U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file no. 0-24921
Surgical Safety Products, Inc.
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(Name of small business issuer in its charter)
New York 65-0565144
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
2018 Oak Terrace
Sarasota, Florida 34231
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (941) 927-7874
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of class)
Copies of Communications sent to:
Mercedes Travis, Esq.
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696 - Fax: (561) 659-5371
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $174,983.
Of the14,515,373 shares of voting stock of the registrant issued and
outstanding as of December 31, 1999, 9,244,440 shares are held by
non-affiliates. The Company trades on the OTC under the symbol "SURG". On March
29, 2000, the closing price was $1.437. Accordingly, the aggregate market value
based of the non-affiliate shares based upon this closing price as of March 29,
2000 was $13,284,260.
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TABLE OF CONTENTS
PART I
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Item 1. Description of Business 1
Item 2. Description of Property 30
Item 3. Legal Proceedings 31
Item 4. Submission of Matters to a Vote of Security Holders 31
PART II
Item 5. Market for Common Equity and Related Shareholder Matters 32
Item 6. Management's Discussion and Analysis or Plan of Operation 33
Item 7. Financial Statements - Commencing on 40
Item 8. Changes and Disagreements with Accountants on Accounting
And Financial Disclosure 41
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 41
Item 10. Executive Compensation 48
Item 11. Security Ownership of Certain Beneficial Owners and 59
Management
Item 12. Certain Relationships and Related Transactions 61
Item 13. Exhibits and Reports on Form 8K 64
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PART I
Item 1. Description of Business.
(a) Business Development
Surgical Safety Products, Inc. (the "Company" or "Surgical") is
incorporated in the State of New York and qualified to do business as a foreign
corporation in the State of Florida. Surgical Safety Products, Inc. originally
was incorporated under the laws of the State of Florida on May 15, 1992. On
November 28, 1994 the Company merged into Sheffeld Acres Inc., a New York shell
corporation which had approximately 1,100 shareholders, but had never commenced
operations. Although Sheffeld Acres, Inc. was technically the surviving entity,
the Company changed its name after the merger to Surgical Safety Products, Inc.
Articles of Merger were filed with the State of Florida on October 12, 1994 and
a Certificate of Merger was filed with the State of New York on February 8,
1995. The Company filed to do business as a foreign corporation on April 11,
1995 in the State of Florida. The Company's Common Stock is quoted on the OTC
Bulletin Board under the symbol "SURG". The Company's executive offices are
presently located at 2018 Oak Terrace, Sarasota, Florida 34231, its telephone
number is (941) 927-7874 and its facsimile number is (941) 925-0515.
The Company was formed for the initial purpose of combating the potential
spread of bloodborne pathogen infections, such as HIV and hepatitis. The
founding philosophy arose from a concern regarding the occupational risks of
healthcare workers in the operating room. Since inception, the Company has
broadened its mission to include the research, development and production of
innovative products and services which create and maintain a safe surgical
environment for medical and hospital staff, healthcare workers and patients, as
well as enhance the level of surgical care available to patients.
The Company is engaged in product development, sales and services for the
medical industry. The Company is currently engaged in one line of business which
is divided into three (3) divisions each of which is involved with specialty
medical product research and development: (1) a division which develops various
medical-related services to be marketed to healthcare facilities, including an
entire family of computer software applications designed to evaluate, track,
organize and manage infection control data for healthcare facilities and to
provide multi-media information centers for a facility's healthcare workers
("Data Systems Division"); (2) a division which researches and develops medical
products for sale in the marketplace ("Medical Products Division"); and (3) a
division which provides confidential consultation services to third party
developers of medical products, usually physicians and healthcare technicians
("Medical Products Consultation Division"). The common thread interwoven into
each area requires medical research, education and a commitment to safety
issues. It is the Company's intention to gradually make the transition from a
research and development-oriented medical device company into a multi-product
device manufacturer and distributor.
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In January 1999, the Company granted options to purchase 10,000 shares of
the Company's Common Stock at $1.00 pursuant to the 1999 Revised Stock Option
Plan ("1999 Revised ESOP") to each of Frank Clark, Donald Lawrence and Michael
Swor, respectively the Company's President, Vice President and Treasurer. Prior
to becoming a Director of the Company and assuming the position of Acting Chief
Financial Officer, David Collins was granted options to purchase a total of
75,000 shares of the Company's Common Stock at $1.00 for consulting services
rendered pursuant to the 1999 Revised ESOP. The granted such options under
Section 4(2) of the Act and Rule 506.
In April 1999 the Company commenced a self-directed private placement
offering of its restricted Common Stock and warrants for which it received gross
proceeds of $475,000. Pursuant to such offering, 950,000 shares of restricted
Common Stock were issued and warrants to purchase 475,000 shares of the
Company's restricted Common Stock at an exercise price of $1.00 exercisable
within five (5) years were granted. Three directors purchased shares under this
offering. The Company conducted this offering pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Act") and Rule 506 promulgated under
Regulation D of the Act ("Rule 506"). No offering memorandum was used in
connection with this offering. Rather investors were provided with access to the
Company's Registration Statement on Form 10-SB, as amended, its Form 10-K and
its Form 10Q for the 1st Quarter 1999, all of which are filed with the
Securities and Exchange Commission ("SEC").
In April, 1999, the Company executed a Consulting and Assistance Agreement
with Koritz Group LLC., a Connecticut limited liability company ("Koritz") to
identify sources of capital or potential business relationships and to assist
the Company in (i) raising equity or debt financing in the amount of $15,000,000
(ii) arranging for trade financing for production, sale, lease, rental or other
disposal of the Company's products; and (iii) arranging for the sale, merger, or
consolidation of the Company or for joint ventures or strategic alliances with
other appropriate business. This agreement was terminated on July 30, 1999.
In April 1999, the Company entered into an agreement with KJS Investment
Corporation of Tampa Florida ("KJS") to provide consulting services. KJS agreed
to accept 7,000 shares of the Company's common stock valued at the current bid
price of $.50 as part of an initial retainer with the balance of $1,500 to be
paid in cash at such time as KJS introduces the Company to five institutional
funding sources. The issuance was made pursuant to Section 4(2) of the Act and
Rule 506.
In April 1999, the Company issued 2,000 shares each to two consultants of
the Company for services relating to their production of a CD-Rom disc to be
used to promote OASiS. Such 4000 shares were valued at $2,250 which was based
upon the closing price for the shares on the dates the services were due to be
paid. Such issuance was made in reliance on Section 4(2) of the Act and Rule
506.
In May 1999, the Company entered into an agreement with Ten Peaks Capital
Corp. of Berkeley, California ("Ten Peaks") to pay a finder's fee for
successfully securing specifically defined financing for the Company. Ten Peaks
agreed to accept 6,000 shares of the Company's common
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stock in lieu of a retainer provided such stock had a fair market value as
reported on Bloomberg, LLP on the date of execution of not less than $.66. The
issuance was made pursuant to Section 4(2) of the Act and Rule 506. This
agreement expired without the payment of any further fees.
In May 1999, the Company issued a total of 46,000 shares of its restricted
Common Stock to Frank Clark and David Collins and 11,400 shares of its
restricted Common Stock to three (3) other employees in lieu of salary and
consulting fees due from the Company to each of them, which salary and
consulting fees were valued at $31,222 in the case of Mr. Clark and Mr. Collins
and at $7,832 in the case of the three (3) employees. The Company issued such
shares pursuant to Section 4(2) of the Act and Rule 506.
In May 1999, the Company granted options to purchase 170,000 shares of the
Company's Common Stock at an exercise price of $1. If such options, Mr. Lawrence
was granted options to purchase 150,000 shares in consideration of his efforts
for the exploitation of OASiS, and two of his assistants each received options
to purchase 1,000 shares. The Company granted such options pursuant to Section
4(2) of the Act and Rule 506.
In June 1999, the Board granted options to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $1.72 to each of its five (5)
outside directors as a bonus for their service on the Board of Directors. The
Company granted such options pursuant to Section 4(2) of the Act and Rule 506.
In July 1999, the Company executed a Consulting and Assistance Agreement
with Triton Capital, Inc., a Florida corporation ("Triton"). Under the terms of
this agreement, Triton has been engaged to identify sources of capital or
potential business relationships and to assist the Company in (i) raising equity
or debt financing in the amount of $6,000,000 (ii) arranging for trade financing
for production, sale, lease, rental or other disposal of the Company's products;
and (iii) arranging for the sale, merger, or consolidation of the Company or for
joint ventures or strategic alliances with other appropriate business.
In December 1999 the Company issued 10,000 shares of its restricted Common
Stock. Originally, the Company granted three (3) consultants a total of 12,500
shares, one person was granted 7,500 shares the Company's restricted Common
Stock for his work with the Company's patents, one person was granted 2,500
shares of restricted Common Stock for his work on OASiS, and the third, a nurse
at SMH, was granted 2,500 shares of restricted Common Stock for her work on
OASiS. However, the nurse at SMH declined, stating that such grant would not be
appropriate under SMH policy and such issuance was not made. The issuance was
made pursuant to Section 4(2) of the Act and Rule 506.
In December 1999, the Company executed a Loan Agreement with Thomson
Kernaghan & Co., Ltd. ("TK"), as Agent and Lender, whereby TK agreed to make
loans to the Company of up to $5,000,000 in installments for a period commencing
with the date of the agreement and ending on November 30, 2002 (the "TK Loan
Commitment"). Under the terms of the TK Loan Commitment, each installment is
supported by a convertible note and security agreement and the Agent and Lender
are granted warrants to purchase shares of the Company's Common Stock.
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Further, 2,700,000 shares are held by TK in escrow for the potential conversion
under the notes or exercise of the warrants. Under the terms of the TK Loan
Agreement, an initial loan of $650,000 was made on December 30, 1999, the Lender
was granted a warrant to purchase 3,428,571 shares and the Agent was granted a
warrant to purchase 1,142,857 shares. The Company granted TK registration rights
and was obligated to file a Form S-3 within sixty (60) days of the agreement.
The Company filed a registration statement on Form S-3 on March 2, 2000 covering
initially 20,038,097 shares of its Common Stock. The issuance of the securities
was made pursuant to Regulation S of the Act.
In December 1999, the Company granted options to purchase a total of 5,000
shares of its Common Stock at an exercise price of $1.00 to two outside
consultants. The Company granted such options pursuant to Section 4(2) of the
Act and Rule 506.
In December 1999, the Company granted year-end options to purchase a total
of 67,500 shares of the Company's Common Stock at an exercise price of $1.00 as
a bonus for performance during fiscal 1999. Of such options, Dr. Swor, Mr.
Clark, Mr. Lawrence and Mr. Collins, all officers of the Company, each were
granted options to purchase 10,000 shares. The balance of 27,500 were granted to
other employees .
In February 2000, the Company executed an Investment Banking Services
Agreement with Dunwoody Brokerage Services Inc. d/b/a Swartz Institutional
Finance ("Swartz"). Under the agreement, Swartz has agreed to introduce entities
to the Company for potential strategic partnerships, licensing arrangements,
mergers, acquisitions, investments or funding. For such services, Swartz will
receive a scaled fee based upon the value of any completed transaction. Said fee
is payable in cash or stock at Swartz's option and by the issuance of warrants,
the number of which is based upon the fee divided by the market price of the
Company's Common Stock. There is no obligation on the part of the Company to
accept any transaction offered by the Swartz to the Company.
In February 2000, the Company executed a Consulting Agreement with Global
Development Advisors, Inc. ("GDA")). Under the agreement, GDA will provide
business and marketing consulting services, assist in the implementation of a
strategic plan and assist, coordinate and monitor the Company's investor
relations program. The agreement is for a term of six (6) months and may be
extended by the Company. In lieu of cash payments for services, GDA has agreed
to accept 50,000 shares of the Company's Common Stock under the Company's 2000
Stock Plan approved by its shareholders on February 28, 2000 and options to
purchase an additional 50,000 shares at an exercise price of $1.09. The issuance
was made pursuant to Section 4(2) of the Act and Rule 506.
See (b) "Business of Issuer" immediately below for a description of the
Company's business.
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(b) Business of Issuer.
General
The Company was formed in 1992, and until 1996, was primarily engaged in
women's healthcare, medical research and product development with a focus on
safety-related products geared to the reduction of occupational risks to
healthcare workers. To date, the Company has received four (4) patents on two
(2) products, is seeking patent protection on other products and is in the
process of developing or acquiring the rights to approximately nine (9)
additional medical products intended to be marketed to the healthcare community.
The concepts and designs of the additional medical products are at various
stages of development or negotiation. The Company has an exclusive five (5) year
manufacturing and supply agreement for a line of protective prescription
eyeglasses; however, it has decided to discontinue marketing efforts for this
line due to poor sales. The Company markets its product lines under the
trademark, Compliance Plus.
The Company's premiere product in the Compliance Plus line, marketed under
the trade name, SutureMate(R), is a disposable Food and Drug Administration
("FDA") approved, multi- function, suturing safety device for surgery. Three (3)
of the patents apply to this product. The original instrument and its
developmental variations facilitate advanced surgical techniques, which increase
surgical efficiency and reduce the occupational risk of exposure to bloodborne
pathogens such as HIV and hepatitis. The original product is currently being
re-released. The product has been re-engineered and updated after feedback from
over 4,000 surgeons and surgical technologists. New clinical advantages and
significantly lower manufacturing costs create potential for this patented,
disposable surgical assist device which was originally designed to facilitate
the preferred one-handed suturing technique.
The Company intends to market under the trade name, Prostasert(R), a FDA
listed product which was developed to improve the preparation of pregnant
patients for labor by providing a mechanism for applying and maintaining a
pharmaceutical gel to the cervix and vagina. One (1) of the patents applies to
this product.
In addition, the Company intends to market an infection control equipment
kit for healthcare workers under the trademark, IcePak(TM).
The Company has two (2) additional products in the development stage:
Prepwiz(TM), which is a revolutionary surgical prep and drape system and
FingerSafe(TM), which is a multi-featured surgical thimble.
The Company aggressively protects its intellectual properties through
patents, trademarks and copyrights, as well as by proprietary software designs
(flow charts, algorithms, reports and databases). In addition to the utility and
design patents already issued to the Company, the Company has a number of other
products in various stages of development which have patent potential.
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In 1997, the Company focused on the creation and establishment of an
information system for multiple applications within healthcare. Formerly named
Surgical Safety Network, this information system is now marketed under the name
OASiS which is the acronym for Occupational Automated Services Information
System. In April 1998, the Company filed for two (2) patents on this system, one
related to this touch-access information system and the other related to a
technology transfer application. This touch access system has developed into a
platform for initially managing three areas of need: (1) exposure (to bloodborne
pathogen) management; (2)healthcare training; and (3) healthcare risk
management.
In February 1998, the Company executed a letter of intent to joint venture
with U.S. Surgical Corporation ("U S. Surgical"), a major manufacturer of
surgical products which distributes its products worldwide, for the marketing of
the OASiS system. The parties executed a final agreement dated October 28, 1998
(the "Short Term Agreement"). On October 1, 1998, Tyco Healthcare Group LP
("Tyco") consummated a merger with US Surgical. On July 30, 1999 Surgical
entered into a private partner network agreement with US Surgical. Under the
July agreement, Surgical is to supply up to four hundred (400) OASiS systems to
US Surgical under licenses calling for installation in nominated hospitals (the
"Long Term Agreement").
The Company entered into an agreement with IBM Global Services effective
January 3, 2000 which includes an IBM Customer Agreement and a Statement of Work
(the "IBM Global Agreement"). Under the terms of the IBM Global Agreement IBM
will provide complete implementation and support service solutions for 1,200
OASiS terminals in an estimated 400 end user locations during the 12 month
period commencing December 1, 1999. On February 3, 2000, IBM Global Services and
the Company finalized the Statement of Work. The services to be provided under
the agreement include project planning, site surveys, product acquisition,
network design, web-site hosting services, premises wiring, OASiS TouchPort
Implementation, help desk support and consulting services. The estimated cost
for performing the work is approximately $10 million. In addition, IBM Global
Services will bill the Company a monthly service charge for pre and post
installation support services, including 24-7 support, and for labor, travel and
out of pocket expenses. The Company will provide technical resources and oversee
the IBM Global's activities. The Company believes that this agreement will
expedite the deployment of its OASiS systems under the terms of its Long Term
Agreement with US Surgical.
The Company's other products and concepts in development generally fall
into the categories of occupational safety, infection control, obstetrics and
gynecology, and new "minimally invasive" surgery devices and techniques. Most of
these development projects originated from within the Company, although several
are being co-developed with outside third party inventors who are mainly
physicians and medical technicians for whom the Company provides consulting
services in new product development.
The FDA lists Surgical as a medical device specifier. Under FDA
Registration No. 1056687, as a medical device specifier, Surgical is permitted
to control the specifications of its products. The Company spent its formative
years in research and development and in obtaining patent protection on its core
products and services. Tangential to its core competency, the Company had found
it necessary to diversify its offerings, but has, over the past fiscal year
focused a majority of its efforts towards the commercialization of its
touch-access information system, OASiS.
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Surgical is attempting to secure a research-backed, OSHA mandate status for
its OASiS information system which would make the availability of Compliance
Plus required in hospitals and other medical facilities. The Company's plan is
to accumulate enough research on product lines to demonstrate statistically
their significant safety advantages to support such products inclusion in OSHA
requirements for workplace safety compliance. There can be no assurance that
such statistics will demonstrate such facts, or even if demonstrated, that such
products will be included in OSHA requirements.
Fifteen (15) OASiS unit are now installed in seven (7) hospitals. Lease
payments from OASiS currently are made directly to Surgical from the customer
hospital but may be made, in the future, through a third party leasing
intermediary. In the case of the third party intermediary, Surgical is paid a
lump sum at the front end of the lease and the hospital then makes its payments
to the leasing company. Selection of the leasing arrangements is made based upon
Surgical's current financial status and based upon the financial strength of the
hospital involved.
SutureMate(R) was originally sold in limited quantities and had limited
success due to the high manufacturers suggested retail price. New manufacturing
arrangements will allow sales in the $5 to $6 range, more in keeping with
disposable products. Due to limited sales, the Company is dropping the MediSpecs
Rx(TM) product line. Consulting fees are derived from the Medical Consultation
Division on an as needed basis.
The Company now is positioned to commercialize Compliance Plus product
lines and its proprietary OASiS system through its alliances with U.S. Surgical
and IBM Global and each of their full size international sales force. The
Company is preparing other alliances with one or more established industry
leaders in healthcare. The Company believes that recurring multiple revenue
streams and a "cookie cutter" program and network will allow for potentially
rapid growth in the number of OASiS system installations. When the OASiS system
reaches the appropriate size, the Company may consider the spin-off of a
separate subsidiary for managing this Internet-based healthcare information
network and subsequently an initial public offering related to the spun off
subsidiary. If the Company grows and attains its projected earnings, it intends
to apply for listing on the NASDAQ Quotation System where it believes the market
would apply an appropriate multiple to the earnings per share. At such time, the
Company may position itself as an acquisition target for major medical or
information system entities, although it has no such plans at this time.
The Company has been seeking debt or equity financing in the amount of
between $2,000,000 and $5,000,000. In December 1999, the Company executed the TK
Loan Commitment which provides for the Company to borrow up to $5,000,000 from
TK subject to the terms and conditions contained therein. The Company thus far
has borrowed $650,000 as the first installment under which the note could be
convertible into a maximum of 1,7333,333 shares of the Company's Common Stock at
the lowest possible conversion price and has issued warrants to purchase
3,428,571 and 1,142,857 shares of the Company's Common Stock. However due to the
formula nature of the conversion price, the Company is unable to project the
exact number of additional
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shares of its Common Stock which will be required to be issued if all of the
debt is converted or all of the warrants are exercised. As of December 31, 1999,
the Company had short term debt as a result of draw downs under its $100,000
revolving loan agreement with South Trust Bank and long term debt of $650,000 as
a result of the initial loan under the TK Loan Commitment. The TK Loan
Commitment, once interest payments begin to accrue, will increase both the short
or long term debt of the Company. The Company has entered into consulting
agreements with several other potential funding sources; however, to date, has
not concluded terms for any financing which it feels appropriately meets the
requirements of the Company under such agreements. With the TK Loan Commitment
and in the event additional debt is raised, it will incur future interest
expense. The TK Loan Commitment, if fully converted and all warrants are
exercised will dilute the interest of existing shareholders and in the event
additional equity is raised, management may be required to dilute the interest
of existing shareholders further or forgo a substantial interest in revenues, if
any. In the event that the Company is successful in securing additional debt
financing, the amount of such financing, depending upon its terms, would
increase either the short or long term debt of the Company or both.
The TK Loan Commitment will be used by the Company to meet its obligations
under the Long Term Agreement with US Surgical and for general operating
expenses. With the additional installments under the TK Loan Commitment or
subject to the availability of additional financing, of which there can be no
assurance, the Company plans (1) to facilitate implementation of its sales
strategies, (2) to apply additional funding to existing new technology; and (3)
to apply additional funding to complimentary products and services through
corporate acquisition and exclusive licensing.
The Company currently employs, under the agreement with Staff and on a
full-time basis, seven (7) people, including its Chief Executive Officer and its
President and Chief Operating Office. Total employee salaries for the year
ending December 31, 1999 were $363,418 of which $216,221 was paid as Executive
Compensation, including salaries and the value of Common Stock and Options
issued and granted to such executives. The Company's executive officers and
directors devote such time and effort as are necessary to participate in the
day-to-day management of the Company. During the fourth quarter of 1999, the
Company did not employ any additional staff. Subject to the availability of
additional funding, of which there can be no assurance, the Company plans to add
personnel as needed to implement the Long Term Agreement with US Surgical and
other growth plans.
The Company is dependent upon the services of two of its officers and
directors. Dr. G. Michael Swor, the founder and Chairman of the Board and the
Chief Executive Officer of the Company, is responsible for inventing all four
(4) of the patents, which patents were assigned to the Company in exchange for
stock. Dr. Swor is responsible for the overall corporate policy and the
financing activities of the Company. The Company is the beneficiary of a
"key-man" insurance policy currently owned by Dr. Swor. In addition to his
duties with the Company, Dr. Swor is a board certified, practicing physician
with a specialty in Obstetrics and Gynecology. Donald K. Lawrence, a Director
and President and Chief Operating Officer, is responsible for sales management,
market planning, advertising for the Company. Mr. Lawrence in addition to nearly
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ten (10) years in medical device sales, has extensive experience in computer
graphics, multi-media and computer equipment leasing programs. The Company plans
to continue to use to its advantage the reputations and skills of these two
officers in the medical industry. Nevertheless, while these officers have been
successful in the past, there can be no assurance that they will be successful
in the continued development of the Company which is needed for a successful
operation of the Company. The Company has employment agreements with each of
these individuals.
Data Systems Division
In February 1998, the Company executed a letter of intent to joint venture
with U.S. Surgical Corporation ("US Surgical"), a major manufacturer of surgical
products which distributes its products worldwide, for the marketing of the
OASiS system. The parties executed a final agreement dated October 28, 1998 (the
"Short Term Agreement"). On October 1, 1998, Tyco Healthcare Group LP ("Tyco")
consummated a merger with US Surgical. On July 30, 1999 Surgical entered into a
private partner network agreement with US Surgical. Under the July agreement,
Surgical is to supply up to four hundred (400) OASiS systems to US Surgical
under licenses calling for installation in nominated hospitals (the "Long Term
Agreement").
In November 1998, the Company announced a planned enhancement to the OASiS
system called "Vendor Watch". Currently in development and testing, this program
is expected to aid the hospital administration in monitoring the presence of
vendors and sales representatives visiting the hospital. Also, it is planned as
a communications tool for sending messages to the vendors. Beta testing was
planned for late 1999 but was delayed until the release of OASiS Version 3 which
is anticipated for April 2000.
OASiS Version 2.0 became operational at Sarasota Medical Hospital ("SMH")
in February, 1999. For the installation, Surgical has outsourced Internet
services to Verio, Inc. ("Verio") , a provider of Internet services such as
broadband connectivity, WEB hosting solutions, virtual private networks,
e-commerce and other enhanced Internet services. Verio provides OASiS with fast,
reliable and secure access to the Internet via Tier 1 connectivity. In February
1999, Surgical entered into an agreement with Verio for access service at SMH.
The agreement required payment of a set up fee of $60 and monthly charges of
$199. Surgical is responsible for paying the monthly charges. A comparable
agreement with Verio or other provider is contemplated for each hospital at
which OASiS is installed.
In February 1999, Surgical completed negotiations which had commenced in
the summer of 1998 to install OASiS units as a test site in St. Francis Hospital
in Trenton, New Jersey ("St. Francis Hospital"). Three units with Version 2.0
software were installed in February. The Company has an oral arrangement with
St. Francis Hospital under which the hospital pays Surgical $200 per month per
unit as a monthly software license fee and pays $50 per month per unit for "hot
swap" maintenance service based upon a monthly invoice.
In February 1999, the first installations under the US Surgical agreement
became operational, each with Version 2.0 software. One OASiS system was
installed at Atlanticare
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Hospital in Massachusetts and two OASiS systems were installed at Columbia
Presbyterian Hospital in New York. In addition, US Surgical inservice modules
were installed in the SMH system and in the system installed at St. Francis
Hospital.
In March 1999, the Company installed additional units under the US Surgical
agreement at the California Pacific Medical Center and the Kaiser Permeante
Medical Center, both in San Francisco, California.
In April, 1999, the Company shipped and did the preliminary installation at
three more US Surgical sites, a second California Pacific Medical Center in San
Francisco, the California Pacific Medical Center in Los Angeles, California and
the University of Washington in Seattle, Washington.
In April 1999, the Company attended the AORN convention where it
experienced more acceptance from potential content providers and users partly
because of the commencement of the arrangement with US Surgical.
In June 1999, the Company completed the installation and Internet
connection on the unit at the University of Washington in Seattle. The
preliminary preparations were completed for the units under the US Surgical
agreement at the California Pacific Medical Center sites in San Francisco and
Los Angeles. To date, these last two sites are not installed fully and are not
connected to the Internet.
On July 30, 1999, the Company entered into the Long Term Agreement with US
Surgical which is a private partner network agreement. Under the Long Term
Agreement, Surgical is to supply up to four hundred (400) OASiS systems to US
Surgical under licenses calling for installation in nominated hospitals. Each
license is for a term of three (3) years commencing with "substantial
installation: of such unit. "Substantial installation" is defined as delivery of
the OASiS unit to the hospital and connection to the Internet.
Under the terms of the Long Term Agreement, US Surgical must license two
hundred (200) units within the first year, and subject to certain obligations on
the part of Surgical to license units to third parties, must license an
additional two hundred (200) units by the end of the second year to third
parties. Previously installed units under the Short Term Agreement are counted
toward the minimum units required. On August 10, 1999 US Surgical paid Surgical
$100,000.00 as an initial investment. The first 200 licenses are $1,500 each and
additional licenses are $1,000 each.
The Long Term Agreement further provides that neither Surgical, nor any
third party other than US Surgical, may place OASiS units in any of the
"protected departments" of the hospitals, unless it is installed prior to
receipt of a purchase order from US Surgical or unless US Surgical does not
exercise its right of first refusal after notice from Surgical for such
hospital. The Long Term Agreement defines "protected departments" as Operating
Room, Labor and Delivery, Emergency Room, Ambulatory/Same Day Surgery /
Outpatient, Nuclear Medicine, Intensive Care, Orthopedic / Ortho Casting Room,
and Dialysis. US Surgical is required to have each hospital bear
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the entire risk of loss and damage to any OASiS system except if such is caused
by the negligence or wilful misconduct of Surgical. US Surgical must maintain
casualty insurance in amounts and with companies acceptable to Surgical on the
OASiS units and its related amenities with Surgical as the loss payee. US
Surgical may elect to have the OASiS systems installed in hospitals it nominates
co-branded with its name. Surgical has the discretion to select the content,
related services and in-service products for the OASiS systems installed under
this agreement; however, during the term of the agreement, US Surgical is
required to pay for and maintain a minimum of one hundred forty (140) product
in-services modules in an average of at least 80% of all OASiS systems installed
in the United States whether or not covered by this agreement and 100% on those
that are covered by the agreement. US Surgical's product-based modules produced
by Surgical become the property of US Surgical. Surgical retains the right to
display such modules on other OASiS units. All other modules remain the property
of Surgical. Surgical receives a fee for production of the modules. If Surgical
installs additional OASiS units in a designated hospital, US Surgical receives a
10% commission. Surgical receives a monthly maintenance fee for each unit, of
$149, unless paid a year in advance in which case it may be discounted up to
10%.
