,000 due to non-cash cost of
amortization of deferred financing costs.
Loss Before Other Income (Expense).
Loss before other income (expense) was $7.4 million and $2.4 million
for Fiscal 1997 and 1996, respectively. Loss before other income (expense) was
$2.3 million for the nine months ended September 30, 1998 compared to losses of
$4.6 million for the nine months ended September 30, 1997. The decrease is
primarily due to increases in revenues and reduction of expenses discussed
above.
Loss From Discontinued Operations and Gain on Sale of Discontinued Operations.
The Company's loss from discontinued operations during Fiscal 1997 as
compared to Fiscal 1996 decreased $801,000. The decreased loss from discontinued
operations experienced during Fiscal 1997 was primarily attributable to a
interim management agreement which was entered into between the Company and
National Medical Review Offices, Inc., ("NMRO"). This interim management
agreement transferred direction and control of the business and operations of
DataMed to NMRO effective July 1, 1997 and was terminated upon the December 15,
1997 sale of DataMed. In connection with the sale of DataMed, the Company
reported an approximate $1 million gain as a result of this transaction. There
was no loss from discontinued operations for the nine months ended September 30,
1998.
Liquidity and Capital Resources.
The Company had cash and cash equivalents of $2.37 million at December 31,
1997, none of which is restricted. During Fiscal 1997, management became aware
of delays in future software license fee revenues previously expected from
certain large internationally based blood centers and hospital organizations,
and became aware of certain SAFETRACE(R) implementation delays. Currently, based
on Wyndgate's implementation schedules for SAFETRACE(R) customers, the
implementation cycle takes approximately 12 months from date of delivery of
SAFETRACE(R) to customers. During fourth quarter of 1997, management became
aware of SAFETRACE Tx(TM) development delays. Through December 31, 1997, these
delays caused a greater use of liquidity and capital resources than originally
anticipated. Based on this information and in light of the Company's current
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cash and projected cash flow, management believes the Company has the financial
resources to maintain its planned level of operations until April 1999, although
the Company anticipates that it will continue to incur operating losses,
negative cash flows and capital expenditures during that period.
To the extent that the net proceeds generated by the April 1998 Financing
Agreements are insufficient to fund the Company's liquidity and capital
requirements in the short or long term, the Company may need to raise additional
capital through debt financings or through public or private equity financings.
The Company has no commitment for any such financings, and there can be no
assurance that any additional financing will be available when needed, on
reasonable terms, or at all. Management anticipates that the net proceeds from
the April 1998 Financing Agreements will be used to fund the Company's
anticipated research and development costs, sales and marketing efforts,
negative cash flows during the remainder of 1998 and for general working capital
purposes.
The Company has historically financed its negative cash flows through
various forms of short-term debt financings, a number of equity private
placements and through the February 1997 public offering.
The Company had net working capital deficits of $2.6 million, $4 million
and $4.7 million at December 31, 1997, December 31, 1996 and September 30, 1998,
respectively. Excluding the net liabilities of the discontinued operations, the
Company had net working capital deficits of $1.95 million, $2.9 million and $4.7
million at December 31, 1997, December 31, 1996 and September 30, 1998,
respectively. The decrease in the Company's net working capital deficit during
Fiscal 1997 was primarily due to the completion of the February 1997 public
offering which generated approximately $8.2 million in net proceeds,
consummation of the sale of DataMed which yielded gross proceeds of $1.2 million
and which yielded net proceeds of approximately $775,000 through April 15, 1998,
offset by the Company's negative cash flows and net losses incurred during the
period. The increase in 1998 is due to the non-cash financing costs associated
with the April 1998 Financing Agreements. The net proceeds from the February
1997 public offering were expended to repay short term debt, notes payable,
accounts payable and other accrued expenses, to fund Wyndgate's research and
development and sales and marketing efforts and for general working capital
purposes. See Use of Proceeds, below.
The Company used $5.3 million in net cash for operating activities during
Fiscal 1997, compared to $2.7 million of net cash used for operating activities
during Fiscal 1996. These amounts include $1.3 million of net cash used by
discontinued operations during Fiscal 1997 and $1 million of net cash used by
discontinued operations during Fiscal 1996. The cash used in continuing
operations of $4 million during Fiscal 1997 consisted primarily of the net loss
from continuing operations of $7.4 million; the non-cash gain on the sale of
DataMed of $1 million; net changes in other assets and various current
liabilities; offset by depreciation and amortization and other non-cash expenses
related to the issuance of common stock, options and warrants; net decreases in
accounts receivable and unbilled revenue and a $1.4 million increase in deferred
revenue. The Company used $1,853,000 in net cash for operating activities during
the nine months ended September 30, 1998. Management expects that the Company
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will continue to experience negative cash flows from operating activities until
1999 when, it is anticipated, Wyndgate's SAFETRACE(R) software will become
operational at an increasing number of current and future SAFETRACE(R) customer
locations and Wyndgate's SAFETRACE Tx(TM) software product will be established
in its markets. As a result, the Company may be required to obtain additional
capital.
Net cash provided by investing activities was $161,000 during Fiscal 1997.
Net cash used by investing activities was $242,000 during Fiscal 1996. Net cash
provided by investing activities during Fiscal 1997 consisted of $1 million in
net proceeds through December 31, 1997 related to the sale of DataMed, off-set
by capital expenditures of $781,000 for continued operations and $58,000 of
capital expenditures for discontinued operations. Net cash used by investing
activities was $56,000 during the nine months ended September 30, 1998 due to
purchases of equipment and fixtures.
Net cash provided by financing activities was $7 million and $2.96 million
during Fiscal 1997 and Fiscal 1996, respectively. These amounts include capital
lease principal payments for discontinued operations of $107,000 and $223,000
during Fiscal 1997 and Fiscal 1996, respectively. During Fiscal 1997, the
Company completed its February 1997 public offering and received approximately
$8.2 million in net proceeds and also received other proceeds from certain
exercises of stock options. The Company used a portion of these net proceeds to
repay approximately $1.9 million in short term debt and notes payable, and also
to pay certain offering and distribution costs related to the February 1997
public offering. In addition, the Company paid $207,000 in principal payments on
capital lease obligations for continuing operations during Fiscal 1997. Net cash
provided by financing activities was $1.3 million during the nine months ended
September 30, 1998 due to cash used from the Heng Fung financing.
Based on recent experience, the implementation cycle typically takes
approximately 12 months. The implementation cycles are dependent on various
items including the clients' size and the complexity of the clients' standard
operating procedures. Nineteen of the current twenty-five SAFETRACE(R) clients
are implemented and operational using SAFETRACE(R). Management recognizes the
significant impact accounts receivable, accounts receivable turnover trends and
unbilled revenues have on the Company's liquidity and working capital and is
continuing to attempt to reduce the implementation cycles for Wyndgate's
SAFETRACE(R) software.
The Company incurred a net loss of approximately $7.3 million during Fiscal
1997 and $5.0 million during the nine months ended September 30, 1998. The
Company expects to continue to incur net losses until 1999, and possibly
thereafter, until its software products are better established in their
respective markets. There can be no assurance that the Company can generate
sufficient revenues, earnings and cash collections from software sales to
satisfy its working capital requirements. The Company's working capital
requirements will depend on numerous factors, including the development of new
software products, as well as new applications for its present core products,
which include both SAFETRACE(R) and SAFETRACE Tx(TM). Additionally, the
Company's working capital requirements may depend upon its success in timely
obtaining FDA 510(k) clearance for its SAFETRACE Tx(TM) software product. The
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Company will seek financing to meet its working capital requirements through
private placements of its Common or Preferred Stock or through other sources
historically available to it. There can be no assurance, however, that
additional funds will be available from sources historically available to the
Company or from other sources on favorable terms, if at all. If the Company is
unable to obtain adequate financing when and if such financing is required,
management will be required to substantially reduce the Company's software
development programs and other operating expenses. If the Company is successful
in raising additional funds through the sale of additional equity securities,
such a change in capitalization could also further increase the number of shares
of Common Stock outstanding, thus diluting ownership of the then current
shareholders in the Company.
Effect of Inflation and Foreign Currency Exchange Fluctuations
The Company has not experienced material unfavorable effects on its results
of operations, cash flows or financial position due to foreign currency exchange
fluctuations or due to domestic inflation. As the Company plans to market
Wyndgate's products and services internationally, the effect of inflation and
foreign currency exchange fluctuations could have a material adverse affect on
the Company's future liquidity, cash flows, financial position and results of
operations.
Use of Proceeds
In February 1997, the Company completed an initial public offering of
securities, from which it received net proceeds of approximately $8.2 million
from the sale of 1,456,988 Units (the "February 1997 Public Offering"). Each
Unit consisted of two shares of Common Stock and one Class A Common Stock
Purchase Warrant. On March 13, 1997, the Common Stock and the Warrants began
trading separately.
The Company has used all of the net proceeds from the February 1997 public
offering as follows: approximately $3.0 million for research and development
costs, including approximately $481,000 in capital expenditures, incurred
primarily for the development of Wyndgate's SAFETRACE Tx(TM) software, which is
currently pending FDA clearance and is not available for sale in the United
States; $1.0 million for sales and marketing expenses incurred for sales and
marketing for Wyndgate's software products and services; approximately $300,000
of other capital expenditures for general operating purposes related to the
increased number of employees assigned to customer support, customer
implementations, customer training and general operating purposes for Wyndgate;
approximately $ 1.874 million for the principal repayment of certain short-term
debt, approximately $181,000 of which was paid, under the same terms and
conditions as nonaffiliates, to certain significant owners, directors, officers
and other related parties of the Company, who held 10% notes; approximately
$606,000 for general working capital requirements for the Company's continuing
operations; and approximately $1.42 million for the Company's DataMed
International division, which is reflected as discontinued operations in the
consolidated audited financial statements herein.
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Year 2000 Compliance
The "Year 2000" problem which is common to most corporations concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information as the year 2000
approaches. Management has completed a Year 2000 compliance review of SafeTrace
Tx, other Wyndgate developed software, and the Company's internal systems. As a
result, management has developed a plan to address the Company's Year 2000
compliance issues and is in the process of modifying and identifying actions to
address affected systems in time to minimize any detrimental effects on sales of
Wyndgate's software products and on the Company's operations. Management
anticipates that the costs to insure its software products developed for sale
and that the Company's internal systems are Year 2000 compliant will not be
material to the Company's results of operations, liquidity, or financial
position. Based upon information currently available, management does not
anticipate that the Company will incur substantial costs to update its internal
use computer software programs and applications to be Year 2000 compliant.
The Company's failure to resolve Year 2000 issues on or before December 31,
1999 could result in system failures or miscalculations causing disruption in
operations, including, among other things, a temporary inability to process
transactions, send invoices, send and/or receive e-mail, or engage in similar
normal business activities. Additionally, failure of third parties upon whom the
Company's business relies to timely remediate their Year 2000 issues could
result in disruption in the Company's supplies, materials late, missed or
unapplied payments, temporary disruptions in order processing and other general
problems related to the Company's daily operations. While the Company believes
its Year 2000 plans will adequately address the Company's internal Year 2000
issues, until the Company receives information from a significant number of the
Company's suppliers and customers, the overall risks associated with the Year
2000 issue remain difficult to accurately describe and quantify, and there can
be no guarantee that the Year 2000 issue will not have a material adverse effect
on the Company and its operations.
The Company has implemented a Year 2000 Contingency Plan and has advised
its customers to do the same. It is the Company's goal to have the major Year
2000 Issues resolved before the end of 1999. As part of the Company's Year 2000
Project, the Company may retain the services of an outside consultant to verify
and validate the Company's Year 2000 compliance.
THE COMPANY
The Company, through its one operating division Wyndgate Technologies
("Wyndgate"), designs, develops, markets and supports information management
software products for blood banks, hospitals, centralized transfusion centers
and other healthcare related facilities. Pursuant to an agreement with eight
California blood centers, Wyndgate developed a blood tracking system
("SAFETRACE(R)") to assist community blood centers, plasma centers, hospitals
and outpatient clinics in the U.S. in complying with the quality and safety
standards of the FDA for the collection and management of blood and blood
products. Wyndgate, through its SAFETRACE(R) software, incorporates and
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integrates products and services for the management of the blood supply and
blood products from donor recruitment to shipment from blood centers to
hospitals, clinics, medical research institutions and other healthcare related
facilities.
Wyndgate provides training and consulting services for installation,
implementation, special programming, system design, and maintenance for
licensees of SAFETRACE(R). The majority of SAFETRACE(R) licensees use all or a
portion of these services. Management believes that SAFETRACE(R) maintenance and
upgrades will provide the Company an on-going revenue stream and valuable
information concerning the blood bank industry. Special programming services can
result in customer funded development, as was done with SAFETRACE(R).
Effective December 15, 1997, the Company sold its DataMed International
("DataMed") division for gross proceeds of $1.2 million and the assumption of
certain liabilities and capital leases (the "DataMed Sale"). Net proceeds from
the DataMed Sale were approximately $775,000. DataMed manages and markets a
variety of services that are designed to assist companies with administering
substance abuse testing programs.
Founded in 1984, Wyndgate initially developed a Student Information System
("SIS"), an integrated software package for colleges and universities to track
student information. Pursuant to an agreement with eight California blood
centers (the "Royalty Group"), Wyndgate began development of a blood tracking
system to assist community blood centers and hospitals in the U.S. in complying
with the quality and safety standards of the FDA for the collection and
management of blood and blood products. After several years of development and
approximately $1.1 million paid by the Royalty Group, Wyndgate completed
development and commenced marketing of SAFETRACE(R), which it believes to be the
most comprehensive and flexible system of its type available today. In
accordance with FDA regulations, the Company submitted a 510(k) application to
the FDA in October 1995 for review of SAFETRACE(R). In April 1997, the Company's
Wyndgate division received notification from the FDA of their finding of
"substantial equivalence" of SAFETRACE(R). This determination permits the
Company to continue to market SAFETRACE(R).
The Company continues to concentrate its development efforts on its
enhancements to SAFETRACE(R) and on SAFETRACE Tx(TM) Wyndgate's transfusion
management information system software product. On July 22, 1998, SAFETRACE
Tx(TM) was submitted to the FDA for 510(k) premarket notification. Wyndgate's
development of SAFETRACE Tx(TM) began in 1996.
Strategy
The following are key elements of the Company's strategy for its Wyndgate
Technologies division; however, there can be no assurance that the Company will
be successful in its strategy. Additional financing may be required to enable
the Company to accomplish its goals.
Develop New Blood Bank Management Software Products and Services. The
Company believes that it can develop new products and services by using its
existing technology base and its existing software development talent. The
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Company has successfully completed SAFETRACE Tx(TM) beta testing and has
submitted a 510(k) application to the FDA for review of SAFETRACE Tx(TM) and
receipt of notification from the FDA of their finding of "substantial
equivalence" of SAFETRACE Tx(TM). Upon market availability of SAFETRACE Tx(TM)
and in concert with Wyndgate's existing SAFETRACE(R) software, management
believes Wyndgate will be able to provide a complete "vein to vein" system.
However, there can be no assurance as to the length of time required for the FDA
to review a 510(k) submission made by the Company or that the Company would
ultimately receive a clearance letter relating to SAFETRACE Tx(TM).
Obtain Substantial International Market Share. The Company is focused on
the world-wide potential for its blood bank and transfusion industry products
and services. The Company plans to pursue international growth by marketing its
current and future software products and services through its internal sales and
marketing organization and through strategic relationships and is currently in
negotiations with several potential international clients.
Develop Strategic Relationships. The Company intends to continue to pursue
strategic relationships in order to provide effective and efficient sales and
distribution channels for its software products and services. Additionally, the
Company may work with other healthcare information providers to develop new
software applications and to develop further uses for Wyndgate's technology.
Maintain Technological Advantage. The Company plans to continue to focus
research and development expenditures on new technology and continued
enhancements of software development tools and software development
methodologies. Management believes that evolving Wyndgate's current technology
base and its software development talent are both critical elements to the
long-term competitive advantages of Wyndgate's software products and services.
Customers
The Company, through its Wyndgate division, currently has 25 (including the
Royalty Group) customers and intends to continue to target domestic and
international blood centers, plasma centers and hospitals.
During the year ended December 31, 1997, two Wyndgate customers, Belle
Bonfils Memorial Blood Center, Denver, Colorado and Haemonetics Corporation,
Braintree, Massachusetts each accounted for approximately 10% and 33% of the
Company's total revenues from continuing operations. Haemonetics has recently
announced that they are exiting the blood bank business. Management believes
that this will not impact the Company's ability to contract directly with
individual cites. See Risk Factors- Dependence on Major Customers, above. During
the year ended December 31, 1996, one Wyndgate customer, Gulf Coast Regional
Blood Center, Houston, Texas, accounted for approximately 29% of the Company's
total revenues from continuing operations. Accounts receivable from the above
customers as of December 31, 1997, December 31, 1996 and September 30, 1998 was
approximately $60,000, $205,000 and $12,000, respectively. Unbilled revenues
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from the above customers was approximately $160,000 as of December 31, 1997 and
$0 as of September 30, 1998. In order to attempt to reduce its credit risks, the
Company generally requires substantial down payments and progress payments
during SAFETRACE(R) implementations. Non-renewal or termination of the
contractual arrangements with these key and other Wyndgate customers could have
a material adverse effect on the Company. There can be no assurance that the
Company will be able to retain these or other customers or, if Wyndgate's 25
existing customers are not retained, that the Company would be able to attract
and retain new customers to replace the revenues currently generated by these
customers.
Research and Development
During the years ended December 31, 1997 and 1996, and the nine months
ended September 30, 1998, the Company incurred approximately $3.76 million, $1.5
million and $2.23 million, respectively, for research and development of
Wyndgate's software products. Management believes leveraging Wyndgate's research
and development methodologies, experience and talent are keys to the long-term
success and evolution of Wyndgate's software products. Per accounting
regulations, the Company began capitalizing research and development
expenditures during the second quarter of 1998. Through the nine months ended
September 30, 1998, $591,000 of the approximately $2.23 million spent on
research and development were capitalized. Research and development expenditures
are anticipated to continue during 1998 and 1999.
Employees
As of November 25, 1998, the Company had 50 full-time employees, consisting
of 2 employees in the corporate offices in Denver, Colorado and 48 at Wyndgate's
offices in Sacramento, California. The Company has employment agreements with
certain personnel. See Management. The Company's employees are not represented
by a labor union or subject to collective bargaining agreements. In March 1998,
management began the implementation of a cost reduction program which resulted
in a substantial decrease to its previous employee base. The Company has never
experienced a work stoppage and believes that its employee relations are
satisfactory.
Financing Agreements
On April 14, 1998, the Company entered into two financing agreements (the
"April 1998 Financing Agreements"), which, as amended on April 16, 1998 and
April 20, 1998, provide for a $1.5 million loan and a $1.65 million line of
credit to the Company. The first loan in the amount of $1.5 million from Heng
Fung Finance Company Limited ("Heng Fung") (the "Heng Fung Loan") bears interest
at 12% per annum, which is payable monthly, and matures on April 15, 1999, and
is senior to any other agreements, contracts or joint ventures to which the
Company is, or may be, a party. In consideration for the Heng Fung Loan, the
Company has granted Heng Fung warrants to purchase 6,000,000 shares of Common
Stock (the "Heng Fung Warrants"), exercisable until April 14, 2008 at $.25 per
share, on the basis of one Heng Fung Warrant for one share of Common Stock. The
Company also agreed to register the Common Stock underlying the Heng Fung
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Warrants with the SEC by July 14, 1998; provided, however, that so long as the
Company uses its "reasonable best efforts" to file a registration statement and
responds to any comments from the SEC in a timely manner, the Company will not
be deemed in default under the Heng Fung Loan or Fronteer Line of Credit if the
registration statement is not declared effective by July 14, 1998. See Security
Ownership of Certain Beneficial Owners and Management below, for a further
discussion of the April 1998 Financing Agreements.
The Heng Fung Loan also granted Heng Fung the right to appoint five members
to the Company's Board of Directors, which now consists of a maximum of nine
members, who will be entitled to receive warrants consistent with the duties
required. Certain members of the Company's Board of Directors and management
were required to execute resignation letters, which were delivered to Heng Fung,
who is holding such letters in escrow pending any default under the terms of the
Heng Fung Loan. Included in the officers, directors and employees who have
submitted resignations to Heng Fung are Michael I. Ruxin, William J. Collard,
Gerald F. Willman, Gordon E. Segal, Thomas F. Marcinek, Hollis Gailey, the wife
of William J. Collard who has since resigned her position with the Company, Lori
Willman, the wife of Gerald F. Willman, Timothy Pellegrini and Bradley V.
Maberto. Pursuant to the April 1998 Financing Agreements, Heng Fung appointed
the following five directors to the Company's Board of Directors: Fai H. Chan,
Jeffrey M. Busch, Robert L. Trapp, Kwok Jen Fong and Gary L. Cook. Heng Fung
also has the right to veto any future contracts not in the ordinary course of
business, and any contract for employment, loans, leases or with a value in
excess of $250,000. Since completion of the April 1998 Financing Agreements and
the appointment of the additional directors by Heng Fung, new employment
contracts approved by the Board have been entered into with Dr. Ruxin and
Messrs. Marcinek, Alan K. Geddes and Miklos Csore.
The Company will be in default under the terms of the Heng Fung Loan if the
principal and interest payments are not paid on or before April 15, 1999, or
within a seven day grace period, or if any other terms of the Heng Fung Loan are
not complied with. If a default occurs, Heng Fung can convert the outstanding
amount of the loan, including interest, into approximately 70,000,000 shares of
the Company's Common Stock on the basis of one share for each $.05 of debt.
The Company has borrowed $1,500,000 from Heng Fung under the Heng Fung
Loan, evidenced by a series of promissory notes dated May 7, 1998 for $250,000,
June 4, 1998 for $400,000, June 30, 1998 for $250,000, August 5, 1998 for
$250,000, September 4, 1998 for $250,000 and September 30, 1998 for $100,000
(the "Original Notes").
On September 28, 1998, the Company approved the Assignment, Assumption and
Consent Agreement by and between the Company, Dr. Ruxin, Fronteer Capital and
Fronteer Development Finance, Inc. ("Fronteer Development"), whereby the Company
consented to the assignment by Fronteer Capital to Fronteer Development of all
of the rights, duties and obligations under the Fronteer Line of Credit.
In October 1998, the Company, Heng Fung and Fronteer Development entered
into a Loan and Warrant Purchase and Sale Agreement whereby Heng Fung sold, and
Fronteer Development purchased, $1,000,000 of the Heng Fung Loan and warrants
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to purchase 4,000,000 shares of the Company's Common Stock. Heng Fung has
returned the Original Notes and its warrant to purchase 6,000,000 shares of the
Company's Common Stock to the Company, and the Company has issued a $500,000
promissory note and a warrant to purchase 2,000,000 shares of the Company's
Common Stock to Heng Fung and a $1,000,000 promissory note and a warrant to
purchase 4,000,000 shares of the Company's Common Stock to Fronteer Development.
In November 1998, the Company drew $400,000 on the $1.65 million line of
credit from Fronteer Capital, Inc. ("Fronteer Capital") (the "Fronteer Line of
Credit"). The Fronteer Line of Credit also bears interest at the rate of 12% per
annum, payable monthly, and matures on April 15, 1999. In consideration of
extending the Line of Credit, the Company has granted Fronteer Capital warrants
to purchase 1,000,000 shares of the Company's Common Stock, exercisable until
April 14, 2008 at $.25 per share. Now that the line of credit is drawn upon,
Fronteer Development has earned warrants to purchase an additional 5,000,000
shares of Common Stock, exercisable at $.25 per share until April 14, 2008 (all
the warrants issued to Fronteer Capital and Fronteer Development are hereinafter
referred to as the "Fronteer Warrants"). Fronteer Development also has the right
to cancel certain management and employee contracts. Dr. Ruxin has personally
guaranteed repayment of $1.5 million of the Fronteer Line of Credit from certain
of his personal assets.
Fronteer Capital and Fronteer Development have the same rights as does Heng
Fung with respect to registration of the shares underlying the Fronteer
Warrants, rights on default and right to veto contracts.
The Company agreed to pay a cash finder's fee of 9% of the Fronteer Line of
Credit to American Fronteer Financial Corporation ("AFFC"), formerly named RAF
Financial Corporation, payable as the Fronteer Line of Credit is drawn. To date,
the Company has paid AFFC $72,000 under the agreement. AFFC is a majority-owned
subsidiary of Heng Fung. See Plan of Distribution.
In the event the Heng Fung Loan and the Fronteer Line of Credit warrants,
or a portion thereof, are exercised at $.25 per share and/or in the event the
Heng Fung Loan and the Fronteer Line of Credit proceeds, including unpaid
interest, or a portion thereof, are converted at $.05 per share upon default,
ownership of existing shareholders will be proportionally diluted.
The issuance of these discounted warrants has resulted and will continue to
result in a significant noncash charge to the Company's 1998 and 1999 statement
of operations, which, based on a preliminary managerial assessment using the
Black-Scholes pricing model, could range as high as $12.7 million for the
12,000,000 warrants.
Management anticipates that the net proceeds from the Heng Fung Loan and
from the Fronteer Line of Credit will be sufficient to satisfy the Company's
contemplated cash requirements until April 1999, although the Company
anticipates that it will continue to incur operating losses, negative cash flows
from operations and capital expenditures during that period. Correspondingly,
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there can be no assurance as to the length of time such proceeds will satisfy
such cash requirements. The Company's cash requirements beyond this period will
depend upon many factors, including, but not limited to, the Company's net cash
flows from operations; the length of time it may take for the Company to
develop, acquire, or receive regulatory approval to market its products or
services; the market acceptance of these products or services and the response
of competitors who may develop competing products or services at lower costs. To
the extent that the net proceeds generated by the April 1998 Financing
Agreements are insufficient to fund the Company's activities in the short or
long term, the Company may need to raise additional capital through debt
financing or through public or private equity financing. The Company has no
commitment for any such financing, and there can be no assurance that any
additional financing will be available when needed, on reasonable terms, or at
all. See Risk Factors and Management's Discussion and Analysis or Plan of
Operations - Liquidity and Capital Resources.
Blood Bank and Transfusion Industry Overview
With the spread of AIDS and Hepatitis-B, stringent FDA guidelines have been
imposed on domestic blood centers in order to attempt to improve the quality of
the U.S. blood supply. Several domestic blood centers have been cited by the FDA
for noncompliance and certain blood centers have been closed as a result of
non-compliance with FDA requirements. Management believes numerous blood centers
throughout the worldwide blood bank industry have internally developed their own
software applications and systems to track blood collection, testing,
processing, distribution and transfusion activities. These internally developed
systems which have been developed for domestic blood center use are also
designed to comply with FDA requirements. The Company believes that most blood
center developed systems are not fully integrated and do not offer the
capabilities required by the FDA in view of the fact that many of the Company's
current SAFETRACE(R) customers have or intend to replace their internally
developed blood tracking systems with SAFETRACE(R). While laboratory information
system providers have developed automated testing and reporting procedures
designed for a portion of the blood tracking process, these systems address only
the laboratory management function and are not fully integrated with other blood
tracking functions required for effective FDA compliant blood tracking systems.
The Company believes that blood centers and laboratory information system
providers are looking for a way to meet the FDA guidelines while minimizing
their risks and costs.
The FDA required all blood tracking application software vendors to submit
a 510(k) application for review by March 31, 1996. The application process for
FDA review and compliance with FDA guidelines relates to computer software
products regulated as medical devices. The FDA considers software products
intended for the following to be medical devices: (i) use in the manufacture of
blood and blood components; or (ii) maintenance of data used to evaluate the
suitability of donors and the release of blood or blood components for
transfusion or further manufacturing. As medical device manufacturers, the
Company and its competitors are required to register with the Center for
Biologics Evaluation and Research ("CBER"), list their medical devices, and
submit a pre-market notification or application for pre-market review. In April
1997, the Company's Wyndgate division received notification from the FDA of its
finding of "substantial equivalence" of SAFETRACE(R). This determination
provides a 510(k) clearance and permits the Company to continue to market
SAFETRACE(R).
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Software Products
SAFETRACE(R) is a set of integrated modules that are used to manage and
control multiple aspects of blood and plasma operations, from recruiting of
donors and collecting donated blood or plasma, to testing and manufacturing of
blood products, distribution and billing. The Company currently markets
SAFETRACE(R) to blood banks and plasma centers worldwide. Currently, most of
Wyndgate's SAFETRACE(R) licensees have licensed the use of all of the following
six SAFETRACE(R) modules. However, a potential licensee can license one or more
modules as needed to automate its operations.
SAFETRACE(R) Modules and Function
Donor Recruitment Used by marketing departments of blood or plasma centers to
systematically solicit, recruit and schedule donors.
Facilitates recruiting processes by producing call lists on
demand or by scheduling calls by batch processing.
Donor Management Provides a system for registering donors and
recordings necessary medical and personal donor information.
All real-time donor deferral and eligibility information is
used to determine current eligibility status of registered
donors.
Laboratory
Management Performs a number of data recording and evaluation
functions. Permits the posting of tests either by
interfacing directly with testing equipment or manually.
Also performs inventory label validation, which helps to
insure that all blood components are suitable for
distribution, have been properly tested, validated and
labeled.
Blood Inventory
And Distribution Maintains current inventories of all available blood
products which have been tested and labeled. Records the
movement of blood products from blood or plasma centers to
customers and between customers. Also maintains records for
imported blood related products.
Special Procedures Registers patients and tracks blood requirements for
surgeries. Also provides capabilities to define and manage
special requests for autologous, designated and therapeutic
donations.
Billing Implements pricing and invoicing practices associated with
each blood product for customers. Also provides financial
information for management review.
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SAFETRACE(R) relies on its donor identification, laboratory management,
labeling and release site-based logic technology to assist blood centers in
complying with FDA regulations. SAFETRACE(R) has an 85% table driven structure
which permits it to easily adapt to each customer's unique operations.
SAFETRACE(R) has been developed using industry standards, common operating
systems and database managers which is designed to help insure portability.
Since SAFETRACE(R) is database, operating system and hardware independent,
management believes blood centers choosing SAFETRACE(R) are permitted
flexibility in selecting their computer hardware and software configurations.
SAFETRACE(R) provides the opportunity for blood centers to preserve their
application software and training investments as their system and technology
requirements evolve. Currently, management estimates that SAFETRACE(R) consists
of more than 1.5 million lines of code, 481 data tables, 6,054 data elements, 59
labeling occurrences of component and release logic, 3,000 discrete programs and
over 1,000 screens and windows.
Services
Management believes continuing to provide Wyndgate customers high quality
services is critical to retaining its current customer base. Additionally,
management believes that providing high quality service to Wyndgate's customers
will continue to enhance Wyndgate's reputation for quality and will help to
increase Wyndgate's market presence. Wyndgate's services begin with initial
customer contact and continue throughout the licensing relationship. Services
include installation, implementation, training, consulting and customer support.
Historically, Wyndgate's SAFETRACE(R) license agreements typically provide for
five years of customer support services. The fees associated with customer
support services are either invoiced monthly, quarterly or annually.
Installation, implementation and other related service fees, excluding customer
support, typically range from 10% to 50% of the SAFETRACE(R) license fees. Under
the Company's future license agreements, there will be no requirement that a
customer contract for implementation and maintenance services. However, many
customers that have licensed SAFETRACE(R) to date have contracted for these and
other additional services.
Installation And Implementation Services. Installation and implementation
services assist customers with the selection of hardware and software systems
and, if necessary, the initial SAFETRACE(R) installation. Implementation
services include assisting customers in analyzing work flow and standard
operating procedures, developing tables, screen layouts, reports and
implementation specific requirements. It currently takes approximately twelve
months from the date of delivery of the software for the customer to implement
SAFETRACE(R) and a portion of Wyndgate's resources are used during that time.
Training Services. Training services are provided to customers either at
customer sites or at Wyndgate's offices. Training includes hands-on access to
SAFETRACE(R) and usually includes building initial tables and screens. Wyndgate
also offers follow-up training services to train customers on new SAFETRACE(R)
functions.
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Customer Support Services. Fees for customer services are required to be
paid under certain older SAFETRACE(R) license agreements for the term of the
license and will be optional on future agreements. Maintenance services include
"bug" fixing, enhancements and SAFETRACE(R) upgrades. Wyndgate provides an
800-Help Line number for customer service calls that permits access to
Wyndgate's technical resources directly during the working day and on a paged
call-back basis at all other times.
Consulting Services. Consulting services are provided to customers who
request special features, assistance with system configurations, data base
consulting, systems management, networking or additional capabilities beyond
those readily available in SAFETRACE(R). Wyndgate also performs special
applications development projects under certain development agreements. The
Company has been contracted to provide consulting services by some of its
SAFETRACE(R) customers.
Product Development
SAFETRACE Tx(TM) - Transfusion Management Information System. Wyndgate has
completed development of SAFETRACE Tx(TM), a transfusion management information
system that is designed to be used by hospitals and centralized transfusion
centers to help insure the quality of blood transfused into patient-recipients.
SAFETRACE Tx(TM) will provide electronic cross-matching capabilities to help
insure blood compatibility with patient-recipients and will track, inventory,
bill and document all activities with blood products from the time blood
products are received in inventory to the time the blood products are used or
returned to blood centers. Management expects SAFETRACE Tx(TM) will complement
SAFETRACE(R) as the combined SAFETRACE Tx(TM) and SAFETRACE(R) software system
will be able to integrate hospitals with blood centers. SAFETRACE Tx(TM) entered
beta testing on April 6, 1998. Beta testing has been successfully completed and
a 510(k) submission of SAFETRACE Tx(TM) has been made to the FDA. SAFETRACE
Tx(TM) can not be marketed by the Company in the United States until FDA 510(k)
clearance is received; however, during the FDA's review of SAFETRACE Tx(TM),
management has determined that SAFETRACE Tx(TM) can be marketed internationally.
There can be no assurance as to the length of time required for the FDA to
review a 510(k) submission made by the Company for SAFETRACE Tx(TM), or that the
Company will ultimately receive a clearance letter relating to SAFETRACE Tx(TM).
Development Agreements
Pursuant to a development agreement between Wyndgate and the Royalty Group,
Wyndgate developed SAFETRACE(R) and must make royalty payments to the Royalty
Group based on a percentage of Wyndgate's SAFETRACE(R) license sales, measured
by cash received from SAFETRACE(R) licensees, net of certain fees and charges.
The time period under the royalty schedule is based upon the first date of
SAFETRACE(R) license invoicing, which was September 14, 1995. The royalty
payment schedule is as follows:
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Date Royalty Percentage
---- ------------------
September 1995 to September 1997 12%
September 1997 to September 1998 9%
September 1998 to September 1999 6%
After September 1999 3%
Pursuant to a Development Agreement ("Development Agreement") dated July
1996, between the Company and The Institute for Transfusion Medicine("ITxM"),
the Company agreed to develop and has completed development of Commercial
Centralized Transfusion System Software ("Commercial CTS Software"), which is
Wyndgate's SAFETRACE Tx(TM) software product. The Development Agreement required
that the Commercial CTS Software be completed by December 16, 1997. If not
timely completed, the Company would be subject to monetary penalties. The
Development Agreement provided for a royalty payment to ITxM for revenues
received from the sale of the Commercial CTS Software, net of certain fees and
charges. The royalty period starts with the first commercial transfer for value
of the Commercial CTS Software. The royalty that would be paid is as follows:
Percentage of Percentage of
License Fee License Fee
if ITxM Initiates Sale if Company Initiates Sale
---------------------- -------------------------
1 Year 10% 5%
2 Year 10% 5%
3 Year 6% 3%
4 Year 6% 3%
5 Year 4% 2%
6 Year 4% 2%
7 Year 4% 2%
8 Year 4% 2%
9 Year 4% 2%
Thereafter 2% 1%
The Development Agreement further granted ITxM a non-exclusive, perpetual
and fully-paid license to operate SAFETRACE Tx(TM) for internal use, which
includes companies which ITxM controls as defined in the Development Agreement
and companies which ITxM has the ability to cause the direction of management,
whether through ownership of voting securities, by contract or otherwise.
In January 1998, the Company and ITxM agreed (the "January 1998 Agreement")
that the Company would not be required to pay monetary penalties in the
approximate amount of $485,000 to ITxM, which were incurred as a result of
delays in development of SAFETRACE Tx(TM), in consideration of the Company
providing to ITxM additional maintenance services and product upgrades and
substitute liquidated damage provisions for delays. The first of such revised
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dates and liquidated damage provisions was April 3, 1998, by which the Company
was to initiate beta testing of SAFETRACE Tx(TM) or pay $500 per day. SAFETRACE
Tx(TM) was delivered to ITxM for beta testing on April 6, 1998, which was within
the grace period provided for in the January 1998 Agreement. In accordance with
the January 1998 Agreement, beta testing of SAFETRACE Tx(TM) was completed by
July 17, 1998.
The Company and ITxM commenced negotiations relating to eliminating the
liquidated damage provisions. In addition, the Company is seeking to renegotiate
certain provisions of the Development Agreement relating to potential
limitations on the Company's ability to distribute the Company's products,
including SAFETRACE Tx(TM), within the blood transfusion industry and ITxM's
ability to use the SAFETRACE Tx(TM) software product pursuant to the
non-exclusive, perpetual license granted to ITxM in the Development Agreement.
There can be no assurance that the parties will reach agreement as to any
modifications of the Development Agreement.
Customers
Wyndgate currently has SAFETRACE(R) contracts with the following blood
centers, which are in various stages of implementation:
* Belle Bonfils Memorial Blood Center, Denver, CO(1)
* Blood Bank of San Bernardino and Riverside Counties, San Bernardino, CA(1)
* Blood Bank of the Redwoods, Santa Rosa, CA(1)
* Coffee Memorial Blood Center, Albuquerque, NM
* Community Blood Bank of Erie County, Erie, PA(1)
* Community Blood Bank of Lancaster County Medical Society, Lincoln, NE
* Community Blood Center of Appleton, Appleton, WI
* Gulf Coast Regional Blood Center, Houston, TX(1)
* Hoxworth Blood Center, Cincinnati, OH
* Institute For Transfusion Medicine, Pittsburgh, PA
* Irwin Memorial Blood Center, San Francisco, CA(2)
* Lifeblood/Mid-South Regional Blood Center, Memphis, TN
* Peninsula Blood Bank, Inc., Burlingame, CA(2)
* Rhode Island Blood Center, Providence, Rhode Island(1)
* Sacramento Medical Foundation Blood Center, Sacramento, CA(1)
* Samuel W. Miller Memorial Blood Center, Bethlehem, PA(1)
* San Diego Blood Bank, San Diego, CA
* Siouxland Community Blood Bank, Sioux City, IA(1)
* Stanford Medical School Blood Center, Palo Alto, CA(1)
* The Blood Center of Central Iowa, Des Moines, IA(1)
* The Blood Center for Southeast Louisiana, New Orleans, LA(1)
* Tri-Counties Blood Bank, Santa Barbara, CA(1) (3)
* The Memorial Blood Centers of Minnesota, Inc., Minneapolis, MN(1)
* Oklahoma Blood Institute, Oklahoma City, OK(1)(3)
* Stewart Regional Blood Center, Tyler, TX
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* South Texas Blood & Tissue Center, San Antonio, TX
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(1) Implemented and operational.
(2) Merged to form Blood Centers of the Pacific, San Francisco, CA.
(3) Managed and/or owned by Haemonetics Corporation. See below.
See Services, above, for a description of a typical license agreement.
Based upon its installation experience, management now estimates that
SAFETRACE(R) implementations will take approximately 12 months from the date of
delivery of the software to the customer depending on the blood center's size
and complexity of the blood center's standard operations procedures.
On February 13, 1997, Wyndgate entered into a multi-million dollar, 10-year
contract with Haemonetics Corporation ("Haemonetics"), a New York Stock Exchange
listed company located in Braintree, Massachusetts. Licensing and other fees are
payable by Haemonetics over the life of the contract. Under the contract,
Wyndgate will provide the use of SAFETRACE(R) to Haemonetics for its entry into
the service side of blood banking in multiple locations, including two of the
blood centers listed above which were previously contracted by Wyndgate.
Haemonetics has traditionally provided blood separation products to blood banks
and hospitals domestically and internationally. Since that time, Haemonetics has
stated that they are removing themselves from the blood center management
business. Management believes that this will have minimal impact on its ability
to contract directly with customers that it may have obtained through
Haemonetics.
On March 18, 1998, BCA Inc./hemerica, Inc. the second largest independent
blood center group in the U.S., signed a five-year agreement offering
SAFETRACE(R) to its 14 members who do not currently use SAFETRACE(R) at special
group pricing.
The potential customers for Wyndgate's SAFETRACE(R) and SAFETRACE Tx(TM)
software products include blood centers, hospitals, out-patient centers,
centralized transfusion services, blood bank industry data centers and stand
alone transfusion sites. Blood centers are able to use SAFETRACE(R) to assist in
the management of their business and comply with FDA regulations to help insure
the safety of the blood supply. SAFETRACE(R) allows blood centers to enter FDA
guidelines, consistent with their standard operating procedures into tables
which then provide system control over the manufacturing and processing of blood
and blood products.
The potential market for Wyndgate's SAFETRACE Tx(TM) software product
includes all acute care hospitals, centralized transfusion services, alternate
transfusion sites and other entities doing business in the worldwide transfusion
industry. Potential SAFETRACE Tx(TM) licensees and potential re-sellers and
distributors of SAFETRACE Tx(TM) will most likely require extensive product
demonstrations before agreeing to license SAFETRACE Tx(TM). In addition,
SAFETRACE Tx(TM) will face competition from established vendors in this market.
Wyndgate believes hospitals that receive blood and blood related products from
blood centers using SAFETRACE(R) may find it useful to use SAFETRACE Tx(TM) as
their transfusion software in order to be readily compatible with blood centers
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using SAFETRACE(R). There can be no assurance that hospitals will desire to
establish this link using Wyndgate's SAFETRACE Tx(TM) software product.
Agreements With Ortho Diagnostic Systems Inc.
On November 14, 1996, the Company entered into an Exclusivity and Software
Development Agreement (the "Exclusivity Agreement") with Ortho Diagnostic
Systems Inc. ("ODSI"), a wholly-owned subsidiary of Johnson & Johnson. The
Exclusivity Agreement provides that until May 14, 1997 (the "Exclusivity
Period"), ODSI had the exclusive right to negotiate with the Company with
respect to the Company's activities and developments in information technology
and intellectual property relating to donor and transfusion medicine (the
"Technology") and that, during the Exclusivity Period, the Company would not,
directly or through any intermediary, accept, encourage, solicit, entertain or
otherwise discuss any acquisition of any of the Company's Common Stock,
business, property or know-how, including the Technology, with any person or
entity other than ODSI or an affiliate thereof and would not otherwise encumber
the ability of ODSI or an affiliate thereof to enter into any arrangement with
the Company concerning the Technology.
In May 1997, the Company received communication from ODSI that it had not
yet completed an internal evaluation of the Company's Technology and would not
be prepared at the conclusion of the Exclusivity Period to discuss a transaction
between the Company and ODSI. ODSI requested, and the Company agreed, that ODSI
be permitted to continue its evaluation of the Company's Technology, on a
non-exclusive basis, with the intent of responding to the Company by July 14,
1997 regarding whether or not ODSI would propose some form of transaction with
the Company. The Company and ODSI have agreed to further extensions of this
non-exclusive agreement through June 30, 1999.
The Company also agreed to perform certain software development services in
consideration of the payment by ODSI of $500,000 on November 14, 1996, and
$500,000 received in January 1997. If the Company and ODSI enter into a
definitive agreement relating to the Technology, the Company's other assets or
Common Stock, then ODSI may elect to decline the software development services
and apply the payments to the Company towards any consideration payable to the
Company in connection with a definitive agreement. If the parties are unable to
come to terms with respect to a definitive agreement, then the Company will
provide the software development services selected by ODSI and the parties will
negotiate a definitive software development agreement. If ODSI has not elected
to decline the Company's services and the Company fails to provide the software
development services, unless ODSI has breached its obligations under the
definitive agreement and is then in breach, the Company shall have been deemed
to have granted ODSI a non-exclusive license (with the right to sub-license) to
the Technology with a royalty rate not to exceed 4% of net sales, and the
parties agreed they would negotiate a definitive license agreement. On September
17, 1997, the parties agreed to extend the time for ODSI's election with respect
to the software development services until June 30, 1998. In connection with the
extension to June 30, 1998, the parties agreed that ODSI has until December 31,
1998 to elect to require the Company to provide the software development
services as defined in the Exclusivity Agreement.
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Pursuant to the Exclusivity Agreement, the Company granted ODSI a right of
first refusal for a period of six months after the expiration of the Exclusivity
Period in the event the Company proposed to effect certain transactions with
respect to the Technology. In connection with the extension of the Exclusivity
Agreement to September 30, 1997, ODSI relinquished its right of first refusal.
Competition
Currently, Wyndgate is aware of four primary competitors to its
SAFETRACE(R) software product, including MAK from France, Information Data
Management ("IDM"), Blood Bank Computer Systems and Systec from the United
States. The primary competitors of Wyndgate's SAFETRACE Tx(TM) software product
include Cerner Corp., MediWare Corp., S.C.C. Corporation Meditech and Sunquest
Corp. Some of these competitors are larger and have greater resources than the
Company. The Company believes it is able to compete on the basis of the
capabilities of the technology currently available in SAFETRACE(R); however, the
Company can provide no assurances in this regard.
DataMed International Division
Founded in 1989, DataMed manages and markets a variety of services that are
designed to assist companies with administering substance abuse testing
programs.
On August 18, 1997, the Company and National Medical Review Offices, Inc.
("NMRO") entered into an Asset Purchase Agreement (the "Asset Purchase
Agreement") which provided for the sale of DataMed to NMRO. NMRO advised the
Company that it had agreed to sell DataMed to Substance Abuse Technologies, Inc.
("SAT"), a publicly held company. The sale of DataMed was approved by the
Company's shareholders on December 2, 1997 and the Asset Purchase Agreement was
closed with NMRO and SAT on December 15, 1997.
NMRO paid the Company $1.2 million at the closing and purchased certain
assets and assumed certain liabilities associated with DataMed at June 30, 1997.
The assets include accounts receivable, accrued accounts receivable (unbilled
revenue), pre-paid expenses, customer list of DataMed, customer contracts,
furniture, fixtures and equipment, names, telephone numbers, trade names and
copyrighted materials. Included in the obligations assumed by NMRO are accounts
payable (excluding intercompany payables), certain accrued expenses not to
exceed approximately $127,000, various capital lease obligations, a new lease on
approximately 10,500 square feet of office space in which DataMed's operations
are located, accrued payroll and vacation pay for DataMed employees and certain
sales commissions. In March 1998, the Company, NMRO and SAT agreed to settle
DataMed's accrued expenses, certain other provisions of the Asset Purchase
Agreement and certain provisions of the Interim Management Agreement entered
into between the Company and NMRO effective July 1, 1997 by payment of
approximately $200,000 by the Company to SAT.
Following the closing, SAT employed certain employees of DataMed, including
Bart K. Valdez, who was the Chief Financial Officer of the Company and the
Director of Operations of DataMed.
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LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known to be
contemplated
MANAGEMENT
The following table sets forth the names and positions of the director,
executive officers and key employees of the Company:
Officer or
Name Age Position Director Since
- ---- --- -------- --------------
Michael I. Ruxin, M.D. 52 Chairman of the Board 1989
and CEO
Thomas F. Marcinek 44 President and COO 1998
Alan K. Geddes 48 Vice President Finance, 1998
CFO and Treasurer
William J. Collard (1) 57 Wyndgate President 1995
Gerald F. Willman, Jr. 41 Director and Wyndgate Vice 1995
President-Product Management
Gordon E. Segal, M.D. 46 Director 1997
Fai H. Chan 53 Director 1998
Jeffrey M. Busch 40 Director 1998
Robert H. Trapp 43 Director 1998
Kwok Jen Fong 48 Director 1998
Gary L. Cook 40 Director 1998
Bruce Daniels 53 Wyndgate Vice President - 1998
Sales and Marketing
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James R. Flynt 43 Wyndgate Vice President - 1998
Operations
- --------------
(1) Mr. Collard intends to retire as an officer of the Company effective
February 4, 1999. He has been on vacation since November 20, 1998 and his
duties are being performed by the Company's president and other employees.
The Company and Mr. Collard are currently negotiating the terms of Mr.
Collard's retirement, including, but not limited to, the benefits he will
receive. Any agreement reached will be subject to the approval of the
Company's Board of Directors.
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. Officers of the Company are elected annually by the Board
of Directors and hold office until their successors are elected and qualified.
The following sets forth biographical information concerning the Company's
directors and executive officers for at least the past five years. All of the
following persons who are executive officers of the Company are full time
employees of the Company.
Michael I. Ruxin, M.D., the founder of the Company, has been an officer and
director of the Company since its incorporation in 1989 and is currently the
Chairman and Chief Executive Officer of the Company. From 1982 to 1994, Dr.
Ruxin was a director of GeriMed of America, Inc., a private company
administering senior health care centers. From 1985 to 1993, Dr. Ruxin was an
officer and director of CBL Medical, Inc. ("CBL"), a public company which
managed multiple medical groups, including Medcomp Medical Group which was a
group of small clinics owned by Dr. Ruxin. CBL focused on providing second
opinions on workers compensation claims. Dr. Ruxin left CBL management in 1988
to found the Company although he remained on the board of CBL due to his
continued ownership of clinics until 1993. Five years after Dr. Ruxin left CBL
management, in 1993, CBL filed a Petition under Chapter 7 of the Federal
Bankruptcy Code to liquidate due to a change in the workers compensation
regulations in the State of California. Dr. Ruxin received a B.A. degree from
the University of Pittsburgh and an M.D. degree from the University of Southern
California. Dr. Ruxin is a licensed physician in California and Colorado. He is
a member of the American Association of Medical Review Officers.
Thomas F. Marcinek was elected as President and Chief Operating Officer in
March 1998. From 1994 until joining the Company, he was the President and owner
of Prax Information Systems, Wantagh, New York, a practice management software
consulting company. From 1990-1994, he was the President of the Data
Technologies Group, a division of Henry Schein, Inc., Melville, New York. From
1985-1990, he was the Vice President of MIS for that same company.
Alan K. Geddes was elected as Vice President - Finance, Chief Financial
Officer and Treasurer of the Company in August 1998. He was also a financial
consultant to the Company. Mr. Geddes has been Vice President and Chief
Financial Officer of EDnet, Inc., a publicly held company based in San
Francisco, California, since 1996. From 1986 to 1996, Mr. Geddes was the Chief
Financial Officer of Oncogenetics, Inc., Phoenix, Arizona and IMAR Corporation,
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San Rafael, California, both emerging companies in medical technology, in
addition to founding his own company, California Pacific Leasing, Inc., San
Rafael, California. Previously, he served as Corporate Controller at
Fiberplastics, Inc., Corte Madera, California, in corporate management at
Bio-Rad Laboratories, Richmond, California, as Plant Controller with Abbott
Laboratories, Pasedena, California and as Financial Analyst with Litton
Industries, Woodland Hills, California. Mr. Geddes received a B.A. degree from
the University of California and an M.B.A. degree in finance from Utah State
University.
William J. Collard was a director and the Secretary/Treasurer of the
Company from May 1995 to May 1998 and has been the President of the Wyndgate
division since May 1995. From 1984 to May 1995 he was president and a director
of The Wyndgate Group, Ltd., and responsible for directing the sales, operations
and research and development efforts of The Wyndgate Group, Ltd. From 1976 to
1984, Mr. Collard was the executive director of Sigma Systems, Inc., a company
that provides colleges and other institutions with administrative computer
applications. Mr. Collard received a B.S. degree in Business Administration
(Finance) and an M.S. degree in Business Administration (Quantitative Methods)
from California State University.
Gerald F. Willman, Jr. has been a director of the Company and the Vice
President of the Wyndgate division since May 1995 and Chief Financial Officer
from April through August 1998. Mr. Willman was director and then a Vice
President of The Wyndgate Group, Ltd., from 1984 to 1995 and was responsible for
the overall design and development of the products developed by The Wyndgate
Group, Ltd., including research of new technologies. Prior to his employment at
The Wyndgate Group, Ltd., he was employed as a development team leader at
Systems Research, Inc. Mr. Willman received a B.S. degree from Hampden Sydney
College and M.B.A. degree from National University.
Gordon E. Segal, M.D., has been a director of the Company since April 1997.
Since December 1995, he has been co-founder and principal of M & S Ventures, a
privately held investment venture capital firm specializing in biotechnology and
health care companies. From January 1992 to December 1995, Dr. Segal was a
private venture capitalist. Dr. Segal received a B.A. degree in 1973 from
Southern Methodist University and an M.D. degree in 1978 from the University of
Tennessee. Dr. Segal is a licensed physician in New York and is a board
certified anesthesiologist.
Fai H. Chan, has been a Director of the Company since May 1998. He has been
a Director of Fronteer Financial Holdings, Inc. ("Fronteer Financial") since
December 26, 1997, and Chairman of the Board of Directors and President since
February 1998. Mr. Chan is the Chairman and Managing Director of Heng Fung
Holdings Company Limited and has been a Director of Heng Fung Holdings Company
Limited since September 2, 1992. Mr. Chan was elected Managing Director of Heng
Fung Holdings Company Limited on May 1, 1995 and Chairman on June 3, 1995. Heng
Fung Holdings Company Limited's primary business activities include real estate
investment and development, merchant banking, the manufacturing of building
material machinery, pharmaceutical products and retail fashion. Mr. Chan has
been the President and a Director of Powersoft Technologies, Inc. (formerly,
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Heng Fai China Industries, Inc.), which owns various industrial companies, since
June 1994 and Chief Executive Officer thereof since June 1995; a Director of
Intra-Asia Equities, Inc., a merchant banking company, since June 1993;
Executive Director of Hua Jian International Finance Co., Ltd. from December
1994 until December 1996; and Chairman of the Board of Directors of American
Pacific Bank since March 1988 and Chief Executive Officer thereof between April
1991 and April 1993.
Jeffrey M. Busch has been a Director of the Company since May 1998. Mr.
Busch has been a practicing attorney for at least the last five years. Mr. Busch
has also been a Director of Fronteer Financial since February 1998.
Robert H. Trapp has been a Director of the Company since May 1998. He has
been a Director of Fronteer Financial since December 1997, and the Managing
Director since February 1998. Mr. Trapp has been a director of Heng Fung
Holdings Company Limited since May 1995; a Director of Inter-Asia Equities,
Inc., a merchant banking company, since February 1995 and the Secretary thereof
since April 1994; Director, Secretary and Treasurer of Powersoft Technologies,
Inc., which owns various industrial companies; and the Canadian operational
manager of Pacific Concord Holding (Canada) Ltd. of Hong Kong, which operates in
the consumer products industry, from July 1991 until November 1997.
Kwok Jen Fong has been a Director of the Company since May 1998. Mr. Fong
has been a Director of Fronteer Financial since February 1998 and a Director of
Heng Fung Holdings Company Limited since May 1995. Mr. Fong has been a
practicing solicitor in Singapore for at least the last five years.
Gary L. Cook has been a Director of the Company since November 19, 1998.
Since 1996, he has been Secretary, Treasurer and Chief Financial Officer of
Fronteer Financial Holdings, Ltd. and oversees all accounting, internal and
external reporting, treasury and cash management functions. Mr. Cook also is
Treasurer of Fronteer Development Finance, Inc., Vice-President and Chief
Financial Officer of American Fronteer Financial Corporation and a Director of
Secutron Corporation. From 1994 to 1996, Mr. Cook was self-employed as the
principal of All Tune and Lube, LLC where he researched, directed and managed
the successful start up and development of a small business. From 1982 to 1994,
he was a Senior Manager at KPMG Peat Marwick and was responsible for all
auditing services for several clients in various financial and other industries.
Mr. Cook also directed the training, management and evaluation of staff
developed and implemented accounting, financial reporting and SEC reporting
systems for major growth companies. Mr. Cook received a B.A. in Accounting from
Bringham Young University in 1982 and is a member of the Colorado Society of
Certified Public Accountants and the American Institute of Certified Public
Accountants.
Bruce Daniels has been an officer of the Company since August 1998. Mr.
Daniels has extensive knowledge in both hospital and blood center transfusion
practices. From 1994 to 1998, Mr. Daniels was President - Pall Biomedical
Products Company division, Pall Corporation, East Hills, New York (NYSE: PLL).
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<PAGE>
In this capacity he directed the sales and marketing for Pall's hospital
products in North America. These products included blood processing and
transfusion sets for general use and leukocyte removal. From 1975 to 1994, Mr.
Daniels was Vice President Sales and Marketing at Kentec Medical, Inc., Irvine,
California, a regional specialty distributor, for medical devices, equipment and
services. Mr. Daniels has a B.A. degree in economics, with a chemistry minor,
from Marietta College, Marietta, Ohio, and has completed a Medical Marketing
Program at the University of California, Los Angeles.
James R. Flynt has been an officer of the Company since August 1998. Mr.
Flynt has held significant domestic and international positions for companies in
both Healthcare and Information Systems. From August 1997 to March 1998, Mr.
Flynt was Director of Laboratory Implementations at ADAC Healthcare Information
Systems, Houston, Texas. From May 1996 to August 1997, he was Director of Client
Services for Soft Computer Consultants, Palm Harbor Florida. From October 1995
to May 1996, Mr. Flynt was Channels Solutions Manager for IBM Healthcare
Solutions, IBM Asia Pacific, Brisbane, Australia, where he performed market
feasibility analysis and business development in the Pacific Rim. Between 1984
and 1994, Mr. Flynt worked at Sunquest Information Systems, Inc., Tucson,
Arizona, where he held positions of increasing responsibility including LIS
Marketing Consultant, Assistant VP - Client Support and Senior Product Director.
Mr. Flynt has a B.S. degree in microbiology, with emphasis in organic and
biochemistry, from the University of Arizona and is a registered Microbiologist
with the American Society of Clinical Pathologists (ASCP).
Committees
The Company's Audit/Systems Committee acts as the liaison between the
Company and its independent public accountants. The Audit/Systems Committee
consists of Dr. Ruxin and Messrs. Fong and Trapp. The Audit Committee did not
hold any meetings during 1997. The Audit/Systems Committee is responsible for
reviewing and approving the scope of the annual audit undertaken by the
Company's independent accountants and will meet with the accountants to review
the progress and results of their work, as well as any recommendations the
accountants may offer. The Audit/Systems Committee will also review the fees of
the independent accountants and make recommendations to the Board of Directors
as to the appointment of the accountants. In connection with the Company's
internal accounting controls, the Audit/Systems Committee will review the
internal audit procedures and reporting systems in place at the Company and
review their accuracy and adequacy with management and with the Company's
independent accountants.
The Company's Compensation Committee, which will recommend compensation
levels to the Board of Directors, consists of Dr. Ruxin and Mr. Busch. The
Compensation Committee will review salaries, bonuses, and other forms of
compensation for officers and key employees of the Company and its subsidiaries,
and will establish salaries, benefits, and other forms of compensation for new
employees. Included in the Compensation Committee's responsibility is the
issuance of stock bonuses and stock options under the Company's two stock
option/bonus plans. In addition, the Compensation Committee will review other
matters concerning compensation and personnel as the Board of Directors may
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request. The Compensation Committee will design the Company's compensation to
enable the Company to attract, retain, and reward highly qualified executives,
while maintaining a strong and direct link between executive pay, the Company's
financial performance, and total stockholder return. The Compensation Committee
believes that officers and certain other key employees should have a significant
stake in the Company's stock price performance under programs which link
executive compensation to stockholder return.
The Company's Executive Committee which was formed on August 27, 1998
consists of Dr. Ruxin and Messrs. Chan, Busch and Fong. The Executive Committee
will discuss general matters and advise the Board with respect to the same.
Scientific Advisory Committee
The Board of Directors has established a Scientific Advisory Committee to
advise and consult with the Board of Directors as may be requested by the Board
from time-to-time. Currently, the Scientific Advisory Committee consists of
William C. Dickey, M.D., Ronald O. Gilcher, M.D., and Edward P. Scott, M.D. The
Scientific Advisory Committee has had several formal meetings as a group. The
members of the Scientific Advisory Committee will not receive any cash
compensation from the Company for serving in that capacity, but each will be
reimbursed for any expenditures incurred on behalf of the Company. In connection
with their appointment to the Scientific Advisory Committee, in January 1996,
Dr. Dickey, Ms. Cathy Bryan, a former member of the Committee, and Dr. Gilcher
were issued options to purchase 2,500, 1,000 and 1,000 shares, respectively, of
the Company's Common Stock, exercisable at $3.75 per share and which vest over a
five year period and are exercisable until January 2006. In August 1997, the
Company issued Dr. Gilcher and Dr. Scott options to purchase 10,000 and 1,500
shares, respectively, of the Company's Common Stock, exercisable at $1.81 per
share, which vest over a five year period and are exercisable until August 2007.
William C. Dickey, M.D., Chairman of the Scientific Advisory Committee, has
been the Medical Director, Chief Executive Officer and President of the Belle
Bonfils Memorial Blood Center, Denver, Colorado since July 1990. From 1972 to
1974, he was the Director of the Blood Bank for Irwin Army Hospital, located in
Texas, and from 1974 to 1991, he was the Director of the Blood Bank for St.
