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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MW Medical, Inc.
(Exact name of Registrant as specified in its charter)
NEVADA 86-0907471
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Jan Wallace
6955 E. Caballo Dr.
Paradise Valley, ARIZONA 85253
- ------------------------------ -----------------------
(Name and address of principal (Zip Code)
executive offices and agent for
service of process)
Registrant's telephone number, including
area code: (602) 483-8700
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, check the following box.
|X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, 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 this Form is a post-effective amendment filed pursuant to Rule
462(d) 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, check the following box.
|__|
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------
TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES OFFERING AGGREGATE AMOUNT OF
TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT (1) PRICE (2) FEE (2)
- ------------------------------------------------------------------
Common 4,546,010 $3.50 $15,911,035 $4,423.27
Stock shares
Warrants 600,000 shares $3.50 $ 2,100,000 $ 583.80
- ------------------------------------------------------------------
Total 5,146,010 $3.50 $18,011,035 $5,007.07
shares
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(1) Based on last sales price on September 1, 1999
(2) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457 under the Securities
Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
COPIES OF COMMUNICATIONS TO:
Michael A. Cane, Esq.
101 Convention Center Dr., Suite 1200
Las Vegas, NV 89109
(702) 312-6255
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SUBJECT TO COMPLETION, Dated September 1, 1999
PROSPECTUS
MW MEDICAL, INC.
5,146,010 SHARES
COMMON STOCK
($.001 PAR VALUE)
----------------
The Selling Stockholders named in this prospectus may sell up to
5,146,010 shares of common stock of MW Medical, Inc. See the
section entitled "Selling Stockholders." The Company will not
receive any part of the proceeds from the sales of the common
stock. All expenses of registration incurred in connection with
this Prospectus are being paid by the Company, but all selling and
other expenses incurred by the Selling Stockholders will be borne
by the Selling Stockholders.
The Selling Stockholders have not advised the Company of any
specific plans for the distribution of the Common Stock covered by
this Prospectus, but it is anticipated that the Common Stock will
be sold from time to time primarily in transactions (which may
include block transactions) on the National Association of
Securities Dealer's Over-The-Counter Bulletin Board System at the
market price then prevailing or at prices related to prevailing
prices, although sales may also be made in negotiated transactions
at negotiated prices or otherwise. See the section entitled "Plan
of Distribution."
The Company's Common Stock is traded and quoted on the National
Association of Securities Dealer's Over-The-Counter Bulletin Board
System under the symbol MWMD. On September 1, 1999, the closing
sale price of the Common Stock was $3.50 per share.
----------------
THE PURCHASE OF THE SECURITIES OFFERED THROUGH THIS PROSPECTUS
INVOLVE A HIGH DEGREE OF RISK. SEE SECTION ENTITLED "RISK
FACTORS" ON PAGES 5 -10.
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: SEPTEMBER 1, 1999
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No dealer, salesperson or other person has been authorized to give
any information or to make any representations, other than those
contained or incorporated by reference in this Prospectus, in
connection with the offering contained herein and, if given or
made, such information must not be relied upon as having been
authorized by the Company or the Selling Stockholders. This
Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy to any person, in any jurisdiction, to whom it
is unlawful to make such an offer. In addition, investors should
take note that the information contained in this document is only
offered to be accurate as of September 1, 1999. Neither the
delivery of this Prospectus nor any sale made through it shall,
under any circumstances, create the implication that there has
been no change in the affairs of the Company since that date.
The information contained in this Prospectus may at times
represent the Company's best estimates of its future financial and
technological performance, based upon assumptions believed to be
reasonable. No representation or warranty is made, however, as to
the accuracy or completeness of such assumptions, and investors
should not rely upon any representation as to any future
performance or events. See "RISK FACTORS."
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TABLE OF CONTENTS
PAGE
Summary.................................................... 4
Risk
Factors.................................................... 6
Use of Proceeds............................................ 12
Determination of Offering Price............................ 12
Dilution................................................... 12
Price Range Of Common Stock And Dividend Policy............ 13
Selected Consolidated Financial Data....................... 14
Selling Stockholders ...................................... 14
Plan of Distribution ...................................... 16
Description of Securities to Be Registered................. 17
Interests of Named Experts and Counsel..................... 18
The Company................................................ 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 24
Management................................................. 27
Security Ownership Of Certain Beneficial Owners and
Management................................................. 28
Certain Relationships and Related Transactions............. 30
Legal Matters.............................................. 31
Experts.................................................... 32
Available Information...................................... 32
Index to Financial Statements ............................. 33
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SUMMARY
The following summary is qualified in its entirety by the more
detailed information, exhibits and financial statements appearing
elsewhere in this Prospectus. Prospective investors are urged to
read this Prospectus in its entirety.
Investment in the Common Stock offered through this Prospectus is
highly speculative. Prospective investors should not construe the
contents of this Prospectus, or any other information furnished by
the Company, as legal or tax advice.
The Company
The Company is in the business of designing and developing
microwave technologies for dermatological applications through
MMC. The Company's products are in the development stage. The
Company plans to market and sell its microwave technology products
upon completion of the development stage.
The Company was incorporated in Nevada on December 4, 1997 as a
subsidiary of Dynamic Associates, Inc. Dynamic distributed all of
its outstanding shares of the Company (14,223,929 common shares),
to its shareholders of record on February 25, 1998, effective on
March 11, 1998. At the same time, Dynamic transferred ownership of
Microwave Medical Corporation and P&H Laboratories, Inc. to the
Company pursuant to a Contribution Agreement and Plan of
Reorganization dated February 25, 1998.
The Company has its principal executive offices at 6955 E. Caballo
Dr., Paradise Valley, AZ, 85253 (telephone no.: (602) 483-8700).
The Company entered into a Convertible Debenture and Warrants
Purchase Agreement dated July 14, 1999, in which it agreed to
sell to certain named investors a total of $3,500,000 worth of 8%
Convertible Debentures due on July 31, 2000. In addition to the
Convertible Debentures, each investor under the Debenture Purchase
Agreement was entitled to a Warrant to purchase one share of
Common Stock for each $10 of Convertible Debentures purchased.
The exercise price of the Warrants is $2.75 per share. Of the
$3,500,000 in Convertible Debentures, only $3,000,000 were sold
immediately. The remaining $500,000 were agreed to be purchased
by certain of the investors upon the registration of the Common
Stock as required by a Registration Rights Agreement signed at the
same time by all the parties .
The Convertible Debentures are convertible into Common Stock
of the Company under the following formula:
(a) the principal amount of the Debenture or any portion
thereof, together with accrued but unpaid interest;
(b) multiplied by a price for each share of Common Stock
equal to the lower of (1) 75% of the Market Price at
the Conversion Date, or (2) $2.75. The term "Market
Price" means the average of the three lowest closing
bid prices on the Principal
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Market (as reported by Bloomberg L.P.) of the Common
Stock on any Trading Day during the twenty-two (22)
Trading Day period ending on the Trading Day immediately
prior to the date upon which the Market Price is to be
determined; but -
(c) the Conversion Price may not be less than $0.75,
if all of the following conditions are satisfied: (1) a
Registration Statement is effective for the Common
Stock; (2) the Common Stock has been traded (since the
effective date of the Registration Statement) for
thirty (30) consecutive Trading Days with an average
daily volume of 140,000 shares at a volume-weighted
average price (as shown on the Bloomberg AQR function)
of at least 150% of the closing bid price on the first
Closing Date, and (3) the Company's microwave hair
removal product has received written FDA approval; and
(d) the minimum Conversion Price will be increased if the
foregoing conditions continue to be met and any or all
of the following conditions are met: (1) the Company's
most recent timely filed Form 10-Q or QSB shows net
revenues for the quarter of at least $10,000,000 (the
minimum Conversion Price would then be increased by
$0.25); (2) the Company's most recent timely filed
Form 10-K or KSB shows net revenues for the fiscal
year of at least $50,000,000 (the minimum Conversion
Price would then be increased by $0.35); (3) the
Common Stock has traded (since the effective date of
the Registration Statement) for thirty (30)
consecutive Trading Days with an average daily volume
of 250,000 shares (the minimum Conversion Price would
then be increased by $0.25).
On July 20, 1999, the Company also issued warrants to purchase
250,000 shares of common stock to JW Genesis Securities, Inc. as
part of its fee for arranging this Convertible Debenture
financing. These warrants are exercisable at a price of $3.3125
per share at any time prior to 5:00 pm New York City Time on July
20, 2004.
As part of the Debenture sale, the Company also signed and agreed
to a Registration Rights Agreement in which it is obligated to
register all the warrant shares it may issue, along with all the
shares that have been issued to parties exercising their right of
conversion as holders of the Convertible Debentures and 265% of
the shares that could be issued as a result of the conversion of
any, as yet, unconverted Convertible Debentures at the Conversion
Price in effect on the Closing Date. Under this Registration
Rights Agreement, a registration statement must be filed with the
SEC within 45 days of the Closing Date and such Registration
Statement must become effective within 105 days from the Closing
Date (or five (5) days of clearance by the Commission to request
effectiveness). Failure to meet these deadlines or to maintain
the registration statement as effective will create potentially
severe penalties for the Company, including the requirement to pay
liquidated damages to the purchasers of the Convertible Debentures
of three percent (3%) of the aggregate market value of the shares
of Common Stock purchased from the Company (including the
Conversion Shares which would be issuable upon conversion of the
Convertible Debentures on any date of determination), until such
Registration Statement has been declared effective.
The shares of Common Stock into which the Convertible Debentures
may be converted and the shares underlying such warrants are being
registered pursuant to the Registration Statement of which this
Prospectus is a part.
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Securities Being Offered Up to 5,146,010 shares of Common
Stock; See Section entitled
"DESCRIPTION OF SECURITIES TO BE
REGISTERED."
Securities Issued
And to be Issued As of the date of this Prospectus,
19,110,679 shares of common stock are
issued and outstanding. In addition,
there are approximately 2,759,260
shares represented by Convertible
Debentures and Warrants that may be
converted into Common Stock.
Therefore, upon conversion of the
Debentures and Warrants, there will
be approximately 21,869,939 shares
of common stock issued and outstanding.
All of the Common Stock to be sold
under this Prospectus will be sold by
existing shareholders. See Section
entitled "DESCRIPTION OF SECURITIES
TO BE REGISTERED".
Use of Proceeds The Company will not receive any
proceeds from the sale of the Common
Stock by the Selling Stockholders.
See "USE OF PROCEEDS."
Risk Factors The securities offered through this
Prospectus involve a high degree of
risk and should not be purchased by
anyone who cannot afford the loss of
his entire investment. Prospective
investors should carefully review and
consider the factors set forth in the
section of this Prospectus entitled
"RISK FACTORS," as well as the other
information set forth in this document,
before subscribing for any of the
Common Stock. See "RISK FACTORS."
RISK FACTORS
An investment in the securities offered through this Prospectus is
highly speculative and subject to a high degree of risk. Only
those who can bear the risk of loss of their entire investment
should participate. Prospective investors should carefully
consider the following factors, among others, prior to making an
investment in the Common Stock described in this document.
In addition, the information contained in this section and
elsewhere may at times represent the Company's best estimates of
its future financial and technological performance, based upon
assumptions believed to be reasonable. No representation or
warranty is made, however, as to the accuracy or completeness of
any of these assumptions, and nothing contained in this document
should be relied upon as a promise or representation as to any
future performance or events.
The Company is Likely to Need Additional Financing to Carry on its
Operations
While the Company has just completed a financing through the sale
of Convertible Debentures (See Section entitled "Description of
Securities to be Registered"), it will not be able to fully expand
its operations as planned without obtaining additional financing
in the near future. If this financing is
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not available or
obtainable, investors may lose a substantial portion or all of
their investment. The Company currently has no immediate means
for obtaining this additional financing. There can be no
assurance therefore that this additional financing, when
necessary, will be available to the Company on acceptable terms,
or at all.
The Company is a New Venture with Little Experience in the
Operation of its Business and No Experience in the Sale of its
Products
The Company was only recently incorporated, and, to date, has been
involved primarily in organization and product development. Its
only active subsidiary, MMC, has been conducted as a division of
Dynamic for approximately 2 years and, accordingly, also does not
have any independent operating history. Moreover, the Management
of the Company has historically relied upon Dynamic and is now
responsible for maintaining its own administrative functions. In
addition, MMC has no prior operating history or experience in
manufacturing, developing, and bringing to market the products of
the Company. Potential investors should be aware that there is a
substantial risk of failure associated with new businesses as a
result of problems encountered in connection with their formation
and operation. These include, but are not limited to,
unanticipated problems relating to the marketing and sale of a new
product in the marketplace, the entry of new competition and
unknown or unexpected additional costs and expenses that may
exceed current estimates. There is only a limited operating
history upon which to base any projection as to the likelihood
that the Company will prove successful, and thus there can be no
assurance that the Company will achieve profitable operations or
even generate any operating revenues.
The Company's Products are New and Untested in the Market Place
Any time a new product is introduced into a market, as in the case
of the products being developed by the Company, there is a
substantial risk that sales will not meet expectations or even
cover the cost of operations. General market conditions might be
such that sales will be slow or even non-existent, and/or the
product itself might not fit the needs of buyers enough to induce
sales. While the Company anticipates the ability to sell the
products it develops, there is no way to predict the volume of
sales that will occur or even if sales will be sufficient to
support the future operations of the Company. Numerous factors
beyond the control of the Company may affect the marketability of
the products offered and developed. These factors include consumer
demand, market fluctuations, the proximity and capacity of
suppliers and government regulations, including regulations
relating to prices, taxes, royalties, importing and exporting of
products and environmental controls. The exact effect of these
factors cannot be accurately predicted, but it's possible they may
result in the Company not receiving an adequate return on its
invested capital.
There is a Potential for Liability and Losses as a Result of
Defective Products
Whenever a new product is created and introduced into a market, as
in the case of the products being offered by the Company, there is
the possibility that the product will operate defectively and/or
cause injury to persons or property (even when operated as
designed). This is particularly true of products that are used in
the treatment of health or cosmetic problems directly on
individuals, such as the products being designed by the Company.
If the Company is unable to repair any such defect, they may be
required to refund purchase money and/or be held responsible for
losses incurred as a result of the defect, including direct and
consequential damages to persons
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or property. Moreover, even if
the Company is able to repair the defect, it may be held liable
for losses or injuries caused by the defect before it is fixed. In
such a case, the Company may experience losses, or, in severe
cases, be unable to continue operations.
The Company has No Plans to Issue Dividends
The payment of dividends on common stock is within the discretion
of the Board of Directors of the Company and will depend upon the
Company's future earnings, its capital requirements, financial
condition and other relevant factors. It should be noted that the
Company currently has no plan to declare any dividends in the
foreseeable future and has not declared any dividends in the past.
The Company has Not Been Profitable in the Past
The Company has been in its development stage, and, as such, has
not made any income or profit in the past. Because of the
difficulties involved in bringing a new product to market as well
as the difficulties encountered by any new business, there can be
no assurance that the company will be able to market and sell its
products as planned or generate income sufficient enough to
support the business expenses.
The Medical Equipment Industry is Extremely Competitive
Competition in the sale of medical equipment used for
dermatological and related medical applications is intense and
expected to increase. Furthermore, the Company will face
competition from numerous companies that currently market, or are
developing, products similar to those being developed by the
Company. Many of these companies have significantly greater
marketing, financial and managerial resources than the Company.
There can be no assurance that competitors of the Company will not
succeed in developing and distributing products that will render
the Company's products obsolete or noncompetitive. Generally,
this will have a significant negative effect on any bottom line
profits as well as the ultimate viability of the Company.
Investors Should Not Rely on Forward Looking Assessments Contained
in this Document
The ability of the Company to accomplish its objectives, and
whether or not the Company will be financially successful is
dependent upon numerous factors, each of which could have a
material effect on the results obtained. Some of these factors
are within the discretion and control of management and others are
beyond management's control. The assumptions and hypothesis used
in preparing any forward-looking assessments of profitability
contained in this document are considered reasonable by
management. There can be no assurance, however, that any
projections or assessments contained herein or otherwise made by
management will be realized or achieved at any level. Prospective
investors should have this Memorandum reviewed by their personal
investment advisors, legal counsel and/or accountants to properly
evaluate the risks and contingencies of this offering.
The Company is Subject to Potential Losses Due to Changes in the
Law or Regulations
The Company and its subsidiary are subject to United States and
international laws and regulations regarding the development,
production, transportation and sale of the products it sells.
The
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Company may, with regard to governmental and/or regulatory
agencies, be required to comply with certain regulations, and/or
potential future regulations, rules, and/or directives. Due to the
nature of the medical equipment industry, there is no guarantee
that certain regulations may not, in the future, be imposed.
Moreover, potential regulatory conditions and/or compliance
therewith, may have a materially adverse affect upon the Company,
its business operations, prospects and/or financial condition.
The Company may be Subject to Potential Medical Malpractice
Liability Claims
Although the Company only sells products used in the practice of
medicine and is not engaged in the practice of medicine, the use
of the Company's equipment in the treatment of spider veins and
hair removal entails the risk of professional liability claims.
Consequently, the Company may be named as a co-defendant in
medical malpractice claims. The Company's exposure to such
liability is
reduced because purchasing Physicians will be required to buy and
carry their own medical malpractice insurance. While the Company
currently plans to maintain insurance for its business in amounts
deemed adequate by management to cover potential claims when its
product comes to market, it does not currently have any such
insurance. Adverse determinations against the Company with respect
to all such claims or the filing of malpractice claims against the
Company in the future could have a material adverse effect on the
Company's financial condition, results of operations and cash
flow.
The Company may be Harmed if it loses its Market Standing on the
Over-The-Counter Bulletin Board
There can be no assurance that in the future the Common Stock will
meet the continued listing qualifications of the NASD Over-The-
Counter Bulletin Board Market or other market upon which the
Company's common stock may trade at some later date. De-listing
from the Bulletin Board or other market could cause, among other
things, a decline in the market price of the Common Stock and
difficulty in the ability of the Company in obtaining future
equity financing, or in using its Common Stock as consideration
for acquisitions.
The Price of the Company's Stock is Very Volatile
The market price of the Company's common stock has been and may
continue to be very volatile. Recently, the stock market in
general and the shares of bio-tech companies in particular have
experienced significant price fluctuations. These broad market and
industry fluctuations may adversely affect the market price of the
Common Stock. Factors such as quarterly fluctuations in results of
operations, the timing and terms of future acquisitions and
general conditions in the healthcare industry may have a
significant impact on the market price of the stock.
Sales of Stock By the Selling Stockholders may Negatively Effect
the Market Price of the Company's Stock
All of the Common Stock being offered through this Prospectus are
offered solely by the Selling Stockholders who are not restricted
as to the prices at which they may sell the Common Stock. Shares
sold below the current level at which the shares of Common Stock
are trading may adversely affect the market price of the Common
Stock. The outstanding shares of Common Stock covered
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by this Prospectus and the shares of Common Stock covered by this
Prospectus which are issuable upon the conversion or exercise of
the Company's Convertible Debentures and Warrants represent 26.93%
of the Company's outstanding shares as of September 1, 1999. This
large amount of Stock, if sold all at once or in blocks, would
have a negative effect on the market price of the Company's Stock.
Exercise of Conversion and Warrant Rights By Selling Stockholders
carry a Potential For Dilution of Shareholder Ownership
The Company has issued $380,000 worth of Convertible Debentures,
convertible into Common Stock, and entered into an agreement to
issue another $500,000 worth of Convertible Debentures
(convertible under the same terms) following the Registration of
the Common Stock with the Securities and Exchange Commission.
Depending on market conditions, the number of shares issuable upon
conversion of these Debentures vary dramatically. The lower the
stock price goes, the more common stock the Debenture holder
receives as a result of conversion. This will have the effect of
diluting the interest of existing shareholders in the Company.
The following table illustrates the number of shares that the
Company would be required to issue at various assumed prices upon
conversion of these Debentures, subject to the limitations
described in the text following the table. This table is for
illustrative purposes only, and you should not assume that it
represents the Company's best guess of the range of future stock
prices.
Additional Ownership of
MW Medical Shares Issuable Selling Stockholders as a
Stock Price Under the Debenture Result of Share Issuance(1)(3)
Agreement
$0.875 1,005,714 5.26%
$1.75 502,857 2.63%
$2.62 335,878 1.76%
$3.50 (2) 320,000 1.67%
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(1) Based on 19,110,679 shares outstanding on September 1, 1999.
(2) Last sale price on September 1, 1999, but note that the
Debenture Agreement provides a Conversion Price cap of $2.75.
(3) This is the additional ownership percentage as a result of the
conversion of the remaining $880,000 Debentures by the Selling
Shareholders.
Purchasers of Common Stock could therefore experience substantial
dilution upon conversion of the convertible debentures. A similar
effect could be experienced upon the exercise of the 600,000
currently outstanding warrants as well as the exercise of the
1,365,000 outstanding stock options.
In addition, it should be noted that the current conversion price
of these Debentures ($2.75) as well as the exercise price of the
Warrants ($2.75 and $3.312) and Options ($1) is below the market
price
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of the Common Shares. The exercise of such a large amount
of stock, especially if close in time may have a substantial
negative effect on the market price of the common stock.
The Company is Subject to Potential Penalties for Failure to
Register its Common Stock
The Company is subject to a Registration Rights Agreement that
requires it to register certain of its Common Stock with the
Commission within 45 days of the closing of the sale of the
Convertible Debentures (July 20, 1999), and, generally, for the
registration to be effective within 105 days of that date.
There can be no assurance that the Company will be able to comply
with these deadline or that it will be able to pay the penalty if
required.
The Company is Dependent on Key Personnel and Management
Due to the highly technical nature of the Company's business,
having certain key personnel is essential to the manufacture and
production process and thus to the entire business itself.
Consequently, the loss of any of those individuals may have a
substantial effect on the Company's future success or failure.
Moreover, the Company is dependent on the principal members of its
management staff, the loss of any of whom could impair the
development of the Company's products and projects. The Company's
success will be largely dependent on the decisions made by members
of management. Furthermore, the Company may depend on its ability
to attract and retain additional qualified personnel to manage
certain business interests. The Company may have to recruit
qualified personnel with competitive compensation packages, equity
participation and other benefits which may affect the working
capital available for the Company's operation(s). Management may
seek to obtain outside independent professionals to assist them in
assessing the merits and risks of any business proposals as well
as assisting in the development and operation of any projects. No
assurance can be made that the Company will be able to obtain this
needed assistance on reasonable terms.
The Company has Limited Assets
As of the date of this Prospectus, the Company has limited assets
and will require significant capital to develop its business and
sell its products.
The Company's Success will Depend on its Patent and Protection of
its Proprietary Technology
The Company's success will depend, in part, on its ability to
obtain and enforce intellectual property protection for its
technology in both the United States and other countries. To date,
the Company has filed patent applications in the United States
Patent and Trademark Office and international counterparts of
applications in the United States Receiving Office pursuant to the
Patent Cooperation Treaty. No assurance can be given that patents
will issue from these applications or that, with respect to any
patents, issued or pending, the claims allowed are or will be
sufficiently broad to protect the key aspects of the Company's
technology or that the patent laws will provide effective legal or
injunctive remedies to stop any infringement of the Company's
patents. In addition, no assurance can be given that any patent
rights owned by the Company will not be
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challenged, invalidated or circumvented, that the rights granted
under patents will provide competitive advantages to the Company,
or that the Company's competitors will not independently develop
or patent technologies that are substantially equivalent or
superior to the Company's technology. The Company's business plan
assumes that they will obtain comprehensive patent protection of
its technologies. There can be no assurance that such protection
will be obtained, or that, if obtained, it will withstand challenge.
Furthermore, the possibility exists that the Company could be found
to infringe on patents held by others. The Company may have to go
to court to defend its patents, to prosecute infringements, or to
defend itself from infringement claims by others.
Patent litigation is expensive and time-consuming, and can be used
by well-funded adversaries as a strategy for depleting the
resources of a small company such as the Company. There is no
assurance that the Company will have sufficient resources to
successfully prosecute its interests in any litigation which may
be brought.
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET-FORTH AND NOT SET-
FORTH HEREIN, THE SHARES OFFERED INVOLVE A CERTAIN DEGREE OF RISK.
ANY PERSON CONSIDERING THE PURCHASE OF THESE SHARES SHOULD BE
AWARE OF THESE AND OTHER FACTORS SET-FORTH IN THIS MEMORANDUM AND
SHOULD CONSULT WITH HIS OR HER LEGAL, TAX AND FINANCIAL ADVISORS
PRIOR TO MAKING AN INVESTMENT IN THE COMPANY. THE COMPANY'S
COMMON STOCK SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO
LOSE ALL OF THEIR INVESTMENT.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Common Stock offered through this Prospectus by the Selling
Stockholders.
DETERMINATION OF OFFERING PRICE
The offering price of the Common Stock will not be determined by
the Company but by market factors and the independent decisions of
the Selling Shareholders.
DILUTION
The outstanding shares covered by this Prospectus and the shares
of Common Stock covered by this Prospectus which are issuable upon
the conversion or exercise of the Company's Convertible Debentures
and warrants represent 26.93% of the Company's outstanding shares
of common stock as of September 1, 1999.
As of September 1, 1999, 19,110,679 shares of the Company's Common
Stock were issued and outstanding. The Company has also issued
$380,000 worth of Convertible Debentures, convertible into Common
Stock, and entered into an agreement to issue another $500,000
worth of Convertible Debentures (convertible under the same terms)
following the Registration of the Common Stock with the Securities
and Exchange Commission.
12
<Page >
In addition, the Company has issued out Warrants to purchase
600,000 shares of Common Stock, 350,000 at a price of $2.75 per
share and 250,000 at a price of $3.312 per share. The Company has
also issued out Options to purchase 1,365,000 of the Company's
common stock at a price of $1.00 per share under the Company's
Incentive Stock Option Plan dated March 23, 1999.
Depending on market conditions at the time of conversion, the
number of shares issuable to the holders of the Convertible
debenture could prove to be significantly greater in the event of
a decrease in the trading price of the Common Stock. This will
have the effect of diluting the interest of existing shareholders
in the Company.
In addition, the exercise of the outstanding warrants and options
would have the effect of diluting the interest of the existing
shareholders of the Company's Common Stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been traded on the National
Association of Securities Dealers Over the Counter Bulletin Board
system, under the symbol MWMD, since April 5, 1999. There can be
no assurance that in the future the Common Stock will meet the
continued listing qualifications of the Bulletin Board.
The following table sets forth for the periods indicated below the
high and low sales prices per share of the Common Stock as
reported by Bulletin Board since the stock began trading:
HIGH LOW
---- ----
1999
First Quarter Not Trading*
Second Quarter $2.00 $1.00
Third Quarter (through August 30, 1999) $3.93 $1.75
*Trading of the Company's stock did not begin until Second Quarter
1999.
As of the close of business on September 1, 1999, the last
reported sales price per share of the Company's Common Stock was
$3.50.
There were 441 holders of record of the Company's Common Stock at
the close of business on September 1, 1999. Such number does not
include persons, whose shares are held by a bank, brokerage house
or clearing company, but does include such banks, brokerage houses
and clearing companies.
No cash dividends have been paid on the Company's Common Stock
since the organization of the Company and the Company does not
anticipate paying dividends in the foreseeable future. The Company
currently intends to retain earnings for future growth and
expansion opportunities.
13
<Page >
SELECTED CONSOLIDATED FINANCIAL DATA
The following table provides certain comparative financial data
for the Company for the years 1996, 1997 and 1998 as well as the
first six months of 1999. The information provided in this table
is qualified by the more complete information contained in the
Audited and Un-audited Consolidated Financial Statements provided
later in this document.
All amounts shown below unless otherwise noted are in $1000s
increments.
6/99 1998 1997 1996
---- ---- ---- ----
Total Revenue 0 0 0 0
Operating Income
(loss) (789) (1221) (1134) (605)
Income (loss)
before Income
Tax Expense (775) 1106 (1127) (595)
Net Income
(loss) (776) 433 (1252) (467)
Income (loss)
per share $(.05) $.03 $(.09) $(.03)
Total assets 2189 1404 2539 2609
Current
portion of
notes Payable
and L/T debt 425 0 90 48
Notes payable
and L/T debt.