The Company expected to complete the installation of the balance of the US
Surgical sites under the Short Term Agreement in 1999's third calendar quarter;
however, such installations have been merged into the Long Term Agreement.
The Company entered into the IBM Global Agreement effective January 3,
2000. Under the terms of the IBM Global Agreement IBM will provide complete
implementation and support service solutions for 1,200 OASiS terminals in an
estimated 400 end user locations during the 12 month period commencing December
1, 1999. On February 3, 2000, IBM Global Services and the Company finalized the
Statement of Work. The services to be provided under the agreement include
project planning, site surveys, product acquisition, network design, web-site
hosting services, premises wiring, OASiS TouchPort Implementation, help desk
support and consulting services. The estimated cost for performing the work is
approximately $10 million. In addition, IBM Global Services will bill the
Company a monthly service charge for pre and post installation support services,
including 24-7 support, and for labor, travel and out of pocket expenses. The
Company will provide technical resources and oversee the IBM Global's
activities. The Company believes that this agreement will expedite the
deployment of its OASiS systems under the terms of its Long Term Agreement with
US Surgical.
The Company knows of only one other system which is designed to accumulate
exposure data which is called Epinet, a single system designed to track and
report bloodborne pathogen exposure in the healthcare setting. The Company
believes that OASiS is the superior product and that it represents the leader in
the industry at this time. The basis for this belief is that Epinet is a
software only product and that the OASiS system can be adapted to accept Epinet.
Medical Products Division
Compliance Plus is the designation under which all the Company's products
are developed. The Company trademarked this term in order to indicate that the
criteria used in the
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research and development of every Surgical product and service meets or exceeds
compliance mandates set forth by the OSHA, the Centers for Disease Control and
Prevention ("CDC") and other governing bodies. It is the goal of the Company to
exceed existing standards in order to assume a leadership role in the area of
medical prevention and safety products.
The Compliance Plus Exposure Prevention Program includes several safety
engineered products dedicated to reducing exposure and cross contamination in
the operating room. These exposure prevention products are designed to maximize
surgical efficiency while reducing bloodborne pathogen exposure to healthcare
workers and improving patient care in a wide range of applications. The Company
has already introduced the first two Compliance Plus products into the market -
MediSpecs Rx(TM) and SutureMate(R). These are the only two Compliance Plus
products which it currently markets. Both of these products meet OSHA and CDC
mandates. There is no current time table for the release of additional
Compliance Plus products. The remainder of the proposed Compliance Plus line
will be added through further in-house development and acquisitions.
Although the Company has a commitment for $5 million in funding from TK,
the Company intends to use those funds primarily to exploit the expansion of
OASiS under the Long Term US Surgical Agreement and the IBM Global Agreement.
The Company will require additional funding or sufficient cash flow from
operations to implement the exploitation of its Compliance Plus line.
SutureMate(R)
SutureMate(R), a patented, disposable, surgical assist device, was
initially introduced in 1993. Its unique design facilitates the highly
recommended one-handed suturing technique which is advocated by occupational
safety experts. When one-handed suturing is not used, extra steps are required
by the surgeon or the assistant in cutting the needle free of the suture thread
and extra time and hand movements are required of the surgeon in manually
adjusting needles while using a needle holder in most suturing processes.
SutureMate(R) allows the surgeon to use a safer, more efficient method of
surgical stitching. The product has features which include a foam
needle-cushion, and a suture cutting slot.
SutureMate(R) was re-designed in late 1998 and will be re-released at such
time as the Company has sufficient resources to market this product. The product
was re-engineered and updated after feedback from over 4,000 surgeons and
surgical technologists who used or reviewed the product since its inception. As
a result of the re-design, the Company believes that there will be new clinical
advantages and that the product can be produced at a significantly lower
manufacturing cost. These beliefs are based on the fact that the re-design
includes a tent-like configuration with a hidden cutting device contained
between the adhesive base and the holding device. This allows the surgeon to
separate the needle from the suture without a scrub nurse intervening with a
scissor. The cost reduction will result from the fact that the original version
cost approximately $6.00 per unit while the new version costs approximately
$1.10 per unit including packaging and sterilization, allowing it to be marketed
in the $5 to $6 range which is more in keeping with pricing for a disposable
product.
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Currently, the re-designed SutureMate(R) is manufactured by the Hansen
Plastic Division of Tuthill Corporation at their plant located in Clearwater,
Florida ("Tuthill"). Tuthill manufactures each non-sterile unit at a cost of
$.902 per unit. The non-sterile product is then shipped to Gamma Services, Inc.
in Lakeland, Florida for sterilization. The cost per unit for the sterilization
process is $.172. This results in a total cost per unit of $1.074. The Company
currently is considering other manufacturing sources.
MediSpecs Rx(TM)
MediSpecs Rx(TM) is a prescription protective eyewear which Surgical
co-developed for use in the operating room and related areas. The Company has an
exclusive, renewable 5-year, distribution agreement which covers the United
States with Morrison International, Inc., a Pennsylvania corporation with its
principal place of business in Sarasota, Florida ("Morrison"). The initial term
expires in September 2000. Under the terms of the agreement with Morrison
executed in September, 1996, the Company acquired the right to purchase,
promote, resell and distribute Morrison's trademarked glasses under the
Company's private label trademark, MediSpecs Rx(TM). The price for the product
is fixed for the initial five-year term and requires minimum purchases which are
scaled over the first five-year period from 2,750 units the first year to 56,000
the fifth year. Under the agreement, the Company its entitled to distribute the
product either directly or through other dealers. Although the Company is not
reaching its quotas, it has not been found in default by Morrison since this is
a "best efforts" contract with no penalties on the part of the Company for
failure to reach a quota, other than loss of the ability to sell the product.
Due to poor sales, Morrison discontinued the manufacturing of this product;
however it has substantial inventory on hand for sale. The Company is dropping
this line due to poor sales.
Prostasert(TM)
Prostasert(TM),originally named LaborMate, is a patented disposable,
obstetrical/gynecological specialty device with many potential uses, including
use for patients undergoing the induction of labor. The product provides a
vaginal application of a precise dosage of pharmaceutical gel which is designed
to shorten and improve the labor and delivery process. Although simple in
design, the Company believes that Prostasert(TM) is unique in that it differs
from its competitors by allowing for a more site-specific application and
improved maintenance of the pharmaceutical gel used. Prostasert(TM), a FDA
listed device, is a specially designed medication delivery and maintenance
system which allows a physician to deliver the proper dosage and maintain that
dosage precisely. With over four (4) million births annually in the United
States alone, the Company estimates the potential market for obstetrical use of
this product to be approximately 200,000 to 400,000 cases annually. These
estimates are based on the fact that 10% to 20% of the four (4) million births
annually are induced (labor stimulated medically) and that such numbers of
induced births are increasing because of the lower risks and patient/doctor
convenience factors. Alternate uses and other applications for this product are
under development including treatment for cervical infections and PAP smear
abnormalities for which the market is estimated to be 1,000,000 cases per year.
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There is no timetable for the entry of this product into the market. The
Company is seeking a distribution outlet for such licensing arrangement while
the clinical trials are being conducted.
Icepak(TM)
The Company is researching patent protection for this specialty product and
its accessory components. This product is a belt which is designed to carry
various infection control- related products providing healthcare workers with
easy access to personal protective supplies. The belt itself is a durable,
reusable product with consumable supplies attached. The Company intends to
market and sell this product primarily through catalogs, with a focus on
distribution to nurses. The Company will be required to develop arrangements
with suppliers of the consumable supplies to be used in the belt. A prototype
has been manufactured and the product is expected to enter the market if the
required agreements with potential manufacturers/suppliers have been completed
and if additional funding is available (of which there can be no assurance).
Accordingly, no timetable for release of this product has been set. There is no
requirement for regulatory approval of this product.
Research and Development
The Company previously engaged in extensive research and development of new
medical technology. Many product concepts and partially developed designs have
been accumulated from internal and external sources. As funding becomes
available, of which there can be no assurance, new products will be brought
through the development process. Initial products in development include:
RD91862: PrepWiz(TM): This is a multiple product for pre- paring the
patient's surgical site. The Company anticipates that this product will
potentially solve major efficiency, costs and safety problems. The Company
currently plans to co-develop this product line with a major medical
manufacturer and subsequently license it for sales and distribution. Currently,
pattern designs are in process and the Company received non-sterile samples
which it is currently evaluating. The samples were provided to a contract
converter who produced non-sterile disposable samples to be used in finalization
of the design.
RD121096: Finger-Safe(TM)Surgical Thimble: The Company is seeking patent
protection on this fingertip protection device. It is expected that this product
can be added to the Compliance Plus product line in the event that Company
secures additional capital, of which there can be no assurance. This product is
used much like a thimble for sewing, but has special features that facilitate
the suturing technique and also has special safety features and a storage
component. The product is designed to reduce further the risk of needlesticks
and glove perforations to the non- dominant hand.
Both RD91862 and RD121096 require regulatory approval from the FDA.
PrepWiz(TM)is in the development phase and no application under 501(K) will be
undertaken until
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final designs and approvals have been executed. Finger-Safe(TM) Surgical Thimble
is on the shelf and no development activity is currently underway.
Advanced Surgical Techniques
The Company has several products in development that are designed to
contribute to the rapidly growing market of "minimally invasive" surgery with
increasing emphasis on small incisions, laparoscopy, laser treatment, and more
efficient post-surgery convalescence. The Company believes that there is a
significant demand for improved technology to facilitate these newly developed
procedures. The Company has several concepts and projects in development related
to this type of surgery, and many of the new product ideas presented to the
Medical Products Consultation Division by third parties are included in this
group.
Medical Consultation Division
The Medical Consultation Division previously provided consulting services
to individual inventors on a fee basis. Dr. Swor, Mr. Clark and Mr. Stuart, a
Director of the Company, have provide such services depending upon the type of
expertise required. The principal function of the division is to find new ideas
and potential products which compliment the Company's product mix.
This division has been retained to conduct several research evaluations of
various proprietary medical products and has completed two such projects, one
for London International U.S. Holdings, Inc. (a study to determine the
spermicidal activity of several concentrations of nonoxynol-9 lubricated condom
products) and another for Purely Cotton (a study of a tissue made from cotton
rather than paper to determine whether the product was less irritating to people
with chronic skin conditions). Based upon the initial evaluation of these
products, the Company believes that one or more could be very successful and
lead to additional business for the Company.
Business Strategy
The Company's business strategy, which is dependent upon its being able to
take the instalments under the TK Loan Commitment as planned or obtaining
sufficient additional financing, is to enhance the commercialization of the
OASiS information system, and then, to the extent sufficient funds are available
(of which there is no assurance), the existing and future products of the
Compliance Plus exposure prevention and surgical efficiency product line. The
Company remains committed to providing innovative products and services which
create and maintain a safe surgical environment for medical and hospital staff,
healthcare workers and patients, as well as to enhance the level of surgical
care available to patients. The Company's revenues are based upon lease payments
and fees for display of inservice modules from its Data Systems Division, sale
of its products and distribution fees from the Medical Products Division and
consulting fees earned by the Medical Consultation Division. The Company's
revenues are dependent on the volume of sales from its products.
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Revenues from sales are recognized in the period in which sales are made.
The Company's gross profit margin will be determined in part by its ability to
estimate and control direct costs of manufacturing and its ability to
incorporate such costs in the price charged to clients.
The Company's objective is to become a dominant provider of medical systems
and devices which improve occupational safety, advance surgical techniques and
provide greater efficiency. To achieve this objective, and assuming that
sufficient operating capital is provided under the TK Loan Commitment as and
when needed or other capital becomes available, the Company intends to: (i)
develop international distribution channels and co-marketing alliances for the
Company's products and services; (ii) continue research and development and
acquisitions of synergistic products and software programs; and (iii) frequently
fine tune market strategies based upon ongoing evaluations of customer needs,
capital budgeting opportunities and market economy fluctuations.
Management believes that Surgical is poised to lead in the ever developing
surgical and medical safety market and plans to capitalize on the opportunity
while providing significant benefits to its customers and improving overall
patient care. Management expects, in the event Surgical continues to achieve
product acceptance, to increase the Company's market penetration through
additional acquisitions and potential merger opportunities with appropriate
bases of business development, although currently it is not in negotiations nor
has it made any arrangements for such mergers or acquisitions. However should it
expand through acquisitions or mergers, such expansion presents certain
challenges and risks and there could be no assurance that Surgical, even if it
were successful in acquiring other bases of business development, would be
successful in profitably penetrating these potential markets.
Sales and Marketing
Markets
The primary medical industry markets include hospitals, healthcare
facilities, surgeons, nurses, and technologists in procedure-oriented
specialties, including obstetricians, dentists, emergency room personnel and
other medical professionals.
The potential global market for Surgical's products (devices and
information systems) is estimated at over $1.3 billion. This data was presented
in an article written by Dr. Swor which appeared in Surgical Technology
International, Vol. II where Dr. Swor was referencing an article from the
Florida Healthcare Report and Hospital News which appeared in December 1997.
The initial target market areas for the product side of the Company's
business are in the major metropolitan centers in the United States and abroad
that presently have large teaching programs, higher disease prevalence and acute
problem awareness. Entry into these target areas is expected by the Company to
significantly ease general market penetration.
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OASiS has been foundationally designed to accept multi- lingual
applications. The Company expects that this will not only facilitate acceptance
in the cosmopolitan markets within the United States, but also will enable
instant adaptations to international markets which traditionally follow the
United States leadership in developments of safety and exposure guidelines.
A major portion of the safety products and services currently ready for
marketing by the Company, including both device and information services, are
unique and are without apparent competition by design since they were specified
and designed by the Company to create previously unavailable products and
services. In most cases, Surgical's state-of-the-art products, techniques and
services position the Company as a pioneer in new markets. This is a direct
result of the Company's election to avoid the typical commodity sales of gloves,
gowns, shields, and other products of that type and to focus on innovative,
safety related products such as SutureMate(R), which was the first device of its
kind to provide for lower risk, one-handed suturing.
The market for Surgical's products is divided into three (3) segments: end
users, healthcare risk managers and medical-related companies.
The primary end user market for the products and services of Surgical
include 8,000 hospitals, 100,000 surgeons and over 1,000,000 surgical nurses and
technologists. Secondary end user markets include out-patient clinics, dental
offices, emergency medical services, fire and rescue organizations, medical
offices and laboratories. This segment of the Company's market will be the
ultimate user of both the medical devices and OASiS and it is particularly
defined by the need for protection against bloodborne diseases from body fluids
and sharps injuries, such as needlesticks.
The healthcare risk manager market is defined by similar statistics as the
end user market. The major difference is that this segment is represented at an
administrative level. Additionally, it encompasses insurance companies and other
parties interested in capturing safety and occupational injury data. This
segment of the market focuses on ensuring a safer, more efficient workplace for
the healthcare worker and in obtaining previously unavailable information about
actual occurrences of bloodborne pathogen exposure and the management thereof.
The market segment for medical-related companies consists of approximately
11,600 medical device manufacturers, 360 pharmaceutical companies and 1,260
training and educational organizations. The Company believes that this is a
significant segment for them for three reasons. First, these companies will be
enlisted as content providers (a content provider supplies OASiS with device
information and other educational components) ("Content Providers"). Content
Providers are potential customers for the Company because they pay a reoccurring
fee to broadcast their information on OASiS. Secondly, this market segment is
desirous of the data collected by OASiS as it relates to the information
surrounding exposure occurrences. The Company already has received requests for
access to this (yet-to-be collected) data. The third reason the Company believes
this segment to be significant is that these companies are a key component to
the Company's sales strategy for its medical devices. The Company believes that
its relationship with US Surgical as a strategic partner is based on the
integration of OASiS and the Company's Compliance Plus line of products and the
venue potential for US Surgical products.
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The Company believes that the criteria for another appropriate strategic
partner for an alliance with the Company would have a worldwide presence,
maintain a dedicated, highly trained sales force with access to the operating
room, be a respected and an acknowledged leader in the industry, be among the
Fortune 500 companies or equivalent and have an interest in diversification of
its existing product lines. In this regard, the Company believes that its long
term arrangements with US Surgical establishes a strategic alliance with a
company which meets these criteria.
Distribution of Products
OASiS, SutureMate(R), and MediSpecs Rx(TM) are currently the Company's only
products available, although the Company is dropping the MediSpecs Rx(TM) line
due to poor sales. Only OASiS currently is being actively marketed. While the
Company had entered into a number of agreements regarding the distribution of
SutureMate(R), and MediSpecs Rx(TM), none are currently active.
On July 30, 1999, the Company entered the Long Term Agreement with US
Surgical. Under the Long Term Agreement, Surgical is to supply up to four
hundred (400) OASiS systems to US Surgical under licenses calling for
installation in nominated hospitals. Each license is for a term of three (3)
years commencing with "substantial installation" of such unit. "Substantial
installation" is defined as delivery of the OASiS unit to the hospital and
connection to the Internet.
Under the terms of the Long Term Agreement, US Surgical must license two
hundred (200) units within the first year, and subject to certain obligations on
the part of Surgical to license units to third parties, must license an
additional two hundred (200) units by the end of the second year to third
parties. Previously installed units under the October 1998 agreement are counted
toward the minimum units required. On August 10, 1999 US Surgical paid Surgical
$100,000.00 as an initial investment. The first 200 licenses are $1,500 each and
additional licenses are $1,000 each. It is expected that the IBM Global
Agreement will compliment the sales efforts of US Surgical to place these units.
Methods of Distribution
With the financing available under the TK Loan Commitment Surgical plans to
fund part of its commitment under the IBM Global Agreement, which in turn will
assist in the rapid deployment of OASiS units under the Long Term Agreement with
US surgical. Surgical also plans to provide sales support to its strategic
partner, US Surgical by adding sales staff. IBM Global will manage the primary
sales functions with the Company acting as an additional resource for sales
support. As to the OASiS system, IBM Global will complete a site survey for each
customer facility, provide the equipment can coordinate the installations.
Notwithstanding the US Surgical contract and until such time as the Company
establishes alliances with additional strategic partners, Surgical will continue
to rely on a significant database and network of consultants, international
business contacts, researchers, medical advisors
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and potential distributors, suppliers and manufacturers for sales of its
products. The Company has accumulated over 3,000 sales leads and customer
contacts, with a majority being United States based surgeons and operating room
technologists. The Company will continue to sell its products direct to
hospitals and other medical care providers.
In addition to sales by U.S. Surgical and distributors, the Company also
solicits orders through direct mail sales, trade publications and advertising by
targeting specific market groups. The Company is actively campaigning to
establish repeat markets for Surgical's 0roducts. Customer follow-up is
currently handled by in-house staff. Orders obtained can be shipped from
in-house inventory or warehousing arrangements. The Company has the original
SutureMate(R) and MediSpecs Rx(TM) in stock and is finalizing manufacturing,
sterilization and inspection procedures for the re-designed SutureMate(R) so
that inventory can be established. Customers may return defective merchandise
for a full refund, credit or replacement. In recent years, such returns have
been insignificant.
Status of Publicly Announced Products and Services
Based upon feedback from surgeons and operating room technologists since
the introduction of SutureMate(R) in 1993, this product has been re-engineered
and is currently ready for distribution, subject to the availability of
additional funding, of which there can be no assurance. The original
SutureMate(R) is available and on the market. The Company is seeking additional
distribution channels for this product.
MediSpecs Rx(TM) currently is available; however, the Company is dropping
the line due to poor sales.
Once trials are completed and subject to the availability of additional
funding or sufficient excess from the instalments received under the TK Loan
Commitment after fulfillment of marketing commitments to OASiS, the Company
intends to make final engineering adjustments to Prostasert(TM) and then
commence manufacturing for initial market entry in the United States. There is
no current timetable for such entry.
The OASiS system is fully operational at its initial sight at SMH in
Sarasota, Florida, at seven (7) hospitals under the arrangements with US
Surgical and at St. Francis in Trenton, New Jersey. Although the Company
expected to complete the balance of the installations under the Short Term
Agreement with US Surgical installations in the third quarter 1999, such
installations have been merged into the Long Term Agreement. The Company is
ready for additional installations at other locations and it is expected that
the IBM Global arrangement will advance the installation schedule significantly.
Version 2.0 is being installed at the US Surgical sites and is in final stages
of test trials.
A prototype of IcePak(TM) has been manufactured and the product is expected
to enter the market if the required agreements with potential
manufacturers/suppliers have been completed and additional funding is available.
There is no current timetable for such entry.
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Competition
There is intense competition in the markets in which the Company engages in
business. However, the Company believes that there is relatively little
competition for its products at this time.
Notwithstanding its innovative product line, there are many major companies
which could compete with the Company due to their size and market share in the
medical products area. The Company believes that these major companies will
continue their efforts to develop and market competitive devices. It is for this
reason that the Company has sought to align itself with a strategic partner and
has entered into the Long Term Agreement with US Surgical and the IBM Global
Agreement.
There is intense competition in sales of products for use in gynecological,
spinal, vascular, cardiovascular, interventional cardiology, breast biopsy,
urologic, orthopedic and oncological procedures. A broad range of companies
presently offer products or are developing products for the use in such
procedures. Many of these companies have significantly greater capital than the
Company and are expected to devote substantial resources to the development of
newer technologies which would be competitive with products which the Company
may offer. There are also a number of smaller companies which offer such
products which present additional competition.
The market for products for minimally invasive surgery is highly
competitive. The Company believes if it enters this market that it could gain a
significant share of the market as the result of its innovative efforts and
superior products. This is principally due to the Company's involvement with Dr.
William Saye, a Company Director and the Advanced Laparoscopy Trauma Center
("ALTC") which he heads and which is currently training surgeons in advanced
laparoscopic surgery since it is felt that if the Company develops a suitable
product, it could be incorporated into this training program. Ethicon, through a
division known as Ethicon Endo-Surgery, markets a line of endoscopic instruments
directly competitive with the Company's contemplated products and this company
would be Surgical's principal competitor in minimally invasive surgery. Both
Ethicon Endo-Surgery and the Company have agreements with Dr. Saye. However, Dr.
Saye's agreement with the Company specifically provides that it will not compete
with the Ethicon agreement. Dr. Saye's agreement with Ethicon calls for him to
travel to various sites to conduct seminars and to provide teaching services for
physicians. His agreement with Surgical conveys to Surgical the right to market
his ALTC database. Therefore it is believed that the two arrangements do not
compete. The Company understands that Ethicon devotes considerable resources to
research and development and sales efforts in this field. Numerous other
companies manufacture and distribute single use endoscopic instruments.
Surgical faces competition in its data service line by a system developed
by the University of Virginia and promoted by the International Healthcare
Worker Safety Center. Designated EpiNet, this is a single system designed to
track and report bloodborne pathogen exposures in the healthcare setting. It is
installed in approximately seventy (70) healthcare facilities; however, Company
research indicates that EpiNet is actually used in only a fraction of those
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facilities. This research was assembled by interviewing healthcare workers who
were users of the system at the American College of Surgeons annual meeting and
by interviews with members of the Medical Advisory Panel who are familiar with
the system. This system has been analyzed by infection and systems control
experts and has been found to be "non-user friendly". That is because it is a
DOS based systems which requires a sophisticated user, it is limited to
bloodborne pathogen programs and content, it requires keyboard interface and is
research based rather than user information based. Although this system has been
available for several years, it has not achieved large market acceptance most
likely because of the characteristics which make it "non-user friendly". The
Company is encouraged by the fact that EpiNet has been installed in so many
facilities as evidence that computer aided reporting and services are desired by
the healthcare community and notwithstanding EpiNet's failure to gain large
market acceptance, believes that the Company's OASiS system could find greater
acceptance because of its ease of use due to the touch access concept and the
broader availability of information which OASiS can provide on site.
There are approximately two hundred (200) companies with at least some
products designed to facilitate healthcare training. With a technology shift
toward computer based training ("CBT"), this market is undergoing some
redefinition. Certain companies are shifting from a VCR/booklet format to
multimedia applications. Other companies are new and were formed specifically to
develop CBT programs for healthcare training. The Company believes that these
competitors are relying upon the healthcare facility to provide the delivery
system, a personal computer, for such training programs. The Company believes
that OASiS, which offers a complete system, software and hardware, in a touch
access format, will have greater market attraction.
The Company's principal methods of competing are the development of
innovative products, the performance and breadth of its products, its
technically trained sales force, and its educational services, including
sponsorship of training programs. Most of the Company's potential major
competitors have greater financial resources than the Company. Some of its
potential competitors, particularly Ethicon, have engaged in substantial price
discounting and other significant efforts to gain market share, including
bundled contracts for a wide variety of healthcare products with group
purchasing organizations. In the current healthcare environment, cost
containment has become a significant factor in purchasing decisions by
hospitals. Additional cost effectiveness was one of the principle factors in the
redesign of SutureMate(R) and a principle consideration in the lease pricing
structure for OASiS.
Surgical's sales force is being trained on an ongoing basis to focus on
healthcare worker safety issues. The Company believes that it has the management
expertise to have its sales force distinguish itself from the competition. More
specifically, the Company is developing a clear and concise understanding of the
inherent safety risks associated with the healthcare worker's everyday work
place. This understanding is accomplished through its personnel which has
extensive experience in the healthcare industry, medical expertise, engineering
capabilities, communications skills with customers, as well as an understanding
of the medical marketplace and a variety of manufacturing practices. The Company
believes that the end result is that it is able to provide the customer with a
unique product or service specifically developed with individualized safety and
utility in mind, while providing that product or service to the customer so that
its value exceeds its cost.
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One of the biggest attractions to the Company of a strategic alliance with
US Surgical is the fact that U S Surgical collaborates with some of the most
prestigious academic medical centers in the world to establish Centers of
Excellence for training in many diverse disciplines. These centers are devoted
to teaching residents and surgeons in the use of new instrumentation, developing
new technologies, conducting preclinical trials and other research projects.
Under the terms of the joint venture between the Company and U S Surgical, the
OASiS system was to be installed in a total of ten (10) of these Centers of
Excellence for an initial nine (9) month trial period. Although such trials have
not been completed, U S Surgical has entered into an additional agreement for
200 units and a potential of 200 more. In today's managed care environment,
these multi-center installations are expected to bring into sharper focus the
cost benefits of a wide range of the Company's products.
The Company also believes that its arrangement with IBM Global adds a level
of expertise that will facilitate the rapid deployment of the OASiS units under
the Long Term Agreement with US Surgical.
The Company believes that the advantages of its various products and its
customer assistance programs will continue to provide the best value to its
customers. However, there is considerable competition in the industry and no
assurance can be given as to the Company's competitive position. The impact of
competition will likely have an effect on sales volumes and on prices charged by
the Company. In addition, increased cost consciousness has revived competition
from reusable instruments to some extent. The Company believes that single use
instruments are safer and more cost efficient for hospitals and the healthcare
system than reusable instruments, but it cannot predict the extent to which
reusable instruments will competitively impact the Company. The Company also
offers semi-disposable instruments, components of which may be reused a certain
number of times, to respond to the preferences of its customers.
Current and future customers were interviewed at major medical organization
exhibits. Overall statistics indicate that 50% of vascular, thoracic and general
surgeons found the Compliance Plus products to be useful, safe and potentially
cost effective. OB/GYN's urologists and plastic surgeons gave a 90% favorable
evaluations, while over 90% of surgical technologists gave "high" to "very high"
ratings to SutureMate(R) and MediSpecs Rx(TM). The Company believes that it has
chosen a developing market with no well-established industry leaders at this
time. Further it believes that its products are unique and that by maintaining a
relatively narrow market focus, combined with technical expertise, that it can
achieve rapid growth.
Sources and Availability of Raw Materials
Raw materials necessary for the hardware requirements of the OASiS system
are available from numerous third-party OEM's; however, the Company believes
that its arrangement with IBM Global is competitively priced and that it can
rely upon the quality which for which IBM is known. The software integrated into
the assembled system is proprietary to the Company.
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Raw materials necessary for the manufacturer of parts, components and
packaging supplies for all of the Company's products manufactured by the Medical
Products Division are readily available from numerous third-party suppliers.
Except for its arrangement with IBM Global, the Company does not rely on
any other principal suppliers for any of its raw materials. However, with regard
to MediSpecs Rx(TM), the Company entered into a manufacturing agreement with
Morrison, the initial term of which expires in September 2000 and, with regard
to SutureMate(R), the Company has received a price quotation from Tuthill for
the manufacture of the redesigned SutureMate(R).
Dependence on Major Customers
At the current time, Surgical is reliant upon a few major customers for
several of its products. For fiscal year ending December 31, 1998, the Company
derived approximately 93% of its revenue from technical services it provided to
US Surgical during a medical products convention. For fiscal year ending
December 31, 1999, the Company derived approximately 96% of its revenue from
OASiS licensing fees and private partnership fees from US Surgical.