Anthony Hospital, Denver, Colorado. He graduated from the University of Denver
with a B.S. degree and received his M.D. degree from the University of Colorado
School of Medicine. He was certified by the American Board of Pathology for
Anatomic and Clinical Pathology in 1972, and is licensed to practice medicine in
Colorado and Kansas.
Ronald O. Gilcher, M.D. has been the President and Chief Executive Officer
of the Sylvan N. Goldman Center, Oklahoma Blood Institute, Oklahoma City,
Oklahoma, since 1990 and was the director thereof from 1979 to 1990. He served
in the U.S. Army Medical Corps at Walter Reed Army Institute of Research,
Washington, D.C. from 1968 - 1971, and from 1971 to the present, has been an
assistant or associate professor at the University of Pittsburgh School of
Medicine (1971- 1979) and an adjunct professor and clinical associate professor
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at the University of Oklahoma School of Medicine (1979 to present). Dr. Gilcher
graduated from the University of Pittsburgh with a B.S. degree in chemistry, and
received his M.D. degree from Jefferson Medical College. He was certified by the
American Board of Internal Medicine for Internal Medicine (1969 and 1977) and by
the American Board of Internal Medicine for Hematology (1972), and is licensed
to practice medicine in the states of Pennsylvania, Oklahoma and California.
Edward P. Scott, M.D. has been the Medical Director and Chief Executive
Officer of Lifeblood/Mid-South Regional Blood Center, Memphis, Tennessee from
1986 to present. Dr. Scott graduated from Mississippi State University in 1970
and received his M.D. degree from the University of Mississippi Medical School
in 1973. He is certified by the American Board of Internal Medicine, the
American Board of Pathology, Blood Banking (1981) and the American Board of
Internal Medicine, Hematology (1982). He was a member of the American
Association of Blood Banks Managerial Think Tank in 1989, and a member of its
Standards Committee from 1993-1996. He is the author or co-author of numerous
published medical journal articles, book chapters and abstracts.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information regarding compensation paid to
the Company's CEO and the other executive officers of the Company who received
in excess of $100,000 of salary and bonus from the Company during the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Restricted
Name and Stock Options Other
Position Year Salary Bonuses Awards & SARs Compensation
-------- ---- ------ ------- ------ ------ ------------
($$) ($$) ($$) (##) ($$)
<S> <C> <C> <C> <C> <C> <C>
Michael I. Ruxin, 1997 $190,000 -0- -0- -0- $ 17,936 (1)
Chairman and CEO 1996 $195,000 -0- -0- -0- $ 16,520 (2)
1995 $190,000 -0- -0- -0- $ 16,520 (2)
Joseph F. Dudziak, 1997 $110,000 -0- -0- 125,000(3) $ 29,800 (4)
President and COO(11) 1996 $110,000 -0- -0- 25,000(5) $ 4,800 (6)
1995 $105,000 -0- -0- 100,000(5) $ 4,800 (6)
William J. Collard, 1997 $100,000 -0- -0- -0- $ 16,400 (7)
Secretary/Treasurer 1996 $100,000 -0- -0- -0- $188,400 (7)
and Director, 1995 $100,000 -0- -0- -0- $ 30,400 (7)
Wyndgate President
Bart K. Valdez, 1997 $100,000 -0- -0- 50,000 (8) $ 55,000 (8)
CFO and Director of Operations 1996 $ 98,000 -0- -0- 30,000 (9) -0-
for DataMed 1995 $ 49,000 -0- -0- 20,000 (9) -0-
Gerald F. Willman, Jr. 1997 $ 95,000 -0- -0- -0- $ 25,000 (10)
CFO and Director, and Vice 1996 $ 95,000 -0- -0- -0- $ 8,000 (10)
President of Wyndgate 1995 $ 87,000 -0- -0- -0- -0-
- ----------
(1) Dr. Ruxin received $5,000 per annum in life insurance premiums and a $1,078
per month car allowance.
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<PAGE>
(2) Dr. Ruxin received $5,000 per annum in life insurance premiums and a $960
per month car allowance.
(3) In August 1997, Mr. Dudziak's 125,000 options were modified in the
following respects: (a) such options become immediately and fully vested
and became exercisable over a ten year period and (b) the exercise price of
the options was reduced to $1.81 per share which was the estimated fair
value of the Company's shares of Common Stock of the time of grant.
(4) Mr. Dudziak received a $400 per month car allowance and received $25,000
for moving expenses.
(5) In June 1995, Mr. Dudziak received options to purchase 100,000 shares
exercisable at $2.45 per share. In September 1996, Mr. Dudziak received
options to purchase 25,000 shares exercisable at $2.50 per share. These
options vest at the rate of 20% per year. No value has been attributed to
these options since the exercise price was the estimated fair value of the
Company's shares at the time of grant.
(6) Mr. Dudziak received a $400 per month car allowance.
(7) Mr. Collard received a $450 per month car allowance in 1995, 1996 and 1997.
In 1995, Mr. Collard received $25,000 under his non-compete agreement. In
1996, Mr. Collard received $175,000 under his non-compete agreement and
reimbursement for a vacation in the approximate amount of $8,000. In 1997,
Mr. Collard received approximately $11,000 for tax expenses related to the
May 1995 Wyndgate merger.
(8) Mr. Valdez received a lump sum payment of $55,000 in December 1997 upon the
sale of DataMed and immediately and fully vested options to purchase 50,000
shares granted in August 1997 exercisable over a ten year period at $1.81
per share. No value has been attributed to these options since the exercise
price was the estimated fair value of the Company's shares at the time of
grant.
(9) In 1995, Mr. Valdez received options to purchase 20,000 shares exercisable
at $2.45 per share. In September 1996, Mr. Valdez received options to
purchase 30,000 shares exercisable at $2.50 per share. These options vested
at the rate of 20% per year. These options were effectively forfeited upon
the sale of DataMed and were re-granted as described in footnote (8) above.
No value has been attributed to these options since the exercise price was
the estimated fair value of the Company's shares at the time of grant.
(10) In 1996, Mr. Willman received approximately $8,000 for reimbursement for a
vacation. In 1997, Mr. Willman received approximately $25,000 for tax
expenses related to the May 1995 Wyndgate merger.
(11) Mr. Dudziak retired from the Company in March 1998.
Employment Agreements
On August 1, 1998, the Company entered into an employment agreement with
Dr. Ruxin for a period of three years commencing August 1, 1998. The initial
term of this agreement can be extended at the close of the second year for an
additional two years beyond the initial term (creating a term of five years from
August 1, 1998). Under the agreement, Dr. Ruxin receives a salary of $190,000
per year and certain other fringe benefits. Dr. Ruxin's employment agreement
includes a cost-of-living increase, plus any other increase which may be
determined from time to time at the discretion of the Company's Board of
Directors. Dr. Ruxin's employment under the employment agreement may be
terminated by Dr. Ruxin upon the sale by the Company of substantially all of its
assets, a decision by the Company to terminate its business and liquidate its
assets, the merger or consolidation of the Company with another entity or an
agreement to such a merger or consolidation or any other type of reorganization,
or if the Company makes a general assignment for the benefit of creditors, files
for voluntary bankruptcy or if a petition for the involuntary bankruptcy of the
Company is filed in which an order for relief is entered and remains in effect
for a period of thirty days or more, or if the Company seeks, consents to, or
acquiesces in the appointment of a trustee, receiver or liquidator of the
Company or any material part of its assets. Dr. Ruxin's employment under the
employment agreement also may be terminated by reason of Dr. Ruxin's death or
disability or for cause as set forth in the employment agreement. If the
agreement is terminated by the Company for any reason other than cause or
permanent disability, the Company must pay Dr. Ruxin compensation, benefits and
incentives at the rate in effect at termination for twenty-four months following
the date of termination.
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On August 1, 1998, the Company also entered into an employment agreement
with Alan K. Geddes for a period of three years commencing August 1, 1998. The
initial term of this agreement can be extended at the close of the second year
for an additional two years beyond the initial term (creating a term of five
years from August 1, 1998). Under the agreement, Mr. Geddes receives a salary of
$125,000 per year and certain other fringe benefits. Mr. Geddes employment
agreement includes an annual cost-of-living increase, plus any other increase
which may be determined from time to time at the discretion of the Company's
Board of Directors. The agreement also contains a non-solicitation provision
which prohibits Mr. Geddes from soliciting employees and/or customers of the
Company to enter the employ or to do business with any business entity in
competition with the Company during Mr. Geddes' employment and for a period of
twelve months after the cessation thereof. The agreement also provides that
annually, while the employment agreement is in effect, solely at the sole option
of the Company, Mr. Geddes may receive incentive compensation of up to 50% of
his then current annual base salary. The incentive compensation will be based on
objectives established by the Company and Mr. Geddes on December 31 of each
year.
Pursuant to the agreement, Mr. Geddes also will receive incentive stock
options under the Company's Stock Option Plan, as amended, to purchase an
aggregate of 250,000 shares of the Company's Common Stock between the bid and
the ask on August 1, 1998. The options vest at the rate of 20% per year over a
period of five years. If the Company (i) sells substantially all its assets, or
(ii) mergers or consolidates with another entity or otherwise reorganizes
whereby the total value of the Company's Common Stock exceeds $100,000,000 as a
result of such transaction or (iii) terminates Mr. Geddes for any reason other
than for cause prior to the expiration of the agreement, then the entire 250,000
in options shall become 100% vested and immediately exercisable.
Mr. Geddes' employment under the employment agreement may be terminated by
Mr. Geddes under the same circumstance as set forth in Dr. Ruxin's employment
agreement. If Mr. Geddes' employment agreement is terminated by the Company for
any reason other than cause or permanent disability, the Company must pay Mr.
Geddes compensation, benefits and incentives at the rate in effect at
termination for twelve months following the date of termination. The Company
also paid Mr. Geddes' temporary living expenses associated with his relocation
to Sacramento, California.
On August 1, 1998, the Company also entered into an employment agreement
with Thomas F. Marcinek for a period of three years commencing August 1, 1998.
The initial term of this agreement can be extended at the close of the second
year for an additional two years beyond the initial term (creating a term of
five years from August 1, 1998). Under the agreement, Mr. Marcinek receives a
salary of $125,000 per year and certain other fringe benefits. Mr. Marcinek
employment agreement includes an annual cost-of-living increase, plus any other
increase which may be determined from time to time at the discretion of the
Company's Board of Directors. The agreement also contains non-solicitation and
annual incentive compensation provisions which are similar to those set forth in
Mr. Geddes' employment agreement.
Pursuant to the agreement, Mr. Marcinek also will receive incentive stock
options under the Company's Stock Option Plan, as amended, to purchase an
aggregate of 350,000 shares of the Company's Common Stock. The options vest
-53-
<PAGE>
at the rate of 20% per year over a period of five years. If the Company (i)
sells substantially all its assets, or (ii) mergers or consolidates with another
entity or otherwise reorganizes whereby the total value of the Company's Common
Stock exceeds $100,000,000 as a result of such transaction or (iii) terminates
Mr. Marcinek for any reason other than for cause prior to the expiration of the
agreement, then the entire 350,000 in options shall become 100% vested and
immediately exercisable.
Mr. Marcinek's employment under the employment agreement may be terminated
by Mr. Marcinek under the same circumstance as set forth in Dr. Ruxin and Mr.
Geddes' employment agreements. If Mr. Marcinek's employment agreement is
terminated by the Company for any reason other than cause or permanent
disability, the Company must pay Mr. Marcinek compensation, benefits and
incentives at the rate in effect at termination for twelve months following the
date of termination.
As a condition to the April 14, 1998 financing discussed under The Company
- - Financing Agreements, above, and Security Ownership of Certain Beneficial
Owners and Management, below, each of the Company's Officers and certain
employees provided the lenders with undated releases of their respective
employment agreements and tendered resignations, which are being held in escrow.
Until the releases are accepted or rescinded by the lenders, the following
employment agreements between the Company and its Officers are still in effect.
On May 24, 1995, the Company entered into a five year employment agreement
with William J. Collard. The agreement provides for an annual salary of $100,000
and can be extended at the close of the second year for an additional two years
beyond the initial term (creating a term of seven years from May 24, 1995). Mr.
Collard's employment under the employment agreement may be terminated by Mr.
Collard upon the sale by the Company of substantially all of its assets, the
sale, exchange or other disposition of at least 40% of the outstanding voting
shares of the Company, a decision by the Company to terminate its business and
liquidate its assets, the merger or consolidation of the Company with another
entity or an agreement to such a merger or consolidation or any other type of
reorganization, or if the Company makes a general assignment for the benefit of
creditors, files for voluntary bankruptcy or if a petition for the involuntary
bankruptcy of the Company is filed in which an order for relief is entered and
remains in effect for a period of thirty days or more, or if the Company seeks,
consents to, or acquiesces in the appointment of a trustee, receiver or
liquidator of the Company or any material part of its assets. Mr. Collard's
employment under the employment agreement also may be terminated by reason of
Mr. Collard's death or disability or for cause as set forth in the employment
agreement. Mr. Collard's employment agreement includes a cost-of-living increase
at the rate of 2 1/2% per annum, plus any other increase which may be determined
from time to time at the discretion of the Company's Board of Directors. Mr.
Collard's agreement also contains a covenant not to compete, with payments of
$100,000 for the covenant to have been made on January 1, 1996 and May 24, 1996,
respectively. Aggregate payments of $200,000 were made as follows: $25,000 in
December, 1995; $75,000 in January, 1996; and $100,000 in May, 1996. The
covenant not to compete will terminate the later of five years from the date of
the agreement or the term of the agreement; hence, the Company will not receive
any benefit from the covenant not to compete unless the agreement is terminated
prior to May 24, 2000. If Mr. Collard's agreement is terminated by the Company
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<PAGE>
for any reason other than cause or permanent disability, the Company must pay
him a lump sum severance payment of $2.5 million. Mr. Collard also receives a
car allowance of $450 per month. Mr. Collard received approximately $8,000 for
vacation related expenses during 1996. During 1997, Mr. Collard received
approximately $11,000 for tax expenses related to the May 1995 Wyndgate merger.
The Company also has an employment agreement with Gerald F. Willman, Jr.
which contains an extension provision for the term of the agreement and reasons
for termination similar to those of Mr. Collard with an annual salary of
$95,000, except the initial term is for three years commencing May 24, 1995 and
the extension is for an additional two years. Mr. Willman's employment agreement
includes a cost-of-living increase at the rate of 2 1/2% per annum, plus any
other increase which may be determined from time to time in the discretion of
the Company's Board of Directors. The employment agreement requires that if he
is terminated by the Company for any reason other than cause or permanent
disability, the Company must pay Mr. Willman a lump sum severance payment of
$1.0 million. Mr. Willman received approximately $8,000 for vacation related
expenses in 1996. During 1997, Mr. Willman received approximately $25,000 for
tax expenses related to the May 1995 Wyndgate merger.
The Company also has an employment agreement with Bradley V. Maberto which
contains an extension provision for the term of the agreement and reasons for
termination similar to those of Mr. Willman. The agreement provides for an
annual salary of $55,000. The initial term for the agreement is three years
commencing on May 24, 1995 and the extension is for an additional two years. Mr.
Maberto's employment agreement includes a cost-of-living increase at the rate of
2 1/2% per annum, plus any other increase which may be determined from time to
time in the discretion of the Company's Board of Directors. The agreement
requires that if Mr. Maberto is terminated by the Company for any reason other
than cause or permanent disability, the Company must pay Mr. Maberto a lump sum
severance payment of $1.0 million.
Although the Company does not currently have an employment contract with
Bruce Daniels, the Company paid Mr. Daniels' temporary living expenses
associated with his relocation to Sacramento, California.
Compensation of Directors
Members of the Company's Board of Directors are not compensated in their
capacities as Board Members. The Company reimburses all of its officers,
directors and employees for accountable expenses incurred on behalf of the
Company and has granted certain of its Board Members stock options under the
Company's Amended and Restated Stock Option Plan.
Stock Option Plan
The Company has adopted its Amended and Restated Stock Option Plan (the
"Plan") which provides for the issuance of options to purchase up to 2,200,000
shares of Common Stock to employees, officers, directors and consultants of the
Company. The purposes of the Plan are to encourage stock ownership by employees,
officers, directors and consultants of the Company so that they may acquire or
increase their proprietary interest in the Company, to (i) reward employees,
officers, directors and consultants for past services to the Company and (ii)
encourage such persons to become employed by or remain in the employ of or
otherwise continue their association with the Company and to put forth maximum
efforts for the success of the business of the Company.
-55-
<PAGE>
The Plan is administered by the Compensation Committee. At its discretion,
the Compensation Committee may determine the persons to whom Options may be
granted and the terms thereof. As noted above, the Compensation Committee may
issue options to the Directors.
The terms of any Options granted under the Plan are not required to be
identical as long as they are not inconsistent with the express provisions of
the Plan. In addition, the Compensation Committee may interpret the Plan and may
adopt, amend and rescind rules and regulations for the administration of the
Plan.
Options may be granted as incentive stock options ("Incentive Options")
intended to qualify for special treatment under the Internal Revenue Code of
1986, as amended (the "Code"), or as non-qualified stock options ("Non-Qualified
Options") which are not intended to so qualify. Only employees of the Company
are eligible to receive Incentive Options. The period during which Options may
be exercised may not exceed ten years. The exercise price for Incentive Options
may not be less than 100% of the fair market value of the Common Stock on the
date of grant; except that the exercise price for Incentive Options granted to
persons owning more than 10% of the total combined voting power of the Common
Stock may not be less than 110% of the fair market value of the Common Stock on
the date of grant and may not be exercisable for more than five years. The
exercise price for Non-Qualified Options may not be less than 85% of the fair
market value of the Common Stock on the date of grant. The Plan defines "fair
market value" as the last sale price of the Company's Common Stock as reported
on a national securities exchange or on the NASDAQ NMS or, if the quotation for
the last sale reported is not available for the Company's Common Stock, the
average of the closing bid and asked prices of the Company's Common Stock as
reported by NASDAQ or on the electronic bulletin board or, if none, the National
Quotation Bureau, Inc.'s "Pink Sheets" or, if such quotations are unavailable,
the value determined by the Compensation Committee in accordance with its
discretion in making a bona fide, good faith determination of fair market value.
The Plan contains provisions for proportionate adjustment of the number of
shares issuable upon the exercise of outstanding Options and the exercise price
per share in the event of stock dividends, recapitalizations resulting in stock
splits or combinations or exchanges of shares.
In the event of the proposed dissolution or liquidation of the Company, or
any corporate separation or division, including, but not limited to, split-up,
split-off or spin-off, merger or consolidation of the Company with another
company in which the Company is not the survivor, or any sale or transfer by the
Company of all or substantially all its assets or any tender offer or exchange
offer for or the acquisition, directly or indirectly, by any person or group for
more than 50% of the then outstanding voting securities of the Company, the
Compensation Committee may provide that the holder of each Option then
exercisable will have the right to exercise such Option (at its then current
Option Price) solely for the kind and amount of shares of stock and other
securities, property, cash or any combination thereof receivable upon such
dissolution, liquidation, corporate separation or division, merger or
consolidation, sale or transfer of assets or tender offer or exchange offer, by
-56-
<PAGE>
a holder of the number of shares of Common Stock for which such Option might
have been exercised immediately prior to such dissolution, liquidation, or
corporate separation or division, merger or consolidation, sale or transfer of
assets or tender offer or exchange offer; or in the alternative the Compensation
Committee may provide that each Option granted under the Plan will terminate as
of a date fixed by the Compensation Committee; provided, however, that not less
than 30 days written notice of the date so fixed will be given to each
recipient, who will have the right, during the period of 30 days preceding such
termination, to exercise the Option to the extent then exercisable. To the
extent that Section 422(d) of the Code would not permit this provision to apply
to any outstanding Incentive Options, such Incentive Options will immediately
upon the occurrence of the dissolution or liquidation, etc., be treated for all
purposes of the Plan as NonQualified Options and shall be immediately
exercisable as such.
Except as otherwise provided under the Plan, an Option may not be exercised
unless the recipient then is an employee, officer or director of or consultant
to the Company or a subsidiary of or parent to the Company, and unless the
recipient has remained continuously as an employee, officer or director of or
consultant to the Company since the date of grant of the Option.
If the recipient ceases to be an employee, officer or director of, or
consultant to, the Company or a subsidiary or parent to the Company (other than
by reason of death, disability or retirement), other than for cause, all Options
theretofore granted to such recipient but not theretofore exercised will
terminate three months after the date the recipient ceased to be an employee,
officer or director of, or consultant to, the Company.
If the recipient ceases to be an employee, officer or director of, or
consultant to, the Company or a subsidiary or parent to the Company by reason of
termination for cause, all Options theretofore granted to such recipient but not
theretofore exercised will terminate thirty days after the date the recipient
ceases to be an employee, officer or director of, or consultant to, the Company.
If a recipient dies while an employee, officer or director of or a
consultant to the Company, or if the recipient's employment, officer or director
status or consulting relationship, shall terminate by reason of disability or
retirement, all Options theretofore granted to such recipient, whether or not
otherwise exercisable, unless earlier terminated in accordance with their terms,
may be exercised by the recipient or by the recipient's estate or by a person
who acquired the right to exercise such Options by bequest or inheritance or
otherwise by reason of the death or disability of the recipient, at any time
within one year after the date of death, disability or retirement of the
recipient; provided, however, that in the case of Incentive Options such
one-year period will be limited to three months in the case of retirement.
Options granted under the Plan are not transferable other than by will or
by the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, or the rules thereunder. Options may be exercised,
during the lifetime of the recipient, only by the recipient and thereafter only
by his legal representative.
-57-
<PAGE>
The Compensation Committee may suspend, terminate, modify or amend the
Plan, but without shareholder approval the Board may not materially increase the
number of shares as to which Options may be granted, change the eligibility
requirements for persons entitled to participate in the Plan or materially
increase the benefits to be received by any participant under the Plan. The
Board may not adversely affect any Option previously granted without the consent
of the participant. Unless sooner terminated, the Plan will expire on May 31,
2000.
Stock Compensation Plan
The Board of Directors of the Company has approved the 1997 Employee Stock
Compensation Plan ("Stock Compensation Plan"), to support and increase the
Company's ability to attract, retain and compensate persons of experience and
ability and whose services are considered valuable.
A maximum of 100,000 shares of the Company's common stock were issuable
under the terms of the original Stock Compensation Plan. On August 27, 1998, the
Board of Directors of the Company approved the amendment of the Stock
Compensation Plan to increase the maximum number of shares issuable under the
plan from 100,000 to 200,000 shares. The Stock Compensation Plan provides for
compensation through the award of Common Stock in payment for services rendered
or in recognition of past services of performances rendered to the Company or as
a bonus. Shares subject to a stock award are valued at not less than 100% of
their fair market value on the date the award is granted, whether or not they
are subject to restrictions.
The Stock Compensation Plan is administered by the Compensation Committee.
Stock Compensation Plan participants may be selected by the Compensation
Committee from: (i) key employees of the Company; (ii) officers and directors of
the Company; (iii) consultants or advisors to the Company; and a (iv) lawyer,
law firm, accountant or accounting firm, or other professionals or professional
firms engaged by the Company. The Compensation Committee has broad discretion to
determine the number of shares which may be granted to participants. The award
of Common Stock will be granted on such terms and conditions as the Board
determines. The Compensation Committee also may interpret the Stock Compensation
Plan and is empowered to make all other determinations deemed necessary or
advisable for the administration of the Stock Compensation Plan. The Board may
suspend, terminate, modify or amend the Stock Compensation Plan.
Under the present provisions of the Internal Revenue Code ("Code") and
regulations thereunder, the recipient of an award of common stock will recognize
ordinary income upon award of the stock, in an amount equal to the fair market
value of the shares on the date of the award, and the Company will be entitled
to a deduction (as a compensation expense) in the same amount in the year the
shares are awarded. The recipient's tax basis for the Common Stock issued under
a stock award will generally be equal to the fair market value of the shares on
the date of award. Upon disposition of those shares, the recipient will realize
a capital gain (or loss) equal to the difference between the tax basis and the
amount realized upon disposition. Any subsequent resale of these shares will not
result in any further tax consequences to the Company. The Stock Compensation
Plan is not qualified under Section 401(a) of the Code.
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<PAGE>
Stock awards granted under the Stock Compensation Plan confer no right upon
any participant with respect to continuation of employment and do not interfere
with the employee's or the Company's right to terminate employment at any time.
Option/SAR Grants Table
The following table sets forth certain information regarding options to
purchase shares of Common Stock issued to Executive Officers of the Company
during the fiscal year ended December 31, 1997:
Option Grants in 1997
---------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Expiration
Name Granted in 1997 Price Date
---- ------- ------- ----- ----
Joseph F. Dudziak 125,000 (1) 25.5% $1.81 08/25/07
Bart K. Valdez 50,000 (2) 10.2% $1.81 08/25/07
- ----------
(1) On August 25, 1997, Mr. Dudziak's received options to purchase 125,000
shares of Common Stock, such options are immediately vested and the
exercise price of the options is $1.81 per share.
(2) On August 25, 1997, Mr. Valdez received options to purchase 50,000 shares
of Common Stock and such options are immediately vested, the options are
exercisable for a period of ten years, without regard to Mr. Valdez's
employment status with the Company and the exercise price is $1.81 per
share.
Aggregated Option Exercises in 1997 and FY-End Option Values
------------------------------------------------------------
Unexercised
Number of In-the-Money
Unexercised Options at
Shares Options at FY-end FY-end ($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
---- ----------- -------- ------------- -------------
Joseph F. Dudziak -0- -0- 100,000/0 $0.00
Bart K. Valdez -0- -0- 50,000/0 $0.00
No options were exercised during 1997 by the Company's executive officers.
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<PAGE>
Limitations on Directors' and Officers' Liability
The Company's Articles of Incorporation limit the liability of directors to
shareholders for monetary damages for breach of a fiduciary duty except in the
case of liability: (i) for any breach of their duty of loyalty to the Company or
its shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for unlawful
distributions as provided in Section 7-108-403 of the Colorado Business
Corporation Act; or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Articles of Incorporation and Bylaws provide for the
indemnification of directors and officers of the Company to the maximum extent
permitted by law, including Section 7-109-102 of the Colorado Business
Corporation Act, against all liability and expense (including attorneys' fees)
incurred by reason of the fact that the officer or director served in such
capacity for the Company, or in a certain capacity for another entity at the
request of the Company. Section 7- 109-102 of the Colorado Business Corporation
Act provides generally for indemnification of directors against liability
incurred as a result of actions, suits or proceedings if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the Company. The Company has entered into employment
agreements with certain of its employees which provide for indemnification in
addition to the indemnification provided for above. These agreements, among
other things, indemnify and hold harmless the employees against all claims,
actions, costs, expenses, damages and liabilities arising out of or in
connection with activities of the Company or its employees or other agents
within the scope of the employment agreements or as a result of being an officer
or director of the Company. Excluded is indemnification for matters resulting
from gross negligence or willful misconduct of the employee. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and officers. Insofar as indemnification
for liabilities arising under the Securities Act of 1933, as amended (the "Act")
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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 small business issuer of expenses incurred or
paid by a director, officer or controlling person of the Company 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 small business issuer 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.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being or
may be sought, and the Company is not aware of any other pending or threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The Company is currently controlled by Heng Fung Holdings Company Limited
("Heng Fung Holdings") and its principals, Fai H. Chan, Kwok Jen Fong, Robert H.
Trapp and Gary L. Cook. Heng Fung Holdings and its principals have appointed
five of eight members of the Board of Directors of the Company, i.e., Messrs.
Chan, Fong, Trapp, Cook and Jeffrey M. Busch. In addition, Heng Fung Holdings
owns 98.6% of Heng Fung Capital (S) Limited, which, in turn, owns 100% of Heng
Fung Finance Company Limited ("Heng Fung Finance"). In connection with an April
14, 1998 $1.5 million loan to the Company, Heng Fung Finance was issued a
warrant to purchase 6,000,000 shares of the Company's Common Stock, exercisable
at $.25 per share until April 14, 2008. Heng Fung Holdings also owns
approximately 31% (beneficially approximately 76%) of the outstanding common
stock of Fronteer Financial Holdings Limited ("Fronteer Financial Holdings").
Fronteer Financial Holdings owns 100% of the outstanding common stock of
American Fronteer Financial Corporation ("AFFC"), formerly named RAF Financial
Corporation, the underwriter of the Company's initial public offering. AFFC owns
warrants to purchase 46,100 units at $11.55 per unit, exercisable until January
14, 2002, each unit consisting of two shares of Common Stock and a warrant to
purchase one share of Common Stock at $7.51, exercisable until February 11,
2000. Fronteer Financial Holdings also owns 100% of the outstanding common stock
of Fronteer Capital, Inc. ("Fronteer Capital") and 100% of the outstanding
common stock of Fronteer Development Finance, Inc. ("Fronteer Development"). In
connection with an April 14, 1998 $1.65 million line of credit extended to the
Company, Fronteer Capital was issued a warrant to purchase 1,000,000 shares of
the Company's Common Stock, exercisable at $.25 per share until April 14, 2008,
and the right to receive a warrant to purchase an additional 5,000,000 shares of
the Company's Common Stock, exercisable at $.25 per share until April 14, 2008,
if the line of credit was drawn upon by the Company. In September 1998, pursuant
to an Assignment, Assumption, Assumption and Consent Agreement, Fronteer Capital
assigned all its rights duties and obligations under the $1.65 million line of
credit to Fronteer Development. In October 1998, the Company borrowed $400,000
on the $1.65 million line of credit and issued Fronteer Development a warrant to
purchase 5,000,000 shares of the Company's Common Stock, exercisable at $.25 per
share until April 14, 2008. Also, in October 1998, pursuant to a Loan and
Warrant Purchase and Sale Agreement, Heng Fung Finance sold Fronteer Development
$1 million of the April 14, 1998 loan and warrants to purchase 4,000,000 shares
of the Company's Common Stock, exercisable at $.25 per share until April 14,
2008. Therefore, through its subsidiaries, Heng Fung Holdings and its principals
beneficially own warrants to purchase 12,000,000 shares of the Company's Common
Stock, exercisable at $.25 per share until April 14, 2008, and warrants to
purchase 46,100 units at $11.55 per unit, exercisable until January 14, 2002,
each unit consisting of two shares of Common Stock and a warrant to purchase one
share of Common Stock at $7.51, exercisable until February 11, 2000. Should the
Company not repay the financing proceeds and accrued interest thereon on or
before April 15, 1999, the convertible financing proceeds, including interest
thereon, are convertible into approximately 70 million shares of Common Stock at
$0.05 per share. For a further description of these April 1998 Financing
Agreements see The Company - Financing Agreements, above, and Change in Control,
below.
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<PAGE>
The following table sets forth, as of the date hereof, the ownership of the
Company's Common Stock, based upon 8,881,879 common shares outstanding, by (i)
each director and executive officer of the Company, (ii) all executive officers
and directors of the Company as a group, and (iii) all persons known by the
Company to beneficially own more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
Amount and Nature
of
Beneficial Percent of
Name and Address of Shareholder Position With Company Ownership (1) Class
- ------------------------------- --------------------- ------------- -----
<S> <C> <C> <C>
Michael I. Ruxin, M.D. Chairman of the Board 1,985,250(2) 19.6%
12600 W. Colfax, Suite A-500 and Chief Executive
Lakewood, CO 80215 Officer
Thomas F. Marcinek President and Chief 130,500(3) 1.5%
1026 Folsom Ranch, Apt. #303 Operating Officer
Folsom, CA 95630
William J. Collard President (Wyndgate 613,006(4) 6.9%
11060 White Rock Road, Suite 200 Technologies, Inc.)
Rancho Cordova, CA 95670
Gerald F. Willman, Jr. Director and Vice 952,514(5) 10.6%
11463 Forty-Niner Circle President - Product
Gold River, CA Management (Wyndgate
Technologies, Inc.)
Lori J. Willman None 952,514(6) 10.6%
11463 Forty-Niner Circle
Gold River, CA
Gordon E. Segal Director 312,250(7) 3.5%
P.O. Box 3667
Telluride, CO 81435
Fai H. Chan Director 12,388,300(8)(9)(10)(11) 58.2%
30 Wall Street, 11th Floor
New York, NY 10005
Jeffrey M. Busch Director 1,938,300(12) 18.0%
Suite 204 B, Oxford Plaza
University Plaza
Newark, DE 19702
-62-
<PAGE>
Robert H. Trapp Director 12,138,300(8)(10)(11) 57.7%
1700 Lincoln Street
32nd Floor
Denver, CO 80202
Kwok Jen Fong Director 12,288,300(8)(13) 58.0%
7 Temasek Boulevard
#43-03 Suntec Tower One
Singapore 038987
Gary L. Cook Director -0- 0.0%
1700 Lincoln Street, 32nd Floor
Denver, Colorado 80202
Alan K. Geddes Vice President Finance, 93,833(14) 1.1%
6 Barrie Way Chief Financial Officer
Mill Valley, CA 94941 and Treasurer
Bruce Daniels Vice President - Sales and 10,000(15) 0.1%
11060 White Rock Road, Suite 200 Marketing (Wyndgate
Rancho Cordova, CA 95670 Technologies, Inc.)
James R. Flynt Vice President - -0-(16) 0.0%
11060 White Rock Road, Suite 200 Operations (Wyndgate
Rancho Cordova, CA 95670 Technologies, Inc.)
Kim Geist Secretary of Global Med 2,000(17) 0.02%
13400 Clayton Street Technologies, Inc.
Thornton, CO 80241
All Directors and Executive 17,437,653 73.3%
Officers as a group (14 persons)
</TABLE>
- ----------
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed.
(2) Includes 6,250 shares underlying warrants issued in connection with the
purchase of 10% Notes and 1,250,000 shares underlying currently exercisable
options.
(3) Includes 120,000 shares underlying currently exercisable options. Does not
include 380,000 options which will not become exercisable for more than
sixty days of the date hereof.
(4) Includes 15,000 shares underlying warrants issued in connection with the
purchase of 10% Notes. Mr. Collard has granted individual options to an
employee of Wyndgate Technologies, Inc. to purchase all or any part of
1,633 of his shares of the Company, exercisable until September 21, 2005.
(5) Includes 346,481 shares owned by Lori J. Willman, the spouse of Gerald F.
Willman, Jr., and 72,000 shares underlying currently exercisable options.
Does not include 26,000 shares underlying options which will not become
exercisable for more than sixty days of the date hereof. Gerald F. Willman,
Jr. has granted individual options to certain employees of Wyndgate
Technologies, Inc. to purchase all or any part of 109,434 of his shares of
the Company, exercisable until September 21, 2005.
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(6) Includes 536,033 shares and 70,000 shares underlying currently exercisable
options owned by Gerald F. Willman, Jr., the spouse of Lori J. Willman.
Does not include 26,000 shares underlying options owned by Gerald F.
Willman, Jr. which will not become exercisable for more than sixty days of
the date hereof.
(7) Includes 6,250 shares underlying warrants issued in connection with 10%
Notes and 56,000 shares underlying currently exercisable options. Does not
include 24,000 shares underlying options which will not become exercisable
for more than sixty days of the date hereof.
(8) Includes 2,000,000 shares which may be acquired upon exercise of warrants
to purchase Common Stock, which are currently exercisable, owned by Heng
Fung Finance Company Limited, as to which he is a director and 9,000,000
shares which may be acquire upon exercise of warrants to purchase Common
Stock, which are currently owned by Fronteer Development Finance, Inc., a
majority-owned subsidiary of Heng Fung Finance Company Limited.
(9) Includes 250,000 shares underlying currently exercisable options.
(10) Includes 1,000,000 shares which may be acquired upon exercise of warrants
to purchase Common Stock, which are currently exercisable, owned by
Fronteer Capital, Inc., as to which he is a director.
(11) Includes 138,300 shares underlying currently exercisable warrants to
purchase 46,100 units, each unit consisting of two shares of common stock
and one currently exercisable warrant, owned by American Fronteer Financial
Corporation, f.k.a. RAF Financial Corporation, of which he is a director.
(12) Includes: (i) 50,000 shares, 150,000 shares underlying currently
exercisable options and 600,000 shares underlying currently exercisable
warrants; (ii) 1,000,000 shares which may be acquired upon exercise of
warrants to purchase Common Stock, which are currently exercisable, owned
by Fronteer Capital, Inc., which is a wholly-owned subsidiary of Fronteer
Financial Holdings, Ltd., of which he is a director; and, (iii) 138,300
shares underlying currently exercisable warrants to purchase 46,100 units,
each unit consisting of two shares of common stock and one currently
exercisable warrant, owned by American Fronteer Financial Corporation,
f.k.a. RAF Financial Corporation, which is a wholly-owned subsidiary of
Fronteer Financial Holding, Ltd., of which he is a director.
(13) Includes: (i) 150,000 shares underlying currently exercisable options; (ii)
1,000,000 shares which may be acquired upon exercise of warrants to
purchase Common Stock, which are currently exercisable, owned by Fronteer
Capital, Inc., which is a wholly-owned subsidiary of Fronteer Financial
Holdings, Ltd., which is a partially-owned subsidiary of Heng Fung Finance
Company Limited, of which he is a director; and, (iii) 138,300 shares
underlying currently exercisable warrants to purchase 46,100 units, each
unit consisting of two shares of common stock and one currently exercisable
warrant, owned by American Fronteer Financial Corporation, f.k.a. RAF
Financial Corporation, which is a wholly-owned subsidiary of Fronteer
Financial Holding, Ltd., which is a partially-owned subsidiary of Heng Fung
Finance Company Limited, of which he is a director.
(14) Includes 83,333 shares underlying currently exercisable options. Does not
include 266,667 shares underlying options which will not become exercisable
for more than sixty days from the date hereof.
(15) Does not include 250,000 shares underlying options which will not become
exercisable for more than sixty days from the date hereof.
(16) Does not include 100,000 shares underlying options which will not become
vested for more than 60 days from the date hereof.
(17) Includes 2,000 shares underlying currently exercisable options. Does not
include 13,000 shares underlying options which will not become vested for
more than 60 days of the date hereof.
Change in Control
In April 1998, the Company entered into financing agreements (the "April
1998 Financing Agreements") with two related companies, Heng Fung Finance
Company Limited and Fronteer Capital, Inc., which were not previously related to
the Company. Pursuant to the April 1998 Financing Agreements, among other
things, certain members of the Company's Board of Directors and management were
required to execute resignation letters, which were delivered to Heng Fung, who
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is holding such letters in escrow pending any default under the terms of the
Heng Fung Loan. Included in the Officers, Directors and employees who have
submitted resignations to Heng Fung are Michael I. Ruxin, William J. Collard,
Gerald F. Willman, Gordon E. Segal, Thomas F. Marcinek, Hollis Gailey, the wife
of William J. Collard who has since resigned her position with the Company, Lori
Willman, the wife of Gerald F. Willman, Timothy Pellegrini and Bradley V.
Maberto. Pursuant to the April 1998 Financing Agreements, Heng Fung appointed
the following five directors to the Company's Board of Directors: Fai H. Chan,
Jeffrey M. Busch, Robert L. Trapp, Kwok Jen Fong and Gary L. Cook. Heng Fung has
also the right to veto any future contracts not in the ordinary course of
business, and any contract for employment, loans, leases or with a value in
excess of $250,000. Since completion of the April 1998 Financing Agreements and
the appointment of the additional directors by Heng Fung, new employment
contracts approved by the Board have been entered into with Dr. Ruxin and
Messrs. Marcinek, Alan K. Geddes and Miklos Csore.
If the lenders were to exercise their warrants, or convert any of the
outstanding debt into Common Stock upon default, the lenders would own and
control a majority of the then outstanding Common Stock. Since the Company does
not have cumulative voting, this concentration of voting control would mean that
the lenders would be able to elect all of the Directors of the Company. For a
further discussion of the April 1998 Financing Agreements see The Company -
Financing Agreements, above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1996, Michael I. Ruxin, William J. Collard, Joseph F. Dudziak,
Gordon Segal and Bart K. Valdez, officers and directors of the Company,
purchased convertible notes which accrued interest at the rate of 10% per annum
("10% Notes") in the principal amounts of $25,000, $60,000, $50,000, $25,000 and
$11,200, respectively, in the 10% Note offering by the Company. Drs. Segal and
Ruxin and Messrs. Collard, Dudziak and Valdez were also issued warrants to
purchase 6,250, 6,250, 15,000, 12,500 and 2,800 shares of the Company's Common
Stock, respectively, at $3.75 per share in connection with their purchase of the
10% Notes. The purchases of the 10% Notes were on the same terms and conditions
as purchases by non-affiliates. In March 1997, Drs. Segal and Ruxin, and Messrs.
Collard and Valdez were repaid the principal amounts of their 10% Notes, plus
interest thereon. Joseph F. Dudziak converted his 10% Note, plus the accrued
interest thereon, into a total of 14,414 shares of Common Stock.
Dr. Ruxin personally guaranteed the Company's $1 million line of credit
which was repaid from proceeds of the Company's February 1997 public offering
and various capital lease obligations currently totaling approximately $160,000.
Additionally, Dr. Ruxin has personally guaranteed $1.5 million of the Fronteer
Line of Credit. See The Company - Financing Agreements.
In August 1997, the Company entered into a four year employment agreement
with Hollis Gailey, the spouse of William J. Collard, an Officer and then
Director of the Company to provide international business services for Wyndgate,
including researching international requirements for exporting Wyndgate's
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software, securing international business and acting as a liaison to certain
potential international clients. The agreement provided for an annual salary of
$86,000 and cost of living increases at the rate of 2% per annum, plus any other
increase which may be determined from time to time at the discretion of the
Company's Board of Directors. During 1997, the Company also paid Ms. Gailey
$30,000 in consideration of her entering into the employment agreement with the
Company, and agreed to pay $60,000 in deferred compensation, payable in three
equal annual installments in 1998, 1999, and 2000. In January 1998, the Company
paid Ms. Gailey $20,000 in connection with the deferred compensation amount. Ms.
Gailey resigned from the Company on September 9, 1998.
The Board of Directors of the Company has adopted resolutions that no
business transaction, loan or advance will be made by the Company to any
officer, director or holder of more than 5% of the Company's Common Stock, or
any affiliate thereof, unless it has been established that a bona fide business
purpose exists, that all future transactions between the Company and its
officers, directors, or principal shareholders, or any affiliate of any of such
person, must be approved or ratified by a majority of the disinterested
directors of the Company, and the terms of such transaction must be no less
favorable to the Company than could have been realized by the Company in an
arms-length transaction with an unaffiliated person. The Company believes that
all ongoing transactions with the Company's affiliates are on terms no less
favorable than could be obtained from unaffiliated third parties.
The Board of Directors of the Company has also adopted a resolution that
provides that the areas of business in which the Company shall be interested for
the purpose of the doctrine of corporate opportunities shall be the business of
information management software products and services. Any business opportunity
which falls within such areas of interest must be brought to the attention of
the Company for acceptance or rejection prior to any officer or director of the
Company taking advantage of such opportunity. Any business opportunity outside
such areas of interest maybe entered into by any officer or director of the
Company without the officer or director first offering the business opportunity
to the Company.
Fronteer Corporate Services, Inc., a wholly-owned subsidiary of Fronteer
Financial Holdings, Ltd., has been retained by the Company to provide accounting
and tax services. To date the Company has paid less than $10,000 for such
services. See Security Ownership of Certain Beneficial Owners and Management,
above, for a description of Fronteer Financial Holdings, Ltd's relationship to
the Company.
On June 3, 1998, the Company authorized the issuance of an incentive stock
option to purchase 5,000 shares of the Company's Common Stock at $1.0625 per
share, exercisable for ten years, to Kim Geist, Secretary of Global Med
Technologies, Inc.
On August 25, 1998, the Company authorized the issuance of non-qualified
stock options to purchase an aggregate of 900,000 shares of the Company's Common
Stock at $0.75 per shares, exercisable for ten years, to members of the Board of
Directors in consideration for serving on the Board and on the Executive
Committee of the Board. Pursuant to Dr. Ruxin's Employment Agreement, the
Company authorized the issuance to Dr. Ruxin of a non-qualified stock option to
purchase 1,000,000 shares of the Company's Common Stock at $0.75 per share,
exercisable for ten years. The Company also authorized the issuance of
non-qualified stock options to purchase an aggregate of 887,000 shares of the
Company's Common Stock at $0.75 per share, exercisable for ten years, to the
following officers of the Company: Alan K. Geddes, Bruce Daniels, James R.
Flynt, Timothy Pellegrini, Miklos Csore, Gerald Willman, Kim Geist and Thomas F.
Marcinek.
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On August 25, 1998, pursuant to the provisions of the Company's Consultancy
Agreement with Jeffrey M. Busch, a Director of the Company, the Company
authorized and authorized the issuance of (i) warrants to purchase 600,000
shares of the Company's Common Stock, at $0.75 per share, exercisable for ten
years, and (ii) an aggregate of 150,000 shares of Common Stock: 50,000 shares of
which were issued in September 1998 and 50,000 shares to be issued on each of
the following two anniversaries of the Agreement (i.e., August 1, 1999 and
August 1, 2000).
On October 14, 1998, the Company authorized the issuance of non-qualified
stock options to purchase an aggregate of 130,000 shares of the Company's Common
Stock at $0.75 per share, exercisable for ten years, to Timothy Pellegrini and
Gerald Willman, both of whom are officers of the Company.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue up to 40,000,000 shares of Common Stock,
$.01 par value. There are 8,881,879 shares presently outstanding. All shares of
Common Stock have equal voting rights and, when validly issued and outstanding,
have one vote per share in all matters to be voted upon by shareholders. There
are approximately 134 holders of record of the Company's Common Stock. The
shares of Common Stock have no preemptive, subscription, conversion or
redemption rights and may be issued only as fully paid and non-assessable
shares. Cumulative voting in the election of directors is not allowed, which
means that the holders of a majority of the outstanding shares represented at
any meeting at which a quorum is present will be able to elect all of the
directors if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any directors. On liquidation of the
Company, each common shareholder is entitled to receive a pro rata share of the
Company's assets available for distribution to common shareholders.
Excluding 1,456,988 Class A Warrants described below, the Company has
outstanding options and warrants to purchase an aggregate of 5,653,118 shares of
Common Stock. The Company has no stock option plan or similar plan which may
result in the issuance of stock options, stock purchase warrants or stock
bonuses other than the Amended and Restated Stock Option Plan and the Stock
Compensation Plan pursuant to which an aggregate of 2,399,802 shares of Common
Stock have been reserved for issuance.
Preferred Stock
The Company is authorized to issue up to a total of 10,000,000 shares of
preferred stock, $.01 par value, with the shares to be issued in series by the
Board of Directors. The Company's Board of Directors has designated 100,000
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shares of preferred stock as Series A Preferred Stock, of which 66,667 were
issued and subsequently converted into an equal number of shares of the
Company's Common Stock. The remaining shares of preferred stock may be issued in
one or more series from time to time with such designations, rights, preferences
and limitations as the Company's board of directors may determine without
approval of its shareholders. Series A Preferred Stock has the same voting
rights of Common Stock, except that the holders of Series A Preferred Stock are
entitled to elect as a class one director to the Company's Board of Directors.
The holders of the Series A Preferred Stock shall be entitled to dividends when,
as and if declared on the same basis as the holders of the Company's Common
Stock. The rights, preferences and limitations of separate series of serial
preferred stock may differ with respect to such matters as may be determined by
the Company's Board of Directors, including without limitation, the rate of
dividends, method or nature or prepayment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions, conversion rights and
voting rights. The ability of the Board to issue preferred stock could also be
used by it as a means for resisting a change of control of the Company and can
therefore be considered an "anti-takeover" device.
10% Notes
The Company issued $751,200 principal amount of convertible 10% Notes (the
"10% Notes") accruing interest at the rate of 10% per annum until maturity,
which was March 6, 1997. Holders of $423,500 principal amount of 10% Notes have
converted the principal amount of their 10% Notes, plus accrued interest
thereon, into an aggregate of 121,003 shares of Common Stock, of which 28,000
were converted at December 31, 1996, at the rate of one share per $3.75 of
interest and principal. In addition, 187,800 shares of Common Stock are issuable
upon exercise of warrants issued in conjunction with the 10% Note offering. The
121,003 shares issued upon conversion of the 10% Notes and the 187,800 shares
underlying the warrants have been registered under a Registration Statement on
Form SB-2.
Class A Warrants
Each Class A Common Stock Purchase Warrant (the "Class A Warrants")
entitles the holder thereof to purchase one share of Common Stock at an exercise
price of $4.55 (130% of the initial public offering price of the Common Stock)
per share, subject to adjustment in certain events, at any time prior to
February 11, 2000. In addition to customary anti-dilution provisions, the
exercise price of the Class A Warrants may be adjusted if the Company issues
Common Stock or Common Stock purchase rights at a price less than the then
exercise price.
The Class A Warrants are subject to redemption by the Company at $.55 per
Class A Warrant at any time until February 11, 1999, and thereafter at $.75 per
Class A Warrant at any time until their expiration, on 30 days' prior written
notice to the holders of Class A Warrants, provided that the daily trading price
per share of Common Stock has been as least $5.46 (120% of the Class A Warrant
exercise price) for a period of at least 20 consecutive trading days ending
within 10 days prior to the date upon which the notice of redemption is given.
For purposes of determining the daily trading price of the Company's Common
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Stock, if the Common Stock is listed on a national securities exchange, is
admitted to unlisted trading privileges on a national securities exchange, or is
listed for trading on a trading system of the NASD such as the NASDAQ Small Cap
Market or the NASDAQ/NMS, then the last reported sale price of the Common Stock
on such exchange or system each day shall be used or if the Common Stock is not
so listed on such exchange or system or admitted to unlisted trading privileges
then the average of the last reported high bid prices reported by the National
Quotation Bureau, Inc. each day shall be used to determine such daily trading
price. The Class A Warrants will be exercisable until the close of the business
day preceding the date fixed for redemption, if any.
The Class A Warrants are subject to the terms of a Warrant Agreement dated
as of February 11, 1997, (the "Warrant Agreement") between the Company and
American Securities Transfer & Trust Inc., as Warrant Agent. Reference is made
to said Warrant Agreement (which has been filed as an Exhibit to the Company's
Registration Statement No. 333-11723) for a complete description of the terms
and conditions thereof. The description herein is qualified in its entirety by
reference to the Warrant Agreement.
The exercise prices and number of shares of Common Stock or other
securities issuable on exercise of the Class A Warrants are subject to
adjustment in certain circumstances, including in the event of a stock dividend,
stock split, recapitalization, reorganization, merger or consolidation of the
Company. Fractional shares will not be issued and such shares will have no
value.
The Class A Warrants may be exercised upon surrender of the Class A Warrant
certificate on or prior to the expiration date at the offices of the Warrant
Agent, with the exercise form on the reverse side of the Class A Warrant
certificate completed and executed as indicated, accompanied by full payment of
the exercise price (by cashier's or certified check payable to the Company) to
the Warrant Agent for the number of warrants being exercised. The Class A
Warrant holders do not have the rights or privileges of holders of Common Stock.
Dividend Policy
Dividends are payable on Common Stock when, as, and if declared by the
Board of Directors out of funds legally available to pay dividends, subject to
any preferences which may be given to holders of preferred stock. The Company
has paid no cash dividends to date and it does not anticipate payment of cash
dividends in the foreseeable future.
Stock Transfer Agent
The Company has designated American Securities Transfer & Trust, Inc. as
its transfer agent for the Common Stock and as its Warrant Agent.
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SELLING SECURITY HOLDERS
This Prospectus covers the proposed sale of 12,000,000 Common Stock
Purchase Warrants (the "Warrants") and 12,000,000 shares of Common Stock which
underlie Common Stock Purchase Warrants issued in connection with the Heng Fung
Loan and the Fronteer Line of Credit in April 1998. See The Company-Financing
Agreements. This Prospectus also covers the proposed sale of 563,624 shares of
Common Stock owned by Robert M. Kassenbrock and John D. Prudden which were
issued in connection with their exercise of warrants in December 1998. (The
12,000,000 shares of Common Stock which underlie the Common Stock Purchase
Warrants and the 563,624 shares of Common Stock owned by Messrs. Kassenbrock and
Prudden are referred to, collectively, as the "Shares.") The Kassenbrock and
Prudden warrants were originally exercisable to purchase 150,000 shares of
Common Stock at a purchase price of 85% of the public offering price per share
of the Company's public offering ($2.62 per share), Registration No. 333-11723,
or in the event of no public offering, at $3.00 per share. However, as a result
of a disagreement which arose with respect to the application of the warrants'
extensive anti-dilution provisions, the Company agreed to discharge any and all
obligations under the warrants by issuing a total of 563,624 shares of Common
Stock at purchase price of $0.55 per share (which was a 25% discount from the
average of the bid and ask price of the Registrant's Common Stock at the close
of business on December 15, 1998), for a total of $309,993.
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Security Holders, but may receive up to $3,000,000 if the
Warrants are exercised.
The following table sets forth certain information concerning the
beneficial ownership of Common Stock by each Selling Security Holder as of the
date of this Prospectus:
<TABLE>
<CAPTION>
Shares Shares Owned After
Shares to be Underlying Offering Warrants
Shares Owned Warrants Sold Warrants to -------- Owned
Prior to Owned Prior in the be Sold in After
Name Offering to Offering Offering the Offering Number Percentage Offering
---- -------- ----------- -------- ------------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Heng Fung -0- 2,000,000 -0- 2,000,000 (1) -0- -0- % -0-
Finance
Company
Limited
Fronteer -0- 9,000,000 -0- 9,000,000(1) -0- -0- % -0-
Development
Finance, Inc.
Fronteer -0- 1,000,000 -0- 1,000,000(1) -0- -0- % -0-
Capital, Inc.
Robert M. 388,093 -0- 312,493 -0- 75,600 0.9 % -0-
Kassenbrock
John D. 266,131 -0- 251,131 -0- 15,000 0.2 % -0-
Prudden
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- ----------
(1) Represents shares underlying warrants to purchase Common Stock, exercisable
at $.25 per share until April 14, 2008.
PLAN OF DISTRIBUTION
As used herein, "Selling Security Holders" includes donees and pledgees
selling shares of Common Stock received from a named Selling Security Holder
after the date of this Prospectus. All costs, expenses and fees in connection
with the registration of the Shares and Warrants offered hereby will be born by
the Company. Sales of the Selling Security Holders' Warrants and Shares may be
effected from time to time in transactions (which may include block
transactions) in the over-the counter market, in negotiated transactions, or in
a combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Security Holders have advised the Company that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of the Warrants and the Shares. The Selling
Security Holders may effect such transactions by selling the Warrants and Shares
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Security Holders and/or
the purchasers of the Warrants and the Shares for whom such broker-dealers may
act as agents or to whom they sell as principals, or both.
American Fronteer Financial Corporation ("AFFC"), formerly named RAF
Financial Corporation, the underwriter of the Company's initial public offering,
will not participate in the distribution of the Warrants and Shares. AFFC owns
warrants issued by the Company to purchase 46,100 units at $11.55 per unit,
exercisable until January 14, 2002, each unit consisting of two shares of Common
Stock and a warrant to purchase one share of Common Stock at $7.51, exercisable
until February 11, 2000. AFFC is a wholly-owned subsidiary of Fronteer Financial
Holdings Limited ("Fronteer Financial"). Heng Fung Holdings Company Limited
("Heng Fung Holdings") owns approximately 31% (beneficially approximately 76%)
of the outstanding common stock of Fronteer Financial. Pursuant to the April
1998 Financing Agreements, Heng Fung Holdings and its principals have appointed
five of the eight current members of the Company's Board of Directors and
thereby control the Company. Heng Fung Holdings and its subsidiaries also
beneficially own warrants to purchase 12,000,000 shares of the Company's Common
Stock, exercisable at $.25 per share until April 14, 2008. In addition, should
the Company not repay the financing proceeds and accrued interest thereon on or
before April 15, 1999, the convertible financing proceeds, including interest
thereon, are convertible into approximately 70 million shares of Common Stock at
$0.05 per share. See The Company - Financing Agreements and Security Ownership
of Certain Beneficial Owners and Management, above.
No member of the National Association of Securities Dealers, Inc., which is
an affiliate of a Selling Security Holder, will participate in the distribution
by the Selling Security Holders of the Warrants and Shares. All sales by the
Selling Security Holders of the Warrants and Shares will be facilitated by
independent broker-dealers. Sales of the securities may be made pursuant to this
Prospectus or pursuant to Rule 144 adopted under the Securities Act of 1933, as
amended. The Selling Security Holders and any broker-dealers that act in
connection with the sale of the Warrants and Shares might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
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commission received by them and any profit on the resale of the shares of Common
Stock as principal might be deemed to be underwriting discounts and commissions
under the Securities Act. Such arrangement may necessitate a filing with the
National Association of Securities Dealers, Inc. pursuant to Notice to Members
88-101. The Selling Security Holders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the Warrants
and Shares against certain liabilities, including liabilities arising under the
Securities Act.
If any of the following events occurs, this Prospectus will be amended to
include additional disclosure before offers and sales of the Selling Security
Holders' Warrants and Shares are made: (a) to the extent the securities are sold
at a fixed price or by option at a price other than the prevailing market price,
such price would be set forth in this Prospectus, (b) if the securities are sold
in block transactions and the purchaser wishes to resell, such arrangements
would be disclosed in this Prospectus and (c) if the compensation paid to
broker-dealers is other than usual and customary discounts, concessions or
commissions, disclosure of the terms of the transaction in this Prospectus would
be included.
Because the Selling Security Holders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling Security
Holders will be subject to Prospectus delivery requirements under the Securities
Act.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby have
been passed on for the Company by the law firm of Brenman Bromberg & Tenenbaum,
P.C., Denver, Colorado. Members of the firm of Brenman Bromberg & Tenenbaum,
P.C. own 40,000 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Global Med Technologies, Inc. as
of December 31, 1997 and 1996, and for the years then ended appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
SHARES ELIGIBLE FOR FUTURE SALE
The Company presently has outstanding 8,881,879 shares of Common Stock.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated), including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least one year
from the later of the date of payment therefor to the Company or acquisition
thereof from an affiliate, may sell such securities in brokers' transactions or
directly to market makers, provided that the number of shares sold in any three
month period may not exceed the greater of 1% of the then outstanding Common
Stock or the average weekly trading volume of the Common Stock during the four
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calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain notice requirements and the availability of current public information
about the Company. After two years have elapsed from the later of the issuance
of restricted securities by the Company or their acquisition from an affiliate,
such securities may be sold without limitation by persons who are not affiliates
under Rule 144.
Sales of substantial amounts of Common Stock by shareholders of the Company
under Rule 144 or otherwise, or even the potential for such sales, are likely to
have a depressive effect on the market price of the shares of Common Stock and
Warrants and could impair the Company's ability to raise capital through the
sale of its equity securities. See Risk Factors.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities Act of
1933, as amended with respect to the securities offered hereby with the United
States Securities and Exchange Commission ("SEC"), 450 Fifth Street, N.W.,
Washington, D.C. 20549. This Prospectus, which is a part of the Registration
Statement, does not contain all of the information contained in the Registration
Statement and the exhibits and schedules thereto, certain items of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement, including all exhibits and
schedules therein, which may be examined at the SEC's Washington, D.C. office,
450 Fifth Street, N.W., Washington, D.C. 20549 without charge, or copies of
which may be obtained from the SEC upon request and payment of the prescribed
fee. Statements made in this Prospectus as to the contents of any contract,
agreement or document are not necessarily complete, and in each instance
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the Registration Statement, and each such statement is
qualified in its entirety by such reference. The Company is a reporting company
under the Securities Exchange Act of 1934, as amended, and in accordance
therewith in the future will file reports and other information with the SEC.
All of such reports and other information may be inspected and copied at the
public reference facilities maintained by the SEC at the address set forth above
in Washington, D.C. and at regional offices of the SEC located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. In addition, the Company intends to
provide its shareholders with annual reports, including audited financial
statements, unaudited interim reports and such other reports as the Company may
determine necessary. The SEC maintains a Web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC at http://www.secgov.
-73-
<PAGE>
GLOSSARY
Community Blood Centers - Community Blood Centers or CBCs are typically not for
profit blood centers usually affiliated with a local city or community. These
are different from the American Red Cross Blood Centers that maintain national
affiliation.
Donor Identification and Laboratory Component Labeling and Release Site-Based
Logic - Multiple- occurring program logic that is designed to help control and
help manage those areas of a blood center's operation in which the hazard
potential of the purity, potency and safety of the blood and blood products
effects a recognized level of concern.
EDEN-OA(R) - EDEN-OA(R) (OA is for Open Architecture) is the proprietary
Wyndgate application development product and environment used as a basis for the
existing character-based SAFETRACE (R) software product. It provides basic
functions common to applications plus maintenance management features and
processes.
FDA 510(k) - FDA 510(k) refers to the Federal Drug Administration process number
510(k) which governs a clearance letter distributed by the FDA. Software such as
the SAFETRACE (R) software product is classified as a medical device. The 510(k)
process is a stringent set of testing, verification and review of products like
the SAFETRACE (R) software product.
GUI - GUI refers to the Graphical User Interface, most commonly seen as the icon
driven windows on PCs. Special software development tools are needed to develop
GUI windows.