Less Current
portion 0 0 2330 1556
Total
Shareholder
Equity
(deficit) 1097 1198 (256) 996
Dividends
declared and 0 0 0 0
Paid
SELLING STOCKHOLDERS
The Common Stock offered hereby consist of (i) 2,386,750
outstanding shares of Common Stock which were issued upon
conversion of Convertible Debentures sold by the Company in July
1999 through a private placement exempt under Rule 506 of
Regulation D, (ii) approximately 2,159,260 shares issuable upon
the conversion of the $880,000 in aggregate principal amount of
convertible debentures, issued and contracted for by the Company
(based upon the conversion price calculation as described in the
Section on "Dilution" above, multiplied by 2.65 as required by the
Registration Rights Agreement), and (iii) 600,000 shares of Common
Stock issuable pursuant to the exercise of warrants issued or
issuable to certain Selling Stockholders.
14
<Page >
The following table sets forth as of September 1, 1999,
information regarding the beneficial ownership of the Company's
Common Stock held by each of the Selling Stockholders who may sell
the Common Stock pursuant to this Prospectus as of such date, the
number of Shares pursuant to this Prospectus as of such date, the
number of Shares offered hereunder by each such Selling
Stockholder and the net ownership of shares of Common Stock, if
all such Shares so offered are sold by each Selling Stockholder.
TOTAL NUMBER TOTAL SHARES TO
OF SHARES TO BE OWNED UPON
BE OFFERED FOR COMPLETION
NAME OF SELLING SHARES OWNED SELLING OF THIS
STOCKHOLDER PRIOR TO THIS SHAREHOLDERS OFFERING PERCENT
OFFERING(1) ACCOUNT(2) OWNED(3)
- --------------- ------------- -------------- ---------- --------
Austost Anstalt
Schaan
Landstrasse 163
9494 Furstenweg,
Vaduz
Leichtenstein 986,634 986,634 0 5.16%
Balmore Funds SA
Trident Chambers
Road Town
Tortola, BVI 986,634 986,634 0 5.16%
Roseworth
Group, Ltd
C/o Dr. Batliner
& Partners
Aeulestrasse 74,
FI - 9490
Vaduz
Leichtenstein 1,404,034 1,404,034 0 7.35%
Markham Holdings
Limited
Suite 7B & 8B
50 Town Range
Gibraltar 242,694 242,694 0 1.27%
High Octane
Fund Ltd
HWR Services
Craigmuir
Chamber
PO Box 71
Road Town,
Tortola BVI 1,065,608 765,608 0 5.58%
Strategic
Group Ltd
Suite 41/42
Victoria
House
26 Main Street
PO Box 743
Gibraltar 255,203 255,203 0 1.34%
15
<Page >
Mark Hubbard
Suite 41/42
Victoria House
26 Main Street
PO Box 743
Gibraltar 255,203 255,203 0 1.34%
JW Genesis
Financial
Services
Corp.
599 Lexington
Avenue,
27th Floor
New York,
NY 10022 250,000 250,000 0 1.30%
- ------------------------------------------------------------------
(1) Except as otherwise noted, all shares or rights to these
shares are beneficially owned and sole voting and investment power
is held by the party named.
(2) Assumes that none of the Selling Stockholders sells shares of
Common Stock not being offered hereunder or purchases additional
shares of Common Stock.
(3) Based on 19,110,679 shares outstanding on September 1, 1999.
None of the Selling Shareholders have had a material relationship
with the Company other than as a shareholder as noted above at any
time within the past three years.
PLAN OF DISTRIBUTION
The Selling Stockholders, or their respective pledgees, donees,
transferees or other successors in interest, may sell some or all
of the Common Stock in one or more transactions (which may involve
block transactions) on the NASD Over-the-Counter Bulletin Board or
on such other market on which the Common Stock may from time to
time be trading, in privately negotiated transactions, through the
writing of options on the Common Stock, short sales or any
combination thereof. The sale price to the public may be the
market price prevailing at the time of sale, a price related to
such prevailing market price or such other price as the Selling
Stockholders determine from time to time. The Common Stock may
also be sold pursuant to Rule 144.
The Selling Stockholders, or their respective pledgees, donees,
tranferees or other successors in interest, may also sell the
Common Stock directly to market makers acting as principals and/or
broker/dealers, who may act as agent or acquire the Common Stock
as principal. Any broker/dealer participating in such transactions
as agent may receive a commission from the Selling Stockholders
(and, if they act as agent for the purchaser of such Common Stock,
from such purchaser). Usual and customary brokerage fees will be
paid by the Selling Stockholders. Broker/dealers may agree with
the Selling Stockholders to sell a specified number of shares at a
stipulated price per Share and, to the extent such broker/dealer
is unable to do so acting as agent for the Selling Stockholders,
to purchase, as principal, any unsold shares at the price required
to fulfill the respective broker/dealer's commitment to the
Selling Stockholders. Broker/dealers who acquire shares as
principals may thereafter resell such shares from time to time in
transactions (which may involve cross and block transactions and
which may involve sales to and through other broker/dealers,
including transactions of the nature described above) in the over-
the-counter market, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at negotiated
prices, and in connection with such resales may pay or receive
commissions to or from the purchasers of such shares. If
applicable, the Selling Stockholders also may have distributed, or
may distribute, shares to
16
<Page >
one or more of their limited partners which are unaffiliated with
the Company; such limited partners may, in turn, distribute such
shares as described above. There can be no assurance that all or
any of the Common Stock offered hereby will be sold by the Selling
Stockholders.
The Company is bearing all costs relating to the registration of
the Common Stock, provided that any commissions or other fees
payable to broker/dealers in connection with any sale of the
Common Stock will be borne by the Selling Stockholders or other
party selling such Common Stock. The Company has agreed to
indemnify certain of the Selling Stockholders, or their
transferees or assignees, against certain liabilities, including
liabilities under the Act, or to contribute to payments the
Selling Stockholders, or their transferees or assignees, may be
required to make in respect thereof.
The Selling Stockholders must comply with the requirements of the
Act and the Exchange Act and the rules and regulations thereunder
in the offer and sale of the Common Stock. In particular, during
such times as the Selling Stockholders may be deemed to be engaged
in a distribution of the Common Stock, and therefore be deemed to
be an underwriter under the Act, it must comply with the Exchange
Act, as amended, and will, among other things:
(a) not engage in any stabilization activities in connection with
the Company's securities;
(b) furnish each broker/dealer through which Common Stock may be
offered such copies of this Prospectus, as amended from time to
time, as may be required by such broker/dealer; and
(c) not bid for or purchase any securities of the Company or
attempt to induce any person to purchase any securities of the
Company other than as permitted under the Exchange Act.
DESCRIPTION OF SECURITIES TO BE REGISTERED
The Company has 100,000,000 authorized common shares with a par
value of $0.001 per share of Common Stock, of which 19,110,679 are
currently outstanding. In addition, there are approximately
2,159,260 common shares issuable upon the conversion of $880,000
in aggregate principal amount of convertible debentures, issued
and contracted for (based upon the conversion price calculation as
required in the Registration Rights Agreement), 600,000 shares of
Common Stock issuable pursuant to the exercise of warrants issued
to the Selling Stockholders, and 1,365,000 shares issuable upon
the exercise of Employee Incentive Stock Option Agreements.
Holders of Common Stock have the right to cast one vote for each
share held of record on all matters submitted to a vote of holders
of Common Stock, including the election of directors. There is no
right to cumulative voting in the election of directors.
Stockholders holding a majority of the voting power of the capital
stock issued and outstanding and entitled to vote, represented in
person or by proxy, are necessary to constitute a quorum at any
meeting of the Company's stockholders, and the vote by the holders
of a majority of such outstanding shares is required to effect
certain fundamental corporate changes such as liquidation, merger
or amendment of the Company's Certificate of Incorporation.
Holders of Common Stock are entitled to receive dividends pro rata
based on the number of shares held, when, as and if declared by
the Board of Directors, from funds legally available therefore,
subject to the rights of holders of any outstanding preferred
stock. In the event of the liquidation,
17
<Page >
dissolution or winding up of the affairs of the Company, all assets
and funds of the Company remaining after the payment of all debts
and other liabilities, subject to the rights of the holders of any
outstanding preferred stock, shall be distributed, pro rata, among
the holders of the Common Stock. Holders of Common Stock are not
entitled to pre-emptive or subscription or conversion rights, and
there are no redemption or sinking fund provisions applicable to
the Common Stock All outstanding shares of Common Stock are, and
the shares of Common Stock offered hereby will be when issued,
fully paid and non-assessable.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this Prospectus as having prepared
or certified any part of it or having given an opinion upon the
validity of the securities being registered or upon other legal
matters in connection with the registration or offering of the
Common Stock was employed on a contingency basis, or had, or is to
receive, in connection with the offering, a substantial interest,
direct or indirect, in the registrant or any of its parents or
subsidiaries or was connected with the registrant or any of its
parents or subsidiaries as a promoter, managing or principal
underwriter, voting trustee, director, officer, or employee.
The validity of the shares of the Company's Common Stock offered
hereby will be passed upon for the Company by Michael A. Cane of
Cane & Company, Independent Counsel to the Company.
THE COMPANY
Investors are cautioned that forward-looking statements made
herein are inherently uncertain. Actual performance and results
may differ materially from those that are projected or suggested.
Additional information concerning certain risks and uncertainties
that could cause actual results to differ materially from those
projected or suggested may be identified from time to time in the
Company's Securities and Exchange Commission filings and the
Company's public announcements.
MW Medical, Inc. (the "Company") is in the business of designing
and developing microwave technologies for dermatological
applications through its wholly owned subsidiary, Microwave
Medical Corporation, a California Corporation ("MMC"). The
Company's products are in the developmental stage. The Company
plans to market and sell its microwave technology products upon
completion of this developmental stage.
Principal Services and Products
MMC is engaged in the development of proprietary technology
relating to the use of microwave energy for medical applications.
MMC has a patent pending entitled, "Method and Apparatus for
Treating Subcutaneous Histological Features," which focuses on the
application of microwave energy to the treatment of spider veins
and for use in hair removal. The use of microwave for hair
removal is based upon the selective heating of hair follicles
while cooling the surface of the skin to protect the epidermis.
MMC has used computer modeling and laboratory studies to optimize
the system for hair removal. Studies have shown effectiveness in
destroying follicles while maintaining the integrity of the skin
surface. MMC completed Phase II clinical trials in June, 1998 on
its microwave system for hair removal. Phase II clinical trials
consisted of a dose titration to establish safety and initial
indications of efficacy. A total of 21 subjects were tested
starting at a low dose in
18
<Page >
the first group of three subjects and gradually applying an
increasing dose in each group of three subjects until the maximum
tolerable dose was reached. Effectiveness was evaluated by
following hair counts in the treated areas.
Phase III clinical trials for hair removal were completed in April
1999 to prove safety and efficacy in the use of the product. The
Company then submitted the results to the FDA on Form 510-K on
April 22, 1999. A determination of the Company's FDA application
has not yet been made, and no assurance can be given that the FDA
will approve the Company's application at any time in the future.
MMC's objective is to obtain FDA approval and complete its
development of a microwave therapy system that incorporates the
technology in the patent for the following applications:
(A) The removal of unwanted hair for cosmetic purposes
Unwanted hair is a common dermatological and cosmetic
problem. There is an increasing demand for hair
removal, which thus far has not been well addressed by
current technologies. MMC has been able to demonstrate
that microwave technology is a safe, effective and
feasible solution for hair removal in its Phase II and
III clinical trials.
(B) The treatment of Telangiectasia, or, spider veins
Spider veins are thread-like red to purplish veins that
stem from a network of small veins just below the
surface of the skin. Spider veins develop more
predominantly on the legs and faces of women. These are
usually caused by the female hormone estrogen. At this
time, injection (sclerotherapy) and lasers are the
predominant treatments for this condition.
Research and Development
MMC began its research and development program in April 1996 while
a subsidiary of Dynamic. The research and development program
included computer modeling, laboratory studies and pre-clinical
studies which led to the development of the prototype microwave
system that is now in clinical trials for hair removal, and will
soon be in clinical trials for spider veins. P&H supported the
technical development of MMC's prototype system. With the sale of
the business of P&H to Microwave Communications Corp.
("Microwave") on May 6, 1998, Microwave agreed to provide the
technical, management and office support related to microwave
services to MMC through April 1, 1999. This agreement was
arranged by the Company as part of the sale of the business of P&H
in order to ensure that there would be no interruption to the
development of the prototype machines for MMC.
MMC currently plans to launch its microwave system(s) for hair
removal by the end of the fourth quarter of 1999 (subject to
obtaining FDA approval). The Company has three working prototype
systems that are currently being used in clinical trials in the
U.S. Regulatory approval is not anticipated prior to the fourth
Quarter of 1999. MMC has an arrangement with ETM Industries, Inc.
whereby ETM will develop a microwave power amplifier to deliver
microwave pulses
19
<Page >
according to MMC's specifications. The industrial design of
the clinical prototypes was completed by Sonos, Inc. of Huntington
Beach, California. The Company will also use Sonos, Inc. for design
and limited production of the final unit. MMC intends to contract
with outside vendors for the microwave generator, the wave guide
transmission line, the components of the applicator, the
micro-controller and other components of MMC's microwave system.
MMC or a designated GMP (Good Manufacturing Practice) facility
will be responsible for the final assembly and quality control.
Competition and Marketing
The Company intends to market its proprietary microwave
technology in the cosmetic dermatology market. In recent years,
there has been a substantial upsurge in the demand for non
surgical cosmetic procedures in the treatment of spider veins and
removal of hair. Market interest has been largely fostered by the
introduction of laser technology for use in cosmetic dermatology.
MMC plans to compete primarily with laser devices in North America
and the European Community. MMC's competitive advantage is
expected to be based on price, safety and effectiveness. The end
user price is expected to be in the range of $95,000 to 100,000,
which is 25 to 35 percent below the current cost of the equivalent
laser systems. In addition, laser technology cannot be applied
well in individuals with dark skin (for either spider veins or
hair removal) and does not effectively cause hair removal in
individuals with light colored hair. These limitations are the
result of absorption of laser energy by specific pigments in the
skin and hair. In addition, the efficacy of laser systems for
spider veins is sub-optimal, in most cases requiring 3 to 5
treatments to achieve an acceptable clinical response. Based upon
the Company's clinical studies to date, microwave technology is
not expected to have these limitations.
The Company's principal competitors are Candela Corporation and
ESC Medical Systems Ltd. Both Companies sell, among other things,
laser systems used for hair removal and the treatment of spider
veins.
The market strategy will be specific to the geographic area in
which the product is being introduced. MMC will focus on two
marketing strategies: (1) selling or leasing the product to
physicians and other health-care practitioners, and (3) fee
sharing in which MMC will pre-finance the product and take some
percentage of the revenue generated through the use of the
product. MMC plans to use distributors in each major geographic
area who will take over the sales and service of the product. The
Company has not yet entered into any formal agreements with any
distributors, but expects to complete distribution agreements
before the end of the fourth quarter of 1999.
The primary customer will be physicians and other healthcare
practitioners specializing in cosmetic surgery and dermatology.
In the U.S. alone, it is estimated that there are approximately
25,000 cosmetic surgeons and dermatologists. In addition, other
physician specialists such as family practitioners, gynecologists,
and surgeons have incorporated cosmetic dermatology into their
practices.
The world wide market for the treatment of spider veins and hair
removal is estimated to be $5 billion. New technologies will make
up 25% of this market through the year 2002.
20
<Page >
MMC concentrates marketing and sales efforts in the United States,
Canada and the European Community. The Company will apply to the
appropriate regulators for all three markets. The commencement of
the product shipments in the United States is conditional on FDA
approval. In all markets, MMC will apply for approval with regard
to hair removal and spider veins.
Depending on end user and region, MMC is preparing three kinds of
marketing strategies. The strategy for the market launch is
determined by the possibility of rapid growth and cash flow.
Sales in MMC will depend on the respective marketing strategy.
FDA Approval Process
The Process of obtaining and maintaining FDA approval for the
marketing and sale of a product like the one designed by the
Company has two aspects: (1) obtaining approval for the products
use; and (2) complying with Good Manufacturing Practices by
establishing quality controls, operating procedures and technical
documentation, among other aspects of the manufacturing process.
Step by step, the process of obtaining FDA approval occurs
generally as follows:
1. The applicant goes through laboratory and pre-clinical studies
and testing;
2. The applicant submits an application to conduct human clinical
trials with an Institutional Review Board ("IRB"). The IRB
reviews the application and can grant the applicant the right to
start human clinical trials. Alternatively, the IRB can require
the applicant to apply to the FDA and obtain an exemption to do
trials if it determines that the planned device creates a
significant risk to human subjects.
3. If the applicant is granted the right to begin human clinical
trials, it does so in phases. The first phase usually involves a
safety study on normal individuals. Data is obtained and
submitted to the IRB with other documentation to get approval to
do Phase II studies. Phase II studies involve small groups of
patients who are treated. The device/system is tested for safety
and effectiveness. The data that is collected is again submitted
to the IRB with a request to go to Phase III clinical studies. If
the application is approved, Phase III clinical studies are begun
on a larger group of patients. Safety and efficacy are tested
more extensively and over multiple centers for more detailed
analysis.
4. If the results of these clinical studies justify, the
applicant can file an application with the FDA. The FDA has two
basic means of making an application. A Pre-Market Approval
Process and the Substantial Equivalence Application ("510(k)
Filing"). A Pre-Market Approval Process is a full application
process, while a 510(k) filing is a relatively short application
process in which the applicant attempts to show that the device
for which it seeks approval is substantially equivalent to an
existing device already approved by the FDA. This application is
given to a reviewer who has the opportunity to request
clarification as to issues in the application and eventually
provide formal clearance for the use and sale of the devise (or a
rejection of the application). As noted above, even after
clearance of a devise, the manufacturer must still satisfy the GMP
requirements.
The Company has completed all three Phases of clinical trials and
has applied to the FDA with a 510(k) application. This
application is in the process of being reviewed. No final
determination,
21
<Page >
however, has been made by the examiner, and no assurance can be
given that once his investigation is completed the examiner will
approve this application.
In addition, even if clearance is obtained, the devise must
satisfy electronic safety and emissions requirements as set by IEC
60601-1 to be sold in the US and Europe. As the Company has not
yet built its production device, no testing has been, as yet, done
to determine if the machine meets this standard. Upon completion
of the device, the Company will submit it to a certified testing
laboratory for a determination that it meets these requirements.
The test data obtained from this will be incorporated into a
technical file and submitted to a "Notified Body" in the European
Market to review and issue a CE mark designating approval
(assuming the device has passed the test). Once obtained the
Company will be able to market and sell its machine as planned.
Note that no assurance can be given that such approval will be
obtained upon this application.
Employees
The Company's six employees consist of its President, Vice
President of Sales, Director of Sales, N.A., and a
Secretary/Financial Officer, an electrical/microwave engineer and
a microwave technician. By the end of 1999, the research and
development division of MMC is expected to increase to four full-
time employees. Expansion will coincide with the Company's
product rollout. Manufacturing and assembly will be conducted by
third parties under the supervision of MMC. Sales, marketing and
administration is anticipated to add approximately 5 new employees
by the end of Fourth Quarter 1999 to coincide with the Company's
product release and anticipated regulatory approval. None of the
employees of the Company or its subsidiaries are subject to
collective bargaining agreements, nor have they been on strike, or
threatened to strike, within the past three years. The Company
and its subsidiaries have no supplemental benefit or incentive
arrangements with their employees other than health insurance
coverage.
Patents and Trademarks
The success of the Company substantially depends upon its
proprietary microwave technology for use in cosmetic dermatology.
MMC has a patent pending entitled, "Method and Apparatus for
Treating Subcutaneous Histological Features," which focuses on the
application of microwave energy to the treatment of spider veins
and for use in hair removal. The Company has no other patent,
trademark or intangible property.
Research and Development Expenditures
During the 1997 and 1998 fiscal years, the following amounts were
spent by MMC on research and development activities:
Year Ended Year Ended
December 31, 1997 December 31, 1998
MMC $ 1,057,759 $ 569,738
22
<Page >
Note that part of these expenditures were expended while MMC was a
subsidiary of Dynamic. The Research and Development costs for P&H
is incorporated into the discontinued operations category in the
Financial Statements.
Subsidiaries
Because the Company acts only as a holding company for P&H and
MMC, all of the information for each of these entities is listed
throughout this Prospectus. The subsidiaries' financial
information is included in the consolidated financial statements
attached hereto. The Company did not come into existence until
December 1997, while the subsidiaries were in existence for all of
1997. P&H and MMC have maintained separate operations and
financial reporting, both prior and subsequent to the spin-off of
the shares of the Company by Dynamic.
Description of Property
The Company leases space on a rent-free basis at 6955 E. Caballo
Dr., Paradise Valley, AZ 85253., and MMC's offices are located at
65 W. Easy St., Suite 104, Simi Valley, CA 93063.
Corporate Organization
The Company is a Nevada corporation and was incorporated as a
subsidiary of Dynamic Associates, Inc. ("Dynamic") on December 4,
1997. On February 26, 1998, the Company entered into a
Contribution Agreement (the "Contribution Agreement") with Dynamic
in which the Company issued 14,223,929 of its common shares to
Dynamic in consideration for:
(a) all of the issued and outstanding shares of P&H Laboratories,
Inc., a California corporation ("P&H");
(b) all of the issued and outstanding shares of MMC and
shareholders loans to MMC in the amount of $2,169,806; and
(c) the agreement of Dynamic to pay to the Company a total of
$200,000. The obligation of Dynamic to pay the sum of $200,000 is
evidenced by a promissory note dated February 26, 1998 (the
"Promissory Note"). Dynamic made a payment of $50,000 toward this
obligation in March of 1999, making the current principal amount
of the debt $150,000.
Dynamic then spun-off all shares of the Company issued pursuant to
the Contribution Agreement to the shareholders of Dynamic by a
distribution completed on March 11, 1998 (the "Distribution").
Each shareholder of Dynamic received one common share of the
Company for each common share of Dynamic held by the shareholder.
The shares of the Company distributed by Dynamic constituted all
of the issued and outstanding shares of the Company at the time.
As subsidiaries of Dynamic, each of MMC and P&H had been in the
microwave technologies business for approximately 2 years. MMC
commenced its business as a subsidiary of Dynamic in September,
1995. Dynamic acquired a 50% interest in P&H in January, 1996.
Dynamic acquired the remaining 50% of P&H in September, 1997.
23
<Page >
The Company sold the business of P&H pursuant to an asset purchase
and sale agreement dated March 9, 1998 (the "P&H Sale Agreement")
between P&H and Microwave Communication Corporation, a California
corporation ("Microwave"). Under the P&H Sale Agreement, the
Company, through P&H agreed to sell to Microwave all of the assets
of the business of P&H as a going concern. The sale of assets by
P&H to Microwave was completed on May 6, 1998. The following
consideration was received by the Company on closing:
(a) cash consideration of $160,943;
(b) a promissory note issued by MCC/ Ferro Systems, Inc., a
subsidiary of Microwave, whereby MCC/Ferro agreed to pay to P&H
the sum of $250,000 on August 1, 1998 and the sum of $243,125 on
March 31, 1999 (the "MCC/Ferro Promissory Note"). P&H has
assigned this note to the Company;
(c) the agreement of Microwave to provide to MMC 1200 hours of
microwave related services for the period to April 1, 1999,
subject to a maximum of 100 hours per month;
(d) office space for the business of MMC at MCC/Ferro's facility
in Simi Valley, California until February 28, 1999.
The obligations of MCC/Ferro under the MCC/ Ferro Promissory Note
are secured by a general security agreement against the assets of
MCC/Ferro and the guarantee of Microwave. The general security
agreement is subordinated to a bank financing arranged by
MCC/Ferro to pay-out P&H's bank financing and pay the amounts
under the MCC/Ferro Promissory Note.
Prior to disposition of its business, P&H was involved in the
business of manufacturing microwave components and subsystems for
the communications and aerospace industries. The devices included
isolators, circulators, power monitor devices, filters, diplexers,
switching diplexers, multi-junction circulators, microwave
subsystems and integrated packages and subsystems. P&H is
currently inactive as a result of the sale of the assets
comprising its business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's products are in the development stage. The Company
plans to market and sell its microwave technology products upon
completion of the development stage.
Default on Note Payment by Purchaser of P&H
As noted above, the Company has sold the business of P&H pursuant
to an asset purchase and sale agreement dated March 9, 1998. As
part of the consideration for this sale, the Company took back a
promissory note from MCC/ Ferro Systems, Inc. to pay to P&H the
sum of $250,000 on August 1, 1998 and the sum of $243,125 on March
31, 1999. P&H has assigned the note to the Company.
The payment on this note was not received on March 31, 1999 as
promised. The Company has recorded an allowance for doubtful
accounts of $60,000 and extended the repayment terms. MCC is to
make monthly payments of $15,000 including interest at 8%
beginning in July on the principal
24
<Page >
balance of $243,125. MCC is currently in default of it's July
and August payments under this revised agreement and the Company
currently plans to aggressively pursue collection of this debt.
Liquidity And Capital Resources
As a subsidiary of Dynamic, MMC had net losses equal to $595,318
for the year ended December 31, 1996 and $1,127,675 for the year
ended December 31, 1997. The losses were funded by Dynamic. The
Company is now responsible for financing MMC independently of
Dynamic. The Company does not, however, have any debt owing to
Dynamic as a result of the spin-off.
The Company has applied and will apply the proceeds from the
disposition of the microwave technologies business owned by P&H to
fund MMC. The Company will also apply funds realized from the
promissory note executed by Dynamic in favor of the Company to
fund MMC. The Company began an offering of 2,500,000 shares of
stock in June, 1998 which was completed in parts with the sale of
1,500,000 common shares in October, 1998 at a price of $0.75 per
share for gross proceeds of $1,125,000, the sale of 300,000 shares
in March of 1999 at a price of $0.75 per share for gross proceeds
of $225,000 and the sale of the remaining 700,000 shares in June
of 1999 at a price of $0.75 per share for gross proceeds of
$525,000. The Company has paid a commission of 10% of the gross
proceeds in connection with completion of this financing.
As of June 30, 1999, the Company had $918,002 in cash and cash
equivalents. During the six months ended June 30, 1999, the
Company received cash of $750,000 and incurred capital raising
costs of $75,000 in connection with the sale of 1,000,000 shares
of the Company's common stock. These shares were sold pursuant to
an exemption from registration under Rule 506 of Regulation D of
the Securities Act of 1933. Loss per share from research
operations, general and administrative expenses and depreciation
and amortization was $.05.
Subsequent to June 30, the Company raised $3 million from the sale
of 8% convertible debentures due July 31, 2000 to a number of
investor/purchasers sold pursuant to an exemption from
registration under Rule 506 of Regulation D of the Securities Act
of 1933. Under the Purchase Agreement for these convertible
debentures, the purchasers obtained warrants for the purchase of
350,000 shares of the Company's common stock at a price of $2.75
per share, and certain registration rights. Certain of the
purchasers also agreed to purchase an additional $500,000 of the
convertible debentures following registration of the securities.
A large number of the purchasers exercised their option to convert
their debentures into common stock shortly after purchase.
Results Of Operations
The financial statements for 1999 present the combined activities
of the Company and MMC.
The financial statements for 1998 present the combined activities
of the Company, MMC, and P&H (for the first quarter only).
First Six Months Fiscal 1999 Compared With First Six Months Fiscal
1998
During the six months ended June 30, 1999, the management of the
Company received $210,000. The President received $72,000, the
Chairman received $90,000 and the Secretary/Treasurer received
$48,000.
25
<Page >
Net loss for the six months ended June 30, 1999 was $775,975
compared to income of $1,185,495 for the same period in 1998. The
income generated in 1998 was due to the cancellation of its $2
million debt from MMC's former parent company, Dynamic.