With regard to the OASiS system, the Company is reliant upon its agreements
with US Surgical for sales revenues and further exploitation of the system.
SutureMate(R)sales are currently principally reliant upon in-house
distribution and re-establishment of various distribution arrangements for
generating revenues for this product.
The Company is reliant on in-house sales efforts for it MediSpecs
Rx(TM)product line and is dropping the line due to poor sales.
Subject to the proper timing of instalments under the TK Loan Commitment or
the availability of additional funding, of which there can be no assurance, the
Company believes that it can increase its customer base so that the loss of any
one client will not adversely impact upon the financial condition of Surgical.
Research and Development
The Company believes that research and development is an important factor
in its future growth. In the past, the Company engaged in extensive product
research and development and it has at least four (4) additional products for
the medical and healthcare community, all of which are in various stages of
development, from prototype to patent. Subject to proper timing and sufficiency
of the instalments under the TK Loan Commitment or the availability of
additional funding again may devote a substantial amount of time to the research
and development of products within distinct product lines. Substantially all of
the products in research and development have been designed, drawn, had
preliminary market research conducted and have been submitted for review to the
Company's patent counsel.
23
As a natural by-product of an active research and development department,
some product concepts have been generated which do not fit the Company's chosen
focus. Several surgical and obstetrical devices have been designed and either
will be licensed or sold outright to appropriate corporate entities.
Patents, Copyrights and Trademarks
Patents are significant to the conduct of the Company's business. The
Company owns four (4) patents on two (2) products; U. S. Patent No. 4,969,893
issued on November 13, 1990, U. S. Patent No.'s Des. 353,672 issued on December
20, 1994 and U.S. Patent No. 5,385,569 issued on January 31, 1995, each for
SutureMate(R)and United States Patent No. 5,364,375, was issued on November 15,
1994 for Prostasert(TM). Dr. Swor was the inventor who originally secured the
patents which he later assigned to the Company in exchange for stock.
On June 1, 1998, the Company filed for two (2) patents on the OASiS system
which includes propriety aspects of the software, algorithms and reports, as
well as the inservice training modules which are owned by the Company. Neither
of these patents have been issued to date.
The Company has an extensive library of copyrighted educational and
training material related to occupational safety and surgical techniques. These
include the Surgical Safety Manual published in 1994, which was revised in 1996.
The Company filed on July 1, 1993 for trademark registration with the
United States Patent and Trademark Office for SutureMate(R). This trademark was
registered on April 5, 1994.
The Company applied for trademark registration for the OASiS Touch Access
Information on April 29, 1998 and the examination of this application is
pending.
The Company applied for trademark registration for TouchPort and
VirtualTouch Reality on November 16, 1998. Examination of these applications are
pending.
The Company is not a party to any actions claiming patent infringement of
any of its products.
Governmental Regulation
FDA Approval
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the development, manufacture and marketing
of the Company's proposed products and services and in its ongoing research and
product development activities. It is anticipated that virtually all of the
products developed by the Company's Medical Products Division will require
regulatory approval by governmental agencies prior to commercialization.
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It is expected that many of the Company's products, as presently
contemplated, will be regulated as medical devices. Prior to entering commercial
distribution, all medical devices must undergo FDA review under one or two basic
review procedures: a Section 510(K) premarket notification ("510(K)") or a
premarket approval application ("PMA"). In the past, the Company's products have
been cleared by the FDA under the 501(K) expedited form of pre-market review or
have not required FDA approval.
To the extent the Company develops products for use in more advanced
surgical procedures, the regulatory process may be more complex and time
consuming. Some of the Company's potential future products may require lengthy
human clinical trials and the PMA application relating to class III medical
devices. The Company has no reason to believe that it will not be able to obtain
regulatory approval for its products, to the extent efficacy, safety and other
standards can be demonstrated, but the lengthy approval process will require
additional capital (of which there is no assurance that the Company). During any
review period, there is the risk of entry by competitors and risk of changes in
the marketplace prior to market approvals being obtained.
Overseas, the degree of government regulation affecting the Company varies
considerably among countries, ranging from stringent testing and approval
procedures in certain locations to simple registration procedures in others,
while in some countries there is virtually no regulation of the sale of the
Company's products. In the past, when the Company had active foreign
distribution agreements, it had not encountered material delays or unusual
regulatory impediments in marketing its products internationally. Establishment
of uniform regulations for European Economic Area nations took place on January
1, 1995. These regulations subject the Company to a single regulatory scheme for
all of the participating countries. Once the Company's domestic channels are
satisfied, Surgical will commence its program for meeting regulatory
requirements internationally. The Company expects that it will be able to market
its products in Europe with a single registration applicable to all
participating countries. The Company also is establishing procedures to respond
to various local regulatory requirements existing in all other international
markets in which it intends to market its products should adequate financing be
available.
OSHA Mandatory Reporting of Illness and Injury
Federal rules administered by the OSHA require healthcare workers to report
if they have been accidentally stuck with a needle previously used by a patient,
or splashed by blood or bodily fluids.
On February 11, 1997, in the Federal Register, OSHA issued a final rule,
effective March 13, 1997, that amended the Occupational Injury and Illness
Reporting Regulation (29 CFR Part 1904) established in 1971. Under the 1971
regulation, employers were required to collect and maintain injury and illness
data and have it available for OSHA to examine when they came on site for an
inspection. It was determined that OSHA needed a separate provision for
collection of data by mail.
The final rule requires, employers, upon request, to report to OSHA their
illness and injury data, in addition to the number of workers and the number of
hours worked in a designated
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period. It establishes a mechanism for OSHA to conduct an annual survey of ten
(10) or more employers by mail or other remote transmittal. The specific request
may come directly from OSHA or its designee, e.g., the National Institute of
Occupational Safety and Health ("NIOSH").
OSHA also initiated a number of partnerships with other federal and
national organizations in an effort to reduce the increasing number of
occupational illnesses and injuries among workers. This effort was prompted, in
part, by OSHA's inability to inspect and enforce worker safety in the
approximately five million (5,000,000) work sites in the United States and to
collect accurate worker injury and illness data to assist in targeting the
approximately 8,000 annual inspections in the face of continuing shrinking
budgets.
In August 1996, OSHA also announced a seven-state initiative to protect
workers in nursing homes and personal care facilities, one of the nation's
largest growing industries. The seven states include Florida, Illinois,
Massachusetts, Missouri, New York, Ohio and Pennsylvania. Nationwide there are
1.6 million nursing home workers in more than 21,000 facilities. It is
anticipated that by the year 2005, the nursing home and personal care facilities
will be one of the largest industries in the United States. Potential nursing
home hazards include back injuries from incorrect and/or strenuous lifting of
residents, slips and falls, workplace violence and risks from bloodborne
pathogens, tuberculosis and other infectious diseases.
State and Local Licensing Requirements
Other than the governmental regulatory schemes listed above, the Company is
not subject to any other state or local regulations which apply to the operation
and business of the Company.
Effect of Probable Governmental Regulation on the Business
The Company does not believe that there are any effects from probable
government regulation, including state or local laws, on the business.
Cost of Research and Development
For fiscal years 1998 and 1999, the Company expended $34,536 and $51,281 of
its revenues, respectively, on research and development. These expenditures
represented 81.5% and 29.3%, respectively, of the total revenues of the Company
for such fiscal years. The principal decrease in the cost of research and
development for fiscal 1999 from 1998 was based upon the fact that the
foundational structure of the OASiS network during 1998 was completed, less
emphasis was placed on medical devices and the 1999 OASiS developments were a
continuation of 1998 foundational base.
At the current time, none of the costs associates with research and
development are bourne directly by the customer; however there is no guarantee
that such costs will not be bourne by customers in the future and, at the
current time, the Company does not know the extent to which such costs will be
bourne by the customer, if at all.
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Cost and Effects of Compliance with Environmental Laws
The Company's business also could be subject to regulation under the state
and Federal laws regarding environmental protection and hazardous substances
control, including the Occupational Safety and Health Act, the Environmental
Protection Act, and Toxic Substance Control Act. In 1992, the United States
Congress expressed increasing interest in the issues of sharp injuries. The
House Subcommittee on Regulation held hearings regarding needlestick injuries
and the implementation of mandated guidelines on safer medical devices. However,
the Company is unaware of any bills currently pending in Congress on this issue.
The Company believes that it is in material compliance with the current and
other applicable laws and that its continual compliance therewith will not have
a material adverse effect on its business.
Employees and Consultants
As of December 31, 1999, the Company employed seven (7) persons, under its
arrangement with Staff Leasing, a Florida licensed Employee Leasing company, on
a full time basis. None of these employees are represented by a labor union for
purposes of collective bargaining. The Company considers its relations with its
employees to be excellent.
In October 1996, the Company entered into a staff/client leasing agreement
whereby Staff Leasing leases all existing and new employees to the Company. The
initial term of the agreement was for one (1) year. The agreement is
automatically renewable on a monthly basis until renewed for a fixed term or
terminated. The agreement remains open on a monthly basis. All of the persons
described herein to be employees of the Company are covered by this agreement,
since Staff Leasing and the Company treat these employees as co-employees.
In April, 1999, the Company executed a Consulting and Assistance Agreement
with Koritz Group LLC, a Connecticut limited liability company ("Koritz"). The
company exercised its right to cancel the agreement on July 30, 1999. Under the
terms of this agreement, Koritz was engaged to identify sources of capital or
potential business relationships and to assist the Company in (i) raising equity
or debt financing in the amount of $15,000,000 (ii) arranging for trade
financing for production, sale, lease, rental or other disposal of the Company's
products; and (iii) arranging for the sale, merger, or consolidation of the
Company or for joint ventures or strategic alliances with other appropriate
business. This agreement was non-exclusive. In the event Koritz was successful,
the Company was to pay compensation to Koritz equal to 2.5% for any trade
financing and 10% of the value of each business arrangement. In the event
Investment Financing was secured, the Company was to pay compensation equal to
10% for any investment financing to the person or entity placing such
investment; provided such person or entity was qualified to receive such
compensation in the state of residence of the investor. The Company was free to
reject any offered financing or arrangements; however, in the event that the
Company entered any arrangement within 180 days of its written rejection, on
terms less favorable to the Company, Koritz was to receive a flat fee of
$100,000. In addition to the cash compensation, in the event the Company secured
investment
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financing, then the qualified, placing person or entity was to receive warrants
to purchase the Company's Common Stock exercisable for 36 months after the
closing at the same price as the investment financing source received, the
number of which warrants would be equal to the amount of the financing divided
by the exercise price. Such warrants were to have anti-dilution and piggy- back
registration rights. In the event the Company "shopped" any offer of financing
presented to it to other potential sources and accepted such other financing,
the Koritz was entitled to a success fee. Koritz was to be reimbursed
pre-approved disbursements and expenses. The agreement provided for
confidentiality and cross-indemnification . The agreement was subject to
cancellation by either party with five (5) days written notice. It was under
this provision that the Company terminated this agreement on July 30,1999. Any
disputes under the agreement were required to be submitted to arbitration, with
costs payable by the losing party.
In April 1999, the Company entered into an agreement with KJS to provide
consulting services. The agreement is on a non-exclusive basis and has no
defined term. The agreement provides for such services to be performed in two
phases. Under phase one, KJS is to assist in the development of a comprehensive
business plan and assist the Company in positioning such plan with the capital
markets with a view towards finding potential business combinations, mergers and
compressed time tables for the Company's business strategy. The estimated cost
of this phase is $5,000. Under phase two, KJS is to identify appropriate
financial institutions and distribute the plan, analyze the initial feedback,
arrange meetings, evaluate all proposals, provide management with each proposal
and assist in the negotiations. Upon execution, the Company was required to
commit to pay a $5,000 retainer to cover the estimated phase one costs. KJS
agreed to accept 7,000 shares of the Company's common stock valued at the
current bid price of $.50 as part of such retainer and with the balance of
$1,500 to be paid in cash at such time as KJS introduces the Company to five
institutional funding sources. Phase two compensation will be paid in the form
of common stock equal to 1.5% of the funds raised from the capital markets in
the form of a spin-off of the OASiS division and 10% of any mezzanine financing
from any source introduced by KJS.
In April 1999, the Company issued 2,000 shares each to David Utz and Robert
Wingate, two consultants of the Company, in lieu of cash, for services relating
to their production of a CD-Rom disc to be used promote OASiS in lieu of cash.
Such 4000 shares were valued at $2,250 which was based upon the closing price
for the shares on the dates the services were dut to be paid. Such offering was
made in reliance to Section 4(2) of the Act and Rule 506.
In May 1999, the Company entered into an agreement with Ten Peaks to pay a
finder's fee for successfully securing specifically defined financing for the
Company. Such financing included finding a strategic partner and/or financial
partner who secures equity in the Company or a stake in future revenues. Ten
Peaks was to provide advice on long-term business, financial and strategic
decisions. The term of the agreement was for three (3) months from the execution
date and it expired on August 13, 1999. Upon execution of the agreement, the
Company was required to commit to pay a retainer of $4,000 to cover all
anticipated out of pocket expenses during the term. Ten Peaks agreed to accept
6,000 shares of the Company's common stock in lieu of such retainer provided
such stock had a fair market value as reported on Bloomberg, LLP on the date of
execution of not less than $.66. In the event the Company's shares were trading
for less, the
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difference between $4,000 and the value of the shares was to be paid in cash. In
the event the Company receives gross proceeds of up to $2,000,000, Although
obligated to issue such shares, the Company does not intend to deliver them to
Ten Peaks since the Company believes that Ten Peaks failed to perform as agreed.
Ten Peaks was to receive an amount equal to 5% of such proceeds in the form of
cash, equity or some combination thereof. Thereafter, Ten Peaks was to receive a
sliding scale equal to 4% of the next million, 3% of the fourth million, 2% of
the fifth million and 1% for each additional million. In the event the Company
entered into a transaction as a result of this agreement, it was to enter into a
consulting agreement with Ten Peaks for a term of six months under which Ten
Peaks was receive $5,000 in cash or equity.
Other than the commitments relative to the initial retainers, no other
payments have been made to either KJS or Ten Peaks. Since execution of the KJS
agreement the Company has been advised that fees and commissions related to
transactions in securities may only be paid to those legally qualified to
receive such payments in accordance with regulations under Federal and state
securities laws. Neither KJS nor Ten Peaks were licensed in any state to receive
commissions or other remuneration for the sale of securities. The Company is in
the process of modifying this agreement such that only appropriate payments will
be made in the event of placement of any equity in the Company from sources
identified by KJS. The Ten Peaks agreement expired without any additional
payments. In the event that the Company had made inappropriate payments to KJS
or Ten Peaks related to the sale of securities, the Company could have lost any
applicable state exemption under which the sale was made and could have been
subject faced material adverse consequences as a result of actions by the states
in which sales were made, including sanctions, penalties and the requirement to
offer a rescission.
In July 1999, the Company executed a Consulting and Assistance Agreement
with Triton. Under the terms of this agreement, Triton has been engaged to
identify sources of capital or potential business relationships and to assist
the Company in (i) raising equity or debt financing in the amount of $6,000,000
(ii) arranging for trade financing for production, sale, lease, rental or other
disposal of the Company's products; and (iii) arranging for the sale, merger, or
consolidation of the Company or for joint ventures or strategic alliances with
other appropriate business. This agreement is non-exclusive. In the event
Investment Financing is secured, the Company was to pay compensation equal to 8%
for any investment financing to the person or entity placing such investment;
provided such person or entity is qualified to receive such compensation in the
state of residence of the investor and will issue warrants to purchase
restricted Common Stock in the Company in an amount equal to 100,000 for every
$1 million funded, exercisable for a period of five (5) years at a price equal
to the closing bid price of the Company's shares on the date of such funding and
which warrants are to have piggy-back registration rights and cashless exercise
provisions. The Company is free to reject any offered financing or arrangements;
however, in the event that the Company enters any arrangement within 180 days of
its written rejection, on terms less favorable to the Company, Triton is to
receive a flat fee. In the event the Company "shops" any offer of financing
presented to it to other potential sources and accepts such other financing,
Triton is entitled to a success fee. Triton is to be reimbursed pre-approved
disbursements and expenses. The agreement provides for confidentiality and
cross-indemnification . The agreement is subject to cancellation by either party
with five (5) days written notice. Any disputes under the agreement are
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required to be submitted to arbitration, with costs payable by the losing party.
No funding under this agreement has been received as of the date hereof.
In December 1999 the Company issued 10,000 shares of its restricted Common
Stock. Originally, the Company granted three (3) consultants a total of 12,500
shares, one person was granted 7,500 shares the Company's restricted Common
Stock for his work with the Company's patents, one person was granted 2,500
shares of restricted Common Stock for his work on OASiS, and the third, a nurse
at SMH, was granted 2,500 shares of restricted Common Stock for her work on
OASiS. However, the nurse at SMH declined, stating that such grant would not be
appropriate under SMH policy and such issuance was not made. The issuance was
made pursuant to Section 4(2) of the Act and Rule 506.
In December 1999, the Company granted options to purchase a total of 5,000
shares of its Common Stock at an exercise price of $1.00 to two outside
consultants. The Company granted such options pursuant to Section 4(2) of the
Act and Rule 506.
In February 2000, the Company executed an Investment Banking Services
Agreement with Dunwoody Brokerage Services Inc. d/b/a Swartz Institutional
Finance ("Swartz"). Under the agreement, Swartz has agreed to introduce entities
to the Company for potential strategic partnerships, licensing arrangements,
mergers, acquisitions, investments or funding. For such services, Swartz will
receive a scaled fee based upon the value of any completed transaction. Said fee
is payable in cash or stock at Swartz's option and by the issuance of warrants,
the number of which is based upon the fee divided by the market price of the
Company's Common Stock. There is no obligation on the part of the Company to
accept any transaction offered by the Swartz to the Company.
In February 2000, the Company executed a Consulting Agreement with Global
Development Advisors, Inc. ("GDA")). Under the agreement, GDA will provide
business and marketing consulting services, assist in the implementation of a
strategic plan and assist, coordinate and monitor the Company's investor
relations program. The agreement is for a term of six (6) months and may be
extended by the Company. In lieu of cash payments for services, GDA has agreed
to accept 50,000 shares of the Company's Common Stock under the Company's 2000
Stock Plan approved by its shareholders on February 28, 2000 and options to
purchase an additional 50,000 shares at an exercise price of $1.09. The issuance
was made pursuant to Section 4(2) of the Act and Rule 506.
Item 2. Description of Property
The Company's executive offices are located at 2018 Oak Terrace, Sarasota,
Florida 34231. Its telephone number is (941) 927-7874 and its facsimile number
is (941) 925-0515.
The Company pays rent in the amount of $3500 per month which consists of
3,500 square feet of office space. The lease is for a term of two (2) years and
is automatically renewable
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for an additional year. The initial term of the lease expires in May 2000. The
property is owned by Savannah Leasing which is owned by Dr. and Mrs. Swor. The
Company first rights of refusal on surrounding properties owned by Savannah
Leasing and therefore believes that the leased space and the property under the
first rights of refusal will be sufficient for its corporate offices for the
next ten (10) years.
The Company owns no real property and its personal property consists of
furniture, fixtures and equipment, prototype molds and leasehold improvements
with an original cost of $336,392 on December 31, 1999.
The Company currently employs its capital reserves in a money market sweep
account. Activity is monitored on a daily basis and for a month commencing on
February 1, 2000, had returned on average 5.20% on assets employed.
Additionally, Surgical acquired stock in two (2) privately owned companies,
25,000 shares in ParView Inc. as part of its acquisition of Endex Systems Inc.
and 3,750 shares in Linters Inc. which was received as partial compensation for
clinical products research completed by the Medical Consultants Division. It is
the Company's strategy to engage in transactions which minimize dilution of the
Company's equity.
Item 3. Legal Proceedings
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the vote of the security holders during
the fourth quarter 1999.
On February 28, 2000, the Company held its annual shareholder meeting. Of
the 11,815373 shares outstanding which were qualified to vote (of the 14,515,373
outstanding, 2,700,000 are held in escrow under the TK arrangement and were not
qualified to vote at the meeting), in attendance, either individually or by
proxy were holders representing 5,960,113 shares, which number was sufficient to
form a quorum.
At such meeting the shareholders
(1) approved an amendment to the Articles of Incorporation increasing
the number of authorized shares of Common Stock from 20,000,000 shares to
100,000,000 by a vote of 5,960,113 to -0-;
(2) re-elected the Board of Directors as follows:
Dr. Swor by a vote of 5,960,013 to 100
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Mr. Clark by a vote of 5,960,013 to 100
Mr. Lawrence by a vote of 5,960,013 to 100
Mr. Collins by a vote of 5,960,013 to 100
Mr. Stuart by a vote of 5,960,013 to 100
Mr. Norton by a vote of 5,960,013 to 100
Mr. Swor by a vote of 5,959,253 to760, with 100 abstaining
Dr. Saye by a vote of 5,960,013 to 100
Mr. Newman, who previously was listed on the ballot, tendered his
resignation prior to the shareholder meeting and his name was withdrawn
from the ballot at the meeting;
(3) ratified Kerkering, Barbario & Co., P.A. as the Company's auditors
by a vote of 5,959,253 to 100 with 760 abstaining; and
(4) approved the Company's 2000 Stock Plan by a vote of 5,960,013 to
100.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information.
The Common Stock of the Company is quoted on the OTC Bulletin Board
under the symbol "SURG". The high and low bid information for each quarter for
the years ending December 31, 1996, December 31, 1997, December 31, 1998 and
December 31, 1999 are as follows:
Quarter High Bid Low Bid Average Bid
----------------------------------------------------------------------
First Quarter 1996 1/4 3/16 .218
Second Quarter 1996 3/4 1/8 .445
Third Quarter 1996 1/4 1/8 .177
Fourth Quarter 1996 1/4 1/8 .176
First Quarter 1997 1/4 3/32 .135
Second Quarter 1997 1/4 3/32 .106
Third Quarter 1997 3/8 1/8 .183
Fourth Quarter 1997 9/64 1/8 .132
First Quarter 1998 29/32 9/64 .215
Second Quarter 1998 3-1/8 11/16 2.299
Third Quarter 1998 2-9/64 1-9/64 1.646
Fourth Quarter 1998 31/32 17/32 .750
First Quarter 1999 13/16 1/3 .57
Second Quarter 1999 1-7/8 7/16 1.156
Third Quarter 1999 2-7/8 1-1/4 2.0625
Fourth Quarter 1999 1-11/16 13/16 1.196
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The quotations may reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not reflect actual transactions.
(b) Holders.
As of December 31, 1999, the Company has 1,096 shareholders of record of
its 14,515,373 outstanding shares of Common Stock, 9,780,913 of which are
restricted Rule 144 shares and 4,734,460 of which are free-trading. As of the
date hereof, the Company has outstanding options to purchase 10,653,688 shares
of Common Stock (without regard to the additional options to Dr. Saye which
accrue at the rate of 8,333 per month during the term of the agreement
subsequent to December 31, 1999). Of the Rule 144 shares, 5,270,933 shares have
been held by affiliates of the Company for more than one (1) year. The Company
is obligated to issue 6,000 shares of its Common Stock to Ten peaks under the
terms of an agreement with that company; however, the Company does not intend to
deliver such shares since it believes that Ten Peaks failed to perform as
agreed.
(c) Dividends.
The Company has never paid or declared any dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
There are no limitations on the ability of the Company to declare
dividends; except those set forth in New York Statute ss.510 which prohibits
dividends if the Company is insolvent or would be made insolvent by the
declaration of a dividend and all dividends must be made out of surplus only.
Item 6. Management's Discussion and Analysis or Plan of Operation
Discussion and Analysis
The Company was founded in 1992 to combat the potential spread of
bloodborne pathogenic infections such as HIV and hepatitis. It has broadened its
mission to research, develop, manufacturing, marketing and selling medical
products and services to the healthcare community.
The Company was in the development stage until 1993 when it began
commercial shipments of SutureMate(R) its first product. From inception in June,
1992 through December 31, 1999, the Company generated revenues of approximately
$1,275,000 from a limited number of customers. Since inception through December
31, 1999, the Company has generated cumulative losses of approximately
$2,780,000. Although the Company has experienced a significant percentage growth
in revenues from fiscal 1992 to fiscal 1999, the Company does not believe prior
growth rates are indicative of future operating results, especially in light of
the contract with US Surgical to assist in the introduction of OASiS. Due to the
Company's operating history and limited resources, among other factors, there
can be no assurance that profitability or significant revenues
33
<PAGE>
on a quarterly or annual basis will occur in the future. Moreover, the Company
expects to continue to incur operating losses through at least the first half of
2000, and there can be no assurance that losses will not continue after such
date. The Company had commitments for installations in a total of 12 hospitals
on or before June 30, 1999, ten of which related to the agreement with US
Surgical and two are a result of the Company's sales department. As of the date
hereof the Company has completed installations of fifteen (15) units in seven
(7) hospitals, six (6) of which are under the Short Term Agreement. Installation
of the remaining units under the US Surgical Short Term Agreement have been
merged into the Long Term Agreement.
As discussed in the independent auditors' report, the operating losses
incurred by the Company raise doubt about its ability to continue as a going
concern. In addition, with the implementation of its agreement with US Surgical
and in the event of the reactivation of its various distribution agreements
and/or with the establishment of one or more strategic alliances in addition to
US Surgical, the Company expects to experience a period of growth, which
requires it to significantly increase the scale of its operations. This increase
will include the hiring of additional personnel in the areas of (i) customer
service to provide technical support for the hospitals where installations are
located and (ii) technical staff to make changes requested by those hospitals.
This will result in significantly higher operating expenses. The increase in
operating expenses is expected to be partially funded by an increase in
revenues. However, the Company's net loss may continue to increase. Expansion of
the Company's operations may cause a significant strain on the Company's
management, financial and other resources. The Company's ability to manage
recent and any possible future growth, should it occur, will depend upon a
significant expansion of its sales and marketing, research and development,
accounting and other internal management systems and the implementation and
subsequent improvement of a variety of systems, procedures and controls. There
can be no assurance that significant problems in these areas will not occur. Any
failure to expand these areas and implement and improve such systems, procedures
and controls in an efficient manner at a pace consistent with the Company's
business could have a material adverse effect on the Company's business,
financial condition and results of operations. As a result of such expected
expansion and the anticipated increase in its operating expenses, as well as the
difficulty in forecasting revenue levels, the Company expects to continue to
experience significant fluctuations in its revenues, costs and gross margins,
and therefore its results of operations.
The Company's plan of operations for the next twelve months is to focus on
building revenue from the installation of the OASiS system in the hospitals
designated by US Surgical under the Long Term Agreement utilizing the IBM Global
arrangement to expedite installations and to install additional OASiS systems in
hospitals not under the US Surgical agreement but with whom the Company has
begun negotiations and in some cases reached a commitment. Additionally, the
Company intends to install the inservice modules from US Surgical and other
medical product manufacturers at both the US Surgical and the other hospitals.
The Company also is aggressively seeking strategic alliances with targeted
industry partners such as manufacturers of devices, manufacturers of
pharmaceuticals, professional organizations such as nursing associations and
hospital group purchasing organizations and integrated health networks.
34
<PAGE>
The Company estimates that if it is successful in consummating new
strategic alliances, the agreements will provide for infusion of sufficient
capital to fund ongoing operations for the balance of the year. The Company
estimates revenues from an expanded base of content providers and individual
installations may grow to the level where they can support ongoing operations.
The Company estimates that revenues will be sufficient to fund ongoing
operations at the current level when the number of OASiS installations reaches
approximately 100 to 125 and the total number of inservice modules reaches
approximately 150. The Company purchased 20 OASiS units from Kiosk Information
Systems, Inc., which were installed under the US Surgical agreements and at St.
Francis Hospital. Based upon potential additional commitments, the Company
believes that if it were to order 20 more units, that all such units would be
placed by the end of 1999. The Company already has 32 inservice modules under
the US Surgical agreement and is in discussion with various manufacturers
interested in using OASiS to inservice more than 50 of their products. The
Company believes that each of the initial installations should have a position
as to long term acceptance within three (3) to six (6) months and that this
initial time is the test period to determine the potential for market acceptance
at that hospital. In the case of US Surgical hospitals under the Short Term
Agreement, this period will be for nine (9) months by contract. At the end of
such test period, the Company believes it will be in a position to execute three
(3) year leases and finance such leases through a leveraged leasing arrangement
with Rockford or a similar funding source.
In the short term, to fund operations through the fourth quarter, 1999, the
Company was required to seek additional funds from strategic alliances with
potential clients, from its shareholders, from a limited number of accredited
investors in a private placement of its restricted securities, and from
additional third party financing through TK. For fiscal 2000, the Company
intends to use the TK loan arrangement to fund operations and its obligations
under the IBM Global Agreement which will result from increased cash flows from
lease payments for installed OASiS units. It is anticipated that these cash
flows will satisfy the balance required under the IBM Global Agreement and lead
to further revenues. There can be no assurance that the Company will be
successful in these efforts.