Help Line - Help Line refers to the service line number provided by Wyndgate for
use of its customers to receive assistance regarding Wyndgate products. Wyndgate
provides a 1-800 number for its customers who have a maintenance contract.
Module - Refers to pieces of applications computer code used to perform a
certain set of tasks or functions. Generally, modules have a name commensurate
with the major function of that set of computer code, e.g., Billing Module
refers to handling the processing of invoices.
SAFETRACE(R) - SAFETRACE(R) is the blood bank information management system
developed by Wyndgate using EDEN-OA(R) in conjunction with eight California
blood centers. The SAFETRACE(R) software product contains the following
application modules: Donor Recruitment; Donor Management; Laboratory Management;
Special Procedures; Inventory-Distribution; and Billing.
SAFETRACE Tx(TM) - SAFETRACE Tx(TM) is the transfusion management software
system under development. This transfusion system, if fully developed, will
service hospitals and those blood centers that not only supply blood or blood
components to a hospital but also manage the transfusion process.
-74-
<PAGE>
Report of Independent Auditors
Board of Directors
Global Med Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Global Med
Technologies, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' deficit, 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Global Med
Technologies, Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Denver, Colorado
April 10, 1998, except for
Note 1 as to which the date
is April 20, 1998
F-1
<PAGE>
Global Med Technologies, Inc.
Consolidated Balance Sheets
(In thousands except par value information)
DECEMBER 31
1997 1996
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 2,370 $ 489
Accounts receivable-trade, net of
allowance for uncollectible accounts
of $175 and $75 at December 31, 1997
and 1996, respectively 175 875
Unbilled revenues, net of allowance
for uncollectible accounts of $125
at December 31, 1997 and 1996 158 326
Prepaid expenses and other assets 256 196
Deferred offering costs -- 486
------- -------
Total current assets 2,959 2,372
Equipment and fixtures, at cost:
Furniture and fixtures 367 67
Machinery and equipment 303 --
Computer hardware and software 1,166 613
------- -------
1,836 680
Less accumulated depreciation and
amortization (665) (189)
------- -------
1,171 491
Capitalized software development costs,
less accumulated amortization of $403
and $163 at December 31, 1997 and
1996, respectively 136 376
------- -------
Total assets $ 4,266 $ 3,239
======= =======
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
DECEMBER 31
1997 1996
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 324 $ 483
Accrued expenses 599 731
Accrued payroll 398 243
Accrued compensated absences 449 352
Noncompete accrual 150 150
Unearned revenue 2,761 1,359
Short-term debt -- 1,097
Notes payable (including $181 to
related parties at December 31, 1996) -- 651
Current portion of capital lease
obligations 229 169
Net liabilities of discontinued
operations 631 1,132
-------- --------
Total current liabilities 5,541 6,367
Capital lease obligations, less
current portion 198 232
Commitments and contingencies -- --
Stockholders' deficit:
Preferred stock, $.01 par value:
Authorized shares - 10,000
None issued or outstanding -- --
Common stock, $.01 par value:
Authorized shares - 40,000
Issued and outstanding shares -
8,148 and 4,994 at December
31, 1997 and 1996, respectively 82 50
Additional paid-in capital 13,420 4,282
Accumulated deficit (14,975) (7,692)
-------- --------
Total stockholders' deficit (1,473) (3,360)
-------- --------
Total liabilities and stockholders'
deficit $ 4,266 $ 3,239
======== ========
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Operations
(In thousands except per common share information)
YEAR ENDED DECEMBER 31
1997 1996
------- -------
Revenues:
Software sales and consulting $ 2,209 $ 3,648
Hardware and software, obtained
from vendors 297 928
------- -------
2,506 4,576
Cost of revenues:
Software sales and consulting 1,373 937
Hardware and software, obtained
from vendors 224 946
------- -------
1,597 1,883
------- -------
Gross profit 909 2,693
Operating expenses:
Payroll and other 1,487 1,524
General and administrative 1,115 879
Sales and marketing 1,458 948
Research and development 3,757 1,538
Provision for doubtful accounts 100 19
Depreciation and amortization 409 162
------- -------
Loss from continuing operations before
other income (expense) (7,417) (2,377)
Other income (expense):
Interest income 168 25
Interest expense (86) (209)
Other (81) (250)
------- -------
Loss from continuing operations (7,416) (2,811)
Loss from discontinued operations (880) (1,681)
Gain on sale of discontinued operations 1,013 --
------- -------
Net loss $(7,283) $(4,492)
======= =======
Basic and diluted loss per share of
common stock:
Loss from continuing operations $ (0.96) $ (0.63)
Gain (loss) from discontinued
operations 0.02 $ (0.37)
------- -------
Net loss $ (0.94) $ (1.00)
======= =======
Weighted average of common shares
outstanding 7,728 4,499
======= =======
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
<TABLE>
<CAPTION>
Global Med Technologies, Inc.
Consolidated Statements of Stockholders' Deficit
(In thousands)
Common Stock Additional
----------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 3,949 $ 39 $ 1,702 $ (3,200) $ (1,459)
Issuance of common stock-
January 1996 exercise
of common stock warrants
related to May 1995
private placement 150 2 448 -- 450
January 1996 issuance of
Series A preferred
stock converted to
common stock 67 1 249 -- 250
Issuance of common stock
from exercise of stock
options under Company's
stock option plan -- -- 1 -- 1
Issuance of common stock
related to July 1996
private placement 800 8 1,732 -- 1,740
Grants of common stock
options to a business
advisory enterprise -- -- 45 -- 45
Issuance of common stock
related to conversion of
certain 10% notes 28 105 -- 105
Net loss -- -- -- (4,492) (4,492)
-------- -------- -------- -------- --------
Balance, December 31, 1996 4,994 50 4,282 (7,692) (3,360)
Issuance of warrants related
to January 1997 12% notes -- -- 79 -- 79
Issuance of common stock
related to conversion
of certain 10% notes 93 1 348 -- 349
Initial public offering,
including underwriter's
overallotment option-
net of offering expenses 2,914 29 8,197 -- 8,226
Share adjustments related to
May 1995 private placement
common stock 120 1 (1) -- --
Issuance of common stock
from exercise of stock
options under Company's
stock option plan 15 -- 21 -- 21
Issuance of common stock to
a corporate marketing
enterprise 12 1 25 -- 26
Option grants under the
Company's stock option
plan -- -- 314 -- 314
Option grants to a business
advisory enterprise -- -- 155 -- 155
Net loss -- -- -- (7,283) (7,283)
-------- -------- -------- -------- --------
Balance, December 31, 1997 8,148 $ 82 $ 13,420 $(14,975) $ (1,473)
======== ======== ======== ======== ========
SEE ACCOMPANYING NOTES.
F-5
</TABLE>
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
YEAR ENDED DECEMBER 31
1997 1996
------- -------
OPERATING ACTIVITIES
Net loss $(7,283) $(4,492)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations 880 1,681
Gain on sale of discontinued
operations (1,013) --
Depreciation 409 162
Amortization 240 97
Loss on disposal of assets 2 --
Expense related to issuance of
common stock, options and warrants 549 45
Changes in operating assets and
liabilities:
Accounts receivable-trade, net 700 (857)
Unbilled revenues, net 168 (326)
Prepaid expenses and other assets (60) (190)
Accounts payable (159) 418
Accrued expenses (132) 645
Accrued payroll 155 207
Accrued compensated absences 97 91
Noncompete accrual -- (175)
Unearned revenue 1,402 1,088
------- -------
Net cash used in continuing operations (4,045) (1,606)
Net cash used in discontinued operations (1,255) (1,040)
------- -------
Net cash used in operating activities (5,300) (2,646)
INVESTING ACTIVITIES
Purchases of equipment and fixtures (781) (67)
Capital expenditures of discontinued
operations (58) (105)
Net proceeds from sale of discontinued
operations 1,000 --
Increase in software development costs -- (70)
------- -------
Net cash provided by (used in)
investing activities 161 (242)
FINANCING ACTIVITIES
Borrowings on short-term debt 450 715
Principal payments on short-term debt (1,547) (118)
Principal payments under capital lease
obligations (207) (130)
Principal payments under capital lease
obligations of discontinued operations (107) (223)
Principal payments on notes payable (327) --
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows (continued)
(In thousands)
YEAR ENDED DECEMBER 31
1997 1996
------- -------
FINANCING ACTIVITIES (CONTINUED)
Issuance of notes payable $ -- $ 651
Issuance of common stock 8,272 2,546
Deferred offering costs 486 (486)
------- -------
Net cash provided by financing
activities 7,020 2,955
------- -------
Net increase in cash and cash
equivalents 1,881 67
Cash and cash equivalents at beginning
of period 489 422
------- -------
Cash and cash equivalents at end
of period $ 2,370 $ 489
======= =======
Supplemental disclosures:
The Company entered into capital lease obligations of approximately
$130,000 and $585,000 in 1997 and 1996, respectively, including $343,000
related to discontinued operations in 1996.
During 1997, convertible 10% notes payable of approximately $324,000 and
related accrued interest of approximately $25,000 were converted into
93,003 shares of common stock at $3.75 per share (see Note 8).
During 1996, convertible 10% notes payable of approximately $100,000 and
related accrued interest of approximately $5,000 were converted into 28,000
shares of common stock at $3.75 per share (see Note 8).
Interest expense approximates interest paid.
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
On May 23, 1995, The Wyndgate Group, Limited (Wyndgate) merged with National
MRO, Inc. (National MRO) in accordance with the terms and provisions of an
Agreement of Merger and National MRO changed its name to Global Data
Technologies, Inc., which subsequently changed its name to Global Med
Technologies, Inc. (the Company). All shares of Wyndgate common stock were
exchanged for a total of 1,960,000 shares of common stock of the Company. This
merger transaction was accounted for as a pooling of interests. Subsequent to
the merger, the businesses of both Wyndgate and National MRO have been operated
as divisions of the Company. Also, the National MRO and Wyndgate divisions are
now referred to as DataMed International (DataMed) and Wyndgate Technologies
(Wyndgate), respectively (see Note 2).
DESCRIPTION OF BUSINESS
The Company, through Wyndgate, provides information management software products
and services to the health care industry. The Company, through its DataMed
division, which is shown in the accompanying consolidated financial statements
as discontinued operations (see Note 2), was in the business of providing
substance abuse testing management services.
LIQUIDITY AND MANAGEMENT'S PLANS
From inception to December 31, 1997, the Company incurred cumulative net losses
of approximately $15 million. The Company expects to continue to incur net
losses until 1999, and possibly thereafter, until its existing SAFETRACE(R)
software product is completely implemented and operational within the Company's
customers' information system environments and until its transfusion services
software product (to be known as SAFETRACE TX(TM), which is currently in beta
testing, is established in its markets (see Note 10 and Note 11). On April 14,
1998 and as amended on April 16, 1998 and on April 20, 1998, the Company entered
into two financing agreements with two related parties, which are not affiliated
with the Company, as follows: a loan of $1.5 million and a line of credit of up
to $1.65 million. Both the loan and the line of credit accrue interest at 12%
per annum to be paid monthly, with principal and any unpaid interest to be
repaid upon maturity of 366 days after April 14, 1998. The Company agreed to pay
a finder's fee of 9% of the amounts drawn upon the line of credit to RAF
Financial Corporation (RAF). RAF is related to the lenders and was also the lead
underwriter for the Company's February 1997 initial public offering.
F-8
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Pursuant to the agreements, the lenders will have certain rights which will
include the right to appoint five members to the Company's Board of Directors,
the option to cancel all management and employee contracts and the right to veto
any contract for employment, loans or leases valued over $250,000.
Upon signing of the loan, the lender received 6 million detachable warrants
which are convertible at $.25 each for one share of the Company's common stock.
If the Company draws upon the line of credit, the lender will receive 6 million
detachable warrants, in total, which are convertible at $.25 each for one share
of the Company's common stock. If the Company does not draw upon the line of
credit, the lender will receive 1 million detachable warrants with the same
conditions. The warrants are exercisable over a 10-year period from April 14,
1998. The Company must use its best efforts to register the common stock
underlying the detachable warrants on or before July 14, 1998. If the Company
defaults on the loan or the line of credit, the debt, including any interest,
can be converted into shares of the Company's common stock on the basis of one
share for each $.05 of debt.
Under current accounting rules regarding discounted warrants, these financings
may result in material non-cash charges to the Statement of Operations in 1998.
Management has not completed the assessment of the amounts to be charged to
expense.
In light of the Company's projected earnings and cash flow, management believes
the Company has the financial resources with this additional financing to
maintain its planned level of operations for the next twelve months without
obtaining additional financing. Management, however, recognizes that even with
the current financing, the Company will need to obtain additional capital in
1999, or may be required to substantially reduce its software development
programs and other operating expenses.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its Wyndgate division. All significant interdivision accounts and
transactions have been eliminated.
F-9
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
REVENUE RECOGNITION
Revenue from the provision of maintenance services, included in software sales
and consulting revenue, is recognized on a straight-line basis over the
maintenance term.
Revenue from the provision of implementation and consulting services, included
in software sales and consulting revenue, is recognized as services are
performed.
Revenue from software development contracts, included in software sales and
consulting revenue, is recognized on a percentage-of-completion method with
progress to completion measured based upon labor costs incurred or achievement
of contract milestones.
Revenue from the re-sale of hardware and software, obtained from vendors, is
recognized at the time the hardware and software are delivered to customers.
Revenue from sales of software licenses, included in software sales and
consulting revenue, is recognized upon delivery of the software product to the
customer, unless the Company has significant related vendor obligations
remaining. When significant obligations remain after the software product has
been delivered, revenue is not recognized until such obligations have been
completed or are no longer significant. The costs of any insignificant
obligations are accrued when the related revenue is recognized.
In October 1997, the AICPA issued Statement of Position ("SOP") 97-2, SOFTWARE
REVENUE RECOGNITION, which changes the requirements for revenue recognition
effective for transactions the Company will enter into beginning January 1,
1998. Prior years are not required to be restated. The Company hasn't yet
completed its assessment of the impact SOP 97-2 will have on its financial
statements.
UNBILLED REVENUES
Unbilled revenues at December 31, 1997 and 1996 are generally billable and
collectible within one year.
UNEARNED REVENUE
Included in unearned revenue at December 31, 1997 and 1996 is approximately
$33,000 and $52,000, respectively, of unperformed professional services related
to an agreement between the EDEN-OA Blood Bank Users Group (the Royalty Group)
F-10
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
and Wyndgate (see Note 10). At December 31, 1997, $1 million of the unearned
revenue balance is related to an agreement between the Company (through its
Wyndgate division) and Ortho Diagnostic Systems, Inc., a subsidiary of Johnson &
Johnson (see Note 10). At December 31, 1997, approximately $485,000 and $400,000
of the unearned revenue balance is related to agreements between The Institute
for Transfusion Medicine and the Company for a transfusion services software
product (to be known as SAFETRACE TX(TM)) development agreement (see Note 10 and
Note 11) and a SAFETRACE(R) software license agreement, respectively. The
remaining unearned revenue balance at December 31, 1997 of $843,000 primarily
consists of unearned SAFETRACE(R) maintenance revenue, sales of SAFETRACE(R)
licenses and related postcontract customer support, and re-sales of hardware and
software which are not recognizable as revenue at December 31, 1997 pursuant to
the Company's revenue recognition accounting policies discussed above.
SIGNIFICANT CUSTOMERS
During 1997, two Wyndgate customers - Haemonetics Corporation and Belle Bonfils
Memorial Blood Center, each accounted for approximately 33% and 10% of the
Company's total revenues from continuing operations.
During 1996, one Wyndgate customer, Gulf Coast Regional Blood Center, accounted
for approximately 29% of the Company's total revenues from continuing
operations.
Accounts receivable from the above customers was approximately $60,000 and
$205,000 at December 31, 1997 and 1996, respectively. Unbilled revenues from the
above customers was approximately $160,000 at December 31, 1997.
CREDIT AND MARKET RISK
Accounts receivable at December 31, 1997 are derived entirely from SAFETRACE(R)
sales and related services and re-sales of hardware and software to blood
centers and blood center service providers located in the United States. The
Company, historically, does not require collateral or other security to support
customer receivables. In order to reduce credit risk, the Company requires
substantial down payments and progress payments during the course of an
installation of its software products. The Company establishes allowances for
doubtful accounts based upon factors surrounding the credit risk specific to
customers. Losses and allowances have generally been within management's
expectations.
F-11
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts receivable turnover trends have generally slowed from previously
expected rates due to certain delays experienced to date related to
implementation of Wyndgate's blood bank management information system software
product (SAFETRACE(R)).
NOTE RECEIVABLE
During the first quarter of 1996, the Company advanced $250,000 to a development
company in California (the Development Company) in exchange for a convertible
promissory note (the Note) due February 26, 1997. During the fourth quarter of
1996, the maturity date of the Note was initially extended to December 31, 1997
and was further extended until June 30, 1998. The Note accrues interest at an
annual rate of prime plus two percent and is primarily collateralized by the
Development Company's technology. At December 31, 1996, the Company offset the
Note with an allowance in the amount of $250,000 and the related expense is
included in other expenses in the accompanying consolidated statements of
operations. The Company believes it prudent to fully reserve for the Note based
on the current financial position of the Development Company.
EQUIPMENT AND FIXTURES
Equipment and fixtures are stated at cost. Depreciation and amortization, which
includes amortization of assets under capital leases (see Note 5), is based on
the straight-line method over the following estimated useful lives:
Furniture and fixtures 3 - 5 years
Machinery and equipment 3 - 5 years
Computer and software 3 - 5 years
FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate fair
value due to the short maturity of these items.
LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate assets might be impaired and the
undiscounted cash flows estimated to be generated by these assets are less than
the carrying amounts of those assets.
F-12
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development and production costs once
technological feasibility has been achieved. Software development costs incurred
prior to achieving technological feasibility are included in research and
development expense in the accompanying consolidated statement of operations.
Capitalized software development costs are reported at the lower of unamortized
costs or net realizable value. Commencing upon the initial product release or
when software development revenue has begun to be recognized, these costs are
amortized based on the straight line method over the estimated life, generally
two to five years. Fully amortized software costs are removed from the financial
records. For the years ended December 31, 1997 and 1996, the Company recorded
approximately $240,000 and $97,000 of amortization of capitalized software
costs, respectively, based on the straight-line method. Amortization of
capitalized software costs is included in cost of revenues in the accompanying
consolidated statement of operations.
MALPRACTICE INSURANCE
The Company maintains malpractice insurance coverage on a claims made basis
through a commercial insurance carrier. Should the current claims made policy
not be renewed or replaced with equivalent insurance at a future date, claims
based on occurrences during its term but subsequently reported will be
uninsured. Based upon historical experience, management believes the Company has
adequately provided for the ultimate liability, if any, from the settlement of
such potential claims (see Note 11).
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the accompanying consolidated statements of cash flows, the
Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences in recognizing certain
income and expense items for financial reporting and tax reporting purposes.
F-13
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All loss per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
ACCOUNTING ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
2. DISCONTINUED OPERATIONS
On August 18, 1997, the Company entered into an asset purchase agreement with
National Medical Review Offices, Inc. (NMRO) to sell its DataMed division to
NMRO contingent upon approval from the Company's stockholders. In conjunction
with the sale, the Company and NMRO also entered into a management agreement
where NMRO agreed effective July 1, 1997 to assume the directions and control of
the business and operations of DataMed. Accordingly, NMRO has managed the
business and assumed ownership responsibilities for the operational results from
July 1, 1997 through the date of final close. On December 15, 1997, upon
stockholders' approval, the Company finalized the sale of the assets and
operations of DataMed to NMRO for approximately $1 million in proceeds net of
various closing costs and the assumption of certain liabilities.
F-14
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. DISCONTINUED OPERATIONS (continued)
The accompanying consolidated financial statements and related footnotes reflect
DataMed as discontinued operations.
The operating results of the discontinued operations reflected in the Company's
Statement of Operations are summarized as follows (in thousands):
SIX MONTHS
ENDED YEAR ENDED
JUNE 30 DECEMBER 31
1997 1997
------- -------
Substance abuse testing
and other revenue $ 2,953 $ 6,458
Cost of revenue 2,151 4,587
------- -------
Gross profit $ 802 $ 1,871
======= =======
Net loss $ (880) $(1,681)
======= =======
The net liabilities of the discontinued operations are summarized as follows (in
thousands):
DECEMBER 31
1997 1996
------- -------
Current assets $ -- $ 1,022
Equipment and fixtures, net -- 738
Current liabilities (631) (2,426)
Long-term liabilities -- (466)
------- -------
Net liabilities $ (631) $(1,132)
======= =======
3. NONCOMPETE AGREEMENTS
The Company has entered into noncompete agreements with three key employees, two
of which also serve on the Company's Board of Directors, for $350,000. The terms
of the agreements are for the greater of five years or the term of the related
employee's employment contract (see Note 10). At December 31, 1997, $150,000
remains payable whenever sufficient cash flow is available as determined by the
Company's Board of Directors (see Note 11).
F-15
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INCOME TAXES
The Company has net operating loss carryforwards of approximately $10,276,000
which expire in the years 2006 to 2012. Such net operating loss carryforwards
are subject to limitation on usage due to the change in ownership resulting from
the February 1997 initial public offering (see Note 8).
The components of the deferred tax provision, which arise from temporary
differences between financial and tax reporting, are presented below:
1997 1996
-----------------------
(IN THOUSANDS)
Cash to accrual adjustment $ (296) $ (59)
Allowance for uncollectible
accounts receivable -- 98
Accelerated depreciation (243) (46)
Unearned revenue and accrued expenses 800 435
Capitalized software 203 (10)
Net operating loss carryforward 2,328 1,236
Valuation allowance (2,792) (1,654)
------- -------
Total deferred provision $ -- $ --
======= =======
Variations from the federal statutory rate are as follows:
1997 1996
----------------------
(IN THOUSANDS)
Expected benefit from federal income
taxes at statutory rate of 34% $(2,476) $(1,527)
Effect of permanent differences 17 --
Valuation allowance 2,792 1,780
State tax benefit, net of federal
benefit (401) (247)
Other 68 (6)
------- -------
$ -- $ --
======= =======
F-16
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INCOME TAXES (continued)
The components of the net accumulated deferred income tax asset as of December
31, 1997 and 1996 are as follows:
1997 1996
----------------------
(IN THOUSANDS)
Deferred tax assets:
Cash to accrual adjustment $ -- $ 296
Excess of capital losses over
capital gains 79 79
Net operating loss carryforward 4,059 1,731
Allowance for uncollectible accounts
receivable 217 217
Unearned revenue and accrued expenses 1,466 666
Valuation allowance (5,576) (2,784)
------- -------
245 205
Deferred tax liabilities:
Capitalized software (54) 149
Accelerated depreciation 299 56
------- -------
245 205
------- -------
Deferred tax asset, net $ -- $ --
======= =======
F-17
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. LEASES
The Company leases equipment and office space. Rental expense under operating
leases, included in general and administrative expenses in the accompanying
statements of operations, for the years ended December 31, 1997 and 1996 was
approximately $325,000 and $135,000, respectively. Certain leases of equipment
and fixtures are classified as capital leases. A principal stockholder of the
Company has personally guaranteed repayment of certain capital lease
obligations. Included in equipment and fixtures in the accompanying consolidated
balance sheets are the following assets held under capital leases on behalf of
continuing operations:
DECEMBER 31
1997 1996
--------------------
(IN THOUSANDS)
Furniture and fixtures $ 127 $ 55
Machinery and equipment 179 --
Computer hardware and software 582 507
----- -----
Assets under capital lease 888 562
Less accumulated amortization (468) (166)
----- -----
Assets under capital lease, net $ 420 $ 396
===== =====
The following represents the minimum lease payments remaining under capital
leases and the future minimum lease payments for all noncancelable operating
leases included in continuing operations at December 31, 1997:
CAPITAL OPERATING
LEASES LEASES
--------------------
(IN THOUSANDS)
1998 $ 282 $ 417
1999 116 421
2000 73 433
2001 37 396
2002 21 268
------ ------
Total minimum lease payments 529 $1,935
======
Less amount representing interest (102)
------
Present value of minimum lease payments 427
Less current portion of obligations
under capital lease (229)
------
Obligations under capital lease,
less current portion $ 198
======
F-18
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. SHORT-TERM DEBT
The Company maintained a $25,000 unsecured revolving credit line with a bank
which accrued interest at an annual rate of prime plus one percent or a minimum
of ten percent and matured on March 1, 1997. Amounts outstanding under this
revolving line of credit were $25,000 at December 31, 1996. In April 1997, the
Company repaid this revolving line of credit, including accrued interest, from a
portion of the net proceeds of the February 1997 initial public offering (the
Offering). See Note 8 for a further description of the Offering.
The Company maintained a $1 million line of credit with a bank secured by
substantially all of the Company's assets except for those assets under lease
agreements (see Note 5), which accrued interest at an annual rate of prime plus
two percent and which matured on February 12, 1997. Amounts outstanding under
this line of credit were $970,000 at December 31, 1996. In February 1997, the
Company repaid this line of credit, including accrued interest, from a portion
of the net proceeds of the Offering.
The Company maintained a $55,000 unsecured line of credit with a bank which
accrued interest at an annual rate of 14.75 percent. Amounts outstanding under
this line of credit were $50,000 at December 31, 1996. In February 1997, the
Company repaid this line of credit, including accrued interest, from a portion
of the net proceeds of the Offering.
During 1996, the Company entered into a $25,000 unsecured promissory note with
an individual which accrued interest at an annual rate of twelve percent. At
December 31, 1996, $25,000 was outstanding under this promissory note. In
February 1997, the Company repaid this promissory note, including accrued
interest, from a portion of the net proceeds of the Offering.
As of December 31, 1997, the Company does not have any outstanding or available
short term debt other than its capital lease obligations (see Note 5).
The Company incurred interest expense on short term debt, excluding interest
expense on capital lease obligations, of approximately $10,000 and $151,000 for
the years ended December 31, 1997 and 1996, respectively (see Note 8).
F-19
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCK OPTION PLANS
The Company has a Second Amended and Restated Stock Option Plan for employees,
officers, directors and consultants of the Company (the Stock Option Plan). The
Stock Option Plan provides for the issuance of options to purchase up to 2.2
million shares of common stock. As of December 31, 1997, the Company has issued
14,480 shares of common stock in connection with the exercise of 14,480 stock
options granted under the Stock Option Plan (see Note 8). As of December 31,
1997, there were a total of 2,185,520 shares of common stock reserved for future
issuance under the Stock Option Plan, including 860,218 shares of common stock
underlying stock options outstanding and unexercised. Additionally and as of
December 31, 1997, there were a total of approximately 445,000 vested stock
options under the Stock Option Plan which were exercisable at an average
exercise price of approximately $1.85 per share and which expire in 2002 to
2007(see Note 10).
The terms of any options granted under the Stock Option Plan are not required to
be identical as long as they are not inconsistent with the express provisions of
the Stock Option Plan. Options may be granted as incentive options or as
nonqualified options; however, only employees of the Company are eligible to
receive incentive options. The period during which options vest may not exceed
ten years; however, the majority of the options granted under the Stock Option
Plan are either fully vested upon the date of grant or vest over five years at
the rate of twenty percent per year. The exercise price for incentive options
may not be less than one- hundred percent of the fair market value of the common
stock on the grant date, except that the exercise price for incentive options
granted to persons owning more than ten percent of the total combined voting
power of the common stock may not be less than one-hundred and ten percent of
the fair market value of the common stock on the grant date and may not be
exercisable for more than five years. The exercise price for nonqualified
options may not be less than eighty-five percent of the fair market value of the
common stock on the grant date.
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and related
Interpretations in accounting for its stock options because, as discussed below,
the alternative fair value accounting provided for by Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (Statement No. 123),
requires use of option valuation models that were not developed for use in
valuing the stock options. Pursuant to APB 25 and because the exercise price of
the Company's stock options, granted to employees, equals or exceeds the
estimated market price of the underlying common stock on the date of grant, no
compensation expense is recognized.
F-20
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCK OPTION PLANS (continued)
Pro forma information regarding net income and earnings per share is required by
Statement No. 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. Prior to the
Offering, the fair value of these options was estimated at the date of grant
using the minimum value method available to nonpublic companies under Statement
No. 123 (see Note 8). Under this method, option value is determined as the
excess of the fair value of the common stock at the date of grant over the
present value of both the exercise price and the expected dividend payments,
each discounted at the risk-free rate, over the expected exercise life of the
option. As a result of the Offering, the Company uses the Black-Scholes option
pricing model to determine the fair value of options granted subsequent to
December 31, 1996. A risk-free rate of approximately 5.8% and 5.3% for the years
ended December 31, 1997 and 1996, respectively; and a weighted-average expected
life of ten years and a dividend yield of 0% were used for the years ended
December 31, 1997, 1996 and 1995; volatility factors of the expected market
price of the Company's stock of $1,394 and $1.362 for the year ended December
31, 1997.
For the purposes of pro forma disclosures, the estimated fair value of the
employee options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except per share
amounts):
1997 1996
----------------------
Pro forma net loss $(7,513) $(4,582)
Pro forma net loss per share $ (0.97) $ (1.02)
Because Statement No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 2001.
F-21
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCK OPTION PLANS (continued)
A summary of the Company's stock option activity and related information
regarding the Stock Option Plan are as follows:
INCENTIVE STOCK NONQUALIFIED STOCK
OPTION PLAN OPTION PLAN
------------------------------------------------------
STOCK STOCK
NUMBER OF OPTION NUMBER OF OPTION
STOCK PRICE STOCK PRICE
OPTIONS RANGE OPTIONS RANGE
------------------------------------------------------
Outstanding,
December 31, 1995 302,750 $1.00 - 3.75 32,029 $ 1.54
Granted 206,750 2.50 - 3.75 31,500 3.75
Exercised (480) 1.54 -- --
Forfeited (4,920) 1.54 - 2.50 -- --
-------- ------------- -------- -------------
Outstanding,
December 31, 1996 504,100 1.00 - 3.75 63,529 1.54 - 3.75
Granted 371,248 1.54 - 2.00 381,691 1.00 - 2.875
Exercised (14,000) 1.54 -- --
Forfeited (421,350) 1.00 - 3.75 (25,000) 2.50
-------- ------------- -------- -------------
Outstanding,
December 31, 1997 439,998 $1.81 - $3.75 420,220 $1.00 - $3.75
======== ============= ======== =============
The weighted average fair value of options granted during the year ended
December 31 were:
1997 1996
-----------------------
Stock price equals exercise price $1.96 $2.90
Stock price greater than exercise price $1.89 $ -
Stock price less than exercise price $1.85 $ -
During the second quarter of 1996, the Company entered into an agreement with a
business advisory enterprise (the 1996 Stock Option Agreement). In connection
with the 1996 Stock Option Agreement, the Company granted 160,000 stock options
at an exercise price of $2.50 per share. The Company recognized expense in 1996
related to these options of $45,000. During 1997, the Company and the business
advisory enterprise agreed to change certain terms and conditions of the 1996
Stock Option Agreement. As a result, the Company recognized expense in 1997 of
$155,000. These amounts are included in sales and marketing expense in the
accompanying consolidated statements of operations. These options were not
granted as part of the Company's Stock Option Plan and are not included in the
summary of the Company's stock option activity table above. To date, no options
have been exercised as a result of the 1996 Stock Option Agreement.
F-22
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCK OPTION PLANS (continued)
During 1997, the Company recognized expense of $314,000 related to certain
grants of stock options within the Company's Stock Option Plan. This amount
consists of approximately $146,000 included in sales and marketing expense,
$136,000 included in general and administrative expense, $22,000 included in
research and development expense and $10,000 included in costs of revenue in the
accompanying 1997 consolidated statement of operations.
8. STOCKHOLDERS' EQUITY AND NOTES PAYABLE
In May 1995, the Company completed a private placement of 150,000 units at $5
per unit (the May 1995 Private Placement). Each unit consisted of two shares of
common stock ($2.45 each) and one common stock warrant ($0.10 each), exercisable
at $3.00 per share for a period of three years from the closing date of the May
1995 Private Placement. During the first quarter of 1996, 150,000 common stock
warrants issued in conjunction with the May 1995 Private Placement were
exercised for $450,000. In addition and as a result of the Offering, the Company
issued 120,000 shares of common stock during the first quarter of 1997 in
connection with the May 1995 Private Placement provision for a share adjustment
since the price per common share in the Company's Offering was less than $4.90
per share.
During the first quarter of 1996, the Company completed a private placement
whereby it issued 66,667 shares of Series A convertible preferred stock at $3.75
per share. During 1996, the preferred shares were converted into 66,667 shares
of common stock.
During the second quarter of 1996, the Company conducted an offering consisting
of convertible notes with detachable common stock warrants and which accrue
interest at an annual rate of ten percent (the 10% Notes). The 10% Notes matured
in three years from the date of issuance and were convertible into common stock
of the Company at $3.75 per share. In addition, each note holder received one
detachable common stock warrant for the right to purchase one share of common
stock at $3.75 per share for each $4 invested. The warrants are exercisable over
a period of three years. Total net proceeds from the 10% Note offering amounted
to approximately $751,000. Approximately $181,000 of the net proceeds from the
10% Notes issuance were received from certain individuals who individually are
beneficial owners of over 5% of the outstanding common stock of the Company and
other officers, directors and employees of the Company under the same terms and
conditions as nonaffiliates. During the first quarter of 1997, certain note
holders converted approximately $349,000 of principal and accrued interest into
93,003 shares of common stock. Common stock issuable related to the detachable
F-23
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. STOCKHOLDERS' EQUITY AND NOTES PAYABLE (continued)
warrants provided in conjunction with the 10% Notes amounts to 187,800 shares
(see Note 10). During the fourth quarter of 1996, certain note holders converted
$105,000 of principal and accrued interest into 28,000 shares of common stock.
Interest expense related to the 10% Notes was approximately $5,000 in 1997 and
approximately $43,000 in 1996.
During the third quarter of 1996, the Company completed a private placement
whereby it issued 800,000 shares of common stock at $2.50 per share. Net
proceeds from the private placement were approximately $1.74 million and were
primarily used for working capital purposes.
During January 1997, the Company received $450,000 from two unaffiliated
investors related to an offering consisting of notes which accrued interest at
an annual rate of twelve percent (the 12% Notes). In connection with the 12%
Notes, the Company issued 150,000 common stock warrants which are exercisable at
eighty-five percent of the price per share of the Company's common stock
included in the Offering. In the first quarter of 1997, the Company incurred
$79,000 of expense in connection with the issuance and registration of the
150,000 warrants which is included in other expenses in the accompanying 1997
consolidated statement of operations. During February 1997, the Company used a
portion of the net proceeds from the Offering to repay $450,000, plus accrued
interest of approximately $5,000, related to the 12% Notes.
During February 1997, the Company completed an initial public offering (the
Offering) whereby it issued 1,337,000 units, each unit consisting of two shares
of common stock and one common stock purchase warrant (the Units), at $7.00 per
Unit. Net proceeds from the Offering (including net proceeds from the
underwriter's overallotment option) were approximately $8.2 million.
In March 1997, the Company paid approximately $355,000 to certain holders of the
10% Notes, who did not convert their 10% Notes and accrued interest into common
stock, from a portion of the net proceeds of the Offering (see Note 11).
Approximately $190,000 of the $355,000 was paid to affiliates of the Company
under the same terms and conditions as nonaffiliates.
During 1997, holders of 14,000 common stock options, which were originally
within the Company's Stock Option Plan, exercised their options at an exercise
price of $1.54 per share (see Note 7).
F-24
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. STOCKHOLDERS' EQUITY AND NOTES PAYABLE (continued)
In the fourth quarter of 1997, the Company adopted a stock compensation plan
(the Stock Compensation Plan). The Stock Compensation Plan provides for the
issuance of up to 100,000 shares of common stock to employees, consultants and
others involved in the Company's business. During the fourth quarter of 1997,
the Company issued 12,500 shares of common stock to a corporate marketing
enterprise. These shares were issued under the Stock Compensation Plan. The
Company recognized approximately $26,000 in expense related to this issuance.
This amount is included in sales and marketing expense in the accompanying 1997
consolidated statement of operations. As of December 31, 1997, there were a
total of 87,500 shares of common stock reserved for future issuance under the
Stock Compensation Plan (see Note 10).
Certain members of the Company's Scientific Advisory Committee serve as officers
and directors of certain of the Company's customers. In addition, these members
also are beneficial owners of the Company's common stock through grants of stock
options and through the Company's 1996 10% Note offering (see Note 7).
9. CONTRIBUTIONS TO RETIREMENT PLAN
The Company has a 401(k) retirement plan which covers eligible employees, as
defined, of the Company (the 401(k) Plan). Employees may defer up to fifteen
percent of their annual compensation up to the maximum amount as determined by
the Internal Revenue Service. Under the 401(k) Plan , the Company, at its
discretion, may make contributions to the plan. No Company contributions were
made to the 401(k) Plan in 1997 or 1996. The Company paid 401(k) Plan
administrative expenses of approximately $4,000 for the years ended December 31,
1997 and 1996. Such 401(k) Plan expenses are included in general and
administrative expenses in the accompanying consolidated statements of
operations.
10. COMMITMENTS AND CONTINGENCIES
The Company has entered into ten long term employment agreements with certain
management employees, eight of which are in effect at December 31, 1997 and the
initial terms are generally for three to five years. Certain of the eight
employment agreements may be extended for two additional years. Such agreements,
which can be revised from time to time, provide for minimum salary levels as
adjusted for cost-of-living changes, as well as for incentive bonuses which are
payable when specified management goals are attained. Four of the employment
agreements would require the Company to pay a lump-sum payment of up to $2.5
million if the Company terminates employment for any reason other than cause or
disability. At December 31, 1997, the aggregate commitment for future salaries
F-25
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. COMMITMENTS AND CONTINGENCIES (continued)
payable through May 2001, excluding bonuses, is approximately $1.4 million. If
all agreements are extended, the additional commitment for future salaries will
be approximately $1.5 million. During 1997, the Company incurred and paid
approximately $830,000 in connection with the eight employment agreements
described above. This amount consists of $500,000 included in payroll and other
expense and $330,000 included in research and development expense in the
accompanying 1997 consolidated statements of operations.
The Company maintains product liability insurance for Wyndgate's software-
related products. To date, no claims have been filed against the Company related
to its Wyndgate developed SAFETRACE(R) software product and services or any
other of its software-related products and services. In addition, the Company
applied for certain regulatory approval of its SAFETRACE(R) software product
during October 1995. The Company was permitted to market the SAFETRACE(R)
software product during the review process. In April 1997, Wyndgate received
notification from the United States Food and Drug Administration of their
finding of substantial equivalence of the SAFETRACE(R) software product. This
determination permits the Company to continue to market the SAFETRACE(R)
software product in the United States.
In January 1993, Wyndgate entered into an agreement with the Royalty Group to
develop the Blood Bank Management Information System Software (BBMIS). As part
of the consideration for the Royalty Group funding approximately $1.1 million of
the development of BBMIS (currently known as SAFETRACE(R)) Wyndgate agreed to
pay the Royalty Group certain royalty payments on future software license fees.
All payments are due 30 days after each quarter and are based on software
license fees collected. Royalty expenses related to this agreement were
approximately $65,000 and $323,000 for the years ended December 31, 1997 and
1996, respectively, and are included in cost of revenues in the accompanying
consolidated statements of operations. The time period under the royalty
schedule is based upon the first date of customer invoicing, which was September
14, 1995 (see Note 1). The royalty payment schedule is as follows:
From September:
1995 - 1997 12 percent
1997 - 1998 9 percent
1998 - 1999 6 percent
1999 - thereafter 3 percent
F-26
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. COMMITMENTS AND CONTINGENCIES (continued)
In July 1996, the Company (through its Wyndgate division) entered into a
development agreement (the ITxM Agreement) with The Institute for Transfusion
Medicine (ITxM), to develop Commercial Centralized Transfusion System Software
(Commercial CTS Software). The ITxM Agreement requires that the Commercial CTS
Software (the Company's transfusion services software product, currently in beta
testing and to be known as SAFETRACE TX(TM)) be completed by December 16, 1997.
If not timely completed, the Company would be subject to certain monetary
penalties. The ITxM Agreement provides for a royalty payment to ITxM from the
Company for revenues received from the eventual sale of SAFETRACE TX(TM), net of
certain fees and charges. The royalty period starts with the first commercial
transfer for value of SAFETRACE TX(TM) by the Company. The royalty amounts for
each year are higher if the sales of SAFETRACE TX(TM) are initiated by ITxM. The
royalty payments range from ten or five percent in year one to two or one
percent in year ten and thereafter. Through December 31, 1997, the Company has
not incurred any royalty expenses related to the ITxM Agreement. During the
fourth quarter of 1997, the Company recognized $485,000 in SAFETRACE TX(TM)
development expense related to a further agreement between the Company and ITxM
regarding certain monetary penalties as defined in the ITxM Agreement (see Note
1 and Note 11). This amount is included in research and development expense in
the accompanying 1997 consolidated statement of operations.
During November 1996, the Company (through its Wyndgate division) entered into
an agreement with Ortho Diagnostic Systems, Inc. (ODSI), a subsidiary of Johnson
& Johnson (the Ortho Agreement). The Ortho Agreement requires the Company to
perform certain software development services in consideration of the payment by
ODSI of $500,000 received by the Company in November 1996, and an additional
payment of $500,000 received by the Company in January 1997 (see Note 1). The
Ortho Agreement provided that until May 14, 1997 (the Exclusivity Period), ODSI
had the exclusive right to negotiate with the Company with respect to the
Company's activities and developments in information technology and intellectual
property relating to donor and transfusion medicine (the Technology) and that,
during the Exclusivity Period, the Company would not, directly or through any
intermediary, accept, encourage, solicit, entertain or otherwise discuss any
acquisition of any of the Company's common stock, business, property or
know-how, including the Technology, with any person or entity other than ODSI or
an affiliate thereof and would not otherwise encumber the ability of ODSI or an
affiliate thereof to enter into any arrangement with the Company concerning the
Technology.
F-27
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. COMMITMENTS AND CONTINGENCIES (continued)
Pursuant to the Ortho Agreement, the Company granted ODSI a right of first
refusal for a period of six months after the expiration of the Exclusivity
Period in the event the Company proposes to transfer, dispose of, sell, lease,
license (except on a non-exclusive basis in the ordinary course of its
business), mortgage or otherwise encumber or subject to any pledge, claim, lien,
charge, encumbrance or security interest (except for a security interest with a
bank which was in effect at the time the Ortho Agreement was negotiated) of any
kind or nature, any of the Technology.
In May 1997, the Company received communication from ODSI that it had not yet
completed an internal evaluation of the Company's Technology and would not be
prepared at the conclusion of the Exclusivity Period to discuss a transaction
between the Company and ODSI. ODSI requested, and the Company agreed, that ODSI
be permitted to continue its evaluation of the Company's Technology, on a
non-exclusive basis, with the intent of responding to the Company by July 14,
1997 regarding whether or not ODSI would propose some form of transaction with
the Company. On July 14, 1997, the Company and ODSI (collectively the Parties)
agreed to a further extension to September 30, 1997. In connection with the
extension to September 30, 1997, ODSI relinquished its right of first refusal.
On September 17, 1997, the Parties agreed to a further extension to December 31,
1997. On December 22, 1997, the Parties agreed to a further extension to June
30, 1998. In connection with the extension to June 30, 1998, the Parties agreed
that ODSI has until December 31, 1998 to elect to require the Company (through
Wyndgate) to provide certain software development services as defined in the
Ortho Agreement (see Note 1).
As of December 31, 1997, the Company had 4,628,908 shares of common stock
reserved for future issuance as a result of the following: 2,185,520 shares
underlying unexercised stock options granted within the Company's Stock Option
Plan, 860,218 of which are outstanding and exercisable at $1.00 to $3.75 per
share and which expire in 2002 through 2007 (see Note 7); 160,000 shares
underlying unexercised stock options granted to a business advisory enterprise
pursuant to the 1996 Stock Option Agreement, which are exercisable at $2.50 per
share and expire in 2002 (see Note 7); 187,800 shares underlying warrants
granted in connection with the 10% Note offering, which are exercisable at $3.75
per share and expire in 1999 (see Note 8); 1,858,088 shares underlying warrants
issued in connection with the Offering, the underwriter's overallotment option
and other warrants granted to the Company's underwriter, which are exercisable
at $4.55 to $7.51 per share and which expire in 2000 through 2002 (see Note 8);
150,000 shares underlying warrants granted in connection with the 12% Notes,
which are exercisable at $2.98 per share and which expire in 1999 (see Note 8)
and 87,500 unissued shares in connection with the Stock Compensation Plan (see
Note 8).
F-28
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. SUBSEQUENT EVENTS
In January 1998, the Company and ITxM agreed (the "January 1998 Agreement") that
the Company would not be required to pay monetary penalties in the approximate
amount of $485,000 to ITxM, which were incurred as a result of delays in
development of SAFETRACE TX(TM), in consideration of the Company providing to
ITxM additional maintenance services and product upgrades and substitute
liquidated damage provisions for delays. The first of such revised dates and
liquidated damage provisions was April 3, 1998, by which the Company was to
initiate beta testing of SAFETRACE TX(TM) or pay $500 per day. SAFETRACE TX(TM)
was delivered to ITxM for beta testing on April 6, 1998, which was within the
grace period provided for in the January 1998 Agreement. Pursuant to the January
1998 Agreement, beta testing of SAFETRACE TX(TM) is to be completed by July 17,
1998, or the Company will face liquidated damages of $1,000 per day.
In January 1998 and in connection with a May 1995 noncompete agreement, the
Company's Board of Directors approved payment of $115,000 to the Company's
Chairman and Chief Executive Officer. The remaining noncompete amount of $35,000
remains payable to a management employee of the Company's Wyndgate division who
is also a shareholder of the Company (see Note 3).
In January 1998, the Company and its Chairman and CEO, were informed of a
lawsuit filed by a former employee of a DataMed customer seeking undisclosed
damages as a result of a March 1995 alleged erroneous substance abuse test
result issued by a DataMed Medical Review Officer (MRO). Management believes
that all mandated and necessary MRO procedures were performed and correctly
executed. Legal proceedings tend to be unpredictable and costly. However, based
on the currently available information, management believes that the resolution
of this legal proceeding will not have a material adverse effect on the
Company's operating results, financial position or cash flow. Although the
Company has not received a final determination from its malpractice insurance
carrier regarding insurance coverage for this matter, management believes that
any damages arising out of this pending case are adequately covered by the
Company's malpractice insurance coverage and recorded accruals. No range of a
reasonably possible loss can be estimated because in this matter, the complaint
is silent as to the amount of damages sought. The Company's deductible for such
claims is approximately $5,000 and is included in accrued expenses in the
accompanying consolidated balance sheet as of December 31, 1997 (see Note 1).
On February 9, 1998, the Company's common stock and warrants were delisted from
the Nasdaq Small-Cap Market, and commenced trading on the Bulletin Board.
F-29
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
-----------------------------
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 and 1998
AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
F-30
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30,
1998
--------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 517
Accounts receivable-trade, net of
allowance for uncollectible accounts of
$50 and $175 at September 30, 1998 and
December 31, 1997, respectively 65
Unbilled revenues, net of allowance for
uncollectible accounts of $15 and $125 at
September 30, 1998 and December 31, 1997,
respectively 43
Prepaid expenses and other assets 158
-------
Total current assets 783
Deferred financing costs, net of amortization
of $ 3,092 and $-0- at September 30, 1998
and December 31, 1997, respectively 4,328
Furniture, fixtures and equipment, at cost:
Furniture and fixtures 369
Machinery and equipment 309
Computer hardware and software 1,146
-------
1,824
Less accumulated depreciation and amortization (1,044)
-------
780
Capitalized software development costs, less accumulated 685
amortization of $645 and $403 at September 30, 1998
and December 31, 1997, respectively
Other assets 60
-------
Total assets $ 6,636
=======
See notes to unaudited consolidated financial statements
F-31
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (Continued
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30,
1998
--------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
Current liabilities:
Accounts payable $ 368
Accrued expenses 602
Accrued payroll 129
Accrued compensated absences 439
Noncompete accrual 35
Unearned revenue 2,238
Current portion of capital lease obligations 129
Short term debt 1,500
Net liabilities of discontinued operations --
--------
Total current liabilities 5,440
Capital lease obligations, less current portion 115
--------
Total liabilities 5,555
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value: Authorized shares - 10,000,000
None issued or outstanding --
Common stock, $.01 par value: Authorized shares - 40,000,000
Issued and outstanding shares-8,318,255 and 8,148,255
at September 30, 1998 and December 31, 1997, respectively 82
Additional paid-in capital 20,961
Accumulated deficit (19,962)
--------
Total stockholders' equity (deficit) 1,081
--------
Total liabilities and stockholders' equity (deficit) $ 6,636
========
See notes to unaudited consolidated financial statements.
F-32
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT COMMON SHARE INFORMATION)
Three Months Ended
September 30,
1998 1997
----------- -----------
Revenues:
Software sales and consulting $ 1,097 $ 564
Hardware and software, obtained
from vendors 27 46
----------- -----------
1,124 610
Cost of revenues:
Software sales and consulting 455 477
Hardware and software, obtained
from vendors 17 22
----------- -----------
472 499
----------- -----------
Gross profit 652 111
Operating expenses:
General and administrative 129 727
Sales and marketing 151 614
Research and development 332 716
Depreciation and amortization 139 115
----------- -----------
Loss before other income (expense) (99) (2,061)
----------- -----------
Interest income 2 32
Interest expense (46) (20)
Amortization of deferred financing costs (1,855) --
Other 459 --
----------- -----------
Net loss $ (1,539) $ (2,049)
=========== ===========
Basic and diluted loss per share of common stock $ (0.19) $ (0.27)
=========== ===========
Weighted average number of common shares
outstanding - basic and diluted 8,217,603 7,484,000
=========== ===========
See notes to unaudited consolidated financial statements.
F-33
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT COMMON SHARE INFORMATION)
Nine Months Ended
September 30,
1998 1997
----------- -----------
Revenues:
Software sales and consulting $ 3,159 $ 1,929
Hardware and software, obtained
from vendors 383 266
----------- -----------
3,542 2,195
Cost of revenues:
Software sales and consulting 1,532 1,067
Hardware and software, obtained
from vendors 300 190
----------- -----------
1,832 1,257
----------- -----------
Gross profit 1,710 938
Operating expenses:
General and administrative 904 2,345
Sales and marketing 838 1,100
Research and development 1,687 1,794
Depreciation and amortization 427 269
Restructuring charges 138 --
----------- -----------
Loss before other income (expense) (2,284) (4,570)
Interest income 15 147
Interest expense (85) (67)
Amortization of deferred financing costs (3,092) --
Other 459 (81)
----------- -----------
Loss from continuing operations (4,987) (4,571)
Loss from discontinued operations -- (880)
----------- -----------
Net loss $ (4,987) $ (5,451)
=========== ===========
Basic and diluted loss per share of common stock:
Continuing operations $ (0.61) $ (0.61)
Discontinued operations -- (0.12)
----------- -----------
$ (0.61) $ (0.73)
=========== ===========
Weighted average number of common shares
outstanding - basic and diluted 8,171,625 7,484,000
=========== ===========
See notes to unaudited consolidated financial statements.
F-34
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
September 30,
1998 1997
------- -------
OPERATING ACTIVITIES
Net loss $(4,987) $(5,451)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations -- 880
Shares issued for services, net 43 502
Changes in allowances for uncollectible amounts (235) --
Depreciation and amortization 427 269
Amortization of financing costs 3,092 --
Amortization of software costs 242 180
Increase in other long term assets (60) --
Other 20 2
Changes in operating assets and liabilities:
Accounts receivable-trade, net 235 50
Unbilled revenues, net 225 213
Prepaid expenses and other assets 176 (79)
Capitalized software development costs (791) --
Accounts payable 44 23
Accrued expenses 3 (226)
Accrued payroll (269) (24)
Accrued compensated absences (10) 37
Noncompete accrual (115) --
Unearned revenue (523) 563
------- -------
Net cash used in continuing operations (2,483) (3,061)
Net cash used in discontinued operations (631) (1,255)
------- -------
Net cash used in operating activities (3,114) (4,316)
------- -------
INVESTING ACTIVITIES
Purchases of equipment and fixtures (66) (670)
Proceeds from sales of property and equipment 10 --
------- -------
Net cash used in investing activities (56) (670)
------- -------
F-35
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
September 30,
1998 1997
------ ------
FINANCING ACTIVITIES
Borrowings on short-term debt 1,500 450
Principal payments on short-term debt -- (1,547)
Principal payments under capital
lease obligations (183) (150)
Principal payments on notes payable -- (327)
Issuance of common stock, net -- 8,272
Deferred offering costs -- 486
Changes in net long term assets of discontinued operations -- (165)
------- -------
Net cash provided by financing activities 1,317 7,019
------- -------
Net (decrease) increase in cash and cash equivalents $(1,853) $ 2,033
Cash and cash equivalents at beginning of period 2,370 489
------- -------
Cash and cash equivalents at end of period $ 517 $ 2,522
======= =======
Supplemental disclosures:
Cash paid for interest approximates interest expense.
Shares of Common Stock were issued in exchange for services and recorded as
prepaid expense in the amount of $78 thousand. This amount represents fair
market value of the 100,000 shares at the date of issuance.
In exchange for services, 70,000 shares of Common Stock were issued during
1998 at the then market value of $81 thousand and previously issued shares
with a value of $38 thousand were rescinded.
See notes to unaudited consolidated financial statements.
F-36
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Global Med
Technologies, Inc. (the "Company") have been prepared by management in
accordance with generally accepted accounting principles for interim financial
information and with the regulations of the Securities and Exchange Commission.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation of financial position
at September 30, 1998 and the results of operations for the three and nine
months ended September 30, 1998 and 1997 and cashflows for the nine months ended
September 30, 1998 and 1997 have been included.
While management believes the disclosures presented are adequate to prevent
misleading information it is suggested that the accompanying unaudited
consolidated interim financial statements be read with the audited consolidated
financial statements and the notes thereto contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997, as filed with the
Securities Exchange Commission. The interim results of operations for the three
and nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for any other interim period of 1998 or for the
year ending December 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The unaudited consolidated financial statements reflect the Company's DataMed
International division, which was sold on December 15, 1997, as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30.
2. LIQUIDITY AND MANAGEMENT'S PLANS
From inception through September 30, 1998, the Company has incurred significant
cumulative net losses. The Company expects to continue to incur net losses
through 1999, and possibly thereafter, until its existing SafeTrace(R) software
product is completely implemented and operational within the Company's
customers' information system environments and until its transfusion services
software product (to be known as SafeTrace Tx(TM)), is established in its
markets. In April 1998, the Company entered into two financing agreements with
two related parties, which were previously not affiliated with the Company, as
follows: a loan of $1.5 million and a line of credit of up to $1.65 million.
Both the loan and the line of credit accrue interest to be repaid upon maturity
of 366 days after April 14, 1998. The Company agreed to pay a cash finder's fee
of 9% of the amounts drawn upon the line of credit to American Fronteer
Financial Corporation (AFFC), formerly known as RAF Financial Corporation. AFFC
is related to the lenders and was also the lead underwriter for the Company's
February 1997 initial public offering.
In consideration for the $1.5 million loan, the lender received 6 million
detachable warrants, exercisable at $.25 per warrant, for 6 million shares of
the Company's common stock. The exercise price of the detachable warrants was
substantially below the market price for the Company's common stock at the grant
date of April 14, 1998. In consideration of extending the $1.65 million line of
credit, the lender received 1 million detachable warrants, exercisable at $.25
per warrant, for 1 million shares of the Company's common stock. When the
Company draws upon the $1.65 million line of credit, the lender will receive an
additional 5 million detachable warrants, exercisable at $.25 per warrant, for 5
million shares of the Company's common stock. The warrants are exercisable over
a 10-year period from April 14, 1998. The Company was required to use its best
efforts to register the common stock underlying the detachable warrants on or
before July 14, 1998. If the Company defaults on the $1.5 million loan or the
$1.65 million line of credit, the debt, including any interest, can be converted
into shares of the Company's common stock on the basis of one share for each
$.05 of debt. Through September 30, 1998, the Company had drawn $1.5 million on
the $1.5 million loan and $ -0- on the line of credit. On October 30, 1998, the
Company drew $400,000 on the line of credit.
F-37
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with the borrowing agreements, a Form SB-2, not yet effective, was
filed with the Securities and Exchange Commission on May 15, 1998, to register
the common stock. The Company plans to update the Form SB-2 prior to the end of
the year.
The issuance of the discounted warrants resulted in a significant noncash
transaction in the Company's 1998 consolidated financial statements. Based on a
managerial assessment, using the Black-Scholes pricing model, $7.42 million was
recorded as the fair value of the warrants and deferred financing costs to be
amortized over the twelve month term of the debt. For the quarter and nine
months ended September 30, 1998, $1.855 million and $3.092 million,
respectively, were amortized to financing cost expense in the statement of
operations.
In light of the Company's projected net losses and negative cash flows,
management believes the Company has the financial resources with this additional
financing to maintain its planned level of operations until April 1999 without
obtaining additional financing. Management, however, recognizes that even with
the current financing, the Company will need to obtain additional capital in
1999, or it may be required to substantially reduce its software development
programs and other operating expenses.
3. DISCONTINUED OPERATIONS
On August 18, 1997, the Company entered into an asset purchase agreement with
National Medical Review Office, Inc. (NMRO) to sell its DataMed division to NMRO
contingent upon approval from the Company's stockholders. In conjunction with
the sale, the Company and NMRO also entered into a management agreement where
NMRO agreed effective July 1, 1997 to assume the direction and control of the
business and operations of DataMed. Accordingly, NMRO managed the business and
assumed ownership responsibility for the operational results from July 1, 1997
through the date of final close. On December 15, 1997, upon stockholders'
approval, the Company finalized the sale of the assets and operations of DataMed
to NMRO.
The operating results of the discontinued operations reflected in the Company's
unaudited consolidated statements of operations are summarized as follows (in
thousands):
Nine Months Ended
September 30, 1997
------------------
Substance abuse testing and other revenue $ 2,953
Operating expenses (2,151)
-------
Gross profit $ 802
=======
Net loss $ (880)
=======
The net liabilities of the discontinued operations were $631 thousand at
December 31, 1997.
4. REVENUE RECOGNITION
As of January 1, 1998, the Company adopted AICPA Statement of Position (SOP)
97-2, "Software Revenue Recognition", which is effective for transactions that
the Company entered into during the three and nine months ended September 30,
1998 and for transactions which the Company will enter into in the future. SOP
97-2 prohibits retroactive application of its provisions. The most significant
impact of SOP 97-2 on the Company's revenue recognition accounting policies is
that for arrangements with multiple elements, revenue may be deferred and
amortized over an extended delivery period and revenue will be recognized based
on the fair value of each multiple element. The Company has made changes in its
business operations to minimize the impact of SOP 97-2.
F-38
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. STOCKHOLDERS' EQUITY
Stock Options & Warrants
On August 27, 1998, options to purchase 2,784,000 Class A Common Shares were
granted to officers, directors and employees, with an exercise price of $ .75
per share, the fair market value of the stock on the date of the grant.
On October 14, 1998, 130,000 options to purchase Class A Common Shares were
granted to employees. Warrants to purchase 600,000 shares were issued to a
director. The options and warrants were granted at an exercise price of $.75 per
share, the fair market value of the stock on the date of the grant.
The options and warrants are exercisable over a ten-year period.
Common Stock
On August 3, 1998, the Company issued 50,000 shares of its common stock to a
director in exchange for services. The fair value of the stock on the date of
the grant was $65,125, and is reflected in the statement of operations as
general and administrative expense.
On September 1, 1998, 120,000 shares of the Company's common stock were issued
in exchange for services. The cost of the services and the fair market value of
the shares were $93,750 of which $15,625 has been recorded in general and
administrative expenses and $78,125 as prepaid expenses, pending completion of
the services.
6. CONTINGENCIES
During 1997, the Company sold its DataMed International division ("DataMed").
DataMed's substance abuse testing service agreements have contract terms that
vary from one to five years and, unless canceled generally ninety days prior to
the end of the license term, most are automatically renewable. Generally, such
contracts are not assignable. The Asset Purchase Agreement for the sale of
DataMed provides that the Company will assign all of DataMed's customer
contracts to the purchaser, and if DataMed customers do not consent to the
assignment, the purchaser can require the Company to terminate any
non-consenting customers' contracts. The Company will not be in the substance
abuse testing business in the future. While the Company does not consider it
likely, it is possible than non-consenting customers could commence litigation
against the Company for failure to provide substance abuse testing pursuant to
such customers' contracts with DataMed.
During the quarter ended September 30, 1998, the Company revised certain
estimates of loss contingencies. The revision resulted in the reversal of $421
thousand of potential liabilities related to the DataMed sale, which is
reflected as other income/expenses in the statements of operations.
7. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
F-39
<PAGE>
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
___________ Shares
----------------------
PROSPECTUS
---------------------
_________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
------------------------------------------
A. The Colorado Business Corporation Act (the "Act") allows indemnification
of directors, officers, employees and agents of the Company against liabilities
incurred in any proceeding in which an individual is made a party because he was
a director, officer, employee or agent of the Company if such person conducted
himself in good faith and reasonable believed his actions were in, or not
opposed to, the best interests of the Company, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. A person must be found to be entitled to indemnification under this
statutory standard by procedures designed to assure that disinterested members
of the Board of Directors have approved indemnification or that, absent the
ability to obtain sufficient numbers of disinterested directors, independent
counsel or shareholders have approved the indemnification based on a finding
that the person has met the standard. Indemnification is limited to reasonable
expenses. In addition, the Company's By-Laws provide that the Company shall have
the power to indemnify its officers, directors, employees and agents to the
extent permitted by the Act.
Specifically, the Act provides as follows:
"7-109-102. Authority to indemnify directors
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding because the
person is or was a director against liability incurred in the proceeding
if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's
best interests; and
(II) In all other cases, that his or her conduct was at
least not opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for
a purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
II-1
<PAGE>
requirement of subparagraph (II) of paragraph (b) of subsection (1) of this
section. A director's conduct with respect to an employee benefit plan for
a purpose that the director did not reasonably believe to be in the
interests of the participants in or beneficiaries of the plan shall be
deemed not to satisfy the requirements of paragraph (a) of subsection (1)
of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of
conduct described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
7-109-103. Mandatory indemnification of directors
Unless limited by its articles of incorporation, a corporation shall
indemnify a person who was wholly successful, on the merits or otherwise,
in the defense of any proceeding to which the person was a party because
the person is or was a director, against reasonable expenses incurred by
him or her in connection with the proceeding.
7-109-105. Court-ordered indemnification of directors
(1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court
of competent jurisdiction. On receipt of an application, the court, after
giving any notice the court considers necessary, may order indemnification
in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
II-2
<PAGE>
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
whether or not the director met the standard of conduct set forth in
section 7-109-102(1) or was adjudged liable in the circumstances
described in section 7-109-102(4), the court may order such
indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability
shall have been adjudged in the circumstances described in section
7-109- 102(4) is limited to reasonable expenses incurred in connection
with the proceeding and reasonable expenses incurred to obtain
court-ordered indemnification.
7-109-106. Determination and authorization of indemnification of directors
(1) A corporation may not indemnify a director under section 7-109-102
unless authorized in the specific case after a determination has been made
that indemnification of the director is permissible in the circumstances
because the director has met the standard of conduct set forth in section
7-109-102. A corporation shall not advance expenses to a director under
section 7-109-104 unless authorized in the specific case after the written
affirmation and undertaking required by section 7-109-104(1)(a) and (1)(b)
are received and the determination required by section 7-109-104(1)(c) has
been made.
(2) The determinations required by subsection (1) of this section
shall be made:
(a) By the board of directors by a majority vote of those present
at a meeting at which a quorum is present, and only those directors
not parties to the proceeding shall be counted in satisfying the
quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for the
committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a) of
subsection (2) of this section, and a committee cannot be established under
paragraph (b) of subsection (2) of this section, or, even if a quorum is
obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required to be made by subsection (1)of this section shall be made:
(a) By independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in paragraph (a)
or (b) of subsection (2) of this section or, if a quorum of the full
board cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the full
board of directors; or
(b) By the shareholders.
II-3
<PAGE>
(4) Authorization of indemnification and advance of expenses shall be
made in the same manner as the determination that indemnification or
advance of expenses is permissible; except that, if the determination that
indemnification or advance of expenses is permissible is made by
independent legal counsel, authorization of indemnification and advance of
expenses shall be made by the body that selected such counsel.
7-109-107. Indemnification of officers, employees, fiduciaries, and agents
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification under
section 7- 109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same
extent as a director;
(b) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the corporation to the same
extent as to a director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a
greater extent, if not inconsistent with public policy, and if
provided for by its bylaws, general or specific action of its board of
directors or shareholders, or contract.
7-109-108. Insurance
A corporation may purchase and maintain insurance on behalf of a
person who is or was a director, officer, employee, fiduciary, or agent of
the corporation, or who, while a director, officer, employee, fiduciary, or
agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, fiduciary,
or agent of another domestic or foreign corporation or other person or of
an employee benefit plan, against liability asserted against or incurred by
the person in that capacity or arising from his or her status as a
director, officer, employee, fiduciary, or agent, whether or not the
corporation would have power to indemnify the person against the same
liability under section 7-109-102, 7-109-103, or 7-109-107. Any such
insurance may be procured from any insurance company designated by the
board of directors, whether such insurance company is formed under the laws
of this state or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the corporation has an equity or
any other interest through stock ownership or otherwise.
7-109-109. Limitation of indemnification of directors
(1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles of
incorporation or bylaws, in a resolution of its shareholders or board of
directors, or in a contract, except an insurance policy, or otherwise, is
II-4
<PAGE>
valid only to the extent the provision is not inconsistent with sections
7-109-101 to 7-109-108. If the articles of incorporation limit
indemnification or advance of expenses, indemnification and advance of
expenses are valid only to the extent not inconsistent with the articles of
incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's power
to pay or reimburse expenses incurred by a director in connection with an
appearance as a witness in a proceeding at a time when he or she has not
been made a named defendant or respondent in the proceeding.
7-109-110. Notice to shareholders of indemnification of director
If a corporation indemnifies or advances expenses to a director under
this article in connection with a proceeding by or in the right of the
corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the notice of
the next shareholders' meeting. If the next shareholder action is taken
without a meeting at the instigation of the board of directors, such notice
shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action."
B. Article VI of the Registrant's Amended and Restated Articles of
Incorporation provides for the elimination of personal liability for monetary
damages for the breach of fiduciary duty as a director except for liability (i)
resulting from a breach of the director's duty of loyalty to the Registrant or
its shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) for approving
payment of distributions to shareholders to the extent that any such actions are
illegal under the Act; or (iv) for any transaction from which a director derives
an improper personal benefit. This Article further provides that the personal
liability of the Registrant's directors shall be eliminated or limited to the
fullest extent permitted by the Act.
C. The Underwriting Agreement between the Registrant and the Underwriters
provides that the Underwriters will indemnify and hold harmless the Registrant,
the directors of the Registrant, and each person, if any, who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "1933 Act"), against any and all losses, claims, demands,
liabilities and expenses (including reasonable legal or other expenses) to which
it may become subject, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or in any Blue Sky Application or 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, resulting from the use of written
information furnished to the Registrant by the Underwriters or any participating
dealer for use in the preparation of the Registration Statement or in any Blue
Sky Application.
II-5
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
-------------------------------------------
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses are
estimated.
Registration and filing fee ............................. $ 6,102
NASD filing fee ......................................... 2,300
Printing ................................................ 3,000
Accounting fees and expenses ............................ 20,000
Legal fees and expenses ................................. 45,000
Blue Sky fees and filing fees ........................... 1,000
Transfer and Warrant Agent fees ......................... -0-
Miscellaneous ........................................... 9,598
--------
Total ................................................... $ 87,000
========
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
During the past three years, the Registrant has issued its securities to
the following persons for cash or other consideration indicated in transactions
that were not registered under the 1933 Act.
I.
May 1995 Private Placement
--------------------------
Name No. of Unit (1) Consideration Share Adjustment (2)
- ---- --------------- ------------- --------------------
Ms. Elizabeth Kitchen & 10,000 $ 50,000 8,000
Guy B. Nutter
I. Stephen Davis, MD 10,000 50,000 8,000
William C. Dickey, MD 1,000 5,000 800
Metropolitan Pathologists 5,000 25,000 4,000
Profit Sharing Trust
FBO Gary D. Dickey, MD
Metropolitan Pathologists 19,000 95,000 15,200
Profit Sharing Trust
FBO William C. Dickey, MD
Herbert H. Maruyama, MD 10,000 50,000 8,000
II-6
<PAGE>
Name No. of Unit (1) Consideration Share Adjustment (2)
- ---- --------------- ------------- --------------------
Wilshire Center Geriatrics Medical 10,000 50,000 8,000
Group, Inc. DBPP
FBO Eugene Seymour, MD
Resources Trust Company 10,000 50,000 8,000
FBO Nancy S. Rogers
IRA dtd 3/22/84 # I ###-##-####
Robert L. Messenbaugh, MD 10,000 50,000 8,000
Herbert L. Jacobs, MD 15,000 75,000 12,000
Stewart Weinerman, MD 10,000 50,000 8,000
Patrick A. Zoellner, MD 5,000 25,000 4,000
Hal Cohn, MD 5,000 25,000 4,000
Susan H. Sipf 10,000 50,000 8,000
Kenneth Manfre, MD 20,000 100,000 16,000
------ ------- ------
TOTAL 150,000 $750,000 120,000
======= ======= =======
- -------------
(1) Each unit consisted of two shares of Common Stock and one Common Stock
Purchase Warrant exercisable at $3.00 per share until June 1, 1998.
(2) In March 1997, each Unit holder received a pro rata "Share Adjustment"
based upon the extent that the initial public offering price per share of
Common Stock in the Company's public offering ($3.50) was less than $4.90.
The offers and sales set forth in I above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. All of the purchasers are known to
the Registrant's president, Michael I. Ruxin, or were referred to him by other
purchasers in this offering or by clients of the Registrant. Based upon Dr.
Ruxin's knowledge of the purchasers and upon written representations made by the
purchasers, the Registrant believes all but four of the purchasers were
accredited investors at the time of their purchases. The four non-accredited
purchasers are medical doctors and, therefore, based upon their knowledge of
Registrant's business and their representations, the Registrant believes each
was capable of evaluating the merits and risks of an investment in the
Registrant. No broker/dealers were involved in the sale and no commissions were
paid. All purchasers represented that they purchased the securities for
investment, and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by the certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration established.
The Registrant's transfer agent will be advised to place "stop transfer"
instructions against the transfer of these certificates.
II-7
<PAGE>
II.
May 1995 Wyndgate Merger
------------------------
Consideration
Name No. of Shares* (No. of Wyndgate Shares)
- ---- ------------- ------------------------
William J. Collard 653,006 1,999
Gerald F. Willman, Jr. 570,033 1,745
Lori J. Willman 368,481 1,128
Timothy J. Pellegrini 368,480 1,128
------- -----
TOTAL 1,960,000 6,000
========= =====
- -------------
* Based upon the conversion factor of 326.6667 multiplied by the number of
Wyndgate shares.
The offers and sales set forth in II above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. No
broker/dealers were involved in the sale and no commissions were paid. All such
persons represented that they acquired the securities for investment, and all
certificates issued to the persons were impressed with a restrictive legend
advising that the shares represented by the certificates may not be sold,
transferred, pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. The Registrant's
transfer agent will be advised to place "stop transfer" instructions against the
transfer of these certificates.
III.
In June 1995, in connection with Joseph F. Dudziak being employed as the
president of the Registrant, the Registrant issued Mr. Dudziak Incentive Stock
Options to purchase 100,000 shares exercisable at $2.45 per share until June
2005. In September 1996, the Registrant issued Mr. Dudziak Incentive Stock
Options to purchase 25,000 shares exercisable at $2.50 per share until September
2006. In August 1997, Mr. Dudziak's 125,000 options were modified in the
following respects: (a) 55,248 and 69,752 of the 125,000 options were granted as
Incentive Stock Options and Non-Qualified Stock Options, respectively, (b) such
options are immediately and fully vested and (c) the exercise price of the
options was reduced to $1.81 per share. The Registrant relied on Section 4(2) of
the Securities Act of 1933, as amended, in connection with the original issuance
of the option to Mr. Dudziak.
II-8
<PAGE>
IV.
January 1996 Warrant Exercises
------------------------------
Name No. of Shares Consideration*
- ---- ------------- -------------
William C. Dickey, MD 1,000 $ 3,000
& Karen N. Dickey
Metropolitan Pathologists 19,000 57,000
Profit Sharing Trust
Robert L. Messenbaugh, MD 10,000 30,000
Metropolitan Pathologists 5,000 15,000
Profit Sharing Trust
FBO Gary D. Dickey, MD
Resources Trust Company 10,000 30,000
FBO Nancy S. Rogers
IRA dtd 3/22/84 #I ###-##-####
Patrick A. Zoellner, MD 5,000 15,000
Eric D. Sipf 10,000 30,000
Herbert H. Maruyama, MD 10,000 30,000
Stewart Weinerman, MD 10,000 30,000
Eugene Seymour, MD 3,333 9,999
Wilshire Center Geriatrics Medical 6,667 20,001
Group DBPP, Inc. FBO
Eugene Seymour, M.D.
Herbert L. Jacobs, MD 15,000 $ 45,000
Kenneth Manfre, MD 20,000 60,000
Hal Cohn, MD 15,000 45,000
Charles Citrin 10,000 30,000
------ --------
TOTAL 150,000 $450,000
======= ========
- -------------
* Based upon an exercise price of $3.00 per share.
II-9
<PAGE>
The offers and sales set forth in IV above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. The purchasers set forth in this
section IV are the same purchasers as set forth under I above who exercised the
warrants they acquired as part of the units sold described under I above. All
but four of the purchasers were accredited investors. See the description under
I above. No broker/dealers were involved in the sale and no commissions were
paid. All purchasers represented that they purchased the securities for
investment, and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by the certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration established.
The Registrant's transfer agent will be advised to place "stop transfer"
instructions against the transfer of these certificates.
V.
January 1996 Series A Preferred Stock Offering
----------------------------------------------
Name No. of Shares* Consideration
- ---- ------------- -------------
Ronald O. Gilcher, MD 66,667 $250,000
- -------------
* Initially issued as Series A Preferred Stock, but converted into a like
number of shares of Common Stock in May, 1996.
The offer and sale to Dr. Gilcher was made in reliance upon the exemption
from registration provided by Section 4(2) of the 1933 Act. No broker/dealers
were involved in the sale and no commissions were paid. Dr. Gilcher represented
that he purchased the securities for investment, and the certificate issued to
him was impressed with a restrictive legend advising that the shares represented
by the certificate may not be sold, transferred, pledged or hypothecated without
having first been registered or the availability of an exemption from
registration established. The Registrant's transfer agent will be advised to
place "stop transfer" instructions against the transfer of his stock
certificate.
VI.
Shares issued pursuant to Settlement Agreements
-----------------------------------------------
Name No. of Shares Consideration
- ---- ------------- -------------
Frontline Marketing, Inc. 20,408 Release of Claims
(shares issued October 1995)
Robert S. Verhey 10,000 Release of Claims (shares
------ issued May 1996)
TOTAL 30,408
======
II-10
<PAGE>
The issuances set forth in VI above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. No
broker/dealers were involved in the sale and no commissions were paid. The
persons represented that they acquired the securities for investment, and the
certificates issued to the persons were impressed with a restrictive legend
advising that the shares represented by the certificates may not be sold,
transferred, pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. The Registrant's
transfer agent will be advised to place "stop transfer" instructions against the
transfer of these certificates.
VII.
Options issued to Scientific Advisory Committee
-----------------------------------------------
Name Number of Options Expiration Date
- ---- ----------------- ---------------
William C. Dickey, MD 2,500 January 2006
Cathy Bryan 1,000 January 2006
Ronald O. Gilcher, MD 1,000 January 2006
The options issued to the members of the Registrant's Scientific Advisory
Committee were made in reliance upon the exemption from registration provided by
Section 4(2) of the 1933 Act. The consideration for the issuance of the options
was the agreement by the named individuals to serve on the Registrant's
Scientific Advisory Committee. The options were issued pursuant to the
Registrant's nonqualified stock option plan and are exercisable at $3.75 per
share, and vest over a five year period. No broker/dealers were involved in the
sale and no commissions were paid. All option certificates were impressed with a
restrictive legend advising that the options represented by the certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration established.
VIII.
In April 1996, the Registrant entered into an agreement with LMU & Company
("LMU"), which was amended in November 1996, January 1997 and October 1997. As
partial consideration for LMU's services under the agreement as amended, the
Registrant issued LMU an option to purchase 160,000 shares of the Registrant's
Common Stock, exercisable at $2.50 per share. The option became exercisable on
March 19, 1997 as the average bid price for the Registrant's Common Stock was at
least $3.50 for five consecutive trading days as provided for in the October
1997 amendment. The issuance of the option to LMU was made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. No
broker/dealers were involved in the sale and no commissions were paid. LMU
represented that LMU acquired the option for investment and not with a view to
distribution.
II-11
<PAGE>
IX.
1996 10% 3-Year Convertible Notes*
----------------------------------
Name Consideration No. of Warrants**
- ---- ------------- ----------------
Arnold E. Prince $25,000 6,250
Richard Sher 50,000 12,500
Bart Valdez 11,200 2,800
Wilshire Center Geriatrics 50,000 12,500
Medical Group, Inc.
Eugene Seymour, M.D. Trustee
Eugene H. Seymour, M.D. 50,000 12,500
Underwood Family Partners 100,000 25,000
Jeffrey Appel 25,000 6,250
Benjamin R. Budraitis 10,000 2,500
Joseph F. Dudziak 50,000 12,500
Neill and Nita Freeman 25,000 6,250
Thomas R. Sakaguchi 20,000 5,000
James Sakaguchi 27,500 6,875
Ellen Sakaguchi 12,500 3,125
Michael Lipkin 35,000 8,750
Thomas R. Ulie 50,000 12,500
William J. Collard 60,000 15,000
Michael I. Ruxin, M.D. 25,000 6,250
Ralph Grills, Jr. 50,000 12,500
Gordon Segal, MD 25,000 6,250
Harris A. Cahn 25,000 6,250
Joel C. Newman, MD 25,000 6,250
-------- -------
Total $751,200 187,800
======== =======
- ----------
II-12
<PAGE>
* Convertible at $3.75 per share.
** One warrant for each $4 purchase exercisable over a three year period
commencing June 26, 1996 at $3.75 per share.
The offers and sales set forth in IX above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. Based upon information known to
the Registrant, and representations made by each of the purchasers, the
Registrant believes that all but three of the purchasers were accredited
investors. The three non-accredited purchasers are family members of one of the
Registrant's employees. Based upon such relationship, upon information known to
the Registrant and representations made by each of these three purchasers, the
Registrant believes that they were able to evaluate the merits and risks of an
investment in the Registrant. No broker/dealers were involved in the sale and no
commissions were paid. All of such purchasers represented that they purchased
the securities for investment, and all Notes issued to the purchasers were
impressed with a restrictive legend advising that the Notes may not be sold,
transferred, pledged or hypothecated without having first been registered or the
availability of an exemption from registration established.
X.
July 1996 Private Placement
---------------------------
Number of Consideration
Name Shares Paid
- ---- ------ ----
Hugo Brooks 10,000 $ 25,000
Lawrence M. Underwood 5,000 12,500
Paul R. Hoover & Janet F. Hoover, 10,000 25,000
JTWROS
Battersea Capital, Inc. 10,000 25,000
ESN Financial, LP 20,000 50,000
Anil & Bina Patel, JTWROS 10,000 25,000
Michal & Renata Pivonka, JTWROS 50,000 125,000
William B. & Cheryl A. Bacon, JTWROS 10,000 25,000
Vannette F. Poole 20,000 50,000
John L. Moran 20,000 50,000
William R. Teele 10,000 25,000
Alan David Cohen 10,000 25,000
II-13
<PAGE>
Peter & Luba Bondra, JTWROS 40,000 100,000
Harvey D. Rhoads 2,500 6,250
E. Pat Manuel 25,000 62,500
Allen E. Hoyt 10,000 25,000
Richard Kay 20,000 50,000
Mildred J. Geiss 7,000 17,500
Clyde William & Valerie J. Pray, 10,000 25,000
JTWROS
Barry Slosberg 10,000 25,000
Bradley Subler 2,000 5,000
Andrew E. Kauders 6,000 15,000
Richard J. N. Leonard 6,000 15,000
David Hickey 10,000 25,000
Georgia M. Dunston 10,000 25,000
TradeLink, L.L.C. 10,000 25,000
Robert M. Kassenbrock 40,000 100,000
Laurence P. Emrie 4,000 10,000
Larry & Michelle Weinstein, JTWROS 5,000 12,500
Underwood Family Partners, LTD 20,000 50,000
Amar & Vangie Romero, JTWROS 6,000 15,000
Consulting on Government Procurement- 10,000 25,000
FBO J.S. Sansome
Lawrence E. & Jeanne R. Keith, JTWROS 10,000 25,000
Riley Wilson - dba RW Enterprises 20,000 50,000
John Solomita 10,000 25,000
William Vasey 10,000 25,000
Tadahiko Nakamura 30,000 75,000
Robert W. & Rhonda W. Braun, JTWROS 4,000 10,000
II-14
<PAGE>
Donald H. & Mary Lou Wilbois, JTWROS 2,000 5,000
Jon and Laurie Lindvall 4,000 10,000
Maurice S. Cohen 10,000 25,000
Wilbert D. Pearson 10,000 25,000
Georgina S. Caslavka 10,000 25,000
Lynne D. Caslavka 6,000 15,000
Voss Boreta 10,000 25,000
Keith D. & Carolyn P. McDonald, 10,000 25,000
JTWROS
Howard I. Saiontz 10,000 25,000
James A. Newsham III & Vivian M. 5,000 12,500
Newsham, JTWROS
William C. & Mary Claire McCormick, 10,000 25,000
JTWROS
Patrick M. Sheridan 4,000 10,000
Thomas D. Fiorino 20,000 50,000
Richard G. Belcher 10,000 25,000
Scot C. Irwin 5,000 12,500
Alan Goldstein 10,000 25,000
Maurice and Stacy Gozlan, JTWROS 10,000 25,000
Howard Wall 20,000 50,000
William C. Meyer 4,000 10,000
Jeffrey M. Savell 7,000 17,500
James A. & Joann Wiedenhoeft, JTWROS 15,000 37,500
A. Thomas Tenenbaum 6,000 15,000
Brenman Key & Bromberg 401K Profit 10,000 25,000
Sharing Plan FBO Thomas R. Bromberg
Brenman Key & Bromberg 401K Profit 20,000 50,000
Sharing Plan FBO Albert Brenman
II-15
<PAGE>
Stuart McNab 1,000 2,500
George Thompson 9,500 23,750
Brenman Key & Bromberg 401K Profit 14,000 35,000
Sharing Plan FBO A. Thomas Tenenbaum
Kenneth Higgins 5,000 12,500
Richard T. Baldwin 20,000 50,000
------- ------
Total 800,000 $2,000,000
======= ==========
The offers and sales set forth in X above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. RAF Financial Corporation acted as
the Placement Agent for the offering for which it received a commission of 10%
of the amount of securities sold in the offering and a 3% expense allowance.
Based upon representations made by each of the purchasers in the offering, the
Registrant believes that all but four of the purchasers are "accredited
investors" as that term is defined in Rule 501 of Regulation D. With respect to
the four non-accredited investors, the Registrant believes, based upon each
investor's representations, that each non-accredited investor was capable of
evaluating the merits and risks of their investment in the Registrant. All of
such purchasers represented that they purchased the securities for investment,
and all certificates issued to purchasers were impressed with a restrictive
legend advising that the shares represented by the certificates may not be sold,
transferred, pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. The Registrant's
transfer agent will be advised to place "stop transfer" instructions against the
transfer of these certificates.
XI.
Employee Stock Options
----------------------
During the past three years, the Registrant has granted approximately
330,000 incentive stock options and approximately 78,000 non-qualified stock
options to approximately 60 employees of the Registrant and others pursuant to
the Registrant's Amended and Restated Stock Option Plan not shown elsewhere
within Item 26. The options are exercisable at prices ranging from $1.54 to
$3.75 over a ten year period. No consideration was paid by the employees of the
Registrant or others in connection with the issuance of the options. Only five
employees have exercised their options, for an aggregate of 14,480 shares of the
Company's Common Stock. The issuance of the options and sales of the shares were
made in reliance upon the exemption from registration provided by Section 3(b)
of the Securities Act of 1933, as amended, and Rule 701 adopted thereunder. No
broker/dealers were involved in the sale and no commissions were paid. All
purchasers purchased the securities for investment, and all option certificates
issued to purchasers were impressed with a restrictive legend advising that the
shares represented by the certificates may not be sold, transferred, pledged or
II-16
<PAGE>
hypothecated without having first been registered or the availability of an
exemption from registration established. All the shares underlying these options
have been registered under a Registration Statement on Form S-8.
XII.
January 1997 Bridge Financing
-----------------------------
In January 1997, the Registrant borrowed $450,000 from two individuals. The
loans were evidenced by promissory notes, and were repaid with proceeds from the
Registrant's February 1997 public offering. The Registrant issued warrants to
purchase 150,000 shares of Common Stock to the two lenders in connection with
the loans, which are exercisable at $2.975 per share of the Common Stock
included in the Units sold in the Registrant's recent public offering. One of
the lenders, Robert M. Kassenbrock, is also a shareholder of the Registrant. The
issuance of the promissory notes and the warrants were made in reliance upon the
exemption from registration provided by Section 3(b) of the Securities Act of
1933, as amended, and Rule 504 of Regulation D adopted thereunder. No
commissions were paid to any broker/dealers in connection with the issuances.
The warrant certificates issued to the lenders were impressed with a restrictive
legend advising that the warrants and underlying shares may not be sold,
transferred, pledged or hypothecated without having first been registered or the
availability of an exemption from registration established.
XIII.
August 1997 Option Grants
-------------------------
In August 1997, the Registrant granted options to purchase a total of
45,000 shares of Common Stock to two persons, which options and/or the
underlying shares of Common Stock were neither incentive stock options nor
non-qualified stock options registered under the Registrant's registration
statement on Form S-8, as follows:
Name No. of Options
---- --------------
David Brenman 20,000
Jules Marx 25,000
These options are exercisable at $1.81 per share over a ten year period from the
date of grant. The option recipients were business consultants to the
Registrant. The 20,000 options issued to David Brenman were rescinded on May 27,
1998. The options were granted in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended. No
commissions were paid to any broker/dealers in connection with the issuances.
The option certificates issued to the consultants were impressed with a
restrictive legend advising that the options and underlying shares may not be
sold, transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.
II-17
<PAGE>
XIV.
April 1998 Issuance of Warrants
-------------------------------
In April 1998, as consideration for two loan commitments, the Registrant
granted warrants to purchase an aggregate of twelve million shares of Common
Stock, exercisable at $.25 per share over a ten year period. As part of the loan
commitments, the lenders have designated five members of the Registrant's Board
of Directors. The loan commitments are further described in the section entitled
The Company - Financing Agreements and Security Ownership of Certain Beneficial
Owners and Management in the attached Prospectus. The loan commitments require
the Registrant to register the shares of Common Stock underlying the warrants,
which shares are the subject of this Registration Statement. The warrants were
granted in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended. American Fronteer Finance
Company, formerly named RAF Financial Corporation, received a commission in
connection with the loan commitments.
XV.
August 1998 Issuance of Options and Common Stock
------------------------------------------------
As consideration for serving on the Board of Directors of the Registrant
and/or the Executive Committee of the Board of Directors, the Registrant granted
six of its directors a total of 900,000 non-qualified stock options to purchase
an aggregate of 900,000 shares of the Registrant's $.01 par value Common Stock,
which options are exercisable for ten years from the date of grant at $0.75 per
share, as follows:
Name No. of Options
---- --------------
Michael I. Ruxin, M.D. 250,000
Fai H. Chan 250,000
Jeffrey M. Busch 150,000
Kwok Jen Fong 150,000
Gordon Segal 50,000
Gerald F. Willman 50,000
900,000
The Registrant also issued Michael I Ruxin, M.D. a non-qualified stock
option pursuant to his Employment Agreement to purchase 1,000,000 shares of the
Registrant's $.01 par value Common Stock, which option is exercisable for ten
years from the date of grant at $0.75 per share only when the Corporation's
annual audited financials show earnings of $.01 per share. Pursuant to a
Consultancy Agreement with Jeffrey M. Busch, the Registrant issued Mr. Busch
warrants to purchase 600,000 shares of the Registrant's $.01 par value Common
Stock at $0.75 per share for a period of ten years, and 50,000 shares of the
Registrant's $.01 par value Common Stock. The Company also issued a total of
II-18
<PAGE>
632,000 incentive stock options to purchase 632,000 shares of the Corporation's
$.01 par value Common Stock, at an exercise price of $0.75 per share,
exercisable for a period of 10 years, and which options are issued pursuant to
the Corporation's Second Amended and Restated Stock Option Plan to employees of
the Corporation as incentive stock options, as follows:
Name No. of Options
---- --------------
Alan K. Geddes 250,000
Bruce Daniels 250,000
James R. Flynt 100,000
Timothy Pellegrini 10,000
Miklos Csore 10,000
Gerald Willman 10,000
Kim Geist 2,000
---------
632,000
The Registrant also issued Thomas M. Marcinek and Alan K. Geddes in lieu of
their cash bonuses for the year-ended December 31, 1998 a total of 250,000
non-qualified stock options to purchase an aggregate of 250,000 shares of the
Registrant's $.01 par value Common Stock at $0.75 per share for a period of ten
years. The foregoing options and warrants were granted in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended.
XVI.
October 1998 Issuance of Options
--------------------------------
In October 1998, the Registrant issued to certain of its employees a total
of 130,000 non-qualified stock options to purchase an aggregate of 130,000
shares of the Registrant's $.01 par value Common Stock at $0.75 per share for a
period of ten years, which options vest in 20% increments, cumulatively, over
five-year periods, as follows:
Name No. of Options
---- --------------
Timothy Pellegrini 40,000
Gerald Willman 90,000
130,000
The foregoing options were granted in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
II-19
<PAGE>
XVII.
November 1998 Issuance of Options
---------------------------------
In November 1998, the Registrant issued Noah Bentley, an employee of the
Company, non-qualified stock options to purchase 25,000 shares of the
Registrant's $.01 par value Common Stock at $0.85 per share for a period of ten
years. The options were granted in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.
XVIII.
December 1998 Issuance of Stock and Options
-------------------------------------------
In December 1998, the Registrant issued a total of 563,624 shares of Common
Stock in connection with the exercise of certain warrants at $.55 per share, for
which the Registrant received a total of $309,993, as follows:
Name Number of Shares Consideration
---- ---------------- -------------
Robert M. Kassenbrock 312,493 $171,871
John D. Prudden 251,131 138,122
------- --------
563,624 $309,993
The warrants were originally exercisable to purchase 150,000 shares of Common
Stock at a purchase price of 85% of the public offering price per share of the
Company's public offering ($2.62 per share), Registration No. 333-11723, or in
the event of no public offering, at $3.00 per share. However, as a result of a
disagreement which arose with respect to the application of the warrants'
extensive anti-dilution provisions, the Registrant agreed to discharge any and
all obligations under the warrants by issuing a total of 563,624 shares of
Common Stock at purchase price of $0.55 per share (which was a 25% discount from
the average of the bid and ask price of the Registrant's Common Stock at the
close of business on December 15, 1998) for a total of $309,993. The 563,624
shares of Common Stock issued upon the exercise of the warrants are being
registered under this Registration Statement.
The Registrant also issued Miklos Csore, an employee of the Company,
non-qualified stock options to purchase 40,000 shares of the Registrant's $.01
par value Common Stock at $0.76 per share for a period of ten years.
The foregoing shares of stock and options were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended.
II-20
<PAGE>
Item 27. Exhibits and Financial Schedules
--------------------------------
The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Number Description
- ------ -----------
3.1 Amended and Restated Articles of Incorporation, filed June 2, 1995(1)
3.2 Articles of Amendment to the Articles of Incorporation, filed March 5,
1996(1)
3.3 Articles of Amendment to the Articles of Incorporation, filed May 30,
1996(1)
3.4 Bylaws, as amended(1)
4.1 Form of Representative's Warrants to Purchase Units(1)
4.2 Form of Class A Common Stock Purchase Warrant Certificate(1)
4.3 Specimen copy of stock certificate for Common Stock, $.01 par value(1)
5.1 Opinion of Brenman Bromberg & Tenenbaum, P.C.
10.1 Lease Agreement, dated April 15, 1992, and Lease Addendums, dated
April 8, 1992 and October 21, 1994(1)
10.2 Lease Agreement, dated July 19, 1995, and Lease Addendum(1)
10.3 Employment Agreement, dated May 24, 1995, between the Registrant and
Michael I. Ruxin, as amended July 8, 1995, August 1, 1995, September
21, 1995 and July 15, 1996(1)
10.4 Employment Agreement, dated May 24, 1995, between the Registrant and
William J. Collard, as amended July 22, 1996(1)
10.5 Employment Agreement, dated June 28, 1995, between the Registrant and
Joseph F. Dudziak(1)
10.6 Employment Agreement, dated February 8, 1996, between the Registrant
and L. E. "Gene" Mundt(1)
10.7 Amended and Restated Stock Option Plan, as amended on May 5, 1995, May
29, 1996 and December 11, 1996(1)
II-21
<PAGE>
10.7(A) Amendment, dated March 31, 1997, to the Amended and Restated Stock
Option Plan(2)
10.8 Voting Agreement, dated May 23, 1995(1)
10.9 Shareholders' Agreement dated August 16, 1991, as amended on May 5,
1995 September 1996, June 24, 1996, July 25, 1996, Consent and Waiver,
dated July 12, 1996, and Rescission of Shareholder's Agreement, dated
June 22, 1996(1)
10.10 Agreement dated April 8, 1996, between the Registrant and LMU &
Company, and Stock Purchase Option, dated April 8, 1996(1)
10.11 Form of Drug Testing Service Contract(1)
10.12 Form of License Agreements(1)
10.13 Warrant Agreement, dated February 11, 1997, between Global Med
Technologies, Inc. and American Securities Transfer & Trust, Inc.(1)
10.14 Exclusivity and Software Development Agreement, dated November 14,
1996, between and among Global Med Technologies, Inc. and Ortho
Diagnostic Systems Inc.(1)
10.15 Amendment, dated November 14, 1996, to Agreement dated April 8, 1996,
between the Registrant and LMU & Company, and Stock Purchase Option,
dated April 8, 1996(1)
10.16 Amendment, dated January 14, 1997, to Agreement dated April 8, 1996,
between the Registrant and LMU & Company, and Stock Purchase Option,
dated April 8, 1996(1)
10.17 Interim Management Agreement, dated July 7, 1997, between the
Registrant and National Medical Review Offices, Inc.(1)
10.18 Asset Purchase Agreement, dated August 18, 1997, between the
Registrant and National Medical Review Offices, Inc.(1)
10.19 Third Amendment to Exclusivity and Software Development Agreement,
dated September 17, 1997 between Global Med Technologies, Inc. and
Ortho Diagnostic Systems, Inc.(1)
10.20 Second Amended and Restated Stock Option Plan, as amended October 3,
1997 and December 2, 1997(3)
II-22
<PAGE>
10.21 Fourth Amendment to Exclusivity and Software Development Agreement,
dated December 22, 1997 between Global Med Technologies, Inc. and
Ortho Diagnostic Systems, Inc.(4)
10.22 Development Agreement, dated July 12, 1996 between Global Med
Technologies, Inc. and The Institute for Transfusion Medicine, dated
July 12, 1996, as amended January 12, 1998(4)
10.23 Loan Commitment, dated April 14, 1998, between Heng Fung Finance
Company Limited and the Company, as amended on April 16, 1998(4)
10.24 Loan Commitment, dated April 14, 1998, between Fronteer Capital, Inc.
and the Company, as amended on April 16, 1998(4)
10.25 Amendment to Loan Commitment, dated April 16, 1998, between Heng Fung
Finance Company Limited and the Company(4)
10.26 Amendment to Loan Commitment, dated April 16, 1998, between Fronteer
Capital, Inc. and the Company(4)
10.27 Second Amendment to Loan Commitments, dated April 20, 1998 between the
Company, Heng Fung Finance Company Limited and Fronteer Capital,
Inc.(4)
10.28 Employment Agreement, dated August 1, 1998, between the Registrant and
Michael I. Ruxin
10.29 Employment Agreement, dated August 1, 1998, between the Registrant and
Alan K. Geddes
10.30 Employment Agreement, dated August 1, 1998, between the Registrant and
Thomas F. Marcinek
10.31 Consultancy Agreement, dated August 1, 1998, between the Registrant
and Jeffrey M. Busch, Esq.
10.32 Warrant to Purchase Common Shares, dated April 20, 1998, issued by the
Registrant to Heng Fung Finance Company Limited
10.33 Warrant to Purchase Common Shares, dated April 20, 1998, issued by the
Registrant to Fronteer Capital, Inc.
10.34 Loan Agreement, dated August 12, 1998, between the Registrant and Heng
Fung Finance Company Limited
II-23
<PAGE>
10.35 Loan Agreement, dated August 12, 1998, between the Registrant and
Fronteer Capital, Inc.
10.36 Personal Guaranty, dated August 12, 1998, by Michael I. Ruxin, M.D. as
Guarantor, the Registrant as Debtor and Fronteer Capital, Inc. as
Beneficiary
10.37 Assignment, Assumption and Consent Agreement, dated September 28,
1998, by the Registrant, Michael I. Ruxin, M.D., Fronteer Capital,
Inc. and Fronteer Development Finance, Inc.
10.38 Loan and Warrant Purchase and Sale Agreement, dated October 7, 1998,
between the Registrant, Heng Fung Finance Company Limited and Fronteer
Development Finance
10.39 Promissory Note, dated October 30, 1998, by the Registrant as Maker
and Fronteer Development Finance, Inc. as the Holder
10.40 Warrant to Purchase Common Shares, dated October 30, 1998, issued by
the Registrant to Fronteer Development Finance, Inc.
10.41 Promissory Note, dated October 26, 1998, by the Registrant as Maker
and Fronteer Development Finance, Inc. as the Holder
10.42 Promissory Note, dated October 26, 1998, by the Registrant as Maker
and Heng Fung Finance Company Limited as the Holder
10.43 Warrant to Purchase Common Shares, dated October 26, 1998, issued by
the Registrant to Fronteer Development Finance, Inc.
10.44 Warrant to Purchase Common Shares, dated October 26, 1998, issued by
the Registrant to Heng Fung Finance Company Limited
21 Subsidiaries of the Company(1)
23.1 Consent of Independent Auditors
23.2 Consent of Brenman Bromberg & Tenenbaum, P.C. - See Exhibit 5.1
27.1 Financial Data Schedule for December 31, 1997(4)
27.2 Restated Financial Data Schedule for December 31, 1996(4)
II-24
<PAGE>
99 Proxy and Right of First Refusal Agreement, dated November 14, 1996,
between and among Ortho Diagnostic Systems Inc. and Michael I. Ruxin,
William J. Collard, Gerald F. Willman, Jr., Lori J. Willman, Timothy
J. Pellegrini and Gordon Segal.(1)
- ----------
(1) The documents identified are incorporated by reference from the Company's
Registration Statement on Form SB-2 (No. 333-11723).
(2) Incorporated by reference from the Company's Registration Statement on Form
S-8 (No. 333-28155)
(3) Incorporated by reference from the Company's Registration Statement on Form
S-8 (No. 333-45031).
(4) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997.
Item 28. Undertakings
------------
The undersigned Registrant will:
(a)(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the registration statement; and (iii)
include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, 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.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The undersigned Registrant will provide to the Underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") 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,
II-25
<PAGE>
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-26
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and County of Denver, State of Colorado on December 29,
1998.
GLOBAL MED TECHNOLOGIES, INC., Registrant
By /s/ Michael I. Ruxin
------------------------------------------
Michael I. Ruxin, Chairman of the Board
of Directors and Chief Executive Officer
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 dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael I. Ruxin
- -------------------------- Chairman of the Board December 29, 1998
Michael I. Ruxin of Directors and Chief
Executive Officer
/s/ Gerald F. Willman, Jr.
- --------------------------- Director and Vice-President- December 29, 1998
Gerald F. Willman, Jr. Product Management
(Wyndgate Technologies)
/s/ Gordon Segal
- --------------------------- Director December 29, 1998
Gordon Segal
/s/ Fai H. Chan
- --------------------------- Director December 29, 1998
Fai H. Chan
/s/ Jeffrey M. Busch
- --------------------------- Director December 29, 1998
Jeffrey M. Busch
/s/ Robert H. Trapp
- --------------------------- Director December 29, 1998
Robert H. Trapp
II-27
<PAGE>
/s/ Kwok Jen Fong
- ------------------------ Director December 29, 1998
Kwok Jen Fong
- ------------------------ Director ___________, 1998
Gary L. Cook
/s/ Thomas F. Marcinek
- ------------------------ President and Chief December 29, 1998
Thomas F. Marcinek Operating Officer
/s/ Alan K. Geddes
- ------------------------ Vice President Finance, December 29, 1998
Alan K. Geddes Chief Financial Officer
and Treasurer
II-28
Exhibit 5.1
Board of Directors
Global Med Technologies, Inc.
December 28, 1998
Page 1
December 28, 1998
Board of Directors
Global Med Technologies, Inc.
12600 West Colfax
Suite A-500
Lakewood, Colorado 80215
Re: Global Med Technologies, Inc.
Registration Statement on Form SB-2 and Amendment No. 1 Thereto
Registration No. 333-52761
Gentlemen:
We have acted as counsel to Global Med Technologies, Inc., a Colorado
corporation (the "Company"), in connection with the preparation and filing with
the U.S. Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), of the Company's registration
statement on Form SB-2 (the "Registration Statement") and Amendment No. 1 to the
above captioned Registration Statement. The Registration Statement relates to
the registration under the Act for resale by the holders (the "Selling Security
Holders") named therein, for their own accounts, of 12,000,000 Common Stock
Purchase Warrants (the "Warrants") exercisable at $.25 per share, 12,000,000
shares of Common Stock which underlie the Warrants and 563,624 shares of
previously unregistered Common Stock (collectively, the "Shares").
In rendering this opinion, we have reviewed the Registration Statement and
Amendment No. 1 thereto, as well as a copy of the Company's articles of
incorporation and bylaws, each as amended to date. We have also reviewed such
documents and such statutes, rules and judicial precedents as we have deemed
necessary for the opinions expressed herein.
In rendering this opinion, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of documents
submitted to us as originals, the conformity to original documents of documents
submitted to us as certified or photostatic copies, and the authenticity of
originals of such photostatic copies.
Based upon and in reliance upon the foregoing, and subject to the
qualifications and limitations herein set forth, we are of the opinion that the
Warrants have been duly and validly authorized and issued, and the shares, when
issued for the consideration and in the manner contemplated by the Registration
Statement, will be validly issued, fully paid and nonassessable.
<PAGE>
Board of Directors
Global Med Technologies, Inc.
December 28, 1998
Page 2
The opinion set forth in this letter is limited by, subject to and based on
the following:
1. We are admitted to practice before the Bar of the State of
Colorado and are not admitted to practice in any other
jurisdiction.
2. The foregoing opinion is limited in all respects to the laws
of the State of Colorado and applicable federal securities
laws of the United States.
We consent to the filing of this opinion with the Commission as an exhibit
to the Registration Statement and Amendment No. 1 thereto.
This opinion may not be used, circulated, quoted or otherwise referred to
for any other purpose without prior written consent and may not be relied upon
by any person or entity other than the Company and its successors and assigns.
This opinion is based upon our knowledge of law and facts as of this date. We
assume no duty to communicate to you with respect to any matter which comes to
our attention hereafter.
Very truly yours,
/s/ Brenman Bromberg & Tenenbaum, P.C.
---------------------------------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of August, 1998 between Global Med
Technologies, Inc., a Colorado corporation (the "Employer") and Michael I. Ruxin
(the "Employee").
WHEREAS, Employee is presently employed by Employer;
WHEREAS, Employer desires to continue the employment of Employee and has
negotiated with Employee with respect to the terms of such employment;
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Employer and Employee hereby agree as follows:
ARTICLE I
TERM OF EMPLOYMENT
------------------
1.1 Employment. The Employer agrees to continue to employ the Employee and
the Employee agrees to continue to be employed by the Employer upon the terms
and conditions hereinafter set forth.
1.2 Term. The employment of the Employee by the Employer as provided herein
shall commence August 1, 1998 and shall end July 31, 2001, unless otherwise
superseded by section 4.1, provided, however, that at the close of the second
year of this agreement the initial term hereof shall be automatically extended
for an additional two years beyond the initial term (for a new initial term of
five years from, the Closing date) unless employer or employee provides notice
of the contrary at least 90 days prior to the close of the second year.
1.3 Office and Support. Employee shall be provided an office and support
staff, including but not limited to secretarial services, at Employer's Denver
headquarters. Employee shall not be required to relocate outside of the Denver
area.
ARTICLE II
DUTIES OF THE EMPLOYEE
----------------------
2.1 Duties. The Employee shall be employed with the title of Chairman and
CEO, Global Med Technologies, Inc. with responsibilities and authority as are
customarily performed by such an officer.
<PAGE>
2.2 Extent of Duties. Employee shall devote substantially his full business
time, attention and energies to the business of the Employer.
2.3 Disclosure of Information.
2.3.1 The Employee recognizes and acknowledges that the information,
processes, developments, experimental work, work in progress, business, list of
the Employer's customers and any other trade secret or other secret or
confidential information relating to Employer's business as they may exist from
time to time are valuable, special and unique assets of Employer's business.
Therefore, Employee agrees that:
(i) Employee will hold in strictest confidence and not disclose,
reproduce, publish or use in any manner, whether during or subsequent to his
employment, without the express authorization of the Board of Directors of the
Employer, any information, process, development or experimental work, work in
process, business, customer lists, trade secret or any other secret or
confidential matter relating to any aspect of the Employer's business, except 1)
as such disclosure or use may be required in connection with Employee's work for
the Employer and 2) where such information or items have become publicly known
and made generally available through no wrongful act of employee.
(ii) Upon request or at the time of leaving the employ of the
Employer, the Employee will deliver to the Employer, and not keep or deliver to
anyone else, any and all notes, memoranda, documents and, in general, any and
all material relating to the Employer's business.
2.3.2 In the event of a breach or threatened breach by the Employee of
the provisions of this section 2.3, the Employer shall be entitled to an
injunction (i) restraining the Employee from disclosing, in whole or in part,
any information as described above or from rendering any services to any person,
firm, corporation, association or other entity to whom such information, in
whole or in part, has been disclosed or is threatened to be disclosed; and/or
(ii) requiring that Employee deliver to Employer all information, documents,
notes, memoranda and any and all discoveries or other material as described
above upon Employee's leave of the employ of the Employer. Nothing herein shall
be construed as prohibiting the Employer from pursuing other remedies available
to the Employer for such breach or threatened breach, including the recovery of
damages from the Employee.
ARTICLE III
COMPENSATION OF THE EMPLOYEE
----------------------------
3.1 Compensation. As compensation for services rendered under this
Agreement, the Employee shall receive a salary at the rate of $190,000 per annum
to be paid in accordance with Employer's normal practices. The salary provided
in this subsection shall in no way be deemed exclusive and shall not prevent
Employee from participating in any other compensation or benefit plan of
Employer. Employee's salary shall be reviewed on an annual basis and if
2
<PAGE>
Employee's performance is deemed satisfactory, his salary shall be increased at
least in an amount equal to the cost of living increase for the prior year.
3.2 Incentive Compensation. Annually, on October 31 of each year while this
employment agreement is in effect, solely at the option of the Employer, the
Employee may be entitled to receive incentive compensation of up to 200% of
Employee's base salary of $190,000 per year. This incentive compensation shall
be based on reasonable objectives which shall be established by the Board of
Directors by December 31 of each year of employment which shall govern the
incentives for the following year; except for the period prior to the first year
of this contract which runs from November 1, 1997-October 31, 1998 which
objectives are covered in schedule 3.2. The terms and conditions of the
incentive compensation are to be determined solely by the Board of Directors.
The employee shall give input into the objectives. The incentive will be
prorated if the employee is not employed on October 31 of any year.
3.3 Benefits. Employee shall be entitled to participate in all of
Employer's employee benefit plans and employee benefits, including any
retirement, pension, profit-sharing, stock option, insurance, hospital or other
plans and benefits which now may be in effect or which may hereafter be adopted,
it being understood that Employee shall have the same rights and privileges to
participate in such plans and benefits as any other executive employee during
the term of this Agreement. Participation in any benefit plans shall be in
addition to the compensation provided for in Section 3.1. Employer shall pay
premiums for health and dental insurance covering Employee and his family.
Employer shall pay premiums on two life insurance policies for Employee, each
with a death benefit of $1,000,000. The owner and beneficiary of the first
policy shall be the Employer and the beneficiary of the second policy shall be
designated by the Employee. Employee shall be provided with a disability policy
equal to Employee's annual salary. Employee shall be provided with a car by
Employer on such lease terms to be determined by Employer, provided that the
monthly operating costs (including the lease payment) to be paid by Employer
shall not exceed $1200. The total operating costs on the vehicle shall be paid
80% by employer and 20% by employee.
3.4 Stock Options. Upon execution of this agreement, Employee will receive
One Million (1,000,000) non-qualified stock options to purchase One Million
shares of common stock at 110% of the closing bid price on the date this
agreement is executed. The options can only be exercised when Global Med
Technologies, Inc. annual audited report has earnings per share of over one cent
(1A).
3.5 Expenses. Employee shall be entitled to prompt reimbursement, upon
production of original receipts, for all reasonable expenses incurred by
Employee in the performance of his duties hereunder. Employer shall advance
reasonable estimates of such expenses upon request of the Employee.
ARTICLE IV
TERMINATION OF EMPLOYMENT
-------------------------
3
<PAGE>
4.1 Termination. The Employee's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
4.1.1 By Employee. Upon the occurrence of any of the following events
this Agreement may be terminated by the Employee by written notice to Employer:
(i) the sale by Employer of substantially all of its assets;
(ii) a decision by Employer to terminate its business and
liquidate its assets;
(iii) the merger or consolidation of Employer with another entity
or an agreement to such a merger or consolidation or any other type of
reorganization;
(iv) Employer makes a general assignment for the benefit of
creditors, files a voluntary bankruptcy petition, files a petition or answer
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law, there shall have been filed any
petition or application for the involuntary bankruptcy of Employer, or other
similar proceeding, in which an order for relief is entered or which remains
undismissed for a period of thirty days or more, or Employer seeks, consents to,
or acquiesces in the appointment of a trustee, receiver, or liquidator of
Employer or any material party of its assets;
(vi) there are material reductions in Employee's duties and
responsibilities without his written consent or a demotion from the position of
Chairman and CEO;
(vii) termination by the Company of Employee's employment with
the Company for any reason other than cause (as defined in Section 4.14 below);
(viii) a five percent reduction in Employee's base compensation
(not including bonus), other than any such reduction which is part of, and
generally consistent with, a general reduction of officer's salaries; or
(ix) a material reduction by the company in the kind or level of
employee benefits (other than salary and bonus) to which employee is entitled
immediately prior to such reduction with the result that Employee's overall
benefits package (other than salary and bonus) is substantially reduced (other
than any such reduction applicable to officers of the Company generally).
4.1.2 Death. This Agreement shall terminate upon the death of
Employee.
4.1.3 Disability. The Employer may terminate this Agreement upon the
permanent or temporary disability of the Employee. Employee shall be considered
disabled (whether permanent or temporary) if: (1) he is disabled as defined in a
disability insurance policy
4
<PAGE>
purchased by or for the benefit of the Employee; or (2) if no such policy is in
effect, he is incapacitated to such an extent that he is unable to perform
substantially all of his duties for 30 consecutive days for Employer that he
performed prior to such incapacitation.
4.1.4 Cause. The Employer may terminate the Employee's employment
hereunder for Cause. For purposes of this Agreement, the Employer shall have
"Cause" to terminate the Employee's employment hereunder upon the following: (1)
habitual neglect of duties as determined by the Company's board of directors and
where Employee has failed to cure such default within 30 days after receipt of
written notice of such habitual neglect from the Company or (2) willful breach
of duties.
4.2 Notice of Termination. Any termination of the Employee's employment by
the Employer or by the Employee (other than termination pursuant to subsection
4.1.2 above) shall be communicated by written Notice of Termination to the other
party. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
4.3 Date of Termination. "Date of Termination" shall mean (i) if the
Employees employment is terminated by his death, the date of his death; and (ii)
if the Employee's employment is terminated for any other reason, the date on
which a Notice of Termination is received by Employer or Employee.
4.4 Payment of Salary/Severance Pay Following Termination.
4.4.1 In the event of temporary or permanent disability of the
Employee as described in subsection 4.1.3 hereof, Employee shall be entitled to
receive all compensation and benefits payable up to the Date of Termination
notwithstanding his temporary or permanent disability during the 30 day period
preceding the Date of Termination.
4.4.2 Following the termination of this Agreement by the Employer for
Cause as provided in subsection 4.1.4 hereof, the Employee shall be entitled
only to all compensation through the Date of Termination.
4.4.3 Following the termination of this Agreement by the Employer for
any reason other than Cause or the temporary or permanent disability of
Employee, the Employee shall be entitled to compensation, benefits and
incentives at the rate in effect at termination for twenty-four months following
the date of termination.
4.5 Remedies. Any termination of this Agreement shall not prejudice any
other remedy to which the Employer or Employee may be entitled, either at law,
equity, or under this Agreement.
ARTICLE V
5
<PAGE>
INDEMNIFICATION
---------------
5.1 Indemnification. To the fullest extent permitted by applicable law,
Employer agrees to indemnify, defend and hold Employee harmless from any and all
claims, actions, costs, expenses, damages and liabilities, including, without
limitation, reasonable attorneys' fees, hereafter or heretofore arising out of
or in connection with activities of Employer or its employees, including
Employee, or other agents in connection with and within the scope of this
Agreement or by reason of the fact that he is or was a director or officer of
Employer or any affiliate of Employer. To the fullest extent permitted by
applicable law, Employer shall advance to Employee expenses of defending any
such action, claim or proceeding. However, Employer shall not indemnify Employee
or defend Employee against, or hold him harmless from any claims, damages,
expenses or liabilities, including attorneys' fees, resulting from the gross
negligence or willful misconduct of Employee to include punitive damage claims
against the Employee. The duty to indemnify shall survive the expiration or
early termination of this Agreement as to any claims based on facts or
conditions which occurred or are alleged to have occurred prior to expiration or
termination.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado.
6.2 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by arbitration in the City
and County of Denver, Colorado in accordance with the rules then existing of the
American Arbitration Association and judgment upon the award may be entered in
any court having jurisdiction thereof.
6.3 Entire Agreement. This Agreement supersedes any and all other
Agreements, whether oral or in writing, between the parties with respect to the
employment of the Employee by the Employer.
6.4 Successors and Assigns. This Agreement, all terms and conditions
hereunder, and all remedies arising herefrom, shall inure to the benefit of and
be binding upon Employer, any successor in interest to all or substantially all
of the business and/or assets of Employer, and the heirs, administrators,
successors and assigns of Employee. Except as provided in the preceding
sentence, the rights and obligations of the parties hereto may not be assigned
or transferred by either party without the prior written consent of the other
party.
6.5 Notices. For purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
6
<PAGE>
If to Employee: Michael I Ruxin
12600 W. Colfax Ave.
Lakewood, Colorado 80215
If to Employer: Global Med Technologies, Inc.
12600 W Colfax Avenue, Suite A-500
Lakewood, Colorado 80215
Attn.: Fai Chan, Director
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6.6 Severability. If any provision of this Agreement is prohibited by or is
unlawful or unenforceable under any applicable law of any jurisdiction as to
such jurisdiction, such provision shall be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof.
6.7 Section Headings. The section headings used in this Agreement are for
convenience only and shall not affect the construction of any terms of this
Agreement.
6.8 Survival of Obligations. Termination of this Agreement for any reason
shall not relieve Employer or Employee of any obligation accruing or arising
prior to such termination.
6.9 Amendments. This Agreement may be amended only by written agreement of
both Employer and Employee.
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one legal instrument. This Agreement shall
become effective when copies hereof, when taken together, shall bear the
signatures of both parties hereto. It shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
6.11 Fees and Costs. If any action at law or in equity (in civil court or
in arbitration) is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys fees,
costs and necessary disbursements in addition to any other relief to which that
party may be entitled.
7
<PAGE>
"EMPLOYER"
GLOBAL MED TECHNOLOGIES, INC.
By: /s/ Fai Chan
----------------------------------
Fai Chan, Director
"EMPLOYEE"
/s/ Michael I. Ruxin
----------------------------------
Michael I. Ruxin, M.D.
8
<PAGE>
Schedule 2.1
Duties of Employee
Employee shall be responsible for the day-to-day operations of Global Med
Technologies, Inc. Employee will report to the Board of Directors of Global Med
Technologies, Inc.
9
<PAGE>
Schedule 3.2
Objectives
1. To help raise funds necessary so that the company has working capital
for the next twelve months.
2. To hire an experienced management team, as necessary, in order to
prepare the company for future growth.
3. To complete Beta testing at ItxM.
4. To file a 510(K) on SafeTrace Tx
5. To obtain 510(K) clearance on SafeTrace Tx as soon as possible.
6. To position the company with the appropriate channel distributors.
7. To increase shareholder value.
10
<PAGE>
Schedule 3.3
Benefits
Employee will accrue paid time off at the rate of 2l hours per month.
11
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 1st day of August, 1993 between Global Med
Technologies, Inc., a Colorado corporation (the "Employer") and Alan K. Geddes
(the "Employees").
WHEREAS, Employee is presently a consultant to Employer;
WHEREAS, Employer desires to employ Employee and has negotiated with
Employee with respect to the terms of such employment;
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Employer and Employee hereby agree as follows:
ARTICLE I
TERM OF EMPLOYMENT
------------------
1.1 Employment. The Employer agrees to employ the Employee and the Employee
agrees to be employed by the Employer upon the terms and conditions hereinafter
set forth.
1.2 Term. The employment of the Employee by the Employer as provided herein
shall commence August 1, 1998 and shall end November 1, 2001 unless otherwise
superseded by section 4.1, provided, however, that at the close of the second
year of this agreement the initial term hereof shall be automatically extended
for an additional two years beyond the initial term unless Employer or Employee
provides notice of the contrary at least 90 days prior to the close of the
second year.
1.3 Office and Support. Employee shall be provided an office and support
staff at Employer's Wyndgate division in Sacramento, California or corporate
offices in Denver, Colorado.
ARTICLE II
DUTIES OF THE EMPLOYEE
----------------------
2.1 Duties. The Employee shall be employed with the title of Vice President
Finance and Chief Financial Officer, Global Med Technologies, Inc. with
responsibilities and authority as are customarily performed by such an officer
and as may from time to time be assigned to Employee by Employer's Chairman and
Chief Executive Officer or Board of Directors. Employee shall report directly to
the Chairman and CEO of Global Med Technologies, Inc.
2.2 Extent of Duties. Employee shall devote substantially his full business
time, attention and energies to the business of the Employer.
<PAGE>
2.3 Disclosure of Information.
2.3.1 The Employee recognizes and acknowledges that the information,
processes, developments, experimental work, work in progress, business, list of
the Employer's customers and any other trade secret or other secret or
confidential information relating to Employer's business as they may exist from
time to time are valuable, special and unique assets of Employer's business.
Therefore, Employee agrees that:
(i) Employee will hold in strictest confidence and not disclose,
reproduce, publish or use in any manner, whether during or subsequent to his
employment, without the express authorization of the Board of Directors of the
Employer, any information, process, development or experimental work, work in
process, business, customer lists, trade secret or any other secret or
confidential matter relating to any aspect of the Employer's business, except 1)
as such disclosure or use may be required in connection with Employee's work for
the Employer and 2) where such information or items have become publicly known
and made generally available through no wrongful act of employee.
(ii) Upon request or at the time of leaving the employ of the
Employer, the Employee will deliver to the Employer, and not keep or deliver to
anyone else, any and all notes, memoranda, documents and, in general, any and
all material relating to the Employer's business.
2.3.2 In the event of a breach or threatened breach by the
Employee of the provisions of this section 2.3, the Employer
shall be entitled to an injunction (i) restraining the
Employee from disclosing, in whole or in part, any
information as described above or from rendering any
services to any person, firm, corporation, association or
other entity to whom such information, in whole or in part,
has been disclosed or is threatened to be disclosed; and/or
(ii) requiring that Employee deliver to Employer all
information, documents, notes, memoranda and any and all
discoveries or other material as described above upon
Employee's leave of the employ of the Employer. Nothing
herein shall be construed as prohibiting the Employer from
pursuing other remedies available to the Employer for such
breach or threatened breach, including the recovery of
damages from the Employee.
2.4 Non-Solicitation.
2.4.1 Non-Solicitation of Employees: During the period of
employment and for a period of 12 months after the cessation
of employment for any reason, whether with or without cause,
it is agreed that the Employee shall not directly or
indirectly, either alone or in concert with others, solicit
or entice any employee of or consultant to the company to
leave the company or work for anyone or entity in
competition with the Employer. It is understood and agreed
between the parties that this non-solicitation
2
<PAGE>
provision is necessary for the protection of trade secrets
and other confidential information of the Employer.
2.4.2 Solicitation of Customers: During the period of employment
and for a period of 12 months after the cessation of
employment for any reason, whether with or without cause, it
is understood that Employee shall not directly or
indirectly, either alone or in concert with others, solicit,
entice, or in any way divert any of the company's customers
(or potential customers with whom the Employee has come in
contact during the period of employment with Global Med) or
suppliers to do business with any business entity in
competition with the company. It is understood and agreed
between the parties that this non-solicitation provision is
necessary for the protection of trade secrets and other
confidential information of the Employer.