General and administrative expenses for the six months ended June
30, 1999 were $477,320 compared to $87,304 for the same period in
1998. In 1999, the Company has been assembling key executives for
growth.
Research and development expenses were $262,151 for the six months
ended June 30, 1999 compared to $351,940 for the same period in
1998. R&D cost were higher in 1998 due to the additional testing
site of the Company's German subsidiary.
Depreciation and amortization expenses for the six months ended
June 30, 1999 were $49,344 compared to $50,564 for the same period
in 1998.
Fiscal 1998 Compared to Fiscal 1997
The Company experienced an operating loss of $1,221,065 for the
year ending December 31, 1998. This is a slight increase over the
loss experience by the Company of $1,133,549 in 1997. The Gross
Profit for 1998 and 1997 was $0, however, in 1998 the Company had
net income before taxes of $1,106,167 versus a loss of $1,126,875
for the previous year. This income was the result of the spin-off
from Dynamic, the forgiveness of the debt owed to Dynamic, the
contribution agreement and other miscellaneous interest income.
Research and development costs shown on the statements of
operations relate to costs incurred by Microwave Medical Corp. and
MMC GmBH. In 1998, Research and Development was $569,738 compared
to $1,057,759 in 1997. These R&D expenses declined as a result of
closing the German testing facility and concentrating all of these
operations at the US facility. In 1998, the majority of the
research was in the clinical trials and less on the development of
the product.
The sales, general and administrative expenses increased to
$554,979 in 1998 from $0 in 1997. This increase is attributed to
the addition of administrative personnel made necessary after the
sale of P&H.
The Company reported net interest/expense income, bad debts,
miscellaneous income of $2,327,232 for 1998, compared to $6,674
for 1997. This is due primarily to the forgiveness of the Dynamic
Debt in the amount of $2,169,807.
Working capital was $969,072 at December 31, 1998 compared to
$1,329,692 at December 31, 1997. The decrease is mainly from the
sale of the net assets of P&H.
Comparison of Fiscal 1997 with Fiscal 1996
Depreciation and amortization expense was $75,790 for 1997
compared to $15,941 for 1996. The increase is due to the fact
that the Company had more equipment in service in 1997.
26
<Page >
Research and development expense was $1,057,759 in 1997 compared
with $588,915. The increase is due to the fact that the Company
was conducting research in Germany as well as in the U.S. in 1997
and greatly expanded its research activities in 1997.
The loss from operations of P & H was $124,803 in 1997 compared
with income from those operations in 1996 of $128,409. The
decline in operations in 1997 was a major factor in the Company's
decision to sell the operations of P & H in early 1998.
Note that MW Medical did not have any operations until 1998 and
that the information provided above is therefore a reflection of
the operations of its subsidiaries under their former parent,
Dynamic Associates, Inc.
Impact of the Year 2000 Issue
The "Year 2000 problem" arose because many existing computer
programs use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a
year that begins with "20" instead of the familiar "19". If not
corrected, many computer applications could fail or create
erroneous results. The extent of the potential impact of the Year
2000 problem is not yet known, and if not timely corrected, it
could affect the global economy. The Company believes that its
computer programs are Y2K compliant and does not expect to be
adversely affected by the issue. The Company is presently
identifying and assessing the year 2000 readiness of its key
suppliers that we believed to be significant to the Company's
business operations. At this point in time, the Company one
possible worst case scenario would be that certain of the
Company's material suppliers or vendors experience business
disruptions due to the year 2000 issue and are unable to provide
materials and services to the Company on time.
MANAGEMENT
The following information sets forth the names of the officers and
directors of the Company, their present positions with the Company
and its subsidiaries, and some brief information about their
background.
MW Medical, Inc. and Microwave Medical Corporation
Name Age Office(s) Held
Jan Wallace 43 Director, President
Grace Sim 38 Secretary, Treasurer, Director
Jan Wallace was President, Chief Executive Officer and Director of
the Company at its inception in December, 1997. Ms. Wallace
resigned as President and Chief Executive Officer effective
October 1, 1998 and then was re-appointed on July 9, 1999 after
the resignation of former President Paul Banko. Ms. Wallace has
been employed by Dynamic since April 1995, when she was elected to
the Board of Directors and accepted the position of Chief
Operating Officer. She is currently a director and the President
of Dynamic. Ms. Wallace was previously Vice President of Active
Systems, Inc. a Canadian Company specializing in SGML Software, an
ISO standard, in Ottawa, Ontario for the period from 1993 to 1994.
Prior to that she was President and Owner of Mailhouse Plus, Ltd.,
an office equipment distribution company which was sold to Ascom
Corporation. She
27
<Page >
has also been in management with Pitney
Bowes-Canada and Bell Canada where she received its highest award
in Sales and Marketing. Ms. Wallace was educated at Queens
University in Kingston, Ontario and Carleton University, Ottawa,
Ontario in Political Science with a minor in Economics.
Grace Sim has been the Secretary/Treasurer of Dynamic Associates,
Inc. since October 10, 1997 and of MW Medical, Inc. since its
inception in December 1997. Ms. Sim joined Dynamic in January
1997. Prior to joining Dynamic, Ms. Sim owned Sim Accounting, an
accounting consulting company in Ottawa, Ontario, Canada. Between
1993 and 1994, she worked as the controller with Fulline, an
office equipment company and with Mailhouse Plus Ltd. between 1990
and 1992. Ms. Sim received her Bachelor of Mathematics with
honors from the University of Waterloo in Waterloo, Ontario.
On July 9, 1999, Paul Banko resigned as President, director and
CEO of the Company and on August 31, 1999, Robert Spertell,
resigned as the Company's Chief Scientist. Mr. Spertell was
subsequently retained by the company as a consultant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of August 31, 1999, the
beneficial ownership of the Company's Common Stock by each person
known by the Company to beneficially own more than 5% of the
Company's Common Stock outstanding as of such date and by the
officers and directors of the Company as a group. Except as
otherwise indicated, all shares are owned directly.
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class*
- -------------- ------------------- -------------------- ---------
Common Stock Jan Wallace 500,000(1) 2.62%
(Chairman)
6955 E. Caballo Dr.
Paradise Valley,
AZ 85253
Common Stock Grace Sim 50,000(2) 0.26%
(Secretary/
Treasurer)
6955 E. Caballo Dr.
Paradise Valley,
AZ 85253
Common Stock All Officers and
Directors 550,000 2.88%
as a Group
(2 persons)
- ------------------------------------------------------------------
* Based on 19,110,679 shares of Common Stock outstanding as of
September 1, 1999.
(1) Ms. Wallace also holds stock options to purchase 400,000
shares at a price of $1.00.
(2) Ms. Sim also holds stock options to purchase 200,000 shares at
a price of $1.00.
Warrants
There are 600,000 warrants to purchase securities of the Company
outstanding. 350,000 of these warrants are exercisable at a price
of $2.75 per share on or prior to the close of business on July
30,
28
<Page >
2002. The remaining 250,000 warrants are exercisable at a
price of $3.312 per share at any time prior to 5:00 pm New York
City Time on July 20, 2004.
Options
The Board has adopted an Incentive Stock Option Plan providing for
the issuance of up to 2,500,000 shares of the Company's common
stock to its directors, officers, consultants, and employees, and
is in the process of obtaining the necessary shareholder approval
to initiate the Plan. Currently there are options issued to
purchase 1,365,000 shares of the Company's stock through this
Stock Option Plan.
Convertible Debentures
On July 20, 1999, the Company sold $3,000,000 worth of convertible
debentures. $2,620,000 of these debentures were converted between
July 21, 1999 and July 23, 1999, leaving $380,000 in debentures
still outstanding. These remaining debentures are convertible by
their holders (the Selling Shareholders) at a price determined by
the following formula:
(a) the principal amount of the Debenture or any portion
thereof, together with accrued but unpaid interest;
(b) multiplied by a price for each share of Common Stock
equal to the lower of (1) 75% of the Market Price at
the Conversion Date, or (2) $2.75. The term "Market
Price" means the average of the three lowest closing
bid prices on the Principal Market (as reported by
Bloomberg L.P.) of the Common Stock on any Trading Day
during the twenty-two (22) Trading Day period ending
on the Trading Day immediately prior to the date upon
which the Market Price is to be determined; but -
(c) the Conversion Price may not be less than $0.75, if all
of the following conditions are satisfied: (1) a
Registration Statement is effective for the Common
Stock; (2) the Common Stock has been traded (since the
effective date of the Registration Statement) for
thirty (30) consecutive Trading Days with an average
daily volume of 140,000 shares at a volume-weighted
average price (as shown on the Bloomberg AQR function)
of at least 150% of the closing bid price on the first
Closing Date, and (3) the Company's microwave hair
removal product has received written FDA approval; and
(d) the minimum Conversion Price will be increased if the
foregoing conditions continue to be met and any or all
of the following conditions are met: (1) the Company's
most recent timely filed Form 10-Q or QSB shows net
revenues for the quarter of at least $10,000,000 (the
minimum Conversion Price would then be increased by
$0.25); (2) the Company's most recent timely filed
Form 10-K or KSB shows net revenues for the fiscal
year of at least $50,000,000 (the minimum Conversion
Price would then be increased by $0.35); (3) the
Common Stock has traded (since the effective date of
the Registration Statement) for thirty (30)
consecutive Trading Days with an average daily volume
of 250,000 shares (the minimum Conversion Price would
then be increased by $0.25).
29
<Page >
In addition, there are $500,000 worth of Convertible Debentures
under an agreement of sale to two investors. These Debentures,
once issued, will be convertible under the same formula as
described above.
Public Market
The Company's shares are currently trading on the OTC Bulletin
Board under the stock symbol MWMD.
Registration Rights
The holders of the Company's common stock, warrants and
convertible debentures have the right to require the Company to
register their common shares pursuant to the Securities Act of
1933. These rights are evidenced by a registration rights
agreement and is the sole reason for the Company's filing of this
S-1 registration statement on behalf of the Selling Shareholders.
The Registration Rights Agreement, attached hereto, provides in
part, that the Company is obligated to register all the warrant
shares it has issued to investors, along with all the shares that
have been issued to parties exercising their right of conversion
as holders of the Convertible Debentures and 265% of the shares
that could be issued as a result of the conversion of any as yet
unconverted Convertible Debentures at the Conversion Price in
effect on the Closing Date. Under this Registration Rights
Agreement, a registration statement must be filed with the SEC
within 45 days of the Closing Date and such Registration Statement
must become effective within 105 days from the Closing Date (or
five (5) days of clearance by the Commission to request
effectiveness). Failure to meet these deadlines or to maintain
the registration statement as effective will create potentially
severe penalties for the Company, including the requirement to pay
liquidated damages to the purchasers of the Convertible Debentures
of three percent (3%) of the aggregate market value of shares of
Common Stock purchased from the Company (including the Conversion
Shares which would be issuable upon conversion of the Convertible
Debentures on any date of determination, until such Registration
Statement has been declared effective. For full details regarding
the rights and obligations of the Company and the Purchasers of
the Convertible Debentures, please see the Registration Rights
Agreement and Convertible Debenture and Warrants Purchase
Agreement, attached hereto and made part hereof by this reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None of the directors or officers of the Company, nor any proposed
nominee for election as a director of the Company, nor any person
who beneficially owns, directly or indirectly, shares carrying more
than 10% of the voting rights attached to all outstanding shares of
the Company, nor any promoter of the Company, nor any relative or
spouse of any of the foregoing persons has any material interest,
direct or indirect, in any transaction since the date of the Company's
incorporation or in any presently proposed transaction which, in
either case, has or will materially affect the Company, except as
provided herein.
During 1998 $36,000 was paid to the Company's President, and $150,000
was paid or accrued to the Chairman and $80,000 was paid or accrued to
the Secretary/Treasurer.
In 1999, the Company's Former President received $12,000 monthly, the
Chairman $15,000 monthly, and the Secretary $8,000 monthly.
30
<PAGE>
Annual Compensation Table
Annual Compensation Long Term Compensation
Other Restricted All
Annual Stock Options/* LTIP Other
Name Title Year Salary Bonus Comp. Awarded SARs (#)payouts($)Comp
Jan Wallace Chairman 1998 $150,000(1) $ 0 0 0 0 0 0
Director
Paul E. President1998 $ 36,000(2) $ 0 0 0 0 0 0
Banko,CEO
Grace Sim Director 1998 $ 80,000(3) $ 0 0 0 0 0 0
Secretary/Treasurer
(1)Includes $86,393 accrued at 12/31/98.
(2)for October 1, 1998 to December 31, 1998
(3)Includes $45,569 accrued at 12/31/98.
In March 1999, the Company granted 400,000 options to Paul E. Banko,
400,000 to Jan Wallace, and 200,000 to Grace Sim. The options allow
the holders to purchase common shares of the Company for $1.00 per share.
50% of the options are exercisable immediately and 50% require a one year
waiting period. A number of other employees were granted options on the
same terms. Subsequently, Paul Banko resigned and an agreement was reached
in which he retained only 200,000 of his original 400,000 options.
The Company's policy regarding related transactions requires that any
director or officer who has an interest in any transaction to be approved
by the board of directors of the Company disclose the presence and the nature
of the interest to the board of directors prior to any approval of the
transaction by the board of directors. The transaction may then be approved
by a majority of the disinterested directors, provided that an interested
director may be counted in the determining the presence of a quorum at the
meeting of the board of directors to approve the transaction. The Company's
policy regarding compensation for directors and officers is that the board of
directors may, without regard to personal interest, establish the compensation
of directors for services in any capacity.
LEGAL MATTERS
The Company is not a party to any material legal proceedings and
to the Company's knowledge no such proceedings are threatened or
contemplated. The Company is, however, a party in a legal
proceeding in Northern California based on a breach of certain
promissory notes by and against Microthermia Corporation.
Settlement discussions in that matter are currently in process and
a settlement agreement has been drafted by the parties.
Management believes that such litigation will not have a material
impact on the business of the Company.
31
<Page >
EXPERTS
The consolidated balance sheet of MW Medical, Inc. as of December
31, 1998 and the consolidated statements of operations,
stockholders' equity, and cash flows and the financial statement
schedule for the years ended December 31, 1998, appearing in this
Prospectus and Registration Statement, have been audited by Smith
and Company, 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information statements
filed by the Company may be inspected and copied at the
Public Reference Section of the Commission at 450 Fifth Street,
N.W. Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material
can also be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W.,
Washington D.C. 20549 at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information
statements and other information regarding the Company; the
address of such site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement
on Form S-1 (the "Registration Statement"), under the Securities
Act of 1933, as amended (the "Act"), with respect to the Common
Stock offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations
of the Commission. Copies of the Registration Statement, including
all exhibits thereto, may be obtained from the Commission's
principal office in Washington D.C. upon payment of the fees
prescribed by the Commission or may be examined without charge at
the offices of the Commission as described above.
32
<Page >
INDEX TO FINANCIAL STATEMENTS
(a) The following financial statements, financial statement
schedules and supplementary date are included:
F-1 Independent Auditor's Report
F-2 Consolidated Balance Sheets - December 31, 1998 and 1997
F-3 Consolidated Statements of Operations - Years Ended
December 31, 1998, 1997, and 1996.
F-4 Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1998, 1997 and 1996.
F-5 Consolidated Statements of Cash Flows - Years Ended
December 31, 1998, 1997, and 1996.
F-6 Notes to Consolidated Financial Statements
31
<Page >
(b) Un-audited Consolidated Financials Prepared by Management for
the first six months of 1999:
F-14 Consolidated Balance Sheets - June 1999
F-15 Consolidated Statements of Operations -- June 1999
F-16 Consolidated Statements of Cash Flows -- June 1999.
33
<Page >
<PAGE>
SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
- ----------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
Board of Directors
MW Medical, Inc.
We have audited the accompanying consolidated balance sheets of MW Medical, Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1998, 1997, and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MW Medical, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations, changes in stockholders' equity, and their cash flows for the years
ended December 31, 1998, 1997, and 1996, in conformity with generally accepted
accounting principles.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 12, 1999
F-1
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 890,283 $ 387,982
Accounts receivable (less allowance for doubtful accounts of
$0 in 1998 and $20,000 in 1997) 0 559,783
Receivable - former parent 200,000 0
Receivable - P&H sale (less allowance for doubtful accounts of
$60,000) (Note 15) 21,625 0
Other receivables 2,000 19,824
Inventories (Note 2) 0 809,977
Prepaid expense and other current assets 61,282 17,829
Deferred tax benefit (Note 8) 0 0
----------------- ------------------
TOTAL CURRENT ASSETS 1,175,190 1,795,395
PROPERTY, PLANT, & EQUIPMENT (Note 4) 67,392 693,283
OTHER ASSETS
Deposits 0 21,705
Receivable - P&H sale (Note 15) 161,500 0
Organization Costs (Note 2) 400 28,440
----------------- ------------------
161,900 50,145
----------------- ------------------
$ 1,404,482 $ 2,538,823
================= ==================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 70,766 $ 227,587
Accrued expenses 1,038 147,667
Accrued expenses - related parties (Note 13) 132,714 0
Current portion of long-term debt (Note 7) 0 90,449
Income taxes payable (Note 8) 1,600 0
----------------- ------------------
TOTAL CURRENT LIABILITIES 206,118 465,703
Payable - former parent (Note 6) 0 1,999,806
Long-term debt (Note 7) 0 329,808
Deferred income tax (Notes 2 and 8) 0 0
----------------- ------------------
0 2,329,614
----------------- ------------------
TOTAL LIABILITIES 206,118 2,795,317
Commitments and contingencies (Note 9) 0 0
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 15,723,929 shares (14,223,929 in 1997) 15,724 14,224
Additional paid-in capital 1,055,997 35,876
Retained earnings (deficit) 126,643 (306,594)
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,198,364 (256,494)
----------------- ------------------
$ 1,404,482 $ 2,538,823
================= ==================
</TABLE>
F-2
See Notes to Financial Statements.
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net sales $ 0 $ 0 $ 0
Cost of sales 0 0 0
----------------- ----------------- ------------------
GROSS PROFIT 0 0 0
Selling and General & administrative expenses 554,979 0 0
Depreciation and amortization 96,348 75,790 15,941
Research and development (Note 2) 569,738 1,057,759 588,915
----------------- ----------------- ------------------
1,221,065 1,133,549 604,856
----------------- ----------------- ------------------
NET OPERATING (LOSS) (1,221,065) (1,133,549) (604,856)
OTHER INCOME (EXPENSE)
Interest income 17,425 6,674 10,338
Debt cancellation - former parent (Note 6) 2,169,807 0 0
Bad debts (60,000) 0 0
Fee - former parent 200,000 0 0
----------------- ----------------- ------------------
2,327,232 6,674 10,338
----------------- ----------------- ------------------
Income (loss) from continuing operations before income taxes 1,106,167 (1,126,875) (594,518)
INCOME TAX EXPENSE (Note 8) 800 800 800
----------------- ----------------- ------------------
NET INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS 1,105,367 (1,127,675) (595,318)
DISCONTINUED OPERATIONS
Operations of subsidiary sold 4/1/98 (194,268) (124,803) 128,409
Sale of net assets of subsidiary (477,862) 0 0
----------------- ----------------- ------------------
Loss from discontinued operations (672,130) (124,803) 128,409
----------------- ----------------- ------------------
NET INCOME (LOSS) $ 433,237 $ (1,252,478) $ (466,909)
================= ================= ==================
Net income (loss) per weighted average share - continuing operations $ .08 $ (.08) $ (.04)
Net income (loss) per weighted average share - discontinued operations (.05) (.01) .01
----------------- ----------------- ------------------
$ .03 $ (.09) $ (.03)
================= ================= ==================
Weighted average number of common shares used to
compute net income (loss) per weighted
average share 14,462,285 14,223,929 14,223,929
================= ================= ==================
</TABLE>
F-3
See Notes to Financial Statements.
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid-in Retained
Shares Amount Capital Earnings
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balances at 12/31/95 0 $ 0 $ 0 $ 0
Issuance of common stock (restricted) at $.1028
per share for subsidiaries * 14,223,929 14,224 35,876 1,412,793
Net loss for year (466,909)
------------- --------------- --------------- ---------------
Balances at 12/31/96 14,223,929 14,224 35,876 945,884
Net loss for year (1,252,478)
------------- --------------- --------------- ---------------
Balances at 12/31/97 14,223,929 14,224 35,876 (306,594)
Stock sold for cash 1,500,000 1,500 1,009,513
Subsidiary adjustment 10,608
Net income for year 433,237
------------- --------------- --------------- ---------------
Balances at 12/31/98 15,723,929 $ 15,724 $ 1,055,997 $ 126,643
============= =============== =============== ===============
</TABLE>
* Transaction actually occurred on March 11, 1998, but is reflected earlier
under pooling-of-interests method of accounting.
F-4
See Notes to Financial Statements.
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------------- ----------------- ------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 433,237 $ (1,252,478) $ (466,909)
Adjustments to reconcile net income (loss) to cash
used by operating activities:
Depreciation and amortization 134,925 139,062 60,897
Bad debts 60,000 0 0
Net value of subsidiary's assets sold 1,128,419 0 0
Debt cancelled (2,169,806) 0 0
Book value of assets sold/disposed 0 47,405 0
Deferred taxes 0 10,500 (11,500)
Changes in assets and liabilities:
Accounts receivable (433,519) (34,609) 285,651
Inventories 80,636 (92,150) (129,024)
Prepaid expenses and other (46,056) (18,146) (9,196)
Accounts payable and accrued expenses 124,436 120,116 21,922
Deposits 37,000 0 0
Income taxes payable 1,600 (45,415) (83,590)
----------------- ----------------- ------------------
NET CASH USED BY OPERATING ACTIVITIES (649,128) (1,125,715) (331,749)
INVESTING ACTIVITIES
Loan - other (3,915) 92,330 (98,120)
Loan - related party 0 30,300 0
Organization costs 0 (27,800) 0
Purchase of equipment (13,493) (618,780) (150,680)
Deposits (2,225) 922 (1,312)
----------------- ----------------- ------------------
NET CASH USED BY INVESTING ACTIVITIES (19,633) (523,028) (250,112)
FINANCING ACTIVITIES
Borrowings - former parent 170,000 914,360 548,500
Cash from subsidiaries 0 0 986,944
Principal payments on debt (9,951) (99,796) (78,206)
Principal payments on capital lease obligation 0 0 (519)
Loan proceeds 0 347,303 0
Loans - related party 100,000 0 0
Loan repayment - related party (100,000) 0 0
Sale of common stock 1,011,013 0 0
----------------- ----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,171,062 1,161,867 1,456,719
----------------- ----------------- ------------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 502,301 (486,876) 874,858
Cash and cash equivalents at beginning of year 387,982 874,858 0
----------------- ----------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 890,283 $ 387,982 $ 874,858
================= ================= ==================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 9,824 $ 14,232 $ 17,356
Cash paid for income taxes 800 65,715 167,790
</TABLE>
F-5
See Notes to Financial Statements.
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, and 1996
NOTE 1: BUSINESS ACTIVITY
The Company was incorporated under the laws of the state of Nevada on
December 4, 1997. The Company is now engaged in the acquisition of
microwave technologies for medical purposes through Microwave Medical Corp.
("MMC"), and prior to April 1, 1998 was engaged in the manufacturing of
highly technologically advanced components and subsystems for the
communications and aerospace industries through P & H Laboratories ("P &
H").
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
The consolidated financial statements for 1998, 1997, and 1996 include the
accounts of the Company; its wholly owned subsidiaries, MMC and MMC's
Germany based subsidiary Microwave Medical GmBH ("GmBH"), which was formed
in late 1997, and P & H.
All significant intercompany balances and transactions have been eliminated
in consolidation.
Accounting Methods
The Company recognizes income and expenses based on the accrual method of
accounting.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. At December 31, 1997, inventories were comprised of the following:
1997
Raw materials $ 344,909
Work in progress 465,068
-------------
$ 809,977
Research and Development Costs
Research and development costs were $569,738 in 1998 and were all incurred
by MMC and GmBH ($1,057,759 in 1997 and all incurred by MMC and GmBH, and
$588,915 in 1996 and all incurred by MMC).
Warranty Costs
The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold
during the year. The accrued liability for warranty costs is included in
accrued expenses in the accompanying balance sheets.
Dividend Policy
The Company has not yet adopted any policy regarding payment of dividends.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its future employee stock options rather
than adopting the alternative fair value accounting provided for under
Financial Accounting Standards Board ("FASB") FASB Statement No. 123,
Accounting for Stock Based Compensation (SFAS 123).
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Allowance for Uncollectible Accounts
The Company provides an allowance for uncollectible accounts based upon
prior experience and management's assessment of the collectability of
existing specific accounts.
F-6
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash and investments. The Company places
its investments in highly rated commercial paper obligations which limits
the amount of credit exposure. Historically, the Company has not
experienced any losses related to investments.
Property, Plant, and Equipment
Property, plant, and equipment is recorded at cost and is being depreciated
over a useful life of seventeen months to eight years using the
straight-line and accelerated methods.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid
investments with an original maturity of three months or less when
purchased to be cash equivalents.
Organization Costs
Organization costs of MMC and GmBH are being amortized over sixty months.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, and operating
loss carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion of all
of the deferred tax assets will not be realized. The valuation allowance at
December 1998 was $0 and at December 31, 1997 was $73,000 and at December
31, 1996 it was $0. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment. As
of December 31, 1998, temporary differences arose primarily from
differences in the timing of recognizing expenses for financial reporting
and income tax purposes. Such differences include depreciation, bad debt
allowance, and various accrued operating expenses.
Prior to October 1, 1997, P&H filed separate income tax returns. For the
period of October 1, 1997 to December 31, 1997, P&H filed a consolidated
tax return with Dynamic Associates, Inc. ("Dynamic"), its parent at that
time. MMC filed a consolidated tax return with Dynamic in 1996 and 1997.
Income (Loss) per Share
Income (loss) per common share is computed by dividing net income (loss) by
the weighted average shares outstanding during each period.
NOTE 3: CAPITALIZATION
The Company's authorized stock includes 100,000,000 shares of Class "A"
common stock at $.001 par value. March 11, 1998, the Company issued
14,223,929 shares of its restricted common stock to the shareholders of
Dynamic Associates, Inc. in exchange for the common stock of MMC and P&H
held by those shareholders. The financial statements of MMC and P&H have
been presented herein as if the entities had been together for all periods
presented. The acquisitions of MMC & P&H have been accounted for as reverse
acquisitions. The financial statements are presented on a consolidated
basis as if the entities were consolidated for all periods presented.
NOTE 4: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Accumulated Net Book Value
Cost Depreciation 1998 1997
------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Machinery & Equipment $ 243,055 $ 186,580 $ 56,475 $ 573,208
Furniture & Fixtures 11,697 780 10,917 79,278
Leasehold Improvements 0 0 0 40,797
------------- ------------------ --------------- ------------------
$ 254,752 $ 187,360 $ 67,392 $ 693,283
============= ================== =============== ==================
</TABLE>
Depreciation expense is calculated under straight-line and accelerated
methods based on the estimated service lives of depreciable assets.
Depreciation expense for the year ended December 31, 1998 amounted to
$134,685, ($138,822 in 1997 and $60,657 in 1996).
Included in machinery and equipment at December 31, 1997 was $59,315 of
equipment under a capital lease. The related accumulated depreciation at
December 31, 1997 was $51,397.
F-7
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 5: RECLASSIFICATION OF CERTAIN ITEMS
The operations of P&H for 1997 and 1996 have been reclassified under the
caption "Operations of Subsidiary Sold 4/1/98" to conform to the 1998
presentation.
NOTE 6: PAYABLE - FORMER PARENT
At December 31, 1997, MMC/GmBH owed $1,999,806 to Dynamic, their former
parent. The amounts represent advances from Dynamic, which are non-interest
bearing and have no set repayment terms. During the quarter ended March 31,
1998, Dynamic charged the advances to bad debt expense and does not
anticipate being repaid. The Company recorded debt cancellation income of
$2,169,807 including an additional $170,000 received from Dynamic in 1998.