As discussed in Note 13 to the Financial Statements, if the financing
referred to above is not secured, the recoverability of the recorded asset
amounts may be impaired.
Once the testing period is over, the Company projected that it would
require between $2 and $5 million in additional capital in the form of debt or
equity to fund the continued expansion of the OASiS system and its development
to meet increased demand and to implement its plans for increased marketing of
its medical device products. The Company's purpose for executing the agreement
for the TK Loan Commitment was because such commitment affords it the
opportunity to fund such expansion and meet its obligations under the Long Term
Agreement with US Surgical, which it believes will increase demand for this
product substantially and increase market acceptance rapidly. Other than the TK
arrangement, the Company has met with several venture capital firms, investment
bankers, factoring companies and traditional lending sources, each of whom have
expressed early interest and many of whom are awaiting the conclusion of the
testing period. The Company has executed an investment banking agreement with
Swartz; however, other than the TK arrangement, the Company has accepted no
definite offer and, if the instalments under the TK Loan Commitment are timed
correctly, it may not require additional financing to achieve its goals. Should
35
<PAGE>
it need an additional source of capital, there can be no assurance that such
long-term financing will be available to the Company or that it will be on terms
that the Company may seek.
Results of Operations - Full Fiscal Years
Revenues
To date, a limited number of customers and distributors have accounted for
substantially all of the Company's revenues with respect to product sales. For
the fiscal year ending December 31, 1998, the Company derived approximately 93%
of its revenue for product sales from technical services it provided to US
Surgical during a medical products convention. For fiscal year ending December
31, 1999, the Company derived approximately 96% of its revenue from OASiS
licensing fees and private partner fees related to the agreement with US
Surgical .
The Company anticipates that the main focus of its selling efforts will be
to focus on the US Surgical arrangement and to continue to sell its products to
a relatively small group of medical products distributors with the objective of
having its products distributed on a large national and international scale.
Although the Company had entered into exclusive distributorship agreements, none
of these arrangements are currently active. And, although the Company is
currently engaged in a joint marketing agreement with US Surgical, there is no
assurance that the Company will be able to obtain adequate distribution of its
products to the intended end user. Most medical product distributors carry an
extensive line of products (some of which they manufacture themselves) which
they make available to end users (hospitals, surgeons, healthcare workers) and
various of these products may compete with each other as to function, price or
other factors. In addition, numerous medical product distributors are not
themselves well capitalized and their financial condition may impact their
ability to properly distribute the Company's products.
The Company's ability to achieve revenues in the future will depend in
significant part upon its ability to obtain orders from, maintain relationships
with and provide support to, existing and new customers, as well as the
condition of its customers. As a result, any cancellation, reduction or delay in
orders by or shipments to any customer or the inability of any customer to
finance its purchases of the Company's products may materially adversely affect
the Company's business, financial condition and results of operations. There can
be no assurance that the Company's revenues will increase in the future. In
addition, the Company expects that the average selling price of a particular
product line will also decline as such products mature, and as competition
increases in the future. Accordingly, the Company's ability to maintain or
increase revenues will depend in part upon its ability to increase unit sales
volumes of its products and to introduce and sell products at prices sufficient
to compensate for reduced revenues resulting from declines in the average
selling price of the Company's more mature products.
Net Sales
Net sales for the year ended December 31, 1998 of $16,545 were comprised of
sales of the Company's proprietary SutureMate(R)products, MediSpecs
Rx(TM)eyewear and technical services
36
<PAGE>
provided to US Surgical. Net sales for the year ended December 31, 1999 are
comprised of sales of SutureMate(R) products, partnership fees and OASiS
licensing fees. Product sales and related cost of sales amounted to $720 and
$6,610, respectively for the year ended December 31, 1999. Cost of sales
includes a write-down of approximately $5,900 for defective units of
SutureMate(R).
The Company has an ongoing program to reduce the costs of manufacturing its
products. As part of this program, the Company has been attempting to achieve
cost reductions principally through engineering and manufacturing improvements,
product economies and utilization of third party subcontractors for the
manufacture of the Company's products. Notwithstanding a delivery of defective
units, to date, it has been successful in substantially reducing such costs by
re- designing SutureMate(R). The success of these cost reduction programs will
not be known until production volumes are scaled up. There can be no assurance
that the Company's ongoing or future programs can be accomplished or that they
will increase gross profits.
To the extent the Company is unable to reduce its production costs or
introduce new products with higher margins, the Company's results of operations
could be materially adversely affected. The Company's results may also be
affected by a variety of other factors, including mix of products and services
sold; production, reliability or quality problems; price competition; and
warranty expenses and discounts.
Operating Expenses
Sales and Marketing: These expenses consist of advertising, meetings and
conventions and entertainment related to product exhibitions and the related
travel expenses. Since inception, the Company has spent approximately $536,000
on sales and marketing expenses. For the years ended December 31, 1998 and
December 31, 1999, sales and marketing expenses were $265,261 and $171,102,
respectively. In 1998, the Company began increasing its advertising particularly
with reference to OASiS. The Company has invested significant resources to
expand its sales and marketing effort, including the hiring of additional
personnel and establishing the infrastructure necessary to support future
operations. The Company expects that such expenses in 2000 will increase in
absolute dollars as compared to 1999.
General and Administrative. These expenses consist primarily of the general
and administrative expenses for salaries, contract labor and other expenses for
management and finance and accounting, legal and other professional services
including ongoing expenses as a publicly owned Company related to legal,
accounting and other administrative services and expenses. Since inception, the
Company has spent approximately $2,260,000 on general and administrative
expenses. For the years ended December 31, 1998 and December 31, 1999, general
and administrative expenses were $517,189 and $696,131, respectively. The
increase of $178,942 is due primarily to legal and accounting fees associated
with the Company's SEC filings, higher depreciation and amortization and
additional rent for the Company's headquarters. The Company expects general and
administrative expenses to increase in absolute dollars in 2000 as compared to
1999, as the Company continues to expand its operations.
37
<PAGE>
Research and Development
These expenses consist primarily of costs associated with personnel and
equipment costs and field/clinical trials. The Company's research and
development activities include the development of the OASiS system and more than
six (6) operating room, OB/GYN, advanced surgical and protective related
products including SutureMate(R) and MediSpecs Rx(TM).
Since inception, the Company has spent approximately $208,000 on research
and development. For the years ended December 31, 1998 and December 31, 1999,
research and development expenses were $34,536 and $51,281, respectively. The
Company made enhancements to the software for the OASiS system in both 1998 and
1999, and the majority of these related costs were capitalized and will be
amortized over a period not to exceed five (5) years. During 1999, the Company
capitalized $77,900 of costs related to the enhancement of OASiS. The Company
intends to continue to invest significant resources to continue the development
of new products and expects that research and development expenses in 2000 will
increase in absolute dollars as compared to 1999.
Interest and Other Income (Expense), Net
Interest and other income (expense), net consists primarily of interest
expenses accrued on the direct loan to the Company under a line of credit
agreement for $100,000, interest related to loans from the majority stockholder,
miscellaneous income and underwriting costs. In May 1997, the Company
established a line of credit in the amount of $100,000 with a financial
institution at 1.5% above the prime rate, interest only payments are due monthly
with an expiration date of May 2, 2017. The line is due on demand and is secured
by inventory, accounts receivable and equipment. There was no outstanding
balance as of December 31, 1999 and 1998. The line of credit is personally
guaranteed by Dr. Swor.
The Company did not report any foreign currency gains or losses for the
years ended December 31, 1998 and 1999 since there were no contracts negotiated
in foreign currencies for those periods. In the event of contracts for foreign
distribution, the Company may in the future be exposed to the risk of foreign
currency gains or losses depending upon the magnitude of a change in the value
of a local currency in an international market. The Company does not currently
engage in foreign currency hedging transactions, although it may implement such
transactions in the future.
Financial Condition, Liquidity and Capital Resources
The financial condition, liquidity and capital resources of the Company
should be assessed in context with the ability of the Company to continue as a
going concern as discussed in the independent auditors' report.
At December 31, 1999, the Company had assets totaling $1,276,106 and
liabilities totaling $1,240,557. Since its inception in June of 1992, the
Company has financed its operations and met its capital requirements through
sales of its products, fees from OASiS, proceeds from the sale of or exchange
for common stock aggregating approximately $2,302,000, through borrowing from
38
<PAGE>
current shareholders, through its arrangement with Thomson Kernaghan & Co., Ltd.
and through the $100,000 line of credit with the financial institution which is
guaranteed by Dr. Swor.
Operating activities used net cash of $441,458 and $408,638 in1998 and
1999, respectively.
At December 31, 1999, the Company had working capital of approximately
$62,000, made up of assets including $517,000 of cash, $104,000 of deposits and
$17,000 of receivables. This represents an increase of approximately $59,000
over working capital of $3,000 at December 31, 1998.
At December 31, 1999, the Company's outstanding indebtedness consisted of
accounts payable in the amount of $395,878, accrued expenses of $142,179, a loan
payable to Dr. Swor of $52,500 and a loan payable to Thomson Kernaghan & co.
Ltd. Of $650,000.
The Company's principal commitments for capital expenditures are (1) those
associated with the arrangements with US Surgical and IBM Global under which the
Company will provide an additional number of units; (2) the Company's obligation
to pay SMH $25,000 for each ten (10) studies or $250,000 over the term of the
clinical testing agreement with them if the Company determines not to have SMH
perform clinical testing; and (3) its obligations under the TK Loan Commitment
in the event they do not elect to convert their debt into equity. The sources of
funds to meet these commitments has been partially made through cash on hand
from the prior year, use of the line of credit, a loan from Dr. Swor, revenues
generated by the Long Term Agreement with US Surgical, private placement funds
and other revenues which the Company believes it will generate over the five (5)
year term.
The Company's future capital requirements will depend upon many factors,
including the continued development of OASiS, its current products and new
products and services, the extent and timing of acceptance of the Company's
products and services in the market, requirements to maintain adequate
manufacturing arrangements, the progress of the Company's research and
development efforts, expansion of the Company's marketing and sales efforts, the
Company's results of operations and the status of competitive products and
services. In the short term, it is likely that the Company will be required to
take down instalments under the TK Loan Commitment in addition to the initial
closing in December 1999. In addition, the Company will require additional loan
instalments and may require additional financing after such date to fund its
operations. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all, when required by the
Company. The TK Loan Commitment, once interest payments begin to accrue, will
increase both the short or long term debt of the Company. The Company has
entered into consulting agreements with several other potential funding sources;
however, to date, has not concluded terms for any financing which it feels
appropriately meets the requirements of the Company under such agreements. With
the TK Loan Commitment and in the event additional debt is raised, it will incur
future interest expense. The TK Loan Commitment, if fully converted and all
warrants are exercised will dilute the interest of existing shareholders and in
the event additional equity is raised, management may be required to dilute the
interest of existing shareholders further or forgo a
39
<PAGE>
substantial interest in revenues, if any. In the event that the Company is
successful in securing additional debt financing, the amount of such financing,
depending upon its terms, would increase either the short or long term debt of
the Company or both. If adequate funds are not available as and when needed, the
Company may be required to delay, scale back the development of OASiS or scale
back or eliminate one or more of its research and development or manufacturing
programs or obtain funds through arrangements with partners or others that may
require the Company to relinquish rights to certain of its products or potential
products or other assets that the Company would not otherwise relinquish.
Accordingly, the inability to obtain such financing could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which used only
two digits to represent the year, could have recognized the date using 00 as the
year 1900 rather than the year 2000. This could have resulted in a system
failure or miscalculations causing disruption of operations, including among
other things, a temporary inability to process transactions, send invoices, or
engage in similar activities.
Management reviewed its current internal systems and upgraded its
accounting system to be Year 2000 compliant. The Company purchased new hardware
in 1998 that is Year 2000 compliant. Its internal systems are Year 200 compliant
and the Company completed testing of such systems in the fourth quarter of 1999.
Management did not incur any significant additional costs that would relate to
upgrading its systems to support the Year 2000 and in fact, none occurred.
Further, management did not believe the Year 2000 would have an impact on
the operation of the OASiS system since the software for this system does not
rely on legacy applications or subsystems, and in fact, no impact has been
experienced to date. OASiS is designed to handle dates in the form of a two
digit month and day and a four digit year, thus avoiding the Year 2000 problem.
The Company believes that it has disclosed all required information
relative to Year 2000 issues relating to its business and operations. While
there was no assurance that the systems of other companies on which the
Company's systems rely also would be converted in a timely manner or that any
such failure to convert by another company would not have an adverse affect on
the Company's business, operations or financial condition, in fact, the Company,
to date, has experienced no difficulties with such companies.
Item 7. Financial Statements
[Financial Statements appear on following pages]
41
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
INDEPENDENT AUDITORS' REPORT,
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
DECEMBER 31, 1999 AND 1998
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
SUPPLEMENTARY INFORMATION
Independent Auditors' Report on Supplementary Information F-17
Schedules of Operating Expenses F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Surgical Safety Products, Inc.
We have audited the accompanying balance sheets of Surgical Safety Products,
Inc. as of December 31, 1999 and 1998, and the related statements of operations,
changes in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Surgical Safety Products, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters are also described in Note 13. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KERKERING, BARBERIO & CO., PA
Sarasota, Florida
March 29, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
----------------- ---------------
Assets
<S> <C> <C>
Current Assets
Cash $ 516,799 $ 41,191
Trade receivables 15,145 -
Other receivables - related party 1,941 1,941
Prepaid expenses 15,013 -
Deposits 103,556 58,700
Inventory - 6,555
----------------- ---------------
Total current assets 652,454 108,387
----------------- ---------------
Property and equipment, net 203,533 112,772
----------------- ---------------
Other Assets
Deferred loan costs, net 203,356 317
Intangible assets, net 67,131 48,915
Software development costs, net 139,382 92,873
Investments 9,750 9,750
Deposits 500 500
----------------- ---------------
Total other assets 420,119 152,355
----------------- ---------------
Total Assets $ 1,276,106 $ 373,514
================= ===============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 395,878 $ 35,262
Accrued expenses 136,562 70,069
Accrued interest 5,617 -
Notes payable - related parties 52,500 -
----------------- ---------------
Total current liabilities 590,557 105,331
Long-Term Liabilities
Note payable 650,000 -
----------------- ---------------
Total Liabilities 1,240,557 105,331
Stockholders' Equity
Common stock, $.001 par value, 20,000,000 shares
authorized; 14,515,373 and 10,786,973 shares
issued and outstanding in 1999 and 1998 respectively 14,516 10,788
Common stock held in escrow (2,700) -
Additional paid-in capital 2,804,020 1,998,241
Accumulated deficit (2,780,287) (1,740,846)
----------------- ---------------
Total stockholders' equity 35,549 268,183
----------------- ---------------
Total Liabilities and Stockholders' Equity $ 1,276,106 $ 373,514
================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
-------------- ------------
<S> <C> <C>
Revenue
OASiS licensing fees $ 72,106 $ 15,342
Net sales-medical products 720 1,203
Other income 16,564
Private partnership agreement fees 100,000
Interest income 2,157 9,284
-------------- ------------
Total revenue 174,983 42,393
-------------- ------------
Costs and expenses
Cost of medical products sold 6,610 1,783
Operating expenses 886,243 836,227
Research and development expenses 51,281 34,536
Interest expense 257,747 13,759
Other - 3,750
Loss on disposal of assets 12,543 -
-------------- ------------
Total costs 1,214,424 890,055
-------------- ------------
Net loss before income taxes (1,039,441) (847,662)
Provision for income taxes - -
-------------- ------------
Net loss $ (1,039,441) $ (847,662)
============== ============
Net loss per share $ (0.091) $ (0.081)
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Common
Common Stock Stock Held
Shares Amount In Escrow
----------- ------------ -----------
<S> <C> <C> <C>
Balances - December 31, 1997 9,774,473 $ 9,775 $
Issuance of common stock for cash 520,000 520
Issuance of common stock for services 492,500 493
Stock options granted to employees
Net loss
Balances - December 31, 1998 10,786,973 10,788 -
Issuance of common stock for cash 950,000 950
Issuance of common stock for services 78,400 78
Issuance of common stock to be held in escrow 2,700,000 2,700 (2,700)
Issuance of detachable stock warrants
Conversion feature of note payable
Cancellation of stock options to employees
Net loss
Balances - December 31, 1999 14,515,373 14,516 (2,700)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Additional
Paid-In
Capital Detachable Total
Common Stock Convertible Accumulated Stockholders'
Stock Warrants Debt Deficit Equity
<S> <C> <C> <C> <C> <C>
Balances - December 31, 1997 $ 824,366 $ (893,184) $ (59,043)
Issuances of common stock for cash 938,476 938,996
Issuance of common stock for services 144,286 144,779
Stock Options granted to employees 91,113 91,113
Net loss (847,662) (847,662)
Balances - December 31, 1998 1,998,241 - - (1,740,846) 268,183
Issuance of common stock for cash 456,908 457,858
Issuance of common stock for services 57,227 57,305
Issuance of common stock to be held in -
escrow
Issuance of detachable stock warrants 141,330 141,330
Conversion feature of note payable 241,429 241,429
Cancellation of stock options to employees (91,115) (91,115)
Net loss (1,039,441) (1,039,441)
Balances - December 31, 1999 2,421,261 141,330 241,429 (2,780,287) 35,549
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,039,441) $ (847,662)
Adjustments to reconcile net loss to cash
used in operating activities
Depreciation and amortization 105,076 57,461
Common stock issued for services 57,305 144,779
Stock option compensation expense (91,113) 91,113
Interest expense - issuance of convertible debt 241,429 -
Write-down of investments 3,750
Loss on disposal of assets 12,543 -
Decrease (increase) in operating assets
Receivables (15,148) 250,125
Other receivables - (1,941)
6,555 (15,156)
Inventory
Prepaid expenses (15,013) -
Deposits (103,556) (58,700)
Increase (decrease) in operating liabilities
Bank overdraft - (13,984)
Accounts payable 360,615 (82,514)
Accrued expenses 66,493 48,938
Accrued interest 5,617 (17,667)
Total adjustments 630,803 406,204
Net cash used in operating activities (408,638) (441,458)
Cash Flows From Investing Activities
Furniture and equipment purchased (111,004) (57,294)
Software development additions
(77,900) (56,256)
- --------------------
Patent and trademark costs (23,148) (9,077)
Financing and loan costs (81,202) -
Net cash used in investing activities (293,254) (122,627)
Cash Flows From Financing Activities
Proceeds from related party loans 52,500 23,000
Repayments on line of credit, net - (100,000)
Repayment of stockholder loans - (256,720)
Proceeds from long-term debt 650,000 -
Proceeds from issuance of common stock 475,000 938,996
Net cash provided by financing activities 1,177,500 605,276
Net increase (decrease) in cash 475,608 41,191
Cash at beginning of year 41,191 -
Cash at end of year $ 516,799 $ 41,191
</TABLE>
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
Supplemental Cash Flow Information:
Cash paid for interest $ 10,701 $ 31,426
For purposes of the statement of cash flows, management considers all deposits
and financial instruments with original maturities of less than three months to
be cash and cash equivalents.
Material non-cash transactions not reflected in the statement of cash flows
include:
Year Ended December 31,
1999
- - Deposits of $58,700 for property and equipment at December 31, 1998 were
reclassified to property and equipment upon receipt of such during fiscal
1999.
- - Deferred financing costs of $124,188 related to the issuance of warrants in
conjunction with issuance of notes payable.
Year Ended December 31,
1998
There were no material non-cash transactions during the fiscal year ending
December 31, 1998.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 1 - Summary of Significant Accounting Policies
Business Activities
Surgical Safety Products, Inc. (Company) is engaged in product development,
sales and services for the medical industry. The Company is primarily focused on
medical research and product development. It has developed a software product,
OASiS, designed to reduce the occupational risks of bloodborne diseases in the
operating room and other related areas. From 1997-1999, the Company enhanced its
OASiS system for multiple applications within health care, including exposure
management, health care training, and health care risk management. The Company
is currently licensing OASiS to various hospitals and healthcare facilities
within the United States. Its medical products are sold to health care
providers.
Financial Statements
The financial statements and notes are representations of the Company's
management who is responsible for their integrity and objectivity. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Preparation of financial statements in accordance with generally accepted
accounting principles requires the use of management's estimates. Actual results
could differ from those estimates.
Trade Receivables
Trade receivables consist of amounts due from customers. The Company utilizes
the allowance method for uncollectible receivables. At December 31, 1999,
management has determined all amounts are collectible and therefore no allowance
is necessary. As of December 31, 1998, there were no outstanding receivables
from customers.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market (net
realizable value) and consists of finished goods.
Investments
Investments are valued at cost and represent shares of common stock in
privately-held companies. Management believes the value of the investments is
not below cost. Fair market value is not determinable.
Property and Equipment
Purchases of property and equipment are recorded at cost. Expenditures for
maintenance and repairs which extend the useful life are charged to operations
as incurred. Depreciation is provided on an accelerated method over the assets'
useful lives which range from three to seven years. Leasehold improvements are
being amortized over the life of the lease term which is two years.
F-6
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 1 - Summary of Significant Accounting Policies (Continued)
Intangible Assets
Intangible assets subject to amortization include goodwill, organization costs,
trade names and patent costs. Organization costs are being amortized on the
straight-line method over five years. Patent costs are being amortized on the
straight-line method over seventeen years from the granting of the patent. The
other assets are being amortized on the straight-line method over fifteen years.
Deferred Loan Costs
Loan costs incurred in the acquisition of debt have been capitalized and are
being amortized over the term of the debt agreement which is three years.
Software Development Costs
Certain software development costs are capitalized when incurred. Capitalization
of software development costs begins upon the establishment of technological
feasibility. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require
considerable judgement by management with respect to certain external factors,
including, but not limited to, anticipated future revenues, estimated economic
life, and changes in software and hardware technologies.
Amortization of capitalized software development costs is calculated using the
straight-line method over a period of five years. All other research and
development costs are charged to expense in the period incurred.
Income Taxes
The Company accounts for income taxes using the asset and liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets, including certain identifiable intangibles, and
the goodwill related to those assets, be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying value amount of the asset
in question may not be recoverable. Management has reviewed the Company's long-
lived assets and has determined that there are no events requiring impairment
loss recognition.
Revenue Recognition
The Company recognizes revenue at the point of passage of title of inventory,
which is generally at the time of shipment to the customer. Revenue related to
services is recognized at the point the service has been rendered.
F-7
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 1 - Summary of Significant Accounting Policies (Continued)
Net Loss Per Share
Net loss per share has been computed in accordance with Statement of Financial
Accounting Standards (FASB) No. 128, "Earnings Per Share," by dividing net loss
by the weighted average number of shares outstanding during the period. Common
stock equivalents have not been included in the computation of weighted average
number of shares outstanding since the effect would have been anti-dilutive.
Additionally, 2,700,000 shares issued and outstanding that are held in escrow at
December 31, 1999 have been excluded from the net loss per share calculation
(see Note 11).
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees and
consultants. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations because the company believes the alternative fair value
accounting provided under FASB Statement No. 123, "Accounting for Stock Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, the Company
only recognized compensation expense to the extent that the fair value of the
shares exceeds the exercise price of the stock option at the date of grant.
The Company recorded compensation expense related to the issuance of stock
options in the amount of $0 and $91,113 for December 31, 1999 and 1998,
respectively. During fiscal 1999, the Company amended the agreement under which
these 1998 stock options were issued and reduced the exercise price from $1.75
to $1.00. Accordingly, the Company reduced compensation in the 1999 fiscal year
to reflect the amendment.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company expects to adopt the new
Statement effective January 1, 2000. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. This Statement is
not applicable to the Company as of December 31, 1999.
Note 2 - Property and Equipment
Property and equipment consisted of the following at December 31:
1999 1998
Property and equipment $ 271,165 $ 111,136
Prototype molds 59,652 59,562
Leasehold improvements 5,575 5,575
336,392 176,273
Less accumulated depreciation 132,859 63,501
Property and equipment, net $ 203,533 $ 112,772
==================== ====================
F-8
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 2 - Property and Equipment (Continued)
Total depreciation and amortization expense amounted to $66,400 and $36,234 for
1999 and 1998, respectively.
Note 3 - Line-of-Credit
Effective May 1997, the Company had established a line-of-credit in the amount
of $100,000 with a financial institution at 1.5% above the prime rate, interest
only payments are due monthly with an expiration date of May 2, 2017. The line
is due on demand and is secured by inventory, accounts receivable, and
equipment. There were no outstanding balances at December 31, 1999 and 1998. The
line-of-credit is personally guaranteed by the major stockholder.
Note 4 - Related Party Transactions
During fiscal 1999, the major stockholder and a related entity made loans to the
Company totaling $52,500 at 10% interest. The outstanding balance at December
31, 1999 amounted to $52,500. Interest has been accrued on these notes in the
amount of $5,617 at December 31, 1999. There were no amounts owed to the major
stockholder at December 31, 1998. Interest paid to the major stockholder during
1998 totaled $9,882 for notes outstanding during the fiscal year 1998.
The Company leases office space from an entity owned by a major stockholder. See
Note 16.
Note 5 - Software Development Costs
During the fiscal year ended December 31, 1997, the Company focused its efforts
in developing the software for its major product, OASiS. The company engaged the
services of a software development company, and incurred significant costs
related to the design and development of the software. The Company achieved
technological feasibility in its development of the software in fiscal 1997.
For the years ended December 31, 1999 and 1998, the Company incurred and
capitalized expenditures relating to the enhancement of the software in the
amounts of $77,900 and $56,256, respectively. Amortization expense of software
development costs amounted to $31,391 and $21,227 for the years ended December
31, 1999 and 1998, respectively.
F-9
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 6 - Intangible Assets
Intangible assets consisted of the following at December 31:
1999 1998
Goodwill $ 32,762 $ 32,762
Organization costs 11,502 11,502
Trademarks 11,658 11,658
Patents 39,479 16,328
95,401 72,250
Less: Accumulated amortization 28,270 23,335
Intangible assets, net $ 67,131 $ 48,915
============== =============
Note 7 - Stock Option Plans
Options granted under the 1994 and 1998 stock option plans are exercisable only
after the respective vesting period which is two years from the date of grant
under the 1994 plan, and determined by the Company's stock option committee
under the 1998 plan. Options expire seven years from the date of grant. Under
the 1999 stock option plan, options granted to employees vest ratably over three
years; vesting is determined by the Company's stock option committee for options
granted to officers, directors, and consultants. Options expire ten years from
the date of grant.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions for 1999: risk-free interest rate
of 6.0%; dividend yield of 0%; volatility factor of the expected market price of
the Company's common stock of .32; and a weighted-average expected life of the
option of four years.
For 1998, these assumptions were as follows: risk-free interest rate of 5.0%;
dividend yield of 0%; volatility factor of the expected market price of the
Company's common stock of .20; and a weighted-average expected life of the
option of three years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
F-10
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 7 - Stock Option Plans (Continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is charged to expense over the options' vesting period. The Company's pro forma
information for the fiscal year ended December 31, 1999 and 1998 is as follows:
1999 1998
Proforma net loss $ (1,225,507) $ (887,065)
Pro forma earnings per common share:
Basic $ (0.107) $ (0.084)
A summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
1999 1998
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
<S> <C> <C> <C> <C>
Outstanding at the beginning of the 5,241,431 $ 0.41 4,512,431 $ .38
year
Granted 765,829 1.13 1,129,000 1.49
Exercised - - 400,000 1.75
Outstanding at the end of the year 6,007,260 $ 0.64 5,241,431 $ 0.57
========= =============== ========= ==============
Exercisable at the end of the year 5,079,431 $ .47 4,512,431 $ 0.38
========= ================ ========= ==============
Weighted-average fair value of $ 0.28 $ 0.32
options granted during the year =============== ==============
</TABLE>
The weighted-average exercise price and weighted-average fair value of options
granted during 1999 was $1.13 and $0.28, respectively, for options whose
exercise price exceeded the market price of the stock on the grant date. The
weighted average exercise price and weighted-average fair value of options
granted during 1999 was $1.00 and $0.28, respectively, for options whose
exercise price was less than the market price of the stock on the grant date.
The weighted-average exercise price and weighted-average fair value of options
granted during 1998 was $1.37 and $0.03, respectively, for options whose
exercise price exceeded the market price of the stock on the grant date. The
weighted average exercise price and weighted-average fair value of options
granted during 1998 was $1.75 and $0.64, respectively, for options whose
exercise price was less than the market price of the stock on the grant date.