ARTICLE III
COMPENSATION OF THE EMPLOYEE
----------------------------
3.1 Compensation. As compensation for services rendered under this
Agreement, the Employee shall receive a salary at the rate of $125,000 per annum
to be paid in accordance with Employer's normal practices. The salary provided
in this subsection shall in no way be deemed exclusive and shall not prevent
Employee from participating in any other compensation or benefit plan of
Employer. Employee's salary shall be reviewed on or about November 1, 1998 and
on an annual basis thereafter and if Employee's performance is deemed
satisfactory, his salary shall be increased at least in an amount equal to the
cost of living increase for the prior year, providing that at least one other
senior management's salary (CEO or COO) is increased by a similar cost of living
raise. In addition, Employee shall be eligible for a performance incentive
raise.
3.2 Incentive Compensation. Annually, on October 30 of each year while this
employment agreement is in effect, solely at the option of the Employer, the
Employee may be entitled to receive incentive compensation of up to 50% of
Employee's then current annual base salary. This incentive compensation shall be
based on objectives which shall be established by the parties by December 31 of
each year for as long as the Employee continues his employment with the Company.
The terms and conditions of the incentive compensation are to be determined
solely by the CEO and/or the Board of Directors. The Employee shall give input
into the objectives.
3.3 Benefits. Employee shall be entitled to participate in all of
Employer's employee benefit plans and employee benefits, including any
retirement, pension, profit-sharing, stock option, insurance, hospital or other
plans and benefits which now may be in effect or which may hereafter be adopted,
it being understood that Employee shall have the same rights and privileges to
participate in such plans and benefits as any other executive employee during
the term of this Agreement. Participation in any benefit plans shall be in
addition to the compensation provided for in Section 3.1. Employer shall pay
premiums for health and dental insurance covering
3
<PAGE>
Employee. Employee shall be provided with a car allowance of $400 per month.
Employee shall be reimbursed for up to $30,000 of unaccountable, preapproved
moving expenses to cover the costs of acquiring property or relocating from Mill
Valley, California to the metropolitan area of Denver, Colorado.
3.4 Stock Options. Employee will receive incentive stock options (under
Employer's Stock Option Plan) to purchase an aggregate of 250,000 shares of
Employer's common stock between the bid and the ask on Employee's date of
employment. Employee shall purchase 10,000 shares of Global Med stock in the
open market from American Fronteer Capital, Inc. and keep these shares for a
minimum of eighteen months in order for this employment contract to become
effective. If Employee sells these 10,000 shares or any part thereof prior to
eighteen months, the Employee acknowledges that he will no longer be entitled to
20,000 of the options to become vested on 11/1/99. Twenty percent (20%) of the
250,000 options shall vest and become exercisable upon Employee's completion of
each year of employment with Employer, as follows:
Shares Underlying Option Dates Exercisable Dates Vested
------------------------ ----------------- ------------
50,000 11/1/1998 11/1/2008 11/1/1998
50,000 11/1/1999 11/1/2008 11/1/1999
50,000 11/1/2000 11/1/2008 11/1/2000
50,000 11/1/2001 11/1/2008 11/1/2001
50,000 11/1/2002 11/1/2008 11/1/2002
If Employer: (i) sells substantially all of its assets, or (ii) merges or
consolidates with another entity or otherwise reorganizes whereby the total
market value of Employer's common stock exceeds $100,000,000 as a result of such
transaction or (iii) terminates employee for any reason other than malfeasance
prior to employees contract expiration; then the entire 250,000 in options
granted to Employee shall become immediately 100% vested and immediately
exercisable on the date preceding the effective date of such sale, merger,
consolidation or other reorganization; provided, however, that Employer and
Employee acknowledge that a secondary public offering or private placement or
other such financing of Employer's securities excluding change of control is
specifically excluded from this accelerated vesting provision.
Notwithstanding any other provision in this Agreement, regardless of
vesting, Employee must be employed by Employer at the time of exercise in order
to exercise such options, as required by Employer's Stock Option Plan. However,
all of the stock options that are fully vested at the time the Employee or the
Employer terminates the Employee's employment, for any reason, shall be able to
be exercised by the employee within 90 days of termination, in accordance with
Global Med Technologies, Inc. Employee Stock Option Plan. If the Employee
decides that he does not want to exercise his fully vested options, then those
fully vested options will be rescinded and regranted as nonqualified options
under Global Med Technologies, Inc. Nonqualified Stock Option Plan provided,
however, that the Employee's termination is not for cause. Employee shall also
be entitled to receive additional stock options as additional compensation on
Employee's annual reviews based solely on the discretion of the Board of
Directors.
4
<PAGE>
3.5 Expenses. Employee shall be entitled to prompt reimbursement, upon
production of original receipts, for all reasonable expenses incurred by
Employee in the performance of his duties hereunder. Employer shall advance
reasonable estimates of such expenses upon request of the Employee.
ARTICLE IV
TERMINATION OF EMPLOYMENT
-------------------------
4.1 Termination. The Employee's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
4.1.1 By Employee. Upon the occurrence of any of the following events
this Agreement may be terminated by the Employee by written notice to Employer:
(i) the sale by Employer of substantially all of its assets;
(ii) a decision by Employer to terminate its business and
liquidate its assets;
(iii) the merger or consolidation of Employer with another entity
or an agreement to such a merger or consolidation or any other type of
reorganization;
(iv) Employer makes a general assignment for the benefit of
creditors, files a voluntary bankruptcy petition, files a petition or answer
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law, there shall have been filed any
petition or application for the involuntary bankruptcy of Employer, or other
similar proceeding, in which an order for relief is entered or which remains
undismissed for a period of thirty days or more, or Employer seeks, consents to,
or acquiesces in the appointment of a trustee, receiver, or liquidator of
Employer or any material party of its assets;
(v) there are material reductions in Employee's duties and
responsibilities without his written consent or a demotion from the position of
CFO;
(vi) termination by the Company of Employee's employment with the
Company for any reason other than cause (as defined in Section 4.14 below);
(vii) a five percent reduction in Employee's base compensation
(not including bonus), other than any such reduction which is part of, and
generally consistent with, a general reduction of officer's salaries; or
(viii) a material reduction by the Company in the kind or level
of employee benefits (other than salary and bonus) to which Employee is entitled
immediately prior to such reduction with the result that Employee's overall
benefits package (other than salary and
5
<PAGE>
bonus) is substantially reduced (other than any such reduction applicable to
officers of the Company generally).
4.1.2 Death. This Agreement shall terminate upon the death of
Employee.
4.1.3 Disability. The Employer may terminate this Agreement upon the
permanent or temporary disability of the Employee. Employee shall be considered
disabled (whether permanent or temporary) if: (1) he is disabled as defined in a
disability insurance policy purchased by or for the benefit of the Employee; or
(2) if no such policy is in effect, he is incapacitated to such an extent that
he is unable to perform substantially all of his duties for 30 consecutive
business days for Employer that he performed prior to such incapacitation.
4.1.4 Cause. The Employer may terminate the Employee's employment
hereunder for Cause. For purposes of this Agreement, the Employer shall have
"Cause" to terminate the Employee's employment hereunder upon the following: (1)
habitual neglect of duties or (2) willful breach of duties. The Employer will
provide notice of these and allow Employee 60 days time to cure.
4.2 Notice of Termination. Any termination of the Employee's employment by
the Employer or by the Employee (other than termination pursuant to subsection
4.1.2 above) shall be communicated by written Notice of Termination to the other
party. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
4.3 Date of Termination. "Date of Termination" shall mean (i) if the
Employee's employment is terminated by his death, the date of his death; and
(ii) if the Employee's employment is terminated for any other reason, the date
on which a Notice of Termination is received by Employer or Employee.
4.4 Payment of Salary/Severance Pay Following Termination.
4.4.1 In the event of temporary or permanent disability of the
Employee as described in subsection 4.1.3 hereof, Employee shall be entitled to
receive all compensation and benefits payable up to the Date of Termination
notwithstanding his temporary or permanent disability during the 30 day period
preceding the Date of Termination; any such payment, however, shall be reduced
by disability insurance benefits, if any, paid to Employee under policies (other
than group policies) for which Employer pays all premiums and Employee is the
beneficiary.
4.4.2 Following the termination of this Agreement by the Employer for
Cause as provided in subsection 4.1.4 hereof, the Employee shall be entitled
only to compensation through the Date of Termination.
6
<PAGE>
4.4.3 Following the termination of this Agreement by the Employer for
any reason other than Cause or the temporary or permanent disability of
Employee, the Employee shall be entitled to twelve months compensation and
benefits following the date of termination.
4.5 Remedies. Any termination of this Agreement shall not prejudice any
other remedy to which the Employer or Employee may be entitled, either at law,
equity, or under this Agreement.
ARTICLE V
INDEMNIFICATION
---------------
5.1 Indemnification. To the fullest extent permitted by applicable law,
Employer agrees to indemnify, defend and hold Employee harmless from any and all
claims, actions, costs, expenses, damages and liabilities, including, without
limitation, reasonable attorneys' fees, hereafter or heretofore arising out of
or in connection with activities of Employer or its employees, including
Employee, or other agents in connection with and within the scope of this
Agreement or by reason of the fact that he is or was a director or officer of
Employer or any affiliate of Employer. To the fullest extent permitted by
applicable law, Employer shall advance to Employee expenses of defending any
such action, claim or proceeding. However, Employer shall not indemnify Employee
or defend Employee against, or hold him harmless from any claims, damages,
expenses or liabilities, including attorneys' fees, resulting from the gross
negligence or willful misconduct of Employee to include punitive damage claims
against the Employee. The duty to indemnify shall survive the expiration or
early termination of this Agreement as to any claims based on facts or
conditions which occurred or are alleged to have occurred prior to expiration or
termination.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
6.2 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by arbitration in the City
and County of Sacramento, California, in accordance with the rules then existing
of the American Arbitration Association. Judgment upon the award may be entered
in any court having jurisdiction thereof. There shall be three arbitrators, one
to be chosen directly by each party at will, and the third arbitrator to be
selected by the two arbitrators so chosen. Each party shall be responsible to
pay the fees of the arbitrator he or she selects, and the fees of the third
arbitrator shall be borne equally by the parties. It is agreed and understood
that this arbitration clause means that each party waives their right to a jury
or bench trial over the controversies or claims mentioned in this paragraph. It
is further understood and agreed that the term "controversy or claim" as used in
this paragraph means any controversy or claim, including breach of contract,
breach of the covenant of good faith and fair dealing, discrimination claims,
harassment claims, claims of fraud, retaliation, whistleblowing, claims of
violations of the Americans With Disabilities Act, Older Workers
7
<PAGE>
Protection Act, and any and all other state and federal laws under which a claim
can be brought by the employee or employer. This provision shall not restrict
the right of either the employee or the employer to seek injunctive relief from
a court of competent jurisdiction.
6.3 Entire Agreement. This Agreement supersedes any and all other
agreements, whether oral or in writing, between the parties with respect to the
employment of the Employee by the Employer.
6.4 Successors and Assigns. This Agreement, all terms and conditions
hereunder, and all remedies arising herefrom, shall inure to the benefit of and
be binding upon Employer, any successor in interest to all or substantially all
of the business and/or assets of Employer, and the heirs, administrators,
successors and assigns of Employee. Except as provided in the preceding
sentence, the rights and obligations of the parties hereto may not be assigned
or transferred by either party without the prior written consent of the other
party.
6.5 Notices. For purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to Employee: Alan K. Geddes
6 Barrie Way
Mill Valley, California 94941
If to Employer: Global Med Technologies, Inc.
12600 W.Colfax Avenue, Suite A-500
Lakewood, Colorado 80215
Attn.: Michael I. Ruxin, Chairman and CEO
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6.6 Severability. If any provision of this Agreement is prohibited by or is
unlawful or unenforceable under any applicable law of any jurisdiction as to
such jurisdiction, such provision shall be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof.
6.7 Section Headings. The section headings used in this Agreement are for
convenience only and shall not affect the construction of any terms of this
Agreement.
6.8 Survival of Obligations. Termination of this Agreement for any reason
shall not relieve Employer or Employee of any obligation accruing or arising
prior to such termination.
6.9 Amendments. This Agreement may be amended only by written agreement of
both Employer and Employee.
8
<PAGE>
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one legal instrument. This Agreement shall
become effective when copies hereof, when taken together, shall bear the
signatures of both parties hereto. It shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
6.11 Fees and Costs. If any action at law or in equity (in civil
court or in arbitration) is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys fees, costs and necessary
disbursements in addition to any other relief to which that
party may be entitled.
6.12 Legal Review. The parties agree that the employee was provided
the opportunity to review this agreement with legal counsel.
"EMPLOYER"
GLOBAL MED TECHNOLOGIES, INC.
By: /S/ Michael I. Ruxin
------------------------------------
Michael I. Ruxin, Chairman and CEO
"EMPLOYEE"
/S/ Alan K. Geddes
----------------------------------------
Alan K. Geddes
9
<PAGE>
Schedule 2.1
Duties of Employee
Employee shall be responsible for the day to day financial operations of Global
Med Technologies, Inc. and Wyndgate Technologies as well as certain policy
making decisions impacting day to day financial operations. Employee will report
to the Chairman and CEO of Global Med Technologies, Inc.
10
<PAGE>
Schedule 3.3
Benefits
Employer shall pay 100% of the cost of health insurance under Employer's
health plan for Employee. Employee also will be entitled to all paid holidays
and other benefits as customarily are extended to executive employees.
Employee will accrue vacation time at the rate of 13.33 hours per month.
11
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 1st day of August, 1998 between Global Med
Technologies, Inc., a Colorado corporation (the "Employer") and Thomas F.
Marcinek (the "Employee").
WHEREAS, Employee is presently employed by Employer;
WHEREAS, Employer desires to continue the employment of Employee and has
negotiated with Employee with respect to the terms of such employment;
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Employer and Employee hereby agree as follows:
ARTICLE I
TERM OF EMPLOYMENT
------------------
1.1 Employment. The Employer agrees to continue to employ the Employee and
the Employee agrees to continue to be employed by the Employer upon the terms
and conditions hereinafter set forth.
1.2 Term. The employment of the Employee by the Employer as provided herein
shall commence August 1, 1998 and shall end November 1, 2001, unless otherwise
superseded by section 4.1 or 4.4.3, provided, however, that at the close of the
second year of this agreement the initial term hereof shall be automatically
extended for an additional two years beyond the initial term (for a new initial
term of five years from the Closing Date) unless Employer or Employee provides
notice of the contrary at least 90 days prior to the close of the second year.
1.3 Office and Support. Employee shall be provided an office and support
staff, including but not limited to secretarial services, at Employer's Wyndgate
division in Sacramento, California.
ARTICLE II
DUTIES OF THE EMPLOYEE
----------------------
2.1 Duties. The Employee shall be employed with the title of President and
Chief Operating Officer, Global Med Technologies, Inc. with responsibilities and
authority as are customarily performed by such an officer and as may from time
to time be assigned to Employee by Employer's Chairman and Chief Executive
Officer or Board of Directors. Employee shall report directly to the Chairman
and CEO of Global Med Technologies, Inc.
2.2 Extent of Duties. Employee shall devote substantially his full business
time, attention and energies to the business of the Employer.
<PAGE>
2.3 Disclosure of Information.
2.3.1 The Employee recognizes and acknowledges that the information,
processes, developments, experimental work, work in progress, business, list of
the Employer's customers and any other trade secret or other secret or
confidential information relating to Employer's business as they may exist from
time to time are valuable, special and unique assets of Employer's business.
Therefore, Employee agrees that:
(i) Employee will hold in strictest confidence and not disclose,
reproduce, publish or use in any manner, whether during or subsequent to his
employment, without the express authorization of the Board of Directors of the
Employer, any information, process, development or experimental work, work in
process, business, customer lists, trade secret or any other secret or
confidential matter relating to any aspect of the Employer's business, except 1)
as such disclosure or use may be required in connection with Employee's work for
the Employer and 2) where such information or items have become publicly known
and made generally available through no wrongful act of employee.
(ii) Upon request or at the time of leaving the employ of the
Employer, the Employee will deliver to the Employer, and not keep or deliver to
anyone else, any and all notes, memoranda, documents and, in general, any and
all material relating to the Employer's business.
2.3.2 In the event of a breach or threatened breach by the
Employee of the provisions of this section 2.3, the Employer
shall be entitled to an injunction (i) restraining the
Employee from disclosing, in whole or in part, any
information as described above or from rendering any
services to any person, firm, corporation, association or
other entity to whom such information, in whole or in part,
has been disclosed or is threatened to be disclosed; and/or
(ii) requiring that Employee deliver to Employer all
information, documents, notes, memoranda and any and all
discoveries or other material as described above upon
Employee's leave of the employ of the Employer. Nothing
herein shall be construed as prohibiting the Employer from
pursuing other remedies available to the Employer for such
breach or threatened breach, including the recovery of
damages from the Employee.
2.4 Non-Solicitation.
2.4.1 Non-Solicitation of Employees: During the period of
employment and for a period of 12 months after the cessation
of employment for any reason, whether with or without cause,
it is agreed that the Employee shall not directly or
indirectly, either alone or in concert with others, solicit
or entice any employee of or consultant to the company to
leave the company or work for anyone or entity in
competition with the Employer. It is
2
<PAGE>
understood and agreed between the parties that this
non-solicitation provision is necessary for the protection
of trade secrets and other confidential information of the
Employer.
2.4.2 Solicitation of Customers: During the period of employment
and for a period of 12 months after the cessation of
employment for any reason, whether with or without cause, it
is understood that Employee shall not directly or
indirectly, either alone or in concert with others, solicit,
entice, or in any way divert any of the company's customers
(or potential customers with whom Employee has come in
contact while employed by Employer) or suppliers to do
business with any business entity in competition with the
company. It is understood and agreed between the parties
that this non-solicitation provision is necessary for the
protection of trade secrets and other confidential
information of the Employer.
ARTICLE III
COMPENSATION OF THE EMPLOYEE
----------------------------
3.1 Compensation. As compensation for services rendered under this
Agreement, the Employee shall receive a salary at the rate of $125,000 per annum
to be paid in accordance with Employer's normal practices. The salary provided
in this subsection shall in no way be deemed exclusive and shall not prevent
Employee from participating in any other compensation or benefit plan of
Employer. Employee's salary shall be reviewed on an annual basis and if
Employee's performance is deemed satisfactory, his salary shall be increased at
least by an amount equal to the cost of living increase for the prior year,
providing that at least one other senior management's salary (CEO or CFO) is
increased by a similar cost of living raise. In addition, Employee shall be
eligible for a performance increase.
3.2 Incentive Compensation. Annually, on October 30 of each year while this
employment agreement is in effect, solely at the option of the Employer, the
Employee may be entitled to receive incentive compensation of up to 50% of
Employee's base salary of $125,000 per year. This incentive compensation shall
be based on objectives which shall be established by the parties by December 31
of each year for as long as the Employee continues his employment with the
Company. The terms and conditions of the incentive compensation are to be
determined solely by the CEO and/or the Board of Directors. The Employee shall
give input into the objectives.
3.3 Benefits. Employee shall be entitled to participate in all of
Employer's employee benefit plans and employee benefits, including any
retirement, pension, profit-sharing, stock option, insurance, hospital or other
plans and benefits which now may be in effect or which may hereafter be
adopted, it being understood that Employee shall have the same rights and
privileges to participate in such plans and benefits as any other executive
employee during the term of this Agreement. Participation in any benefit plans
shall be in addition to the compensation provided for in Section 3.1. Employer
shall pay premiums for health and dental insurance covering
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Employee and his son. Employee shall be provided with a car allowance of $450
per month. Employee shall be reimbursed for preapproved moving expenses to cover
the costs of relocating from San Jose, California to the metropolitan area of
Sacramento, California. If Employee is relocated to Denver, Colorado, employee
will be further reimbursed for preapproved moving expenses from Sacramento area
to Denver.
3.4 Stock Options. Employee acknowledges that he has received incentive
stock options (under Employer's Stock Option Plan) to purchase an aggregate of
350,000 shares of Employer's common stock. Employee shall purchase 10,000 shares
of Global Med stock in the open market from American Fronteer Capital, Inc. and
keep these shares for a minimum of eighteen months in order for this employment
contract to become effective. If Employee sells these 10,000 shares or any part
thereof prior to eighteen months, the Employee acknowledges that he will no
longer be entitled to twenty thousand of the options to become vested on
10/31/99. Twenty percent (20%) of the 350,000 options shall vest and become
exercisable upon Employee's completion of each year of employment with Employer,
as follows:
Shares Underlying Option Dates Exercisable Dates Vested
------------------------ ----------------- ------------
70,000 10/31/1998 10/31/2007 10/31/1998
70,000 10/31/1999 10/31/2007 10/31/1999
70,000 10/31/2000 10/31/2007 10/31/2000
70,000 10/31/2001 10/31/2007 10/31/2001
70,000 10/31/2002 10/31/2007 10/31/2002
If Employer: (i) sells substantially all of its assets, or (ii) merges or
consolidates with another entity or otherwise reorganizes whereby the total
market value of Employer's common stock exceeds $100,000,000 as a result of such
transaction (iii) terminates employee for any reason other than malfeasance
prior to employees contract expiration; then the entire 350,000 in options
granted to Employee shall become immediately 100% vested and immediately
exercisable on the date preceding the effective date of such sale, merger,
consolidation or other reorganization; provided, however, that Employer and
Employee acknowledge that a secondary public offering or private placement or
other such financing of Employer's securities is specifically excluded from this
accelerated vesting provision.
Notwithstanding any other provision in this Agreement, regardless of the
vesting Employee must be employed by Employer at the time of exercise in order
to exercise such options, as required by Employer's Stock Option Plan. However,
all of the stock options that are fully vested at the time the Employee or the
Employer terminates the Employee's employment, for any reason, shall be able to
be exercised by the employee within the exercisable period. If the Employee
decides that he does not want to exercise his fully vested options, then those
fully vested options will be rescinded and regranted as nonqualified options
under Global Med Technologies, Inc. Nonqualified Stock Option Plan provided,
however, that the Employee's termination is not for cause. Employee shall also
be entitled to receive additional stock options as additional compensation on
Employee's annual reviews based solely on the discretion of the Board of
Directors.
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3.5 Expenses. Employee shall be entitled to prompt reimbursement, upon
production of original receipts, for all reasonable expenses incurred by
Employee in the performance of his duties hereunder. Employer shall advance
reasonable estimates of such expenses upon request of the Employee.
ARTICLE IV
TERMINATION OF EMPLOYMENT
-------------------------
4.1 Termination. The Employee's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
4.1.1 By Employee. Upon the occurrence of any of the following events
this Agreement may be terminated by the Employee by written notice to Employer:
(i) the sale by Employer of substantially all of its assets;
(ii) a decision by Employer to terminate its business and
liquidate its assets;
(iii) the merger or consolidation of Employer with another entity
or an agreement to such a merger or consolidation or any other type of
reorganization;
(iv) Employer makes a general assignment for the benefit of
creditors, files a voluntary bankruptcy petition, files a petition or answer
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law, there shall have been filed any
petition or application for the involuntary bankruptcy of Employer, or other
similar proceeding, in which an order for relief is entered or which remains
undismissed for a period of thirty days or more, or Employer seeks, consents to,
or acquiesces in the appointment of a trustee, receiver, or liquidator of
Employer or any material party of its assets;
(v) there are material reductions in Employee's duties and
responsibilities without his written consent or a demotion from the position of
President;
(vi) termination by the Company of Employee's employment with the
Company for any reason other than cause (as defined in Section 4.14 below);
(vii) a five percent reduction in Employee's base compensation
(not including bonus), other than any such reduction which is part of, and
generally consistent with, a general reduction of officer's salaries; or
(viii) a material reduction by the Company in the kind or level
of employee benefits (other than salary and bonus) to which Employee is entitled
immediately prior to such reduction with the result that Employee's overall
benefits package (other than salary and
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bonus) is substantially reduced (other than any such reduction applicable to
officers of the Company generally).
4.1.2 Death. This Agreement shall terminate upon the death of
Employee.
4 1.3 Disability. The Employer may terminate this Agreement upon the
permanent or temporary disability of the Employee. Employee shall be considered
disabled (whether permanent or temporary) if: (1) he is disabled as defined in a
disability insurance policy purchased by or for the benefit of the Employee; or
(2) if no such policy is in effect, he is incapacitated to such an extent that
he is unable to perform substantially all of his duties for 30 consecutive days
for Employer that he performed prior to such incapacitation
4.1.4 Cause. The Employer may terminate the Employee's employment
hereunder for Cause. For purposes of this Agreement, the Employer shall have
"Cause" to terminate the Employee's employment hereunder upon the following: (1)
habitual neglect of duties or (2) willful breach of duties. The Employer will
provide notice of these and allow Employee 60 days time to cure.
4.2 Notice of Termination. Any termination of the Employee's employment by
the Employer or by the Employee (other than termination pursuant to subsection
4.1.2 above) shall be communicated by written Notice of Termination to the other
party. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
4.3 Date of Termination. "Date of Termination" shall mean (i) if the
Employee's employment is terminated by his death, the date of his death; and
(ii) if the Employee's employment is terminated for any other reason, the date
on which a Notice of Termination is received by Employer or Employee.
4.4 Payment of Salary/Severance Pay Following Termination.
4.4.1 In the event of temporary or permanent disability of the
Employee as described in subsection 4.1.3 hereof, Employee shall be entitled to
receive all compensation and benefits payable up to the Date of Termination
notwithstanding his temporary or permanent disability during the 30 day period
preceding the Date of Termination; any such payment, however, shall be reduced
by disability insurance benefits, if any, paid to Employee under policies (other
than group policies) for which Employer pays all premiums and Employee is the
beneficiary.
4.4.2 Following the termination of this Agreement by the Employer for
Cause as provided in subsection 4.1.4 hereof, the Employee shall be entitled
only to compensation through the Date of Termination.
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4.4.3 Following the termination of this Agreement by the Employer for
any reason other than Cause, Death, or the temporary or permanent disability of
Employee, the Employee shall be entitled to compensation and benefits for twelve
months following the date of termination.
4.5 Remedies. Any termination of this Agreement shall not prejudice any
other remedy to which the Employer or Employee may be entitled, either at law,
equity, or under this Agreement.
ARTICLE V
INDEMNIFICATION
---------------
5.1 Indemnification. To the fullest extent permitted by applicable law,
Employer agrees to indemnify, defend and hold Employee harmless from any and all
claims, actions, costs, expenses, damages and liabilities, including, without
limitation, reasonable attorneys' fees, hereafter or heretofore arising out of
or in connection with activities of Employer or its employees, including
Employee, or other agents in connection with and within the scope of this
Agreement or by reason of the fact that he is or was a director or officer of
Employer or any affiliate of Employer. To the fullest extent permitted by
applicable law, Employer shall advance to Employee expenses of defending any
such action, claim or proceeding. However, Employer shall not indemnify Employee
or defend Employee against, or hold him harmless from any claims, damages,
expenses or liabilities, including attorneys' fees, resulting from the gross
negligence or willful misconduct of Employee to include punitive damage claims
against the Employee. The duty to indemnify shall survive the expiration or
early termination of this Agreement as to any claims based on facts or
conditions which occurred or are alleged to have occurred prior to expiration or
termination.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
6.2 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by arbitration in the City
and County of Sacramento, California, in accordance with the rules then existing
of the American Arbitration Association. Judgment upon the award may be entered
in any court having jurisdiction thereof. There shall be three arbitrators, one
to be chosen directly by each party at will, and the third arbitrator to be
selected by the two arbitrators so chosen. Each party shall be responsible to
pay the fees of the arbitrator he or she selects, and the fees of the third
arbitrator shall be borne equally by the parties. It is agreed and understood
that this arbitration clause means that each party waives their right to a jury
or bench trial over the controversies or claims mentioned in this paragraph. It
is further understood and agreed that the term "controversy or claim" as used in
this paragraph means any controversy or claim, including breach of contract,
breach of the covenant of good faith and fair dealing, discrimination claims,
harassment claims, claims of fraud, retaliation,
7
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whistleblowing, claims of violations of the Americans With Disabilities Act,
Older Workers Protection Act, and any and all other state and federal laws under
which a claim can be brought by the employee or employer. This provision shall
not restrict the right of either the employee or the employer to seek injunctive
relief from a court of competent jurisdiction.
6.3 Entire Agreement. This Agreement supersedes any and all other
agreements, whether oral or in writing, between the parties with respect to the
employment of the Employee by the Employer. Including but not limited to the
letter of resignation required and submitted by the Employee under the terms of
the Heng Fung/Fronteer Funding loan agreement.
6.4 Successors and Assigns. This Agreement, all terms and conditions
hereunder, and all remedies arising herefrom, shall inure to the benefit of and
be binding upon Employer, any successor in interest to all or substantially all
of the business and/or assets of Employer, and the heirs, administrators,
successors and assigns of Employee. Except as provided in the preceding
sentence, the rights and obligations of the parties hereto may not be assigned
or transferred by either party without the prior written consent of the other
party.
6.5 Notices. For purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to Employee: Thomas F. Marcinek
P.O. Box 6364
Folsom, California 95630
If to Employer: Global Med Technologies, Inc.
12600 W. Colfax Avenue, Suite A-500
Lakewood, Colorado 80215
Attn.: Michael I. Ruxin, Chairman and CEO
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6.6 Severability. If any provision of this Agreement is prohibited by or is
unlawful or unenforceable under any applicable law of any jurisdiction as to
such jurisdiction, such provision shall be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof.
6.7 Section Headings. The section headings used in this Agreement are for
convenience only and shall not affect the consideration of any terms of this
Agreement.
6.8 Survival of Obligations. Termination of this Agreement for any reason
shall not relieve Employer or Employee of any obligation accruing or arising
prior to such termination.
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6.9 Amendments. This Agreement may be amended only by written agreement of
both Employer and Employee.
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one legal instrument. This Agreement shall
become effective when copies hereof, when taken together, shall bear the
signatures of both parties hereto. It shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
6.11 Fees and Costs. If any action at law or in equity (in civil
court or in arbitration) is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys fees, costs and necessary
disbursements in addition to any other relief to which that
party may be entitled.
6.3.2 Legal Review. The parties agree that the employee was
provided the opportunity to review this agreement with legal
counsel.
"EMPLOYER"
GLOBAL MED TECHNOLOGIES,INC.
By: /s/ Michael I. Ruxin
------------------------------
Michael I. Ruxin, Chairman and CEO
"EMPLOYEE"
/s/ Thomas F. Marcinek
--------------------------------------------
Thomas F. Marcinek
9
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Schedule 2.1
Duties of Employee
Employee shall be responsible for the day to day operations of Wyndgate
Technologies as well as certain policy making decisions impacting day to day
operations. Employee will report to the Chairman and CEO of Global Med
Technologies, Inc.
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Schedule 3.3
Benefits
Employer shall pay 100% of the cost of health insurance under Employer's
health plan for Employee and Employee's son. Employee also will be entitled to
all paid holidays as customarily are extended to executive employees.
Employee will accrue vacation time at the rate of 13.33 hours per month.
11
CONSULTANCY AGREEMENT
By and Between
Jeffrey M. Busch, Esq.
And
Global Med Technologies, Inc.
THIS CONSULTANCY AGREEMENT, made and entered into this first day of August,
1998, by and between Global Med Technologies, Inc., a corporation organized and
existing under the laws of the State of Colorado (hereinafter referred to as
"Global"), with principal offices at 12600 W. Colfax Avenue, Suite A-500,
Lakewood, Colorado 80215 and Jeffrey M. Busch, Esq. (hereinafter referred to as
"Busch"), a resident of the State of Delaware, with an office at University
Office Plaza, Suite 204B, Newark, Delaware.
WITNESSETH
WHEREAS, Global is an organization engaged in the development and marketing
of medical technologies.
WHEREAS, Busch for many years has been engaged in the practice of law and
provision of strategic business planning and finance.
WHEREAS, Busch is prepared to furnish legal and business expertise and
assistance to Global in connection with its development and marketing of medical
technologies.
WHEREAS, Busch and Global desire to enter into this Agreement in order to
set forth the rights and obligations of the parties with respect to Global's
development and marketing of medical technologies.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, intending to be legally bound hereby, do hereby agree and
certify as follows:
<PAGE>
I. DEFINITIONS
1. Terms and Meanings.
The following terms shall have the indicated meanings ascribed to them when
used herein:
(a) "Act of God" shall mean an accident or event that is the result of
natural causes, without human intervention or agency, that could not
have been prevented by reasonable foresight or care.
(b) "Agreement" shall mean this Agreement and the Exhibits attached hereto
and made a part hereof, as amended and in effect from time to time.
(c) "Board of Directors" shall mean the Board of Directors of Global Med
Technologies, Inc., as such board may be constituted during the period
of this Agreement.
(d) "Chairman and CEO" shall mean Michael I. Ruxin, or his successor.
(e) "Company" shall mean Global Med Technologies, Inc.
(f) "Expenses" shall mean any and all expenses incurred by Busch in the
performance of Busch's duties, including, but not limited to travel
(together with lodging) to and from Busch's offices to Denver,
Colorado and all support services utilized by Busch at Busch's offices
in the performance of his duties.
(g) "Exhibit" shall mean the original exhibits to this Agreement, if any,
as amended and in effect from time to time, relating to specific
aspects of the Agreement.
(h) "Independent Contractor" shall mean Jeffrey M. Busch, Esq.
(i) "Person" shall mean an individual or entity, such as, but not limited
to, a corporation, general partnership, joint venture, limited
partnership, trust or business association.
2. Gender and Number.
Unless the context clearly indicates otherwise, where appropriate, the
singular shall include the plural and the masculine shall include the feminine
or neuter, and vice versa, to the extent necessary to give the terms defined in
this Article 1 and/or the terms otherwise used in this Agreement their proper
meanings.
2
<PAGE>
II. STATEMENT OF AGREEMENT
1. Independent Contractor.
Global hereby employs Busch as an independent contractor, and Busch hereby
accepts such employment.
It is expressly agreed by the Parties that nothing in this Agreement, or
any exhibit, is intended to create, or may be construed to create, any legal or
business relationship between the Parties other than as expressly defined in
this Agreement, or in any exhibit, including, without limitation, the
relationship of principal and agent, copartner, or any other similar
relationship, the existence of which is hereby expressly denied by each Party.
2. Commencement of Services.
Busch began working with Global in April 1998. This Agreement memorializes
the oral agreements and understandings expressed by the parties since that date.
The Agreement is effective immediately and shall terminate at such time as set
forth in this Section 2 or for cause as hereinafter defined.
Employment of Busch by Global as provided herein shall commence August 1,
1998 and shall end July 31, 2000, provided, however, that at the close of the
first year of this Agreement the initial term hereof shall be automatically
extended for an additional twelve months beyond the initial term for a new
initial term of three years from the date of execution unless Global or Busch
provides notice to the contrary at least 90 days prior to the close of the first
year.
3. Services to be Performed.
Busch shall provide on an "as needed" basis the following services:
a. Such legal advice as may be provided by a corporate general counsel,
provided, however, that Busch shall not provide and Global may not
request legal advice pertaining to matters that involve either
interpretation of Colorado laws or legal practice related thereto.
b. Advice, guidance and counsel regarding strategic planning and finance.
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<PAGE>
c. As appropriate and at suitable times and places, introductions to
parties or institutions that may prove to be of benefit or assistance
to Global in the development and marketing of medical technologies.
Busch shall devote such time and attention as may be required to effectuate
the aforedescribed activities, it being understood and agreed, however, that
Busch may not be required to devote more than twenty hours per month to the
performance of his obligations under this Agreement.
4. Payment for Services.
a. Global shall pay to Busch and Busch shall accept from Global as
compensation for all services to be provided pursuant to this
Agreement, Global stock and stock Warrants. Said compensation shall be
payable in installments as follows:
i. 50,000 shares of Global stock payable upon execution of this
Agreement and on each anniversary date of such execution; and
ii. Warrants for 600,000 shares of Global stock at a price of Seventy
Five Cents ($.75) per share to be granted upon execution of this
Agreement and exercisable for a period of ten (10) years
beginning 1 September 1998.
b. Expenses. Busch shall be entitled to prompt reimbursement upon
production of original receipts for all reasonable expenses incurred
by Busch in the performance of his obligations hereunder. Global shall
advance reasonable estimates of such expenses upon request of Busch.
5. Non-Compete.
Disclosure of Information.
- --------------------------
Busch recognizes and acknowledges that the information, processes,
developments, experimental work, work in progress, business, list of Global's
customers and any other trade secret or other secret or confidential information
relating to Global's business as they may exist from time to time, are valuable,
special and unique assets of Global's business. Therefore, Busch agrees that
Busch will hold in strictest confidence and not disclose, reproduce, publish or
use in any manner the aforedescribed confidential information, whether during or
subsequent to his employment, without the express authorization of the Chairman
4
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and Chief Executive Officer of Global, any information, process, development or
experimental work, work in progress, business, customer lists, trade secret or
any other secret or confidential information relating to any aspect of Global's
business, except 1) as such disclosure or use may be required in connection with
Busch's work for the Global and 2) where such information or items have become
publicly known and made generally available through no wrongful act of Busch.
Upon request or at the termination of this Agreement, Busch will deliver to
Global, and not keep or deliver to anyone else, any and all notes, memoranda,
documents and, in general, any and all material relating to the Global's
business.
In the event of a breach or threatened breach by Busch of the provisions of this
section, Global shall be entitled to an injunction (i) restraining Busch from
disclosing, in whole or in part, any information as described above or from
rendering any services to any person, firm corporation, association or other
entity to whom such information, in whole or in part, has been disclosed or is
threatened to be disclosed; and/or (ii) requiring that Busch deliver to Global
all information, documents, notes, memoranda and any and all discoveries or
other material as described above upon the termination of this Agreement.
Non-Solicitation.
- -----------------
Non-Solicitation of Employees: During the employment period and for a period of
twelve months after the cessation of employment for any reason, whether with or
without cause, it is agreed that Busch shall not directly or indirectly, either
alone or in concert with others, solicit or entice any employee of or consultant
to the Company to leave the Company or work for anyone or entity in competition
with Global. It is understood and agreed by and between the parties that this
non-solicitation provision is necessary for the protection of trade secrets and
other confidential information of the Global.
Solicitation of Customers: During the period of employment and for a period of
36 months (or such other period as may be legally permissible, but, in no event
more than 36 months) after the cessation of Busch's employment for any reason,
whether with or without cause, it is understood that Busch shall not directly or
indirectly, either alone or in concert with others, solicit, entice, or in any
way divert any of the Company's customers or suppliers to do business with any
business entity in competition with the Company. It is understood and agreed
between the parties that this non-solicitation provision is necessary for the
protection of trade secrets and other confidential information of the Global.
5
<PAGE>
6. Termination.
a. Global may terminate this Agreement in the event that Busch fails to
perform the services enumerated in Article II, Section 3 of this Agreement, or
in the event Busch fails to abide the conditions set forth in Article II,
Section 5 of this Agreement.
b. Busch may terminate his services under this Agreement in the event
Global fails to honor any one of the fee installments set forth in Article II,
Section 4 of this Agreement.
7. Authority.
Busch is an independent contractor and nothing contained in this Agreement
shall be deemed or interpreted to constitute Busch as a partner, agent or
employee of Global, nor shall either party have any authority to bind the other.
8. Totality of Agreement.
It is agreed between the parties that there are no other agreements or
understandings between them relating to the subject matter of this Agreement.
This Agreement supersedes all prior agreements, oral or written, between the
parties and is intended as a complete and exclusive statement of the agreement
between the parties. No change or modification of this Agreement shall be valid
unless the same is in writing and signed by the parties.
9. Severability.
If any portion of this Agreement, or the application thereof to any person
or circumstances shall, in whole or part, be determined to be invalid or
unenforceable, the remainder of this Agreement, or the application thereof to
any person or circumstance other than those to which it is held invalid or
unenforceable, shall not be affected thereby unless such invalidity or
unenforceability materially impairs the benefits of this Agreement.
10. Notices.
a. All notices required or permitted to be given hereunder shall be in
writing and may be delivered personally, transmitted by facsimile or
by Certified Mail - Return Receipt Requested, postage prepaid,
addressed to the party's last known address.
b. Notices or (consents) transmitted by facsimile shall be effective upon
transmission, properly addressed; by the Party giving such notice or
consent.
c. Notices or (consents) transmitted by Certified Mail shall be effective
upon receipt thereof by the Party to which notice is addressed.
d. Neither party to this Agreement shall be bound by any notice or
consent given or received orally.
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11. Forum.
This Agreement, in its validity, interpretation and performance, shall be
construed in accordance with and governed solely by the applicable laws in force
and effect in the State of Delaware.
12. Entry into Force.
This Agreement shall enter into force upon execution by both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
JEFFREY M. BUSCH, ESQ.
\s\ Jeffrey M. Busch
----------------------------------
GLOBAL MED TECHNOLOGIES, INC.
\s\ Michael I. Ruxin
----------------------------------
Chairman
7
Void After 3:30 P.M., Mountain Time, on April 13, 2008
WARRANT TO PURCHASE COMMON SHARES
GLOBAL MED TECHNOLOGIES, INC.
This is to Certify That, FOR VALUE RECEIVED, HENG FUNG FINANCE COMPANY
LIMITED, Lippo Protective Tower, 10th Floor, 231-235 Gloucester Road, Wan Chai,
Hong Kong ("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from GLOBAL MED TECHNOLOGIES, INC. ("Company"), a Colorado corporation,
at any time until 3:30 P.M., Mountain Time, on April 13, 2008 ("Expiration
Date"), 6,000,000 Common Shares of the Company at a purchase price of $0.25 per
common share during the period this Warrant is exercisable. The number of Common
Shares to be received upon the exercise of this Warrant and the price to be paid
for a Common Share may be adjusted from time to time as hereinafter set forth.
The purchase price of a Common Share in effect at any time and as adjusted from
time to time is hereinafter sometimes referred to as the "Exercise Price." This
Warrant is or may be one of a series of warrants identical in form issued by the
Company to purchase an aggregate of 6,000,000 Common Shares of the Company and
the term "Warrants" as used herein means all such Warrants (including this
Warrant). The Common Shares, as adjusted from time to time, underlying the
Warrants are hereinafter sometimes referred to as "Warrant Shares" and include
all Common Shares that have been issued upon the exercise of the Warrants and
all unissued Common Shares underlying the Warrants.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in
minimum amounts which at the time of exercise would require Holder to deliver to
the Company cash or value of at least $250,000 at any time or from time to time
until the Expiration Date or if the Expiration Date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of shares specified in such Form, together with all federal
and state taxes applicable upon such exercise. The Company agrees not to merge,
reorganize or take any action that would terminate this Warrant unless
provisions are made as part of such merger, reorganization or other action which
would provide the holders of this Warrant with an equivalent of this Warrant as
specified in Section (i) hereof. The Company agrees to provide notice to the
Holder that any tender offer is being made for the Company's Common Shares no
later than three business days after the day the Company becomes aware that any
tender offer is being made for the outstanding Common Shares of the Company. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the right of the Holder to purchase the balance of the Common Shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Purchase Form and the Exercise Price, the
Holder shall be deemed to be the holder of record of the Common Shares issuable
upon such exercise, notwithstanding that the stock transfer books of
<PAGE>
the Company shall then be closed or that certificates representing such Common
Shares shall not then be actually delivered to the Holder.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Common Shares as shall be required for issuance or
delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Common Share called for upon any exercise hereof,
the Company shall, upon receipt by the Company or the Company's stock transfer
agent of the Exercise Price on such fractional share, pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share, determined as follows:
(1) If the Common Shares are listed on a national securities
exchange or a foreign exchange, are admitted to unlisted trading
privileges on such an exchange, or are listed for trading on a trading
system of the National Association of Securities Dealers, Inc.
("NASD") such as The Nasdaq SmallCap Market ("SCM") or the Nasdaq
National Market ("NNM") or the OTC Bulletin Board, then the current
value shall be the last reported sale price of the Common Shares on
such an exchange or system on the last business day prior to the date
of exercise of this Warrant or if no such sale is made on such day,
the average of the closing bid prices for the Common Shares for such
day on such exchange or such system shall be used; or
(2) If the Common Shares are not so listed on such exchange
or system or admitted to unlisted trading privileges, the current
value shall be the average of the last reported bid prices reported by
the National Quotation Bureau, Inc. on the last business day prior to
the date of the exercise of this Warrant; or
(3) If the Common Shares are not so listed or admitted to
unlisted trading privileges and if bid prices are not so reported, the
current value shall be an amount, not less than book value, determined
in such reasonable manner as may be prescribed by the board of
directors of the Company.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Common Shares purchasable hereunder. This
Warrant may not be sold, transferred, assigned, or hypothecated except in
compliance with federal and state securities laws. Any transfer or assignment
shall be made by surrender of this Warrant to the Company or at the office of
its stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and with funds sufficient to pay any transfer
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<PAGE>
tax; whereupon the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Subject to such right
of indemnification, any such new Warrant executed and delivered shall constitute
an additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Adjustment Provisions.
(1) Adjustments of the Exercise Price.
(A) If the Company subdivides its outstanding Common
Shares into a greater number of Common Shares, the Exercise
Price in effect immediately prior to such subdivision shall
be proportionately reduced. Conversely, if the Company
combines its outstanding Common Shares into a lesser number
of Common Shares, the Exercise Price in effect immediately
prior to such combination shall be proportionally increased.
In case of a subdivision or combination, the adjustment of
the Exercise Price shall be made as of the effective date of
the applicable event. A distribution on Common Shares,
including a distribution of Convertible Securities, to
shareholders of the Company on a pro rata basis shall be
considered a subdivision of Common Shares for the purposes of
this subsection (l)(A) of this Section, except that the
adjustment will be made as of the record date for such
distribution and any such distribution of Convertible
Securities shall be deemed to be a distribution of the Common
Shares underlying such Convertible Securities.
(B) If the Company shall at any time distribute or
cause to be distributed to its shareholders, on a pro rata
basis, cash, assets, or securities of any entity other than
the Company, then the Exercise Price in effect immediately
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<PAGE>
prior to such distribution shall automatically be reduced by
an amount determined by dividing (x) the amount (if cash) or
the value (if assets or securities) of the holders' of
Warrants (as such term is defined in the first paragraph
hereof) pro rata share of such distribution determined
assuming that all holders of Warrants had exercised their
Warrants on the day prior to such distribution, by (y) the
number of Common Shares issuable upon the exercise of
Warrants (as such term is defined in the first paragraph
hereof) by the holders thereof on the day prior to such
distribution.
(3) No Adjustment for Small Amounts. Anything in this Section (f) to the
contrary notwithstanding, the Company shall not be required to give effect to
any adjustment in the Exercise Price unless and until the net effect of one or
more adjustments, determined as above provided, shall have required a change of
the Exercise Price by at least one cent, but when the cumulative net effect of
more than one adjustment so determined shall be to change the actual Exercise
Price by at least one cent, such change in the Exercise Price shall thereupon be
given effect.
(4) Number of Shares Adjusted. Upon any adjustment of the Exercise Price,
the Holder of this Warrant shall thereafter (until another such adjustment) be
entitled to purchase, at the new Exercise Price, the number of Common Shares,
calculated to the nearest full share, obtained by multiplying the number of
Common Shares initially issuable upon exercise of this Warrant by the Exercise
Price specified in the first paragraph hereof and dividing the product so
obtained by the new Exercise Price.
(5) Definitions.
(A) Whenever reference is made in this Section (f) to the
distribution of Common Shares, the term "Common Shares" shall mean the
Common Shares of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Shares.
However, subject to the provisions of Section (i) hereof, Common
Shares issuable upon exercise hereof shall include only Common Shares
of the class designated as Common Shares of the Company as of the date
hereof.
(B) Whenever reference is made in this Section (f) to the
distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Shares of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Shares of
the Company.
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<PAGE>
(6) AntiDilution Provisions.
(A) Adjustments of Exercise Price. If the Company should at any time
or from time to time hereafter issue or sell any of its Common Shares without
consideration or for a consideration per share less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then forthwith upon
such issue or sale, the Exercise Price shall be automatically adjusted to a
price (computed to the nearest cent) determined by dividing (i) the sum of (x)
the number of Common Shares outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such issue or
sale, and (y) the consideration, if any, received by the Company upon such issue
or sale, by (ii) the total number of Common Shares outstanding immediately after
such issue or sale. For purposes of this Section (6)(A), the following
provisions (i) and (ii) shall also be applicable:
(i) Rights, Options, or Warrants. In case at any time
hereafter the Company shall in any manner grant any right to subscribe
for or to purchase, or any option or warrant for the purchase of
Common Shares or for the purchase of any stock or securities
convertible into or exchangeable for Common Shares (such convertible
or exchangeable stock or securities being hereinafter referred to as
the "Underlying Convertible Securities") and if the minimum price per
share for which Common Shares are issuable, pursuant to such rights,
options, warrants or upon conversion or exchange of such Underlying
Convertible Securities (determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration for the
granting of such rights, options, or warrants plus the minimum
aggregate amount of additional consideration payable to the Company
upon the exercise of such rights, options, or warrants under the terms
of such rights, options, or warrants at the time of making such
computation, plus, in the case of such Underlying Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the conversion or exchange thereof under the
terms of such Underlying Convertible Securities at the time of making
such computation, by (ii) the total maximum number of Common Shares
issuable pursuant to such rights, options, or warrants or upon the
conversion or exchange of the total maximum amount of such Underlying
Convertible Securities issuable upon the exercise of such rights,
options, or warrants under the terms of such rights, options, warrants
or Underlying Convertible Securities at the time of making such
computation) shall be less than the Exercise Price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of Common Shares issuable
pursuant to such rights, options, warrants or upon conversion or
exchange
5
<PAGE>
of the total maximum amount of such Underlying Convertible Securities
issuable upon the exercise of such rights, options, or warrants under
the terms of such rights, options, warrants or Underlying Convertible
Securities at the time of making such computation shall (as of the
date of granting of such rights, options, or warrants) be deemed to be
outstanding and to have been issued for said price per share as so
determined; provided, that no further adjustment of the Exercise Price
shall be made upon the actual issue of Common Shares so deemed to have
been issued unless the price per share received by the Company upon
the actual issuance of Common Shares so deemed to be issued differs
from the price per share which was last used to adjust the Exercise
Price or unless by the terms of such rights, options or warrants or
Underlying Convertible Securities the price per share which the
Company will receive upon any such issuance of Common Shares differs
from the price per share which was last used to adjust the Exercise
Price, in either of which events the Exercise Price shall be adjusted
upon the occurrence of either such event to reflect the new price per
share of Common Stock; and further provided, that, upon the expiration
of such rights (including rights to convert or exchange), options or
warrants (a) the number of shares of Common Stock deemed to have been
issued and outstanding by reason of the fact that they were issuable
pursuant to such rights, options, or warrants (including rights to
convert or exchange) that were not exercised, shall no longer be
deemed to be issued and outstanding, and (b) the Exercise Price shall
forthwith be adjusted to the price which would have prevailed had all
adjustments been made on the basis of the issue only of the Common
Shares actually issued upon the exercise of such rights, options, or
warrants or upon conversion or exchange of such Underlying Convertible
Securities. Such adjustments upon expiration shall have no effect on
Warrants exercised prior to such expiration.
(ii) Convertible Securities. If the Company shall in any manner
issue or sell any Convertible Securities other than the rights,
options, or warrants described in Section 6(A)(i) hereof and if the
minimum price per share for which Common Shares are issuable upon
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof under
the terms of such Convertible Securities at the time of making such
computation, by (ii) the total maximum number of Common Shares
issuable upon the conversion or exchange of all such Convertible
Securities under the terms of such Convertible Securities at the time
of making such computation)
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<PAGE>
shall be less than the Exercise Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of
Common Shares issuable upon conversion or exchange of all such
Convertible Securities at the time of making such computation shall
(as of the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued for said price per
share as so determined; provided, that no further adjustment of the
Exercise Price shall be made upon the actual issue of Common Shares so
deemed to have been issued unless the price per share received by the
Company upon the actual issuance of Common Shares so deemed to be
issued differs from the price per share which was last used to adjust
the Exercise Price or unless by the terms of such Convertible
Securities the price per share which the Company will receive upon any
such issuance of Common Shares differs from the price per share which
was last used to adjust the Exercise Price, in either of which events
the Exercise Price shall be adjusted upon the occurrence of either
such event to reflect the new price per share of Common Shares; and,
further provided that if any such issue or sale of such Convertible
Securities is made upon exercise of any right to subscribe for or to
purchase or any option to purchase any such Convertible Securities for
which an adjustment of the Exercise Price has been or is to be made
pursuant to the provisions of Section 6(A)(i) then no further
adjustment of the Exercise Price shall be made by reason of such issue
or sale unless the price per share received by the Company upon the
conversion or exchange of such Convertible Securities when actually
issued differs from the price per share which was last used to adjust
the Exercise Price or unless by the terms of such Convertible
Securities the price per share which the Company will receive upon any
such issuance of Common Shares upon conversion or exchange of such
Convertible Securities differs from the price per share which was last
used to adjust the Exercise Price, in either of which events the
Exercise Price shall be adjusted upon the occurrence of either of such
events to reflect the new price per share of Common Shares; and,
further provided, that, upon the termination of the right to convert
or to exchange such Convertible Securities for Common Shares, (a) the
number of Common Shares deemed to have been issued and outstanding by
reason of the fact that they were issuable upon conversion or exchange
of any such Convertible Securities, which were not so converted or
exchanged, shall no longer be deemed to be issued and outstanding, and
(b) the Exercise Price shall forthwith be adjusted to the price which
would have prevailed had all adjustments been made on the basis of the
issue only of the number of Common Shares actually issued upon
conversion or exchange of such Convertible Securities. Such
adjustments upon expiration shall have no effect on Warrants exercised
prior to such expiration.
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<PAGE>
(B) Determination of Issue Price. In case any Common
Shares or Convertible Securities shall be issued for cash,
the consideration received therefor, which shall be the gross
sales price for such security without deducting therefrom any
commission or other expenses paid or incurred by the Company
for any underwriting of, or otherwise in connection with, the
issuance thereof, shall be deemed to be the amount received
by the Company therefor. In case any Common Shares or
Convertible Securities shall be issued for a consideration
part or all of which shall be other than cash, then, for the
purpose of this Section (6), the Board of Directors of the
Company shall determine the fair value of such consideration,
irrespective of accounting treatment, and such Common Shares
or Convertible Securities shall be deemed to have been issued
for an amount of cash equal to the value so determined by the
Board of Directors. The reclassification of securities other
than Common Shares into securities including Common Shares
shall be deemed to involve the issuance for a consideration
other than cash of such Common Shares immediately prior to
the close of business on the date fixed for the determination
of security holders entitled to receive such Common Shares.
In case any Common Shares or Convertible Securities shall be
issued together with other stock or securities or other
assets of the Company for consideration, the Board of
Directors of the Company shall determine what part of the
consideration so received is to be deemed to be consideration
for the issue of such Common Shares or Convertible
Securities.
(C) Determination of Date of Issue. In case the
Company shall take a record of the holders of Common Shares
for the purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Shares or in
Convertible Securities or (ii) to subscribe for or purchase
Common Shares or Convertible Securities, then such record
date shall be deemed to be the date of the issue or sale of
the Common Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(D) Treasury Shares. For the purpose of this Section
(f), Common Shares at any relevant time owned or held by, or
for the account of, the Company shall not be deemed
outstanding.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer and warrant agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment. Each
such officers certificate shall be made available at all reasonable times for
inspection by the Holder
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<PAGE>
and the Company shall, forthwith after each such adjustment, deliver a copy of
such certificate to the Holder.
(h) Notices to Holders. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Shares or (ii) if the Company shall offer to the holders of
Common Shares for subscription or purchase by them any shares of stock of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Common
Shares of the Company (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of an issuance of
Common Shares by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding Common
Shares of the class issuable upon exercise of this Warrant) or in case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property which the Holder would have received upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance had this Warrant been exercised prior to the consummation of
such transaction. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Common Shares and to successive consolidations, mergers, sales or
conveyances. In the event the Company spins off a subsidiary by distributing to
the shareholders of the Company as a dividend or otherwise the stock of the
subsidiary, the Company shall reserve for the life of this Warrant, shares of
the subsidiary to be delivered to the Holders of the Warrants upon exercise to
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<PAGE>
the same extent as if they were owners of record of the Warrant Shares on the
record date for distribution of the shares of the subsidiary.
(j) Registration Under the Securities Act of 1933.
(1) On or before September 30, 1998, the Company will file
and cause to become effective a registration statement under the
Securities Act of 1933, as amended (the "Act"), registering the
Warrants and the Warrant Shares; provided however, that so long as the
Company has used its reasonable best efforts to file such registration
statement and responded to any comments relating thereto in a timely
manner, the Company will not be in default of its obligations relating
to such filing if the registration statement does not become effective
by September 30, 1998.
(2) The Company shall:
(A) Supply to each selling Holder a copy of the
registration statement and a reasonable number of copies of
the preliminary, final and other prospectus in conformity
with requirements of the Act and the Rules and Regulations
promulgated thereunder and such other documents as the
Holders shall reasonably request.
(B) The Company shall bear the complete cost and
expense (other than any selling commissions relating to the
sale of the Warrants and Warrant Shares, which shall be paid
by the sellers thereof) of such registrations or
qualifications except those filed under subsection (j)(3)
which shall be at the Holder(s) cost and expense.
(C) Keep effective such registration statement until
all of the registered Warrant Shares issued by the Company
either before or after the effective date of such
registration statement have been publicly sold under such
registration statement.
(D) Use its best efforts to register or qualify the
Warrants and Warrant Shares for sale in those states
requested by the person selling the Warrants or Warrant
Shares; provided that, the Company shall not be required to
register or qualify the Warrants and Warrant Shares for sale
in any state in which the sale of the Warrants or Warrant
Shares by the person selling the Warrants or Warrant Shares
would be exempt from having to be registered or qualified in
such state. The determination of whether or not such an
exemption exists shall be made by counsel for the Company and
such determination shall be provided in writing to the person
desiring to sell Warrants or Warrant Shares in a state.
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<PAGE>
(E) Indemnify and hold harmless each such Holder and each
underwriter, within the meaning of the Act, who may purchase from or
sell for any such Holder, any Warrants or Warrant Shares, from and
against any and all losses, claims, damages, and liabilities
(including but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing, defending or settling
any claim) arising from (i) any untrue or alleged untrue statement of
a material fact contained in any registration statement furnished
pursuant to clause (A) of this subsection, or any prospectus included
therein or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading (unless such untrue statement or
omission or such alleged untrue statement or omission was based upon
information furnished or required to be furnished in writing to the
Company by such Holder or underwriter expressly for use therein),
which indemnification shall include each person, if any, who controls
any such Holder or underwriter within the meaning of the Act;
provided, however, that the Company shall not be so obligated to
indemnify any such Holder or underwriter or controlling person unless
such Holder and underwriter shall at the same time indemnify the
Company, its directors, each officer signing any registration
statement or any amendment to any registration statement and each
person, if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and
liabilities (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing, defending
or settling any claim) arising from (i) any untrue or alleged untrue
statement of a material fact contained in any registration statement
or prospectus furnished pursuant to Clause (A) of this subsection, or
(ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but the indemnity of such Holder, underwriter
or controlling person shall be limited to liability based upon
information furnished, or required to be furnished, in writing to the
Company by such Holder or underwriter or controlling person expressly
for use therein. The Company shall not be liable for amounts paid in
settlement of any such litigation if such settlement was effected
without the consent of the Company. The indemnity agreement of the
Company herein shall not inure to the benefit of any such underwriter
(or to the benefit of any person who controls such underwriter) on
account of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) arising from the sale of any of such
Warrants or Warrant Shares by such underwriter to a person if such
underwriter failed to send or give a copy of the prospectus furnished
pursuant to Clause (A) of this subsection, as the same may then be
supplemented or amended (if such supplement or amendment shall have
been furnished to the Holders pursuant to said Clause (A)), to such
person with or prior to the written confirmation of the sale involved.
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<PAGE>
(3) As a condition to the Company's obligation in subsection
(j)(l) hereof, each Holder shall supply such information as the
Company may reasonably require from such Holder, or any underwriter
for such Holders, for inclusion in such registration statement or
posteffective amendment.
(4) The Company's agreements with respect to the Warrants and
Warrant Shares in this Section will continue in effect regardless of
the exercise or surrender of this Warrant.
(5) Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in
writing and delivered personally or sent by certified mail, return
receipt requested, to the Holder, addressed to the Holder at the
Holder's address as set forth on the Warrant or stockholder register
of the Company, or, if the Holder has designated, by notice in writing
to the Company, any other address, to such other address, and, if to
the Company, addressed to it at 12600 West Colfax Avenue, Suite A-500,
Lakewood, Colorado 80215-3735. The Company may change its address by
written notice to the Holder.
(k) Transfer to Comply with the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Shares or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Section (j) hereof; unless legal counsel for the Company is of the
opinion as to any such certificate that such legend, or one similar thereto, is
unnecessary:
"The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act") and under any applicable state securities law, or pursuant to
an exemption from registration under the Act and under any applicable
state securities law, the availability of which is to be established
to the satisfaction of the Company."
(1) Exchange Provisions.