NOTE 7: LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Notepayable - Bank. Payable in monthly installments
of $3,317 plus interest at prime plus 1% per
annum and secured by accounts receivable, other
rights to payment, general intangibles, inventory,
and equipment of P&H. Debt matures
in December, 1999. $ 0 $ 72,954
Notepayable - bank. Interest payments only until
May, 1998 at which time it is converted to 48
monthly installments of $7,235 plus interest
at prime (8.5% at December 31, 1997) plus 1% per
annum and secured by assets of P&H. Debt matures
in May 2002. The agreement contains certain
financial and restrictive covenants. As of December
31, 1997, P&H was not in compliance with certain
financial covenants. On March 2, 1998, the bank
waived such events of noncompliance as
of such date. 0 347,303
----------------- -----------------
0 420,257
Less current portion 0 (90,449)
----------------- -----------------
$ 0 $ 329,808
================= =================
</TABLE>
NOTE 8: INCOME TAXES
Components of income tax (benefit) are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
Current
<S> <C> <C> <C>
Federal $ 0 $ 4,665 $ 63,500
State 1,600 1,600 22,300
------------- ------------- -------------
1,600 6,265 85,800
------------- ------------- -------------
Deferred
Federal 0 7,800 (9,000)
State 0 2,700 (2,500)
------------- ------------- -------------
0 10,500 (11,500)
------------- ------------- -------------
Income tax (benefit) $ 1,600 $ 16,765 $ 74,300
============= ============= =============
</TABLE>
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to
income before provision for income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
Income tax computed at federal
<S> <C> <C> <C>
statutory tax rate $ 147,573 $ (420,142) $ (133,487)
Tax due to not being able to file
Consolidated return and other 0 435,851 193,069
Debt forgiveness not taxable due to
Insolvency (147,573) 0 0
State taxes (net of federal benefit) 1,600 1,056 14,718
------------- ------------- -------------
$ 1,600 $ 16,765 $ 74,300
============= ============= =============
</TABLE>
F-8
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 8: INCOME TAXES (continued)
Significant components of the Company's deferred tax liabilities and assets
for income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
Current deferred tax assets
<S> <C> <C> <C>
Net operating loss $ 0 $ 11,000 $ 0
Allowance for doubtful accounts 0 8,600 9,000
Capitalized inventory cost for tax 0 26,000 21,000
Vacation accrual 0 22,000 22,000
State income tax 0 1,000 9,000
Other accruals 0 4,400 6,000
Valuation allowance 0 (73,000) 0
------------- ------------- -------------
Net deferred current tax assets $ 0 $ 0 $ 67,000
============= ============= =============
Long-term deferred tax liabilities
Difference in fixed assets $ 0 $ 0 $ 56,500
============= ============= =============
</TABLE>
There was a decrease of $73,000 in the valuation allowance for the year
ended December 31, 1998.
There was an increase of $73,000 in the valuation allowance for the year
ended December 31, 1997 ($0 change for the year ended December 31, 1996).
The deferred tax items relate to P&H. No deferred tax asset has been
recorded for the Company and MMC due to the fact they currently have no
operations to use their loss carryforward.
At December 31, 1998, the Company has a federal net operating loss
carryforward of approximately $234,000 which expires December 31, 2018.
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company is provided with office space and other management services at
no charge at the present time.
The Company has the following commitments:
One officer will receive $15,000 per month, one will receive
$12,000 and one will receive $8,000 per month.
Future scheduled payments under these employment related commitments are as
follows:
Year Ending
December 31, 1999 $ 384,000
December 31, 2000 46,000
----------------------
$ 430,000
======================
Rental expense for the year ended December 31, 1998 was $800 ($192,466 in
1997 and $189,088 in 1996) which includes $0 paid by MMC to P&H ($7,298 in
1997 and $7,120 in 1996). The contracts are renewable.
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, loans, other receivables,
accounts payable, and accrued expenses approximate fair value due to the
short maturity periods of these instruments. The fair value of the
Company's long-term debt, based on the present value of the debt, assuming
interest rates as follows at December 31, 1997 was:
Note at 9.5% $ 60,375
Note at 9.5% 230,550
----------------------
$ 290,925
======================
NOTE 11: MAJOR CUSTOMERS
During 1997, P&H had sales to two customers representing 38.5% and 12.6% of
total sales. At December 31, 1997, accounts receivable from the two
customers was about $274,000. During 1996, P&H had sales to two customers
which represented 40.6% and 12.2% of total sales. At December 31, 1996,
accounts receivable from the two customers totaled $295,000.
F-9
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 12: INDUSTRY SEGMENTS
The following narrative is before elimination of certain intercompany
items.
For 1998, the Company had general and administrative expenses of $554,979,
depreciation expense of $780, bad debt expense of $60,000 interest income
of $17,254, fee income from former parent of $200,000, and loss on the sale
of P&H assets of $477,862 for a net loss of $876,367.
MMC had depreciation and amortization expense of $95,568, research and
development expense of $569,738, interest income of $171, debt cancellation
of $2,169,807, and income tax expense of $800 for net income of $1,503,872.
P&H had a loss from discontinued operations of $194,268.
For 1997, all sales, cost of sales, and selling and general and
administrative expenses were incurred by P&H. P&H also had depreciation and
amortization expense of $63,272, interest income of $21,692, interest
expense of $16,667, other income of $6,675, and income tax expense of
$15,965, for a net loss of $124,803.
MMC had depreciation and amortization expense of $75,790, research and
development expense of $1,057,759, interest income of $6,674, and income
tax expense of $800, for a net loss of $1,127,675.
For 1996, all sales, cost of sales, and selling and general and
administrative expenses were incurred by P&H. P&H also had depreciation and
amortization expense of $44,956, interest income of $19,666, interest
expense of $16,988, other income of $8,162, and income tax expense of
$73,500, for a net income of $128,409.
MMC had depreciation and amortization expense of $15,941, research and
development expense of $588,915, interest income of $10,338, and income tax
expense of $800, for a net loss of $595,318.
Pre-consolidation net income (loss) is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
MW Medical $ (701,367) $ 0 $ 0
MMC/GmBH 1,503,872 (1,127,675) (595,318)
P & H (194,268) (124,803) 128,409
------------- ------------- -------------
Adjusted Net Income (Loss) $ 608,237 $ (1,252,478) $ (466,909)
============= ============= =============
</TABLE>
NOTE 13: RELATED PARTY TRANSACTIONS
During 1998, a total of $416,000 in management fees was paid or accrued to
current or former officers of the Company and its subsidiaries. $266,000
was paid or accrued to three individuals who remain with the Company and
$150,000 was paid or accrued to a former officer. At December 31, 1998,
$132,714 is due to two officers for management fees and other expenses.
NOTE 14: GOING CONCERN
The financial statements are presented on the basis that the Company is a
going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a
reasonable length of time. At December 31, 1998, the Company had a loss
from operations for 1998 of $1,221,065.
Management feels that collection of its receivables and revenue from
operations in the third quarter of 1999 will provide sufficient working
capital to allow the Company to continue as a going concern.
NOTE 15: SALE OF P&H OPERATIONS
Effective April 1, 1998, a management team was brought in to run P&H. This
entity then began negotiations to purchase the net assets of P&H from the
Company for a total of $653,659 in cash and management services valued at
$240,000, of which $410,534 cash has been received. The $243,125 is due as
follows:
$243,125 on March 31, 1999 - secured by P&H assets
Interest at 8% also accrues on $493,125 and is due March 31, 1999.
During March of 1999, the Company agreed to restructure the receivable.
Monthly payments of $15,000 including interest of 8% will be due beginning
in July of 1999.
F-10
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 15: SALE OF P&H OPERATIONS (continued)
Future expected principal receipts are as follows:
Year ending December 31, 1999 $ 81,625
Year ending December 31, 2000 158,365
Year ending December 31, 2001 3,135
-------------
$ 243,125
At December 31, 1998, an allowance for doubtful accounts in the amount of
$60,000 has been established.
If the sale had occurred on December 31, 1997, P&H assets in the amount of
$2,274,732 and liabilities in the amount of $720,348 would not be included
in the financial statements. The Company would have recorded a receivable
in the amount of $653,659 for the sale, prepaid expense of $240,000, and
the amount of $660,725 as loss would have been recorded on the statement of
operations.
F-11
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, Pro Forma
1997 P&H Sale Balances
----------------- ----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 387,982 $ (315,585) $ 72,397
Accounts receivable (less allowance for doubtful
accounts of $20,000 in 1997) 559,783 (559,783) 0
Other receivables 19,824 (14,035) 5,789
Receivable - P&H Sale 0 653,659 653,659
Prepaid expense - P&H Sale 0 240,000 240,000
Inventories 809,977 (809,977) 0
Prepaid expense and other current assets 17,829 (12,558) 5,271
----------------- ----------------- ------------------
TOTAL CURRENT ASSETS 1,795,395 (818,279) 977,116
PROPERTY, PLANT, & EQUIPMENT 693,283 (541,479) 151,804
OTHER ASSETS
Deposits 21,705 (21,315) 390
Organization Costs 28,440 0 28,440
----------------- ----------------- ------------------
50,145 (21,315) 28,830
----------------- ----------------- ------------------
$ 2,538,823 $ (1,381,073) $ 1,157,750
================= ================= ==================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 227,587 $ (156,260) $ 71,327
Accrued expenses 147,667 (143,831) 3,836
Current portion of long-term debt 90,449 (90,449) 0
----------------- ----------------- ------------------
TOTAL CURRENT LIABILITIES 465,703 (390,540) 75,163
Payable - former parent 1,999,806 0 1,999,806
Long-term debt 329,808 (329,808) 0
----------------- ----------------- ------------------
2,329,614 (329,808) 1,999,806
----------------- ----------------- ------------------
TOTAL LIABILITIES 2,795,317 (720,348) 2,074,969
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 14,223,929 shares 14,224 0 14,224
Additional paid-in capital 35,876 0 35,876
Retained earnings (deficit) (306,594) (660,725) (967,319)
----------------- ----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (256,494) (660,725) (917,219)
----------------- ----------------- ------------------
$ 2,538,823 $ (1,381,073) $ 1,157,750
================= ================= ==================
</TABLE>
This pro forma shows what the balance sheet would have looked like had the
sale of the net assets of P&H occurred on December 31, 1997.
F-12
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, Pro Forma
1997 P&H Sale Balances
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net sales $ 3,382,388 $ 0 $ 3,382,388
Cost of sales 2,659,882 0 2,659,882
----------------- ----------------- ------------------
GROSS PROFIT 722,506 0 722,506
Selling and General & administrative expenses 779,772 0 779,772
Depreciation and amortization 139,062 0 139,062
Research and development 1,057,759 0 1,057,759
----------------- ----------------- ------------------
1,976,593 0 1,976,593
----------------- ----------------- ------------------
NET OPERATING (LOSS) (1,254,087) 0 (1,254,087)
OTHER INCOME (EXPENSE)
Interest income 28,366 0 28,366
Interest expense (16,667) 0 (16,667)
Miscellaneous income 6,675 0 6,675
----------------- ----------------- ------------------
18,374 0 18,374
----------------- ----------------- ------------------
NET (LOSS) BEFORE OTHER (1,235,713) 0 (1,235,713)
Sale of net assets of P&H 0 (660,725) (660,725)
----------------- ----------------- ------------------
NET (LOSS) BEFORE INCOME TAXES (1,235,713) (660,725) (1,896,438)
INCOME TAX 16,765 0 16,765
----------------- ----------------- ------------------
NET (LOSS) $ (1,252,478) $ (660,725) $ (1,913,203)
================= ================= ==================
Net (loss) per weighted average share $ (.09) $ (.05) $ (.13)
================= ================= ==================
Weighted average number of common shares used to
compute net income (loss) per weighted
average share 14,223,929 14,223,929 14,223,929
================= ================= ==================
</TABLE>
On April 1, 1998, the Company sold the net assets of P&H. The actual loss on the
transaction was $477,862. This loss differs from the Pro Forma loss due to P&H
having activity through the date of sale which reduced the net assets sold.
This pro forma shows what the statement of operations would have looked
like had the sale of the net assets of P&H occurred on December 31, 1997.
F-13
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 918,002 $ 890,283
Receivable - former parent 150,000 200,000
Receivable - P & H sale 106,570 21,625
Other receivables 4,990 2,000
Prepaid expense and other current assets 14,258 61,282
----------------- ------------------
TOTAL CURRENT ASSETS 1,193,820 1,175,190
PROPERTY, PLANT, & EQUIPMENT 918,168 67,392
OTHER ASSETS
Receivable - P&H sale 76,555 161,500
Organization costs 280 400
----------------- ------------------
76,835 161,900
----------------- ------------------
$ 2,188,823 $ 1,404,482
================= ==================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 524,180 $ 70,766
Loan payable 425,000 0
Income taxes payable 800 1,600
Accrued expenses 1,449 1,038
Deposits 10,000 0
Accrued expenses - related party 130,005 132,714
----------------- ------------------
TOTAL CURRENT LIABILITIES 1,091,434 206,118
----------------- ------------------
TOTAL LIABILITIES 1,091,434 206,118
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 16,723,929 shares (15,723,929 in 1998) 16,724 15,724
Additional paid in capital 1,729,997 1,055,997
Retained earnings (deficit) (649,332) 126,643
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 1,097,389 1,198,364
----------------- ------------------
$ 2,188,823 $ 1,404,482
================= ==================
</TABLE>
F - 14
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
General & administrative expenses $ 222,785 $ 86,249 $ 477,320 $ 87,304
Depreciation and amortization 24,672 25,282 49,344 50,564
Research and development 144,636 159,783 262,151 351,940
------------- ------------- ------------- -------------
392,093 271,314 788,815 489,808
------------- ------------- ------------- -------------
NET OPERATING (LOSS) (392,093) (271,314) (788,815) (489,808)
OTHER INCOME (EXPENSE)
Interest income 5,684 580 13,640 627
Debt cancellation - former parent 0 0 0 2,169,806
Fee - former parent 0 0 0 200,000
Sale of subsidiary 0 (500,862) 0 (500,862)
------------- ------------- ------------- -------------
5,684 (500,282) 13,640 1,869,571
------------- ------------- ------------- -------------
Income (loss) from continuing operations before
income taxes (386,409) (771,596) (775,175) 1,379,763
Income tax expense 0 0 800 800
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS (386,409) (771,596) (775,975) 1,378,963
Discontinued operations:
Operations of subsidiary sold 4/1/98 0 0 0 (193,468)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (386,409) $ (771,596) $ (775,975) $ 1,185,495
============= ============= ============= =============
Net income (loss) per weighted average share $ (.02) $ (.05) $ (.05) $ .08
============= ============= ============= =============
Weighted average number of common shares used
to compute net income (loss) per weighted
average share 16,232,262 14,223,929 16,003,096 14,223,929
============= ============= ============= =============
</TABLE>
F - 15
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
------------------ ------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (775,975) $ 1,185,495
Adjustments to reconcile net income (loss) to cash used
by operating activities:
Depreciation and amortization 49,344 89,141
Net value of subsidiary sold 0 1,398,034
Debt cancelled 0 (2,169,806)
Changes in assets and liabilities:
Accounts receivable 47,010 (683,519)
Inventories 0 80,636
Prepaid expenses and other 47,024 (166,791)
Accounts payable and accrued expenses 451,116 (7,756)
Deposits 10,000 37,000
Income taxes payable (800) 0
------------------ ------------------
NET CASH USED BY OPERATING ACTIVITIES (172,281) (237,566)
INVESTING ACTIVITIES
Loan - other 0 (6,231)
Purchase of equipment (900,000) (1,796)
Deposits 0 (2,225)
------------------ ------------------
NET CASH USED BY INVESTING ACTIVITIES (900,000) (10,252)
FINANCING ACTIVITIES
Borrowings - former parent 0 170,000
Loans 425,000 0
Cash remaining with former subsidiary 0 (243,102)
Sale of common stock 675,000 0
Principal payments on debt 0 (9,951)
------------------ ------------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 1,100,000 (83,053)
------------------ ------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 27,719 (330,871)
Cash and cash equivalents at beginning of period 890,283 387,982
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 918,002 $ 57,111
================== ==================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 3,963 $ 9,824
Cash paid for income taxes 1,600 800
</TABLE>
F - 16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
Securities and Exchange Commission registration fee $ 5,007.07
Accounting fees and expenses 20,000.00
Legal fees and expenses 30,000.00
Blue Sky fees and expenses 2,000.00
Miscellaneous 20,000.00
--------------
Total $ 77,007.07
==============
- ------------------------------------------------------------------
* All amounts are estimates other than the Commission's
registration fee. No portion of these expenses will be borne by
the Selling Stockholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The officers and directors of the Company are indemnified as
provided under the Nevada Revised Statutes and the Bylaws of the
Company.
Under the NRS, director immunity from liability to a corporation
or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a corporation's articles of
incorporation (which is not the case with the Company's Articles
of Incorporation). Excepted from that immunity are: (i) a willful
failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director has a material
conflict of interest; (ii) a violation of criminal law (unless the
director had reasonable cause to believe that his or her conduct
was lawful or no reasonable cause to believe that his or her
conduct was unlawful); (iii) a transaction from which the director
derived an improper personal profit; and (iv) willful misconduct.
The Bylaws provide that the Company shall indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the corporation) by reason of
the fact that he is or was a Director, Officer, employee or agent
of this corporation, or is or was serving at the request of this
corporation as a Director, Officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by a director in connection with such action,
suit or proceeding, if he or she acted in good faith and in a
manner reasonably believed to be in or not opposed to the best
interests of this corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe this
conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself,
create a presumption that the person did not act in good faith and
in a manner which he or she reasonably believed to be in or not
opposed to the best interests of this corporation, and with
respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
34
<Page >
The Company also indemnifies any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or
completed action or suit, by or in the right of the Company to
procure a judgment in its favor by reason of the fact that the
person is or was a Director, Officer, employee, or agent of the
Company, or is or was serving at the request of the Company as a
Director, Officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or
settlement of such action or suit, if he or she acted in good
faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of this corporation, and except
that no indemnification will be made in respect of any claim,
issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of
his or her duty to the Company, unless and only to the extent that
the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, but
in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper;
To the extent that a Director, Officer, employee, or agent of the
Company has been successful on the merits or otherwise in defense
of any action, suit, or proceeding referred to above, or in
defense of any claim, issue, or matter therein, he or she will be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith;
Any indemnification may be made by the Company only as authorized
in the specific case upon a determination that indemnification of
the Director, Officer, employee, or agent is proper under the
circumstances because he or she has met the applicable standard of
conduct set forth in paragraphs above. Such determination shall
be made: (1) by the board of directors by a majority vote of a
quorum consisting of directors who where not parties to such
action, suit, or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders;
Expenses incurred in defending a civil or criminal action, suit,
or proceeding may be paid by the Company in advance of the final
disposition of such action, suit, or proceeding as authorized by
the board of directors under receipt of an undertaking by or on
behalf of the director, officer, employee, or agent to repay such
amount unless it shall ultimately be determined that he or she is
entitled to be indemnified by the Company as authorized in the
Bylaws.
The indemnification is not exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise, both as
to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a list of equity securities sold by the Company
within the past three years which, pursuant to the exemption
provided by Section 4(2) of the Securities Act, were not
registered under the Securities Act.
35
<Page >
The Company has issued to Dynamic 14,223,929 common shares
pursuant to the Contribution Agreement in consideration for the
transfer by Dynamic to the Company of all shares and shareholders
loans of each of MMC and P&H, and the agreement of Dynamic to
advance to the Company a total of $200,000 ($50,000 of which has
been paid). The shares of the Company issued to Dynamic have
subsequently been distributed to the shareholders of Dynamic on
the basis of one common share of the Company for each common share
of Dynamic. The issue of common shares by the Company to Dynamic
was completed pursuant to the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 (the "Act").
The Company has also issued 2,500,000 common shares in a private
placement to accredited investors at a price of $0.75 per share
pursuant to Rule 506 of Regulation D of the Act as follows:
(1) 1,500,000 shares in October,1998;
(2) 300,000 shares in March, 1999;
(3) 700,000 shares in June, 1999
On July 14, 1999, the Company entered into a Convertible Debenture
and Warrants Purchase Agreement in which it agreed to sell to
certain named investors a total of $3,500,000 worth of Convertible
Debentures pursuant to the exemption from registration provided by
Rule 506 of Regulation D of the Act. In addition to the
Convertible Debentures, each investor under the Debenture Purchase
Agreement was entitled to Warrants in a proportional amount to
their purchase of Debentures. The exercise price of the Warrants
is at a price of $2.75 per share. Of the $3,500,000 in Convertible
Debentures, only $3,000,000 were sold immediately. The remaining
$500,000 were agreed to be purchased by three of the investors
upon the registration of the Common Stock as required by a
Registration Rights Agreement signed contemporaneously with the
Debenture Purchase Agreement. Between July 21 and July 23, 1999,
the Investors exercised their conversion rights under the
Debentures and converted $2,620,000 worth of Debentures into
2,386,750 shares of common stock in the Company.
On July 20, 1999, the Company also issued warrants to purchase
250,000 shares of common stock in the Company to JW Genesis
Securities, Inc. as part of its fee for arranging the Convertible
Debenture financing. These warrants were also issued pursuant to
an exemption from registration provided by Rule 506 of Regulation
D of the Act. These warrants are exercisable at a price of $3.312
per share at any time prior to 5:00 pm New York City Time on July
20, 2004.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------------ --------------------
3.1 Company's Articles of Incorporation*
3.2 Company's By-Laws*
4.1 Company's Stock Option Plan, dated March 23, 1999
5.1 Opinion of Michael A. Cane, Esq., with consent to
use
10.1 Debenture Purchase Agreement, dated as of July
14, 1999, between the Company and the Purchasers
listed therein
36
<Page >
10.2 Registration Rights Agreement, dated as of
July 14, 1999, between the Company and the
Purchasers Listed therein
10.3 Stock Purchase Warrant Form
10.4 8% Convertible Debenture Form
23.1 Consent of Smith and Company to use its Report on
Audited Financial Statements
- -------------
* Incorporated herein by reference from the Company's Registration
Statement on Form 10-SB12B filed with the commission on 7-13-98
(File No. 001-14297)
ITEM 17. UNDERTAKING.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in this Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration
Statement or any material change to such information in the
Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered hereby which
remain unsold at the termination of the offering.
Insofar as indemnifications for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions
described under Item 15 above, 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 Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of
the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act,
and will be governed by the final adjudication of such issue.
37
<Page >
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing Form S-1
and has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized in the
City of Scottsdale, State of Arizona on September 1, 1999.
MW MEDICAL, INC.
\s\ Jan Wallace
By: __________________________
JAN WALLACE, PRESIDENT
AND CHAIRMAN OF THE
BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on September 1, 1999.
SIGNATURE CAPACITY IN WHICH SIGNED
\s\ Grace Sim Director
- -------------------------------------
GRACE SIM
\s\ Jan Wallace President and Chief Executive
- ------------------------------------- Officer (Principal
JAN WALLACE Executive Officer)
Chief Financial Officer
\s\ Grace Sim (Principal Financial/
- ------------------------------------- Accounting Officer)
GRACE SIM
38
<PAGE>
STOCK OPTION PLAN OF
MW MEDICAL, INC.
A Nevada Corporation
1. Purpose of the Plan
The purpose of this Plan is to strengthen MW Medical, Inc.
(hereinafter the "Company") by providing incentive stock options as
a means to attract, retain and motivate key corporate personnel,
through ownership of stock of the Company, and to attract
individuals of outstanding ability to render services to and enter
the employment of the Company or its subsidiaries.
2. Types of Stock Options
There shall be two types of Stock Options (referred to herein as
"Options" without distinction between such different types) that
may be granted under this Plan: (1) Options intended to qualify as
Incentive Stock Options under Section 422 of the Internal Revenue
Code ("Qualified Stock Options"), and (2) Options not specifically
authorized or qualified for favorable income tax treatment under
the Internal Revenue Code ("Non-Qualified Stock Options").
3. Definitions
The following definitions are applicable to the Plan:
(a) Board. The Board of Directors of the Company.
(b) Code. The Internal Revenue Code of 1986, as amended from
time to time.
(c) Common Stock. The shares of Common Stork of the Company.
(d) Company. MW Medical, Inc., a Nevada corporation.
(e) Consultant. An individual or entity that renders
professional services to the Company as an independent
contractor and is not an employee or under the direct supervision
and control of the Company.
(f) Disabled or Disability. For the purposes of Section 7, a
disability of the type defined in Section 22(e)(3) of the Code.
The determination of whether an individual is Disabled or has a
Disability is determined under procedures established by the Plan
Administrator for purposes of the Plan.
(g) Fair Market Value. For purposes of the Plan, the "fair market
value" per share of Common Stock of the Company at any date shall
be: (a) if the Common Stock is listed on an established stock
exchange or exchanges or the NASDAQ National Market, the closing
price per share on the last trading day immediately preceding
such date on the principal exchange on which it is traded or as
reported by NASDAQ; or (b) if the Common Stock is not then listed
on an exchange or the NASDAQ National Market, but is quoted on
the NASDAQ Small Cap Market, the NASDAQ electronic bulletin board
or the National Quotation Bureau pink sheets, the average of the
closing
<Page >
bid and asked prices per share for the Common Stock as quoted
by NASDAQ or the National Quotation Bureau, as the case
may be, on the last trading day immediately preceding such date;
or (c) if the Common Stock is not then listed on an exchange or
the NASDAQ National Market, or quoted by NASDAQ or the National
Quotation Bureau, an amount determined in good faith by the Plan
Administrator.
(h) Incentive Stock Option. Any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(i) Non-Qualified Stock Option. Any Stock Option that is not an
Incentive Stock Option.
(j) Optionee. The recipient of a Stock Option.
(k) Plan Administrator. The board or the Committee designated by
the Board pursuant to Section 4 to administer and interpret the
terms of the Plan.
(l) Stock Option. Any option to purchase shares of Common Stock
granted pursuant to Section 7.
4. Administration of the Plan
This Plan shall be administered by a Compensation Committee
(hereinafter the "Committee" or "Plan Administrator") composed of
members selected by, and serving at the pleasure of, the Board of
Directors. Subject to the provisions of the Plan, the Plan
Administrator shall have authority to construe and interpret the
Plan, to promulgate, amend, and rescind rules and regulations
relating to its administration, to select, from time to time, among
the eligible employees and non-employee consultants (as determined
pursuant to Section 5) of the Company and its subsidiaries those
employees and consultants to whom Stock Options will be granted, to
determine the duration and manner of the grant of the Options, to
determine the exercise price, the number of shares and other terms
covered by the Stock Options, to determine the duration and purpose
of leaves of absence which may be granted to Stock Option holders
without constituting termination of their employment for purposes of
the Plan, and to make all of the determinations necessary or
advisable for administration of the Plan. The interpretation and
construction by the Plan Administrator of any provision of the Plan,
or of any agreement issued and executed under the Plan, shall be
final and binding upon all parties. No member of the Committee or
Board shall be liable for any action or determination undertaken or
made in good faith with respect to the Plan or any agreement
executed pursuant to the Plan.
All of the members of the Committee shall be persons who, in the
opinion of counsel to the Company, are outside directors and
"non-employee directors" within the meaning of Rule l6b-3(b)(3)(i)
promulgated by the Securities and Exchange Commission. From time to
time, the Board may increase or decrease the size of the Committee,
and add additional members to, or remove members from, the
Committee. The Committee shall act pursuant to a majority vote, or
the written consent of a majority of its members, and minutes shall
be kept of all of its meetings and copies thereof shall be provided
to the Board. Subject to the provisions of the Plan and the
directions of the Board, the Committee may establish and follow
such rules and regulations for the conduct of its business as it
may deem advisable.