F-11
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 7 - Stock Option Plans (Continued)
The following table summarizes information about the options outstanding at
December 31, 1999:
<TABLE>
Weighted
Average
Remaining Weighted
Number Contractual Average
Exercise Price Outstanding Life Exercise Price
<S> <C> <C> <C>
$ 0.32 to 0.48 4,511,931 1.50 years $ 0.32
0.50 54,000 5.00 years 0.50
0.90 to 1.00 1,291,329 7.96 years 1.00
1.50 to 1.72 150,000 8.88 years 1.68
0.32 to 1.72 6,007,260 6.49 years $ 0.50
========== =========
</TABLE>
Note 8 - Notes Payable
In December 1999, the Company entered into an agreement with an investment
banking firm to secure a convertible secured line of credit in the amount of
$5,000,000. Interest on the outstanding balance is at 8.0% and is payable upon
any prepayment of principal and at maturity. The agreement matures on November
30, 2002. Advances, in the form of promissory notes, on the line are up to a
maximum of $500,000 in any 90-day period and certain restrictions must be met by
the Company in order to access the line. The line is secured by inventory,
receivables, equipment, securities and general intangibles. The balance
outstanding at December 31, 1999 was $650,000.
The lender has the option to convert all or a portion of the outstanding
principal and interest balance into common stock, at a price per share equal to
the lower of $0.82 or 75% of the closing bid price on the date of conversion. In
no event, can the conversion price be lower than $0.375 per share.
The Company also issued warrants to the lender to purchase up to 4,571,428
shares of its common stock at an exercise price of $1.09 per share. The warrants
are exercisable from the date of commitment through the term of the loan and
vest as follows: on date of commitment for 20% of the shares; and an additional
1% for each $25,000 of principal loans subsequently advanced during the term of
the loan.
Note 9 - Conversion Feature of Notes Payable
At the time of commitment on the line of credit agreement (See Note 8), the fair
market value of the stock approximated $1.13. The conversion feature of the
agreement provides for option of the debt to be converted at the lower of 75% of
the closing bid on the date of conversion or $0.82 per share. At the date of
commitment the lender had the option to convert the debt at $0.82 per share
resulting in a beneficial conversion feature.
F-12
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 9 - Conversion Feature of Notes Payable (Continued)
Accordingly, the Company valued the debt and the conversion feature separately.
The Company estimated the fair value of the conversion feature at $241,249 and
recorded this amount as interest expense and additional paid in capital for the
fiscal year ended December 31, 1999.
Note 10 - Issuance of Detachable Warrants
In conjunction with the execution of the convertible line of credit (See Note
8), the Company allocated $124,188 of the proceeds to the detachable warrants
exercisable at the date of commitment. The Company recorded deferred financing
costs and additional paid in capital in the amount of $124,188 during the fiscal
year ended December 31, 1999 related to the warrants.
Note 11 - Common Stock Issuance
During the fiscal year ended December 31, 1999, the Company issued 57,400 shares
of its common stock to its employees in lieu of compensation. The Company issued
an additional 21,000 shares of its common stock in exchange for legal,
investment, and other consulting services. The value of the shares issued ranged
from $0.50 to $1.25 per share based on the fair market value of the shares at
the time the services were rendered or at the time the agreement for services
was executed, whichever was more estimable.
In April 1999, the Company commenced a self-directed private placement offering
to sell shares of its restricted common stock and warrants. Pursuant to the
offering, 950,000 shares of common stock and warrants to purchase 475,000 shares
of the Company's restricted common stock were issued at an exercise price of
$1.00 excersible within five years were granted. The shares and warrants were
sold together at $.50 per unit. The Company estimated the fair value of the
warrants to be $0.17 each and allocated a portion of the proceeds from the
issuance to such as additional paid in capital - warrants. The amount allocated
was $17,142.
Pursuant to the secured line of credit entered into by the Company in December
1998 (see Note 8), the Company was required to issue 2,700,000 shares of its
common stock to be held in escrow by the lender. The purpose of the escrow
account is to ensure availability of shares of common stock that the lender
could obtain by exercising the conversion feature and warrants issued pursuant
to the agreement.
The lender does not have ownership or voting rights to the shares; should the
lender not exercise all or a portion of the conversion or warrants, the shares
will be returned to the Company. Therefore, the Company has excluded the
2,700,000 shares from its net loss per share calculations.
During the fiscal year ended December 31, 1998, the Company issued 492,500
shares of common stock in exchange for legal, computer hardware and software
consulting services, and public relations services. Of the total issued, 90,000
shares were restricted stock. The value of the shares issued ranged from $0.15 -
$1.75 per share based on either the fair market value of the
F-13
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 11 - Common Stock Issuance (Continued)
shares at the time the agreement for services was executed, or the value of the
services received, whichever was more estimable.
During 1998, the Company also issued 520,000 shares of common stock in exchange
for cash. The value of the shares issued ranged from $1.75 - $2.19 per share
based on the fair market value of the shares at the time of issuance.
Note 12 - Income Taxes
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $2,300,000 which expire during the years 2008 through 2012. The
1999 and 1998 tax benefits relating to the losses incurred in each year amounted
to approximately $205,000 and $166,000, respectively, based on a blended 20%
corporate tax rate. Based on the Company's financial history, there is no basis
to conclude that the tax benefits will be realized. Therefore, the tax benefit
that has been recorded in the accompanying financial statements for the years
ended December 31, 1999 and 1998 has been offset by an allowance equal to the
benefit.
Note 13 - Realization of Assets
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate the continuation of
the Company as a going concern. The Company has sustained substantial losses and
has minimal revenues for the current fiscal year.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon the Company's ability to achieve profitable operations
and to continue to obtain sufficient sources of funds. Management believes the
Company's prospects for profitability are significant, based on the development
of OASiS, a proprietary product. The Company has aggressively promoted this
product during fiscal years 1999 and 1998 and anticipates revenues in fiscal
2000 related to the licensing of its product to medical facilities.
In July 1999, the Company entered into a private partner agreement with U.S.
Surgical Corporation (see Note 14) which will allow it to license its product in
400 hospitals over the next three years. The Company has begun to realize some
of these revenues in fiscal 1999 and anticipates a significant increase in
revenues from such to be realized in fiscal 2000.
To help fund and expand current operations, the Company secured a $5,000,000
line of credit in December 1999. Management believes this will allow the Company
to expand operations and target additional markets for its products.
F-14
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 14 - Commitments
In July 1999, the Company entered into a private partner network agreement with
U. S. Surgical Corporation. Under the agreement, the Company is to supply up to
four hundred OASiS systems to U. S. Surgical under licenses calling for the
installation in specified hospitals over a three year period.
On January 30, 1998, the Company entered into an agreement with a health care
provider in which the provider will perform clinical testing of ten surgical or
medical products submitted by the Company. The agreement is for a term not to
exceed five years and requires the Company to pay the health care provider a
fixed amount of $25,000 for each of the ten studies. The agreement further
provides that the Company is obligated to pay the provider $250,000 over the
term of the agreement in the event the Company determines not to have the
provider perform the clinical testing. The Company did not submit any products
for clinical testing during the fiscal years ended December 31, 1999 and 1998.
Note 15 - Concentrations
The Company derived 96% and 93% of its revenues from technical services and
OASiS licensing fees provided to one customer during the fiscal years ended
December 31, 1999 and 1998, respectively.
Note 16 - Lease Commitments
On June 1, 1998, the Company entered into an agreement to lease office space
from an affiliated entity. The lease term expires on May 21, 2000 with automatic
one year renewals. Minimum lease payments are as follows for the fiscal years
ending:
2000 $ 17,500
Rent expense for the fiscal years ending December 31, 1999 and 1998 amounted to
$42,000 and $30,750, respectively.
The Company also leases office equipment. The lease term is for 60 months and
expires October 2003. Monthly payments are $344.
Minimum lease payments are as follows for the fiscal years ending:
2000 $ 4,128
2001 4,128
2002 4,128
2003 4,128
2004 3,440
F-15
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 17 - Correction of an Error
During 1998, an officer of the Company agreed to allow the Company to defer
payment of one-half of his annual salary for 1998 and 1999 until September 1,
1999. At such time, the Company was to begin making monthly payments on the
amount outstanding.
For the fiscal year ended December 31, 1998, the Company did not record the
amount owed to the officer for compensation in the amount of $50,000. The
accompanying financial statements for the year ended December 31, 1998 have been
restated to account for this transaction. The correction of this error resulted
in an increase of the previously reported net loss and accrued expenses by
$50,000. Loss per share increased from $(0.076) per share to $(0.081) per share.
F-16
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
The Board of Directors
Surgical Safety Products, Inc.
We have audited the accompanying financial statements of Surgical Safety
Products, Inc. as of and for the years ended December 31, 1999 and 1998, and
have issued our report thereon dated March 29, 2000. Our audits were made for
the purpose of forming an opinion on the financial statements taken as a whole.
The supplementary schedules of operating expenses are presented for purposes of
additional information and are not a required part of the financial statements.
Such information has been subjected to the auditing procedures applied in the
examination of the financial statements and, in our opinion, is fairly stated in
all material respects in relation to the financial statements taken as a whole.
KERKERING, BARBERIO & CO., PA
Sarasota, Florida
March 29, 2000
F-17
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC. AND SUBSIDIARY
SCHEDULES OF OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------- -------------
<S> <C> <C>
Professional fees $ 92,377 $ 58,260
Advertising 47,048 103,281
Contract labor 13,529 28,950
Meetings/conventions 13,554 27,694
Depreciation and amortization 105,076 57,461
Salaries and related expenses 339,332 418,417
Travel 82,666 12,273
Education and training 3,950 1,650
Filing fees 1,309 3,521
Bank fees 2,217 635
Meals and entertainment 6,327 5,814
Postage 11,532 4,953
Insurance 18,228 11,542
Equipment rental 9,367 7,724
General and administrative 38,212 32,019
Occupancy 44,179 31,774
Repairs and maintenance 1,814 6,146
Samples and supplies 654 3,195
Taxes 1,314 1,615
OASiS internet charges 19,010 -
Freight 3,793 3,777
Telephone 30,755 15,526
$ 886,243 $ 836,227
</TABLE>
F-18
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has used the accounting firm of Kerkering, Barberio & Co., P.A.
since 1993. Their address is 1858 Ringling Boulevard, Sarasota, Florida 34236.
This firm began providing audited financial statements for the Company in 1994.
There has been no change in the Company's independent accountant during the
period commencing with the Company's retention of Kerkering, Barberio & Co.,
P.A. through the date hereof.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
(a) Set forth below are the names, ages, positions, with the Company
and business experiences of the executive officers and directors of the Company.
Name Age Position(s) with Company
- ----------------------- ---- ----------------------------------
Dr. G. Michael Swor 42 Chairman and Chief Executive Officer
4485 S. Shade Avenue
Sarasota, FL 34237
Frank M. Clark (1)(2) 67 Director
7313 Oak Leaf Way
Sarasota, FL 34241
Donald K. Lawrence (1) 37 Director, President and Chief
716 Edgemer Lane Operating Officer
Sarasota, FL 34242
David Collins (1) 58 Director, Acting Chief Financial
6210 Sun Boulevard Officer,Treasurer and Secretary (3)
St. Petersburg, FL 33715
James D. Stuart 42 Director
880 Jupiter Park Drive
Suite 14
Jupiter, FL 33458
Irwin Newman (2) 51 Director
1515 SW 22nd Avenue Circle
Boca Raton, FL 33486
Sam Norton 40 Director and Chairman of the Stock
1819 Main Street Compensation Committee
Suite 610
Sarasota, FL 34236
David Swor 67 Director
6385 Presidential Court
Suite 104
Fort Meyers, FL 33919
Dr. William B.Saye (1) 60 Director and Medical Director of
4614 Chattahoochee Crossing ALTC VirtualLabs
Marietta, GA 30067
41
<PAGE>
(1) Except for Mr. Clark, Mr. Lawrence, Dr. Saye and Mr. Collins, who had no
role in founding or organizing the Company, the above-named persons may be
deemed to be "promoters" and "parents" of the Company, as those terms are
defined under the Rules and Regulations promulgated under the Act.
(2) Mr. Clark retired as President and Chief Executive Officer in January 2000.
Mr. Newman resigned as a Director on February 9, 2000 and did not request
that the Company publish his reasons.
(3) Mr. Collins is not engaged as a full time employee of the Company. He is
devoting and will continue to devote such time as required to fulfill the
obligations as the Company's Acting Chief Financial Officer. At such time
as the Company has sufficient additional revenue or there is a surplus as a
result of the TK Loan Commitment, it is intended that Mr. Collins will be
employed by the Company as the Chief Financial Officer and that he will
devote his full time to the business of the Company.
All directors hold office until the next annual meeting of the Company's
shareholders and until their successors have been elected and qualify. Officers
serve at the pleasure of the Board of Director. The officers and directors will
devote such time and effort to the business and affairs of the Company as may be
necessary to perform their responsibilities as executive officers and/or
directors of the Company.
Family Relationships
There are no family relationships between or among the executive officers
and directors of the Company except that David Swor is Dr. G. Michael Swor's
father.
Business Experience
G. Michael Swor, M.D., M.B.A, age 42, has served as Chairman of the Board
and Medical/Technical Advisor of the Company since its inception in 1992 and has
served as Treasurer to the Company from June, 1998 until February 2000 and has
served as Chief Executive Officer since February 2000.
Dr. Swor, a board certified, practicing physician with a specialty in
OB/GYN, is the founder of Surgical. From 1992 until June 12, 1998, Dr. Swor also
served as President and CEO. With a Masters in Business Administration, Dr.
Swor's duties for the Company include investor relations, corporate financing,
and overall corporate policy and management. He is a clinical assistant
professor in the OB/GYN department at University of South Florida. Dr. Swor was
the inventor of SutureMate(R) and Prostasert(TM)and the original holder of the
patents issued to each of these products. Dr. Swor has
42
<PAGE>
written numerous articles, published the "Surgical Safety Handbook," and given
numerous lectures on safety and efficiency in the surgical environment. His
professional affiliations include American College of Surgeons, American College
of Obstetrics and Gynecology and the Florida Medical Association. From 1996
until the present, Dr. Swor has acted as an independent consultant for Concise
Advise which provides consulting services related to product development,
patent, research, distribution, joint venture, mergers and other business
issues. From 1994 through 1996, Dr. Swor oversaw the operation of WDC. From 1987
through 1995,Dr. Swor was the managing partner of Women's Care
Specialists/Physicians Services Inc. where he oversaw four (4) physicians, two
(2) practitioners and a staff of over twenty five (25). From 1987 through 1992,
Dr. Swor was a partner and board member of Women's Ambulatory Services, Inc., a
diagnostic testing facility. From 1982 through 1985, Dr. Swor was the President
of University of Florida at Jacksonville, Health Sciences Center resident staff
association with over 200 members. Dr. Swor received a B.A degree in 1978 from
the University of South Florida, a M.D. degree from the University of South
Florida College of Medicine in 1981, and an M.B.A. degree from the University of
South Florida in 1998. From 1981 through 1985 he received his training in OB/GYN
from the University of Florida Department of Obstetrics and Gynecology in
Jacksonville, Florida. He has received several special achievement awards
including being honored by the University of South Florida in May, 1998 with the
Alumni Award for Professional Achievement.
Frank M. Clark, age 67, has served as a Director since June, 1998. Mr.
Clark was President and Chief Executive Officer from June 1998 until January
2000, when he retired. Mr. Clark now serves as a consultant to the Company.
While President, Mr. Clark was responsible for the day to day operations of
the Company and was responsible for new product development and manufacturing,.
He managed new business ventures, including mergers, acquisitions, joint
ventures, strategic alliances and licensing/distribution agreements for the
Company. Mr. Clark also serves on the Board of GenSci Regeneration Sciences,
Inc. From 1991 to 1997, Mr. Clark was Chairman and CEO of Corporate Consulting
Services Group where his primary activities were providing consulting services
to start-up companies, under-performing companies and training people in career
transitions. From 1984 to 1991, Mr. Clark was COO and Executive Vice President
of Right Associates, a consulting firm with responsibilities for business
development with Fortune 100 corporations for which he acted. He acquired a Los
Angeles based consulting firm and became the Managing Principal. From 1981 to
1984, Mr. Clark was a Vice President of National Medical Care, a subsidiary of
W.R. Grace, Inc. where his innovative marketing leadership helped the company
recapture a dominant share of the dialysis market. From 1978 to 1981, Mr. Clark
served as President, Corporate Vice President and a Director of R.P. Scherer,
Inc., the world's leading producer of soft gelatin capsules where he was in
charge of worldwide businesses. From 1959 to 1978, Mr. Clark was employed by
Johnson & Johnson, Inc., first with Ethicon, Inc. where he served as a Vice
President and Director, then with Ethnor Medical Products where he was a Vice
President, General Manager and a Director and then with Stimulation Technology,
where he served as Executive Vice President and a Director. From 1956 to 1958,
Mr. Clark was employed by Federated Department stores in the executive training
program at Bloomingdales in New York City. Mr. Clark received a certificate from
Teachers College in Connecticut in 1955.
Donald K. Lawrence, age 37, has served as a Director since May 1997, served
as Vice President, Sales & Marketing and Secretary from May, 1997 until February
2000,, served as Executive Vice President from January, 1998 to February 2000
and has served as President and Chief Operating Officer since February 2000..
43
<PAGE>
Mr. Lawrence's responsibilities include sales management, market planning,
advertising, and management for OASiS and the Compliance PlusTM products. His
arrival to the Company was facilitated by the Company's acquisition in 1997 of
InterActive PIE Multimedia, Inc., of which Mr. Lawrence was founder and Chief
Executive Officer. From February 1996 until February 1997, Mr. Lawrence was the
CEO of InterActive PIE. From December 1991 until February 1996, Mr. Lawrence was
employed by Ethicon Endo-Surgery/Johnson & Johnson as a surgical sales
representative. From July 1989 until December 1991, Mr. Lawrence acted as a
surgical sales representative for Davis and Geck. Prior to entering the area of
medical device sales, from February 1985 until July 1989, Mr. Lawrence was an
account executive with DHL Worldwide Express. During college, Mr. Lawrence was
an independent dealer for Southwestern Publishing Co. Mr Lawrence received a B.S
degree in Marketing and Communications in 1984 from Appalachian State
University.
David Collins, age 58, has served as a Director since January 1999, as
Acting Chief Financial Officer since March 1999 and has served as Treasurer and
Secretary since February 2000.
Mr. Collins responsibilities include overseeing the financial affairs of
the Company on a part time basis and he is currently engaged as a consultant to
the Company. Mr. Collins devotes such time as is necessary to fulfill his duties
to the Company. During 1997 and 1998, Mr. Collins was Controller for the Sales
and Marketing Division for GES Exposition Services, a subsidiary of the NYSE
listed Viad Corporation. From 1993 to 1996, Mr. Collins was General Manager and
Chief Financial Officer of Spectra Services Corporation. From 1989 to 1992, Mr.
Collins was a Partner and Consultant to Quantum Corporation, a venture capital
firm. From 1977 to 1988, Mr. Collins rose from Controller to Vice President of
Finance (1982) and then to Vice President of Finance and Chief Financial Officer
(1984) of R.P. Scherer Corporation, a NYSE listed company. From 1975 to 1977,
Mr. Collins was Vice President and Controller of Wheelhorse Products, a
subsidiary of American Motors/Chrysler. From 1971 to 1975, Mr. Collins rose from
Controller of the Midwest Dental Division to Vice President and Controller of
the American Hospital Division of American Hospital Supply Corporation (1974).
From 1969 to 1971, Mr. Collins was a Senior Auditor and Consultant in Public
Accounting with Deloitte & Touche. Mr. Collins received a BSBA from Northwestern
University in 1964 and a MBA from the Kellogg Graduate School of Management at
Northwestern University in 1967. He became a Certified Public Accountant in the
State of Illinois in 1971.
James D. Stuart, age 42, has served as a Director since 1993, initially
acting as Director of Marketing and Sales.
Mr. Stuart served as Executive Vice President from 1993 until June, 1998
and initially acted as the Director of Marketing and Sales. During his time as
an officer of the Company, Mr. Stuart was responsible for new product
development and manufacturing and manages new business ventures, including
mergers, acquisitions, joint ventures, strategic alliances and
licensing/distribution agreements for the Company. From November 1994 until July
1996, Mr. Stuart acted as President and CEO of WDC and was responsible for
managing and operating the facility. From March 1986 until May 1993, Mr. Stuart
was employed by Liquid Air Corporation, Buld Gases Division first as a Business
Manager for South Florida and then as a Program Manager for Food Freezing. From
February 1981 until February 1986, Mr. Stuart was employed by NCR Corporation in
the Systemedia Division initially as a Territory Manager and then as a Senior
Account Manager. Mr. Stuart received a B.A. degree in marketing in 1980 from the
University of South Florida.
44
<PAGE>
Irwin Newman, age 51, served as a Director from 1993 until February 2000.
Prior to his resignation, Mr. Newman provided financial advisory services
to the Board of Directors. From 1993 until the present, Mr. Newman served as the
Senior Vice President of Finance for Falcon Marketing & Management, Inc. From
1993 to the present, Mr. Newman has served as the President of Jenex Financial
Services, Inc. ("Jenex"), an affiliate of Falcon Marketing & Management Inc. Mr.
Newman is the principal of Jenex. Mr. Newman is and has been a practicing
attorney since 1973. From 1993 to 1998, Mr. Newman served as Vice President and
General Counsel for Boca Raton Capital Corporation, a publicly owned, NASDAQ
listed investment holding company where he completed an Initial Public Offering
for a $4 million subsidiary, completed a $3.5 million secondary offering and was
responsible for shareholder and investor relations. From 1983 to 1988, Mr.
Newman served with the New York Stock Exchange firms of Gruntal & Co. and
Butcher and Signer, specializing in common and preferred stocks, options,
municipal and corporate bonds and GNMA's. During this period, he broadcast a
daily television market comments program over the Financial News Network. Mr.
Newman received a B.S. degree in Business Administration from Syracuse
University in 1970 and a J.D. degree from the University of Florida in 1973.
Sam Norton, age 39, has served as a Director since 1992 and has served as
Chairman of the Stock Compensation Committee since February 2000.
Mr. Norton provides business and legal advisory services to the Board of
Directors. Mr. Norton is an attorney with the firm Norton, Gurley, Hammersley &
Lopez, P.A. in Sarasota, Florida. Mr. Norton practices primarily in the areas of
real estate, banking, corporate and business transactions and is a Florida Bar
board certified real estate specialist, having earned such certification in
1991. He has practiced law in Sarasota since 1985 and is the past Chairman of
the Joint Committee of the Sarasota Board of Realtors/Sarasota County Bar
Association. Mr. Norton is active in Sarasota civic organizations and currently
serves as a member of the Board of Directors of Sarasota Bank. Mr. Norton
graduated from the University of Florida in 1981 and earned a J.D. degree from
Stetson University School of Law in 1984 where he graduated Cum Laude. While in
law school, Mr. Norton was chosen to serve on the Law Review. He was admitted to
the Florida Bar in 1985.
David Swor, age 67, has served as a Director since 1992.
Mr. Swor, who is the father of Dr. Swor, provides business advisory
services for the Board of Directors. From 1985 until the present, Mr. Swor had
been engaged in the real estate brokerage business as the owner of Swor, Inc.
The firm specializes in the development of commercial real estate properties
along with operating other related business interest, holdings and investment
properties. From 1992 to the present, Mr. Swor has been a member of the Board of
Directors of SunTrust Bank in Sarasota, Florida. From 1974 until 1985, Mr. Swor
was a co-owner of the real estate firm of Swor & Santini, Inc. which specialized
in commercial real estate and investments. From 1973 until 1975, Mr. Swor was a
realtor with Russ Gorgone, Inc.. From 1971 until 1973, Mr. Swor was Vice
President and co-owner of Carroll Oil Company, which operated a Texaco
distributorship in Fort Myers, Florida. From 1959 until 1971, Mr. Swor was a
salesman for Texaco and from 1958 until 1959, Mr. Swor was in advertising sales
for the Orlando Sentinel Star. Mr. Swor received a B.A. degree from the
University of Kentucky in 1955 and holds teaching certificates from the states
of Kentucky and Florida.
William B. Saye, MD, FACOG, FACS, age 60, has served as Medical Director of
ALTC VirtualLabs since November 1998 and as a Director since January, 1999.
45
<PAGE>
Dr. Saye is the founder, CEO and Medical Director of ALTC. ALTC was started
in 1990. Dr. Saye is also the Clinical Assistant Professor of OB/GYN for Emory
University School of Medicine in Atlanta, Georgia. Dr. Saye, with another
pioneering surgeon, made medical history when he performed the first
laparoscopic cholecystectomy (removal of the gall bladder) in the United States.
In the past nine (9) years, Dr. Saye has been instrumental in training more than
15,000 surgeons in various laparoscopic techniques and spearheaded the
development of a new minimally invasive therapy, laparoscopic Doderlien
hysterectomy. Dr. Saye received a BS from Georgia Institute of Technology in
1962 and his MD degree from Tulane University Medical School in 1965. Dr. Saye
is board certified in Obstetrics and Gynecology and in Advance Operative
Paparoscopy. Dr. Saye is the author of numerous articles on laparoscopic surgery
and techniques.
Scientific Advisory Board
In addition to the officers and directors of the Company, Surgical has a
scientific advisory board which has provided advisory input on products,
research and educational projects for the Company. Inactive members of this
board can be called on to address issues which arise in ongoing research and
development projects. Active/Inactive status depends upon the level of
participation in the Company's current activities. Scientific Advisory Board
members receive no salaries for their services but are compensated for any
reasonable out of pocket expenses incurred on behalf of the Company. Included on
such board are the following:
Mark Davis, M.D.
OB/GYN Physician & Safety Consultant
DeKalb Medical Center
Atlanta, Georgia
Donna Haiduven, RN/C.I.C.
Infection Control Specialist
Santa Clara Valley Medical Center
San Jose, California
Robert Morrison, M.D.
Optometrist/Chairman, Morrison International
New York, New York
Gail Lebovic, M.D. (Inactive)
Breast Surgeon
Co-Founder, Bay Area Breast Center
Palo Alto, California
Sharon Tolhurst, RN, MBA
Director, Cape Surgery Center
Sarasota, Florida
John Nora, M.D.
General Surgeon
Sarasota, Florida
46
<PAGE>
George Maroulis, M.D. (Inactive)
Professor, University of South Florida
College of Medicine, Department of OB/GYN
Marguerite Barnett, M.D. (Inactive)
Plastic Surgeon
Venice, Florida
Ruth Dyal, M.D. (Inactive)
OB/GYN, Women's Care Specialists
Sarasota, Florida
Neil Pollack, M.D.
OB/GYN, Women's Care Specialists
Sarasota, Florida
Michael Shroder, M.D.
OB/GYN, Women's Care Specialists
Sarasota, Florida
Galen Swartzendruber, M.D.
OB/GYN, Women's Care Specialists
Sarasota, Florida
Phyliss Barber
FDA Compliance Consultant
Sarasota, Florida
Anne Johnson, O.R.T.
Surgical Technician
Columbus, Ohio
Andrew Garlisi, M.D.
Emergency Medicine
LaPorte, Indiana
Dr. Nathan Belkin
Former Researcher and Author in the infection control field
Scott Silverstein, M.D.
Occupational Health and Information Systems Specialist
Wilmington, Delaware
Gail Vallone
Operating Room Technologist
Las Vegas, Nevada
47
<PAGE>
OASiS Medical Advisory Panel
In addition to the officers and directors of the Company, Surgical has a
medical advisory panel which approves, edits and contributes to content
information for the OASiS system. Medical Advisory Panel members receive no
salaries for their services but are compensated for any reasonable out of pocket
expenses incurred on behalf of the Company. Included on such panel are the
following:
Michael Abidin, MD
Nathan Belkin, PhD
Trish Carlson, RN, CEN, CFRRN
Dorothy Corrigan, RN
Mark Davis, MD
Donna Haiduven, BSN, MSN, CIC
Pamela Hart, CLS
Richard Howard, MD
James Li, MD
Mark Lipman, MD
James A. McGregor, MD CM
Trista Negele, MD
Heidi M. Stephens, MD
Pam Tenaerts, MD
Steven Weinstein, MT
(b) Section 16(a) Beneficial Ownership Reporting Compliance
No Director, Officer, Beneficial Owner of more than ten percent (10%) of
any class of equity securities of the Company failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year or prior fiscal years.