(1) For purposes of this Section (1), this Warrant shall be
deemed to represent the same number of Warrants as there are Warrant
Shares underlying this Warrant. For example, if there are 10,000
Warrant Shares underlying this Warrant, then for purposes of this
Section (1) the Holder shall be deemed to hold 10,000 Warrants.
(2) For purposes of this Section (1), the following terms
shall have the following meanings:
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(A) "Current Market Value of a Warrant Share" shall be the
value of a Warrant Share as determined under Section (c)( 1) or (2)
hereof except that the time of the determination thereunder shall be
the last business day prior to the day the Company receives a notice
from the Holder under this Section (1).
(B) "Warrant Value" shall mean the Current Market Value of a
Warrant Share minus or less the Exercise Price payable under this
Warrant as of the close of business on the last business day prior to
the day the Company receives a notice from the Holder under this
Section (1).
(3) The Holder shall have the right to exchange, in a cashless
transaction, all or part of the Holder's Warrants for Common Shares issued by
the Company at anytime prior to the Expiration Date of such Warrants by
providing written notice ("Notice") to the Company. Such Notice shall set forth
the number of Warrants which the Holder elects to exchange for Common Shares.
(4) Within 10 days after receipt of such Notice by the Company, the
Company shall issue the number of Common Shares of the Company to the Holder
which is determined by dividing the Warrant Value of the Warrants being
exchanged by the Current Market Value of a Warrant Share as of the date the
Notice is received by the Company.
(5) The Holder shall surrender the Warrant which the Holder is
exchanging for Common Shares upon receipt thereof. If the entire Warrant is
being exchanged by the Holder for Common Shares, the Company shall cancel the
entire Warrant. If less than the entire Warrant is being exchanged for Common
Shares, the Company shall issue a new Warrant to the Holder representing the
portion of this Warrant which was not exchanged for Common Shares.
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(m) Applicable Law. This Warrant shall be governed by, and construed
in accordance with, the laws of the state of Colorado.
Dated Effective April 20, 1998.
GLOBAL MED TECHNOLOGIES, INC.
By: /s/ Michael I. Ruxin
------------------------------------
Michael I. Ruxin, Chairman of the
Board and Chief Executive Officer
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PURCHASE FORM
-------------
Dated: _____________ 19 ____
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ____________ shares of Common Shares and hereby makes
payment of $_______________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
---------------------------------------
Name:
- --------------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
---------------
Dated: ______________ 19 ____
FOR VALUE RECEIVED,_____________________________________________________________
hereby sells, assigns and transfers unto _______________________________________
- --------------------------------------------------------------------------------
Name:
(Please typewrite or print in block letters)
- --------------------------------------------------------------------------------
Address:
the right to purchase Common Shares represented by this Warrant to the extent of
Common Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint, attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
Signature:
------------------------------------------
Void After 3:30 P.M., Mountain Time, on April 13, 2008
WARRANT TO PURCHASE COMMON SHARES
GLOBAL MED TECHNOLOGIES, INC.
This is to Certify That, FOR VALUE RECEIVED, FRONTEER CAPITAL, INC., 1700
Lincoln Street, 32nd Floor, Denver, Colorado 80203 ("Holder"), is entitled to
purchase, subject to the provisions of this Warrant, from GLOBAL MED
TECHNOLOGIES, INC. ("Company"), a Colorado corporation, at any time until 3:30
P.M., Mountain Time, on April 13, 2008 ("Expiration Date"), 1,000,000 Common
Shares of the Company at a purchase price of $0.25 per common share during the
period this Warrant is exercisable. The number of Common Shares to be received
upon the exercise of this Warrant and the price to be paid for a Common Share
may be adjusted from time to time as hereinafter set forth. The purchase price
of a Common Share in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price." This Warrant is or
may be one of a series of warrants identical in form issued by the Company to
purchase an aggregate of 1,000,000 Common Shares of the Company and the term
"Warrants" as used herein means all such Warrants (including this Warrant). The
Common Shares, as adjusted from time to time, underlying the Warrants are
hereinafter sometimes referred to as "Warrant Shares" and include all Common
Shares that have been issued upon the exercise of the Warrants and all unissued
Common Shares underlying the Warrants.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in
minimum amounts which at the time of exercise would require Holder to deliver to
the Company cash or value of at least $250,000 at any time or from time to time
until the Expiration Date or if the Expiration Date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of shares specified in such Form, together with all federal
and state taxes applicable upon such exercise. The Company agrees not to merge,
reorganize or take any action that would terminate this Warrant unless
provisions are made as part of such merger, reorganization or other action which
would provide the holders of this Warrant with an equivalent of this Warrant as
specified in Section (i) hereof. The Company agrees to provide notice to the
Holder that any tender offer is being made for the Company's Common Shares no
later than three business days after the day the Company becomes aware that any
tender offer is being made for the outstanding Common Shares of the Company. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the right of the Holder to purchase the balance of the Common Shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Purchase Form and the Exercise Price, the
Holder shall be deemed to be the holder of record of the Common Shares issuable
upon such exercise, notwithstanding that the stock transfer books of
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the Company shall then be closed or that certificates representing such Common
Shares shall not then be actually delivered to the Holder.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Common Shares as shall be required for issuance or
delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Common Share called for upon any exercise hereof,
the Company shall, upon receipt by the Company or the Company's stock transfer
agent of the Exercise Price on such fractional share, pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share, determined as follows:
(1) If the Common Shares are listed on a national securities
exchange or a foreign exchange, are admitted to unlisted trading
privileges on such an exchange, or are listed for trading on a trading
system of the National Association of Securities Dealers, Inc.
("NASD") such as The Nasdaq SmallCap Market ("SCM") or the Nasdaq
National Market ("NNM") or the OTC Bulletin Board, then the current
value shall be the last reported sale price of the Common Shares on
such an exchange or system on the last business day prior to the date
of exercise of this Warrant or if no such sale is made on such day,
the average of the closing bid prices for the Common Shares for such
day on such exchange or such system shall be used; or
(2) If the Common Shares are not so listed on such exchange
or system or admitted to unlisted trading privileges, the current
value shall be the average of the last reported bid prices reported by
the National Quotation Bureau, Inc. on the last business day prior to
the date of the exercise of this Warrant; or
(3) If the Common Shares are not so listed or admitted to
unlisted trading privileges and if bid prices are not so reported, the
current value shall be an amount, not less than book value, determined
in such reasonable manner as may be prescribed by the board of
directors of the Company.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent; if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Common Shares purchasable hereunder. This
Warrant may not be sold, transferred, assigned, or hypothecated except in
compliance with federal and state securities laws. Any transfer or assignment
shall be made by surrender of this Warrant to the Company or at the office of
its stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and with funds sufficient to pay any transfer
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<PAGE>
tax; whereupon the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the holder hereof. The term
"Warrant" as used herein includes any warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Subject to such right
of indemnification, any such new Warrant executed and delivered shall constitute
an additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Adjustment Provisions.
(1) Adjustments of the Exercise Price.
(A) If the Company subdivides its outstanding Common
Shares into a greater number of Common Shares, the Exercise
Price in effect immediately prior to such subdivision shall
be proportionately reduced. Conversely, if the Company
combines its outstanding Common Shares into a lesser number
of Common Shares, the Exercise Price in effect immediately
prior to such combination shall be proportionally increased.
In case of a subdivision or combination, the adjustment of
the Exercise Price shall be made as of the effective date of
the applicable event. A distribution on Common Shares,
including a distribution of Convertible Securities, to
shareholders of the Company on a pro rata basis shall be
considered a subdivision of Common Shares for the purposes of
this subsection (l)(A) of this Section, except that the
adjustment will be made as of the record date for such
distribution and any such distribution of Convertible
Securities shall be deemed to be a distribution of the Common
Shares underlying such Convertible Securities.
(B) If the Company shall at any time distribute or
cause to be distributed to its shareholders, on a pro rata
basis, cash, assets, or securities of any entity other than
the Company, then the Exercise Price in effect immediately
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<PAGE>
prior to such distribution shall automatically be reduced by an amount
determined by dividing (x) the amount (if cash) or the value (if
assets or securities) of the holders' of Warrants (as such term is
defined in the first paragraph hereof) pro rata share of such
distribution determined assuming that all holders of Warrants had
exercised their Warrants on the day prior to such distribution, by (y)
the number of Common Shares issuable upon the exercise of Warrants (as
such term is defined in the first paragraph hereof) by the holders
thereof on the day prior to such distribution.
(3) No Adjustment for Small Amounts. Anything in this Section (f) to
the contrary notwithstanding, the Company shall not be required to give effect
to any adjustment in the Exercise Price unless and until the net effect of one
or more adjustments, determined as above provided, shall have required a change
of the Exercise Price by at least one cent, but when the cumulative net effect
of more than one adjustment so determined shall be to change the actual Exercise
Price by at least one cent, such change in the Exercise Price shall thereupon be
given effect.
(4) Number of Shares Adjusted. Upon any adjustment of the Exercise
Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number of
Common Shares, calculated to the nearest full share, obtained by multiplying the
number of Common Shares initially issuable upon exercise of this Warrant by the
Exercise Price specified in the first paragraph hereof and dividing the product
so obtained by the new Exercise Price.
(5) Definitions.
(A) Whenever reference is made in this Section (f) to the
distribution of Common Shares, the term "Common Shares" shall mean the
Common Shares of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Shares.
However, subject to the provisions of Section (i) hereof, Common Shares
issuable upon exercise hereof shall include only Common Shares of the
class designated as Common Shares of the Company as of the date hereof.
(B) Whenever reference is made in this Section (f) to the
distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Shares of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Shares of
the Company.
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<PAGE>
(6) AntiDilution Provisions.
(A) Adjustments of Exercise Price. If the Company should at any time or
from time to time hereafter issue or sell any of its Common Shares without
consideration or for a consideration per share less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then forthwith upon
such issue or sale, the Exercise Price shall be automatically adjusted to a
price (computed to the nearest cent) determined by dividing (i) the sum of (x)
the number of Common Shares outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such issue or
sale, and (y) the consideration, if any, received by the Company upon such issue
or sale, by (ii) the total number of Common Shares outstanding immediately after
such issue or sale. For purposes of this Section (6)(A), the following
provisions (i) and (ii) shall also be applicable:
(i) Rights, Options, or Warrants. In case at any time
hereafter the Company shall in any manner grant any right to subscribe
for or to purchase, or any option or warrant for the purchase of Common
Shares or for the purchase of any stock or securities convertible into
or exchangeable for Common Shares (such convertible or exchangeable
stock or securities being hereinafter referred to as the "Underlying
Convertible Securities") and if the minimum price per share for which
Common Shares are issuable, pursuant to such rights, options, warrants
or upon conversion or exchange of such Underlying Convertible
Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the granting
of such rights, options, or warrants plus the minimum aggregate amount
of additional consideration payable to the Company upon the exercise of
such rights, options, or warrants under the terms of such rights,
options, or warrants at the time of making such computation, plus, in
the case of such Underlying Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
conversion or exchange thereof under the terms of such Underlying
Convertible Securities at the time of making such computation, by (ii)
the total maximum number of Common Shares issuable pursuant to such
rights, options, or warrants or upon the conversion or exchange of the
total maximum amount of such Underlying Convertible Securities issuable
upon the exercise of such rights, options, or warrants under the terms
of such rights, options, warrants or Underlying Convertible Securities
at the time of making such computation) shall be less than the Exercise
Price in effect immediately prior to the time of the granting of such
rights or options, then the total maximum number of Common Shares
issuable pursuant to such rights, options, warrants or upon conversion
or exchange
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<PAGE>
of the total maximum amount of such Underlying Convertible Securities
issuable upon the exercise of such rights, options, or warrants under
the terms of such rights, options, warrants or Underlying Convertible
Securities at the time of making such computation shall (as of the
date of granting of such rights, options, or warrants) be deemed to be
outstanding and to have been issued for said price per share as so
determined; provided, that no further adjustment of the Exercise Price
shall be made upon the actual issue of Common Shares so deemed to have
been issued unless the price per share received by the Company upon
the actual issuance of Common Shares so deemed to be issued differs
from the price per share which was last used to adjust the Exercise
Price or unless by the terms of such rights, options or warrants or
Underlying Convertible Securities the price per share which the
Company will receive upon any such issuance of Common Shares differs
from the price per share which was last used to adjust the Exercise
Price, in either of which events the Exercise Price shall be adjusted
upon the occurrence of either such event to reflect the new price per
share of Common Stock; and further provided, that, upon the expiration
of such rights (including rights to convert or exchange), options or
warrants (a) the number of shares of Common Stock deemed to have been
issued and outstanding by reason of the fact that they were issuable
pursuant to such rights, options, or warrants (including rights to
convert or exchange) that were not exercised, shall no longer be
deemed to be issued and outstanding, and (b) the Exercise Price shall
forthwith be adjusted to the price which would have prevailed had all
adjustments been made on the basis of the issue only of the Common
Shares actually issued upon the exercise of such rights, options, or
warrants or upon conversion or exchange of such Underlying Convertible
Securities. Such adjustments upon expiration shall have no effect on
Warrants exercised prior to such expiration.
(ii) Convertible Securities. If the Company shall in any manner
issue or sell any Convertible Securities other than the rights,
options, or warrants described in Section 6(A)(i) hereof and if the
minimum price per share for which Common Shares are issuable upon
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof under
the terms of such Convertible Securities at the time of making such
computation, by (ii) the total maximum number of Common Shares
issuable upon the conversion or exchange of all such Convertible
Securities under the terms of such Convertible Securities at the time
of making such computation)
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<PAGE>
shall be less than the Exercise Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of
Common Shares issuable upon conversion or exchange of all such
Convertible Securities at the time of making such computation shall
(as of the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued for said price per
share as so determined; provided, that no further adjustment of the
Exercise Price shall be made upon the actual issue of Common Shares so
deemed to have been issued unless the price per share received by the
Company upon the actual issuance of Common Shares so deemed to be
issued differs from the price per share which was last used to adjust
the Exercise Price or unless by the terms of such Convertible
Securities the price per share which the Company will receive upon any
such issuance of Common Shares differs from the price per share which
was last used to adjust the Exercise Price, in either of which events
the Exercise Price shall be adjusted upon the occurrence of either
such event to reflect the new price per share of Common Shares; and,
further provided that if any such issue or sale of such Convertible
Securities is made upon exercise of any right to subscribe for or to
purchase or any option to purchase any such Convertible Securities for
which an adjustment of the Exercise Price has been or is to be made
pursuant to the provisions of Section 6(A)(i) then no further
adjustment of the Exercise Price shall be made by reason of such issue
or sale unless the price per share received by the Company upon the
conversion or exchange of such Convertible Securities when actually
issued differs from the price per share which was last used to adjust
the Exercise Price or unless by the terms of such Convertible
Securities the price per share which the Company will receive upon any
such issuance of Common Shares upon conversion or exchange of such
Convertible Securities differs from the price per share which was last
used to adjust the Exercise Price, in either of which events the
Exercise Price shall be adjusted upon the occurrence of either of such
events to reflect the new price per share of Common Shares; and,
further provided, that, upon the termination of the right to convert
or to exchange such Convertible Securities for Common Shares, (a) the
number of Common Shares deemed to have been issued and outstanding by
reason of the fact that they were issuable upon conversion or exchange
of any such Convertible Securities, which were not so converted or
exchanged, shall no longer be deemed to be issued and outstanding, and
(b) the Exercise Price shall forthwith be adjusted to the price which
would have prevailed had all adjustments been made on the basis of the
issue only of the number of Common Shares actually issued upon
conversion or exchange of such Convertible Securities. Such
adjustments upon expiration shall have no effect on Warrants exercised
prior to such expiration.
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<PAGE>
(B) Determination of Issue Price. In case any Common Shares or
Convertible Securities shall be issued for cash, the consideration
received therefor, which shall be the gross sales price for such
security without deducting therefrom any commission or other expenses
paid or incurred by the Company for any underwriting of, or otherwise
in connection with, the issuance thereof, shall be deemed to be the
amount received by the Company therefor. In case any Common Shares or
Convertible Securities shall be issued for a consideration part or all
of which shall be other than cash, then, for the purpose of this
Section (6), the Board of Directors of the Company shall determine the
fair value of such consideration, irrespective of accounting
treatment, and such Common Shares or Convertible Securities shall be
deemed to have been issued for an amount of cash equal to the value so
determined by the Board of Directors. The reclassification of
securities other than Common Shares into securities including Common
Shares shall be deemed to involve the issuance for a consideration
other than cash of such Common Shares immediately prior to the close
of business on the date fixed for the determination of security
holders entitled to receive such Common Shares. In case any Common
Shares or Convertible Securities shall be issued together with other
stock or securities or other assets of the Company for consideration,
the Board of Directors of the Company shall determine what part of the
consideration so received is to be deemed to be consideration for the
issue of such Common Shares or Convertible Securities.
(C) Determination of Date of Issue. In case the Company shall
take a record of the holders of Common Shares for the purpose of
entitling them (i) to receive a dividend or other distribution payable
in Common Shares or in Convertible Securities or (ii) to subscribe for
or purchase Common Shares or Convertible Securities, then such record
date shall be deemed to be the date of the issue or sale of the Common
Shares deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(D) Treasury Shares. For the purpose of this Section (f), Common
Shares at any relevant time owned or held by, or for the account of,
the Company shall not be deemed outstanding.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer and warrant agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment. Each
such officer's certificate shall be made available at all reasonable times for
inspection by the Holder
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<PAGE>
and the Company shall, forthwith after each such adjustment, deliver a copy of
such certificate to the Holder.
(h) Notices to Holders. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Shares or (ii) if the Company shall offer to the holders of
Common Shares for subscription or purchase by them any shares of stock of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Common
Shares of the Company (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of an issuance of
Common Shares by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding Common
Shares of the class issuable upon exercise of this Warrant) or in case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property which the Holder would have received upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance had this Warrant been exercised prior to the consummation of
such transaction. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Common Shares and to successive consolidations, mergers, sales or
conveyances. In the event the Company spins off a subsidiary by distributing to
the shareholders of the Company as a dividend or otherwise the stock of the
subsidiary, the Company shall reserve for the life of this Warrant, shares of
the subsidiary to be delivered to the Holders of the Warrants upon exercise to
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<PAGE>
the same extent as if they were owners of record of the Warrant Shares on the
record date for distribution of the shares of the subsidiary.
(j) Registration Under the Securities Act of 1933.
(1) On or before September 30, 1998, the Company will file
and cause to become effective a registration statement under the
Securities Act of 1933, as amended (the "Act"), registering the
Warrants and the Warrant Shares; provided however, that so long as the
Company has used its reasonable best efforts to file such registration
statement and responded to any comments relating thereto in a timely
manner, the Company will not be in default of its obligations relating
to such filing if the registration statement does not become effective
by September 30, 1998.
(2) The Company shall:
(A) Supply to each selling Holder a copy of the
registration statement and a reasonable number of copies of
the preliminary, final and other prospectus in conformity
with requirements of the Act and the Rules and Regulations
promulgated thereunder and such other documents as the
Holders shall reasonably request.
(B) The Company shall bear the complete cost and
expense (other than any selling commissions relating to the
sale of the Warrants and Warrant Shares, which shall be paid
by the sellers thereof) of such registrations or
qualifications except those filed under subsection (j)(3)
which shall be at the Holder(s) cost and expense.
(C) Keep effective such registration statement until
all of the registered Warrant Shares issued by the Company
either before or after the effective date of such
registration statement have been publicly sold under such
registration statement.
(D) Use its best efforts to register or qualify the
Warrants and Warrant Shares for sale in those states
requested by the person selling the Warrants or Warrant
Shares; provided that, the Company shall not be required to
register or qualify the Warrants and Warrant Shares for sale
in any state in which the sale of the Warrants or Warrant
Shares by the person selling the Warrants or Warrant Shares
would be exempt from having to be registered or qualified in
such state. The determination of whether or not such an
exemption exists shall be made by counsel for the Company and
such determination shall be provided in writing to the person
desiring to sell Warrants or Warrant Shares in a state.
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<PAGE>
(E) Indemnify and hold harmless each such Holder and each underwriter,
within the meaning of the Act, who may purchase from or sell for any such
Holder, any Warrants or Warrant Shares, from and against any and all losses,
claims, damages, and liabilities (including but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing, defending
or settling any claim) arising from (i) any untrue or alleged untrue statement
of a material fact contained in any registration statement furnished pursuant to
clause (A) of this subsection, or any prospectus included therein or (ii) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
(unless such untrue statement or omission or such alleged untrue statement or
omission was based upon information furnished or required to be furnished in
writing to the Company by such Holder or underwriter expressly for use therein),
which indemnification shall include each person, if any, who controls any such
Holder or underwriter within the meaning of the Act; provided, however, that the
Company shall not be so obligated to indemnify any such Holder or underwriter or
controlling person unless such Holder and underwriter shall at the same time
indemnify the Company, its directors, each officer signing any registration
statement or any amendment to any registration statement and each person, if
any, who controls the Company within the meaning of the Act, from and against
any and all losses, claims, damages and liabilities (including, but not limited
to, any and all expenses whatsoever reasonably incurred in investigating,
preparing, defending or settling any claim) arising from (i) any untrue or
alleged untrue statement of a material fact contained in any registration
statement or prospectus furnished pursuant to Clause (A) of this subsection, or
(ii) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but the indemnity of such Holder, underwriter or controlling person shall be
limited to liability based upon information furnished, or required to be
furnished, in writing to the Company by such Holder or underwriter or
controlling person expressly for use therein. The Company shall not be liable
for amounts paid in settlement of any such litigation if such settlement was
effected without the consent of the Company. The indemnity agreement of the
Company herein shall not inure to the benefit of any such underwriter (or to the
benefit of any person who controls such underwriter) on account of any losses,
claims, damages, liabilities (or actions or proceedings in respect thereof)
arising from the sale of any of such Warrants or Warrant Shares by such
underwriter to a person if such underwriter failed to send or give a copy of the
prospectus furnished pursuant to Clause (A) of this subsection, as the same may
then be supplemented or amended (if such supplement or amendment shall have been
furnished to the Holders pursuant to said Clause (A)), to such person with or
prior to the written confirmation of the sale involved.
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(3) As a condition to the Company's obligation in subsection
(j)(l) hereof, each Holder shall supply such information as the
Company may reasonably require from such Holder, or any underwriter
for such Holders, for inclusion in such registration statement or
posteffective amendment.
(4) The Company's agreements with respect to the Warrants and
Warrant Shares in this Section will continue in effect regardless of
the exercise or surrender of this Warrant.
(5) Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in
writing and delivered personally or sent by certified mail, return
receipt requested, to the Holder, addressed to the Holder at the
Holder's address as set forth on the Warrant or stockholder register
of the Company, or, if the Holder has designated, by notice in writing
to the Company, any other address, to such other address, and, if to
the Company, addressed to it at 12600 West Colfax Avenue, Suite A-500,
Lakewood, Colorado 80215-3735. The Company may change its address by
written notice to the Holder.
(k) Transfer to Comply with the Securities Act of 1933. The Company
may cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Shares or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Section (j) hereof; unless legal counsel for the Company is of the
opinion as to any such certificate that such legend, or one similar thereto, is
unnecessary:
"The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act") and under any applicable state securities law, or pursuant to
an exemption from registration under the Act and under any applicable
state securities law, the availability of which is to be established
to the satisfaction of the Company."
(1) Exchange Provisions.
(1) For purposes of this Section (1), this Warrant shall be
deemed to represent the same number of Warrants as there are Warrant
Shares underlying this Warrant. For example, if there are 10,000
Warrant Shares underlying this Warrant, then for purposes of this
Section (1) the Holder shall be deemed to hold 10,000 Warrants.
(2) For purposes of this Section (1), the following terms
shall have the following meanings:
12
<PAGE>
(A) "Current Market Value of a Warrant Share" shall be the
value of a Warrant Share as determined under Section (c)(l) or (2)
hereof except that the time of the determination thereunder shall be
the last business day prior to the day the Company receives a notice
from the Holder under this Section (1).
(B) "Warrant Value" shall mean the Current Market Value of a
Warrant Share minus or less the Exercise Price payable under this
Warrant as of the close of business on the last business day prior to
the day the Company receives a notice from the Holder under this
Section (1).
(3) The Holder shall have the right to exchange, in a cashless
transaction, all or part of the Holder's Warrants for Common Shares issued by
the Company at anytime prior to the Expiration Date of such Warrants by
providing written notice ("Notice") to the Company. Such Notice shall set forth
the number of Warrants which the Holder elects to exchange for Common Shares.
(4) Within 10 days after receipt of such Notice by the Company, the
Company shall issue the number of Common Shares of the Company to the Holder
which is determined by dividing the Warrant Value of the Warrants being
exchanged by the Current Market Value of a Warrant Share as of the date the
Notice is received by the Company.
(5) The Holder shall surrender the Warrant which the Holder is
exchanging for Common Shares upon receipt thereof. If the entire Warrant is
being exchanged by the Holder for Common Shares, the Company shall cancel the
entire Warrant. If less than the entire Warrant is being exchanged for Common
Shares, the Company shall issue a new Warrant to the Holder representing the
portion of this Warrant which was not exchanged for Common Shares.
13
<PAGE>
(m) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the state of Colorado.
Dated Effective April 20, 1998.
GLOBAL MED TECHNOLOGIES, INC.
By: /s/ Michael I. Ruxin
----------------------------------
Michael I. Ruxin, Chairman of the Board
and Chief Executive Officer
14
<PAGE>
PURCHASE FORM
-------------
Dated: _____________, 19______
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing _________________ shares of Common Shares and hereby makes
payment of $_____________________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
---------------------------------------
Name:
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
ASSIGNMENT FORM
---------------
Dated: ______________ 19______
FOR VALUE RECEIVED,_____________________________________________________________
hereby sells, assigns and transfers unto________________________________________
Name:
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
------------------------------------------------------------------------
the right to purchase Common Shares represented by this Warrant to the extent of
Common Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint, attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
Signature:
--------------------------------------
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") dated this 12th day of August, 1998,
effective for all purposes as of the 7th day of May, 1998, is made by and
between HENG FUNG FINANCE COMPANY LIMITED, a company formed under the laws of
Hong Kong ("Lender") whose address is do R A F Financial Corporation, 1700
Lincoln Street, 32nd Floor, Denver, Colorado 80203 and GLOBAL MED TECHNOLOGIES,
INC., a Colorado corporation ("Borrower") whose address is 12600 West Colfax
Avenue, Suite A500, Lakewood, Colorado 80215.
RECITALS
A. Borrower and Lender entered into that certain Loan Commitment ("Loan
Commitment") whereby Lender has agreed to commit to make a loan ("Loan") as
described in Section 1.01 of this Agreement; and
B. Lender and Borrower desire to formalize the terms of the Loan in
accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreement contained herein and other good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, Lender and
Borrower hereby covenant and agree as follows:
ARTICLE 1.
THE LOAN
1.1. Agreement to Borrow and Lend. Subject to all of the terms, provisions,
conditions, covenants and agreements contained in this Agreement, Lender agrees
to make available to Borrower a Loan in the maximum principal amount of up to
$1,500,000.00 ("Maximum Loan Amount"). The Loan may be drawn in amounts of not
less than $250,000.00 as and when required by Borrower.
1.2. Promissory Note. The Loan will be evidenced by one or more Promissory
Notes ("Notes") substantially in the form attached hereto as Exhibit A and
incorporated herein by reference, executed by Borrower and delivered to Lender,
which in the aggregate do not exceed the Maximum Loan Amount. The outstanding
principal balance of each Note shall bear interest at the rate of twelve (12%)
per annum. Interest shall accrue and be paid monthly on the last day of each
month during the term of the Notes. If not sooner paid, the entire outstanding
principal balance of the Notes, together with all accrued but unpaid interest
thereon, all additional interest and all other sums due thereunder, shall be due
and payable in full on April 15, 1999.
<PAGE>
1.3. Loan Fee and Other Costs. Pursuant to the Loan Commitment, Borrower
issued to Lender a Warrant to Purchase Common Shares relating to 6,000,000
shares of Borrower's common stock, a copy of which is attached hereto as Exhibit
B and incorporated herein by reference ("Warrants"). Notwithstanding any
provision herein or in any of the Notes or Warrants to the contrary, Lender may
apply any amounts due hereunder or under any of the Notes toward the purchase of
common stock pursuant to the Warrants issued hereunder by giving Borrower
written notice of its intent to do so.
1.4. Use of Proceeds. The Borrower represents, warrants, covenants,
acknowledges and agrees to and with Lender that the proceeds of the Loan shall
be used by Borrower solely for business or investment purposes and shall not be
used for personal, family, household or agricultural purposes.
1.5. Relationship of the Parties. The relationship between Borrower and
Lender is that of a borrower and a lender only and neither of these parties is,
nor shall hold themselves out to be, the agent, employee, joint venturer or
partner of the other party.
1.6. Security. The Loan and each of the Notes shall be unsecured.
1.7. Loan Documents. As used herein, the term "Loan Documents" shall refer
to this Agreement, the Notes, the Warrants and any other documents or
instruments executed by any person in connection with the Loan.
ARTICLE 2.
MANAGEMENT OF BORROWER
2.1. Borrower's Board of Directors. In accordance with the terms of the
Loan Commitment, Borrower and its Board of Directors have taken the following
actions:
a. Increased the number of members to the Borrower's Board of
Directors to nine.
b. Appointed five members selected by Lender and/or Fronteer Capital,
Inc. ("Fronteer"), a company affiliated with the Lender, to the Borrower's
Board of Directors.
For so long as any amounts remain due hereunder or under any other Loan
Documents, including the Notes, Borrower and its Board of Directors shall
support in any election of directors by the shareholders of Borrower, those
members appointed to the Board of Directors that were selected by Lender or
Fronteer. Further, Lender and/or Fronteer shall have the right
2
<PAGE>
to select a replacement director for any member of the Borrower's Board of
Directors that was selected by either Lender of Fronteer who resigns or
otherwise fails to serve as a director.
2.2. Employment Agreements with Management and Key Employees. The Board of
Directors of Borrower has taken all steps necessary, and has delivered to Lender
proof thereof, to modify and amend all employment or similar agreements with
those persons constituting Borrower's management personnel and key employees, as
determined in the sole discretion of Lender, to provide that upon a default of
Borrower under any of the Loan Documents, such management personnel or key
employee's employment with Borrower may be terminated at will by Borrower,
without any liability to Borrower or Lender other than to pay unpaid wages or
salary and vacation pay accrued to such management personnel or key employee
through the date of such termination of employment.
2.3. Resignation Letters of the Members of the Board of Directors,
Management Personnel and Key Employees. Upon execution of this Agreement, each
current member of the Board of Directors of Borrower, other than any such member
appointed by Lender or Fronteer, and each management personnel or key employee
of Borrower, shall deliver to Lender his or her letter of resignation, which
letters of resignation shall be held in escrow by Lender, subject to all of the
terms and conditions of this Agreement.
ARTICLE 3.
BORROWER'S REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties. Borrower hereby represents and
warrants to Lender as follows:
a. Borrower is duly incorporated and is validly existing and in good
standing under the laws of the State of Colorado and Borrower has all
requisite power and authority to conduct its business, to own its
properties and to execute, deliver and perform all of its obligations under
the Loan Documents.
b. The execution, delivery and performance of the Loan Documents by
the Borrower have been authorized by all necessary corporate actions and do
not and will not contravene any legal or contractual restriction binding on
the Borrower or any of the property and assets thereof.
c. The Loan Documents constitute, and any other agreement required
hereby will constitute, when executed and delivered by Borrower to Lender,
legal, valid and binding obligations of Borrower, enforceable in accordance
with their terms. The execution and delivery by Borrower of the Loan
Documents and consummation of all the transactions contemplated thereby, do
not and will not conflict with, or be
3
<PAGE>
in contravention of, any law, order, rule or regulation applicable to
Borrower or any agreement or instrument to which Borrower is a party.
d. There is no legal action, suit, proceeding or investigation by or
before any governmental instrumentality or other agency, now pending,
threatened against or affecting the Borrower, or which questions or would
bring into question the validity of the Loan Documents.
e. Other than pro forma financial reports, all balance sheets, income
statements, financial statements, operating statements and other financial
data pertaining to Borrower that have been delivered (or will be delivered)
to Lender by or on behalf of Borrower are or will be accurate and complete
in all material respects and accurately present or will present the
financial condition of the person or entity to which they pertain as of
their respective dates and there has been no material change with respect
thereto.
ARTICLE 4.
BORROWER'S COVENANTS
4.1. Covenants of Borrower. So long as the Loan shall remain unpaid,
Borrower covenants and agrees as follows:
a. For so long as any amounts remain due under any of the Notes or
other Loan Documents, Borrower:
i. shall not increase the number of members to serve on the
Borrower's Board of Directors above nine; and
ii. shall support those members to the Borrower's Board of
Directors selected by Lender and/or Fronteer in any election of
directors by the shareholders of Borrower.
b. Without the express written consent of Lender, which consent may be
withheld for any purpose, Borrower shall not enter into any contracts,
agreements, leases, instruments or other documents of any kind or nature,
with any third party, other than such contracts, agreements, leases,
instruments or other such documents entered into in the normal course of
Borrower's business and which do not, in the aggregate, exceed a monetary
obligation on behalf of the Borrower in excess of $250,000.00.
4
<PAGE>
c. Upon the request of Lender, or in accordance with the Warrants,
Borrower shall register any common stock of the Borrower issued to Lender
in accordance with the Warrants or issued as Conversion Shares in
accordance with Section 6.2.b.iii below.
d. Upon the request of Lender, Borrower shall use its best efforts to
obtain a letter of resignation from each member of the Board of Directors
who was elected or appointed to replace any member of the Board of
Directors of Borrower who had previously executed and delivered to Lender a
letter of resignation in accordance with Section 2.3 of this Agreement. and
deliver such letter of resignation to Lender to be held in escrow in
accordance with Section 2.3 of this Agreement.
e. Without Lender's prior written consent, Borrower shall not
authorize or otherwise permit any stock splits; reverse stock splits; stock
dividends; issuance of common shares of the Borrower below the exercise
price of the common shares to be issued pursuant to the Warrants, other
than the issuance of the Conversion Shares; mergers or consolidations;
recapitalization of Borrower; or the sale of any assets of Borrower other
than sales of assets in the normal course of Borrower's business.
f. Borrower shall not, without the prior written consent of Lender,
grant or permit any security interest in any of the assets of Borrower to
anyone, including, but not limited to, purchase money security interests to
trade creditors.
g. Borrower will, at its expense, furnish to Lender promptly and upon
request such instruments including, without limitation, other instruments
in addition to those specifically provided for herein, and take all further
actions as Lender may reasonably require from time to time in order to
fully comply with the terms of this Agreement.
h. Borrower will maintain and preserve its corporate existence, as
applicable, under the laws of every jurisdiction in which it does business.
i. Financial statements of Borrower which have been audited by a
certified public accountant, and income tax returns for the Borrower are to
be provided to Lender as soon as reasonably possible after the end of each
fiscal year during the term of the Loan.
j. Borrower will immediately notify Lender of any event or
circumstance which reasonably could be deemed to have a materially adverse
effect on Borrower's financial condition or Borrower's ability to perform
its agreements and obligations under the Loan Documents.
5
<PAGE>
k. Borrower shall notify Lender in writing prior to the time there is
any change of name, identity or business structure of Borrower, including
the addition of any trade names.
ARTICLE 5.
OTHER AGREEMENTS
5.1. Other Agreements. In addition to the other agreements contained in the
Loan Documents, the parties hereto agree as follows:
a. Any and all monies received by lender from Borrower, whether prior
or subsequent to or as a result of a default hereunder shall be applied by
Lender first to any interest due under any of the Notes, but thereafter may
be applied by Lender to any of the amounts due under the Notes or other
Loan Documents, in any order selected by lender, notwithstanding any
contrary provision of the Loan Documents.
b. In the event that a default shall exist under any of the Loan
Documents, Lender shall be authorized to proceed with any and all remedies
available to Lender thereunder or under this Agreement.
c. To the extent not previously waived, Borrower hereby knowingly,
intentionally and voluntarily waives, relinquishes and forgoes any and all
rights which it may have to the marshalling by Lender of the assets of
Borrower. Borrower acknowledges that such waiver is made with and pursuant
to the advice of competent legal counsel.
d. A default under any of the Loan Documents, including a default
under any of the Notes, shall constitute a default under each other Loan
Document, including each other Note, and shall entitle Lender to pursue any
and all remedies under each or any of the Loan Documents.
e. Borrower hereby irrevocably authorizes Lender to correct without
notice any clerical errors or omissions that may be present in the Loan
Documents executed in connection with the Loan. Borrower further
understands that such corrections shall not result in any increase in the
amount of the obligation that it must repay to Lender, or any change of
essential terms of repayment of the loan obligation. Borrower further
consents in advance to the correction of any errors or omissions as
outlined herein and acknowledge that it understands such correction
procedure and agrees to such correction procedure, without prior notice and
without the necessity of written authorization or approval.
6
<PAGE>
ARTICLE 6.
DEFAULT AND REMEDIES
6.1. Events of Default. The occurrence of any one or more of the following
events or the existence of one or more of the following conditions shall
constitute an event of default under this Agreement:
a. Nonpayment. Borrower shall fail to pay when due, after the
expiration of all cure periods, any installment of principal or interest
due under any of the Notes, whether due on the date provided for therein or
by acceleration or otherwise, or Borrower shall fail to pay when due any
other amounts due under any of the Loan Documents.
b. Other Defaults. The occurrence of any of the following events:
i. any representation or warranty made in writing to Lender by
Borrower herein or in any other Loan Document, or in the Loan
Commitment, or otherwise in connection with the making of the Loan
shall prove at any time to have been incorrect in any material respect
when made; or
ii. the breach, default or violation by Borrower of any
obligation, agreement or covenant contained in the Notes, this
Agreement, or any other Loan Documents executed by Borrower; or
iii. any default under any obligation or duty Borrower may have
to Fronteer; or
iv. any material provision of any of the Loan Documents shall at
any time for any reason cease to be in full force and effect or shall
be declared to be null and void; or
v. any litigation or proceeding is pending which may materially
adversely affect the ability of Borrower to perform its obligations
under the Loan Documents; or
vi. Borrower's failure to comply with any other covenants or
agreements contained in any of the Loan Documents and not herein
specifically referenced, unless the same is cured within any
applicable grace periods.
7
<PAGE>
6.2. Remedies.
a. Upon the occurrence of any event of default hereunder as above
provided, and at any time thereafter, all principal, interest and other
amounts payable under the Loan Documents shall, at the option of Lender,
become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are expressly waived by Borrower.
Lender may proceed with every remedy available at law or in equity or
provided for in the Loan Documents or in any other document executed in
connection with the Loan, in such order or sequence as Lender may determine
in its sole discretion, including concurrently, independently, or
successively, and all expenses incurred by Lender in connection with any
remedy shall be deemed indebtedness of Borrower to Lender including, but
not limited to, reasonable attorneys' fees incurred by Lender.
b. In addition to any other right or remedy Lender may have hereunder
or under any of the Notes or other Loan Documents, Lender may pursue any or
all of the following additional remedies, to wit:
i. Demand the resignation of any or all of the members of the
Board of Directors of Borrower, other than those members appointed by
Lender and/or Fronteer, and if such members refuse to resign, deliver
to the Borrower the letters of resignation held by Lender in escrow in
accordance with Section 2.3 or Section 4.1.d of this Agreement, and
thereafter Lender shall have the right to appoint such resigned or
terminated member's replacement to the Board of Directors; and
ii. Demand the resignations of any or all of the management
personnel of the Borrower and/or any and all of the key employees of
Borrower, and if such management personnel or key employees refuse to
resign, deliver to the Borrower the letters of resignation held by
Lender in escrow in accordance with Section 2.3 of this Agreement;
provided that nothing herein shall be deemed a representation or
covenant of Borrower that such letters of resignation are enforceable;
and
iii. Convert any or all of the amounts due under any of the Notes
into common stock of the Borrower ("Conversion Shares") at an exercise
price of $0.05 per share. Lender shall make such standard investment
representations to show an exemption from registration exists for the
issuance of such Conversion Shares.
8
<PAGE>
ARTICLE 7.
GENERAL PROVISIONS
7.1. Notices. All notices, communications and materials to be given or
delivered pursuant to the Loan Documents shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing to the address of the appropriate party set forth in the header hereof
or at such other address as shall be changed in accordance with the notice
provisions of this Section 7.1.
7.2. Amendments. No provision or term of the Loan Documents may be amended,
modified, revoked, supplemented, waived or otherwise changed except by a written
instrument duly executed by Borrower and Lender and designated as such.
7.3. Severability. Whenever possible, each provision of the Loan Documents
shall be interpreted so as to be effective and valid under Colorado law. Should
any provision, covenant or agreement contained herein be deemed invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining provisions of this Agreement shall not be impaired thereby, nor
shall the validity, legality or enforceability of any such defective provision
be in any way affected or impaired in any other jurisdiction.
7.4. Successors and Assigns Bound; Assignment. The covenants and agreements
contained herein shall bind Borrower, its successors and assigns. This Agreement
may not be assigned by Borrower without the prior written consent of Lender.
Subject to the foregoing restriction, this Agreement shall inure to the benefit
of Lender, its successors and assigns.
7.5. No Third Party Benefits. This Agreement is made for the sole benefit
of Borrower and Lender and their respective successors and assigns, and no other
person or persons shall have any rights or remedies under or by reason of this
Agreement.
7.6. Headings. The captions and headings of the paragraphs in the Agreement
are for convenience only and are not used to interpret or define the provisions
of the Agreement.
7.7. Governing Law. This Agreement and the Loan Documents or any other
documents executed in connection with the Loan shall be governed by and
interpreted in accordance with the laws of the State of Colorado.
7.8. Conflict. Should any provision of any other Loan Documents conflict
with any provision of this Agreement, the provision selected by Lender, in its
sole discretion, shall govern and shall be controlling.
7.9. Limitation of Liability. LENDER SHALL NOT HAVE ANY LIABILITY WITH
RESPECT TO, AND THE BORROWER HEREBY WAIVES, RELEASES AND
9
<PAGE>
AGREES NOT TO SUE FOR, ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES
SUFFERED BY THE BORROWER IN CONNECTION WITH ANY LOAN DOCUMENTS OR CLAIM RELATED
THERETO.
7.10. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
DATED: 12 August 98
--------------
BORROWER:
GLOBAL MED TECHNOLOGIES, INC.,
Attest: a Colorado corporation
By: /s/ Kim Geist By: /s/ Michael I. Ruxin
----------------------- -------------------------------
Title: Asst. Secy Title: CEO
-------------------- -----------------------------
LENDER:
HENG FUNG FINANCE
COMPANY LIMITED,
a company formed under the
laws of Hong Kong
By:
-------------------------------
Title:
------------------------------
10
<PAGE>
EXHIBIT A
PROMISSORY NOTE
<PAGE>
PROMISSORY NOTE
U.S. $______________ Denver, Colorado
_________ 199__
FOR VALUE RECEIVED, GLOBAL MED TECHNOLOGIES, INC., a Colorado corporation
("Maker"), promises to pay to the order of HENG FUNG FINANCE COMPANY LIMITED, a
company formed under the laws of Hong Kong, having an address at c/o R A F
Financial Corporation, 1700 Lincoln Street, 32nd Floor, Denver, Colorado 80203,
or its successors or assigns (sometimes referred to herein as "Holder"), the
principal sum of _______________________________ DOLLARS (U.S. $_______________)
with interest from the date hereof at the rate TWELVE percent (12%) per annum,
payable in accordance with terms hereof.
All payments of interest shall be due and payable on the last day of each
month based on the accrued interest for that month.
The principal sum due, together with all accrued but unpaid interest shall
be due, if not sooner paid, on April 15, 1999.
All payments shall be payable to Holder at the address set forth above, or
at such other place as Holder hereof may designate from time to time in writing.
All payments shall be first applied to the payment of interest due hereunder,
then to the payment of any other sums payable hereunder and finally to the
principal amount then remaining unpaid.
The indebtedness evidenced by this Note may be prepaid in whole or in part
without notice, penalty or premium.
If any payment due hereunder is not received by Holder on or before the
seventh (7th) day after such payment is due, then Maker shall be deemed in
default hereunder. In the event Maker shall default in any of the payments due
hereunder or any other obligations owed to Holder or their successors or
assigns, the full amount remaining unpaid hereunder, together with all accrued
and unpaid default interest thereon shall, at the option of the Holder, be
accelerated and become immediately due and payable.
This Note is given pursuant to the terms of that certain Loan Agreement
between Maker and Holder dated ______________, 1998. A default under the Loan
Agreement shall be deemed a default hereunder. Further, in the event of default,
Holder shall, in addition to exercising all rights hereunder, be entitled to
exercise all rights set forth in the Loan Agreement.
Maker waives delinquency in collection, demand for payment, presentment for
payment, protest, notice of protest, notice of dishonor and all duties or
obligations of Holder to effect, protect, perfect, retain or enforce any
security for payment of this Note or to proceed
<PAGE>
against any collateral before otherwise enforcing this Note. This Note shall be
binding upon Maker, its successors and assigns.
Maker unconditionally guarantees prompt satisfaction when due, whether by
acceleration or otherwise, of the entire outstanding principal balance and all
accrued and unpaid interest, and amounts of any additional advancements of this
Note, and further agrees to immediately pay to Holder hereof, upon demand, all
losses, costs and expenses (including attorneys' fees) incurred by Holder for
collection and enforcement of this Note in the event of default or otherwise.
Each individual executing this Note represents and warrants that he or she
duly is authorized to execute and deliver this Note on behalf of the person or
entity for which he or she is so executing and that this Note is binding upon
the undersigned Maker in accordance with its terms, except to the extent that
enforcement of remedies is limited by applicable bankruptcy, insolvency, and
other laws affecting the enforcement of creditors' rights generally.
This Note shall be interpreted and enforced in accordance with the laws of
the State of Colorado. In the event of default, Maker consents to the
enforcement of this Note in the District Court for the City and County of
Denver, Colorado, and waives any rights to contest venue or jurisdiction of that
court.
MAKER:
GLOBAL MED TECHNOLOGIES, INC.
By:____________________________
Title:_________________________
Attest:
By:_____________________
Title:__________________
2
<PAGE>
EXHIBIT B
WARRANT TO PURCHASE COMMON SHARES
<PAGE>
Void After 3:30 P.M., Mountain Time, on April 13, 2008
WARRANT TO PURCHASE COMMON SHARES
GLOBAL MED TECHNOLOGIES, INC.
This is to Certify That, FOR VALUE RECEIVED, HENG FUNG FINANCE COMPANY
LIMITED, Lippo Protective Tower, 1Oth Floor, 231-235 Gloucester Road, Wan Chai,
Hong Kong ("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from GLOBAL MED TECHNOLOGIES, INC. ("Company"), a Colorado corporation,
at any time until 3:30 P.M., Mountain Time, on April 13, 2008 ("Expiration
Date"), 6,000,000 Common Shares of the Company at a purchase price of $0.25 per
common share during the period this Warrant is exercisable. The number of Common
Shares to be received upon the exercise of this Warrant and the price to be paid
for a Common Share may be adjusted from time to time as hereinafter set forth.
The purchase price of a Common Share in effect at any time and as adjusted from
time to time is hereinafter sometimes referred to as the "Exercise Price." This
Warrant is or may be one of a series of warrants identical in form issued by the
Company to purchase an aggregate of 6,000,000 Common Shares of the Company and
the term "Warrants" as used herein means all such Warrants (including this
Warrant). The Common Shares, as adjusted from time to time, underlying the
Warrants are hereinafter sometimes referred to as "Warrant Shares" and include
all Common Shares that have been issued upon the exercise of the Warrants and
all unissued Common Shares underlying the Warrants.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in
minimum amounts which at the time of exercise would require Holder to deliver to
the Company cash or value of at least $250,000 at any time or from time to time
until the Expiration Date or if the Expiration Date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of shares specified in such Form, together with all federal
and state taxes applicable upon such exercise. The Company agrees not to merge,
reorganize or take any action that would terminate this Warrant unless
provisions are made as part of such merger, reorganization or other action which
would provide the holders of this Warrant with an equivalent of this Warrant as
specified in Section (i) hereof. The Company agrees to provide notice to the
Holder that any tender offer is being made for the Company's Common Shares no
later than three business days after the day the Company becomes aware that any
tender offer is being made for the outstanding Common Shares of the Company. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the right of the Holder to purchase the balance of the Common Shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Purchase Form and the Exercise Price, the
Holder shall be deemed to be the holder of record of the Common Shares issuable
upon such exercise, notwithstanding that the stock transfer books of
<PAGE>
the Company shall then be closed or that certificates representing such Common
Shares shall not then be actually delivered to the Holder.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Common Shares as shall be required for issuance or
delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Common Share called for upon any exercise hereof,
the Company shall, upon receipt by the Company or the Company's stock transfer
agent of the Exercise Price on such fractional share, pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share, determined as follows:
(1) If the Common Shares are listed on a national securities
exchange or a foreign exchange, are admitted to unlisted trading
privileges on such an exchange, or are listed for trading on a trading
system of the National Association of Securities Dealers, Inc. ("NASD")
such as The Nasdaq SmallCap Market ("SCM") or the Nasdaq National
Market ("NNM") or the OTC Bulletin Board, then the current value shall
be the last reported sale price of the Common Shares on such an
exchange or system on the last business day prior to the date of
exercise of this Warrant or if no such sale is made on such day, the
average of the closing bid prices for the Common Shares for such day on
such exchange or such system shall be used; or
(2) If the Common Shares are not so listed on such exchange or
system or admitted to unlisted trading privileges, the current value
shall be the average of the last reported bid prices reported by the
National Quotation Bureau, Inc. on the last business day prior to the
date of the exercise of this Warrant; or
(3) If the Common Shares are not so listed or admitted to
unlisted trading privileges and if bid prices are not so reported, the
current value shall be an amount, not less than book value, determined
in such reasonable manner as may be prescribed by the board of
directors of the Company.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Common Shares purchasable hereunder. This
Warrant may not be sold, transferred, assigned, or hypothecated except in
compliance with federal and state securities laws. Any transfer or assignment
shall be made by surrender of this Warrant to the Company or at the office of
its stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and with funds sufficient to pay any transfer
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<PAGE>
tax; whereupon the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Subject to such right
of indemnification, any such new Warrant executed and delivered shall constitute
an additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Adjustment Provisions.
(1) Adjustments of the Exercise Price.
(A) If the Company subdivides its outstanding Common
Shares into a greater number of Common Shares, the Exercise
Price in effect immediately prior to such subdivision shall be
proportionately reduced. Conversely, if the Company combines
its outstanding Common Shares into a lesser number of Common
Shares, the Exercise Price in effect immediately prior to such
combination shall be proportionally increased. In case of a
subdivision or combination, the adjustment of the Exercise
Price shall be made as of the effective date of the applicable
event. A distribution on Common Shares, including a
distribution of Convertible Securities, to shareholders of the
Company on a pro rata basis shall be considered a subdivision
of Common Shares for the purposes of this subsection (l)(A) of
this Section, except that the adjustment will be made as of
the record date for such distribution and any such
distribution of Convertible Securities shall be deemed to be a
distribution of the Common Shares underlying such Convertible
Securities.
(B) If the Company shall at any time distribute or
cause to be distributed to its shareholders, on a pro rata
basis, cash, assets, or securities of any entity other than
the Company, then the Exercise Price in effect immediately
3
<PAGE>
prior to such distribution shall automatically be reduced by
an amount determined by dividing (x) the amount (if cash) or
the value (if assets or securities) of the holders' of
Warrants (as such term is defined in the first paragraph
hereof) pro rata share of such distribution determined
assuming that all holders of Warrants had exercised their
Warrants on the day prior to such distribution, by (y) the
number of Common Shares issuable upon the exercise of
Warrants (as such term is defined in the first paragraph
hereof) by the holders thereof on the day prior to such
distribution.
(3) No Adjustment for Small Amounts. Anything in this Section (f) to
the contrary notwithstanding, the Company shall not be required to give effect
to any adjustment in the Exercise Price unless and until the net effect of one
or more adjustments, determined as above provided, shall have required a change
of the Exercise Price by at least one cent, but when the cumulative net effect
of more than one adjustment so determined shall be to change the actual Exercise
Price by at least one cent, such change in the Exercise Price shall thereupon be
given effect.
(4) Number of Shares Adjusted. Upon any adjustment of the Exercise
Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number of
Common Shares, calculated to the nearest full share, obtained by multiplying the
number of Common Shares initially issuable upon exercise of this Warrant by the
Exercise Price specified in the first paragraph hereof and dividing the product
so obtained by the new Exercise Price.
(5) Definitions.
(A) Whenever reference is made in this Section (f) to the
distribution of Common Shares, the term "Common Shares" shall mean the
Common Shares of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Shares.
However, subject to the provisions of Section (i) hereof, Common Shares
issuable upon exercise hereof shall include only Common Shares of the
class designated as Common Shares of the Company as of the date hereof.
(B) Whenever reference is made in this Section (f) to the
distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Shares of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Shares of
the Company.
4
<PAGE>
(6) AntiDilution Provisions.
(A) Adjustments of Exercise Price. If the Company should at any time or
from time to time hereafter issue or sell any of its Common Shares without
consideration or for a consideration per share less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then forthwith upon
such issue or sale, the Exercise Price shall be automatically adjusted to a
price (computed to the nearest cent) determined by dividing (i) the sum of (x)
the number of Common Shares outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such issue or
sale, and (y) the consideration, if any, received by the Company upon such issue
or sale, by (ii) the total number of Common Shares outstanding immediately after
such issue or sale. For purposes of this Section (6)(A), the following
provisions (i) and (ii) shall also be applicable:
(i) Rights, Options, or Warrants. In case at any time
hereafter the Company shall in any manner grant any right to subscribe
for or to purchase, or any option or warrant for the purchase of Common
Shares or for the purchase of any stock or securities convertible into
or exchangeable for Common Shares (such convertible or exchangeable
stock or securities being hereinafter referred to as the "Underlying
Convertible Securities") and if the minimum price per share for which
Common Shares are issuable, pursuant to such rights, options, warrants
or upon conversion or exchange of such Underlying Convertible
Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the granting
of such rights, options, or warrants plus the minimum aggregate amount
of additional consideration payable to the Company upon the exercise of
such rights, options, or warrants under the terms of such rights,
options, or warrants at the time of making such computation, plus, in
the case of such Underlying Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
conversion or exchange thereof under the terms of such Underlying
Convertible Securities at the time of making such computation, by (ii)
the total maximum number of Common Shares issuable pursuant to such
rights, options, or warrants or upon the conversion or exchange of the
total maximum amount of such Underlying Convertible Securities issuable
upon the exercise of such rights, options, or warrants under the terms
of such rights, options, warrants or Underlying Convertible Securities
at the time of making such computation) shall be less than the Exercise
Price in effect immediately prior to the time of the granting of such
rights or options, then the total maximum number of Common Shares
issuable pursuant to such rights, options, warrants or upon conversion
or exchange
5
<PAGE>
of the total maximum amount of such Underlying Convertible Securities
issuable upon the exercise of such rights, options, or warrants under
the terms of such rights, options, warrants or Underlying Convertible
Securities at the time of making such computation shall (as of the
date of granting of such rights, options, or warrants) be deemed to be
outstanding and to have been issued for sale price per share as so
determined; provided, that no further adjustment of the Exercise Price
shall be made upon the actual issue of Common Shares so deemed to have
been issued unless the price per share received by the Company upon
the actual issuance of Common Shares so deemed to be issued differs
from the price per share which was last used to adjust the Exercise
Price or unless by the terms of such rights, options or warrants or
Underlying Convertible Securities the price per share which the
Company will receive upon any such issuance of Common Shares differs
from the price per share which was last used to adjust the Exercise
Price, in either of which events the Exercise Price shall be adjusted
upon the occurrence of either such event to reflect the new price per
share of Common Stock; and further provided, that, upon the expiration
of such rights (including rights to convert or exchange), options or
warrants (a) the number of shares of Common Stock deemed to have been
issued and outstanding by reason of the fact that they were issuable
pursuant to such rights, options, or warrants (including rights to
convert or exchange) that were not exercised, shall no longer be
deemed to be issued and outstanding, and (b) the Exercise Price shall
forthwith be adjusted to the price which would have prevailed had all
adjustments been made on the basis of the issue only of the Common
Shares actually issued upon the exercise of such rights, options, or
warrants or upon conversion or exchange of such Underlying Convertible
Securities. Such adjustments upon expiration shall have no effect on
Warrants exercised prior to such expiration.
(ii) Convertible Securities. If the Company shall in any manner
issue or sell any Convertible Securities other than the rights,
options, or warrants described in Section 6(A)(i) hereof and if the
minimum price per share for which Common Shares are issuable upon
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof under
the terms of such Convertible Securities at the time of making such
computation, by (ii) the total maximum number of Common Shares
issuable upon the conversion or exchange of all such Convertible
Securities under the terms of such Convertible Securities at the time
of making such computation)
6
<PAGE>
shall be less than the Exercise Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of
Common Shares issuable upon conversion or exchange of all such
Convertible Securities at the time of making such computation shall
(as of the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued for said price per
share as so determined; provided, that no further adjustment of the
Exercise Price shall be made upon the actual issue of Common Shares so
deemed to have been issued unless the price per share received by the
Company upon the actual issuance of Common Shares so deemed to be
issued differs from the price per share which was last used to adjust
the Exercise Price or unless by the terms of such Convertible
Securities the price per share which the Company will receive upon any
such issuance of Common Shares differs from the price per share which
was last used to adjust the Exercise Price, in either of which events
the Exercise Price shall be adjusted upon the occurrence of either
such event to reflect the new price per share of Common Shares; and,
further provided that if any such issue or sale of such Convertible
Securities is made upon exercise of any right to subscribe for or to
purchase or any option to purchase any such Convertible Securities for
which an adjustment of the Exercise Price has been or is to be made
pursuant to the provisions of Section 6(A)(i) then no further
adjustment of the Exercise Price shall be made by reason of such issue
or sale unless the price per share received by the Company upon the
conversion or exchange of such Convertible Securities when actually
issued differs from the price per share which was last used to adjust
the Exercise Price or unless by the terms of such Convertible
Securities the price per share which the Company will receive upon any
such issuance of Common Shares upon conversion or exchange of such
Convertible Securities differs from the price per share which was last
used to adjust the Exercise Price, in either of which events the
Exercise Price shall be adjusted upon the occurrence of either of such
events to reflect the new price per share of Common Shares; and,
further provided, that, upon the termination of the right to convert
or to exchange such Convertible Securities for Common Shares, (a) the
number of Common Shares deemed to have been issued and outstanding by
reason of the fact that they were issuable upon conversion or exchange
of any such Convertible Securities, which were not so converted or
exchanged, shall no longer be deemed to be issued and outstanding, and
(b) the Exercise Price shall forthwith be adjusted to the price which
would have prevailed had all adjustments been made on the basis of the
issue only of the number of Common Shares actually issued upon
conversion or exchange of such Convertible Securities. Such
adjustments upon expiration shall have no effect on Warrants exercised
prior to such expiration.
7
<PAGE>
(B) Determination of Issue Price. In case any Common
Shares or Convertible Securities shall be issued for cash, the
consideration received therefor, which shall be the gross
sales price for such security without deducting therefrom any
commission or other expenses paid or incurred by the Company
for any underwriting of, or otherwise in connection with, the
issuance thereof, shall be deemed to be the amount received by
the Company therefor. In case any Common Shares or Convertible
Securities shall be issued for a consideration part or all of
which shall be other than cash, then, for the purpose of this
Section (6), the Board of Directors of the Company shall
determine the fair value of such consideration, irrespective
of accounting treatment, and such Common Shares or Convertible
Securities shall be deemed to have been issued for an amount
of cash equal to the value so determined by the Board of
Directors. The reclassification of securities other than
Common Shares into securities including Common Shares shall be
deemed to involve the issuance for a consideration other than
cash of such Common Shares immediately prior to the close of
business on the date fixed for the determination of security
holders entitled to receive such Common Shares. In case any
Common Shares or Convertible Securities shall be issued
together with other stock or securities or other assets of the
Company for consideration, the Board of Directors of the
Company shall determine what part of the consideration so
received is to be deemed to be consideration for the issue of
such Common Shares or Convertible Securities.
(C) Determination of Date of Issue. In case the
Company shall take a record of the holders of Common Shares
for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Shares or in Convertible
Securities or (ii) to subscribe for or purchase Common Shares
or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the Common
Shares deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or
purchase, as the case may be.
(D) Treasury Shares. For the purpose of this Section
(f), Common Shares at any relevant time owned or held by, or
for the account of, the Company shall not be deemed
outstanding.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer and warrant agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment. Each
such officer's certificate shall be made available at all reasonable times for
inspection by the Holder
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<PAGE>
and the Company shall, forthwith after each such adjustment, deliver a copy of
such certificate to the Holder.
(h) Notices to Holders. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Shares or (ii) if the Company shall offer to the holders of
Common Shares for subscription or purchase by them any shares of stock of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Common
Shares of the Company (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of an issuance of
Common Shares by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding Common
Shares of the class issuable upon exercise of this Warrant) or in case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property which the Holder would have received upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance had this Warrant been exercised prior to the consummation of
such transaction. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Common Shares and to successive consolidations, mergers, sales or
conveyances. In the event the Company spins off a subsidiary by distributing to
the shareholders of the Company as a dividend or otherwise the stock of the
subsidiary, the Company shall reserve for the life of this Warrant, shares of
the subsidiary to be delivered to the Holders of the Warrants upon exercise to
9
<PAGE>
the same extent as if they were owners of record of the Warrant Shares on the
record date for distribution of the shares of the subsidiary.