2
<Page >
At the option of the Board, the entire Board of Directors of the
Company may act as the Plan Administrator during such periods of
time as all members of the Board are "outside directors" as
defined in Prop. Treas. Regs. 1.162-27(e)(3), except that this
requirement shall not apply during any period of time prior to
the date the Company's Common Stock becomes registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended.
5. Grant of Options
The Company is hereby authorized to grant Incentive Stock Options
as defined in section 422 of the Code to any employee or director
(including any officer or director who is an employee) of the
Company, or of any of its subsidiaries; provided, however, that no
person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, or
any of its parent or subsidiary corporations, shall be eligible
to receive an Incentive Stock Option under the Plan unless at
the time such Incentive Stock Option is granted the Option price
is at least 110% of the fair market value of the shares subject
to the Option, and such Option by its terms is not exercisable
after the expiration of five years frorn the date such Option
is granted.
An employee may receive more than one Option under the Plan.
Non-Employee Directors shall be eligible to receive Non-Qualified
Stock Options in the discretion of the Plan Administrator. In
addition, Non-Qualified Stock Options may be granted to
Consultants who are selected by the Plan Administrator.
6. Stock Subject to Plan
The stock available for grant of Options under the Plan shall be
shares of the Company's authorized but unissued, or reacquired,
Common Stock. The aggregate number of shares that may be issued
pursuant to exercise of Options granted under the Plan, as amended,
shall not exceed 2,500,000 shares of Common Stock (subject to
adjustment as provided herein), including shares previously issued
under the Plan. The maximum number of shares for which an Option
may be granted to any Optionee during any calendar year shall not
exceed 500,000 shares. In the event that any outstanding Option
under the Plan for any reason expires or is terminated, the shares
of Common Stock allocable to the unexercised portion of the Option
shall again be available for Options under the Plan as if no Option
had been granted with regard to such shares.
7. Terms and Conditions of Options
Options granted under the Plan shall be evidenced by agreements
(which need not be identical) in such form and containing such
provisions that are consistent with the Plan as the Plan
Administrator shall from time to time approve. Such agreements may
incorporate all or any of the terms hereof by reference and shall
comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Option agreement shall specify the
number of shares subject to the Option.
(b) Option Price. The purchase price for the shares subject to
any Option shall be determined by the Plan Administrator at the
time of the grant, but shall not be less than 85% of Fair Market
Value per share. Anything to the contrary notwithstanding, the
purchase price for the shares subject to
3
<Page >
any Incentive Stock Option shall not be less than 100% of the Fair
Market Value of the shares of Common Stock of the Company on the
date the Stock Option is granted. In the case of any Option granted
to an employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, or
any of its parent or subsidiary corporations, the Option price
shall not be less than 110% of the Fair Market Value per share
of the Common Stock of the Company on the date the Option is
granted. For purposes of determining the stock ownership of an
employee, the attribution rules of Section 424(d) of the Code
shall apply.
(c) Notice and Payment. Any exercisable portion of a Stock
Option may be exercised only by: (a) delivery of a written notice
to the Company prior to the time when such Stock Option becomes
unexercisable herein, stating the number of shares bring
purchased and complying with all applicable rules established by
the Plan Administrator; (b) payment in full of the exercise price
of such Option by, as applicable, delivery of: (i) cash or check
for an amount equal to the aggregate Stock Option exercise price
for the number of shares being purchased, (ii) in the discretion
of the Plan Administrator, upon such terms as the Plan
Administrator shall approve, a copy of instructions to a broker
directing such broker to sell the Common Stock for which such
Option is exercised, and to remit to the Company the aggregate
exercise price of such Stock Option (a "cash1ess exercise"), or
(iii) in the discretion of the Plan Administrator, upon such
terms as the Plan Administrator shall approve, shares of the
Company's Common Stock owned by the Optionee, duly endorsed for
transfer to the Company, with a Fair Market Value on the date of
delivery equal to the aggregate purchase price of the shares with
respect to which such Stock Option or portion is thereby
exercised (a "stock-for-stock exercise"); (c) payment of the
amount of tax required to be withheld (if any) by the Company, or
any parent or subsidiary corporation as a result of the exercise
of a Stock Option. At the discretion of the Plan Administrator,
upon such terms as the Plan Administrator shall approve, the
Optionee my pay all or a portion of the tax withholding by: (i)
cash or check payable to the Company, (ii) a cashless exercise,
(iii) a stock-for-stock exercise, or (iv) a combination of one or
more of the foregoing payment methods; and (d) delivery of a
written notice to the Company requesting that the Company direct
the transfer agent to issue to the Optionee (or his designee) a
certificate for the number of shares of Common Stock for which
the Option was exercised or, in the case of a cashless exercise,
for any shares that were not sold in the cashless exercise.
Notwithstanding the foregoing, the Company, in its sole
discretion, may extend and maintain, or mange for the extension
and maintenance of credit to any Optionee to finance the
Optionee's purchase of shares pursuant to the exercise of any
Stock Option, on such terms as may be approved by the Plan
Administrator, subject to applicable regulations of the Federal
Reserve Board and any other laws or regulations in effect at the
time such credit is extended.
(d) Terms of Option. No Option shall be exercisable after the
expiration of the earliest of: (a) ten years after the date the
Option is granted, (b) three Months after the date the Optionee's
employment with the Company and its subsidiaries terminates, or a
Non-Employee Director or Consultant ceases to provide services to
the Company, if such termination or cessation is for any reason
other than Disability or death, (c) one year after the date the
Optionee's employment with the Company, and its subsidiaries,
terminates, or a Non-Employee Director or Consultant ceases to
provide services to the Company, if such termination or cessation
is a result of death or Disability; provided, however, that the
Option agreement for any Option may provide for shorter periods
in each of the foregoing instances. In the case of an Incentive
Stock Option granted to an employee who owns stock possessing
more than 10% of the total combined voting power of all
4
<Page >
classes of stock of the Company, or any of its parent or
subsidiary corporations, the term set forth in (a) above shall
not be more than five years after the date the Option is granted.
(e) Exercise of an Option. No Option shall be exercisable during
the lifetime of in Optionee by any person other than the
Optionee. Subject to the foregoing, the Plan Administrator shall
have the power to set the time or times within which each Option
shall be exercisable and to accelerate the time or times of
exercise; provided. However the Option shall provide the right to
exercise at the rate of at least 20% per year over five years
from the date the Option is granted. Unless otherwise provided by
the Plan Administrator, each Option granted under the Plan shall
become exercisable on a cumulative basis as to one-third (1/3) of
the total number of shares covered thereby at any time after one
year from the date the Option is granted and an additional
one-third (1/3) of such total number of shares at any time after
the end of each consecutive one-year period thereafter until the
Option has become exercisable as to all of such total number of
shares. To the extent that an Optionee has the right to exercise
an Option and purchase shares pursuant hereto, the Option may be
exercised from time to time by written notice to the Company,
stating the number of shares being purchased and accompanied by
payment in full of the exercise price for such shares.
(f) No Transfer of Option. No Option shall be transferable by
an Optionee otherwise than by will or the laws of descent and
distribution.
(g) Limit on Incentive Stock Option. The aggregate Fair Market
Value (determined at the time the Option is granted) of the stock
with respect to which an Incentive Stock Option is granted and
exercisable for the first time by an Optionee during any calendar
year (under all Incentive Stock Option plans of the Company and
its subsidiaries) shall not exceed $100,000. To the extent the
aggregate Fair Market Value (determined at the time the Stock
Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an
Optionee during any calendar year (under all Incentive Stock
Option plans of the Company and any parent or subsidiary
corporations) exceeds $100,000, such Stock Options shall be
treated as Non-Qualified Stock Options. The determination of
which Stock Options shall be treated as Non-Qualified Stock
Options shall be made by taking Stock Options into account in the
Order in which they were granted.
(h) Restriction on Issuance of Shares. The issuance of Options
and shares shall be subject to compliance with all of the
applicable requirements of law with respect to the issuance and
sale of securities, including, without limitation, any required
qualification under state securities laws. If an Optionee
acquires shares of Common Stock pursuant to the exercise of an
Option, the Plan Administrator, in its sole discretion, may
require as a condition of issuance of shares covered by the
Option that the shares of Common Stock be subject to restrictions
on transfer. The Company may place a legend on the share
certificates reflecting the fact that they are subject to
restrictions on transfer pursuant to the terms of this Section.
In addition, the Optionee may be required to execute a buy-sell
agreement in favor of the Company or its designee with respect to
all or any of the shares so acquired. In such event, the terms of
any such agreement shall apply to the optioned shares.
(i) Investment Representation. Any Optionee may be required,
as a condition of issuance of shares covered by his or her Option,
to represent that the shares to be acquired pursuant to exercise
will be acquired for investment and without a view toward
distribution thereof, and in such case, the
5
<Page >
Company may place a legend on the share certificate(s) evidencing
the fact that they were acquired for investment and cannot be sold
or transferred unless registered under the Securities Act of 1933,
as amended, or unless counsel for the Company is satisfied that the
circumstances of the proposed transfer do not require such
registration.
(j) Rights as a Shareholder or Employee. An Optionee or
transferee of an Option shall have no right as a stockholder of
the Company with respect to any shares covered by any Option until
the date of the issuance of a share certificate for such shares.
No adjustment shall be made for dividends (Ordinary or
extraordinary, whether cash, securities, or other property), or
distributions or other rights for which the record date is prior
to the date such share certificate is issued, except as provided
in paragraph (m) below. Nothing in the Plan or in any Option
agreement shall confer upon any employee any right to continue in
the employ of the Company or any of its subsidiaries or interfere
in any way with any right of the Company or any subsidiary to
terminate the Optionee's employment at any time.
(k) No Fractional Shares. In no event shall the Company be
required to issue fractional shares upon the exercise of an Option.
(l) Exercise in the Event of Death. In the event of the death of
the Optionee, any Option or unexercised portion thereof granted
to the Optionee, to the extent exercisable by him or her on the
date of death, may be exercised by the Optionee's personal
representatives, heirs, or legatees subject to the provisions of
paragraph (d) above.
(m) Recapitalization or Reorganization of the Company. Except
as otherwise provided herein, appropriate and proportionate
adjustments shall be made (1) in the number and class of shares
subject to the Plan, (2) to the Option rights granted under the
Plan, and (3) in the exercise price of such Option rights, in the
event that the number of shares of Common Stock of the Company
are increased or decreased as a result of a stock dividend (but
only on Common Stock), stock split, reverse stock split,
recapitalization, reorganization, merger, consolidation,
separation, or like change in the corporate or capital structure
of the Company. In the event there shall be any other change in
the number or kind of the outstanding shares of Common Stock of
the Company, or any stock or other securities into which such
common stock shall have been changed, or for which it shall have
been exchanged, whether by reason of a complete liquidation of
the Company or a merger, reorganization, or consolidation with
any other corporation in which the Company is not the surviving
corporation, or the Company becomes a wholly-owned subsidiary of
another corporation, then if the Plan Administrator shall, in its
sole discretion, determine that such change equitably requires an
adjustment to shares of Common Stock currently subject to Options
under the Plan, or to prices or terms of outstanding Options,
such adjustment shall be made in accordance with such
determination.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustment shall be made by the
Plan Administrator, the determination of which in that respect
shall be final, binding, and conclusive. No right to purchase
fractional shares shall result from any adjustment of Options
pursuant to this Section. In case of any such adjustment, the
shares subject to the Option shall he rounded down to the nearest
whole share. Notice of any adjustment shall be given by the
Company to each Optionee whose Options shall have been so
adjusted and such
6
<Page >
adjustment (whether or not notice is given) shall be effective
and binding for all purposes of the Plan.
In the event of a complete liquidation of the Company or a
merger, reorganization, or consolidation of the Company with any
other corporation in which the Company is not the surviving
corporation, or the Company becomes a wholly-owned subsidiary of
another corporation, any unexercised Options granted under the
Plan shall be deemed cancelled unless the surviving corporation
in any such merger, reorganization, or consolidation elects to
assume the Options under the Plan or to issue substitute Options
in place thereof; provided, however, that notwithstanding the
foregoing, if such Options would be cancelled in accordance with
the foregoing, the Optionee shall have the right exercisable
during a ten-day period ending on the fifth day prior to such
liquidation, merger, or consolidation to exercise such Option in
whole or in part without regard to any installment exercise
provisions in the Option agreement.
(n) Modification, Extension and Renewal of Options. Subject
to the terms and conditions and within the limitations of the
Plan, the Plan Administrator may modify, extend or renew
outstanding options granted under the Plan and accept the surrender
of outstanding Options (to the extent not theretofore exercised).
The Plan Administrator shall not, however, without the approval
of the Board, modify any outstanding Incentive Stock Option in
any manner that would cause the Option not to qualify as an
Incentive Stock Option within the meaning of Section 422 of the
Code. Notwithstanding the foregoing. no modification of an Option
shall, without the consent of the Optionee, alter or impair any
rights of the Optionee under the Option.
(o) Other Provisions. Each Option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may
be determined by the Plan Administrator.
8. Termination or Amendment of the Plan
The Board may at any time terminate or amend the Plan; provided
that, without approval of the holders of a majority of the shares
of Common Stock of the Company represented and voting at a duly
held meeting at which a quorum is present or the written consent
of a majority of the outstanding shares of Common Stock, there
shall be (except by operation of the provisions of paragraph (m)
above) no increase in the total number of shares covered by the
Plan, no change in the class of persons eligible to receive
options granted under the Plan, no reduction in the exercise
price of Options granted under the Plan, and no extension of the
latest date upon which Options may be exercised; and provided
further that, without the consent of the Optionee, no amendment
may adversely affect any then outstanding Option or any unexercised
portion thereof.
9. Indemnification
In addition to such other rights of indemnification as they may
have as members of the Board Committee that administers the Plan,
the members of the Plan Administrator shall be indemnified by the
Company against reasonable expense, including attorney's fees,
actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal
therein to which they, or any of them, may be a party by reason of
any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against any and all
amounts paid by them in settlement thereof (provided such settlement
is approved by independent
7
<Page >
legal counsel selected by the Company). In addition, such members
shall be indemnified by the Company for any amount paid by them in
satisfaction of a judgment in any action, suit, or proceeding,
except in relation to matters as to which it shall have been
adjudged that such member is liable for negligence or misconduct
in the performance of his or her duties, provided however that
within 60 days after institution of any such action, suit, or
proceeding, the member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
10. Effective Date and Term of the Plan
This Plan shall become effective (the "Effective Date") on the
date of adoption by the board of directors as evidenced by the
date and signature of the President below. Options granted under
the Plan prior to shareholder approval are subject to cancellation
by the Plan Administrator if shareholder approval is not obtained
within 12 months of the date of adoption. Unless sooner terminated
by the Board in its sole discretion, this Plan will expire on
January 1, 2009.
IN WITNESS WHEREOF, the Company by its duly authorized officer, has
caused this Plan to be executed this 23rd day of March, 1999.
MW MEDICAL, INC.
\s\ Jan Wallace
_____________________________________
By: Jan Wallace
Its: Chairman of the Board
8
<Page 1>
Cane & Company, LLC
Affiliated with O'Neill Ritchie Taylor Law Corporation
of Vancouver, British Columbia, Canada
Michael A. Cane* Stephen F.X. O'Neill**
Leslie L. Kapusianyk** Michael H. Taylor**
Telephone: (702) 312-6255
Facsimile: (702) 312-6249
E-mail: [email protected]
101 Convention Center Drive
Suite 1200
Las Vegas, NV 89109
September 2, 1999
MW Medical, Inc.
6955 E. Caballo Dr.
Paradise Valley, AZ 85253
Attention: Jan Wallace, President
Re: MW Medical, Inc. Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel for MW Medical, Inc., a Nevada
corporation (the "Company"), in connection with the preparation
of the registration statement on Form S-1 (the "Registration
Statement") filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act of 1933, as
amended (the "Act"), relating to the public offering (the
"Offering") of up to 4,896,010 shares (the "Shares") of the
Company's common stock, $.001 par value (the "Common Stock"), to
be sold by the selling stockholders. This opinion is being
furnished pursuant to Item 601(b)(5) of Regulation S-K under the
Act.
In rendering the opinion set forth below, we have reviewed (a)
the Registration Statement and the exhibits thereto; (b) the
Company's Articles of Incorporation; (c) the Company's Bylaws;
(d) certain records of the Company's corporate proceedings as
reflected in its minute books; and (e) such statutes, records and
other documents as we have deemed relevant. In our examination,
we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and
conformity with the originals of all documents submitted to us as
copies thereof. In addition, we have made such other examinations
of law and fact as we have deemed relevant in order to form a
basis for the opinion hereinafter expressed.
Based upon the foregoing, we are of the opinion that the Common
Stock is validly issued, fully paid and nonassessable.
Very truly yours,
CANE AND COMPANY, LLC
\s\ Michael Cane
_____________________________
Michael A. Cane, attorney and
Managing Member
*Licensed Nevada, California, Washington and Hawaii State Bars
** British Columbia Bar only
<PAGE>
MW Medical, Inc.
September 1, 1999
Page 2
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to all references to this Firm under
the caption "Interests of Named Experts and Counsel" in the
Registration Statement.
Very truly yours,
CANE AND COMPANY, LLC
\s\ Michael Cane
_____________________________
Michael A. Cane, attorney and
Managing Member
2
<Page >
CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT
Between
MW Medical, Inc.
and
the Investors Signatory Hereto
CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT dated
as of July 14, 1999 (the "Agreement"), between the Investors
signatory hereto (each an "Investor" and together the
"Investors"), and MW Medical, Inc., a corporation organized and
existing under the laws of the State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and
subject to the conditions contained herein, the Company shall
issue and sell to the Investors, and the Investors shall
purchase in the aggregate, (i) $3,500,000 principal amount of
Convertible Debentures and (ii) Warrants to purchase up to
350,000 shares of the Common Stock (as defined below) at a price
per share of $2.75.
WHEREAS, such investments will be made in reliance upon the
provisions of Section 4(2) ("Section 4(2)") and/or 4(6) of the
United States Securities Act and/or Regulation D ("Regulation
D") and the other rules and regulations promulgated thereunder
(the "Securities Act"), and/or upon such other exemption from
the registration requirements of the Securities Act as may be
available with respect to any or all of the investments in
securities to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock
and any shares of any other class of common stock whether now or
hereafter authorized, having the right to participate in the
distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any
securities, rights, or obligations that are convertible into or
exchangeable for or give any right to subscribe for any Capital
Shares of the Company or any Warrants, options or other rights
to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.3. "Closing" shall mean each closing of the
purchase and sale of the Convertible Debentures and Warrants
pursuant to Section 2.1.
NY:71728.2 1
<Page >
Section 1.4. "Closing Date" shall mean the date on which all
conditions to each Closing have been satisfied (as defined in
Section 2.1 (b) hereto) and the Closing shall have occurred.
Section 1.5. "Common Stock" shall mean the Company's common
stock, $0.001 par value per share.
Section 1.6. "Conversion Shares" shall mean the shares of
Common Stock issuable upon conversion of the Convertible Debenture
and any shares of Common Stock issued as interest upon the
Convertible Debenture.
Section 1.7. "Convertible Debenture(s)" shall mean the
$3,500,000 principal amount of 8% Convertible Debentures due July
31, 2000, in the form of Exhibit A hereto. In the event that the
Company shall exercise its option to cause the exchange of the
Convertible Debentures for Convertible Preferred Stock as set
forth in the form of Convertible Debenture, then from and after
the date of such exchange, the term "Convertible Debenture"
shall apply to such shares of Convertible Preferred Stock.
Section 1.8. "Damages" shall mean any loss, claim, damage,
judgment, penalty, deficiency, liability, costs and expenses
(including, without limitation, reasonable attorney's fees and
disbursements and reasonable costs and expenses of expert
witnesses and investigation).
Section 1.9. "Effective Date" shall mean the date on which
the SEC first declares effective a Registration Statement
registering the resale of the Registrable Securities as set forth
in the Registration Rights Agreement.
Section 1.10. "Escrow Agent" shall have the meaning set forth
in the Escrow Agreement.
Section 1.11. "Escrow Agreement" shall mean the Escrow
Agreement in substantially the form of Exhibit D hereto executed
and delivered contemporaneously with this Agreement.
Section 1.12. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Section 1.13. "Legend" shall mean the legend set forth in
Section 9.1.
Section 1.14. "Market Price" on any given date shall mean the
average of the three lowest closing bid prices on the Principal
Market (as reported by Bloomberg L.P.) of the Common Stock on
any three Trading Days during the twenty-two (22) Trading Day
period ending on the Trading Day immediately prior to the date
for which the Market Price is to be determined.
Section 1.15. "Material Adverse Effect" shall mean any effect
on the business, operations, properties, prospects, stock price or
financial condition of the Company that is material and adverse
to the Company and its subsidiaries and affiliates, taken as a
whole, and/or any condition, circumstance, or situation that
would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under
this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designations or the Warrants in
any material respect.
NY:71728.2 2
<Page >
Section 1.16. "Outstanding" when used with reference to
shares of Common Stock or Capital Shares (collectively the
"Shares"), shall mean, at any date as of which the number of such
Shares is to be determined, all issued and outstanding Shares, and
shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any
such Shares then directly or indirectly owned or held by or for
the account of the Company.
Section 1.17. "Person" shall mean an individual, a
corporation, a partnership, an association, a trust or other
entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
Section 1.18. "Principal Market" shall mean the American
Stock Exchange, the New York Stock Exchange, the NASDAQ National
Market, or the NASDAQ Small-Cap Market or the OTC Bulletin
Board, whichever is at the time the principal trading exchange
or market for the Common Stock, based upon share volume.
Section 1.19. "Purchase Price" shall mean the principal
amount of the Convertible Debenture.
Section 1.20. "Registrable Securities" shall mean the
Conversion Shares and the Warrant Shares until (i) the
Registration Statement has been declared effective by the SEC,
and all Conversion Shares and Warrant Shares have been disposed
of pursuant to the Registration Statement, (ii) all Conversion
Shares and Warrant Shares have been sold under circumstances
under which all of the applicable conditions of Rule 144 (or
any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade
such shares without restriction under the Securities Act, and
the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company,
all Conversion Shares and Warrant Shares may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) (or
any similar provision then in effect) under the Securities Act.
Section 1.21. "Registration Rights Agreement" shall mean the
agreement regarding the filing of the Registration Statement for
the resale of the Registrable Securities, entered into between
the Company and the Investor as of the first Closing Date in the
form annexed hereto as Exhibit C.
Section 1.22. "Registration Statement" shall mean a
registration statement on Form SB-2 or S-1 (if use of such form
is then available to the Company pursuant to the rules of the SEC
and, if not, on such other form promulgated by the SEC for which
the Company then qualifies and which counsel for the Company shall
deem appropriate, and which form shall be available for the
resale by the Investors of the Registrable Securities to be
registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement and in accordance
with the intended method of distribution of such securities),
for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section 1.23. "Regulation D" shall have the meaning set forth
in the recitals of this Agreement.
Section 1.24. "SEC" shall mean the Securities and Exchange
Commission.
NY:71728.2 3
<Page >
Section 1.25. "SEC Documents" means the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998 and
Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999.
Section 1.26. "Section 4(2)" and "Section 4(6)" shall have
the meanings set forth in the recitals of this Agreement.
Section 1.27. "Securities Act" shall have the meaning set
forth in the recitals of this Agreement.
Section 1.28. "Shares" shall have the meaning set forth in
Section 1.16.
Section 1.29. "Trading Day" shall mean any day during which
the Principal Market shall be open for business.
Section 1.30. "Warrants" shall mean the Warrants
substantially in the form of Exhibit B to be issued to the
Investors hereunder.
Section 1.31. "Warrant Shares" shall mean all shares of
Common Stock or other securities issued or issuable pursuant to
exercise of the Warrants.
ARTICLE II
Purchase and Sale of Convertible Debenture and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth
herein, the Company agrees to sell, and the Investors, severally
and not jointly, agree to purchase Convertible Debentures with a
principal amount of $3,000,000 in accordance with the commitments
set forth on the signature pages hereto, together with the
Warrants, at the Purchase Price on the initial Closing Date as
follows:
(i) Upon execution and delivery of this
Agreement, each Investor shall deliver to the Escrow
Agent immediately available funds in their proportionate
amount of the Purchase Price as set forth on the signature
pages hereto, and the Company shall deliver the Convertible
Debenture certificates and the Warrants to the Escrow
Agent, in each case to be held by the Escrow Agent
pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set
forth in Section 2.1(b), the first Closing ("Closing")
shall occur at the offices of the Escrow Agent at
which the Escrow Agent (x) shall release the Convertible
Debentures and the Warrants to the Investors and
(y) shall release the Purchase Price (after
NY:71728.2 4
<Page >
all fees have been paid as set forth in the Escrow
Agreement), pursuant to the terms of the Escrow Agreement.
(b) The first Closing is subject to the satisfaction of
the following conditions:
(i) acceptance and execution by the Company and by
the Investors, of this Agreement and all Exhibits
hereto;
(ii) delivery into escrow by each Investor of
immediately available funds in the amount of the
Purchase Price of the Convertible Debentures
purchased at the first Closing and the Warrants,
as more fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the
Investors contained herein shall remain true and
correct as of the Closing Date (as a condition to
the Company's obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of the
Closing Date (as a condition to the Investors' obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale
of the Convertible Debentures and Warrants, or shall have
the availability of exemptions therefrom;
(vi) the sale and issuance of the Convertible Debentures
and the Warrants hereunder, and the proposed issuance by the
Company to the Investors of the Common Stock underlying the
Convertible Debentures and the Warrants upon the conversion
or exercise thereof shall be legally permitted by all laws
and regulations to which the Investors and the Company are
subject and there shall be no ruling, judgment or writ of any
court prohibiting the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Debenture certificates and Warrants certificates to the Escrow
Agent;
(viii) delivery to the Escrow Agent of an opinion of
Michael A. Cane, counsel to the Company, in the form of
Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached hereto
as Exhibit F; and delivery to the Escrow Agent of the
Registration Rights Agreement.
The First Closing shall be deemed to have occurred on July 20,
1998.
(c) The Company further agrees to sell, and Roseworth Group,
Ltd., Balmore Funds, S.A. and Austost Anstalt Schaan each
further agree to purchase additional Convertible Debentures at
the Purchase Price equal to the commitment amount for the second
Closing set
NY:71728.2 5
<Page >
forth on the signature pages hereto on the date specified by
the Company which is no earlier than ten (10) Trading Days
following the Effective Date as follows:
(i) Within three Trading Days of receipt of notice
from the Company that the Registration Statement has been
declared effective by the SEC and the Company desires such
Investors to purchase the remaining Convertible Debentures,
each such Investor shall deliver to the Escrow Agent
immediately available funds in the amount of the Purchase
Price for the additional Convertible Debentures, and the
Company shall deliver further certificates representing such
Convertible Debentures to the Escrow Agent, to be held by the
Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in
Section 2.1(b) (ii) through (vii), other than with respect to
the Warrants, and if the average daily trading value of the
Common Stock has been at least $50,000 for the prior twenty (20)
Trading Days, an additional Closing shall occur at the offices
of the Escrow Agent at which the Escrow Agent (x) shall release
the Convertible Debentures to the participating Investors and (y)
shall release the Purchase Price (after all fees have been paid
as set forth in the Escrow Agreement) to the Company, pursuant
to the terms of the Escrow Agreement.
Section 2.2. Liquidated Damages. The parties hereto
acknowledge and agree that the sum payable pursuant to the
Registration Rights Agreement for late registration and the sum
payable pursuant to the Convertible Debentures for late delivery
of Common Stock certificates shall constitute liquidated damages
and not penalties. The parties further acknowledge that (a) the
amount of loss or damages likely to be incurred is incapable
or is difficult to precisely estimate, (b) the amount specified
in such provisions bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely
to be incurred by the Investor in connection with the failure
of the Company to timely cause the registration of the
Registrable Securities or to deliver stock certificates upon any
conversion, and (c) the parties are sophisticated businesses and
have been represented by sophisticated and able legal and financial
counsel and negotiated this Agreement at arm's length.
ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and
warrants to the Company that:
Section 3.1. Intent. The Investor is entering into this
Agreement for its own account and not with a view to or for
sale in connection with any distribution of the Common Stock.
The Investor has no present arrangement (whether or not legally
binding) at any time to sell the Convertible Debenture, the
Warrants, any Conversion Shares or Warrant Shares to or through
any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold such
securities for any minimum or other specific term and reserves
the
NY:71728.2 6
<Page >
right to dispose of the Conversion Shares and Warrant Shares
at any time in accordance with federal and state securities laws
applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of
Regulation D) and an accredited investor (as defined in Rule 501
of Regulation D), and Investor has such experience in business
and financial matters that it has the capacity to protect its
own interests in connection with this transaction and is capable
of evaluating the merits and risks of an investment in the
Convertible Debenture, the Warrants and the underlying Common
Stock. The Investor has been represented by counsel of its
choice. The Investor acknowledges that an investment in the
Convertible Debenture, the Warrants and the underlying Common
Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement
attached as an Exhibit hereto which is required to be executed by
Investor has been duly authorized and validly executed and
delivered by the Investor and is a valid and binding agreement
of the Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles
of general application.
Section 3.4. Not an Affiliate. The Investor is not an
officer, director or "affiliate" (as that term is defined in Rule
405 of the Securities Act) of the Company.
Section 3.5. Absence of Conflicts. The execution and
delivery of this Agreement and each agreement which is attached
as an Exhibit hereto and executed by the Investor in connection
herewith, and the consummation of the transactions contemplated
hereby and thereby, and compliance with the requirements hereof
and thereof by the Investor, will not violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award
binding on Investor or (a) violate any provision of any
indenture, instrument or agreement to which Investor is a party
or is subject, or by which Investor or any of its assets is
bound; (b) conflict with or constitute a material default
thereunder; (c) result in the creation or imposition of any lien
pursuant to the terms of any such indenture, instrument or
agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any
third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal
obligation to which Investor is subject or to which any of its
assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor
has received all documents, records, books and other information
pertaining to Investor's investment in the Company that have
been requested by the Investor.
Section 3.7. Manner of Sale. At no time was Investor
presented with or solicited by or through any leaflet, public
promotional meeting, television advertisement or any other form
of general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
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The Company represents and Warrants to the Investors that,
except as set forth on the Disclosure Schedule prepared by the
Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a
corporation duly incorporated and existing in good standing
under the laws of the State of Nevada and has all requisite
corporate authority to own its properties and to carry on its
business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of
or control any other business entity except as described in the
SEC Documents. The Company is duly qualified and is in good
standing as a foreign corporation to do business in every
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, other
than those in which the failure so to qualify would not have a
Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite
corporate power and corporate authority to conduct its business
as now conducted, to enter into and perform its obligations
under this Agreement, the Registration Rights Agreement, the
Escrow Agreement, and the Warrants and to issue the Convertible
Debentures, the Conversion Shares, the Warrants and the Warrant
Shares pursuant to their respective terms, (ii) the execution,
issuance and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Convertible Debentures and
the Warrants by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by
all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or
stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the
Convertible Debentures and the Warrants have been duly executed
and delivered by the Company and at the Closing shall constitute
valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally
the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has
duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the conversion of the
Convertible Debentures and for the exercise of the Warrants.
The Company understands and acknowledges the potentially
dilutive effect to the Common Stock of the issuance of the
Conversion Shares. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the
Convertible Debentures and Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Convertible
Debentures is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C.
101 et seq. (the "Bankruptcy Code"). The Company shall not seek
judicial relief from its obligations hereunder except pursuant
to the Bankruptcy Code. In the event the Company is a debtor
under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under
11 U.S.C. 362 in respect of the conversion of the Convertible
Debentures and the exercise of the Warrants. The Company
agrees, without cost or expense to the Investors, to take or
consent to any and all action necessary to effectuate relief
under 11 U.S.C. 362.
Section 4.3. Capitalization. The authorized capital stock
of the Company consists of 100,000,000 shares of Common Stock,
$0.001 par value per share, of which 16,723,929 shares
NY:71728.2 8
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are issued and outstanding as of July 14, 1999. Except as set
forth in the SEC Documents, there are no outstanding Capital
Shares Equivalents nor any agreements or understandings pursuant
to which any Capital Shares Equivalents may become outstanding.
The Company is not a party to any agreement granting registration
or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of
Common Stock of the Company have been duly and validly authorized
and issued and are fully paid and non-assessable and have been
issued pursuant to valid exemptions from registration under the
Securities Act and all applicable state "blue sky" laws.
Section 4.4. Common Stock. The Company has registered its
Common Stock pursuant to Section 12(b) or (g) of the Exchange Act
and is in full compliance with all reporting requirements of the
Exchange Act, and the Company is in compliance with all
requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or
quoted on, the Principal Market. As of the date hereof, the
Principal Market is the OTC Bulletin Board and the Company has
not received any notice regarding, and to its knowledge there is
no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available
to the Investors true and complete copies of the SEC Documents.
The Company has not provided to the Investors any information that,
according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company,
but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act, and rules and regulations
of the SEC promulgated thereunder and the SEC Documents did not
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC
Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with
respect thereto at the time of such inclusion. Such financial
statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent
they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and
the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations
or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) that
would have been required to be reflected in, reserved against or
otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected
in, reserved against or otherwise described in the financial
statements or the notes thereto included in the SEC Documents or
was not incurred in the ordinary course of business consistent
with the Company's past practices since the last date of such
financial statements.
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Section 4.6. Exemption from Registration; Valid Issuances.
Subject to the accuracy of the Investors' representations in
Article III, the sale of the Convertible Debentures, the Conversion
Shares, the Warrants and the Warrant Shares will not require
registration under the Securities Act and/or any applicable
state securities law. When issued and paid for in accordance
with the Warrants and validly converted in accordance with the
terms of the Convertible Debentures, the Conversion Shares and
the Warrant Shares will be duly and validly issued, fully paid,
and non-assessable. Neither the sales of the Convertible
Debentures, the Conversion Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Convertible Debentures or
the Warrants will (i) result in the creation or imposition by
the Company of any liens, charges, claims or other encumbrances
upon the Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares or, except as contemplated
herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other
rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Convertible Debentures, the
Conversion Shares, the Warrants and the Warrant Shares shall not
subject the Investors to personal liability to the Company or
its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard
to this Transaction. Neither the Company nor any of its affiliates
nor, to the knowledge of the Company, any person acting on its
or their behalf (i) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation
D) or general advertising with respect to the sale of the
Convertible Debentures or the Warrants, or (ii) made any offers
or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration
of the Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares under the Securities Act.
Section 4.8. No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby, including
without limitation the issuance of and payment of interest upon
the Convertible Debentures, the Conversion Shares, the Warrants
and the Warrant Shares, do not and will not (i) result in a
violation of the Company's Certificate of Incorporation or By-
Laws or (ii) conflict with, or constitute a material default (or
an event that with notice or lapse of time or both would become
a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material
agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment
or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is
the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of
the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for
possible violations that either singly or in the aggregate would
not have a Material Adverse Effect. The Company is not required
under any Federal, state or local law, rule or regulation to
obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the
Convertible Debentures
NY:71728.2 10
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or the Warrants in accordance with the terms hereof (other than
any SEC or state securities filings that may be required to be
made by the Company subsequent to Closing, any registration
statement that may be filed pursuant hereto); provided that, for
purposes of the representation made in this sentence, the Company
is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investors herein.
Section 4.9. No Material Adverse Change. Since March 31,
1999, no Material Adverse Effect has occurred or exists with
respect to the Company. No material supplier has given notice,
oral or written, that it intends to cease or reduce the volume
of its business with the Company from historical levels.
Section 4.10. No Undisclosed Events or Circumstances. Since
March 31, 1999, no event or circumstance has occurred or exists
with respect to the Company or its businesses, properties,
prospects, operations or financial condition, that, under any
applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed in writing to
the Investors.
Section 4.11. No Integrated Offering. Other than pursuant
to an effective registration statement under the Securities Act,
or pursuant to the issuance or exercise of employee stock options,
or pursuant to its discussion with the Investors in connection
with the transactions contemplated hereby, the Company has not
issued, offered or sold the Convertible Debentures, the Warrants
or any shares of Common Stock (including for this purpose any
securities of the same or a similar class as the Convertible
Debentures, the Warrants or Common Stock, or any securities
convertible into a exchangeable or exercisable for the
Convertible Debentures or Common Stock or any such other
securities) within the six-month period next preceding the date
hereof, and the Company shall not permit any of its directors,
officers or affiliates directly or indirectly to take, any
action (including, without limitation, any offering or sale to
any Person of the Convertible Debentures, Warrants or shares of
Common Stock), so as to make unavailable the exemption from
Securities Act registration being relied upon by the Company for
the offer and sale to Investors of the Convertible Debentures
(and the Conversion Shares) or the Warrants (and the Warrant
Shares) as contemplated by this Agreement.
Section 4.12. Litigation and Other Proceedings. There are no
lawsuits or proceedings pending or, to the knowledge of the
Company, threatened, against the Company or any subsidiary, nor
has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which could
reasonably be expected to have a Material Adverse Effect. No
judgment, order, writ, injunction or decree or award has been
issued by or, to the knowledge of the Company, requested of any
court, arbitrator or governmental agency which could result in a
Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The
Company and, to the knowledge of the Company, any person
representing the Company, or any other person selling or offering
to sell the Convertible Debentures or the Warrants in connection
with the transaction contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a
material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances
under which they were made, not misleading.
NY:71728.2 11
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Section 4.14. Material Non-Public Information. The Company
has not disclosed to the Investors any material non-public
information that (i) if disclosed, would reasonably be expected
to have a material effect on the price of the Common Stock or (ii)
according to applicable law, rule or regulation, should have
been disclosed publicly by the Company prior to the date hereof
but which has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary
maintains property and casualty, general liability, workers'
compensation, environmental hazard, personal injury and other
similar types of insurance with financially sound and reputable
insurers that is adequate, consistent with industry standards
and the Company's historical claims experience. The Company has
not received notice from, and has no knowledge of any threat by,
any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns
which it is required to file under applicable laws; all such Tax
Returns are true and accurate and has been prepared in
compliance with all applicable laws; the Company has paid all
Taxes due and owing by it or any subsidiary (whether or not such
Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authorities all
Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third
parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any
provisions for deferred income taxes) reflected on the books of
the Company are adequate to cover any Tax liabilities of the
Company if its current tax year were treated as ending on the
date hereof.
(b) No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that
the Company or any subsidiary is or may be subject to taxation
by that jurisdiction. There are no foreign, federal, state or
local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any
subsidiary; no information related to Tax matters has been
requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been
received by the Company or any subsidiary from any foreign,
federal, state or local taxing authority. There are no material
unresolved questions or claims concerning the Company's Tax
liability. The Company (A) has not executed or entered into a
closing agreement pursuant to 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; or (B) has not agreed
to or is required to make any adjustments pursuant to 481 (a)
of the Internal Revenue Code or any similar provision of state,
local or foreign law by reason of a change in accounting method
initiated by the Company or any of its subsidiaries or has any
knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any application pending with
any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real
property holding corporation within the meaning of 897(c)(2)
of the Internal Revenue Code during the applicable period
specified in 897(c)(1)(A)(ii) of the Internal Revenue Code.
NY:71728.2 12
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(c) The Company has not made an election under 341(f) of
the Internal Revenue Code. The Company is not liable for the
Taxes of another person that is not a subsidiary of the Company
under (A) Treas. Reg. 1.1502-6 (or comparable provisions of
state, local or foreign law), (B) as a transferee or successor,
(C) by contract or indemnity or (D) otherwise. The Company is
not a party to any tax sharing agreement. The Company has not
made any payments, is obligated to make payments or is a party
to an agreement that could obligate it to make any payments that
would not be deductible under 280G of the Internal Revenue
Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue
Service.
"Tax" or "Taxes" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer,
registration, excise, utility, environmental,
communications, real or personal property, capital
stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including,
without limitation, deficiencies, penalties, additions
to tax, and interest attributable thereto) whether
disputed or not.
"Tax Return" means any return, information report or
filing with respect to Taxes, including any schedules
attached thereto and including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its
subsidiaries owns any real property. Each of the Company and
its subsidiaries has good and marketable title to all personal
property owned by it, free and clear of all liens, encumbrances
and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made
and proposed to be made of such property by the Company; and to
the Company's knowledge any real property and buildings held
under lease by the Company as tenant are held by it under valid,
subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and intended
to be made of such property and buildings by the Company. The
Company's present facilities are adequate for the Company's
reasonably foreseeable needs.
Section 4.18. Intellectual Property. Each of the Company
and its subsidiaries owns or possesses adequate and enforceable
rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar
rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now being conducted.
To the Company's knowledge, except as disclosed in the SEC
Documents neither the Company nor any of its subsidiaries is
infringing upon or in conflict with any right of any other
person with respect to any Intangibles. Except as disclosed in
the SEC Documents, no adverse claims have been asserted by any
person to the ownership or use of any Intangibles and the Company
has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company
maintains books and records and internal accounting controls
which provide reasonable assurance that (i) all transactions to
which
NY:71728.2 13
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the Company or any subsidiary is a party or by which its
properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's
consolidated assets is compared with existing assets at regular
intervals; (iii) access to the Company's consolidated assets is
permitted only in accordance with management's authorization;
and (iv) all transactions to which the Company or any
subsidiary is a party or by which its properties are bound are
recorded as necessary to permit preparation of the financial
statements of the Company in accordance with U.S. generally
accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the
Company, any subsidiary, nor any of its directors, officers or,
to its knowledge, other employees has (i) used any Company funds
for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made
any direct or indirect unlawful payment of Company funds to any
foreign or domestic government official or employee; (iii)
violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any
bribe, rebate, payoff, influence payment, kickback or other
similar payment to any person with respect to Company matters.
Section 4.21. Related Party Transactions. The Company is not a
party to any agreement or transaction with any of its officers,
directors, greater than 5% shareholders or any Affiliate (as
defined in SEC Rule 405) of any of said persons that would
require disclosure under Item 404 of Regulation S-K that is not
disclosed in the SEC Documents.
Section 4.22. Permits and Licenses. The Company holds all
necessary permits and licenses to conduct its business as
presently conducted, except that the FDA has not yet approved
the Company's product for sale in the United States. All of such
permits and licenses are in full force and effect and the
Company is not in material violation of any thereof.
Section 4.23. No Misrepresentation. The representations and
warranties of the Company contained in this Agreement, any
schedule, annex or exhibit hereto and any agreement, instrument
or certificate furnished by the Company to the Investors
pursuant to this Agreement, do not contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with
the Company that:
Section 5.1. Compliance with Law. The Investor's trading
activities with respect to shares of the Company's Common Stock
will be in compliance with all applicable state and federal
securities laws, rules and regulations and rules and regulations
of the Principal Market on which the Company's Common Stock is
listed.
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ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause
the Registration Rights Agreement to remain in full force and
effect and the Company shall comply in all material respects
with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date
hereof, the Company has reserved and the Company shall continue
to reserve and keep available at all times, free of preemptive
rights, shares of Common Stock for the purpose of enabling the
Company to issue the Conversion Shares and the Warrant Shares
pursuant to any conversion of the Convertible Debentures or
exercise of the Warrants. The number of shares so reserved from
time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually
delivered pursuant to any conversion of the Convertible
Debentures or exercise of the Warrants and the number of shares
so reserved shall be increased or decreased to reflect potential
increases or decreases in the Common Stock that the Company may
thereafter be obligated to issue by reason of adjustments to the
Warrants.
Section 6.3. Listing of Common Stock. The Company hereby
agrees to maintain the listing of the Common Stock on a Principal
Market, and as soon as reasonably practicable following the
Closing to list the Conversion Shares and the Warrant Shares
on the Principal Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the
Conversion Shares and the Warrant Shares, and will take such
other action as is necessary or desirable in the opinion of the
Investors to cause the Conversion Shares and Warrant Shares to be
listed on such other Principal Market as promptly as possible.
The Company will take all action to continue the listing and
trading of its Common Stock on a Principal Market (including,
without limitation, maintaining sufficient net tangible assets)
and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the
Principal Market and shall provide Investors with copies of any
correspondence to or from such Principal Market which questions
or threatens delisting of the Common Stock, within three (3)
Trading Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities.
Section 6.4. Exchange Act Registration. The Company will
cause its Common Stock to continue to be registered under Section
12(b) or (g) of the Exchange Act, will use its best efforts to
comply in all respects with its reporting and filing obligations
under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations
under said Act until the Investors have disposed of all of their
Registrable Securities.
Section 6.5. Legends. The certificates evidencing the
Registrable Securities shall be free of legends, except as set
forth in Article IX.
NY:71728.2 15
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Section 6.6. Corporate Existence; Conflicting Agreements.
The Company will take all steps necessary to preserve and
continue the corporate existence of the Company. The Company shall
qualify to do business as a foreign corporation in the State of
California within twenty (20) days of the first Closing. The
Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the
Company to perform any of its obligations under this Agreement
or any of the other agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. The Company shall not,
at any time after the date hereof, effect any merger or
consolidation of the Company with or into, or a transfer of all
or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor
or acquiring entity (if not the Company) assumes by written
instrument or by operation of law the obligation to deliver to
the Investors such shares of stock and/or securities as the
Investors are entitled to receive pursuant to this Agreement
and the Convertible Debenture.
Section 6.8. Issuance of Convertible Debentures and Warrant
Shares. The sale of the Convertible Debentures and the Warrants
and the issuance of the Warrant Shares pursuant to exercise of
the Warrants and the Conversion Shares upon conversion of the
Convertible Debentures shall be made in accordance with the
provisions and requirements of Section 4(2), 4(6) or Regulation
D and any applicable state securities law. The Company shall
make any necessary SEC and "blue sky" filings required to be
made by the Company in connection with the sale of the
Securities to the Investors as required by all applicable laws,
and shall provide a copy thereof to the Investors promptly after
such filing.
Section 6.9. Limitation on Future Financing. The Company agrees
that it will not enter into any sale of its securities or any
Capital Shares Equivalents at a discount to the then-current bid
price until 180 days after the effective date of the Registration
Statement except for any sales (i) of up to 3,000,000 shares
of Common Stock pursuant to the exercise of options granted or to
be granted under an employee benefit plan, (ii) pursuant to any
compensatory plan for a full-time employee or key consultant, or
(iii) with the prior approval of a majority in interest of the
Investors in connection with a strategic partnership or other
business transaction, the principal purpose of which is not simply
to raise money. If any of Roseworth Group, Ltd., Balmore Funds,
S.A. or Austost Anstalt Schaan shall wrongfully fail to purchase
additional Convertible Debentures at the second Closing, then
such defaulting Investor(s) shall have no rights pursuant to this
Section 6.9.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and
covenants made by each of the Company and each Investor in this
Agreement, the annexes, schedules and exhibits hereto and in
each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the
Closing and the consummation of the transactions contemplated
hereby. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made
NY:71728.2 16
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shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement,
irrespective of any investigation made by or on behalf of such
party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to
indemnify and hold harmless the Investors, their respective
Affiliates and their respective officers, directors, partners
and members (collectively, the "Investor Indemnitees"), from and
against any and all Damages, and agrees to reimburse the Investor
Indemnitees for all reasonable out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Investor Indemnitees and to the
extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach
of any of the Company's representations or warranties
contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate
entered into or delivered by the Company pursuant to this
Agreement; or
(ii) any failure by the Company to perform in any
material respect any of its covenants, agreements,
undertakings or obligations set forth in this Agreement,
the annexes, schedules or exhibits hereto or any instru-
ment, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement; or
(iii) any action instituted against the Investors,
or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of an
Investor, with respect to any of the transactions
contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees
to indemnify and hold harmless the Company, its Affiliates and
their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any
and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the
extent arising out of or in connection with:
(i) any misrepresentation, omission of fact, or
breach of any of the Investor's representations or
warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement
or certificate entered into or delivered by the Investor
pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any
material respect any of its covenants, agreements,
undertakings or obligations set forth in this Agreement or
any instrument, certificate or agreement entered into or
delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice. Promptly after receipt by either party
hereto seeking indemnification pursuant to Section 7.2 (an
"Indemnified Party") of written notice of any investigation, claim,
proceeding or other action in respect of which indemnification
is being sought (each, a "Claim"),
NY:71728.2 17
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the Indemnified Party promptly shall notify the party from whom
indemnification pursuant to Section 7.2 is being sought (the
"Indemnifying Party") of the commencement thereof; but the
omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the
Indemnified Party, except to the extent that the Indemnifying
Party is actually prejudiced by such omission or delay. In
connection with any Claim as to which both the Indemnifying
Party and the Indemnified Party are parties, the Indemnifying
Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the
Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense
of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-
pocket costs and expenses, (y) the Indemnified Party reasonably
shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would
not be appropriate due to actual or, as reasonably determined by
legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of
such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the
Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party.
Except as provided above, the Indemnifying Party shall not, in
connection with any Claim in the same jurisdiction, be liable
for the fees and expenses of more than one firm of legal counsel
for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior
written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or
consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all
liabilities with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder
should have a claim for indemnification that does not involve a
claim or demand being asserted by a third party, the Indemnified
Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the
claim, such dispute shall be resolved by mutual agreement of the
Indemnified Party and the Indemnifying Party or by binding
arbitration conducted in accordance with the procedures and
rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators
may be entered in any court having competent jurisdiction
thereof.
ARTICLE VIII
Due Diligence Review
Section 8.1. Due Diligence Review. Subject to Section 8.2,
the Company shall make available for inspection and review by the
Investors, advisors to and representatives of the Investors (who
may or may not be affiliated with the Investors and who are
reasonably acceptable to the
NY:71728.2 18
<Page >
Company), any underwriter participating in any disposition of the
Registrable Securities on behalf of the Investors pursuant to the
Registration Statement, any such registration statement or
amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all proposed filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information
reasonably requested by the Investors or any such
representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after
the filing and effectiveness of the Registration Statement for
the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) From and after the filing of the Registration
Statement, the Company shall not disclose material non-public
information to the Investors, advisors to or representatives of
the Investors unless prior to disclosure of such information the
Company identifies such information as being non-public
information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to
accept such non-public information for review. Other than
disclosure of any comment letters received from the SEC staff
with respect to the Registration Statement, the Company may, as
a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter
into a confidentiality agreement in form and content reasonably
satisfactory to the Company and the Investors.
(b) The Company will promptly notify the advisors and
representatives of the Investors and, if any, underwriters, of
any event or the existence of any circumstance of which it
becomes aware, constituting material information (whether or not
requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if
not disclosed in the prospectus included in the Registration
Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated
therein in order to make the statements, therein in light of the
circumstances in which they were made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each
certificate representing Registrable Securities will bear the
following legend or equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS
AND HAVE
NY:71728.2 19
<Page >
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH
REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution
and delivery hereof, the Company is issuing to the transfer agent
for its Common Stock (and to any substitute or replacement transfer
agent for its Common Stock upon the Company's appointment of any
such substitute or replacement transfer agent) instructions
substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof
or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions.
No legend other than the one specified in Section 9.1 has been or
shall be placed on the share certificates representing the
Registrable Securities and no instructions or "stop transfer
orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent
with respect thereto other than as expressly set forth in
this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article
shall affect in any way each Investor's obligations to comply with
all applicable securities laws upon resale of the Common Stock.
ARTICLE X
Choice of Law; Arbitration
Section 10.1. Governing Law/Arbitration. This Agreement
shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts made in New
York by persons domiciled in New York City and without regard to
its principles of conflicts of laws. Any dispute under this
Agreement shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York,
and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members
(hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive business days in New York
City, New York, and shall reach and render a decision in writing
(concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing
party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of
Arbitration shall adopt and follow the laws of the State of New
York unless the matter at issue is the corporation law of the
company's state of incorporation, in which event the corporation
law of such jurisdiction shall govern such issue. To the extent
practical, decisions of the Board of Arbitration shall be rendered
no more than thirty (30) calendar days following commencement of
proceedings
NY:71728.2 20
<Page >
with respect thereto. The Board of Arbitration shall
cause its written decision to be delivered to all parties involved
in the dispute. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the
parties to the dispute, and entitled to be enforced to the fullest
extent permitted by law and entered in any court of competent
jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party
failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to
any arbitration (as determined by the Board of Arbitration) shall
pay the expenses of the prevailing party, including reasonable
attorney's fees, in connection with such arbitration. Any party
shall be entitled to obtain injunctive relief from a court in any
case where such relief is available.
ARTICLE XI
Assignment
Section 11.1. Assignment. Neither this Agreement nor any
rights of the Investors or the Company hereunder may be assigned
by either party to any other person. Notwithstanding the
foregoing, (a) the provisions of this Agreement shall inure to the
benefit of, and be enforceable by, any permitted transferee of any
of the Convertible Debentures or Warrants purchased or acquired
by any Investor hereunder with respect to the Convertible
Debentures or Warrants held by such person, and (b) upon the
prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed, each Investor's interest
in this Agreement may be assigned at any time, in whole or in
part, to any other person or entity (including any Affiliate
of the Investor) who agrees to make the representations and
warranties contained in Article III and who agrees to be bound
by the terms of this Agreement.
ARTICLE XII
Notices
Section 12.1. Notices. All notices, demands, requests,
consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in
the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by facsimile, addressed
as set forth below or to such other address as such party shall
have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the
first business day following such delivery (if delivered other
than on a business day during normal business hours where such
notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service,
fully prepaid, addressed to such address, or (c) upon actual
receipt of such mailing, if mailed. The addresses for such
communications shall be:
NY:71728.2 21
<Page >
If to the Company: MW Medical, Inc.
6955 E. Caballo Drive
Paradise Valley, AZ 85253
Attention: Jan Wallace
Telephone: 602-483-8700
Facsimile: 602-443-1235
with a copy to (shall not
constitute notice): Michael A. Cane, Esq.
101 Convention Center Drive,
PH-1200
Las Vegas, NV 89109
Telephone: 702-312-6255
Facsimile: 702-312-6249
if to the Investors: As set forth on the signature
pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving
written notice of such changed address or facsimile number to
the other party hereto as provided in this Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments. This
Agreement may be executed in multiple counterparts, each of
which may be executed by less than all of the parties and shall
be deemed to be an original instrument which shall be enforceable
against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument.
Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original
documents shall be as effective and enforceable as the original.
This Agreement may be amended only by a writing executed by all
parties.
Section 13.2. Entire Agreement. This Agreement, the
agreements attached as Exhibits hereto, which include, but are not
limited to the Convertible Debentures, the Warrants, the Escrow
Agreement, and the Registration Rights Agreement, set forth the
entire agreement and understanding of the parties relating to
the subject matter hereof and supersedes all prior and
22
<Page >
contemporaneous agreements, negotiations and understandings
between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits
to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision
of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective
if it materially changes the economic benefit of this Agreement
to any party.
Section 13.4. Headings. The headings used in this Agreement
are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5. Number and Gender. There may be one or more
Investors parties to this Agreement, which Investors may be natural
persons or entities. All references to plural Investors shall
apply equally to a single Investor if there is only one
Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The
reporting entity relied upon for the determination of the trading
price or trading volume of the Common Stock on any given Trading
Day for the purposes of this Agreement shall be Bloomberg, L.P.
or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other
reporting entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt
of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of a certificate representing
the Convertible Debentures or any Conversion Shares or Warrants
or any Warrant Shares and (ii) in the case of any such loss,
theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form
to the Company (which shall not include the posting of any bond)
or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense
will execute and deliver, in lieu thereof, a new certificate of
like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the
Investors agrees to pay its own expenses incident to the
performance of its obligations hereunder, except that the
Company shall pay the fees, expenses and disbursements of
Epstein Becker & Green, P.C., counsel to Roseworth Group, Ltd.
and Escrow Agent for all of the Investors, in an amount equal to
$15,000, all as set forth in the Escrow Agreement.