Item 10. Executive Compensation
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
- -------------------------------------------------------- ------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Compen- Award(s) Options/ LTIP Compen-
Position Year Salary ($) Bonus ($) sation ($) ($) SARs (f) Payouts sation ($)
(1)
G. 1996 - 5,280
Michael 1997 - 4,877
Swor, 1998 32,500 5,400
Chairman 1999 47,500 20,000 5,400
of the (6)
Board
and Chief
Executive
Officer
(2)
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
- -------------------------------------------------------- ------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Frank M. 1996 -
Clark 1997 -
President 1998 32,731 50,000 70,417
and CEO 1999 57,477 12,000 20,000
into 2000 (6)
(3)
- -----------------------------------------------------------------------------------------------------------
Donald 1996 -
K. 1997 16,675 13,657
Lawrence 1998 57,278 17,604
President 1999 57,499 170,000
and Chief (6)
Operating
Officer
(4)
- -----------------------------------------------------------------------------------------------------------
David 1999 38,795 15,575 34,000 85,000
Collins, (6)
Acting
Chief
Financial
Officer,
Treasurer
and
Secretary
(5)
- --------------------------
</TABLE>
(1) All other compensation includes certain health and life insurance benefits
paid by the Company on behalf of its employee.
(2) Dr. Swor did not receive any salary prior to June 1998 at which time the
Company and he executed an Employment Agreement for a salary of $60,000 per
year. Other compensation includes life insurance paid by the Company.
(3) Mr. Clark executed an Employment Agreement with the Company in June 1998
for an annual salary of $60,000. As a signing bonus, Mr. Clark received
50,000 shares of restricted stock in the Company which is valued at $50,000
and options to purchase 200,000 shares of the Company's Common Stock at an
exercise price of $1.75 per share. The Company's options have no current
trading value. Mr. Clark retired as President and Chief Executive Officer
in January 2000. In April 1999, Mr. Clark received 12,000 shares of
restricted Common Stock in lieu of salary due in the amount of $7,812.
(4) Mr. Lawrence executed an Employment Agreement with the Company in May 1997
for an annual salary of $50,000. Effective in January 1998, the salary of
Mr. Lawrence was increased to $100,000 per year; however, he agreed to
defer receipt of the additional amounts until a mutually agreed date. The
Company began installment payments of the deferred amount on September 1,
1999. The Company has accrued $95,000 for amounts owed to Mr. Lawrence
related to his compensation. As consideration for the acquisition of the
assets of Endex, Mr. Lawrence received 250,000 shares of restricted stock
in the Company. Such shares were valued at the asset value of $13,657. In
June 1998, the Company granted Mr. Lawrence options to
49
<PAGE>
purchase 100,000 shares of the Company's Common Stock at an exercise price
of $1.75 per share. The Company's options have no current trading value.
Mr. Lawrence was the Company's Executive Vice President during fiscal 1999.
(5) Mr. Collins is paid as a consultant for his services as Acting Chief
Financial Officer prior to his receiving payments under the Staff Leasing
arrangement. In April 1999, Mr. Collins received 34,000 shares of
restricted Common Stock in lieu of consulting fees due in the amount of
$23,410.
(6) See Option Grants in the Last Fiscal Year Below
Option Grants in Last Fiscal Year
The following table provides information regarding the grant of stock
options during fiscal year 1999 to the named executive officers.
<TABLE>
<CAPTION>
Individual Grants Potential realizable value at Alternative to
assumed annual rates of stock (f) and (g):
price appreciation for option Grant date
term value
Name Number of Percentage of Exercise or Expiration 5% $/sh (f) 10% $/sh (g) Grant date
(a) Securities Total base price Date (e) present value
underlying options/SAR' ($/sh) (d) $/sh (f)
Options/SA s granted to
R's employees
Granted during fiscal
(#) (b) year (c)
<S> <C> <C> <C> <C> <C> <C> <C>
G. 10,000 4.1% $1.00 12/26/09 $1.63 $2.59 $1.00
Michael 10,000 $1.00 12/31/08 $0.815 $1.295 $0.50
Swor
Frank M. 10,000 4.1% $1.00 12/26/09 $1.63 $2.59 $1.00
Clark 10,000 $1.00 12/31/08 $0.815 $1.295 $0.50
Donald K. 10,000 35.0% $1.00 12/26/09 $1.63 $2.59 $1.00
Lawrence 150,000 $1.00 05/24/09 $1.271 $2.02 $0.78
10,000 $1.00 12/31/08 $0.815 $1.295 $0.50
David 10,000 18.7% $1.00 12/26/09 $1.63 $2.59 $1.00
Collins 65,000 $1.00 01/18/09 $1.532 $2.435 $0.94
10,000 $1.00 12/31/08 $0.815 $1.295 $0.50
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table provides information regarding the aggregate exercises
of options by each of the named executive officers. In addition, this table
includes the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 1999, and the values of "in-the-money" options,
which values represent the positive spread between the exercise price of any
such option and the fiscal year-end value of the Company's Common Stock.
50
<PAGE>
Year End Option Values for Executive Officers
<TABLE>
<CAPTION>
Name Exercised Value Realized No. of Value of
Unexercised Unexercised
Exercisable/ Exercisable/
Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G. Michael 0 0 3,870,686/0 $2,678,849/0
Swor
Frank M. Clark 0 0 220,000/0 $ 3,432/0
Donald K. 0 0 270,000/0 $ 4,212/0
Lawrence
David Collins 0 0 85,000/0 $ 1,326/0
(1)
</TABLE>
(1) Mr. Collins received options to purchase 75,000 shares of the Company's
Common Stock prior to being appointed to the Board of Directors for
consulting services rendered.
In November 1998, the Company entered into a seven (7) year collaborative
agreement with Dr. William B. Saye, the Medical Director and CEO of the Advanced
Laparoscopy Training Center in Marietta, Georgia ("ALTC") under which the
Company acquired the "digital rights" of ALTC and the resulting amalgam as it
relates to surgical education and marketing rights to the ALTC database. Under
this agreement, Dr. Saye became a member of the Company's Board of Directors and
agreed to act as the Medical Director of ALTC VirtualLabs. Dr. Saye is to be
compensated for travel expenses and will be paid an honorarium of $2,500 per day
when his services are requested by Surgical. In addition, Dr. Saye was awarded
stock options to purchase up to 1,000,000 shares of the Company's Common Stock
over the period, 300,000 of which were issued upon the execution of the
agreement, and the balance of which are issuable monthly. The intention of the
agreement is that any educational activity involving ALTC or Dr. Saye on the
Internet or other digital presence would be the property of and under the
control of Surgical.
Except for certain shares of the Company's Common Stock issued and sold and
options granted to the nine (9) executive officers and/or directors of the
Company as of December 31, 1999 in consideration for various cash, loans and
services performed for the Company by each of them, and rent paid to a company
controlled by Dr. Swor for the Company's facility, cash or non-cash compensation
in the amount of $216,221 was awarded to, earned by or paid to executive
officers or directors of the Company for all services rendered in all capacities
to the Company since January 1, 1996.
The Company has adopted an Employee Stock Option Plan and a Consultant
Stock Option Plan.
51
<PAGE>
Employee Contracts and Agreement
The Company has an arrangement with Staff Leasing, a Florida licensed
employee leasing company, and has entered into Employee Agreements with Dr. Swor
and Mr. Lawrence and had an Employee Agreement with Mr. Clark prior to his
retirement. Dr. Swor, Mr. Lawrence and Mr. Clark are or were treated as
co-employees by Staff and the Company.
The agreement with Dr. Swor was entered into on June 15, 1998. At that
time, Dr. Swor was employed as the Treasurer and Medical Director of the Company
at an annual salary of $60,000. The agreement initially was for a term of one
(1) year, which term is renewable year to year unless either party provides
notice to the other within fourteen (14) days prior to the expiration that it
seeks to terminate the agreement. Dr. Swor is required to devote such time as is
required to fulfill his duties to the Company. Dr. Swor is reimbursed reasonable
and necessary expenses incurred on behalf of the Company. Prior to the execution
of this agreement, Dr. Swor received no salary for his services to the Company
since its inception. Dr. Swor became Chief Executive Officer of the Company in
February 2000.
The agreement with Mr. Clark was entered into on June 15, 1998. At that
time, Mr. Clark was employed as the President and CEO of the Company for an
initial term of one (1) year at a salary of $60,000, which term is renewable
year to year unless either party provides notice to the other within fourteen
(14) days prior to the expiration that it seeks to terminate the agreement. Mr.
Clark is required to devote such time as is required to fulfill his duties to
the Company. Mr. Clark is reimbursed reasonable and necessary expenses incurred
on behalf of the Company. Mr. Clark received a signing bonus of 50,000 shares of
restricted stock in the Company and was granted options to purchase 200,000
shares of the Company's Common Stock at an exercise price of $1.75 per share.
Mr. Clark retired as President and Chief Executive Officer in January 2000.
The agreement with Mr. Lawrence was entered into on April 1, 1997. At that
time, Mr. Lawrence was employed as the Marketing Director of the Company for an
initial term of one (1) year at a salary of $50,000, which term is renewable
year to year unless either party provides notice to the other within fourteen
(14) days prior to the expiration that it seeks to terminate the agreement.
Effective in January 1998, the salary of Mr. Lawrence was increased to $100,000
per year; however, he agreed to defer receipt of the additional amounts until a
mutually agreed date. The Company began installment payments of the deferred
amount on September 1, 1999. The Company has accrued $95,000 for amounts owed to
Mr. Lawrence related to his compensation. Commencing January 1, 1998, Mr.
Lawrence became the Executive Vice President of the Company, and effective
February 1, 2000, Mr. Lawrence became the Company's President and Chief
Operating Officer. Mr. Lawrence is required to devote such time as is required
to fulfill his duties to the Company. Mr. Lawrence is reimbursed reasonable and
necessary expenses incurred on behalf of the Company.
Key Man Life Insurance
The Company currently does not maintain key-man life insurance coverage on
any of its officers or directors. However, the Company is the named beneficiary
of a key-man life insurance policy currently owned by Dr. Swor.
Employee and Consultants Stock Option Plans
Employee Stock Option Plans
On July 21, 1994, the Board of Directors adopted an Employee Stock Option
Plan which is available to employees and Directors of the Company ("ESOP").
Pursuant to the ESOP, employees are given the opportunity to purchase a
52
<PAGE>
designated number of shares of the Company's common stock at a pre-set flat
rate. The options are granted for a period of seven (7) years and are not
transferable except by will or laws of descent and distribution. The options may
not be exercised unless the Company has filed an effective registration
statement on Form S-8 relating to the shares underlying the option. As to
employees who are not also directors, such employees must agree to remain with
the Company for a period of two (2) years from the date the option is granted.
In the event that such employee is terminated during such two (2) year period
for cause or at the request of the employee, to the extent any options have not
been exercised, the options terminate immediately upon the termination of the
employee. If termination is for any other reason, the employee has two (2)
months from the date of termination to exercise. In the case of death, the
options must be exercised within the lesser of (i) three (3) years from the date
of death or (ii) five (5) years from the option issuance date. In the case of
the capital restructure of the Company, the options are effective as if
exercised prior to the capital restructuring event. The employee is limited to
exercise the equivalent of $100,000 of Common Stock in the Company in any
calendar year.
In January, 1998, the Board of Directors revised the term of the ESOP
("1998 Revised ESOP"). Under the revised plan, the term is now determined by a
Committee consisting of Frank Clark and Sam Norton (the "Stock Option
Committee"). The Stock Option Committee is evaluating recommendations for
adjusting stock compensation for the Company employees and consultants.
In January, 1999, the Board of Directors further revised the ESOP ("1999
Revised ESOP"). Under the further revised plan which is designated the "Surgical
Safety Products 1999 Stock Option Plan", employees qualify for issuance of
Incentive Stock Options under Section 422 of the Internal Revenue Code, as
amended, Non-incentive Stock Options and Reload Options. Directors, consultants
and advisors who are issued options under the plan only qualify for
Non-incentive Stock Options and Reload Options. All of the options under this
plan terminate ten (10) years (except those issued to 10% or more shareholders,
in which case they terminate in five (5) years) from issuance and vest for
employees at the rate of one-third each year for three (3) years and vest as
established by the Stock Option Committee for Directors, Consultants and
Advisors. The plan is overseen by the Board of Directors or the Stock Option
Committee and all issuances are at fair market value as defined in the plan (and
110% of fair market value in the case of a 10% or more shareholder). The plan
provides the exercise rights on death, disability or termination of employment.
The Company may, at its option, provide change of control rights to designated
persons and if granted, the option holder is entitled to certain cash payments
on all options granted whether or not vested if the Company changes control.
The Board of Directors approved the Company's 2000 Stock Plan ("2000 Stock
Plan") on February 7, 2000. The shareholders approved such plan at the Annual
Meeting held on February 28, 2000. The 2000 Stock Plan is substantially similar
to the 1999 Revised ESOP with the addition that the Stock Compensation Committee
may grant awards of stock in addition to options and may grant awards and/or
options to members of the Board of Directors upon assumption of a seat on the
Board and upon reelection of awards of up to 25,000 shares and/or options to
purchase up to 25,000 shares of the Company's Common Stock. The 2000 Plan is
funded with 10,000,000 shares of Common Stock. This plan covers employees,
Officers, Directors, consultants and advisors.
Pursuant to the ESOP, the Company has granted options to purchase 4,166,316
shares of the Company's Common Stock representing proceeds on exercise of
$1,320,722 under the 1994 ESOP, 708,329 shares of the Company's Common Stock
representing proceeds on exercise of $708,329 under the 1998 Revised ESOP
(without regard to the additional options to Dr. Saye which accrue at the rate
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<PAGE>
of 8,333 per month after December 31, 1999) and 345,000 shares of the Company's
Common Stock representing proceeds on exercise of $435,000 under the 1999
Revised ESOP to date as follows:
<TABLE>
<CAPTION>
Employee Date Option No. of Shares Exercise Price Term
Granted subject to Exercise Years
1994 ESOP (1)(2)
- -----------------
<S> <C> <C> <C> <C>
G. Michael Swor (3) 07/21/94 3,850,686 $.317 7
Irwin Newman (4) 07/21/94 63,126 $.317 7
James D. Stuart 07/21/94 63,126 $.317 7
Samuel Norton 07/21/94 63,126 $.317 7
David Swor 07/21/94 63,126 $.317 7
Thomas DeCesare (5) 07/21/94 63,126 $.317 7
1998 Revised ESOP(2)
- ---------------------
Frank M. Clark (6) 06/15/98 200,000 $1.00 7
Donald L. Lawrence (6) 06/15/98 100,000 $1.00 7
William B. Saye (7) 11/20/98 408,329 $1.00 7
1999 Revised ESOP (2)
- ----------------------
G. Michael Swor (3) 1/01/99 10,000 $1.00 10
12/27/99 10,000 $1.00 10
Frank M. Clark (6) 1/01/99 10,000 $1.00 10
12/27/99 10,000 $1.00 10
Donald L. Lawrence (6) 1/01/99 10,000 $1.00 10
5/25/99 150,000 $1.00 10
12/27/99 10,000 $1.00 10
David Collins (8) 12/27/99 10,000 $1.00 10
Irwin Newman (9) 6/30/99 25,000 $1.72 10
Sam Norton (9) 6/30/99 25,000 $1.72 10
Dr. William Saye (9) 6/30/99 25,000 $1.72 10
James Stuart (9) 6/30/99 25,000 $1.72 10
David Swor (9) 6/30/99 25,000 $1.72 10
</TABLE>
54
<PAGE>
(1) The options granted under the 1994 ESOP have been adjusted to reflect the
new conversion rate in accordance with the capital restructuring provision
which came into effect when Surgical Safety Products, Inc. of Florida
merged into Sheffeld Acres, Inc., the surviving New York corporation.
(2) The Company relied upon Section 4(2) of the Act, Section 517.061(11) of the
Florida Code and Section 10-5-9 (13) of the Georgia Code for the grant of
these options.
(3) Dr. Swor received options for 63,126 shares of the Company's Common Stock
as a Director and options for 3,787,560 shares of the Company's Common
Stock in exchange for transfer of patents and rights to existing patent
concepts. Dr. Swor was granted Non Incentive Stock Options under the 1999
Revised ESOP.
(4) In addition to the options granted to Mr. Newman for 63,126 shares of the
Company's Common Stock as a Director of the Company, options to purchase up
to 315,630 shares of the Company's Common Stock were granted to Jenex
Financial Services, Inc., a company of which Mr. Newman is the principal.
Jenex is a financial service company which was issued the options under the
Company's 1994 CSOP. Mr. Newman resigned from the Board in February 2000.
(5) Mr. DeCesare resigned as director on May 4, 1999 due to personal
considerations.
(6) Each of these persons received their options as a bonus; Mr. Clark's as an
additional incentive to join the Company as its CEO and Mr. Lawrence in
consideration of outstanding services to the Company for the prior year.
Although the options granted to Mr. Clark and Mr. Lawrence were exercisable
at $1.75 per share, the Board of Directors on January 20, 1999 voted to
reduce the exercise price to $1.00. Since the change was made after
December 31, 1998, the original exercise price was used in the financial
statements for purposes of determining weighted averages. In addition, the
Board of Director at the January 1999 meeting increased the term of Mr.
Clark's options from one (1) to seven (7) years. Messrs. Clark and Lawrence
each received Non Incentive Stock Options under the 1999 Revised ESOP.
(7) Dr. Saye received 300,000 issued on November 20, 1998. Dr. Saye receives
additional 100,000 options per year on a monthly basis. Accordingly, 8,333
options are attributable for the each month from December 1998 through
December 1999. The exercise price for the options is $1.00 for year one,
$1.50 for year two, $2.00 for year three and $2.50 for years 4 through 7.
(8) Prior to becoming a Director in January 1999, Mr. Collins had received
options under the Company's CSOP for consulting services rendered. Mr.
Collins received these options as Non Incentive Stock Options under the
1999 Revised ESOP.
(9) In June 1999, the Board granted options to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $1.72 to each of its five
(5) outside directors as a bonus for their service on the Board of
Directors. The Company granted such options pursuant to Section 4(2) of the
Act and Rule 506. These options are Non Incentive Stock Options under the
1999 Revised ESOP.
Consultant Stock Option Plans
On July 21, 1994, the Board of Directors also adopted a Consultant Stock
Option Plan which is available to certain consultants who provide services to
the Company ("CSOP"). Pursuant to the CSOP, consultants are given the
opportunity to purchase a designated number of shares of the Company's common
55
<PAGE>
stock at a pre-set flat rate. The options are granted for a period of seven (7)
years and are not transferable except by will or laws of descent and
distribution. The options may not be exercised unless the Company has filed an
effective registration statement on Form S-8 relating to the shares underlying
the option. In the event the consultant's services are terminated, such
consultant has two (2) months from the date of termination in which to exercise
and in the case of death, the estate has the lesser of (i) three (3) years from
the date of death or (ii) five (5) years from the option issuance date in which
to exercise. In the case of the capital restructure of the Company, the options
are effective as if exercised prior to the capital restructuring event. There
are no yearly limitation on the amount of options which may be exercised by
consultants.
In January, 1998, the Board of Directors revised the term of the CSOP
("1998 Revised CSOP"). Under the revised plan, the term is now determined by the
Stock Option Committee. The 1998 CSOP requires that the options are not
exercisable for a period of two (2) years from issuance
In January, 1999, the Board of Directors adopted the 1999 Revised ESOP
which covers consultants and advisors to the Company.
In February 2000, the Board of Directors adopted and the shareholders
approved the 2000 Stock Plan which covers consultants and advisors to the
Company.
Pursuant to the CSOP, the Company has granted options to purchase 346,115
shares of the Company's Common Stock representing proceeds of $110,779 to the
Company under the 1994 CSOP, options to purchase 129,000 shares of the Company's
Common Stock representing proceeds of $114,500 to the Company under the 1998
Revised CSOP and 312,500 shares of the Company's Common Stock representing
proceeds of $312,500 under the 1999 Revised ESOP to date as follows:
<TABLE>
<CAPTION>
Consultant/ Date Option No. of Shares Exercise Price Term
Services Rendered Granted subject to Exercise Years
<S> <C> <C> <C> <C>
1994 CSOP(1)(2)
Danielle Chevalier 07/21/94 3,156 $.317 7
For marketing assistance
at conventions
Donna Haiduven 07/21/94 15,782 $.317 7
For medical advisory and
clinical studies
Jenex Financial Services
Inc. (3) 07/21/94 315,630 $.317 7
For financial advisory and
corporate financing
consulting services
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Consultant/ Date Option No. of Shares Exercise Price Term
Services Rendered Granted subject to Exercise Years
<S> <C> <C> <C> <C>
Leann Swor 07/21/94 6,313 $.317 7
For marketing assistance
at conventions
Loren Schuman 07/21/94 4,734 $.480 7
For marketing consulting
services
Bruce Cohen 01/24/95 500 $0.90 7
Performed business
valuations of acquisition
candidates
1998 Revised CSOP (2)
Danielle Chevalier 01/01/98 2,000 $0.50 7
For marketing assistance
at conventions
Leann Swor 01/01/98 2,000 $.050 7
For marketing assistance
at conventions
Stacy Quaid (4) 01/01/98 50,000 $0.50 7
For assistance in
becoming a reporting
company
Mike Williams (4) 08/03/98 50,000 $1.00 7
As a signing bonus
T.T. Communications 10/15/98 25,000 $1.50 7
For investor relations
services
1999 Revised ESOP (2)
David Collins (5) 1/01/99 10,000 $1.00 10
For financial consulting 1/19/99 65,000 $1.00 10
services
Mike Williams (6)(7) 1/01/99 5,000 $1.00 10
As a performance bonus 1/08/99 50,000 $1.00 10
12/27/99 10,000 $1.00 10
Leann Lafko-Spofford (6) 1/01/99 5,000 $1.00 10
As a performance bonus 1/08/99 50,000 $1.00 10
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Consultant/ Date Option No. of Shares Exercise Price Term
Services Rendered Granted subject to Exercise Years
<S> <C> <C> <C> <C>
Stacy Quaid (6)(7) 1/01/99 3,500 $1.00 10
As a performance bonus 1/08/99 21,500 $1.00 10
12/27/99 5,000 $1.00 10
Eric Hill (6)(7) 1/01/99 3,000 $1.00 10
As a performance bonus 1/08/99 25,000 $1.00 10
12/27/99 10,000 $1.00 10
Scott Heap, Ad-Vantagenet 01/8/99 20,000 $1.00 10
For OASiS development
services
Ray Villares, Ad-Vantagenet 01/8/99 20,000 $1.00 10
For OASiS development
services
Karen Arango (8) 05/25/99 1,000 $1.00 10
As a performance bonus
Bernice Gordon (8) 05/25/99 1,000 $1.00 10
As a performance bonus
Ron Ley (9) 12/03/99 2,500 $1.00 10
As a performance bonus
Rick Smith (9) 12/03/99 2,500 $1.00 10
As a performance bonus
Kim Conroy (7) 12/27/99 2,500 $1.00 10
As a performance bonus
</TABLE>
(1) The options granted under the 1994 CSOP have been adjusted to reflect the
new conversion rate in accordance with the capital restructuring provision
which came into effect when Surgical Safety Products, Inc. of Florida
merged into Sheffeld Acres, Inc., the surviving New York corporation.
(2) The Company relied upon Section 4(2) of the Act and Section 517.061(11) of
the Florida Code for the grant of these options.
(3) These options were granted to Jenex in exchange for certain financial
services provided to the Company. Mr. Newman, a former Director of the
Company, is the principal of Jenex. Mr. Newman is deemed the beneficial
owner of these options.
(4) Each of these persons received their options as a bonus; Ms. Quaid in
consideration of outstanding services to the Company for the prior year in
assisting with the Company's registration as a reporting company and Mr.
Williams as an additional incentive to join the Company as the Sales
Manager. Although the options granted to Mr. Williams were exercisable at
$1.75 per share, the Board of Directors on January 20, 1999 voted to reduce
the exercise price to $1.00. Since the change was made after December 31,
1998, the original exercise price was used in the financial statements for
purposes of determining weighted averages.
58
<PAGE>
(5) David Collins received these options as a consultant to the Company prior
to his election to the Board of Directors on January 20, 1999.
(6) Each of these persons is covered by the Staff agreement and is treated as a
co-employee; however, for purposes of qualification under the 1999 Revised
ESOP, such person has been treated as a consultant and advisor to the
Company who qualifies for non-incentive stock options.
(7) In December 1999, the Company granted year-end options to purchase a total
of 67,500 shares of the Company's Common Stock at an exercise price of
$1.00 as a bonus for performance during fiscal 1999. Of such options, Dr.
Swor, Mr. Clark, Mr. Lawrence and Mr. Collins, all officers of the Company,
each were granted options to purchase 10,000 shares. The balance of 27,500
were granted to other employees .
(8) In May 1999, the Company granted options to purchase 170,000 shares of the
Company's Common Stock at an exercise price of $1. If such options, Mr.
Lawrence was granted options to purchase 150,000 shares in consideration of
his efforts for the exploitation of OASiS, and two of his assistants each
received options to purchase 1,000 shares. The Company granted such options
pursuant to Section 4(2) of the Act and Rule 506.
(9) In December 1999, the Company granted options to purchase a total of 5,000
shares of its Common Stock at an exercise price of $1.00 to two outside
consultants. The Company granted such options pursuant to Section 4(2) of
the Act and Rule 506.
Compensation of Directors
The Company has no standard arrangements for compensating the directors of
the Company for their attendance at meetings of the Board of Directors. As part
of the 2000 Stock Plan approved by the Board of Directors and shareholders, the
Stock Compensation Committee may grant awards of stock in addition to options
and may grant awards and/or options to members of the Board of Directors upon
assumption of a seat on the Board and upon reelection of awards of up to 25,000
shares and/or options to purchase up to 25,000 shares of the Company's Common
Stock. The 2000 Plan is funded with 10,000,000 shares of Common Stock.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 31, 1999,
regarding the ownership of the Company's Common Stock by each shareholder known
by the Company to be the beneficial owner of more than five percent (5%) of its
outstanding shares of Common Stock, each director and all executive officers and
directors as a group. Except as otherwise indicated, each of the shareholders
has sole voting and investment power with respect to the share of Common Stock
beneficially owned.
59
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Title of Amount and Nature of Percent of
Beneficial Owner Class Beneficial Owner Class
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Dr. G. Michael Swor Common 3,763,890 (2) 25.93%
Frank M. Clark Common 62,000 (3) .43%
Donald K. Lawrence Common 250,000 (4) 1.72%
James D. Stuart Common 730,198 (5) 5.03%
Irwin Newman (7) Common -0- -0-
Sam Norton Common 103,400 (7) .71%
David Swor Common 523,445 (7) 3.61%
Dr. William B. Saye Common 50,000 (7) .34%
David Collins Common 34,000 (3) .23%
</TABLE>
All Executive Officers and Directors 5,516,933 38.00%
as a Group (nine(9) persons)
- ----------
(1) The percentages are based upon 14,515,373 shares of Common Stock
outstanding, not including the 6,000 shares to Ten Peaks for which the
Company is obligated, but has not delivered due to its belief that Ten
Peaks has failed to perform. In addition to the shares owned by the
Executive Officers and Directors, said officers and directors own
(including those beneficially held) options to purchase 5,497,149 shares of
the Company's Common Stock (without regard to the additional options to Dr.
Saye which accrue at the rate of 8,333 per month after December 31, 1999)
pursuant to Employee and Consultant Stock Option Plans adopted in 1994,
1998 and 1999. In the event all such options to purchase were exercised,
this group would own a total of 110,140,082 shares of the Company's Common
Stock which would represent 55.04% of the total shares of Common Stock
outstanding. Under the 1994 ESOP, 1998 Revised ESOP and 1999 Revised ESOP,
none of these options may be exercised within 60 days.
(2) This includes 631,260 owned by Dr. Swor's wife of which he is deemed the
beneficial owner.
(3) In April 1999, Mr. Clark and Mr. Collins received 12,000 and 34,000 shares,
respectively, of the Company's restricted Common Stock in lieu of salary in
the amount of $7,812 due to Mr. Clark and consulting fees equal to $23,410
due to Mr. Collins.
(4) Mr. Lawrence received his shares of restricted Common Stock as part of the
acquisition of all of the assets of Endex by the Company.
(5) These shares are a portion of the 816,619 shares which Mr. Stuart received
as a gift from Dr. Swor in 1996.
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<PAGE>
(6) Mr. Newman resigned in February 2000 without requesting that the Company
disclose his reasons.
(7) Each of these Directors purchased 50,000 shares of the Company's restricted
Common Stock and warrants to purchase 25,000 shares of the Company's
restricted Common Stock exercisable at the price of $1.00 for a term of
five (5) years on the same terms as other investors in a self- directed
private placement commenced by the Company in April 1999.