(j) Registration Under the Securities Act of 1933.
(1) On or before September 30, 1998, the Company will file and
cause to become effective a registration statement under the Securities
Act of 1933, as amended (the "Act"), registering the Warrants and the
Warrant Shares; provided however, that so long as the Company has used
its reasonable best efforts to file such registration statement and
responded to any comments relating thereto in a timely manner, the
Company will not be in default of its obligations relating to such
filing if the registration statement does not become effective by
September 30, 1998.
(2) The Company shall:
(A) Supply to each selling Holder a copy of the
registration statement and a reasonable number of copies of
the preliminary, final and other prospectus in conformity with
requirements of the Act and the Rules and Regulations
promulgated thereunder and such other documents as the Holders
shall reasonably request.
(B) The Company shall bear the complete cost and
expense (other than any selling commissions relating to the
sale of the Warrants and Warrant Shares, which shall be paid
by the sellers thereof) of such registrations or
qualifications except those filed under subsection (j)(3)
which shall be at the Holder(s) cost and expense.
(C) Keep effective such registration statement until
all of the registered Warrant Shares issued by the Company
either before or after the effective date of such registration
statement have been publicly sold under such registration
statement.
(D) Use its best efforts to register or qualify the
Warrants and Warrant Shares for sale in those states requested
by the person selling the Warrants or Warrant Shares; provided
that, the Company shall not be required to register or qualify
the Warrants and Warrant Shares for sale in any state in which
the sale of the Warrants or Warrant Shares by the person
selling the Warrants or Warrant Shares would be exempt from
having to be registered or qualified in such state. The
determination of whether or not such an exemption exists shall
be made by counsel for the Company and such determination
shall be provided in writing to the person desiring to sell
Warrants or Warrant Shares in a state.
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(E) Indemnify and hold harmless each such Holder and each
underwriter, within the meaning of the Act, who may purchase from or
sell for any such Holder, any Warrants or Warrant Shares, from and
against any and all losses, claims, damages, and liabilities
(including but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing, defending or settling
any claim) arising from (i) any untrue or alleged untrue statement of
a material fact contained in any registration statement furnished
pursuant to clause (A) of this subsection, or any prospectus included
therein or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading (unless such untrue statement or
omission or such alleged untrue statement or omission was based upon
information furnished or required to be furnished in writing to the
Company by such Holder or underwriter expressly for use therein),
which indemnification shall include each person, if any, who controls
any such Holder or underwriter within the meaning of the Act;
provided, however, that the Company shall not be so obligated to
indemnify any such Holder or underwriter or controlling person unless
such Holder and underwriter shall at the same time indemnify the
Company, its directors, each officer signing any registration
statement or any amendment to any registration statement and each
person, if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and
liabilities (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing, defending
or settling any claim) arising from (i) any untrue or alleged untrue
statement of a material fact contained in any registration statement
or prospectus furnished pursuant to Clause (A) of this subsection, or
(ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but the indemnity of such Holder, underwriter
or controlling person shall be limited to liability based upon
information furnished, or required to be furnished, in writing to the
Company by such Holder or underwriter or controlling person expressly
for use therein. The Company shall not be liable for amounts paid in
settlement of any such litigation if such settlement was effected
without the consent of the Company. The indemnity agreement of the
Company herein shall not inure to the benefit of any such underwriter
(or to the benefit of any person who controls such underwriter) on
account of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) arising from the sale of any of such
Warrants or Warrant Shares by such underwriter to a person if such
underwriter failed to send or give a copy of the prospectus furnished
pursuant to Clause (A) of this subsection, as the same may then be
supplemented or amended (if such supplement or amendment shall have
been furnished to the Holders pursuant to said Clause (A)), to such
person with or prior to the written confirmation of the sale involved.
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<PAGE>
(3) As a condition to the Company's obligation in subsection
(j)(l) hereof, each Holder shall supply such information as the Company
may reasonably require from such Holder, or any underwriter for such
Holders, for inclusion in such registration statement or posteffective
amendment.
(4) The Company's agreements with respect to the Warrants and
Warrant Shares in this Section will continue in effect regardless of
the exercise or surrender of this Warrant.
(5) Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in
writing and delivered personally or sent by certified mail, return
receipt requested, to the Holder, addressed to the Holder at the
Holder's address as set forth on the Warrant or stockholder register of
the Company, or, if the Holder has designated, by notice in writing to
the Company, any other address, to such other address, and, if to the
Company, addressed to it at 12600 West Colfax Avenue, Suite A-500,
Lakewood, Colorado 80215-3735. The Company may change its address by
written notice to the Holder.
(k) Transfer to Comply with the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Shares or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Section (j) hereof, unless legal counsel for the Company is of the
opinion as to any such certificate that such legend, or one similar thereto, is
unnecessary:
"The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act") and under any applicable state securities law, or pursuant to an
exemption from registration under the Act and under any applicable
state securities law, the availability of which is to be established to
the satisfaction of the Company."
(1) Exchange Provisions.
(1) For purposes of this Section (1), this Warrant shall be
deemed to represent the same number of Warrants as there are Warrant
Shares underlying this Warrant. For example, if there are 10,000
Warrant Shares underlying this Warrant, then for purposes of this
Section (1) the Holder shall be deemed to hold 10,000 Warrants.
(2) For purposes of this Section (1), the following terms
shall have the following meanings:
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(A) "Current Market Value of a Warrant Share" shall be the
value of a Warrant Share as determined under Section (c)(1) or (2)
hereof except that the time of the determination thereunder shall be
the last business day prior to the day the Company receives a notice
from the Holder under this Section (1).
(B) "Warrant Value" shall mean the Current Market Value of a
Warrant Share minus or less the Exercise Price payable under this
Warrant as of the close of business on the last business day prior to
the day the Company receives a notice from the Holder under this
Section (1).
(3) The Holder shall have the right to exchange, in a cashless
transaction, all or part of the Holder's Warrants for Common Shares issued by
the Company at anytime prior to the Expiration Date of such Warrants by
providing written notice ("Notice") to the Company. Such Notice shall set forth
the number of Warrants which the Holder elects to exchange for Common Shares.
(4) Within 10 days after receipt of such Notice by the Company, the
Company shall issue the number of Common Shares of the Company to the Holder
which is determined by dividing the Warrant Value of the Warrants being
exchanged by the Current Market Value of a Warrant Share as of the date the
Notice is received by the Company.
(5) The Holder shall surrender the Warrant which the Holder is
exchanging for Common Shares upon receipt thereof. If the entire Warrant is
being exchanged by the Holder for Common Shares, the Company shall cancel the
entire Warrant. If less than the entire Warrant is being exchanged for Common
Shares, the Company shall issue a new Warrant to the Holder representing the
portion of this Warrant which was not exchanged for Common Shares.
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<PAGE>
(m) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the state of Colorado.
Dated Effective April 20, 1998.
GLOBAL MED TECHNOLOGIES, INC.
By:_____________________________
Michael I. Ruxin, Chairman of the Board
and Chief Executive Officer
14
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PURCHASE FORM
-------------
Dated: _____________, 19______
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing _________________ shares of Common Shares and hereby makes
payment of $_____________________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
---------------------------------------
Name:
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
ASSIGNMENT FORM
---------------
Dated: ______________ 19______
FOR VALUE RECEIVED,_____________________________________________________________
hereby sells, assigns and transfers unto________________________________________
Name:
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
------------------------------------------------------------------------
the right to purchase Common Shares represented by this Warrant to the extent of
Common Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint, attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
Signature:
--------------------------------------
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") date this 12th day of August, 1998, is
made by and between FRONTEER CAPITAL, INC., a Delaware corporation ("Lender")
whose address is 1700 Lincoln Street, 32nd Floor, Denver, Colorado 80203, and
GLOBAL MED TECHNOLOGIES, INC., a Colorado corporation ("Borrower") whose address
is 12600 West Colfax Avenue, Suite A500, Lakewood, Colorado 80215.
RECITALS
A. Borrower and Lender entered into that certain Loan Conmmitment ("Loan
Commitment") whereby Lender has agreed to commit to make a loan ("Loan") as
described in Section 1.01 of this Agreement; and
B. Lender and Borrower desire to formalize the terms of the Loan in
accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreement contained herein and other good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, Lender and
Borrower hereby covenant and agree as follows:
ARTICLE 1.
THE LOAN
1.1. Agreement to Borrow and Lend. Subject to all of the terms, provisions,
conditions, covenants and agreements contained in this Agreement, Lender agrees
to make available to Borrower a Loan in the maximum principal amount of up to
$1,650,000.00 ("Maximum Loan Amount"). The Loan may be drawn in amounts of not
less than $250,000.00 as and when required by Borrower.
1.2. Promissory Note. The Loan will be evidenced by one or more Promissory
Notes ("Notes") substantially in the form attached hereto as Exhibit A and
incorporated herein by reference, executed by Borrower and delivered to Lender,
which in the aggregate do not exceed the Maximum Loan Amount. The outstanding
principal balance of each Note shall bear interest at the rate of twelve (12%)
per annum. Interest shall accrue and be paid monthly on the last day of each
month during the term of the Notes. If not sooner paid, the entire outstanding
principal balance of the Notes, together with all accrued but unpaid interest
thereon, all additional interest and all other sums due thereunder, shall be due
and payable in full on April 15, 1999.
1.3. Loan Fee and Other Costs. Pursuant to the Loan Commitment, Borrower
issued to Lender a Warrant to Purchase Common Shares relating to 1,000,000
shares of
<PAGE>
Borrower's common stock. Upon Borrower making its first draw against the Loan,
Borrower will, as additional consideration for Lender making the Loan to
Borrower, issue to Lender an additional Warrant to Purchase Common Shares
entitling Lender to Purchase 5,000,000 shares of Borrower's common stock at an
exercise price of $0.25 per share, such Warrant to Purchase Shares to be
substantially in the form attached hereto as Exhibit B and incorporated herein
by reference (both Warrants to Purchase Common Shares shall hereinafter be
referred to as the "Warrants"). Notwithstanding any provision herein or in any
of the Notes or Warrants to the contrary, Lender may apply any amounts due
hereunder or under any of the Notes toward the purchase of common stock pursuant
to the Warrants issued hereunder by giving Borrower written notice of its intent
to do so.
1.4. Finders Fee. In addition to other fees and costs set forth herein,
Borrower agrees to pay to R A F Financial Corporation ("RAF"), a Nevada
corporation, a finder's fee ("Finder's Fee") equal to nine percent (9%) of the
amount of the Loan drawn upon by Borrower. The Finder's Fee shall be deducted by
Lender from the amount of each draw and paid by Lender directly to RAF at 1700
Lincoln Street, 32nd Floor, Denver, Colorado 80203.
1.5. Use of Proceeds. The Borrower represents, warrants, covenants,
acknowledges and agrees to and with Lender that the proceeds of the Loan shall
be used by Borrower solely for business or investment purposes and shall not be
used for personal, family, household or agricultural purposes.
1.6. Relationship of the Parties. The relationship between Borrower and
Lender is that of a borrower and a lender only and neither of these parties is,
nor shall hold themselves out to be, the agent, employee, joint venturer or
partner of the other party.
1.7. Security. The Loan and each of the Notes shall be unsecured.
1.8. Guarantee. The Loan shall be guaranteed by Michael I. Ruxin, M.D., the
Chief Executive Officer of Borrower, up to the maximum amount of
$1,500,000.00, in accordance with that certain Personal Guaranty, attached
hereto as C and made a part hereof by reference.
1.9. Loan Documents. As used herein, the term "Loan Documents" shall refer
to this Agreement, the Notes, the Warrants and any other documents or
instruments executed by any person in connection with the Loan.
ARTICLE 2.
MANAGEMENT OF BORROWER
2.1. Borrower's Board of Directors. In accordance with the terms of the
Loan Commitment, Borrower and its Board of Directors have taken the following
actions:
2
<PAGE>
a. Increased the number of members to the Borrower's Board of
Directors to nine.
b. Appointed five members selected by Lender and/or Heng Fung to the
Borrower's Board of Directors.
For so long as any amounts remain due hereunder or under any other Loan
Documents, including the Notes, Borrower and its Board of Directors shall
support in any election of directors by the shareholders of Borrower, those
members appointed to the Board of Directors that were selected by Lender or Heng
Fung. Further, Lender and/or Heng Fung shall have the right to select a
replacement director for any member of the Borrower's Board of Directors that
was selected by either Lender of Heng Fung who resigns or otherwise fails to
serve as a director.
2.2. Employment Agreements with Management and Key Employees. The Board of
Directors of Borrower has taken all steps necessary, and has delivered to Lender
proof thereof, to modify and amend all employment or similar agreements with
those persons constituting Borrower's management personnel and key employees, as
determined in the sole discretion of Lender, to provide that upon a default of
Borrower under any of the Loan Documents, such management personnel or key
employee's employment with Borrower may be terminated at will by Borrower,
without any liability to Borrower or Lender other than to pay unpaid wages or
salary and vacation pay accrued to such management personnel or key employee
through the date of such termination of employment.
2.3. Resignation Letters of the Members of the Board of Directors,
Management Personnel and Key Employees. Upon execution of this Agreement, each
current member of the Board of Directors of Borrower, other than any such member
appointed by Lender or Heng Fung, and each management personnel or key employee
of Borrower, shall deliver to Lender his or her letter of resignation, which
letters of resignation shall be held in escrow by Lender, subject to all of the
terms and conditions of this Agreement.
ARTICLE 3.
BORROWER'S REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties. Borrower hereby represents and
warrants to Lender as follows:
a. Borrower is duly incorporated and is validly existing and in good
standing under the laws of the State of Colorado and Borrower has all
requisite power and authority to conduct its business, to own its
properties and to execute, deliver and perform all of its obligations under
the Loan Documents.
3
<PAGE>
b. The execution, delivery and performance of the Loan Documents by
the Borrower have been authorized by all necessary corporate actions and do
not and will not contravene any legal or contractual restriction binding on
the Borrower or any of the property and assets thereof.
c. The Loan Documents constitute, and any other agreement required
hereby will constitute, when executed and delivered by Borrower to Lender,
legal, valid and binding obligations of Borrower, enforceable in accordance
with their terms. The execution and delivery by Borrower of the Loan
Documents and consummation of all the transactions contemplated thereby, do
not and will not conflict with, or be in contravention of, any law, order,
rule or regulation applicable to Borrower or any agreement or instrument to
which Borrower is a party.
d. There is no legal action, suit, proceeding or investigation by or
before any governmental instrumentality or other agency, now pending,
threatened against or affecting the Borrower, or which questions or would
bring into question the validity of the Loan Documents.
e. Other than the pro forma financial reports, all balance sheets,
income statements, financial statements, operating statements and other
financial data pertaining to Borrower that have been delivered (or will be
delivered) to Lender by or on behalf of Borrower are or will be accurate
and complete in all material respects and accurately present or will
present the financial condition of the person or entity to which they
pertain as of their respective dates and there has been no material change
with respect thereto.
ARTICLE 4.
BORROWER'S COVENANTS
4.1. Covenants of Borrower. So long as the Loan shall remain unpaid,
Borrower covenants and agrees as follows:
a. For so long as any amounts remain due under any of the Notes or
other Loan Documents, Borrower:
i. shall not increase the number of members to serve on the
Borrower's Board of Directors above nine; and
ii. shall support those members to the Borrower's Board of
Directors selected by Lender and/or Heng Fung in any election of
directors by the shareholders of Borrower.
4
<PAGE>
b. Without the express written consent of Lender, which consent may be
withheld for any purpose, Borrower shall not enter into any contracts,
agreements, leases, instruments or other documents of any kind or nature,
with any third party, other than such contracts, agreements, leases,
instruments or other such documents entered into in the normal course of
Borrower's business and which do not, in the aggregate, exceed a monetary
obligation on behalf of the Borrower in excess of $250,000.00.
c. Upon the request of Lender, or in accordance with the Warrants,
Borrower shall register any common stock of the Borrower issued to Lender
in accordance with the Warrants or issued as Conversion Shares in
accordance with Section 6.2.b.iii below.
d. Upon the request of Lender, Borrower shall use its best efforts to
obtain a letter of resignation from each member of the Board of Directors
who was elected or appointed to replace any member of the Board of
Directors of Borrower who had previously executed and delivered to Lender a
letter of resignation in accordance with Section 2.3 of this Agreement. and
deliver such letter of resignation to Lender to be held in escrow in
accordance with Section 2.3 of this Agreement.
e. Without Lender's prior written consent, Borrower shall not
authorize or otherwise permit any stock splits; reverse stock splits; stock
dividends; issuance of common shares of the Borrower below the exercise
price of the common shares to be issued pursuant to the Warrants, other
than the issuance of the Conversion Shares; mergers or consolidations;
recapitalization of Borrower, or the sale of any assets of Borrower other
than sales of assets in the normal course of Borrower's business.
f. Borrower shall not, without the prior written consent of Lender,
grant or permit any security interest in any of the assets of Borrower to
anyone, including, but not limited to, purchase money security interests to
trade creditors.
g. Borrower will, at its expense, furnish to Lender promptly and upon
request such instruments including, without limitation, other instruments
in addition to those specifically provided for herein, and take all further
actions as Lender may reasonably require from time to time in order to
fully comply with the terms of this Agreement.
h. Borrower will maintain and preserve its corporate existence, as
applicable, under the laws of every jurisdiction in which it does business.
i. Financial statements of Borrower which have been audited by a
certified public accountant, and income tax returns for the Borrower are to
be provided to
5
<PAGE>
Lender as soon as reasonably possible after the end of each fiscal year
during the term of the Loan.
j. Borrower will immediately notify Lender of any event or
circumstance which reasonably could be deemed to have a materially adverse
effect on Borrower's financial condition or Borrower's ability to perform
its agreements and obligations under the Loan Documents.
k. Borrower shall notify Lender in writing prior to the time there is
any change of name, identity or business structure of Borrower, including
the addition of any trade names.
ARTICLE 5.
OTHER AGREEMENTS
5.1. Other Agreements. In addition to the other agreements contained in the
Loan Documents, the parties hereto agree as follows:
a. Any and all monies received by lender from Borrower, whether prior
or subsequent to or as a result of a default hereunder shall be applied by
Lender first to any interest due under any of the Notes, but thereafter may
be applied by Lender to any of the amounts due under the Notes or other
Loan Documents, in any order selected by lender, notwithstanding any
contrary provision of the Loan Documents.
b. In the event that a default shall exist under any of the Loan
Documents, Lender shall be authorized to proceed with any and all remedies
available to Lender thereunder or under this Agreement.
c. To the extent not previously waived, Borrower hereby knowingly,
intentionally and voluntarily waives, relinquishes and forgoes any and all
rights which it may have to the marshalling by Lender of the assets of
Borrower. Borrower acknowledges that such waiver is made with and pursuant
to the advice of competent legal counsel.
d. A default under any of the Loan Documents, including a default
under any of the Notes, shall constitute a default under each other Loan
Document, including each other Note, and shall entitle Lender to pursue any
and all remedies under each or any of the Loan Documents.
e. Borrower hereby irrevocably authorizes Lender to correct without
notice any clerical errors or omissions that may be present in the Loan
Documents executed in connection with the Loan. Borrower further
understands that such corrections shall
6
<PAGE>
not result in any increase in the amount of the obligation that it must
repay to Lender, or any change of essential terms of repayment of the loan
obligation. Borrower further consents in advance to the correction of any
errors or omissions as outlined herein and acknowledge that it understands
such correction procedure and agrees to such correction procedure, without
prior notice and without the necessity of written authorization or
approval.
ARTICLE 6.
DEFAULT AND REMEDIES
6.1. Events of Default. The occurrence of any one or more of the following
events or the existence of one or more of the following conditions shall
constitute an event of default under this Agreement:
a. Nonpayment. Borrower shall fail to pay when due, after the
expiration of all cure periods, any installment of principal or interest
due under any of the Notes, whether due on the date provided for therein or
by acceleration or otherwise, or Borrower shall fail to pay when due any
other amounts due under any of the Loan Documents.
b. Other Defaults. The occurrence of any of the following events:
i. any representation or warranty made in writing to Lender by
Borrower herein or in any other Loan Document, or in the Loan
Commitment, or otherwise in connection with the making of the Loan
shall prove at any time to have been incorrect in any material respect
when made; or
ii. the breach, default or violation by Borrower of any
obligation, agreement or covenant contained in the Notes, this
Agreement, or any other Loan Documents executed by Borrower; or
iii. any default under any obligation or duty Borrower may have
to Heng Fung; or
iv. any material provision of any of the Loan Documents shall at
any time for any reason cease to be in full force and effect or shall
be declared to be null and void; or
v. any litigation or proceeding is pending which may materially
adversely affect the ability of Borrower to perform its obligations
under the Loan Documents; or
7
<PAGE>
vi. Borrower's failure to comply with any other covenants or
agreements contained in any of the Loan Documents and not herein
specifically referenced, unless the same is cured within any
applicable grace periods.
6.2. Remedies.
a. Upon the occurrence of any event of default hereunder as above
provided, and at any time thereafter, all principal, interest and other
amounts payable under the Loan Documents shall, at the option of Lender,
become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are expressly waived by Borrower.
Lender may proceed with every remedy available at law or in equity or
provided for in the Loan Documents or in any other document it executed in
connection with the Loan, in such order or sequence as Lender may determine
in its sole discretion, including concurrently, independently, or
successively , and all expenses incurred by Lender in connection with any
remedy shall be deemed indebtedness of Borrower to Lender including, but
not limited to, reasonable attorneys' fees incurred by Lender.
b. In addition to any other right or remedy Lender may have hereunder
or under any of the Notes or other Loan Documents, Lender may pursue any or
all of the following additional remedies, to wit:
i. Demand the resignation of any or all of the members of the
Board of Directors of Borrower, other than those members appointed by
Lender and/or Heng Fung, and if such members refuse to resign, deliver
to the Borrower the letters of resignation held by Lender in escrow in
accordance with Section 2.3 or Section 4.1.d of this Agreement, and
thereafter Lender shall have the right to appoint such resigned or
terminated member's replacement to the Board of Directors; and
ii. Demand the resignations of any or all of the management
personnel of the Borrower and/or any and all of the key employees of
Borrower, and if such management personnel or key employees refuse to
resign, deliver to the Borrower the letters of resignation held by
Lender in escrow in accordance with Section 2.3 of this Agreement;
provided that nothing herein shall be deemed a representation or
covenant of Borrower that such letters of resignation are enforceable;
and
iii. Convert any or all of the amounts due under any of the Notes
into common stock of the Borrower ("Conversion Shares") at an exercise
price of $0.05 per share. Lender shall make such standard investment
representations to show an exemption from registration exists for the
issuance of such Conversion Shares.
8
<PAGE>
ARTICLE 7.
GENERAL PROVISIONS
7.1. Notices. All notices, communications and materials to be given or
delivered pursuant to the Loan Documents shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing to the address of the appropriate party set forth in the header hereof
or at such other address as shall be changed in accordance with the notice
provisions of this Section 7.1.
7.2. Amendments. No provision or term of the Loan Documents may be amended,
modified, revoked, supplemented, waived or otherwise changed except by a written
instrument duly executed by Borrower and Lender and designated as such.
7.3. Severability. Whenever possible, each provision of the Loan Documents
shall be interpreted so as to be effective and valid under Colorado law. Should
any provision, covenant or agreement contained herein be deemed invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining provisions of this Agreement shall not be impaired thereby, nor
shall the validity, legality or enforceability of any such defective provision
be in any way affected or impaired in any other jurisdiction.
7.4. Successors and Assigns Bound; Assignment. The covenants and agreements
contained herein shall bind Borrower, its successors and assigns. This Agreement
may not be assigned by Borrower without the prior written consent of Lender.
Subject to the foregoing restriction, this Agreement shall inure to the benefit
of Lender, its successors and assigns.
7.5. No Third Party Benefits. This Agreement is made for the sole benefit
of Borrower and Lender and their respective successors and assigns, and no other
person or persons shall have any rights or remedies under or by reason of this
Agreement.
7.6. Headings. The captions and headings of the paragraphs in the Agreement
are for convenience only and are not used to interpret or define the provisions
of the Agreement.
7.7. Governing Law. This Agreement and the Loan Documents or any other
documents executed in connection with the Loan shall be governed by and
interpreted in accordance with the laws of the State of Colorado.
7.8. Conflict. Should any provision of any other Loan Documents conflict
with any provision of this Agreement, the provision selected by Lender, in its
sole discretion, shall govern and shall be controlling.
7.9. Limitation of Liability. LENDER SHALL NOT HAVE ANY LIABILITY WITH
RESPECT TO, AND THE BORROWER HEREBY WAIVES, RELEASES AND
9
<PAGE>
AGREES NOT TO SUE FOR, ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED
BY THE BORROWER IN CONNECTION WITH ANY LOAN DOCUMENTS OR CLAIM RELATED THERETO.
7.10. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
DATED: 12 August 98
--------------
BORROWER:
GLOBAL MED TECHNOLOGIES, INC.,
Attest: a Colorado corporation
By: /s/ Kim Geist By: /s/ Michael I. Ruxin
-------------------- -------------------------------
Title: Asst. Secy. Title: CEO
------------------ ----------------------------
LENDER:
FRONTEER CAPITAL, INC.,
a Delaware corporation
By: /s/ Fai H. Chan
-------------------------------
Title: President
-----------------------------
10
PERSONAL GUARANTY
1. Debtor: GLOBAL MED TECHNOLOGIES, INC.,
a Colorado corporation
12600 West Colfax Avenue, Suite A500,
Lakewood, Colorado 80215
2. Guarantor: MICHAEL I. RUXIN, M.D.
12600 West Colfax Avenue, Suite A500,
Lakewood, Colorado 80215
3. Beneficiary: FRONTEER CAPITAL, INC.,
a Delaware corporation
1700 Lincoln Street, 32nd Floor
Denver, Colorado 80203
4. Obligations.
a. That certain Loan Agreement dated August 12, 1998 between Debtor and
Beneficiary for a loan ("Loan") to Debtor in the maximum amount of
$1,650,000.00.
b. One or more of those certain Promissory Notes, all of different dates,
and all of which in the aggregate do not exceed the maximum Loan amount of
$1,650,000.00, which the Debtor has executed or will execute in favor of the
Beneficiary pursuant to the Loan Agreement; and
c. The term "Obligations" does not include any obligations owed by Debtor
to Heng Fung Finance Company Limited pursuant to that certain Loan Agreement
between them dated August 12, 1998, but effective for all purposes as of May 7,
1998.
5. Guaranteed Amount. Up to $1,500,000.00 of all Obligations.
6. Guaranty and Indemnification.
a. For value received, and in consideration of and as an inducement for the
financial accommodations (the term financial accommodations is used in its most
comprehensive sense to include any transaction or arrangement resulting in a
debtor-creditor transaction) heretofore or at any time hereafter extended by the
Beneficiary to or for the account of Debtor, Guarantor hereby unconditionally
guarantees the prompt payment of the Obligations to the extent of the Guaranteed
Amount, upon demand, when due, by reason of acceleration or otherwise, including
interest on the principal amount thereof as are provided for in any applicable
promissory note.
<PAGE>
b. Guarantor further agrees to indemnify the Beneficiary for all expenses,
including without limitation reasonable attorneys' fees, court costs and related
legal expenses, incurred by the Beneficiary in endeavoring to collect the
Guaranteed Amount, or any part thereof from the Guarantor, or enforcing this
Guaranty.
c. The right of recovery against Guarantor under this Guaranty is in
addition to Guarantor's liability under any other obligations or guarantees of
Guarantor for the benefit of the Beneficiary; and such right of recovery shall
exist notwithstanding any right or power of Debtor or anyone else to assert any
claim or defense as to the genuineness, regularity, validity or enforceability
of any of the Obligations, any collateral security therefor or any other
Guaranty thereof.
d. Notwithstanding any other provision herein, the right to recovery
against the Guarantor under this Guaranty shall exclude (i) the right to
foreclose upon, collect or otherwise assert a claim, judgment or lien of any
type against, the real property owned by Guarantor that is identified by the
following Jefferson County, Colorado Schedule Number, to wit: 034099, 034041,
407933, 199704, 131585, 407936 and 143519, and all improvements located on said
parcels; (ii) all home furnishings, artwork and other personal property now or
hereafter located on any of said parcels; (iii) the right to levy upon any
titled vehicle now or hereafter held in Guarantor's name or leased by Guarantor;
(iv) the right to garnish Guarantor's defined benefit profit sharing, 401(k) or
other similar retirement or pension plans adopted by Debtor; (v) the right to
garnish or withhold Guarantor's salary from Debtor; and (vi) the right to levy
upon any insurance proceeds payable upon the death of Guarantor or in respect to
casualty, loss or damage of any of the property described in this paragraph 6.d.
7. Rights of Beneficiary. Guarantor hereby agrees that Beneficiary may, at its
option, without notice to or further consent of Guarantor, take any of the
following actions:
a. sell, assign or transfer any of the Obligations of Debtor to Beneficiary
in which case;
(1) each subsequent holder shall have the same rights, powers and
benefits hereunder as the Beneficiary;
(2) the Beneficiary shall have a prior and unimpaired right to enforce
this Guaranty for the benefit of the Beneficiary as to so much of the
Obligations as shall remain;
(3) the Beneficiary may assign or deliver any property held as
security for the Obligations and the subsequent holder shall have the same
rights, powers and benefits as to the security as the Beneficiary; and
(4) the Beneficiary shall be fully discharged from all responsibility
with respect to any such property assigned or delivered;
b. renew, from time to time, for any period, all or any part of the
Obligations;
2
<PAGE>
c. extend or accelerate or otherwise change, from time to time, the time
for payment of all or any part of the Obligations;
d. retain or obtain, in addition to this Guaranty, a security interest in
any property of to secure all or any part of the Obligations;
e. retain the primary or secondary liability of any party in addition to
Guarantor with respect to all or any part of the Obligations;
f. release their security interest, if any, in any property securing any of
the Obligations, permit any substitution or exchange for any such property, or
fail to perfect or continue to perfect any security interest for any such
property;
g. release or compromise any liability of any other Guarantor or any other
party with respect to the Obligations or any security therefor;
h. create Obligations in excess of the Guaranteed Amount; and
i. amend, modify, delete or add any term or condition of or to any of the
Obligations.
Except as otherwise specifically noted, the terms of this Section 7 shall
apply to all Obligations.
8. Waivers by Guarantor. Guarantor hereby expressly waives:
a. notice of acceptance of this Guaranty;
b. notice of the existence or creation of all or any part of the
Obligations;
c. notice of termination as to future liability given by any other
guarantor;
d. notice of demand, advertisement or notice of time or place of sale of
any collateral securing any of the Obligations;
e. all presentments, demands for performance, notices of nonperformance,
protests and all other notices whatsoever;
f. any right to acquire the Beneficiary' power;
g. any right to contest the enforcement of this Guaranty by virtue of any
statute of limitations or other law varying the terms of this Guaranty; and
h. any other defense available to Guarantor at law or in equity.
3
<PAGE>
9. Extent of Liability: Remedies.
a. Guarantor's guaranty of the Obligations hereunder shall be continuing
and shall only be reduced by payments upon the Obligations made by Debtor or any
person or through realization upon any collateral that may be pledged to secure
the Obligations.
b. Upon default, any indebtedness of Debtor to Guarantor, if the
Beneficiary so request, shall be collected, enforced and received by Guarantor
as trustee for the Beneficiary but without reducing or in any manner affecting
the liability of Guarantor under any other provision of this Guaranty.
c. In addition to all liens upon, and right to setoff against the property
of Guarantor existing under law, the Beneficiary may, upon ten days notice from
Beneficiary to Guarantor of Debtor's failure to satisfy any of the Obligations,
appropriate and apply toward the payment of such amount, in such order of
application as the Beneficiary may elect, any property or funds of Guarantor,
including balances, credits, deposits, accounts or moneys in the possession or
control of the Beneficiary, for any purpose. Guarantor hereby grants a security
interest to the Beneficiary in such property and funds.
d. No delay or neglect on the part of the Beneficiary in the exercise of
any right or remedy existing under law or by virtue of this Guaranty shall
operate as a waiver thereof, but such rights and remedies shall continue in full
force and effect until specifically waived or released by an instrument in
writing executed by the Beneficiary and designated as a waiver or release; and
no single or partial exercise by the Beneficiary of any right or remedy shall
preclude further exercise thereof or the exercise of any other right or remedy.
e. No action of the Beneficiary permitted hereunder shall in any way impair
or affect this Guaranty.
10. Evidence of Indebtedness. The possession by the Beneficiary of any of the
Obligations, or written evidence of it, shall be conclusive as to the fact that
it is one of the obligations covered hereunder and that full value was given by
the Beneficiary therefor, unless direct written evidence to the contrary is
produced. Any accounts settled or stated by or between the Beneficiary and
Debtor or admitted by Debtor may be adduced by the Beneficiary in any proceeding
in which this Guaranty is in issue and shall be received as conclusive evidence
against Guarantor of the amount thereby appearing due from Debtor to the
Beneficiary and shall not be open to dispute or question by Guarantor. It shall
not be necessary for the Beneficiary to inquire into the powers of Debtor or the
officers, directors, partners or agents acting or purporting to act on its
behalf, and any Obligations created in reliance upon the professed exercise of
such powers shall be covered by this Guaranty.
11. Termination of Guaranty. This Guaranty shall not be terminated in any manner
and shall remain in full force and effect and be binding upon Guarantor and
relied upon by the Beneficiary until the Obligations have been satisfied in
full. Notwithstanding the foregoing, in the event Guarantor's employment is
terminated by Debtor for any reason except for gross negligence and
4
<PAGE>
willful malfeasance or misfeasance, then this Guaranty shall terminate and be of
no further force and effect.
12. General.
a. The terms "Debtor," "Guarantor," "Beneficiary," "Obligations" and
"Guaranteed Amount" are defined in Sections 1 through 5, respectively.
b. Any consent, notice or other communication required or contemplated by
this Guaranty shall be in writing, and shall be deemed given immediately, if
hand delivered or mailed, postage prepaid, to either party hereto at the address
given on the front page of this Guaranty. Any notice or option provided for the
benefit of the Beneficiary or required to be given by the Beneficiary may be
given or exercised by any one Beneficiary.
c. This Guaranty shall be binding upon Guarantor and Guarantor's heirs,
personal representatives, successors and assigns.
d. If there is more than one Guarantor, all of the terms and conditions of
this Guaranty shall apply to each of them and all such Guarantors shall be
jointly and severally obligated hereunder.
e. All words used herein in the singular shall be deemed to have been used
in the plural where the content and construction so require.
f. This Guaranty shall be construed under and governed by the laws of
Colorado.
g. Whenever possible each provision of this Guaranty shall be interpreted
in such manner as to be effective and valid, but if any provision of this
Guaranty shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty.
13. Jurisdiction and Venue. At the option of the Beneficiary, an action may be
brought to enforce this Guaranty in the District Court in and for the City and
County of Denver, State of Colorado, in the United States District Court for the
District of Colorado or in any other court in which venue and jurisdiction are
proper. Guarantor hereby consents to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado in any action
commenced to enforce this Agreement.
Date: 12 August 98
/s/ Michael I. Ruxin
-----------------------------------
Michael I. Ruxin, M.D.
5
ASSIGNMENT, ASSUMPTION AND CONSENT AGREEMENT
THIS ASSIGNMENT, ASSUMPTION AND CONSENT AGREEMENT ("Agreement") is made and
entered into this __ day of September, 1998 by and between GLOBAL MED
TECHNOLOGIES, INC., a Colorado corporation ("Global"), MICHAEL I. RUXIN, M.D.,
an individual ("Ruxin"), FRONTEER CAPITAL, INC., a Delaware corporation
("Capital"), and FRONTEER DEVELOPMENT FINANCE, INC., a Delaware corporation
("Development").
WHEREAS, Global and Capital entered into that certain Loan Agreement dated
August 12, 1998 ("Loan Agreement") whereby Capital agreed, subject to certain
terms, provisions and conditions, among other things, to make available to
Global a loan in the maximum principal balance of $1,650,000.00 pursuant to one
or more Promissory Notes ("Notes") from Global to Capital;
WHEREAS, the obligations of Global to Capital under the Loan Agreement and
Notes are guaranteed by Ruxin pursuant to that certain Personal Guaranty dated
August 12, 1998 ("Guaranty");
WHEREAS, Capital desires to assign and Development desires to assume all of
the rights, duties and obligations under the Loan Agreement, Notes and Guaranty;
WHEREAS, Global and Ruxin desire to consent to the assignment of Capital's
rights, duties and obligations to Development under the Loan Agreement, Notes
and Guaranty; and
WHEREAS, capitalized terms not defined in this Assignment, Assumption and
Guaranty Agreement which are defined in the Loan Agreement shall have the
meanings set forth in the Loan Agreement.
NOW THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
1. Assignment. For value received, Capital hereby assigns, transfers and
conveys to Development all of Capital's rights, duties and obligations under the
Loan Agreement, Notes and Guaranty.
2. Assumption. Development hereby agrees to assume and be bound by and
perform all covenants, conditions, obligations and duties of Capital under the
Loan Agreement, including, but not limited to, funding the loan evidenced by the
Loan Agreement and Notes.
<PAGE>
3. Consent. Global and Ruxin hereby consent to the assignment of Capital's
rights, duties and obligations under the Loan Agreement, Notes and Guaranty to
Development, agree to look solely to Development for all covenants, conditions,
obligations and duties of Capital under said agreements and instruments and
shall trust Development as the Lender under the Loan Agreement, the Holder under
the Notes, and the Beneficiary under the Guaranty for all purposes as if
Developer was an original party to such agreements and instruments in such
capacities.
4. Release. The parties hereto agree that Capital hereby forever waives all
of its rights under the Loan Agreement, Notes and Guaranty and is therefore
forever released from any further duty or obligation under the Loan Agreement.
The parties hereto further agree that Development, as Lender under the Loan
Agreement, as modified, shall be subject to all of the duties and obligations as
Lender under the Loan Agreement, as modified, and therefore shall enjoy all of
the rights of Lender under the Loan Agreement, Notes and Guaranty, as modified.
5. Warrant. The parties hereto agree that the warrant granted to Capital,
effective April 20, 1998, shall remain the property of Capital.
6. Configuration of Terms of Loan Agreement. In all other respects, the
Loan Agreement and Guaranty, described above, shall remain uneffected, unchanged
and unimpaired by reason of this Agreement. All Notes assigned by Global under
the Loan Agreement shall be modified to comply with the terms of this Agreement.
Executed as of the day and year first above written.
FRONTEER CAPITAL, INC.,
a Delaware corporation
By: \s\ Robert H. Trapp
--------------------------------
Its: Director
FRONTEER DEVELOPMENT FINANCE, INC.,
a Delaware corporation
By: \s\ Fai H. Chan
-------------------------------
Its: President
2
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.,
a Colorado corporation
By: \s\ Michael I. Ruxin, M.D.
-------------------------------
Its: CEO
\s\ Michael I. Ruxin, M.D.
--------------------------------
Michael I. Ruxin, M.D.,
individually
3
LOAN AND WARRANT PURCHASE AND SALE AGREEMENT
THIS LOAN AND WARRANT PURCHASE AND SALE AGREEMENT ("Agreement") is made and
entered into this 7th day of October, 1998 by and between HENG FUNG FINANCE
COMPANY LIMITED, a Hong Kong corporation ("Heng Fung Finance"), FRONTEER
DEVELOPMENT FINANCE, INC., a Delaware corporation ("Development"), and GLOBAL
MED TECHNOLOGIES, INC., a Colorado corporation.
WHEREAS, Heng Fung Finance entered into that certain Loan Agreement dated
April 14, 1998 with Global whereby Heng Fung Finance agreed, subject to certain
terms, provisions and conditions, among other things, to make available to
Global a loan in the maximum principal amount of $1,500,000 ("Loan") pursuant to
one or more promissory notes from Global to Heng Fung Finance;
WHEREAS, pursuant to the Loan Agreement, Heng Fung Finance was granted a
warrant to purchase 6,000,000 shares of Global's common stock ("Original
Warrant");
WHEREAS, Global borrowed at least $1,150,000 of the maximum principal
amount of the Loan, evidenced by a series of promissory notes dated May 7, 1998
for $250,000, June 4, 1998 for $400,000, June 30, 1998 for $250,000 and August
5, 1998 for $250,000 ("Original Notes"); and
WHEREAS, Heng Fung Finance desires to sell and Development desires to
purchase a portion of the Loan which is evidenced by the Original Notes and a
portion of the Original Warrant.
NOW THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
1. Purchase and Sale. Heng Fung Finance agrees to sell and Development
agrees to purchase: (i) the Original Notes dated May 7, 1998 for $250,000, June
4, 1998 for $400,000, June 30, 1998 for $250,000 and $100,000 out of the
$250,000 Original Note dated August 5, 1998 which is equal to the right
to payment of $1,000,000 in principal amount, together with interest accruing
thereon out of the Original Notes ("Development Note") and (ii) a portion of the
Original Warrant which is equal to a warrant to purchase 4,000,000 common shares
of Global ("Development Warrant"):
2. Issue of Notes and Warrants. Upon receipt of the Original Notes and
Original Warrant, Global agrees to issue two new promissory notes and two new
warrants, under the same terms and conditions as the Original Notes and Original
Warrant, as follows:
<PAGE>
(a). Warrant to Heng Fung Finance to purchase an aggregate of
2,000,000 shares of Global's common shares;
(b). Warrant to Development to purchase an aggregate of 4,000,000
shares of Global's common shares;
(c). Promissory note evidencing a loan from Heng Fung Finance to
Global representing $150,000; and
(d). Promissory note evidencing a loan from Development to Global in
the amount of $1,000,000.
3. Payment for Loan. Upon receipt of the Development Warrant and
Development Note from Global, Development agrees to pay to Heng Fung Finance,
the sum of $1,100,000.
4. Confirmation of Terms of Loan Agreement In all respects, the Loan
Agreement, described above, shall remain unaffected, unchanged and unimpaired by
reason of this Agreement.
Executed as of the day and year first above written.
FRONTEER DEVELOPMENT FINANCE, INC.,
a Delaware corporation
By: /s/ Gary L. Cook
---------------------------------------
Its: Treasurer
---------------------------------------
HENG FUNG FINANCE COMPANY LIMITED,
a Hong Kong corporation
By: /s/ Fai H. Chan
----------------------------------------
Its: Chairman
---------------------------------------
GLOBAL MED TECHNOLOGIES, INC.
a Colorado corporation
By: /s/ Michael I. Ruxin
---------------------------------------
Its: CEO
---------------------------------------
2
<PAGE>
PROMISSORY NOTE
U.S. $400,000 Denver, Colorado
October 30, 1998
FOR VALUE RECEIVED, GLOBAL MED TECHNOLOGIES, INC., a Colorado corporation
("Maker"), promises to pay to the order of FRONTEER DEVELOPMENT FINANCE, INC., a
Delaware corporation, having an address at 1700 Lincoln Street, 32nd Floor,
Denver, Colorado 80203, or its successors or assigns (sometimes referred to
herein as "Holder"), the principal sum of FOUR HUNDRED THOUSAND DOLLARS (U.S.
$400,000) with interest from the date hereof at the rate of TWELVE percent (12%)
per annum, payable in accordance with terms hereof.
All payments of interest shall be due and payable on the last day of each
month based on the accrued interest for that month.
The principal sum, together with all accrued but unpaid interest, shall be
due, if not sooner paid, on April 15, 1999.
All payments shall be payable to Holder at the address set forth above, or
at such other place as Holder hereof may designate from time to time in writing.
All payments shall be first applied to the payment of interest due hereunder,
then to the payment of any other sums payable hereunder and finally to the
principal amount then remaining unpaid.
The indebtedness evidenced by this Note may be prepaid in whole or in part
without notice, penalty or premium.
If any payment due hereunder is not received by Holder on or before the
seventh (7th) day after such payment is due, then Maker shall be deemed in
default hereunder. In the event Maker shall default in any of the payments due
hereunder or any other obligations owed to Holder or its successors or assigns,
the full amount remaining unpaid hereunder, together with all accrued and unpaid
default interest thereon shall, at the option of the Holder, be accelerated and
become immediately due and payable.
This Note is given pursuant to the terms of that certain Loan Agreement
between Maker and Fronteer Capital, Inc. dated August 12, 1998 and that certain
Assignment, Assumption and Consent Agreement between, among others, Maker and
Holder dated September 11, 1998. A default under the Loan Agreement or the
Assignment, Assumption and Consent Agreement shall be deemed a default
hereunder. Further, in the event of default, Holder shall, in addition to
exercising all rights hereunder, be entitled to exercise all rights set forth in
the Loan Agreement and the Assignment, Assumption and Consent Agreement.
Maker waives delinquency in collection, demand for payment, presentment for
payment, protest, notice of protest, notice of dishonor and all duties or
obligations of Holder to effect
<PAGE>
protect, perfect, retain or enforce any security for payment of this Note or to
proceed against any collateral before otherwise enforcing this Note. This Note
shall be binding upon Maker, its successors and assigns.
Maker unconditionally guarantees prompt satisfaction when due, whether by
acceleration or otherwise, of the entire outstanding principal balance and all
accrued and unpaid interest, and amounts of any additional advancements of this
Note, and further agrees to immediately pay to Holder hereof, upon demand, all
losses, costs and expenses (including attorneys' fees) incurred by Holder for
collection and enforcement of this Note in the event of default or otherwise.
Each individual executing this Note represents and warrants that he or she
duly is authorized to execute and deliver this Note on behalf of the person or
entity for which he or she is so executing and that this Note is binding upon
the undersigned Maker in accordance with its terms, except to the extent that
enforcement of remedies is limited by applicable bankruptcy, insolvency, and
other laws affecting the enforcement of creditors' rights generally.
This Note shall be interpreted and enforced in accordance with the laws of
the State of Colorado. In the event of default, Maker consents to the
enforcement of this Note in the District Court for the City and County of
Denver, Colorado, and waives any rights to contest venue or jurisdiction of that
court.
MAKER:
------
GLOBAL MED TECHNOLOGIES, INC.
/s/ Michael I. Ruxin
-------------------------------------------
Michael I. Ruxin, Chairman of the Board and
Chief Executive Officer
Attest:
By: /s/ Kim Geist
------------------
Title: Secretary
---------------
2
Void After 3:30 P.M., Mountain Time, on October 30,2008
WARRANT TO PURCHASE COMMON SHARES
GLOBAL MED TECHNOLOGIES, INC.
This is to Certify That, FOR VALUE RECEIVED, FRONTEER DEVELOPMENT FINANCE,
INC., 1700 Lincoln Street, 32nd Floor, Denver, Colorado 80203 ("Holder"), is
entitled to purchase, subject to the provisions of this Warrant, from GLOBAL MED
TECHNOLOGIES, INC. ("Company"), a Colorado corporation, at any time until 3:30
P.M., Mountain Time, on October 30, 2008 ("Expiration Date"), 5,000,000 Common
Shares of the Company at a purchase price of $0.25 per common share during the
period this Warrant is exercisable. The number of Common Shares to be received
upon the exercise of this Warrant and the price to be paid for a Common Share
may be adjusted from time to time as hereinafter set forth. The purchase price
of a Common Share in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price." This Warrant is or
may be one of a series of warrants identical in form issued by the Company to
purchase an aggregate of 5,000,000 Common Shares of the Company and the term
"Warrants" as used herein means all such Warrants (including this Warrant). The
Common Shares, as adjusted from time to time, underlying the Warrants are
hereinafter sometimes referred to as "Warrant Shares" and include all Common
Shares that have been issued upon the exercise of the Warrants and all unissued
Common Shares underlying the Warrants.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in
minimum amounts which at the time of exercise would require Holder to deliver to
the Company cash or value of at least $250,000 at any time or from time to time
until the Expiration Date or if the Expiration Date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of shares specified in such Form, together with all federal
and state taxes applicable upon such exercise. The Company agrees not to merge,
reorganize or take any action that would terminate this Warrant unless
provisions are made as part of such merger, reorganization or other action which
would provide the holders of this Warrant with an equivalent of this Warrant as
specified in Section (i) hereof. The Company agrees to provide notice to the
Holder that any tender offer is being made for the Company's Common Shares no
later than three business days after the day the Company becomes aware that any
tender offer is being made for the outstanding Common Shares of the Company. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the right of the Holder to purchase the balance of the Common Shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Purchase Form and the Exercise Price, the
Holder shall be deemed to be the holder of record of the Common Shares issuable
upon such exercise, notwithstanding that the stock transfer books of
<PAGE>
the Company shall then be closed or that certificates representing such Common
Shares shall not then be actually delivered to the Holder.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Common Shares as shall be required for issuance or
delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Common Share called for upon any exercise hereof,
the Company shall, upon receipt by the Company or the Company's stock transfer
agent of the Exercise Price on such fractional share, pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share, determined as follows:
(1) If the Common Shares are listed on a national securities exchange
or a foreign exchange, are admitted to unlisted trading privileges on such
an exchange, or are listed for trading on a trading system of the National
Association of Securities Dealers, Inc. ("NASD") such as The Nasdaq
SmallCap Market ("SCM") or the Nasdaq National Market ("NNM") or the OTC
Bulletin Board, then the current value shall be the last reported sale
price of the Common Shares on such an exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average of the closing bid prices for the
Common Shares for such day on such exchange or such system shall be used;
or
(2) If the Common Shares are not so listed on such exchange or system
or admitted to unlisted trading privileges, the current value shall be the
average of the last reported bid prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of
this Warrant; or
(3) If the Common Shares are not so listed or admitted to unlisted
trading privileges and if bid prices are not so reported, the current value
shall be an amount, not less than book value, determined in such reasonable
manner as may be prescribed by the board of directors of the Company.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Common Shares purchasable hereunder. This
Warrant may not be sold, transferred, assigned, or hypothecated except in
compliance with federal and state securities laws. Any transfer or assignment
shall be made by surrender of this Warrant to the Company or at the office of
its stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and with finds sufficient to pay any transfer
2
<PAGE>
tax; whereupon the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Subject to such right
of indemnification, any such new Warrant executed and delivered shall constitute
an additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Adjustment Provisions.
(1) Adjustments of the Exercise Price.
(A) If the Company subdivides its outstanding Common
Shares into a greater number of Common Shares, the Exercise
Price in effect immediately prior to such subdivision shall be
proportionately reduced. Conversely, if the Company combines
its outstanding Common Shares into a lesser number of Common
Shares, the Exercise Price in effect immediately prior to such
combination shall be proportionally increased. In case of a
subdivision or combination, the adjustment of the Exercise
Price shall be made as of the effective date of the applicable
event. A distribution on Common Shares, including a
distribution of Convertible Securities, to shareholders of the
Company on a pro rata basis shall be considered a subdivision
of Common Shares for the purposes of this subsection (l)(A) of
this Section, except that the adjustment will be made as of
the record date for such distribution and any such
distribution of Convertible Securities shall be deemed to be a
distribution of the Common Shares underlying such Convertible
Securities.
(B) If the Company shall at any time distribute or
cause to be distributed to its shareholders, on a pro rata
basis, cash, assets, or securities of any entity other than
the Company, then the Exercise Price in effect immediately
3
<PAGE>
prior to such distribution shall automatically be reduced by
an amount determined by dividing (x) the amount (if cash) or
the value (if assets or securities) of the holders' of
Warrants (as such term is defined in the first paragraph
hereof) pro rata share of such distribution determined
assuming that all holders of Warrants had exercised their
Warrants on the day prior to such distribution, by (y) the
number of Common Shares issuable upon the exercise of
Warrants (as such term is defined in the first paragraph
hereof) by the holders thereof on the day prior to such
distribution.
(3) No Adjustment for Small Amounts. Anything in this Section (f) to
the contrary notwithstanding, the Company shall not be required to give
effect to any adjustment in the Exercise Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Exercise Price by at least one cent, but when the
cumulative net effect of more than one adjustment so determined shall be to
change the actual Exercise Price by at least one cent, such change in the
Exercise Price shall thereupon be given effect.
(4) Number of Shares Adjusted. Upon any adjustment of the Exercise
Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number
of Common Shares, calculated to the nearest full share, obtained by
multiplying the number of Common Shares initially issuable upon exercise of
this Warrant by the Exercise Price specified in the first paragraph hereof
and dividing the product so obtained by the new Exercise Price.
(5) Definitions.
(A) Whenever reference is made in this Section (f) to the
distribution of Common Shares, the term "Common Shares" shall mean the
Common Shares of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Shares.
However, subject to the provisions of Section (i) hereof, Common Shares
issuable upon exercise hereof shall include only Common Shares of the
class designated as Common Shares of the Company as of the date hereof.
(B) Whenever reference is made in this Section (f) to the
distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Shares of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Shares of
the Company.
4
<PAGE>
(6) AntiDilution Provisions.
(A) Adjustments of Exercise Price. If the Company should at any time
or from time to time hereafter issue or sell any of its Common Shares
without consideration or for a consideration per share less than the
Exercise Price in effect immediately prior to the time of such issue or
sale, then forthwith upon such issue or sale, the Exercise Price shall be
automatically adjusted to a price (computed to the nearest cent) determined
by dividing (i) the sum of (x) the number of Common Shares outstanding
immediately prior to such issue or sale multiplied by the Exercise Price in
effect immediately prior to such issue or sale, and (y) the consideration,
if any, received by the Company upon such issue or sale, by (ii) the total
number of Common Shares outstanding immediately after such issue or sale.
For purposes of this Section (6)(A), the following provisions (i) and (ii)
shall also be applicable:
(i) Rights, Options, or Warrants. In case at any time
hereafter the Company shall in any manner grant any right to subscribe
for or to purchase, or any option or warrant for the purchase of Common
Shares or for the purchase of any stock or securities convertible into
or exchangeable for Common Shares (such convertible or exchangeable
stock or securities being hereinafter referred to as the "Underlying
Convertible Securities") and if the minimum price per share for which
Common Shares are issuable, pursuant to such rights, options, warrants
or upon conversion or exchange of such Underlying Convertible
Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the granting
of such rights, options, or warrants plus the minimum aggregate amount
of additional consideration payable to the Company upon the exercise of
such rights, options, or warrants under the terms of such rights,
options, or warrants at the time of making such computation, plus, in
the case of such Underlying Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
conversion or exchange thereof under the terms of such Underlying
Convertible Securities at the time of making such computation, by (ii)
the total maximum number of Common Shares issuable pursuant to such
rights, options, or warrants or upon the conversion or exchange of the
total maximum amount of such Underlying Convertible Securities issuable
upon the exercise of such rights, options, or warrants under the terms
of such rights, options, warrants or Underlying Convertible Securities
at the time of making such computation) shall be less than the Exercise
Price in effect immediately prior to the time of the granting of such
rights or options, then the total maximum number of Common Shares
issuable pursuant to such rights, options, warrants or upon conversion
or exchange
5
<PAGE>
of the total maximum amount of such Underlying Convertible Securities
issuable upon the exercise of such rights, options, or warrants under
the terms of such rights, options, warrants or Underlying Convertible
Securities at the time of making such computation shall (as of the
date of granting of such rights, options, or warrants) be deemed to be
outstanding and to have been issued for said price per share as so
determined; provided that no further adjustment of the Exercise Price
shall be made upon the actual issue of Common Shares so deemed to have
been issued unless the price per share received by the Company upon
the actual issuance of Common Shares so deemed to be issued differs
from the price per share which was last used to adjust the Exercise
Price or unless by the terms of such rights, options or warrants or
Underlying Convertible Securities the price per share which the
Company will receive upon any such issuance of Common Shares differs
from the price per share which was last used to adjust the Exercise
Price, in either of which events the Exercise Price shall be adjusted
upon the occurrence of either such event to reflect the new price per
share of Common Stock; and further provided, that, upon the expiration
of such rights (including rights to convert or exchange), options or
warrants (a) the number of shares of Common Stock deemed to have been
issued and outstanding by reason of the fact that they were issuable
pursuant to such rights, options, or warrants (including rights to
convert or exchange) that were not exercised, shall no longer be
deemed to be issued and outstanding, and (b) the Exercise Price shall
forthwith be adjusted to the price which would have prevailed had all
adjustments been made on the basis of the issue only of the Common
Shares actually issued upon the exercise of such rights, options, or
warrants or upon conversion or exchange of such Underlying Convertible
Securities. Such adjustments upon expiration shall have no effect on
Warrants exercised prior to such expiration.
(ii) Convertible Securities. If the Company shall in any manner
issue or sell any Convertible Securities other than the rights,
options, or warrants described in Section 6(A)(i) hereof and if the
minimum price per share for which Common Shares are issuable upon
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof under
the terms of such Convertible Securities at the time of making such
computation, by (ii) the total maximum number of Common Shares
issuable upon the conversion or exchange of all such Convertible
Securities under the terms of such Convertible Securities at the time
of making such computation)
6
<PAGE>
shall be less than the Exercise Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of
Common Shares issuable upon conversion or exchange of all such
Convertible Securities at the time of making such computation shall
(as of the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued for said price
per share as so determined; provided, that no further adjustment of
the Exercise Price shall be made upon the actual issue of Common
Shares so deemed to have been issued unless the price per share
received by the Company upon the actual issuance of Common Shares so
deemed to be issued differs from the price per share which was last
used to adjust the Exercise Price or unless by the terms of such
Convertible Securities the price per share which the Company will
receive upon any such issuance of Common Shares differs from the price
per share which was last used to adjust the Exercise Price, in either
of which events the Exercise Price shall be adjusted upon the
occurrence of either such event to reflect the new price per share of
Common Shares; and, further provided that if any such issue or sale of
such Convertible Securities is made upon exercise of any right to
subscribe for or to purchase or any option to purchase any such
Convertible Securities for which an adjustment of the Exercise Price
has been or is to be made pursuant to the provisions of Section
6(A)(i) then no further adjustment of the Exercise Price shall be made
by reason of such issue or sale unless the price per share received by
the Company upon the conversion or exchange of such Convertible
Securities when actually issued differs from the price per share which
was last used to adjust the Exercise Price or unless by the terms of
such Convertible Securities the price per share which the Company will
receive upon any such issuance of Common Shares upon conversion or
exchange of such Convertible Securities differs from the price per
share which was last used to adjust the Exercise Price, in either of
which events the Exercise Price shall be adjusted upon the occurrence
of either of such events to reflect the new price per share of Common
Shares; and, further provided, that, upon the termination of the right
to convert or to exchange such Convertible Securities for Common
Shares, (a) the number of Common Shares deemed to have been issued and
outstanding by reason of the fact that they were issuable upon
conversion or exchange of any such Convertible Securities, which were
not so converted or exchanged, shall no longer be deemed to be issued
and outstanding, and (b) the Exercise Price shall forthwith be
adjusted to the price which would have prevailed had all adjustments
been made on the basis of the issue only of the number of Common
Shares actually issued upon conversion or exchange of such Convertible
Securities. Such adjustments upon expiration shall have no effect on
Warrants exercised prior to such expiration.
7
<PAGE>
(B) Determination of Issue Price. In case any Common Shares or
Convertible Securities shall be issued for cash, the consideration received
therefor, which shall be the gross sales price for such security without
deducting therefrom any commission or other expenses paid or incurred by
the Company for any underwriting of, or otherwise in connection with, the
issuance thereof, shall be deemed to be the amount received by the Company
therefor. In case any Common Shares or Convertible Securities shall be
issued for a consideration part or all of which shall be other than cash,
then, for the purpose of this Section (6), the Board of Directors of the
Company shall determine the fair value of such consideration, irrespective
of accounting treatment, and such Common Shares or Convertible Securities
shall be deemed to have been issued for an amount of cash equal to the
value so determined by the Board of Directors. The reclassification of
securities other than Common Shares into securities including Common Shares
shall be deemed to involve the issuance for a consideration other than cash
of such Common Shares immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive
such Common Shares. In case any Common Shares or Convertible Securities
shall be issued together with other stock or securities or other assets of
the Company for consideration, the Board of Directors of the Company shall
determine what part of the consideration so received is to be deemed to be
consideration for the issue of such Common Shares or Convertible
Securities.
(C) Determination of Date of Issue. In case the Company shall take a
record of the holders of Common Shares for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common Shares or
in Convertible Securities or (ii) to subscribe for or purchase Common
Shares or Convertible Securities, then such record date shall be deemed to
be the date of the issue or sale of the Common Shares deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(D) Treasury Shares. For the purpose of this Section (f), Common
Shares at any relevant time owned or held by, or for the account of, the
Company shall not be deemed outstanding.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer and warrant agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment. Each
such officer's certificate shall be made available at all reasonable times for
inspection by the Holder
8
<PAGE>
and the Company shall, forthwith after each such adjustment, deliver a copy of
such certificate to the Holder.