Section 13.9. Brokerage. Each of the parties hereto
represents that it has had no dealings in connection with this
transaction with any finder or broker who will demand payment of
any fee or commission from the other party except for JWGenesis
Financial Services Corp., whose fee shall be paid by the Company.
The Company on the one hand, and the Investors, on the other hand,
agree to indemnify the other against and hold the other harmless
from any and all liabilities to any person claiming brokerage
commissions or finder's fees on account of services purported to
have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated
hereby.
NY:71728.2 23
<Page >
Section 13.10. Publicity. The Company agrees that it will
not issue any press release or other public announcement of the
transactions contemplated by this Agreement without the prior
consent of the Investors, which shall not be unreasonably
withheld nor delayed by more than two (2) Trading Days from
their receipt of such proposed release. No release shall name
the Investors without their express consent.
IN WITNESS WHEREOF, the parties hereto have caused this
Purchase Agreement to be executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
MW Medical, Inc.
By: \s\ Jan Wallace President CEO
-------------------------------------
Roseworth Group, Ltd.
By: \s\ Hans Grassner
-------------------------------------
Hans Gassner, Director
Principal Amount subscribed for:
First Closing $750,000
Second Closing $250,000
Address for notices:
C/o Dr. Batliner & Partners
Aeulestrasse 74
FI-9490 Vaduz, Liechtenstein
Fax: 011-41-75-2360-405
Balmore Funds, S.A.
By: \s\ Francois Morax
-------------------------------------
Francois Morax
Authorized Signatory
Principal Amount subscribed for:
First Closing $375,000
Second Closing $125,000
Address for notices:
Trident Chambers
Road Town, Tortola
British Virgin Islands
Fax: 411-201-8800
[signatures continued]
NY:71728.2 24
<Page >
[MW Medical, Inc. signature page continued]
Austost Anstalt Schaan
By: \s\ Thomas Hackl
-------------------------------------
Thomas Hackl,
Authorized Signatory
Principal Amount subscribed for:
First Closing $375,000
Second Closing $125,000
Address for notices:
Landstrasse 163
9494 Furstenweg
Vaduz, Liechtenstein
Fax:011-431-532-895
Markham Holdings, Ltd.
By: \s\ J.D. Hassan
-------------------------------------
J.D. Hassan
Authorized Signatory
Principal Amount subscribed for: $250,000
Address for notices:
50 Town Range, P. O. Box 472
Gibraltar
Fax:011-350-40404
[signatures continued]
NY:71728.2 25
<Page >
[signatures continued]
VMR High Octane Fund, Ltd.
By: \s\ Florian Homm
-------------------------------------
Florian Homm
Authorized Signatory
Principal Amount subscribed for: $750,000
Address for notices:
C/o HWR Services
Craigmuir Chambers
P.O. Box 71
Road Town, Tortola
British Virgin Islands
Fax:011-
Strategic Group, Ltd.
By: \s\ Bernard Hazel
-------------------------------------
Bernard Hazel,
Authorized Signatory
Principal Amount subscribed for: $250,000
Address for notices:
Suite 41/42 Victoria House
26 Main Street, P.O. Box 743
Gibraltar
Fax:011-350-70189
[signatures continued]
<Page >
\s\ Mark F. Hubbard
-------------------------------------
Mark F. Hubbard
Principal Amount subscribed for: $250,000
Address for notices:
Fax:
NY:71728.2 27
<Page >
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 14, 1999,
between the investor or investors signatory hereto (each an
"Investor" and together the "Investors"), and MW Medical,
Inc., a Nevada corporation (the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Investors have committed to purchase from the
Company, pursuant to a Convertible Debenture and Warrants Purchase
Agreement dated the date hereof (the "Purchase Agreement"), an
aggregate of $3,500,000 principal amount of Convertibles Debenture
and Warrants to purchase up to 350,000 shares of the Company's
Common Stock (terms not defined herein shall have the meanings
ascribed to them in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investors the
registration rights set forth herein with respect to the
Conversion Shares of Common Stock issuable upon conversion of
or as interest upon the Convertible Debentures (or, if the Company
exchanges shares of Convertible Preferred Stock for such Convertible
Debentures pursuant to the terms of the Convertible Debentures,
then issuable upon conversion of or as dividends upon such shares
of Convertible Preferred Stock) purchased pursuant to the Purchase
Agreement and shares of Common Stock issuable upon exercise of the
Warrants (hereinafter referred to as the "Stock" or "Securities"
of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities until (i) the
Registration Statement has been declared effective by the
Commission, and all Securities have been disposed of pursuant
to the Registration Statement, (ii) all Securities have been
sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force)
under the Securities Act ("Rule 144") are met, (iii) all
Securities have been otherwise transferred to holders who may
trade such Securities without restriction under the Securities Act,
and the Company has delivered a new certificate or other evidence
of ownership for such Securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company,
all Securities may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling
within the foregoing definition of a "Registrable Security."
In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure
affecting the Common Stock, such adjustment shall be deemed to
be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of
the rights granted pursuant to this Agreement.
Section 2. Restrictions on Transfer. Each Investor
acknowledges and understands that prior to the registration of
the Securities as provided herein, the Securities are "restricted
securities" as defined in Rule 144 promulgated under the Act.
Each Investor understands that no disposition or transfer of the
Securities may be made by Investor in the absence of (i) an opinion
of counsel to the Investor, in form and substance reasonably
satisfactory to the Company, that such transfer may be made without
registration under the Securities Act or (ii) such registration.
With a view to making available to the Investors the benefits of
Rule 144 under the Securities Act or any other similar rule
or regulation of the Commission that may at any time permit the
NY:71731.2
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Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of
Rule 144 following the filing of the Registration Statement; and
(b) file with the Commission in a timely manner all reports
and other documents required to be filed with the Commission
pursuant to Section 13 or 15(d) under the Exchange Act by
companies subject to either of such sections, irrespective of
whether the Company is then subject to such reporting requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file
with the Securities and Exchange Commission ("Commission"), within
forty-five (45) days after the first Closing Date a registration
statement (on Form SB-2 or S-1) under the Securities Act (the
"Registration Statement"), at the sole expense of the Company
(except as provided in Section 3(c) hereof), in respect of the
Investors, so as to permit a public offering and resale of the
Securities under the Act by the Investors as selling stockholders
and not as underwriters.
The Company shall use its best efforts to cause such Registration
Statement to become effective within one hundred five (105) days
from the first Closing Date, or, if earlier, within five (5) days
of SEC clearance to request acceleration of effectiveness. The
number of shares designated in the Registration Statement to be
registered shall include all the Warrant Shares, at least 250% of
the number of shares issuable upon conversion of the Convertible
Debentures based upon the Conversion Price in effect on the first
Closing Date, and a further number of shares equal to 15% of such
number for the purpose of issuing shares of Common Stock as
interest on the Convertible Debentures, and shall include
appropriate language regarding reliance upon Rule 416 to the
extent permitted by the Commission. The Company will notify the
Investors of the effectiveness of the Registration Statement
within one Trading Day of such event. In the event that the
number of shares so registered shall be deemed to be insufficient
to register the resale of all of the Securities in the reasonable
view of any Investor, then the Company shall be obligated to file,
within thirty (30) days of notice from any Investor, a further
Registration Statement registering such remaining shares and shall
use diligent best efforts to prosecute such additional
Registration Statement to effectiveness within ninety (90) days
of the date of such notice.
(b) The Company will maintain the Registration Statement
or post-effective amendment filed under this Section 3 effective
under the Securities Act until the earlier of (i) the date that
none of the Securities covered by such Registration Statement are
or may become issued and outstanding, (ii) the date that all of
the Securities have been sold pursuant to such Registration
Statement, (iii) the date the Investors receive an opinion of
counsel to the Company, which counsel shall be reasonably
acceptable to the Investors, that the Securities may be sold under
the provisions of Rule 144 without limitation as to volume, (iv)
all Securities have been otherwise transferred to persons who may
trade such shares without restriction under the Securities Act,
and the Company has delivered a new certificate or other evidence
of ownership for such securities not bearing a restrictive legend,
or (v) all Securities may be sold without any time, volume or
manner limitations pursuant to Rule 144(k) or any similar
provision then in effect under the Securities Act in the opinion
of counsel to the Company, which counsel shall be reasonably
acceptable to the Investor (the "Effectiveness Period").
NY:71731.2 2
<Page >
(c) All fees, disbursements and out-of-pocket expenses
and costs incurred by the Company in connection with the
preparation and filing of the Registration Statement under
subparagraph 3(a) and in complying with applicable securities and
Blue Sky laws (including, without limitation, all attorneys' fees
of the Company) shall be borne by the Company. The Investors shall
bear the cost of underwriting and/or brokerage discounts, fees and
commissions, if any, applicable to the Securities being registered
and the fees and expenses of their counsel. The Investors and their
counsel shall have a reasonable period, not to exceed five (5)
Trading Days, to review the proposed Registration Statement or
any amendment thereto, prior to filing with the Commission, and
the Company shall provide each Investor with copies of any comment
letters received from the Commission with respect thereto within
two (2) Trading Days of receipt thereof. The Company shall qualify
any of the securities for sale in such states as any Investor
reasonably designates and shall furnish indemnification in the
manner provided in Section 6 hereof. However, the Company shall
not be required to qualify in any state which will require an
escrow or other restriction relating to the Company and/or the
sellers, or which will require the Company to qualify to do
business in such state or require the Company to file therein
any general consent to service of process. The Company at its
expense will supply the Investors with copies of the applicable
Registration Statement and the prospectus included therein and
other related documents in such quantities as may be reasonably
requested by the Investors.
(d) The Company shall not be required by this Section 3
to include an Investor's Securities in any Registration Statement
which is to be filed if, in the opinion of counsel for both the
Investor and the Company (or, should they not agree, in the opinion
of another counsel experienced in securities law matters acceptable
to counsel for the Investor and the Company) the proposed offering
or other transfer as to which such registration is requested is
exempt from applicable federal and state securities laws and would
result in all purchasers or transferees obtaining securities which
are not "restricted securities", as defined in Rule 144 under the
Securities Act.
(e) In the event that (i) the Registration Statement to
be filed by the Company pursuant to Section 3(a) above is not filed
with the Commission within forty-five (45) days from the first
Closing Date, (ii) such Registration Statement is not declared
effective by the Commission within the earlier of one hundred five
(105) days from the first Closing Date or five (5) days of
clearance by the Commission to request effectiveness, (iii)
such Registration Statement is not maintained as effective by the
Company for the period set forth in Section 3(b) above or (iv) the
additional Registration Statement referred to in Section 3(a) is
not filed within thirty (30) days or declared effective within
ninety (90) days as set forth therein (each a "Registration
Default") then the Company will pay Investor (pro rated on a
daily basis), as liquidated damages for such failure and not as
a penalty three percent (3%) of the aggregate market value of
shares of Common Stock purchased from the Company (including
the Conversion Shares which would be issuable upon conversion of
the Convertible Debentures on any date of determination, and
whether or not the Convertible Debentures are then convertible
pursuant to its terms) and held by the Investor for each month
until such Registration Statement has been filed or if
effectiveness has lapsed (in case of clause (iii) above until
again effective; and in the event of late effectiveness (in case
of clause (ii) above), one percent (1%) (rather than three percent
(3%)) of the aggregate market value of shares of Common Stock
purchased from the Company and held by the Investor (including
the Conversion Shares which would be issuable upon conversion
of the Convertible Debentures on any date of determination, and
whether or not the Convertible Debentures are then convertible
pursuant to its terms) for each month after the first month of
such Registration Default (regardless of whether one or more
such Registration Defaults are then in existence, and without
duplication of liquidated damages) until such Registration
Statement has been declared effective so long as the Company
responds to each Commission staff comment letter with respect
to such registration Statement within two (2) weeks of receipt
thereof, and if not, such liquidated damages shall remain at
three
NY:71731.2 3
<Page >
percent (3%). Such payment of the liquidated damages shall be
made to the Investors in cash, within five (5) calendar days of
demand, provided, however, that the payment of such liquidated
damages shall not relieve the Company from its obligations to
register the Securities pursuant to this Section. The market
value of the Common Stock for this purpose shall be the closing
price (or last trade, if so reported) on the Principal Market
for each day during such Registration Default.
If the Company does not remit the payment to the Investors as set
forth above, the Company will pay the Investors reasonable costs
of collection, including attorneys' fees, in addition to the
liquidated damages. The registration of the Securities pursuant
to this provision shall not affect or limit the Investors'
other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the
Company from selling securities pursuant to any Registration
Statement in which it is required to include Securities pursuant
to this Section 3.
(g) If at any time or from time to time after the
effective date of any Registration Statement, the Company notifies
the Investors in writing of the existence of a Potential Material
Event (as defined in Section 3(h) below), the Investors shall
not offer or sell any Securities or engage in any other
transaction involving or relating to Securities, from the time
of the giving of notice with respect to a Potential Material
Event until the Investors receive written notice from the
Company that such Potential Material Event either has been
disclosed to the public or no longer constitutes a Potential
Material Event; provided, however, that the Company may not so
suspend the right to such holders of Securities for more than
twenty (20) days in the aggregate during any twelve month period,
during the period the Registration Statement is required to be in
effect, and if such period is exceeded, such event shall be a
Registration Default. If a Potential Material Event shall occur
prior to the date a Registration Statement is required to be filed,
then the Company's obligation to file such Registration Statement
shall be delayed without penalty for not more than twenty (20)
days, and such delay or delays shall not constitute a Registration
Default. The Company must, if lawful, give the Investors notice in
writing at least two (2) Trading Days prior to the first day of the
blackout period.
(h) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not
ripe for disclosure in a registration statement, as determined in
good faith by the Chief Executive Officer or the Board of Directors
of the Company that disclosure of such information in a Registration
Statement would be detrimental to the business and affairs of the
Company; or (b) any material engagement or activity by the Company
which would, in the good faith determination of the Chief Executive
Officer or the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith
determination by the Chief Executive Officer or the Board of
Directors of the Company that the applicable Registration Statement
would be materially misleading absent the inclusion of such
information.
Section 4. Cooperation with Company. The Investors will
cooperate with the Company in all respects in connection with this
Agreement, including timely supplying all information reasonably
requested by the Company (which shall include all information
regarding the Investors and proposed manner of sale of the
Registrable Securities required to be disclosed in any Registration
Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the
Registrable Securities and entering into and performing their
obligations under any underwriting agreement, if the offering is
an underwritten offering, in usual and customary form, with the
managing underwriter or underwriters of such underwritten offering.
Nothing in this Agreement shall obligate any Investor to consent
NY:71731.2 4
<Page >
to be named as an underwriter in any Registration Statement. The
obligation of the Company to register the Registrable Securities
shall be absolute and unconditional as to those Securities which
the Commission will permit to be registered without naming the
Investors as underwriters, and with the consent of the Investor to
be named as an underwriter, to all of the Registrable Securities.
Any delay or delays caused by the Investors by failure to cooperate
as required hereunder shall not constitute a Registration Default.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to
effect the registration of any of the Registrable Securities under
the Act, the Company shall (except as otherwise provided in this
Agreement), as expeditiously as possible, subject to the Investors'
assistance and cooperation as reasonably required with respect to
each Registration Statement:
(a) (i) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary to
keep such Registration Statement effective and to comply with the
provisions of the Act with respect to the sale or other disposition
of all securities covered by such registration statement whenever
the Investors shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration
statement pursuant to Rule 415 promulgated under the Act) and (ii)
take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and (B)
the prospectus forming part of the Registration Statement, and
any amendment or supplement thereto, does not at any time during
the Registration Period include an untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(b) (i) prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the
distribution or delivery of any prospectus (including any
supplements thereto), provide draft copies thereof to the Investors
as required by Section 3(c) and reflect in such documents all such
comments as the Investors (and their counsel) reasonably may propose
respecting the Selling Shareholders and Plan of Distribution
sections (or equivalents) and (ii) furnish to each Investor such
numbers of copies of a prospectus including a preliminary prospectus
or any amendment or supplement to any prospectus, as applicable,
in conformity with the requirements of the Act, and such other
documents, as such Investor may reasonably request in order to
facilitate the public sale or other disposition of the securities
owned by such Investor;
(c) register and qualify the Registrable Securities
covered by the Registration Statement under such other securities
or blue sky laws of such jurisdictions as the Investors shall
reasonably request (subject to the limitations set forth in
Section 3(c) above), and do any and all other acts and things
which may be necessary or advisable to enable each Investor to
consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Investor;
(d) list such Registrable Securities on the Principal
Market, if the listing of such Registrable Securities is then
permitted under the rules of such Principal Market;
(e) notify each Investor at any time when a prospectus
relating thereto covered by the Registration Statement is
required to be delivered under the Act, of the happening of any
event of which it has knowledge as a result of which the
prospectus included in the Registration Statement, as then
in effect,
NY:71731.2 5
<Page >
includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, and the Company shall prepare and
file a curative amendment under Section 5(a) as quickly as
commercially possible;
(f) as promptly as practicable after becoming aware of
such event, notify each Investor who holds Registrable Securities
being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the Commission of any
stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take
all lawful action to effect the withdrawal, recession or removal
of such stop order or other suspension;
(g) cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable
Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to
be in such denominations or amounts, as the case may be, as the
Investors reasonably may request and registered in such names as
the Investors may request; and, within three (3) Trading Days
after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver
and cause legal counsel selected by the Company to deliver to
the transfer agent for the Registrable Securities (with copies
to the Investors) an appropriate instruction and, to the extent
necessary, an opinion of such counsel;
(h) take all such other lawful actions reasonably necessary
to expedite and facilitate the disposition by the Investors of
their Registrable Securities in accordance with the intended methods
therefor provided in the prospectus which are customary for issuers
to perform under the circumstances;
(i) in the event of an underwritten offering, promptly
include or incorporate in a prospectus supplement or post-effective
amendment to the Registration Statement such information as the
managers reasonably agree should be included therein and to which
the Company does not reasonably object and make all required filings
of such prospectus supplement or post-effective amendment as soon as
practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective
amendment; and
(j) maintain a transfer agent and registrar for its
Common Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the Company
agrees to indemnify and hold harmless the Investors and each
person, if any, who controls an Investor within the meaning of the
Securities Act (each a "Distributing Investor") against any losses,
claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to,
all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), to which the Distributing Investor
may become subject, under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement
NY:71731.2 6
<Page >
or alleged untrue statement of any material fact contained in
any Registration Statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based
upon 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; provided, however, that the
Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such
Registration Statement, preliminary prospectus, final prospectus
or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by
the Distributing Investor, its counsel, affiliates or any
underwriter, specifically for use in the preparation thereof.
This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) To the maximum extent permitted by law, each
Distributing Investor agrees that it will indemnify and hold
harmless the Company, and each officer and director of the
Company or person, if any, who controls the Company within the
meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees
and expenses) to which the Company or any such officer, director
or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in any Registration Statement, or
any related final prospectus or amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged
omission was made in such Registration Statement, final prospectus
or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company
by such Distributing Investor, its counsel, affiliates or any
underwriter, specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the
Distributing Investor may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action against
such indemnified party, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party except
to the extent the failure of the indemnified party to provide
such written notification actually prejudices the ability of
the indemnifying party to defend such action. In case any such
action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to
the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 6 for
any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other
than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action to its final conclusion. The
indemnified parties as a group shall have the right to employ
one separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with
counsel reasonably satisfactory to the indemnified party unless
(i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, or (ii) the
named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying
party and the indemnified party shall have been advised by its
counsel that there may be one or more legal defenses available
to the indemnifying party different from or in conflict with
any legal defenses which may be available to the indemnified
party or any other indemnified party (in which case the
indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall,
in connection with any one such action or separate
NY:71731.2 7
<Page >
but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified
party, which firm shall be designated in writing by the
indemnified party). No settlement of any action against an
indemnified party shall be made without the prior written consent
of the indemnified party, which consent shall not be unreasonably
withheld so long as such settlement includes a full release of
claims against the indemnified party.
Section 7. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in
which (i) the indemnified party makes a claim for indemnification
pursuant to Section 6 hereof but is judicially determined (by
the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not
be enforced in such case notwithstanding the fact that the
express provisions of Section 6 hereof provide for indemnification
in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the
Company and the applicable Distributing Investor shall
contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees and
expenses), in either such case (after contribution from others)
on the basis of relative fault as well as any other relevant
equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the applicable
Distributing Investor on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and
the Distributing Investor agree that it would not be just and
equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred
to above in this Section 7 shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or
claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no
event shall any (i) Investor be required to undertake liability
to any person under this Section 7 for any amounts in excess of
the dollar amount of the proceeds received by such Investor from
the sale of such Investor's Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto)
pursuant to any Registration Statement under which such
Registrable Securities are registered under the Securities Act
and (ii) underwriter be required to undertake liability to any
person hereunder for any amounts in excess of the aggregate
discount, commission or other compensation payable to such
underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to such Registration
Statement.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted
hereunder shall be in writing and, unless otherwise specified
herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage
prepaid, (iii) delivered by reputable air courier service with
charges prepaid, or (iv) transmitted by facsimile, addressed as
set forth in the Purchase Agreement or to such other address as
such party shall have specified most recently by written notice.
Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate
NY:71731.2 8
<Page >
confirmation generated by the transmitting facsimile machine, at
the address or number designated below (if delivered on a
business day during normal business hours where such notice is
to be received), or the first business day following such
delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the
first business day following the date of sending by reputable
courier service, fully prepaid, addressed to such address, or
(c) upon actual receipt of such mailing, if mailed. Either party
hereto may from time to time change its address or facsimile
number for notices under this Section 8 by giving at least ten
(10) days' prior written notice of such changed address or
facsimile number to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns. The rights granted the
Investors under this Agreement may be assigned to any purchaser
of substantially all of the Registrable Securities (or the rights
thereto) from an Investor, as otherwise permitted by the Purchase
Agreement.
Section 10. Additional Covenants of the Company. The Company
agrees that at such time as it otherwise meets the requirements
for the use of Securities Act Registration Statement on Form S-3
for the purpose of registering the Registrable Securities, it
shall file all reports and information required to be filed by
it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be
executed in two or more counterparts, each of which shall
constitute an original, but all of which, when together shall
constitute but one and the same instrument, and shall become
effective when one or more counterparts have been signed by each
party hereto and delivered to the other parties. In lieu of the
original, a facsimile transmission or copy of the original shall
be as effective and enforceable as the original.
Section 12. Remedies. The remedies provided in this Agreement
are cumulative and not exclusive of any remedies provided by
law. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall
use their best efforts to find and employ an alternative means
to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not
enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise prevents the Company from
complying with all of its obligations hereunder.
Section 14. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 15. Governing Law, Arbitration. This Agreement shall
be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made in New York
by persons domiciled in New York City and without regard to its
principles of conflicts of laws. Any dispute under this
Agreement shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York,
and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members
(hereinafter referred to as the "Board of Arbitration") selected
as according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive business days in
NY:71731.2 9
<Page >
New York City, New York, and shall reach and render a decision in
writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the
losing party is required to pay to the other party in respect of
a claim filed. In connection with rendering its decisions, the
Board of Arbitration shall adopt and follow the laws of the State
of New York. To the extent practical, decisions of the Board of
Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto.
The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision
made by the Board of Arbitration (either prior to or after the
expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled
to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default
judgment against any party failing to participate in any proceeding
hereunder within the time periods set forth in the AAA rules.
The non-prevailing party to any arbitration (as determined by
the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in
connection with such arbitration. Any party shall be entitled
to obtain injunctive relief from a court in any case where such
relief is available.
NY:71731.2 10
<Page >
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year
first above written.
MW Medical, Inc.
By: \s\ Jan Wallace President CEO
------------------------------------
Roseworth Group, Ltd.
By: \s\ Hans Gassner
------------------------------------
Hans Gassner, Director
Austost Anstalt Schaan
By: \s\ Thomas Hackl
-------------------------------------
Thomas Hackl, Authorized Signatory
Balmore Funds, S.A.
By: \s\ Francois Morax
-------------------------------------
Francois Morax, Authorized Signatory
Markham Holdings, Ltd.
By: \s\ J.D. Hassan
-------------------------------------
J.D. Hassan, Authorized Signatory
VMR High Octane Fund Ltd.
By: \s\ Florian Homm
-------------------------------------
Florian Homm, Authorized Signatory
[signature page continued]
NY:71731.2 11
<Page >
[MW Medical Registration Rights Agreement signature page, continued]
Strategic Group Ltd.
By: \s\ Bernard Hazel
------------------------------------
Bernard Hazel, Authorized Signatory
\s\ Mark F. Hubbard
__________________________________________
Mark F. Hubbard
NY:71731.2 12
<Page >
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE
SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE
UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED,
ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN
A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase xx,000 Shares of Common Stock of
MW Medical, Inc.
THIS CERTIFIES that, for value received,_______________
(the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after July 30,
1999 (the "Initial Exercise Date") and on or prior to the close
of business on July 30, 2002 (the "Termination Date") but not
thereafter, to subscribe for and purchase from MW Medical, Inc.,
a corporation incorporated in Nevada (the "Company"), up to
_____________Thousand (xx,000) shares (the "Warrant Shares") of
Common Stock, $.001 par value, of the Company (the "Common Stock").
The purchase price of one share of Common Stock (the "Exercise
Price") under this Warrant shall be $2.75. The Exercise Price and
the number of shares for which the Warrant is exercisable shall
be subject to adjustment as provided herein. In the event of any
conflict between the terms of this Warrant and the Convertible
Debenture and Warrants Purchase Agreement dated as of July 14,
1999 pursuant to which this Warrant has been issued (the
"Purchase Agreement"), the Purchase Agreement shall control.
Capitalized terms used and not otherwise defined herein shall
have the meanings set forth for such terms in the Purchase
Agreement.
NY:71733.1 1
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1. Title to Warrant. Prior to the Termination Date
and subject to compliance with applicable laws, this Warrant and
all rights hereunder are transferable, in whole or in part, at
the office or agency of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto
properly endorsed.
2. Authorization of Shares. The Company covenants
that all shares of Common Stock which may be issued upon the
exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in
Section 4 herein, exercise of the purchase rights represented by
this Warrant may be made at any time or times on or after the
Initial Exercise Date, and before the close of business on the
Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed, at the office of
the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of
the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank, the holder of this Warrant shall
be entitled to receive a certificate for the number of shares of
Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within three
(3) Trading Days after the date on which this Warrant shall have
been exercised as aforesaid. This Warrant shall be deemed to
have been exercised and such certificate or certificates shall
be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date
the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if
any, pursuant to Section 5 prior to the issuance of such shares,
have been paid. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver
to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased shares of Common Stock called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant. If no registration statement is
effective permitting the resale of the shares of Common Stock
issued upon exercise of this Warrant at any time commencing one
year after the issuance date hereof, then this Warrant shall
also be exercisable by means of a "cashless exercise" in which
the holder shall be entitled to receive a certificate for the
number of shares equal to the quotient obtained by dividing [(A-
B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share
of Common Stock on the Trading Day preceding the date of such
election;
(B) = the Exercise Price of the Warrants; and
NY:71733.1 2
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(X) = the number of shares issuable upon exercise of the
Warrants in accordance with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional
shares or scrip representing fractional shares shall be issued
upon the exercise of this Warrant. As to any fraction of a
share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the
Exercise Price.
5. Charges, Taxes and Expenses. Issuance of
certificates for shares of Common Stock upon the exercise of
this Warrant shall be made without charge to the holder hereof
for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes
and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the holder of this Warrant or in
such name or names as may be directed by the holder of this
Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the
name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the holder hereof; and the
Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental
thereto.
6. Closing of Books. The Company will not close its
shareholder books or records in any manner which prevents the
timely exercise of this Warrant.
7. Transfer, Division and Combination. (a) Subject
to compliance with any applicable securities laws, transfer of
this Warrant and all rights hereunder, in whole or in part,
shall be registered on the books of the Company to be maintained
for such purpose, upon surrender of this Warrant at the
principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached
hereto duly executed by Holder or its agent or attorney and
funds sufficient to pay any transfer taxes payable upon the
making of such transfer. Upon such surrender and, if required,
such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and
in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new
Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the
purchase of shares of Common Stock without having a new Warrant
issued.