Item 12. Certain Relationships and Related Transactions
The Company has a line of credit in the amount of $100,000 which expires in
May 2017 and is guaranteed by Dr. Swor and his wife. In fiscal 1999, the line of
credit has been used to fund operations on a short term basis; however, $-0- was
outstanding as of December 31, 1999. During 1999, Dr. Swor advanced additional
funds to the Company. As of December 31, 1999, those advances totaled $52,500.
Dr. Swor has a year to year employment contract with the Company.
On June 15, 1998, the Company engaged Frank M. Clark to act as the
President of the Company. As such he received 50,000 shares of the Company's
Common Stock as a signing bonus valued at $50,000 and options to purchase up to
200,000 shares of the Company's Common Stock at a price of $1.75 per share under
the 1998 Revised ESOP. In January 1999, the Board voted to reduce the exercise
price on the option to $1.00 per share and to increase the exercise term. Mr.
Clark's shares were valued at $50,000 and there was no value attached to the
grant of his options. Mr. Clark has a year to year employment contract with the
Company.
In November 1998, the Company entered into a seven (7) year collaborative
agreement with Dr. William B. Saye, the Medical Director and CEO of the Advanced
Laparoscopy Training Center in Marietta, Georgia ("ALTC") under which the
Company acquired the "digital rights" of ALTC and the resulting amalgam as it
relates to surgical education and marketing rights to the ALTC database. Under
this agreement, Dr. Saye became a member of the Company's Board of Directors and
agreed to act as the Medical Director of ALTC VirtualLabs. Dr. Saye is to be
compensated for travel expenses and will be paid an honorarium of $2,500 per day
when his services are requested by Surgical. In addition, Dr. Saye was awarded
stock options to purchase up to 1,000,000 shares of the Company's Common Stock
over the period, 300,000 of which were issued upon the execution of the
agreement, and the balance of which are issuable monthly for which 99,996 were
granted in fiscal 1999. The intention of the agreement is that any educational
activity involving ALTC or Dr. Saye on the Internet or other digital presence
would be the property of and under the control of Surgical.
In January 1999, the Company granted options to purchase 10,000 shares of
the Company's Common Stock at $1.00 pursuant to the 1999 Revised Stock Option
Plan ("1999 Revised ESOP") to each of Frank Clark, Donald Lawrence and Michael
Swor, respectively the Company's President, Vice President and Treasurer. Prior
to becoming a Director of the Company and assuming the position of Acting Chief
Financial Officer, David Collins was granted options to purchase a total of
75,000 shares of the Company's Common Stock at $1.00 for consulting services
rendered pursuant to the 1999 Revised ESOP. The granted such options under
Section 4(2) of the Act and Rule 506.
In April 1999 the Company commenced a self-directed private placement
offering of its restricted Common Stock and warrants for which it received gross
proceeds of $475,000, for which Directors Sam Norton, David Swor and Dr. Saye
each purchased 50,000 shares and were granted warrants to purchase 25, 000
shares on the same terms as outside investors. Pursuant to such offering, a
61
<PAGE>
total of 950,000 shares of restricted Common Stock were issued and warrants to
purchase 475,000 shares of the Company's restricted Common Stock at an exercise
price of $1.00 exercisable within five (5) years were granted. Three directors
purchased shares under this offering. The Company conducted this offering
pursuant to Section 4(2) of the Act and Rule 506. No offering memorandum was
used in connection with this offering. Rather investors were provided with
access to the Company's Registration Statement on Form 10-SB, as amended, its
Form 10-K and its Form 10Q for the 1st Quarter 1999, all of which are filed with
the SEC.
In April 1999, the Company entered into an agreement with KJS to provide
consulting services. KJS agreed to accept 7,000 shares of the Company's common
stock valued at the current bid price of $.50 as part of an initial retainer
with the balance of $1,500 to be paid in cash at such time as KJS introduces the
Company to five institutional funding sources.
In April 1999, the Company issued 2,000 shares each to David Utz and Robert
Wingate, two consultants of the Company in lieu of cash for services relating to
their production of a CD-Rom disc to be used to promote OASiS. Such 4000 shares
were valued at $2,250 which was based upon the closing price for the shares on
the dates the services were due to be paid.
In May 1999, the Company entered into an agreement with Ten Peaks to pay a
finder's fee for successfully securing specifically defined financing for the
Company. Ten Peaks agreed to accept 6,000 shares of the Company's common stock
in lieu of a retainer provided such stock had a fair market value as reported on
Bloomberg, LLP on the date of execution of not less than $.66. Although
obligated to issue such shares, the Company has decided not to deliver such
shares since it believes that Ten Peaks did not perform as required.
In May 1999, the Company issued a total of 46,000 shares of its restricted
Common Stock to Frank Clark and David Collins and 11,400 shares of its
restricted Common Stock to three (3) other employees in lieu of salary and
consulting fees due from the Company to each of them, which salary and
consulting fees were valued at $31,222 in the case of Mr. Clark and Mr. Collins
and at $7,832 in the case of the three (3) employees.
In May 1999, the Company granted options to purchase 170,000 shares of the
Company's Common Stock at an exercise price of $1. If such options, Mr. Lawrence
was granted options to purchase 150,000 shares in consideration of his efforts
for the exploitation of OASiS, and two of his assistants each received options
to purchase 1,000 shares. The Company granted such options pursuant to Section
4(2) of the Act and Rule 506.
In June 1999, the Board granted options to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $1.72 to each of its five (5)
outside directors as a bonus for their service on the Board of Directors. The
Company granted such options pursuant to Section 4(2) of the Act and Rule 506.
In December 1999 the Company issued 10,000 shares of its restricted Common
Stock. Originally, the Company granted three (3) consultants a total of 12,500
shares, one person was granted 7,500 shares the Company's restricted Common
Stock for his work with the Company's patents, one person was granted 2,500
shares of restricted Common Stock for his work on OASiS, and the third, a nurse
at SMH, was granted 2,500 shares of restricted Common Stock for her work on
OASiS. However, the nurse at SMH declined, stating that such grant would not be
appropriate under SMH policy and such issuance was not made. The issuance was
made pursuant to Section 4(2) of the Act and Rule 506.
62
<PAGE>
In December 1999, the Company granted options to purchase a total of 5,000
shares of its Common Stock at an exercise price of $1.00 to two outside
consultants. The Company granted such options pursuant to Section 4(2) of the
Act and Rule 506.
In December 1999, the Company granted year-end options to purchase a total
of 67,500 shares of the Company's Common Stock at an exercise price of $1.00 as
a bonus for performance during fiscal 1999. Of such options, Dr. Swor, Mr.
Clark, Mr. Lawrence and Mr. Collins, all officers of the Company, each were
granted options to purchase 10,000 shares. The balance of 27,500 were granted to
other employees .
In December 1999, the Company executed the TK Loan Commitment with TK, as
Agent and Lender, whereby TK agreed to make loans to the Company of up to
$5,000,000 in installments for a period commencing with the date of the
agreement and ending on November 30, 2002. The TK Loan Commitment permits
instalments aggregating $500,000 in any 90-day period. The proceeds of the loan
are to pay agent fees and for working capital purposes. The TK Loan Commitment
provides that the offering has been conducted under Regulation S of the Act.
Under the terms of the TK Loan Commitment, each installment is supported by a
convertible note and security agreement and the Agent and Lender are granted
warrants to purchase shares of the Company's Common Stock. Prior to each
instalment, the Company is obligated to escrow shares under the terms of an
escrow agreement. The convertible note bears interest at 8% per annum and may be
prepaid at any time. The note is convertible at any time at the option of TK at
the higher of (i) $.375 or (ii) the lower of $.8203 or 75% of the closing bid
price of the Company's Common Stock on the conversion date. The security
agreement grants TK a security interest in all of the Company's equipment,
inventory, accounts, contract rights, chattel paper and instruments, and the
proceeds of any of the collateral. Both the Lender's and the Agent's warrants
are exercisable at $1.09375 per share, subject to defined adjustments. The
warrants are exercisable 20% immediately and at the rate of an additional 1% for
each $25,000 of principal borrowed. The Company was obligated to issue 2,700,000
shares of its Common Stock to be held in escrow for the potential conversion
under the notes or exercise of the warrants. TK acts as escrow agent for the
shares and is authorized to release such shares upon receipt of a notice of note
conversion notice or warrant exercise. The Company granted TK registration
rights and was obligated to file a Form S-3 within sixty (60) days of the
agreement, initially to cover 20,038,097 shares. The Company filed the Form S-3
with the Securities and Exchange Commission on March 2, 2000. In the event the
Company's registration statement is not declared effective within 120 days of a
specified deadline, the Company is required to pay a penalty equal to 2% of the
principal amount of the loans outstanding. Under the terms of the TK Loan
Commitment, an initial loan of $650,000 was made on December 30, 1999, the
Lender was granted a warrant to purchase 3,428,571 shares and the Agent was
granted a warrant to purchase 1,142,857 shares. The issuance of the securities
was made pursuant to Regulation S of the Act.
In February 2000, the Company executed an Investment Banking Services
Agreement with Dunwoody Brokerage Services Inc. d/b/a Swartz Institutional
Finance ("Swartz"). Under the agreement, Swartz has agreed to introduce entities
to the Company for potential strategic partnerships, licensing arrangements,
mergers, acquisitions, investments or funding. For such services, Swartz will
receive a scaled fee based upon the value of any completed transaction. Said fee
is payable in cash or stock at Swartz's option and by the issuance of warrants,
the number of which is based upon the fee divided by the market price of the
Company's Common Stock. There is no obligation on the part of the Company to
accept any transaction offered by the Swartz to the Company.
63
<PAGE>
In February 2000, the Company executed a Consulting Agreement with Global
Development Advisors, Inc. ("GDA")). Under the agreement, GDA will provide
business and marketing consulting services, assist in the implementation of a
strategic plan and assist, coordinate and monitor the Company's investor
relations program. The agreement is for a term of six (6) months and may be
extended by the Company. In lieu of cash payments for services, GDA has agreed
to accept 50,000 shares of the Company's Common Stock under the Company's 2000
Stock Plan approved by its shareholders on February 28, 2000 and options to
purchase an additional 50,000 shares at an exercise price of $1.09. The issuance
was made pursuant to Section 4(2) of the Act and Rule 506.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
Item No. Description
- -------- --------------
3.(I).1 Articles of Incorporation of Surgical Safety Products, Inc.,
a Florida corporation filed May 15, 1992 [1]
3.(I).2 Articles of Amendment filed December 9, 1992 [1]
3.(I).3 Articles of Amendment filed July 19, 1994 [1]
3.(I).4 Articles of Amendment filed October 11, 1994 [1]
3.(I).5 Articles of Incorporation of Sheffeld Acres, Inc, a New York
Corporation filed May 7, 1993 [1]
3.(I).6 Articles of Merger filed in the State of Florida October 12, 1994 [1]
3.(I).7 Certificate of Merger filed in the State of New York
February 8, 1995 [1]
3.(I).8 Certificate to Do Business in the State of Florida filed April
11, 1995 [1]
3.(I).9 Certificate of Amendment filed May 1, 1998 [1]
3.(I).10 Certificate of Amendment filed February 28, 2000 [7]
3.(II).1 Bylaws of Sheffeld Acres, Inc., now known as Surgical Safety
Products, Inc. [1]
3.(II).2 Amended Bylaws of Surgical Safety Products, Inc. [2]
10.1 Acquisition of Endex Systems, Inc. d/b/a/ InterActive PIE
dated December 8, 1997 [1]
10.2 Prepaid Capital Lease Agreement with Community Health
Corporation relative to Sarasota Medical Hospital OASiS
Installation dated January 30, 1998 [1]
10.3 Letter of Intent with United States Surgical Corporation
dated February 12, 1998 [1]
10.4 Form of Rockford Industries, Inc. Rental Agreement and
Equipment Schedule to Master Lease Agreement [1]
</TABLE>
64
<PAGE>
<TABLE>
<S> <C>
10.5 Ad-Vantagenet Letter of Intent dated June 19, 1998 [1]
10.6 Distribution Agreement with Morrison International Inc.
dated September 30, 1996 [1]
10.7 Distribution Agreement with Hospital News dated August 1, 1997 [1]
10.8 Clinical Products Testing Agreement with Sarasota Memorial
Hospital dated January 30, 1998 [1]
10.9 Real Estate Lease for Executive Offices effective June 1, 1998 [1]
10.10 Employment Agreement with Donald K. Lawrence dated April 1, 1997 [1]
10.11 Employment Agreement with G. Michael Swor dated June 15, 1998 [1]
10.12 Employment Agreement with Frank M. Clark dated June 15, 1998 [1]
10.13 Agreement for Consulting Services with Stockstowatch.com Inc.,
dated March 30, 1988 [1]
10.14 Form of Employee Option Agreement dated July 1994 [1]
10.15 Form of Employee Option Agreement dated 1998 [1]
10.16 Form of Consultants Option Agreement dated July 1994 [1]
10.17 Form of Consultants Option Agreement dated 1998 [1]
10.18 Confidential Private Offering Memorandum dated May 30, 1995 [1]
10.19 Supplement to Private Offering Memorandum dated October 30, 1995 [1]
10.20 Stock Option Agreement with Bay Breeze Enterprises LLC dated
April 9, 1998 [1]
10.21 Revolving Loan Agreement, Revolving Note, Security Agreement
with SouthTrust Bank dated May 2, 1997 [1]
10.22 Agreement between the Company and T. T. Communications, Inc.
dated October 15, 1998 [2]
10.23 Agreement between the Company and U.S. Surgical Corporation
dated October 28, 1998. [2]
10.24 Collaborative Agreement between the Company and Dr. William
B. Saye dated November 16, 1998. [2]
10.25 Kiosk Information System, Inc. Purchase Order dated November
3, 1998 [2]
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
10.26 Surgical Safety Products 1999 Stock Option Plan adopted
January 1999 [2]
10.27 Form of the Employee Option Agreement under the Surgical
Safety Products 1999 Stock Option Plan dated January 1999[2]
10.28 Form of the Director, Consultant and Advisor Option Agreement
under the Surgical Safety Products 1999 Stock Option Plan
dated January 1999 [2]
10.29 Verio, Inc. Access Service Agreement dated February 16, 1999.[2]
10.30 Form of Investor Subscription Documents and Agreements relative
to the April 1999 Self Directed Private Placement Offering under
Rule 506 of Regulation D. [3]
10.31 Form of the Warrant issued pursuant to the April 1999 Self
Directed Private Placement Offering under Rule 506 of Regulation D.[3]
10.32 Consulting Agreement dated April 1999 with Koritz Group, LLC. [3]
10.33 Agreement dated April 1999 with KJS Investment Corporation. [4]
10.34 Agreement dated May 1999 with Ten Peaks Capital Corp. [4]
10.35 Private Partner Network Agreement dated July 30, 1999 with US
Surgical [5]
10.36 Staff/Client Leasing Agreement dated October 16, 1999, as amended
September 15, 1999 [5]
10.37 Agreement dated July 15, 1999 with Triton Capital Inc.[6]
10.38 Effective December 30, 1999, Loan Agreement, Note, Security
Agreement, Lender's Warrant, Agent's Warrant, Registration Rights
Agreement and Escrow Agreement relative to the December 1999
transaction with Thomson Kernaghan & Co., Inc. and Amendment thereto. [7]
10.39 Effective January 3, 2000 IBM Customer Agreement and Statement of Work. [7]
10.40 * Investment Banking Services Agreement dated February 2, 2000 with Dunwoody
Brokerage Services Inc.
10.41 * Consulting Agreement dated February 15, 2000 with Global Development Advisors
Inc.
10.42 * Surgical Safety Products 2000 Stock Option and Aware Plan
13.1 * Definitive Proxy Statement filed February 28, 2000
27.1 * Financial Data Sheet
</TABLE>
- ----------------
66
<PAGE>
[1] Previously filed with the Company's Form 10SB
[2] Previously filed with the Company's Amendment No. 1 to the Form 10SB
[3] Previously filed with the Company's Form 10QSB for the Quarter ended March
30, 1999
[4] Previously filed with the Company's Form 10QSB for the Quarter ended June
30, 1999
[5] Previously filed with the Company's Amendment No. 2 to the Form 10SB
[6] Previously filed with the Company's Form 10QSB for the Quarter ended
September 30, 1999
[7] Previously filed with the Company's Form S-3 on March 2, 2000.
* Filed herewith
(b)Reports on Form 8K
There were no reports of Form 8K for the last quarter covered by
this report.
SIGNATURE
In accordance with Section 13 and 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Surgical Safety Products, Inc.
(Registrant)
Date: March 30, 2000 By:/s/ Dr. G. Michael Swor
------------------------------
Dr. G. Michael Swor
Chief Executive Officer
By:/s/ Donald K. Lawrence
------------------------------
Donald K. Lawrence
President and Chief Operating Officer
By:/s/ David Collins
------------------------------
David Collins
Acting Chief Financial Officer, Treasurer and
Secretary
67
<PAGE>
Pursuant to the requirements of the Exchange Act, this report has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
- - --------- ----- ----
/s/ G. Michael Swor Chairman of the Board March 30, 2000
- - ------------------------- and Chief Executive Officer
G. Michael Swor
/s/ Frank M. Clark Director March 30, 2000
- - -------------------------
Frank M. Clark
/s/ David Collins Acting Chief Financial Officer, March 30, 2000
- - ------------------------- Treasurer, Secretary and Director
David Collins (principal financial or accounting officer)
/s/ Donald K. Lawrence President, Chief Operating Officer March 30, 2000
- - ------------------------- And Director
Donald K. Lawrence
/s/ James D. Stuart Director March 30, 2000
- - -------------------------
James D. Stuart
/s/ Sam Norton Director March 30, 2000
- ---------------------------
Sam Norton
/s/ David Swor Director March 30, 2000
- ---------------------------
David Swor
/s/ William B. Saye Director March 30, 2000
- ---------------------------
William B. Saye
</TABLE>
[SIGNATURE PAGE 10-KSB 12/31/99]
68
EXHIBIT 10.40
S W A R T Z
INSTITUTIONAL FINANCE
Surgical Safety Products, Inc. (SURG)
Investment Banking Services Agreement
<TABLE>
<S> <C>
Company: Surgical Safety Products, Inc. ("Surgical Safety")
Investment Banker: Dunwoody Brokerage Services, Inc. d/b/a Swartz Institutional
Finace ("Swartz")
Strategic Partnerships, Entities introduced by Swartz to Surgical Safety and entities
Licensing introduced to Surgical Safety by the aforementioned entities shall
Agreements, Mergers be referred to as "Strategic Partners." For Strategic Partners, or
and Acquistion affiliates thereof, who make any investment into Surgical Safety or
Partners introduced by into whom Surgical Safety makes an investment or enters into a
Swartz: strategic partnership, licensing agreement, stock swap deal, merger,
acquisition, or any other transaction which Surgical Safety
(collectively referred to as Covered Transactions), Surgical Safety
shall pay Swartz a fee of X%, as difined in Fee Scale Below, of the
dollar amount or value of the transaction between Surgical Safety
and Strategic Partners (the "Transaction Value"), payable in cash or
Surgical Safety Common Stock ("Stock"), at Swartz's option , at
the time of closing of each transaction. To the extent that Swartz is
paid in Stock, then the Stock will be valued at the Market Price (as
defined below) on the closing date of such transaction. In addition
to the payment of the cash or Stock fee, Swartz shall receive
Warrants to purchase a number of shares of Surgical Safety
Common Stock equal to X% of the Transaction Value (divided by)
the Market Price on the closing date of such transaction,
exercisable at such Market Price.
Transactions with no The value of any transaction arranged by Swartz, which does not
Defined Transaction entail a defined dollar denominated Transaction Value, will be
Value: defined dollar or Stock value determined by the parties in writing
prior to closing (the "Defined Value"). For any such transaction,
Swartz shall receive from Surgical Safety X% of the Defined
Value, divided by Market Price, exercisable at Market Price. On
such anniversary of the closing date thereafter, a new Defined
Value shall be determined by two independant third parties
knowledgeabel, and experienced in that particular field or industry,
acceptable to both Swartz and Surgical Safety. In the event the
Defined Value on any anniversary is greater than the highest
Defined Value upon which Swartz has been compensated (the
amount of such difference being referred to as a "Compensation
Shortfall"), Swartz shall received the above stated fee and Warrants
on such Compensation Shortfall.
DKL RAH
</TABLE>
200 Roywell Summit, Suite 285
1080 Holcombe Bridge Road, Roswell, GA 30076
phone 770.640.8130 fax 770.640.0279
Securities offered through Commodity Brokerage Services, Inc. A negotiated
broker/dealer, Atlanta, GA 770.640.0411, Member NASD/SIPC.
<PAGE>
<TABLE>
<S> <C>
Market Price: Market Price shall equal the lesser of (i) the lowest closing bid price
of the Common Stock for the 5 trading days immediately preceding
date of execution by Surgical Safety a Letter of Intent to complete a
Covered transaction, or (ii) the lowest closing bid price of the
Common Stock for the 5 trading days immediately preceding
closing date of a Covered Transaction.
Other Funding In the event Swartz introduces Surgical Safety to a Third Party
sources Introduced by Funding Source (as defined below), Swartz shall receive a fee equal
Swartz: to X% of the amount invested or placed by the Third Party Funding
Source plus a number of Warrants equal to X% of the amount
invested divided by Market Price exercisable at such Market Price.
A Third Party Funding Source is, but not limited to, an Investment
Bank, Broker/Dealer or Securities Broker.
Disputes as to Should the parties hereto not agree on the Defined Value,
Transaction Value, Transaction Value, or Market Price as each is defined abouve,
Defined Value, or Surgical Safety agrees to forego and not circumvent Swartz with
Market Price. respect to any transaction with any Strategic Partners, or any
affiliate thereof, until such time as the parties hereto can agree on
the Defined Value.
Non-Circumventions: Any potential Investor or Strategic Partner (a Swartz Client), who
Swartz arranges to have discussions with Surgical Safety shall be
considered for puposes of this Agreement, the property of Swartz.
In the event that Surgical Safety accepts an investment form, makes
an investment into, or enters into a strategic partnership, licensing
agreement, stock swap deal, merger, acquistion or any other
transaction (a "Covered Transaction") with a Swartz Client for a
period of 60 months from the date hereof Surgical Safety agrees to
pay to Swartz a fee as stated above at the time of closing.
No Obligation: Surgical Safety may, in its sole and ablsolute discretion, choose not
to close any Strategic Partnership, accept any investments or enter
into any other arrangement with any Swartz Client. Surgical Safety
shall have no obligation to pay Swartz any fees or issue any Stock or
warrants to Swartz to the extent Surgical Safety rejects an proposed
investor, client or transaction.
Fee Scale: AMOUNT "X"
----------------- -----------
$1 - $5,000,000 7 6 DKL RAH
$5,000,001 - $10,000,000 6 5 DKL RAH
$10,000,001 - $50,000,000 5 4 DKL RAH
$50,000,001 - $100,000,000 4 3 DKL RAH
$100,000,001+ 3
"X" is a flat percentage based on the plateau/breakpoint reached.
Example: on a $23 million transaction "X" equals 5% for the full
amount.
</TABLE>
SURG Inc Banking Svcs 2 Page 2 02/01/00 2:07 PM
EXHIBIT 10.41
CONSULTING AGREEMENT
THIS AGREEMENT is made as of February 15, 2000 by and between SURGICAL
SAFETY PRODUCTS a Nevada corporation (the "Company" or "SURG") and GLOBAL
DEVELOPMENT ADVISORS, INC, a Florida Corporation (the "Consultant").
RECITALS:
I. The Company is a public company trading on the NASDAQ Electronic Bulletin
Board (trading symbol "SURG"), which desires to promote its business plan to the
investment community and to build the value of the Company for the benefit of
its shareholders; and
B. The Consultant is an advisor who represents several established and emerging
client companies, with particular expertise and knowledge in investor relations,
promotions for publicly traded companies, and communications for such companies
utilizing the print media and internet; and
C. The Company recognizes the substantial experience and knowledge of the
Consultant in matters relating to the promotion of public companies and
communications; and
D. The Company further recognizes that it is in the best interests of the
Company to engage the consulting services of the Consultant; and
E. The Company desires to retain the valuable services and counsel of the
Consultant, and the Consultant desires to render such services to the Company
upon the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
below, and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally bound
hereby agree as follows:
1. RECITALS. The Recitals to this Agreement are hereby incorporated into
this Agreement as though full restated herein.
2. ENGAGEMENT. The Company hereby engages the Consultant, and the
Consultant accepts engagement by the Company, upon the terms and conditions set
forth in this Agreement.
3. TERM. The term of this Agreement shall begin on the date hereof and
shall continue until July 31, 2000.
4. CONSULTING SERVICES COMPENSATION.
(A) The Company shall pay to Consult as compensation for its services
under this Agreement Fifty thousand (50,000) common shares of Surgical
Safety Products (the "SURG Shares"), which shares shall be newly issued by
the Company pursuant to Rule S-8 of the Securities and Exchange Act of
1933, as amended (the "Act") plus option to purchase fifty thousand shares
at $1.09 per share.
(B) The company may in the future provide the Consultant with such
additional compensation as the company and the Consultant shall mutually
agree for any additional services by the Consultant not provide for in this
Agreement.
<PAGE>
5. DUTIES. From time to time as reasonably requested by the Company, the
Consultant shall provide investor relations and public relations advice and
services to the Company. Such services shall include, but not be limited to,
strategic planning, helping write and distribute Company press releases,
planning promotional events and meetings with the investment community,
assisting the Company's management in designing the Company's Business Plan and
"Growth-by-Acquisition" strategy, communicating and disseminating information
concerning the Company's activities on an on-going basis as to substantial and
material developments by the Company with regard to its acquisitions of new
resort properties and other events. Additionally, Consultant shall prepare or
assist in the preparation of a Company Corporate Profile, Fact Sheets,
Shareholder Letters, Web page design, content and marketing, and media
relations.
6. NATURE OF ENGAGEMENT. The Company is engaging the Consultant as an
independent Contractor. Nothing in this Agreement shall be construed to create
an employer-employee relationship between the parties.
7. EXPENSES. Upon receipt of requests from the consultant for
reimbursement, the company shall reimburse the Consultant for all reasonable and
necessary expenses the Consultant incurs, prior to and after the date of this
Agreement in performing her duties in connection with this Agreement. The
Consultant shall be required to receive authorization from the Company prior to
incurring any such expenses in excess of $1,000.00.
8. NOTICES. Any notice, report or demand required, permitted or desired
under this Agreement shall be sufficient if in writing and delivered by
certified mail, return receipt requested, Federal Express (or similar courier),
telegram or receipted hand delivery at the following addresses (or such other
addresses designated by proper notice):
To the Company: Surgical Safety Products, Inc.
To the Consultant: Noreen Wilson, President
Global Development Advisors
4718 Lillian Avenue
Palm Beach Gardens, Florida 33418
Any notice otherwise delivered shall be deemed given when actually received by
recipient.
9. MISCELLANEOUS.
(A) GOVERNING LAW. This Agreement shall be governed by, interpreted
and enforced in accordance with the laws of the State of Florida.
(B) ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties concerning engagement and may not be changed or modified except
by written agreement duly executed by the parties hereto.
(C) CONFIDENTIALITY. Except as may otherwise be required by law, the
specific provisions of this Agreement shall remain strictly confidential.
Notwithstanding the foregoing, the parties agree that Consultant shall
disclose that she is being compensated by the Company in all of her
<PAGE>
promotional releases to the public, in accordance with the Act. Neither the
company nor the Consultant shall, either directly or indirectly through
their respective officers, directors, employees, shareholders, partner,
joint ventures, agents, consultants, contractor, affiliates or any other
person, disclose, communicate, disseminate or otherwise breach the
confidentiality of all or any provision of this Agreement, without the
express written consent of both parties to this Agreement.
(D) ASSIGNMENT. The obligations of the parties under this Agreement
shall not be assigned without the written consent of the parties.
Notwithstanding an provision of this Agreement to the contrary, however,
the Consultant shall be entitled to provide that any funds payable or stock
issuable to her pursuant to this Agreement shall be instead be paid or
issued to her designee.
(E) COUNTERPARTS AND FACSIMILE. This agreement may be executed in
counterparts, and all counterparts will be considered as part of one
agreement binding on all parties to this Agreement. This Agreement may be
executed via facsimile, which signatures shall be deemed legal and binding
as an original signature hereto.
(F) SEVERABILITY. If any term, condition or provision of this
Agreement or the application thereof to any party or circumstances shall,
at any time or to any exent, be invalid or unenforceble, the remainder of
this Agreement, or the application of such term, condition or provision to
parties or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term, condition and
provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Ageement as of
this day and year first above written.