(h) Notices to Holders. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Shares or (ii) if the Company shall offer to the holders of
Common Shares for subscription or purchase by them any shares of stock of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Common
Shares of the Company (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of an issuance of
Common Shares by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding Common
Shares of the class issuable upon exercise of this Warrant) or in case of any
sale or conveyance to 'another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property which the Holder would have received upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance had this Warrant been exercised prior to the consummation of
such transaction. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Common Shares and to successive consolidations, mergers, sales or
conveyances. In the event the Company spins off a subsidiary by distributing to
the shareholders of the Company as a dividend or otherwise the stock of the
subsidiary, the Company shall reserve for the life of this Warrant, shares of
the subsidiary to be delivered to the Holders of the Warrants upon exercise to
9
<PAGE>
the same extent as if they were owners of record of the Warrant Shares on the
record date for distribution of the shares of the subsidiary.
(j) Registration Under the Securities Act of 1933.
(1) On or before December 11, 1998, the Company will file and
cause to become effective a registration statement under the Securities
Act of 1933, as amended (the "Act"), registering the Warrants and the
Warrant Shares; provided however, that so long as the Company has used
its reasonable best efforts to file such registration statement and
responded to any comments relating thereto in a timely manner, the
Company will not be in default of its obligations relating to such
filing if the registration statement does not become effective by
December 31, 1998.
(2) The Company shall:
(A) Supply to each selling Holder a copy of the
registration statement and a reasonable number of copies of
the preliminary, final and other prospectus in conformity with
requirements of the Act and the Rules and Regulations
promulgated thereunder and such other documents as the Holders
shall reasonably request.
(B) The Company shall bear the complete cost and
expense (other than any selling commissions relating to the
sale of the Warrants and Warrant Shares, which shall be paid
by the sellers thereof) of such registrations or
qualifications except those filed under subsection (j)(3)
which shall be at the Holder(s) cost and expense.
(C) Keep effective such registration statement until
all of the registered Warrant Shares issued by the Company
either before or after the effective date of such registration
statement have been publicly sold under such registration
statement.
(D) Use its best efforts to register or qualify the
Warrants and Warrant Shares for sale in those states requested
by the person selling the Warrants or Warrant Shares; provided
that, the Company shall not be required to register or qualify
the Warrants and Warrant Shares for sale in any state in which
the sale of the Warrants or Warrant Shares by the person
selling the Warrants or Warrant Shares would be exempt from
having to be registered or qualified in such state. The
determination of whether or not such an exemption exists shall
be made by counsel for the Company and such determination
shall be provided in writing to the person desiring to sell
Warrants or Warrant Shares in a state.
10
<PAGE>
(E) Indemnify and hold harmless each such Holder and each
underwriter, within the meaning of the Act, who may purchase from or
sell for any such Holder, any Warrants or Warrant Shares, from and
against any and all losses, claims, damages, and liabilities
(including but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing, defending or settling
any claim) arising from (i) any untrue or alleged untrue statement of
a material fact contained in any registration statement furnished
pursuant to clause (A) of this subsection, or any prospectus included
therein or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading (unless such untrue statement or
omission or such alleged untrue statement or omission was based upon
information furnished or required to be furnished in writing to the
Company by such Holder or underwriter expressly for use therein),
which indemnification shall include each person, if any, who controls
any such Holder or underwriter within the meaning of the Act;
provided, however, that the Company shall not be so obligated to
indemnify any such Holder or underwriter or controlling person unless
such Holder and underwriter shall at the same time indemnify the
Company, its directors, each officer signing any registration
statement or any amendment to any registration statement and each
person, if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and
liabilities (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing, defending
or settling any claim) arising from (i) any untrue or alleged untrue
statement of a material fact contained in any registration statement
or prospectus furnished pursuant to Clause (A) of this subsection, or
(ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but the indemnity of such Holder, underwriter
or controlling person shall be limited to liability based upon
information furnished, or required to be furnished, in writing to the
Company by such Holder or underwriter or controlling person expressly
for use therein. The Company shall not be liable for amounts paid in
settlement of any such litigation if such settlement was effected
without the consent of the Company. The indemnity agreement of the
Company herein shall not inure to the benefit of any such underwriter
(or to the benefit of any person who controls such underwriter) on
account of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) arising from the sale of any of such
Warrants or Warrant Shares by such underwriter to a person if such
underwriter failed to send or give a copy of the prospectus furnished
pursuant to Clause (A) of this subsection, as the same may then be
supplemented or amended (if such supplement or amendment shall have
been furnished to the Holders pursuant to said Clause (A)), to such
person with or prior to the written confirmation of the sale involved.
11
<PAGE>
(3) As a condition to the Company's obligation in subsection
(j)(l) hereof, each Holder shall supply such information as the Company
may reasonably require from such Holder, or any underwriter for such
Holders, for inclusion in such registration statement or posteffective
amendment.
(4) The Company's agreements with respect to the Warrants and
Warrant Shares in this Section will continue in effect regardless of
the exercise or surrender of this Warrant.
(5) Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in
writing and delivered personally or sent by certified mall, return
receipt requested, to the Holder, addressed to the Holder at the
Holder's address as set forth on the Warrant or stockholder register of
the Company, or, if the Holder has designated, by notice in writing to
the Company, any other address, to such other address, and, if to the
Company, addressed to it at 12600 West Colfax Avenue, Suite A500,
Lakewood, Colorado 80215-3735. The Company may change its address by
written notice to the Holder.
(k) Transfer to Comply with the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Shares or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Section (j) hereof; unless legal counsel for the Company is of the
opinion as to any such certificate that such legend, or one similar thereto, is
unnecessary:
"The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act") and under any applicable state securities law, or pursuant to an
exemption from registration under the Act and under any applicable
state securities law, the availability of which is to be established to
the satisfaction of the Company."
(L) Exchange Provisions.
(1) For purposes of this Section (L), this Warrant shall be
deemed to represent the same number of Warrants as there are Warrant
Shares underlying this Warrant. For example, if there are 10,000
Warrant Shares underlying this Warrant, then for purposes of this
Section (1) the Holder shall be deemed to hold 10,000 Warrants.
(2) For purposes of this Section (L), the following terms
shall have the following meanings:
12
<PAGE>
(A) "Current Market Value of a Warrant Share" shall
be the value of a Warrant Share as determined under Section
(c)(1) or (2) hereof except that the time of the determination
thereunder shall be the last business day prior to the day the
Company receives a notice from the Holder under this Section
(L).
(B) "Warrant Value" shall mean the Current Market
Value of a Warrant Share minus or less the Exercise Price
payable under this Warrant as of the close of business on the
last business day prior to the day the Company receives a
notice from the Holder under this Section (L).
(3) The Holder shall have the right to exchange, in a cashless
transaction, all or part of the Holder's Warrants for Common Shares
issued by the Company at anytime prior to the Expiration Date of such
Warrants by providing written notice ("Notice") to the Company. Such
Notice shall set forth the number of Warrants which the Holder elects
to exchange for Common Shares.
(4) Within 10 days after receipt of such Notice by the
Company, the Company shall issue the number of Common Shares of the
Company to the Holder which is determined by dividing the Warrant Value
of the Warrants being exchanged by the Current Market Value of a
Warrant Share as of the date the Notice is received by the Company.
(5) The Holder shall surrender the Warrant which the Holder is
exchanging for Common Shares upon receipt thereof. If the entire
Warrant is being exchanged by the Holder for Common Shares, the Company
shall cancel the entire Warrant. If less than the entire Warrant is
being exchanged for Common Shares, the Company shall issue a new
Warrant to the Holder representing the portion of this Warrant which
was not exchanged for Common Shares.
(m) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the state of Colorado.
Dated October 30, 1998.
GLOBAL MED TECHNOLOGIES, INC.
By: /s/ Michael I. Ruxin
--------------------------------------
Michael I. Ruxin, Chairman of the Board
and Chief Executive Officer
13
<PAGE>
PURCHASE FORM
-------------
Dated: _____________ 19____
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ___________shares of Common Shares and hereby makes payment
of $_______________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
---------------------------------------
Name:
--------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
ASSIGNMENT FORM
---------------
Dated: _____________, 19_____
FOR VALUE RECEIVED,_____________________________________________________________
hereby sells, assigns and transfers unto _______________________________________
Name:
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
-----------------------------------------------------------------------
the right to purchase Common Shares represented by this Warrant to the extent of
Common Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint, attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
Signature:
---------------------------------------
Exhibit 10.41
PROMISSORY NOTE
U.S. $1,000,000 Denver, Colorado
October 26, 1998
FOR VALUE RECEIVED, GLOBAL MED TECHNOLOGIES, INC., a Colorado corporation
("Maker"), promises to pay to the order of FRONTEER DEVELOPMENT FINANCE INC., a
Delaware corporation, having an address at 1700 Lincoln Street, 32nd Floor,
Denver, Colorado 80203, or its successors or assigns (sometimes referred to
herein as "Holder"), the principal sum of ONE MILLION DOLLARS (U.S. $1,000,000)
with interest from the date hereof at the rate of TWELVE percent (12%) per
annum, payable in accordance with terms hereof.
All payments of interest shall be due and payable on the last day of each
month based on the accrued interest for that month.
The principal sum, together with all accrued but unpaid interest, shall be
due, if not sooner paid, on April 15, 1999.
All payments shall be payable to Holder at the address set forth above, or
at such other place as Holder hereof may designate from time to time in writing.
All payments shall be first applied to the payment of interest due hereunder,
then to the payment of any other sums payable hereunder and finally to the
principal amount then remaining unpaid.
The indebtedness evidenced by this Note may be prepaid in whole or in part
without notice, penalty or premium.
If any payment due hereunder is not received by Holder on or before the
seventh (7th) day after such payment is due, then Maker shall be deemed in
default hereunder. In the event Maker shall default in any of the payments due
hereunder or any other obligations owed to Holder or its successors or assigns,
the full amount remaining unpaid hereunder, together with all accrued and unpaid
default interest thereon shall, at the option of the Holder, be accelerated and
become immediately due and payable.
This Note is given pursuant to the terms of that certain Loan Agreement
between Maker and Heng Fung Finance Company Limited dated August 12, 1998 and
that certain Loan and Warrant Purchase and Sale Agreement between, among others,
Maker and Holder dated October 7, 1998. A default under the Loan Agreement or
the Loan and Warrant Purchase and Sale Agreement shall be deemed a default
hereunder. Further, in the event of default, Holder shall, in addition to
exercising all rights hereunder, be entitled to exercise all rights set forth in
the Loan Agreement and the Loan and Warrant Purchase and Sale Agreement Loan and
Warrant Purchase and Sale Agreement.
Maker waives delinquency in collection, demand for payment, presentment for
payment, protest, notice of protest, notice of dishonor and all duties or
obligations of Holder to effect, protect, perfect, retain or enforce any
<PAGE>
security for payment of this Note or to proceed against any collateral before
otherwise enforcing this Note. This Note shall be binding upon Maker, its
successors and assigns.
Maker unconditionally guarantees prompt satisfaction when due, whether by
acceleration or otherwise, of the entire outstanding principal balance and all
accrued and unpaid interest, and amounts of any additional advancements of this
Note, and further agrees to immediately pay to Holder hereof, upon demand, all
losses, costs and expenses (including attorneys' fees) incurred by Holder for
collection and enforcement of this Note in the event of default or otherwise.
Each individual executing this Note represents and warrants that he or she
duly is authorized to execute and deliver this Note on behalf of the person or
entity for which he or she is so executing and that this Note is binding upon
the undersigned Maker in accordance with its terms, except to the extent that
enforcement of remedies is limited by applicable bankruptcy, insolvency, and
other laws affecting the enforcement of creditors' rights generally.
This Note shall be interpreted and enforced in accordance with the laws of
the State of Colorado. In the event of default, Maker consents to the
enforcement of this Note in the District Court for the City and County of
Denver, Colorado, and waives any rights to contest venue or jurisdiction of that
court.
MAKER:
GLOBAL MED TECHNOLOGIES, INC.
/s/ Michael I. Ruxin
-------------------------------------------
Michael I. Ruxin, Chairman of the Board and
Chief Executive Officer
Attest:
By: /s/ Kim Geist
----------------------------
Title: Secretary
------------------------
2
Exhibit 10.42
PROMISSORY NOTE
U.S. $500,000 Denver, Colorado
October 26, 1998
FOR VALUE RECEIVED, GLOBAL MED TECHNOLOGIES, INC., a Colorado corporation
("Maker"), promises to pay to the order of HENG FUNG FINANCE COMPANY LIMITED, a
Delaware corporation, having an address at 1700 Lincoln Street, 32nd Floor,
Denver, Colorado 80203, or its successors or assigns (sometimes referred to
herein as "Holder"), the principal sum of FIVE HUNDRED THOUSAND DOLLARS (U.S.
$500,000) with interest from the date hereof at the rate of TWELVE percent (12%)
per annum, payable in accordance with terms hereof.
All payments of interest shall be due and payable on the last day of each
month based on the accrued interest for that month.
The principal sum, together with all accrued but unpaid interest, shall be
due, if not sooner paid, on April 15, 1999.
All payments shall be payable to Holder at the address set forth above, or
at such other place as Holder hereof may designate from time to time in writing.
All payments shall be first applied to the payment of interest due hereunder,
then to the payment of any other sums payable hereunder and finally to the
principal amount then remaining unpaid.
The indebtedness evidenced by this Note may be prepaid in whole or in part
without notice, penalty or premium.
If any payment due hereunder is not received by Holder on or before the
seventh (7th) day after such payment is due, then Maker shall be deemed in
default hereunder. In the event Maker shall default in any of the payments due
hereunder or any other obligations owed to Holder or its successors or assigns,
the full amount remaining unpaid hereunder, together with all accrued and unpaid
default interest thereon shall, at the option of the Holder, be accelerated and
become immediately due and payable.
This Note is given pursuant to the terms of that certain Loan Agreement
between Maker and Heng Fung Finance Company Limited dated August 12, 1998 and
that certain Loan and Warrant Purchase and Sale Agreement between, among others,
Maker and Holder dated October 7, 1998. A default under the Loan Agreement or
the Loan and Warrant Purchase and Sale Agreement shall be deemed a default
hereunder. Further, in the event of default, Holder shall, in addition to
exercising all rights hereunder, be entitled to exercise all rights set forth in
the Loan Agreement and the Loan and Warrant Purchase and Sale Agreement Loan and
Warrant Purchase and Sale Agreement.
Maker waives delinquency in collection, demand for payment, presentment for
payment, protest, notice of protest, notice of dishonor and all duties or
obligations of Holder to effect, protect, perfect, retain or enforce any
<PAGE>
security for payment of this Note or to proceed against any collateral before
otherwise enforcing this Note. This Note shall be binding upon Maker, its
successors and assigns.
Maker unconditionally guarantees prompt satisfaction when due, whether by
acceleration or otherwise, of the entire outstanding principal balance and all
accrued and unpaid interest, and amounts of any additional advancements of this
Note, and further agrees to immediately pay to Holder hereof, upon demand, all
losses, costs and expenses (including attorneys' fees) incurred by Holder for
collection and enforcement of this Note in the event of default or otherwise.
Each individual executing this Note represents and warrants that he or she
duly is authorized to execute and deliver this Note on behalf of the person or
entity for which he or she is so executing and that this Note is binding upon
the undersigned Maker in accordance with its terms, except to the extent that
enforcement of remedies is limited by applicable bankruptcy, insolvency, and
other laws affecting the enforcement of creditors' rights generally.
This Note shall be interpreted and enforced in accordance with the laws of
the State of Colorado. In the event of default, Maker consents to the
enforcement of this Note in the District Court for the City and County of
Denver, Colorado, and waives any rights to contest venue or jurisdiction of that
court.
MAKER:
GLOBAL MED TECHNOLOGIES, INC.
/s/ Michael I. Ruxin
-------------------------------------------
Michael I. Ruxin, Chairman of the Board and
Chief Executive Officer
Attest:
By: /s/ Kim Geist
-----------------------------
Title: Secretary
--------------------------
2
Exhibit 10.43
Void After 3:30 P.M., Mountain Time, on April 13, 2008
WARRANT TO PURCHASE COMMON SHARES
GLOBAL MED TECHNOLOGIES, INC.
This is to Certify That, FOR VALUE RECEIVED, FRONTEER DEVELOPMENT FINANCE
INC., 1700 Lincoln Street, 32nd Floor, Denver, Colorado 80203 ("Holder"), is
entitled to purchase, subject to the provisions of this Warrant, from GLOBAL MED
TECHNOLOGIES, INC. ("Company"), a Colorado corporation, at any time until 3:30
P.M., Mountain Time, on April 13, 2008 ("Expiration Date"), 4,000,000 Common
Shares of the Company at a purchase price of $0.25 per common share during the
period this Warrant is exercisable. The number of Common Shares to be received
upon the exercise of this Warrant and the price to be paid for a Common Share
may be adjusted from time to time as hereinafter set forth. The purchase price
of a Common Share in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price." This Warrant is or
may be one of a series of warrants identical in form issued by the Company to
purchase an aggregate of 4,000,000 Common Shares of the Company and the term
"Warrants" as used herein means all such Warrants (including this Warrant). The
Common Shares, as adjusted from time to time, underlying the Warrants are
hereinafter sometimes referred to as "Warrant Shares" and include all Common
Shares that have been issued upon the exercise of the Warrants and all unissued
Common Shares underlying the Warrants.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in
minimum amounts which at the time of exercise would require Holder to deliver to
the Company cash or value of at least $250,000 at any time or from time to time
until the Expiration Date or if the Expiration Date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of shares specified in such Form, together with all federal
and state taxes applicable upon such exercise. The Company agrees not to merge,
reorganize or take any action that would terminate this Warrant unless
provisions are made as part of such merger, reorganization or other action which
would provide the holders of this Warrant with an equivalent of this Warrant as
specified in Section (i) hereof. The Company agrees to provide notice to the
Holder that any tender offer is being made for the Company's Common Shares no
later than three business days after the day the Company becomes aware that any
tender offer is being made for the outstanding Common Shares of the Company. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the right of the Holder to purchase the balance of the Common Shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Purchase Form and the Exercise Price, the
Holder shall be deemed to be the holder of record of the Common Shares issuable
upon such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Common Shares shall
not then be actually delivered to the Holder.
<PAGE>
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Common Shares as shall be required for issuance or
delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Common Share called for upon any exercise hereof,
the Company shall, upon receipt by the Company or the Company's stock transfer
agent of the Exercise Price on such fractional share, pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share, determined as follows:
(1) If the Common Shares are listed on a national securities exchange
or a foreign exchange, are admitted to unlisted trading privileges on such
an exchange, or are listed for trading on a trading system of the National
Association of Securities Dealers, Inc. ("NASD") such as The Nasdaq
SmallCap Market ("SCM") or the Nasdaq National Market ("NNM") or the OTC
Bulletin Board, then the current value shall be the last reported sale
price of the Common Shares on such an exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average of the closing bid prices for the
Common Shares for such day on such exchange or such system shall be used;
or
(2) If the Common Shares are not so listed on such exchange or system
or admitted to unlisted trading privileges, the current value shall be the
average of the last reported bid prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of
this Warrant; or
(3) If the Common Shares are not so listed or admitted to unlisted
trading privileges and if bid prices are not so reported, the current value
shall be an amount, not less than book value, determined in such reasonable
manner as may be prescribed by the board of directors of the Company.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Common Shares purchasable hereunder. This
Warrant may not be sold, transferred, assigned, or hypothecated except in
compliance with federal and state securities laws. Any transfer or assignment
shall be made by surrender of this Warrant to the Company or at the office of
its stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and with funds sufficient to pay any transfer tax; whereupon the
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<PAGE>
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation hereof at the office of
the Company or at the office of its stock transfer agent, if any, together with
a written notice specifying the names and denominations in which new Warrants
are to be issued and signed by the Holder hereof. The term "Warrant" as used
herein includes any warrants issued in substitution for or replacement of this
Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by
the Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will execute and deliver a new Warrant
of like tenor and date. Subject to such right of indemnification, any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Adjustment Provisions.
(1) Adjustments of the Exercise Price.
(A) If the Company subdivides its outstanding Common Shares into
a greater number of Common Shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced. Conversely, if the Company combines its outstanding Common
Shares into a lesser number of Common Shares, the Exercise Price in
effect immediately prior to such combination shall be proportionally
increased. In case of a subdivision or combination, the adjustment of
the Exercise Price shall be made as of the effective date of the
applicable event. A distribution on Common Shares, including a
distribution of Convertible Securities, to shareholders of the Company
on a pro rata basis shall be considered a subdivision of Common Shares
for the purposes of this subsection (1)(A) of this Section, except
that the adjustment will be made as of the record date for such
distribution and any such distribution of Convertible Securities shall
be deemed to be a distribution of the Common Shares underlying such
Convertible Securities.
(B) If the Company shall at any time distribute or cause to be
distributed to its shareholders, on a pro rata basis, cash, assets, or
securities of any entity other than the Company, then the Exercise
Price in effect immediately prior to such distribution shall
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<PAGE>
automatically be reduced by an amount determined by dividing (x) the
amount (if cash) or the value (if assets or securities) of the
holders' of Warrants (as such term is defined in the first paragraph
hereof) pro rata share of such distribution determined assuming that
all holders of Warrants had exercised their Warrants on the day prior
to such distribution, by (y) the number of Common Shares issuable upon
the exercise of Warrants (as such term is defined in the first
paragraph hereof) by the holders thereof on the day prior to such
distribution.
(3) No Adjustment for Small Amounts. Anything in this Section (f) to
the contrary notwithstanding, the Company shall not be required to give
effect to any adjustment in the Exercise Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Exercise Price by at least one cent, but when the
cumulative net effect of more than one adjustment so determined shall be to
change the actual Exercise Price by at least one cent, such change in the
Exercise Price shall thereupon be given effect.
(4) Number of Shares Adjusted. Upon any adjustment of the Exercise
Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number
of Common Shares, calculated to the nearest full share, obtained by
multiplying the number of Common Shares initially issuable upon exercise of
this Warrant by the Exercise Price specified in the first paragraph hereof
and dividing the product so obtained by the new Exercise Price.
(5) Definitions.
(A) Whenever reference is made in this Section (f) to the
distribution of Common Shares, the term "Common Shares" shall mean the
Common Shares of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Shares.
However, subject to the provisions of Section (i) hereof, Common
Shares issuable upon exercise hereof shall include only Common Shares
of the class designated as Common Shares of the Company as of the date
hereof.
(B) Whenever reference is made in this Section (f) to the
distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Shares of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Shares of
the Company.
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<PAGE>
(6) AntiDilution Provisions.
(A) Adjustments of Exercise Price. If the Company should at any
time or from time to time hereafter issue or sell any of its Common
Shares without consideration or for a consideration per share less
than the Exercise Price in effect immediately prior to the time of
such issue or sale, then forthwith upon such issue or sale, the
Exercise Price shall be automatically adjusted to a price (computed to
the nearest cent) determined by dividing (i) the sum of (x) the number
of Common Shares outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such
issue or sale, and (y) the consideration, if any, received by the
Company upon such issue or sale, by (ii) the total number of Common
Shares outstanding immediately after such issue or sale. For purposes
of this Section (6)(A), the following provisions (i) and (ii) shall
also be applicable:
(i) Rights, Options, or Warrants. In case at any time
hereafter the Company shall in any manner grant any right to
subscribe for or to purchase, or any option or warrant for the
purchase of Common Shares or for the purchase of any stock or
securities convertible into or exchangeable for Common Shares
(such convertible or exchangeable stock or securities being
hereinafter referred to as the "Underlying Convertible
Securities") and if the minimum price per share for which Common
Shares are issuable, pursuant to such rights, options, warrants
or upon conversion or exchange of such Underlying Convertible
Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such rights, options, or warrants plus the minimum
aggregate amount of additional consideration payable to the
Company upon the exercise of such rights, options, or warrants
under the terms of such rights, options, or warrants at the time
of making such computation, plus, in the case of such Underlying
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the conversion or
exchange thereof under the terms of such Underlying Convertible
Securities at the time of making such computation, by (ii) the
total maximum number of Common Shares issuable pursuant to such
rights, options, or warrants or upon the conversion or exchange
of the total maximum amount of such Underlying Convertible
Securities issuable upon the exercise of such rights, options, or
warrants under the terms of such rights, options, warrants or
Underlying Convertible Securities at the time of making such
computation) shall be less than the Exercise Price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of Common Shares issuable
pursuant to such rights, options, warrants or upon conversion or
exchange of the total maximum amount of such Underlying
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<PAGE>
Convertible Securities issuable upon the exercise of such rights,
options, or warrants under the terms of such rights, options,
warrants or Underlying Convertible Securities at the time of
making such computation shall (as of the date of granting of such
rights, options, or warrants) be deemed to be outstanding and to
have been issued for said price per share as so determined;
provided, that no further adjustment of the Exercise Price shall
be made upon the actual issue of Common Shares so deemed to have
been issued unless the price per share received by the Company
upon the actual issuance of Common Shares so deemed to be issued
differs from the price per share which was last used to adjust
the Exercise Price or unless by the terms of such rights, options
or warrants or Underlying Convertible Securities the price per
share which the Company will receive upon any such issuance of
Common Shares differs from the price per share which was last
used to adjust the Exercise Price, in either of which events the
Exercise Price shall be adjusted upon the occurrence of either
such event to reflect the new price per share of Common Stock;
and further provided, that, upon the expiration of such rights
(including rights to convert or exchange), options or warrants
(a) the number of shares of Common Stock deemed to have been
issued and outstanding by reason of the fact that they were
issuable pursuant to such rights, options, or warrants (including
rights to convert or exchange) that were not exercised, shall no
longer be deemed to be issued and outstanding, and (b) the
Exercise Price shall forthwith be adjusted to the price which
would have prevailed had all adjustments been made on the basis
of the issue only of the Common Shares actually issued upon the
exercise of such rights, options, or warrants or upon conversion
or exchange of such Underlying Convertible Securities. Such
adjustments upon expiration shall have no effect on Warrants
exercised prior to such expiration.
(ii) Convertible Securities. If the Company shall in any
manner issue or sell any Convertible Securities other than the
rights, options, or warrants described in Section 6(A)(i) hereof
and if the minimum price per share for which Common Shares are
issuable upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount received
or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof under the terms
of such Convertible Securities at the time of making such
computation, by (ii) the total maximum number of Common Shares
issuable upon the conversion or exchange of all such Convertible
Securities under the terms of such Convertible Securities at the
time of making such computation) shall be less than the Exercise
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<PAGE>
Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of Common Shares issuable
upon conversion or exchange of all such Convertible Securities at
the time of making such computation shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for said price per share as
so determined; provided, that no further adjustment of the
Exercise Price shall be made upon the actual issue of Common
Shares so deemed to have been issued unless the price per share
received by the Company upon the actual issuance of Common Shares
so deemed to be issued differs from the price per share which was
last used to adjust the Exercise Price or unless by the terms of
such Convertible Securities the price per share which the Company
will receive upon any such issuance of Common Shares differs from
the price per share which was last used to adjust the Exercise
Price, in either of which events the Exercise Price shall be
adjusted upon the occurrence of either such event to reflect the
new price per share of Common Shares; and, further provided that
if any such issue or sale of such Convertible Securities is made
upon exercise of any right to subscribe for or to purchase or any
option to purchase any such Convertible Securities for which an
adjustment of the Exercise Price has been or is to be made
pursuant to the provisions of Section 6(A)(i) then no further
adjustment of the Exercise Price shall be made by reason of such
issue or sale unless the price per share received by the Company
upon the conversion or exchange of such Convertible Securities
when actually issued differs from the price per share which was
last used to adjust the Exercise Price or unless by the terms of
such Convertible Securities the price per share which the Company
will receive upon any such issuance of Common Shares upon
conversion or exchange of such Convertible Securities differs
from the price per share which was last used to adjust the
Exercise Price, in either of which events the Exercise Price
shall be adjusted upon the occurrence of either of such events to
reflect the new price per share of Common Shares; and, further
provided, that, upon the termination of the right to convert or
to exchange such Convertible Securities for Common Shares, (a)
the number of Common Shares deemed to have been issued and
outstanding by reason of the fact that they were issuable upon
conversion or exchange of any such Convertible Securities, which
were not so converted or exchanged, shall no longer be deemed to
be issued and outstanding, and (b) the Exercise Price shall
forthwith be adjusted to the price which would have prevailed had
all adjustments been made on the basis of the issue only of the
number of Common Shares actually issued upon conversion or
exchange of such Convertible Securities. Such adjustments upon
expiration shall have no effect on Warrants exercised prior to
such expiration.
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<PAGE>
(B) Determination of Issue Price. In case any Common Shares or
Convertible Securities shall be issued for cash, the consideration
received therefor, which shall be the gross sales price for such
security without deducting therefrom any commission or other expenses
paid or incurred by the Company for any underwriting of, or otherwise
in connection with, the issuance thereof, shall be deemed to be the
amount received by the Company therefor. In case any Common Shares or
Convertible Securities shall be issued for a consideration part or all
of which shall be other than cash, then, for the purpose of this
Section (6), the Board of Directors of the Company shall determine the
fair value of such consideration, irrespective of accounting
treatment, and such Common Shares or Convertible Securities shall be
deemed to have been issued for an amount of cash equal to the value so
determined by the Board of Directors. The reclassification of
securities other than Common Shares into securities including Common
Shares shall be deemed to involve the issuance for a consideration
other than cash of such Common Shares immediately prior to the close
of business on the date fixed for the determination of security
holders entitled to receive such Common Shares. In case any Common
Shares or Convertible Securities shall be issued together with other
stock or securities or other assets of the Company for consideration,
the Board of Directors of the Company shall determine what part of the
consideration so received is to be deemed to be consideration for the
issue of such Common Shares or Convertible Securities.
(C) Determination of Date of Issue. In case the Company shall
take a record of the holders of Common Shares for the purpose of
entitling them (i) to receive a dividend or other distribution payable
in Common Shares or in Convertible Securities or (ii) to subscribe for
or purchase Common Shares or Convertible Securities, then such record
date shall be deemed to be the date of the issue or sale of the Common
Shares deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(D) Treasury Shares. For the purpose of this Section (f), Common
Shares at any relevant time owned or held by, or for the account of,
the Company shall not be deemed outstanding.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer and warrant agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment. Each
such officer's certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after each such
adjustment, deliver a copy of such certificate to the Holder.
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<PAGE>
(h) Notices to Holders. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Shares or (ii) if the Company shall offer to the holders of
Common Shares for subscription or purchase by them any shares of stock of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Common
Shares of the Company (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of an issuance of
Common Shares by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding Common
Shares of the class issuable upon exercise of this Warrant) or in case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property which the Holder would have received upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance had this Warrant been exercised prior to the consummation of
such transaction. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Common Shares and to successive consolidations, mergers, sales or
conveyances. In the event the Company spins off a subsidiary by distributing to
the shareholders of the Company as a dividend or otherwise the stock of the
subsidiary, the Company shall reserve for the life of this Warrant, shares of
the subsidiary to be delivered to the Holders of the Warrants upon exercise to
the same extent as if they were owners of record of the Warrant Shares on the
record date for distribution of the shares of the subsidiary.
9
<PAGE>
(j) Registration Under the Securities Act of 1933.
(1) On or before December 31, 1998, the Company will file and cause to
become effective a registration statement under the Securities Act of 1933,
as amended (the "Act"), registering the Warrants and the Warrant Shares;
provided however, that so long as the Company has used its reasonable best
efforts to file such registration statement and responded to any comments
relating thereto in a timely manner, the Company will not be in default of
its obligations relating to such filing if the registration statement does
not become effective by December 31, 1998.
(2) The Company shall:
(A) Supply to each selling Holder a copy of the registration
statement and a reasonable number of copies of the preliminary, final
and other prospectus in conformity with requirements of the Act and
the Rules and Regulations promulgated thereunder and such other
documents as the Holders shall reasonably request.
(B) The Company shall bear the complete cost and expense (other
than any selling commissions relating to the sale of the Warrants and
Warrant Shares, which shall be paid by the sellers thereof) of such
registrations or qualifications except those filed under subsection
(j)(3) which shall be at the Holder(s) cost and expense.
(C) Keep effective such registration statement until all of the
registered Warrant Shares issued by the Company either before or after
the effective date of such registration statement have been publicly
sold under such registration statement.
(D) Use its best efforts to register or qualify the Warrants and
Warrant Shares for sale in those states requested by the person
selling the Warrants or Warrant Shares; provided that, the Company
shall not be required to register or qualify the Warrants and Warrant
Shares for sale in any state in which the sale of the Warrants or
Warrant Shares by the person selling the Warrants or Warrant Shares
would be exempt from having to be registered or qualified in such
state. The determination of whether or not such an exemption exists
shall be made by counsel for the Company and such determination shall
be provided in writing to the person desiring to sell Warrants or
Warrant Shares in a state.
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<PAGE>
(E) Indemnify and hold harmless each such Holder and each
underwriter, within the meaning of the Act, who may purchase from or
sell for any such Holder, any Warrants or Warrant Shares, from and
against any and all losses, claims, damages, and liabilities
(including but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing, defending or settling
any claim) arising from (i) any untrue or alleged untrue statement of
a material fact contained in any registration statement furnished
pursuant to clause (A) of this subsection, or any prospectus included
therein or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading (unless such untrue statement or
omission or such alleged untrue statement or omission was based upon
information furnished or required to be furnished in writing to the
Company by such Holder or underwriter expressly for use therein),
which indemnification shall include each person, if any, who controls
any such Holder or underwriter within the meaning of the Act;
provided, however, that the Company shall not be so obligated to
indemnify any such Holder or underwriter or controlling person unless
such Holder and underwriter shall at the same time indemnify the
Company, its directors, each officer signing any registration
statement or any amendment to any registration statement and each
person, if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and
liabilities (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing, defending
or settling any claim) arising from (i) any untrue or alleged untrue
statement of a material fact contained in any registration statement
or prospectus furnished pursuant to Clause (A) of this subsection, or
(ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but the indemnity of such Holder, underwriter
or controlling person shall be limited to liability based upon
information furnished, or required to be furnished, in writing to the
Company by such Holder or underwriter or controlling person expressly
for use therein. The Company shall not be liable for amounts paid in
settlement of any such litigation if such settlement was effected
without the consent of the Company. The indemnity agreement of the
Company herein shall not inure to the benefit of any such underwriter
(or to the benefit of any person who controls such underwriter) on
account of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) arising from the sale of any of such
Warrants or Warrant Shares by such underwriter to a person if such
underwriter failed to send or give a copy of the prospectus furnished
pursuant to Clause (A) of this subsection, as the same may then be
supplemented or amended (if such supplement or amendment shall have
been furnished to the Holders pursuant to said Clause (A)), to such
person with or prior to the written confirmation of the sale involved.
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<PAGE>
(3) As a condition to the Company's obligation in subsection (j)(1)
hereof, each Holder shall supply such information as the Company may
reasonably require from such Holder, or any underwriter for such Holders,
for inclusion in such registration statement or posteffective amendment.
(4) The Company's agreements with respect to the Warrants and Warrant
Shares in this Section will continue in effect regardless of the exercise
or surrender of this Warrant.
(5) Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered if in writing and
delivered personally or sent by certified mail, return receipt requested,
to the Holder, addressed to the Holder at the Holder's address as set forth
on the Warrant or stockholder register of the Company, or, if the Holder
has designated, by notice in writing to the Company, any other address, to
such other address, and, if to the Company, addressed to it at 12600 West
Colfax Avenue, Suite A-500, Lakewood, Colorado 80215-3735. The Company may
change its address by written notice to the Holder.
(k) Transfer to Comply with the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Shares or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Section (j) hereof; unless legal counsel for the Company is of the
opinion as to any such certificate that such legend, or one similar thereto, is
unnecessary:
"The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement made under
the Securities Act of 1933 (the "Act") and under any
applicable state securities law, or pursuant to an exemption
from registration under the Act and under any applicable
state securities law, the availability of which is to be
established to the satisfaction of the Company."
(l) Exchange Provisions.
(1) For purposes of this Section (l), this Warrant shall be deemed to
represent the same number of Warrants as there are Warrant Shares
underlying this Warrant. For example, if there are 10,000 Warrant Shares
underlying this Warrant, then for purposes of this Section (l) the Holder
shall be deemed to hold 10,000 Warrants.
(2) For purposes of this Section (l), the following terms shall have
the following meanings:
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<PAGE>
(A) "Current Market Value of a Warrant Share" shall be the value
of a Warrant Share as determined under Section (c)(1) or (2) hereof
except that the time of the determination thereunder shall be the last
business day prior to the day the Company receives a notice from the
Holder under this Section (l).
(B) "Warrant Value" shall mean the Current Market Value of a
Warrant Share minus or less the Exercise Price payable under this
Warrant as of the close of business on the last business day prior to
the day the Company receives a notice from the Holder under this
Section (l).
(3) The Holder shall have the right to exchange, in a cashless
transaction, all or part of the Holder's Warrants for Common Shares issued
by the Company at anytime prior to the Expiration Date of such Warrants by
providing written notice ("Notice") to the Company. Such Notice shall set
forth the number of Warrants which the Holder elects to exchange for Common
Shares.
(4) Within 10 days after receipt of such Notice by the Company, the
Company shall issue the number of Common Shares of the Company to the
Holder which is determined by dividing the Warrant Value of the Warrants
being exchanged by the Current Market Value of a Warrant Share as of the
date the Notice is received by the Company.
(5) The Holder shall surrender the Warrant which the Holder is
exchanging for Common Shares upon receipt thereof. If the entire Warrant is
being exchanged by the Holder for Common Shares, the Company shall cancel
the entire Warrant. If less than the entire Warrant is being exchanged for
Common Shares, the Company shall issue a new Warrant to the Holder
representing the portion of this Warrant which was not exchanged for Common
Shares.
(m) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the state of Colorado.
Dated October 26, 1998.
GLOBAL MED TECHNOLOGIES, INC.
By: /s/ Michael I. Ruxin
----------------------------------------
Michael I. Ruxin, Chairman of the Board
and Chief Executive Officer
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PURCHASE FORM
-------------
Dated: , 19
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ____________ shares of Common Shares and hereby makes
payment of $_______________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
---------------------------------------
Name:
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(Please typewrite or print in block letters)
Address:
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Signature:
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ASSIGNMENT FORM
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Dated: , 19
FOR VALUE RECEIVED,
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hereby sells, assigns and transfers unto
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Name:
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(Please typewrite or print in block letters)
Address:
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the right to purchase Common Shares represented by this Warrant to the extent of
Common Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint, attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
Signature:
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Exhibit 10.44
Void After 3:30 P.M., Mountain Time, on April 13, 2008
WARRANT TO PURCHASE COMMON SHARES
GLOBAL MED TECHNOLOGIES, INC.
This is to Certify That, FOR VALUE RECEIVED, HENG FUNG FINANCE COMPANY
LIMITED, 1700 Lincoln Street, 32nd Floor, Denver, Colorado 80203 ("Holder"), is
entitled to purchase, subject to the provisions of this Warrant, from GLOBAL MED
TECHNOLOGIES, INC. ("Company"), a Colorado corporation, at any time until 3:30
P.M., Mountain Time, on April 13, 2008 ("Expiration Date"), 2,000,000 Common
Shares of the Company at a purchase price of $0.25 per common share during the
period this Warrant is exercisable. The number of Common Shares to be received
upon the exercise of this Warrant and the price to be paid for a Common Share
may be adjusted from time to time as hereinafter set forth. The purchase price
of a Common Share in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price." This Warrant is or
may be one of a series of warrants identical in form issued by the Company to
purchase an aggregate of 2,000,000 Common Shares of the Company and the term
"Warrants" as used herein means all such Warrants (including this Warrant). The
Common Shares, as adjusted from time to time, underlying the Warrants are
hereinafter sometimes referred to as "Warrant Shares" and include all Common
Shares that have been issued upon the exercise of the Warrants and all unissued
Common Shares underlying the Warrants.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in
minimum amounts which at the time of exercise would require Holder to deliver to
the Company cash or value of at least $250,000 at any time or from time to time
until the Expiration Date or if the Expiration Date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of shares specified in such Form, together with all federal
and state taxes applicable upon such exercise. The Company agrees not to merge,
reorganize or take any action that would terminate this Warrant unless
provisions are made as part of such merger, reorganization or other action which
would provide the holders of this Warrant with an equivalent of this Warrant as
specified in Section (i) hereof. The Company agrees to provide notice to the
Holder that any tender offer is being made for the Company's Common Shares no
later than three business days after the day the Company becomes aware that any
tender offer is being made for the outstanding Common Shares of the Company. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the right of the Holder to purchase the balance of the Common Shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Purchase Form and the Exercise Price, the
Holder shall be deemed to be the holder of record of the Common Shares issuable
upon such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Common Shares shall
not then be actually delivered to the Holder.
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(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Common Shares as shall be required for issuance or
delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Common Share called for upon any exercise hereof,
the Company shall, upon receipt by the Company or the Company's stock transfer
agent of the Exercise Price on such fractional share, pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share, determined as follows:
(1) If the Common Shares are listed on a national securities exchange
or a foreign exchange, are admitted to unlisted trading privileges on such
an exchange, or are listed for trading on a trading system of the National
Association of Securities Dealers, Inc. ("NASD") such as The Nasdaq
SmallCap Market ("SCM") or the Nasdaq National Market ("NNM") or the OTC
Bulletin Board, then the current value shall be the last reported sale
price of the Common Shares on such an exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average of the closing bid prices for the
Common Shares for such day on such exchange or such system shall be used;
or
(2) If the Common Shares are not so listed on such exchange or system
or admitted to unlisted trading privileges, the current value shall be the
average of the last reported bid prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of
this Warrant; or
(3) If the Common Shares are not so listed or admitted to unlisted
trading privileges and if bid prices are not so reported, the current value
shall be an amount, not less than book value, determined in such reasonable
manner as may be prescribed by the board of directors of the Company.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Common Shares purchasable hereunder. This
Warrant may not be sold, transferred, assigned, or hypothecated except in
compliance with federal and state securities laws. Any transfer or assignment
shall be made by surrender of this Warrant to the Company or at the office of
its stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and with funds sufficient to pay any transfer tax; whereupon the
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Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation hereof at the office of
the Company or at the office of its stock transfer agent, if any, together with
a written notice specifying the names and denominations in which new Warrants
are to be issued and signed by the Holder hereof. The term "Warrant" as used
herein includes any warrants issued in substitution for or replacement of this
Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by
the Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will execute and deliver a new Warrant
of like tenor and date. Subject to such right of indemnification, any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Adjustment Provisions.
(1) Adjustments of the Exercise Price.
(A) If the Company subdivides its outstanding Common Shares into
a greater number of Common Shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced. Conversely, if the Company combines its outstanding Common
Shares into a lesser number of Common Shares, the Exercise Price in
effect immediately prior to such combination shall be proportionally
increased. In case of a subdivision or combination, the adjustment of
the Exercise Price shall be made as of the effective date of the
applicable event. A distribution on Common Shares, including a
distribution of Convertible Securities, to shareholders of the Company
on a pro rata basis shall be considered a subdivision of Common Shares
for the purposes of this subsection (1)(A) of this Section, except
that the adjustment will be made as of the record date for such
distribution and any such distribution of Convertible Securities shall
be deemed to be a distribution of the Common Shares underlying such
Convertible Securities.
(B) If the Company shall at any time distribute or cause to be
distributed to its shareholders, on a pro rata basis, cash, assets, or
securities of any entity other than the Company, then the Exercise
Price in effect immediately prior to such distribution shall
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automatically be reduced by an amount determined by dividing (x) the
amount (if cash) or the value (if assets or securities) of the
holders' of Warrants (as such term is defined in the first paragraph
hereof) pro rata share of such distribution determined assuming that
all holders of Warrants had exercised their Warrants on the day prior
to such distribution, by (y) the number of Common Shares issuable upon
the exercise of Warrants (as such term is defined in the first
paragraph hereof) by the holders thereof on the day prior to such
distribution.
(3) No Adjustment for Small Amounts. Anything in this Section (f) to
the contrary notwithstanding, the Company shall not be required to give
effect to any adjustment in the Exercise Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Exercise Price by at least one cent, but when the
cumulative net effect of more than one adjustment so determined shall be to
change the actual Exercise Price by at least one cent, such change in the
Exercise Price shall thereupon be given effect.
(4) Number of Shares Adjusted. Upon any adjustment of the Exercise
Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number
of Common Shares, calculated to the nearest full share, obtained by
multiplying the number of Common Shares initially issuable upon exercise of
this Warrant by the Exercise Price specified in the first paragraph hereof
and dividing the product so obtained by the new Exercise Price.
(5) Definitions.
(A) Whenever reference is made in this Section (f) to the
distribution of Common Shares, the term "Common Shares" shall mean the
Common Shares of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Shares.
However, subject to the provisions of Section (i) hereof, Common
Shares issuable upon exercise hereof shall include only Common Shares
of the class designated as Common Shares of the Company as of the date
hereof.
(B) Whenever reference is made in this Section (f) to the
distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Shares of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Shares of
the Company.
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(6) AntiDilution Provisions.
(A) Adjustments of Exercise Price. If the Company should at any
time or from time to time hereafter issue or sell any of its Common
Shares without consideration or for a consideration per share less
than the Exercise Price in effect immediately prior to the time of
such issue or sale, then forthwith upon such issue or sale, the
Exercise Price shall be automatically adjusted to a price (computed to
the nearest cent) determined by dividing (i) the sum of (x) the number
of Common Shares outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such
issue or sale, and (y) the consideration, if any, received by the
Company upon such issue or sale, by (ii) the total number of Common
Shares outstanding immediately after such issue or sale. For purposes
of this Section (6)(A), the following provisions (i) and (ii) shall
also be applicable:
(i) Rights, Options, or Warrants. In case at any time
hereafter the Company shall in any manner grant any right to
subscribe for or to purchase, or any option or warrant for the
purchase of Common Shares or for the purchase of any stock or
securities convertible into or exchangeable for Common Shares
(such convertible or exchangeable stock or securities being
hereinafter referred to as the "Underlying Convertible
Securities") and if the minimum price per share for which Common
Shares are issuable, pursuant to such rights, options, warrants
or upon conversion or exchange of such Underlying Convertible
Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such rights, options, or warrants plus the minimum
aggregate amount of additional consideration payable to the
Company upon the exercise of such rights, options, or warrants
under the terms of such rights, options, or warrants at the time
of making such computation, plus, in the case of such Underlying
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the conversion or
exchange thereof under the terms of such Underlying Convertible
Securities at the time of making such computation, by (ii) the
total maximum number of Common Shares issuable pursuant to such
rights, options, or warrants or upon the conversion or exchange
of the total maximum amount of such Underlying Convertible
Securities issuable upon the exercise of such rights, options, or
warrants under the terms of such rights, options, warrants or
Underlying Convertible Securities at the time of making such
computation) shall be less than the Exercise Price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of Common Shares issuable
pursuant to such rights, options, warrants or upon conversion or
exchange of the total maximum amount of such Underlying
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Convertible Securities issuable upon the exercise of such rights,
options, or warrants under the terms of such rights, options,
warrants or Underlying Convertible Securities at the time of
making such computation shall (as of the date of granting of such
rights, options, or warrants) be deemed to be outstanding and to
have been issued for said price per share as so determined;
provided, that no further adjustment of the Exercise Price shall
be made upon the actual issue of Common Shares so deemed to have
been issued unless the price per share received by the Company
upon the actual issuance of Common Shares so deemed to be issued
differs from the price per share which was last used to adjust
the Exercise Price or unless by the terms of such rights, options
or warrants or Underlying Convertible Securities the price per
share which the Company will receive upon any such issuance of
Common Shares differs from the price per share which was last
used to adjust the Exercise Price, in either of which events the
Exercise Price shall be adjusted upon the occurrence of either
such event to reflect the new price per share of Common Stock;
and further provided, that, upon the expiration of such rights
(including rights to convert or exchange), options or warrants
(a) the number of shares of Common Stock deemed to have been
issued and outstanding by reason of the fact that they were
issuable pursuant to such rights, options, or warrants (including
rights to convert or exchange) that were not exercised, shall no
longer be deemed to be issued and outstanding, and (b) the
Exercise Price shall forthwith be adjusted to the price which
would have prevailed had all adjustments been made on the basis
of the issue only of the Common Shares actually issued upon the
exercise of such rights, options, or warrants or upon conversion
or exchange of such Underlying Convertible Securities. Such
adjustments upon expiration shall have no effect on Warrants
exercised prior to such expiration.
(ii) Convertible Securities. If the Company shall in any
manner issue or sell any Convertible Securities other than the
rights, options, or warrants described in Section 6(A)(i) hereof
and if the minimum price per share for which Common Shares are
issuable upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount received
or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof under the terms
of such Convertible Securities at the time of making such
computation, by (ii) the total maximum number of Common Shares
issuable upon the conversion or exchange of all such Convertible
Securities under the terms of such Convertible Securities at the
time of making such computation) shall be less than the Exercise
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Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of Common Shares issuable
upon conversion or exchange of all such Convertible Securities at
the time of making such computation shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for said price per share as
so determined; provided, that no further adjustment of the
Exercise Price shall be made upon the actual issue of Common
Shares so deemed to have been issued unless the price per share
received by the Company upon the actual issuance of Common Shares
so deemed to be issued differs from the price per share which was
last used to adjust the Exercise Price or unless by the terms of
such Convertible Securities the price per share which the Company
will receive upon any such issuance of Common Shares differs from
the price per share which was last used to adjust the Exercise
Price, in either of which events the Exercise Price shall be
adjusted upon the occurrence of either such event to reflect the
new price per share of Common Shares; and, further provided that
if any such issue or sale of such Convertible Securities is made
upon exercise of any right to subscribe for or to purchase or any
option to purchase any such Convertible Securities for which an
adjustment of the Exercise Price has been or is to be made
pursuant to the provisions of Section 6(A)(i) then no further
adjustment of the Exercise Price shall be made by reason of such
issue or sale unless the price per share received by the Company
upon the conversion or exchange of such Convertible Securities
when actually issued differs from the price per share which was
last used to adjust the Exercise Price or unless by the terms of
such Convertible Securities the price per share which the Company
will receive upon any such issuance of Common Shares upon
conversion or exchange of such Convertible Securities differs
from the price per share which was last used to adjust the
Exercise Price, in either of which events the Exercise Price
shall be adjusted upon the occurrence of either of such events to
reflect the new price per share of Common Shares; and, further
provided, that, upon the termination of the right to convert or
to exchange such Convertible Securities for Common Shares, (a)
the number of Common Shares deemed to have been issued and
outstanding by reason of the fact that they were issuable upon
conversion or exchange of any such Convertible Securities, which
were not so converted or exchanged, shall no longer be deemed to
be issued and outstanding, and (b) the Exercise Price shall
forthwith be adjusted to the price which would have prevailed had
all adjustments been made on the basis of the issue only of the
number of Common Shares actually issued upon conversion or
exchange of such Convertible Securities. Such adjustments upon
expiration shall have no effect on Warrants exercised prior to
such expiration.
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(B) Determination of Issue Price. In case any Common Shares or
Convertible Securities shall be issued for cash, the consideration
received therefor, which shall be the gross sales price for such
security without deducting therefrom any commission or other expenses
paid or incurred by the Company for any underwriting of, or otherwise
in connection with, the issuance thereof, shall be deemed to be the
amount received by the Company therefor. In case any Common Shares or
Convertible Securities shall be issued for a consideration part or all
of which shall be other than cash, then, for the purpose of this
Section (6), the Board of Directors of the Company shall determine the
fair value of such consideration, irrespective of accounting
treatment, and such Common Shares or Convertible Securities shall be
deemed to have been issued for an amount of cash equal to the value so
determined by the Board of Directors. The reclassification of
securities other than Common Shares into securities including Common
Shares shall be deemed to involve the issuance for a consideration
other than cash of such Common Shares immediately prior to the close
of business on the date fixed for the determination of security
holders entitled to receive such Common Shares. In case any Common
Shares or Convertible Securities shall be issued together with other
stock or securities or other assets of the Company for consideration,
the Board of Directors of the Company shall determine what part of the
consideration so received is to be deemed to be consideration for the
issue of such Common Shares or Convertible Securities.
(C) Determination of Date of Issue. In case the Company shall
take a record of the holders of Common Shares for the purpose of
entitling them (i) to receive a dividend or other distribution payable
in Common Shares or in Convertible Securities or (ii) to subscribe for
or purchase Common Shares or Convertible Securities, then such record
date shall be deemed to be the date of the issue or sale of the Common
Shares deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(D) Treasury Shares. For the purpose of this Section (f), Common
Shares at any relevant time owned or held by, or for the account of,
the Company shall not be deemed outstanding.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer and warrant agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment. Each
such officer's certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after each such
adjustment, deliver a copy of such certificate to the Holder.
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(h) Notices to Holders. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Shares or (ii) if the Company shall offer to the holders of
Common Shares for subscription or purchase by them any shares of stock of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Common
Shares of the Company (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of an issuance of
Common Shares by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding Common
Shares of the class issuable upon exercise of this Warrant) or in case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property which the Holder would have received upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance had this Warrant been exercised prior to the consummation of
such transaction. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Common Shares and to successive consolidations, mergers, sales or
conveyances. In the event the Company spins off a subsidiary by distributing to
the shareholders of the Company as a dividend or otherwise the stock of the
subsidiary, the Company shall reserve for the life of this Warrant, shares of
the subsidiary to be delivered to the Holders of the Warrants upon exercise to
the same extent as if they were owners of record of the Warrant Shares on the
record date for distribution of the shares of the subsidiary.
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(j) Registration Under the Securities Act of 1933.
(1) On or before December 31, 1998, the Company will file and cause to
become effective a registration statement under the Securities Act of 1933,
as amended (the "Act"), registering the Warrants and the Warrant Shares;
provided however, that so long as the Company has used its reasonable best
efforts to file such registration statement and responded to any comments
relating thereto in a timely manner, the Company will not be in default of
its obligations relating to such filing if the registration statement does
not become effective by December 31, 1998.
(2) The Company shall:
(A) Supply to each selling Holder a copy of the registration
statement and a reasonable number of copies of the preliminary, final
and other prospectus in conformity with requirements of the Act and
the Rules and Regulations promulgated thereunder and such other
documents as the Holders shall reasonably request.
(B) The Company shall bear the complete cost and expense (other
than any selling commissions relating to the sale of the Warrants and
Warrant Shares, which shall be paid by the sellers thereof) of such
registrations or qualifications except those filed under subsection
(j)(3) which shall be at the Holder(s) cost and expense.
(C) Keep effective such registration statement until all of the
registered Warrant Shares issued by the Company either before or after
the effective date of such registration statement have been publicly
sold under such registration statement.
(D) Use its best efforts to register or qualify the Warrants and
Warrant Shares for sale in those states requested by the person
selling the Warrants or Warrant Shares; provided that, the Company
shall not be required to register or qualify the Warrants and Warrant
Shares for sale in any state in which the sale of the Warrants or
Warrant Shares by the person selling the Warrants or Warrant Shares
would be exempt from having to be registered or qualified in such
state. The determination of whether or not such an exemption exists
shall be made by counsel for the Company and such determination shall
be provided in writing to the person desiring to sell Warrants or
Warrant Shares in a state.
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(E) Indemnify and hold harmless each such Holder and each
underwriter, within the meaning of the Act, who may purchase from or
sell for any such Holder, any Warrants or Warrant Shares, from and
against any and all losses, claims, damages, and liabilities
(including but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing, defending or settling
any claim) arising from (i) any untrue or alleged untrue statement of
a material fact contained in any registration statement furnished
pursuant to clause (A) of this subsection, or any prospectus included
therein or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading (unless such untrue statement or
omission or such alleged untrue statement or omission was based upon
information furnished or required to be furnished in writing to the
Company by such Holder or underwriter expressly for use therein),
which indemnification shall include each person, if any, who controls
any such Holder or underwriter within the meaning of the Act;
provided, however, that the Company shall not be so obligated to
indemnify any such Holder or underwriter or controlling person unless
such Holder and underwriter shall at the same time indemnify the
Company, its directors, each officer signing any registration
statement or any amendment to any registration statement and each
person, if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and
liabilities (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing, defending
or settling any claim) arising from (i) any untrue or alleged untrue
statement of a material fact contained in any registration statement
or prospectus furnished pursuant to Clause (A) of this subsection, or
(ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but the indemnity of such Holder, underwriter
or controlling person shall be limited to liability based upon
information furnished, or required to be furnished, in writing to the
Company by such Holder or underwriter or controlling person expressly
for use therein. The Company shall not be liable for amounts paid in
settlement of any such litigation if such settlement was effected
without the consent of the Company. The indemnity agreement of the
Company herein shall not inure to the benefit of any such underwriter
(or to the benefit of any person who controls such underwriter) on
account of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) arising from the sale of any of such
Warrants or Warrant Shares by such underwriter to a person if such
underwriter failed to send or give a copy of the prospectus furnished
pursuant to Clause (A) of this subsection, as the same may then be
supplemented or amended (if such supplement or amendment shall have
been furnished to the Holders pursuant to said Clause (A)), to such
person with or prior to the written confirmation of the sale involved.
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(3) As a condition to the Company's obligation in subsection (j)(1)
hereof, each Holder shall supply such information as the Company may
reasonably require from such Holder, or any underwriter for such Holders,
for inclusion in such registration statement or posteffective amendment.
(4) The Company's agreements with respect to the Warrants and Warrant
Shares in this Section will continue in effect regardless of the exercise
or surrender of this Warrant.
(5) Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered if in writing and
delivered personally or sent by certified mail, return receipt requested,
to the Holder, addressed to the Holder at the Holder's address as set forth
on the Warrant or stockholder register of the Company, or, if the Holder
has designated, by notice in writing to the Company, any other address, to
such other address, and, if to the Company, addressed to it at 12600 West
Colfax Avenue, Suite A-500, Lakewood, Colorado 80215-3735. The Company may
change its address by written notice to the Holder.
(k) Transfer to Comply with the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Shares or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Section (j) hereof; unless legal counsel for the Company is of the
opinion as to any such certificate that such legend, or one similar thereto, is
unnecessary:
"The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement made under
the Securities Act of 1933 (the "Act") and under any
applicable state securities law, or pursuant to an exemption
from registration under the Act and under any applicable
state securities law, the availability of which is to be
established to the satisfaction of the Company."
(l) Exchange Provisions.
(1) For purposes of this Section (l), this Warrant shall be deemed to
represent the same number of Warrants as there are Warrant Shares
underlying this Warrant. For example, if there are 10,000 Warrant Shares
underlying this Warrant, then for purposes of this Section (l) the Holder
shall be deemed to hold 10,000 Warrants.
(2) For purposes of this Section (l), the following terms shall have
the following meanings:
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<PAGE>
(A) "Current Market Value of a Warrant Share" shall be the value
of a Warrant Share as determined under Section (c)(1) or (2) hereof
except that the time of the determination thereunder shall be the last
business day prior to the day the Company receives a notice from the
Holder under this Section (l).
(B) "Warrant Value" shall mean the Current Market Value of a
Warrant Share minus or less the Exercise Price payable under this
Warrant as of the close of business on the last business day prior to
the day the Company receives a notice from the Holder under this
Section (l).
(3) The Holder shall have the right to exchange, in a cashless
transaction, all or part of the Holder's Warrants for Common Shares issued
by the Company at anytime prior to the Expiration Date of such Warrants by
providing written notice ("Notice") to the Company. Such Notice shall set
forth the number of Warrants which the Holder elects to exchange for Common
Shares.
(4) Within 10 days after receipt of such Notice by the Company, the
Company shall issue the number of Common Shares of the Company to the
Holder which is determined by dividing the Warrant Value of the Warrants
being exchanged by the Current Market Value of a Warrant Share as of the
date the Notice is received by the Company.
(5) The Holder shall surrender the Warrant which the Holder is
exchanging for Common Shares upon receipt thereof. If the entire Warrant is
being exchanged by the Holder for Common Shares, the Company shall cancel
the entire Warrant. If less than the entire Warrant is being exchanged for
Common Shares, the Company shall issue a new Warrant to the Holder
representing the portion of this Warrant which was not exchanged for Common
Shares.
(m) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the state of Colorado.
Dated October 26, 1998.
GLOBAL MED TECHNOLOGIES, INC.
By: /s/ Michael I. Ruxin
---------------------------------------
Michael I. Ruxin, Chairman of the Board
and Chief Executive Officer
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PURCHASE FORM
-------------
Dated: , 19
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ____________ shares of Common Shares and hereby makes
payment of $_______________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
---------------------------------------
Name:
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
-----------------------------------------------------------------------
Signature:
---------------------------------------------------------------------
ASSIGNMENT FORM
---------------
Dated: , 19
FOR VALUE RECEIVED,
------------------------------------------------------------
hereby sells, assigns and transfers unto
---------------------------------------
Name:
--------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
-----------------------------------------------------------------------
the right to purchase Common Shares represented by this Warrant to the extent of
Common Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint, attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
Signature:
------------------------------------
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Summary Financial
Information", "Selected Financial Data", and "Experts" and to the use of our
report dated April 10, 1998, except for Note 1 as to which the date is April 20,
1998, included in the Registration Statement of Global Med Technologies, Inc.
(Amendment No. 1 to Form SB-2 to be filed December 29, 1998) and Prospectus of
Global Med Technologies, Inc. for the registration of 12,000,000 warrants and
12,000,000 shares of its common stock which underly the warrants, and 563,624
shares of its common stock.
ERNST & YOUNG LLP
/s/ Earnst & Young LLP
Denver, Colorado
December 28, 1998