(b) This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the
names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance
with such notice.
NY:71733.1 3
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(c) The Company shall prepare, issue and
deliver at its own expense (other than transfer taxes) the new
Warrant or Warrants under this Section 7.
(d) The Company agrees to maintain, at its
aforesaid office, books for the registration and the
registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This
Warrant does not entitle the holder hereof to any voting rights
or other rights as a shareholder of the Company prior to the
exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price, the Warrant Shares so
purchased shall be and be deemed to be issued to such holder as
the record owner of such shares as of the close of business on
the later of the date of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of
Warrant. The Company covenants that upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant certificate or any
stock certificate relating to the Warrant Shares, and in case of
loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which shall not include the posting of any
bond), and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock
certificate.
10. Saturdays, Sundays, Holidays, etc. If the last
or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday,
Sunday or a legal holiday, then such action may be taken or such
right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of
Warrant Shares. (a) Stock Splits, etc. The number and kind of
securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time
upon the happening of any of the following. In case the Company
shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock into a greater number of shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any
shares of its capital stock in a reclassification of the Common
Stock, then the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to
receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been
entitled to receive had such Warrant been exercised in advance
thereof. Upon each such adjustment of the kind and number of
Warrant Shares or other securities of the Company which are
purchasable hereunder, the holder of this Warrant shall
thereafter be entitled to purchase the number of Warrant Shares
or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares purchasable pursuant hereto
immediately prior to such adjustment and dividing by the number
of Warrant Shares or other securities of the Company resulting
from such adjustment. An adjustment
NY:71733.1 4
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made pursuant to this paragraph shall become effective immediately
after the effective date of such event retroactive to the record
date, if any, for such event.
(b) Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize
its capital, reclassify its capital stock, consolidate or merge
with or into another corporation (where the
Company is not the surviving corporation or where there is a
change in or distribution with respect to the Common Stock of
the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another
corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders
of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the number
of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation
or disposition of assets by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately
prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than
the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed appropriate (as
determined in good faith by resolution of the Board of Directors
of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall
be as nearly equivalent as practicable to the adjustments
provided for in this Section 11. For purposes of this Section
11, "common stock of the successor or acquiring corporation"
shall include stock of such corporation of any class which is
not preferred as to dividends or assets over any other class of
stock of such corporation and which is not subject to redemption
and shall also include any evidences of indebtedness, shares of
stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified
event and any warrants or other rights to subscribe for or
purchase any such stock. The foregoing provisions of this
Section 11 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of
assets.
12. Voluntary Adjustment by the Company. The Company
may at any time during the term of this Warrant, reduce the then
current Exercise Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company.
13. Notice of Adjustment. Whenever the number of
Warrant Shares or number or kind of securities or other property
purchasable upon the exercise of this Warrant or the Exercise
Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such
adjustment or adjustments setting forth the number of Warrant
Shares (and other securities or property) purchasable upon the
exercise of this Warrant and the Exercise Price of such Warrant
Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts
NY:71733.1 5
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requiring such adjustment and setting forth the computation by
which such adjustment was made. Such notice, in the absence of
manifest error, shall be conclusive evidence of the correctness
of such adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization
of the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger of
the Company with, or any sale, transfer or other disposition of
all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give
to Holder (i) at least 30 days' prior written notice of the date
on which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in
respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or
winding up, and (ii) in the case of any such reorganization,
reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 30
days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also
shall specify (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right,
the date on which the holders of Common Stock shall be entitled
to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up is
to take place and the time, if any such time is to be fixed, as
of which the holders of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such disposition, dissolution,
liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in
accordance with Section 16(d).
NY:71733.1 6
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15. Authorized Shares. The Company covenants that
during the period the Warrant is outstanding, it will reserve
from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of
this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable
law or regulation, or of any requirements of the Principal
Market upon which the Common Stock may be listed.
The Company shall not by any action, including,
without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder against impairment.
Without limiting the generality of the foregoing, the Company
will (a) not increase the par value of any shares of Common
Stock receivable upon the exercise of this Warrant above the
amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
Upon the request of Holder, the Company will at
any time during the period this Warrant is outstanding
acknowledge in writing, in form reasonably satisfactory to
Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
Before taking any action which would cause an
adjustment reducing the current Exercise Price below the then
par value, if any, of the shares of Common Stock issuable upon
exercise of the Warrants, the Company shall take any corporate
action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares
of such Common Stock at such adjusted Exercise Price.
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which
this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any
public regulatory body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding
upon any successors or assigns of the Company. This Warrant
shall constitute a contract under the laws of New York
NY:71733.1 7
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without regard to its conflict of law, principles or rules,
and be subject to arbitration pursuant to the terms set forth
in the Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not
registered, will have restrictions upon resale imposed by state
and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice
Holder's rights, powers or remedies, notwithstanding all rights
hereunder terminate on the Termination Date. If the Company fails
to comply with any provision of this Warrant, the Company shall
pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings,
incurred by Holder in collecting any amounts due pursuant hereto
or in otherwise enforcing any of its rights, powers or remedies
hereunder.
(d) Notices. Any notice, request or other document required
or permitted to be given or delivered to the holder hereof by
the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision
hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of
the rights or privileges of Holder hereof, shall give rise to
any liability of Holder for the purchase price of any Common
Stock or as a stockholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being
entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of
its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant
and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors
of the Company and the successors and permitted assigns of Holder.
The provisions of this Warrant are intended to be for the benefit
of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses and disbursements of any kind
which may be imposed upon, incurred by or asserted against Holder
in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of
its covenants, agreements, undertakings or obligations set forth
in this Warrant; provided, however, that the Company will not be
liable hereunder to the extent that any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses or
NY:71733.1 8
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disbursements are found in a final non-appealable judgment by a
court to have resulted from Holder's negligence, bad faith or
willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the
Company and the Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this
Warrant 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 provisions or the remaining provisions of
this Warrant.
NY:71733.1 9
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(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose,
be deemed a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: July 14, 1999 MW Medical, Inc.
By: \s\ Jan Wallace President, CEO
--------------------------------
<Page >
NOTICE OF EXERCISE
To: MW Medical, Inc.
(1) The undersigned hereby elects to purchase ________ shares
of Common Stock (the "Common Stock"), of MW Medical, Inc.
pursuant to the terms of the attached Warrant, and tenders
herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates
representing said shares of Common Stock in the name of the
undersigned or in such other name as is specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
NY:71733.1
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: __________________________________________
NOTE: The signature to this Assignment Form must correspond with
the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank or trust company. Officers of corporations
and those acting in an fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing
Warrant.
NY:71733.1
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8% CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE
OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED
UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
No. __ US $xx,000
MW Medical, Inc.
8% CONVERTIBLE DEBENTURE DUE JULY 31, 2000
THIS DEBENTURE is issued by MW Medical, Inc., a corporation
organized and existing under the laws of the State of Nevada
(the "Company") and is designated as its 8% Convertible
Debenture Due July 31, 2000.
FOR VALUE RECEIVED, the Company promises to pay to
______________________, or permitted assigns (the "Holder"), the
principal sum of _________________ Thousand and 00/100 (US
$xx,000) Dollars on July 31, 2000 (the "Maturity Date") and to
pay interest on the principal sum outstanding from time to time
quarterly in arrears at the rate of 8% per annum accruing from
the date of initial issuance. Accrual of interest shall
commence on the first business day to occur after the date of
initial issuance and continue until payment in full of the
principal sum has been made or duly provided for. Quarterly
interest payments shall be due and payable on September 30,
December 31, March 31 and June 30 of each year, commencing with
September 30, 1999. If any interest payment date or the
Maturity Date is not a business day in the State of New York,
then such payment shall be made on the next succeeding business
day. The interest on this Debenture is payable at the option of
the Company, upon notice to the Holder, in cash or in shares of
Common Stock of the Company, $.001 par value per share ("Common
Stock") valued at the Conversion Price (as defined herein) on
the interest payment date, at the address last appearing on the
Debenture Register of the Company as designated in writing by
the Holder from time to time, and in the absence of notice is
payable in cash. The Company will pay the principal of and any
accrued but unpaid interest due upon this Debenture on the
Maturity Date, less any amounts required by law to be deducted,
to the registered holder of this Debenture as of the tenth day
prior to the Maturity Date and addressed to such holder at the
last address appearing on the Debenture Register. The
forwarding of such check shall constitute a payment of principal
and interest hereunder and shall satisfy and discharge the
liability for principal and
NY:71729.3 1
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interest on this Debenture to the extent of the sum represented by
such check plus any amounts so deducted.
This Debenture is subject to the following additional
provisions:
1. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any
amounts required to be withheld under the applicable provisions
of the United States income tax laws or other applicable laws at
the time of such payments, and Holder shall execute and deliver
all required documentation in connection therewith.
2. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be
transferred or exchanged only in compliance with the Securities
Act of 1933, as amended (the "Act"), and other applicable state
and foreign securities laws. The Holder shall deliver written
notice to the Company of any proposed transfer of this Debenture.
In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the
name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the
Debenture in such other name does not and will not cause a
violation of the Act or any applicable state or foreign
securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the
person in whose name this Debenture is duly registered on the
Company's Debenture Register as the owner hereof for the purpose
of receiving payment as herein provided and for all other
purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the
contrary. This Debenture has been executed and delivered pursuant
to the Debenture and Warrants Purchase Agreement dated as of July
14, 1999 between the Company and the original Holder (the
"Purchase Agreement"), and is subject to the terms and conditions
of the Purchase Agreement, which are, by this reference,
incorporated herein and made a part hereof. Capitalized terms
used and not otherwise defined herein shall have the meanings set
forth for such terms in the Purchase Agreement.
3. (a) The Holder of this Debenture is entitled, at its
option, to convert at any time commencing on the date hereof, the
principal amount of this Debenture or any portion thereof,
together with accrued but unpaid interest, into shares of Common
Stock of the Company ("Conversion Shares") at a conversion price
for each share of Common Stock ("Conversion Price") equal to the
lower of (a) 75% of the Market Price at the Conversion Date (as
defined in Section 6 hereof) or (b) $2.75. The term "Market
Price" shall have the meaning set forth in the Purchase
Agreement.
(b) The Company shall have the right at any time prior
to the Maturity Date to require conversion of the entire
principal amount of this Debenture, together with all other
Debentures of the series of which this Debenture is one part, if
and only if all of the following conditions are met:
(i) the closing bid price for the Common Stock
(adjusted for any subsequent splits, reverse splits or dividends
in the form of additional shares of Common Stock)
NY:71729.3 2
<Page >
shall equal or
exceed $7.00 for each of the twenty-two (22) Trading Days
preceding the Company's notice of mandatory conversion;
(ii) the trading volume of the Common Stock shall
equal or exceed 100,000 shares for each of the twenty-two (22)
Trading Days preceding the Company's notice of mandatory
conversion; and
(iii) the Registration Statement shall be
effective for resales of the Conversion Shares by the holder on
the Mandatory Conversion Date.
The Company shall provide the holder with written notice of
mandatory conversion setting forth the date of such mandatory
conversion (the "Mandatory Conversion Date") and certifying that
the foregoing conditions have all been met. The Mandatory
Conversion Date shall be no later than five (5) Trading Days
following the date on which the notice of mandatory conversion is
delivered to the holder, and shall be automatically effective on
the Mandatory Conversion Date at the Conversion Price in effect
on such Mandatory Conversion Date. No interest shall accrue on
this Debenture from and after the Mandatory Conversion Date, and
following the Mandatory Conversion Date, this Debenture shall
only represent the right to receive the applicable number of
Conversion Shares and any accrued but unpaid interest through and
including the Mandatory Conversion Date.
4. Notwithstanding the provisions of Section 3, the
Conversion Price shall not be less than $0.75 if all of the
following conditions are satisfied:
(a) The Registration Statement shall be effective;
(b) The Common Stock shall have traded (since the
effective date of the Registration Statement) for thirty (30)
consecutive Trading Days with an average daily volume of 140,000
shares at a volume-weighted average price (as shown on the
Bloomberg AQR function) of at least 150% of the closing bid price
on the first Closing Date; and
(c) The Company's microwave hair removal product
shall have received FDA approval in writing.
In addition, the minimum Conversion Price shall be further
increased as follows if the foregoing conditions continue to be
met and any or all of the following conditions are met:
(d) The Company's most recent timely filed Form 10-Q
or QSB shows net revenues for such quarter of at least
$10,000,000 (an increase of $0.25 in the minimum Conversion
Price);
(e) The Company's most recent timely filed Form 10-K
or KSB shows net revenues for such fiscal year of at least
$50,000,000 (an increase of $0.35 in the minimum Conversion
Price);
NY:71729.3 3
<Page >
(f) The Common Stock shall have traded (since the
effective date of the Registration Statement) for thirty (30)
consecutive Trading Days with an average daily volume of 250,000
shares (an increase of $0.25 in the minimum Conversion Price.
By way of example, if all six of the foregoing conditions are
met, the minimum Conversion Price (irrespective of the actual
Market Price) would be $1.60.
The ceiling Conversion Price of $2.75 and the minimum
Conversion Price as described in this Section 4 shall be subject
to proportionate adjustment for any stock split, reverse stock
split or dividend payable in shares of Common Stock for which
the record date applicable thereto is after the date of issuance
of this Debenture.
5. In the event that the Conversion Price of the Common
Stock is less than $1.00 per share on any Conversion Date, the
Company may elect to deliver to the Holder in consideration of
any such conversion (i) cash, (ii) Conversion Shares or (iii) any
combination thereof. The amount of cash to be delivered shall
equal the closing ask price on the Conversion Date multiplied by
the number of shares of Common Stock as would have been issued at
the Conversion Price upon such conversion. The Company's ability
to deliver cash as full or partial conversion consideration in
accordance with this Section 5 shall be conditioned on the
Company's delivery of notice to the Holder of such election by
the Company no later than two business hours following the
Company's receipt of a Notice of Conversion. The Holder shall
then have a further twenty-four (24) hour period in which to
withdraw his Notice of Conversion, or else the Holder shall be
deemed to have accepted such alternative cash consideration. Such
cash shall be paid within three (3) Trading Days, or else the
Company shall be deemed to have elected not to honor a conversion
in cash and shall instead deliver shares of Common Stock.
6. (a) Conversion shall be effectuated by surrendering
this Debenture to the Company (if such Conversion will convert
all outstanding principal) together with the form of conversion
notice attached hereto as Exhibit A (the "Notice of Conversion"),
executed by the Holder of this Debenture evidencing such Holder's
intention to convert this Debenture or a specified portion (as
above provided) hereof, and accompanied, if required by the
Company, by proper assignment hereof in blank. Interest accrued
but, unpaid at the date of issuance to the date of conversion
shall, at the option of the Company, be paid in cash as set forth
above or in Common Stock upon conversion at the Conversion Price
on the Conversion Date. No fraction of a share or scrip
representing a fraction of a share will be issued on conversion,
but the number of shares issuable shall be rounded to the nearest
whole share. The date on which Notice of Conversion is given
(the "Conversion Date") shall be deemed to be the date on which
the Holder faxes the Notice of Conversion duly executed to the
Company. Facsimile delivery of the Notice of Conversion shall be
accepted by the Company at facsimile number (602) 443-1235 Attn.:
Jan Wallace. Certificates representing Common Stock upon
conversion will be delivered to the Holder within five (5)
Trading Days from the date the Notice of Conversion is delivered
to the Company. Delivery of shares upon conversion shall be made
to the address specified by the Holder in the Notice of
Conversion.
NY:71729.3 4
<Page >
(b) The Company understands that a delay in the
issuance of shares of Common Stock upon a conversion beyond the
five (5) Trading Day period described in Section 6(a) could
result in economic loss to the Holder. As compensation to the
Holder for such loss, the Company agrees to pay late payments to
the Holder for late issuance of shares of Common Stock upon
conversion in accordance with the following schedule (where "No.
Trading Days Late" is defined as the number of Trading Days
beyond five (5) Trading Days from the date the Notice of
Conversion is delivered to the Company).
- ------------------------------------------------------------------
No. Trading Days Late | Late Payment for Each
| $5,000 of Principal Amount
| Being Converted
- ------------------------------------------------------------------
1 $100
- ------------------------------------------------------------------
2 $200
- ------------------------------------------------------------------
3 $300
- ------------------------------------------------------------------
4 $400
- ------------------------------------------------------------------
5 $500
- ------------------------------------------------------------------
6 $600
- ------------------------------------------------------------------
7 $700
- ------------------------------------------------------------------
8 $800
- ------------------------------------------------------------------
9 $900
- ------------------------------------------------------------------
10 $1,000
- ------------------------------------------------------------------
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
- ------------------------------------------------------------------
The Company shall pay any payments incurred under this Section
6(b) in immediately available funds upon demand. Nothing herein
shall limit Holder's right to pursue injunctive relief and/or
actual damages for the Company's failure to issue and deliver
Common Stock to the holder, including, without limitation, the
Holder's actual losses occasioned by any "buy-in" of Common Stock
necessitated by such late delivery. Furthermore, in addition to
any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of
such shares of Common Stock within five (5) Trading Days from the
date the Notice
NY:71729.3 5
<Page >
of Conversion is delivered to the Company, the
Holder will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to
their respective positions immediately prior to delivery of such
Notice of Conversion, and in such event no late payments shall be
due in connection with such withdrawn conversion.
If at any time (a) the Company challenges, disputes or denies the
right of the Holder to effect the conversion of this Debenture
into Common Stock or otherwise dishonors or rejects any Notice of
Conversion delivered in accordance with this Section 6 or (b) any
Company stockholder who is not and has never been an Affiliate
(as defined in Rule 405 under the Securities Act of 1933, as
amended) of the Holder obtains a judgment or any injunctive
relief from any court or public or governmental authority which
denies, enjoins, limits, modifies, delays or disputes the right
of the holder hereof to effect the conversion of this Debenture
into Common Stock, then the Holder shall have the right, by
written notice, to require the Company to promptly redeem this
Debenture for cash at a redemption price equal to one hundred
thirty percent (130%) of the outstanding principal amount hereof
and all accrued and unpaid interest hereon. Under any of the
circumstances set forth above, the Company shall be responsible
for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when
incurred in disputing any such action or pursuing its rights
hereunder (in addition to any other rights of the Holder),
subject in the case of clause (b) to the Company's right to
control and assume the defense of any such action. In the
absence of an injunction precluding the same, the Company shall
issue shares upon a properly noticed conversion.
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C.
101 et seq. (the "Bankruptcy Code") to the fullest extent
permitted by the Bankruptcy Code. In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives to
the fullest extent permitted any rights to relief it may have
under 11 U.S.C. 362 in respect of the Holder's conversion
privilege.
7. No provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or
currency or shares of Common Stock, herein prescribed. This
Debenture is a direct obligation of the Company.
8. If the Company merges or consolidates with another
corporation or sells or transfers all or substantially all of its
assets to another person and the holders of the Common Stock are
entitled to receive stock, securities or property in respect of
or in exchange for Common Stock, then as a condition of such
merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may
thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock,
securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of
shares of Common Stock into which this Debenture might have been
converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially
all of the assets of the Company (a "Sale"),
NY:71729.3 6
<Page >
the Holder hereof
shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of
notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all
outstanding principal and accrued interest on this Debenture,
less all amounts required by law to be deducted, upon which
tender of payment following such notice, the right of conversion
shall terminate.
9. The Holder of the Debenture, by acceptance hereof,
agrees that this Debenture is being acquired for investment and
that such Holder will not offer, sell or otherwise dispose of
this Debenture or the Shares of Common Stock issuable upon
conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky
or foreign laws or similar laws relating to the sale of
securities.
10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York
in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdictions.
11. The following shall constitute an "Event of Default":
(a) The Company shall default in the payment of
principal or interest or honoring a conversion on this Debenture
and same shall continue for a period of three (3) days; or
(b) Any of the representations or warranties made by
the Company herein, in the Purchase Agreement, the Registration
Rights Agreement, or in any agreement, certificate or financial
or other written statements heretofore or hereafter furnished by
the Company in connection with the execution and delivery of this
Debenture or the Purchase Agreement shall be false or misleading
in any material respect at the time made; or
(c) The Company fails to issue shares of Common Stock
to the Holder or to cause its Transfer Agent to issue shares of
Common Stock upon exercise by the Holder of the conversion rights
of the Holder in accordance with the terms of this Debenture,
fails to transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by this
Debenture or the Registration Rights Agreement, and such transfer
is otherwise lawful, or fails to remove any restrictive legend or
to cause its Transfer Agent to transfer any certificate or any
shares of Common Stock issued to the Holder upon conversion of
this Debenture as and when required by this Debenture, the
Purchase Agreement or the Registration Rights Agreement and such
legend removal is otherwise lawful, and any such failure shall
continue uncured for five (5) Trading Days; or
NY:71729.3 7
<Page >
(d) The Company shall fail to perform or observe, in
any material respect, any other covenant, term, provision,
condition, agreement or obligation of the Company under the
Purchase Agreement, the Registration Rights Agreement or this
Debenture and such failure shall continue uncured for a period of
thirty (30) days after written notice from the Holder of such
failure; or
(e) The Company shall (1) admit in writing its
inability to pay its debts generally as they mature; (2) make an
assignment for the benefit of creditors or commence proceedings
for its dissolution; or (3) apply for or consent to the
appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(f) A trustee, liquidator or receiver shall be
appointed for the Company or for a substantial part of its
property or business without its consent and shall not be
discharged within sixty (60) days after such appointment; or
(g) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall
assume custody or control of the whole or any substantial portion
of the properties or assets of the Company and shall not be
dismissed within sixty (60) days thereafter; or
(h) Any money judgment, writ or warrant of attachment,
or similar process in excess of One Hundred Thousand ($100,000)
Dollars in the aggregate shall be entered or filed against the
Company or any of its properties or other assets and shall remain
unpaid, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
(i) Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted against
the Company, shall not be dismissed within sixty (60) days after
such institution or the Company shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in answering a
petition filed in any such proceeding; or
(j) The Company shall have its Common Stock suspended
or delisted from trading on a Principal Market for in excess of
two (2) Trading Days;
Then, or at any time thereafter, and in each and every such
case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder
and in the Holder's sole discretion, the Holder may consider
this Debenture immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby
expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and the
Holder may immediately enforce any and all of the Holder's
rights and remedies provided herein or any other rights or
remedies afforded by law.
NY:71729.3 8
<Page >
12. Nothing contained in this Debenture shall be construed
as conferring upon the Holder the right to vote or to receive
dividends or to consent or receive notice as a shareholder in
respect of any meeting of shareholders or any rights whatsoever
as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.
13. In no event shall the Holder be permitted to convert
this Debenture for shares of Common Stock in excess of the amount
of this Debenture upon the conversion of which, (x) the number of
shares of Common Stock owned by such Holder (other than shares of
Common Stock issuable upon conversion of this Debenture) plus (y)
the number of shares of Common Stock issuable upon conversion of
this Debenture, would be equal to or exceed 9.9% of the number of
shares of Common Stock then issued and outstanding, including
shares issuable upon conversion of this Debenture held by such
Holder after application of this Section 13. As used herein,
beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 13 applies, the
determination of whether this Debenture is convertible (in
relation to other securities owned by the Holder) and of which a
portion of this Debenture is convertible shall be in the sole
discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder's determination of
whether this Debenture is convertible (in relation to other
securities owned by such holder) and of which portion of this
Debenture is convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation
to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a
holder to convert this Debenture into shares of Common Stock at
such time as such conversion will not violate the provisions of
this Section 13. The provisions of this Section 13 may be waived
by the Holder of this Debenture upon not less than 75 days' prior
notice to the Company, and the provisions of this Section 13
shall continue to apply until such 75th day (or such later date
as may be specified in such notice of waiver). No conversion of
this Debenture in violation of this Section 13 but otherwise in
accordance with this Debenture shall affect the status of the
Common Stock issued upon such conversion as validly issued,
fully-paid and nonassessable. If on the Maturity Date or any
Mandatory Conversion Date the conversion of this Debenture into
Common Stock pursuant to Section 3 would cause the limit
contained in the first sentence of this Section 13 to be
exceeded, such conversion of this Debenture shall occur up to
such limit and the remaining unconverted portion of this
Debenture shall be converted into Common Stock (1) in accordance
with one or more Notices of Conversion delivered by the Holder or
(2) 65 days after the Maturity Date or Mandatory Conversion Date,
whichever is earlier. Notwithstanding anything contained herein
to the contrary, no interest shall accrue after the Maturity Date
on any such unconverted portion of this Debenture.
14. The Company shall have the right to cause Holder to
exchange this Debenture for shares of the Company's Convertible
Preferred Stock upon the following terms and conditions:
(a) The Convertible Preferred Stock to be issued shall
have been duly authorized by the Company's Board of Directors and
stockholders, and the exchange of such shares for this Debenture
shall have been duly authorized by the Company's Board of
Directors, and the holder shall have received an opinion of
counsel to the Company to such effect.
NY:71729.3 9
<Page >
(b) The Convertible Preferred Stock shall have
economic rights identical with that of this Debenture (e.g. the
dividend rate and times of accrual and payment shall be identical
to the interest under this Debenture, the conversion rights and
Conversion Price shall be identical to this Debenture, the
liquidation preference shall be equal to the principal amount of
this Debenture) other than priority with creditors of the Company
upon liquidation or dissolution of the Company.
(c) The Registration Statement shall have been
declared effective and shall remain effective following the date
of such exchange.
(d) There shall be no Event of Default in existence
under this Debenture.
(e) There shall have been no Material Adverse Effect
with respect to the Company since the issuance date of this
Debenture.
If all of the foregoing conditions have been met, then the
Company shall have the right, by written notice to the Holder,
accompanied by the opinion of counsel and a certified copy of the
Certificate of Designations for the Convertible Preferred Stock,
to demand that the Holder tender this Debenture to the Escrow
Agent to be held in escrow against delivery to the Escrow Agent
of the certificates representing the Convertible Preferred Stock
(which shall have a liquidation preference equal to the
outstanding principal balance hereof plus all accrued but unpaid
interest). The Escrow Agent shall then deliver such Convertible
Preferred Stock certificates to the Holder and shall deliver this
Debenture to the Company. The Holder shall be entitled to convert
all or any part of this Debenture prior to receipt by the Escrow
Agent of such Convertible Preferred Stock certificates.
NY:71729.3 10
<Page >
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer thereunto duly authorized.
Dated: July 20, 1999
MW Medical, Inc.
By: \s\ Jan Wallace
-----------------------------
Name: Jan Wallace
---------------------------
Title: President, CEO
--------------------------
NY:71729.3 11
<Page >
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert
the Debenture)
The undersigned hereby irrevocably elects to convert
$ ________________ of the principal amount of the above
Debenture No. ___ into Shares of Common Stock of MW Medical,
Inc. (the "Company") according to the conditions hereof, as
of the date written below.
Date of Conversion* ____________________________________________
Applicable Conversion Price ____________________________________
Accrued and unpaid Interest ____________________________________
Signature_______________________________________________________
[Name]
Address:________________________________________________________
________________________________________________________
* If such conversion represents the remaining principal
balance of the Debenture, the original Debenture must be
delivered to the Company within three Trading Days.
NY:71729.3 12
<PAGE>
Smith & Company
A Professional Corporation of Certified Public Accountants
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
in this Form S-1 registration statement (of 3,669,158 shares of
common stock, par value $0.001 per share of MW Medical, Inc.) of
our report dated March 12, 1999, on the financial statements for
the years ended December 31, 1998, 1997, and 1996.
\s\ Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
August 31, 1999
10 West 100 South, Suite 700 * Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297 * Facsimile: (801) 575-8306
E-mail: [email protected]
Members: American Institute of Certified Public Accountants * Utah
Association of Certified Public Accountants