SURGICAL SAFETY PRODUCTS, INC.
BY: /s/ G. Michael Swor
- --------------------------
Dr. Michael Swor
GLOBAL DEVELOPMENT ADVISORS, INC.
BY: /s/ William W. Wilson
- -----------------------------------
William W. Wilson
EXHIBIT 10.42
SURGICAL SAFETY PRODUCTS, INC.
2000 STOCK OPTION AND AWARDS PLAN
1. GRANT OF OPTIONS; GENERALLY. In accordance with the provisions hereinafter
set forth in this stock option and awards plan, the name of which is the
SURGICAL SAFETY PRODUCTS 2000 STOCK OPTION AND AWARDS PLAN (the "Plan"), the
Board of Directors (the "Board") or, a committee designated by the Board as the
stock compensation committee (the "Stock Compensation Committee") of Surgical
Safety Products, Inc. (the "Corporation") is hereby authorized to issue from
time to time on the Corporation's behalf to any one or more Eligible Persons, as
hereinafter defined, options to acquire shares of the Corporation's $.001 par
value per share common stock (the "Stock") or awards of shares of the
Corporation's Stock..
2. TYPE OF OPTIONS AND AWARDS. The Board or the Stock Compensation Committee is
authorized to issue non-qualified awards ("Award" or "Awards")and options which
meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), which options and awards are hereinafter referred to
collectively as ISO's, or singularly as an ISO. The Board or the Stock
Compensation Committee is also, in its discretion, authorized to issue options
and Awards which are not ISO's, which options and Awards are hereinafter
referred to collectively as NSO's, or singularly as an NSO. The Board or the
Stock Compensation Committee is also authorized to issue "Reload Options" in
accordance with Paragraph 10 herein, which options are hereinafter referred to
collectively as Reload Options, or singularly as a Reload Option. Except where
the context indicates to the contrary, the term "Option" or "Options" means
ISO's, NSO's and Reload Options.
3. AMOUNT OF STOCK. The aggregate number of shares of Stock which may be
purchased pursuant to the exercise of Options or awarded hereunder shall be Ten
Million (10,000,000) shares. Of this amount, the Board or the Stock Compensation
Committee shall have the power and authority to designate whether any Options so
issued shall be ISO's or NSO's, subject to the restrictions on ISO's contained
elsewhere herein. If an Option ceases to be exercisable, in whole or in part,
the shares of Stock underlying such Option shall continue to be available under
this Plan. Further, if shares of Stock are delivered to the Corporation as
payment for shares of Stock purchased by the exercise of an Option granted under
this Plan, such shares of Stock shall also be available under this Plan. If
there is any change in the number of shares of Stock on account of the
declaration of stock dividends, recapitalization resulting in stock split-ups,
or combinations or exchanges of shares of Stock, or otherwise, the number of
shares of Stock available for Awards or purchase upon the exercise of Options,
the shares of Stock subject to any Award or Option and the exercise price of any
outstanding Option shall be appropriately adjusted by the Board or the Stock
Compensation Committee. The Board or the Stock Compensation Committee shall give
notice of any adjustments to each Eligible Person granted an Option or Award
under this Plan, and such adjustments shall be effective and binding on all
Eligible Persons. If because of one or more recapitalizations, reorganizations
or other corporate events, the holders of outstanding Stock receive something
other than shares of Stock then, upon exercise of an Option or surrender of the
awarded Stock, the Eligible Person will receive what the holder would have owned
if the holder had surrendered awarded Stock or exercised the Option immediately
before the first such corporate event and not disposed of anything the holder
received as a result of the corporate event.
<PAGE>
4. ELIGIBLE PERSONS.
(A) With respect to ISO's, an Eligible Person means any individual
who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days.
(B) With respect to NSO's, an Eligible Person means
(i) any individual who has been employed by the Corporation or by
any subsidiary of the Corporation, for a continuous period of at least
sixty (60) days,
(ii) any employee under a staff leasing agreement under the
control of the Corporation,
(Iii) director of the Corporation or any subsidiary of the
Corporation or
(iv) any consultant or advisor of the Corporation or any
subsidiary of the Corporation.
(C) With respect to Awards, an Eligible Person means any director of
the Corporation or any subsidiary of the Corporation.
5. GRANT OF OPTIONS AND AWARDS. The Board or the Stock Compensation Committee
has the right to issue the Options and Awards established by this Plan to
Eligible Persons. The Board or the Stock Compensation Committee shall follow the
procedures prescribed for it elsewhere in this Plan. A grant of Options or
Awards shall be set forth in a writing signed on behalf of the Corporation or by
a majority of the members of the Stock Compensation Committee. In the case of an
Option, the writing shall identify whether the Option being granted is an ISO or
an NSO and shall set forth the terms which govern the Option. The terms shall be
determined by the Board or the Stock Compensation Committee, and may include,
among other terms, the number of shares of Stock that may be acquired pursuant
to the exercise of the Options, when the Options may be exercised, the period
for which the Option is granted and including the expiration date, the effect on
the Options if the Eligible Person terminates employment, whether the Eligible
Person may deliver shares of Stock to pay for the shares of Stock to be
purchased by the exercise of the Option and any vesting provisions applicable to
the options. However, in the case of both Awards and Options, no term shall be
set forth in the writing which is inconsistent with any of the terms of this
Plan. The terms of an Award or Option granted to an Eligible Person may differ
from the terms of an Award or Option granted to another Eligible Person, and may
differ from the terms of an earlier Award or Option granted to the same Eligible
Person, including terms relative to change of control.
6. AWARD AND OPTION PRICES. An Award or Option price per share shall be
determined by the Board or the Stock Compensation Committee at the time any
Award or Option is granted, and shall be not less than
(A) except in the case of an ISO granted to a ten percent or greater
shareholder, the fair market value,
(B) in the case of an ISO granted to a ten percent or greater stock-
holder, 110% of the fair market value,
(C) in the case of an NSO, not less than 75% of the fair market
value (but in no event less than the par value) of one share of Stock on the
date the Option is granted, as determined by the Board or the Stock Compensation
Committee.
(D) In the case of an Award, not less than 75% of the fair market
value (but in no event less than the par value) of one share of Stock on the
date the Award is granted, as determined by the Board or the Stock Compensation
Committee.
<PAGE>
(E) Fair market value as used herein shall be not less than:
(i) If shares of Stock shall be traded on an exchange or
over-the-counter market, the mean between the high and low sales
prices of Stock on such exchange or over-the-counter market on which
such shares shall be traded or quoted on that date, or if such
exchange or over-the-counter market is closed or if no shares shall
have traded or quoted on such date, on the last preceding date on
which such shares shall have traded or quoted.
(ii) If shares of Stock shall not be traded on an exchange or
quoted on an over-the-counter market, the value as determined by a
recognized appraiser as selected by the Board or the Stock
Compensation Committee.
7. PURCHASE OF SHARES ON EXERCISE OF OPTIONS. An Option shall be exercised by
the tender to the Corporation of the full purchase price of the Stock with
respect to which the Option is exercised and written notice of the exercise. The
purchase price of the Stock shall be in United States dollars, payable in cash
or by check, or in property or Corporation stock, if so permitted by the Board
or the Stock Compensation Committee in accordance with the discretion granted in
Paragraph 5 hereof, having a value equal to such purchase price. The Corporation
shall not be required to issue or deliver any certificates for shares of Stock
awarded or purchased upon the exercise of an Option prior to
(A) if requested by the Corporation, the filing with the Corporation
by the Eligible Person of a representation in writing that it is the Eligible
Person's then present intention to acquire the Stock being purchased for
investment and not for resale, and/or
(B) the completion of any registration or other qualification of
such shares under any government regulatory body, which the Corporation shall
determine to be necessary or advisable.
8. GRANT OF AWARDS AND OPTIONS.
(A) The Board may grant each employee or non-employee Director, upon
first being appointed or elected to the Board of Directors, Twenty Five Thousand
(25,000) shares of Stock and/or Options to purchase Twenty Five Thousand
(25,000) shares of Stock (or such higher number of shares and/or Options to
purchase shares as determined by the Board or Stock Compensation Committee for
recruitment purposes), which Options to purchase shares shall be NSO's
regardless of the employment status of the Director of the Company.
(B) Following the annual meeting of the Stockholders each year, the
Board may grant each employee or non-employee Director, upon first being
appointed or elected to the Board of Directors, Twenty Five Thousand (25,000)
shares of Stock and/or Options to purchase Twenty Five Thousand (25,000) shares
of Stock, which Options to purchase shares shall be NSO's regardless of the
employment status of the Director of the Company.
9. $100,000 PER YEAR LIMITATION.
(A) In general. To the extent that the aggregate fair market value
of Stock with respect to which ISO's (determined without regard to this
subsection) are exercisable for the first time by any individual during any
calendar year (under all plans of the Corporation and its parent and subsidiary
corporations) exceeds $100,000, such options shall be treated as options which
are not ISO's.
<PAGE>
(B) Ordering Rule. Subparagraph (A) of this section shall be applied
by taking options into account in the order in which they were granted.
(C) Determination of fair market value. For purposes of subparagraph
(A) of this section, the fair market value of any Stock shall be determined as
of the time the option with respect to such Stock is granted.
10. GRANT OF RELOAD OPTIONS. In granting an Option under this Plan, the Board or
the Stock Compensation Committee may include a Reload Option provision therein,
subject to the provisions set forth in Paragraphs 22 and 23 herein. A Reload
Option provision provides that if the Eligible Person pays the exercise price of
shares of Stock to be purchased by the exercise of an ISO, NSO or another Reload
Option (the "Original Option") by delivering to the Corporation shares of Stock
already owned by the Eligible Person (the "Tendered Shares"), the Eligible
Person shall receive a Reload Option which shall be a new Option to purchase
shares of Stock equal in number to the tendered shares. The terms of any Reload
Option shall be determined by the Board or the Stock Compensation Committee
consistent with the provisions of this Plan.
11. STOCK COMPENSATION COMMITTEE. The Stock Compensation Committee may be
appointed from time to time by the Corporation's Board of Directors. The Board
may from time to time remove members from or add members to the Stock
Compensation Committee. The Stock Compensation Committee shall be constituted so
as to permit the Plan to comply in all respects with the provisions set forth in
Paragraph 21 herein. The members of the Stock Compensation Committee may elect
one of its members as its chairman. The Stock Compensation Committee shall hold
its meetings at such times and places as its chairman shall determine. A
majority of the Stock Compensation Committee's members present in person shall
constitute a quorum for the transaction of business. All determinations of the
Stock Compensation Committee will be made by the majority vote of the members
constituting the quorum. The members may participate in a meeting of the Stock
Compensation Committee by conference telephone or similar communications
equipment by means of which all members participating in the meeting can hear
each other. Participation in a meeting in that manner will constitute presence
in person at the meeting. Any decision or determination reduced to writing and
signed by all members of the Stock Compensation Committee will be effective as
if it had been made by a majority vote of all members of the Stock Compensation
Committee at a meeting which is duly called and held.
12. ADMINISTRATION OF PLAN. In addition to granting Awards and Options and to
exercising the authority granted to it elsewhere in this Plan, the Board or the
Stock Compensation Committee is granted the full right and authority to
interpret and construe the provisions of this Plan, promulgate, amend and
rescind rules and procedures relating to the implementation of the Plan and to
make all other determinations necessary or advisable for the administration of
the Plan, consistent, however, with the intent of the Corporation that Options
granted or Stock awarded pursuant to the Plan comply with the provisions of
Paragraph 22 and 23 herein. All determinations made by the Board or the Stock
Compensation Committee shall be final, binding and conclusive on all persons
including the Eligible Person, the Corporation and its stockholders, employees,
officers and directors and consultants. No member of the Board or the Stock
Compensation Committee will be liable for any act or omission in connection with
the administration of this Plan unless it is attributable to that member's
willful misconduct.
13. PROVISIONS APPLICABLE TO ISO's. The following provisions shall apply to all
ISO's granted by the Board or the Stock Compensation Committee and are
incorporated by reference into any writing granting an ISO:
<PAGE>
(A) an ISO may be granted within ten (10) years from the effective
date of this Plan, that is, the date that this Plan is approved by the
Corporation's Shareholders.
(B) except as otherwise provided herein, an ISO may not be exercised
after the expiration of ten (10) years from the date the ISO is granted.
(C) the Option price may not be less than the fair market value of
the Stock at the time the ISO is granted.
(D) an ISO is not transferrable by the Eligible Person to whom it is
granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(E) if the Eligible Person receiving the ISO owns at the time of the
grant stock possessing more than 10% of the total combined voting power of all
classes of stock of the employer corporation or of its parent or subsidiary
corporation (as those terms are defined in the Code), then the Option price
shall be at least 110% of the fair market value of the Stock, and the ISO shall
not be exercisable after the expiration of five (5) years from the date the ISO
is granted.
(F) if the shares of Stock which are issued upon exercise of an ISO
are sold within one (1) year following the exercise of such ISO so that the sale
constitutes a disqualifying disposition for ISO treatment under the Code, no
provision of this Plan shall be construed as prohibiting such a sale.
(G) The Plan was adopted by the Corporation on February 7, 2000, by
virtue of its approval by the Corporation's Board of Directors. Approval by the
stockholders of the Corporation is to occur prior to February 6, 2001.
14. DETERMINATION OF FAIR MARKET VALUE. In granting ISO's, NSO's or Awards under
this Plan, the Board or the Stock Compensation Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO, NSO or Award.
15. RESTRICTIONS ON ISSUANCE OF STOCK. The Corporation shall not be obligated to
sell or issue any shares of Stock pursuant to an Award or the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition issuance of Stock pursuant to an
Award or the exercise of an Option granted in accordance herewith upon receipt
from the Eligible Person, or any other purchaser thereof, of a written
representation that at the time of such Award or exercise it is his or her then
present intention to acquire the shares of Stock for investment and not with a
view to, or for sale in connection with, any distribution thereof; except that,
in the case of a legal representative of an Eligible Person,"distribution" shall
be defined to exclude distribution by will or under the laws of descent and
distribution. Prior to issuing any shares of Stock pursuant to an Award or the
exercise of an Option, the Corporation shall take such steps as it deems
necessary to satisfy any withholding tax obligations imposed upon it by any
level of government.
16. EXERCISE IN OPTIONS IN THE EVENT OF DEATH OR TERMINATION OF EMPLOYMENT.
(A) If an optionee shall die
(i) while an employee, Director or acting as a consultant of the
Corporation or a Subsidiary or
<PAGE>
(ii) within three (3) months after termination of his employment
with the Corporation or a Subsidiary because of his disability, or
retirement or otherwise other than for cause,
his Options may be exercised, to the extent that the optionee shall have been
entitled to do so on the date of his death or such termination of employment, by
the person or persons to whom the optionee's right under the Option pass by will
or applicable law, or if no such person has such right, by his executors or
administrators, at any time, or from time to time. In the event of termination
of employment under this subsection, his Options may be exercised not later than
the expiration date specified in Paragraph 5 or one (1) year after the
optionee's death. whichever date is earlier.
(B) If an optionee's employment by the Corporation or a Subsidiary,
shall terminate because of his disability and such optionee has not died within
the following three (3) months, he may exercise his Options, to the extent that
he shall have been entitled to do so at the date of the termination of his
employment, at any time, or from time to time, but not later than the expiration
date specified in Paragraph 5 hereof or one (1) year after termination of
employment, directorship or consultancy, whichever date is earlier.
(C) If an optionee's employment shall terminate by reason of his
retirement in accordance with the terms of the Corporation's tax-qualified
retirement plans or with the consent of the Board or the Stock Compensation
Committee or involuntarily other than by termination for cause, and such
optionee has not died within the following three (3) months, he may exercise his
Option to the extent he shall have been entitled to do so at the date of the
termination of his employment, at any time and from time to time, but not later
than the expiration date specified in Paragraph 5 hereof or ninety (90) days
after termination of employment, directorship or consultancy, whichever date is
earlier.
(D) If an optionee's employment shall terminate for any reason other
than death, disability, retirement, or for cause, the optionee may exercise his
Option to the extent he shall have been entitled to do so at the date of the
termination of his employment, at any time and from time to time, but not later
than the expiration date specified in Paragraph 5 hereof or thirty (30) days
after termination of employment, directorship or consultancy, whichever is
earlier.
(E) If the optionee's employment shall terminate for cause, all
rights to exercise his Option shall terminate at the date of such termination of
employment, directorship or consultancy.
(F) For purposes of this Paragraph 16, termination for cause shall
mean termination of employment, directorship or consultancy by reason of the
optionee's commission of a felony, fraud or willful misconduct which has
resulted, or is likely to result, in substantial and material damage to the
Corporation or a Subsidiary, all as the Board or the Stock Compensation
Committee in its sole discretion may determine, and in the case of a Director,
any other definition of cause contained within the Corporation's Articles or
Bylaws then in effect.
17. CORPORATE EVENTS.
(A) Upon a "change in control" of the Corporation as defined herein,
the Corporation will pay to the Eligible Person in cash, an amount equal to the
number of shares exercisable under an Opinion or Options granted to Eligible
Persons up to the date the change in the control of the Corporation occurs,
whether such Options are vested, not vested or exercised, multiplied by the
highest closing sale price of a share of the Corporation's Stock quoted during
the 30-day period immediately preceding the date the change in control occurs on
the composite tape for shares listed on the New York Stock
<PAGE>
Exchange; or if such shares are not quoted on the composite tape of the New York
Stock Exchange, the highest closing sale price quoted during such period on the
principal United States Securities Exchange registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), on which such shares are
listed; or if such shares are not listed on any such exchange, the highest
closing bid quotation with respect to a share during the 30-day period preceding
the date the change of control occurs on the National Association of Securities
Dealers, Inc., automated quotation system or any similar system thin in general
use; or if no such quotations are available, the fair market value of a share on
the date the change in control occurs as determined by a majority of
disinterested directors, such amount being hereafter referred to as "Termination
Option Payment". The Termination Option Payment will be paid to the Eligible
Person within sixty (60) days after the change in control occurs and also will
include an additional amount equal to:
(i) any excise tax imposed on the Eligible Person under the
Internal Revenue Code by reason of Eligible Person's receipt of the
Termination Options Payment above; plus
(ii) a gross-up payment to reflect any federal, state or local
income tax or other taxes imposed on the Eligible Person by reason of
the Eligible Person's receipt of the above Termination Option Payment.
(B) For purposes of this Plan; "change of control" means any of the
following:
(i) any merger of the Corporation in which the Corporation or a
wholly owned subsidiary of the Corporation is not the continuing or
surviving entity, or pursuant to which Stock would be converted to
cash, securities or other property, other than a merger of the
Corporation in which holders of the Corporation's Stock immediately
prior to the merger have the same proportionate ownership of
beneficial interest of Stock or other voting securities of the
surviving entity immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one (1)
transaction or a series of related transactions) of assets or earning
power aggregating more than 40% of the assets or earning power of the
Corporation and its subsidiaries (taken as a whole), other than
pursuant to sale-leaseback, structured finance or other form of
financing transaction;
(iii) any plan or proposal for liquidation of dissolution of the
Corporation that the Shareholders shall approve;
(iv) any person (as such term is defined in Section 13(d) and
14(d) of the Exchange Act), other than any current Shareholder of the
Corporation or affiliate thereof or any employee benefit plan of the
Corporation or nay subsidiary of the Corporation or any entity holding
shares of capital stock of the Corporation for or pursuant to the
terms of any such employee benefit plan in its role as an agent or
trustee for such plan, shall become the beneficial owner (within the
meaning of Rule 13(d)(3) under the Exchange Act) of 20% or more of the
Corporation's outstanding Stock; or
(v) during any period of two (2) consecutive years, individuals
who at the beginning of such period shall fail to constitute a
majority thereof, unless the election, or the nomination for election
by the Corporation's Shareholders, of each new Director was approved
by a vote of at least two-thirds (2/3) of the Directors then still in
office who were Directors at the beginning of the period.
(C) Adjustments. The number of shares awarded or exercisable under
an Option shall be subject to adjustment in accordance with the provisions of
this Subsection (C).
<PAGE>
(i) Adjustments for Stock Splits and Combinations. If the
Corporation shall at any time from time to time after the date of an
Award or Option is granted, effect a stock split of the outstanding
Stock, the applicable number of shares in effect immediately prior to
the combination shall be proportionately increased. Any adjustment
under this Subsection (C)(i) shall be effective at the close of
business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Corporation shall at any time or from time after the date an Award or
Option is granted, make or issue or set a record date for the
determination of holders of Stock entitled to receive a dividend or
other distribution payable in shares of Stock, then, and in each
event, the applicable number of shares in effect immediately prior to
such event shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying as applicable, the
applicable number of shares then in effect by a fraction;
(a) the numerator of which shall be the total number of
shares of Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record
date; and
(b) the denominator of which shall be the total number of
shares of Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record
date plus the number of shares of Stock issuable in payment of
such dividend or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the
Corporation shall at time or from time to time after the date an Award
or Options is granted, make or issue or set a record date for the
determination of holders of Stock entitled to receive a dividend or
other distribution payable in other than shares of Stock, then, and in
each event, an appropriate revision to the number of shares shall be
made and provision shall be made (by adjustments of the number of
shares or otherwise) so that the Eligible Person shall receive, in
addition to the number of shares of Stock, the number of shares of
additional Stock which they would have received as any other holder
and, in the case of Options, the number of additional shares of Stock
which they would have received if the Option had been exercised prior
to such event, giving application to all adjustments called for during
such period under this Subsection (C)(iii) with respect to the rights
of the Eligible Person under this Plan.
(iv) Adjustment for Reclassification, Exchange or Substitution.
If the Common Stock at any time or form time to time after the date an
Award or Option is granted shall be changed into the same or different
number of shares of any class or classes of stock, whether by
reclassification, exchanged, substitution or otherwise (other than by
way of a stock split or combination of shares or stock dividends
provided for in Subsections (C)(i), (ii) and (iii), or a
reorganization, merger, consolidation, or sale of assets provided for
in Subsection (C)(v)), then and in each event, an appropriate revision
to the numbers of shares shall be made and provisions shall be made
(by adjustments of the number of shares of otherwise) so that the
Eligible Person shall have the right thereafter to convert their
shares or options into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange,
substitution or other change, by the Eligible Person of the number of
shares of Stock into which such shares or Options, if such Options had
been exercised prior to such event, might have been converted
immediately prior to such reclassification, exchange, substitution or
other change, all subject to further adjustment as provided herein.
(v) Adjustment for Reorganization, Merger, Consolidation or Sales
of Assets. If at any time or from time to time after the date an Award
or Option is granted there shall be a capital reorganization of the
Corporation (other than by way of a stock split or combination of
shares or stock dividends or distributions provided for in Subsection
(C)(i), (ii) and (iii), or reclassification, exchange
<PAGE>
or substitution of shares provided for in Subsection (C)(iv)), or a
merger or consolidation of the Corporation with or into another
corporation, or the sale of all substantially all of the Corporation's
properties or assets to any other person, then as a part of such
reorganization, merger, consolidation, or sale, an appropriate
revision to the number of shares shall be made and provision shall be
made (by adjustments of the number of shares or otherwise) so that the
Eligible Person shall have the right thereafter to convert their
shares or Options into the kind and amount of shares of stock and
other securities or property of the Corporation or any successor
corporation resulting from such reorganization, merger, consolidation,
or sale, to which a holder of Stock deliverable upon conversion of
such shares would have been entitled upon such reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Subsection(C)(v)
with respect to the rights of the Eligible Person after the
reorganization, merger, consolidation, or sale to the end that the
provisions of this Subsection (C)(v) (including any adjustment in the
applicable number of share then in effect and the number of shares of
Stock or other securities deliverable upon exercise of ht Option)
shall be applied after that event in as nearly an equivalent manner as
may be practicable.
18. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan or in writing granting an
Award or Option will confer upon any Eligible Person the right to continue in
the employ of the Eligible Person's employer, or will interfere with or restrict
in any way the right of the Eligible Person's employer to discharge such
Eligible Person at any time for any reason whatsoever, with or without cause.
19. NONTRANSFERABILITY. No Option granted under the Plan shall be transferable
other than by will or by the laws of descent and distribution. During the
lifetime of the optionee, an Option shall be exercisable only by him.
20. NO RIGHTS AS STOCKHOLDER. No optionee shall have any rights as a stockholder
with respect to any shares subject to his Option prior to the date of issuance
to him of a certificate or certificates for such shares.
21. AMENDMENT AND DISCONTINUANCE OF PLAN. The Corporation's Board of Directors
may amend, suspend or discontinue this Plan at any time. However, no such action
may prejudice the rights of any Eligible Person who has prior thereto been
granted Awards or Options under this Plan. Further, no amendment to this Plan
which has the effect of
(a) increasing the aggregate number of shares of Stock subject to
this Plan (except for adjustments pursuant to Paragraph 17(C) herein), or
(b) changing the definition of Eligible Person under this Plan,
may be effective unless and until approval of the stockholders of the
Corporation is obtained in the same manner as approval of this Plan is required.
The Corporation's Board of Directors is authorized to seek the approval of the
Corporation's stockholders for any other changes it proposes to make to this
Plan which require such approval, however, the Board of Directors may modify the
Plan, as necessary, to effectuate the intent of the Plan as a result of any
changes in the tax, accounting or securities laws treatment of Eligible Persons
and the Plan, subject to the provisions set forth in this Paragraph 21, and
Paragraphs 22 and 23.
22. COMPLIANCE WITH RULE 16b-3. This Plan is intended to comply in all respects
with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with respect to participants who are subject to Section 16 of the
<PAGE>
Exchange Act, and any provision(s) herein that is/are contrary to Rule 16b-3
shall be deemed null and void to the extent appropriate by either the Stock
Compensation Committee or the Corporation's Board of Directors.
23. COMPLIANCE WITH CODE. The aspects of this Plan on ISO's is intended to
comply in every respect with Section ss.422 of the Code and the regulations
promulgated thereunder. In the event any future statute or regulation shall
modify the existing statute, the aspects of this Plan on ISO's shall be deemed
to incorporate by reference such modification. Any stock option agreement
relating to any Option granted pursuant to this Plan outstanding and unexercised
at the time any modifying statute or regulation becomes effective shall also be
deemed to incorporate by reference such modification and no notice of such
modification need be given to optionee. If any provision of the aspects of this
Plan on ISO's is determined to disqualify the shares purchasable pursuant to the
Options granted under this Plan from the special tax treatment provided by Code
Section ss.422, such provision shall be deemed null and void and to incorporate
by reference the modification required to qualify the shares for said tax
treatment.
24. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant of Awards,
the grant and exercise of Options, and the obligation of the Corporation to sell
and deliver Stock under such Awards and Options, shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Corporation shall
not be required to issue or deliver any certificates for shares of Stock prior
to
(A) the listing of such shares on any stock exchange or over-the-
counter market on which the Stock may then be listed and
(B) the completion of any registration or qualification of such
shares under any federal or state law, or any ruling or regulation of any
government body which the Corporation shall, in its sole discretion, determine
to be necessary or advisable. Moreover, no Option may be exercised if its
exercise or the receipt of Stock pursuant thereto would be contrary to
applicable laws.
(C) Until registered under the Securities Act of 1933, as amended
(the "Act"), all Stock granted as an Award, any Option granted or any Stock
issued upon exercise of an Option, shall be a "restricted" security as defined
in Rule 144 promulgated under the Act and shall bear the following legend:
(i) As to Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have
been acquired for investment and may not be offered, sold or
otherwise transferred in the absence of an effective
registration statement for the shares under the Securities
Act of 1933, or a prior opinion of counsel satisfactory to
the issuer, that registration is not required under the
Act."
(ii) As to Options:
"This Option and the securities issuable upon the exercise
of this Option have not been registered under the Securities
Act of 1933, as amended (the "Act") or applicable state law
and may not be sold, transferred or otherwise disposed of
unless
<PAGE>
registered under the Act and any applicable state act or
unless the issuer receives an opinion from counsel for the
holder and is satisfied that this Option and the underlying
securities may be transferred without registration under the
Act"
25. DISPOSITION OF SHARES. In the event any share of Stock acquired by an Award
or an exercise of an Option granted under the Plan shall be transferable other
than by will or by the laws of descent and distribution within one (1) year of
the date such Option or Award was granted or within one (1) year after the
transfer of such Stock pursuant to such exercise, the optionee shall give prompt
written notice thereof to the Corporation or the Stock Compensation Committee.
26. NAME. The Plan shall be known as the "Surgical Safety Products 2000 Stock
Option and Awards Plan."
27. NOTICES. Any notice hereunder shall be in writing and sent by certified
mail, return receipt requested or by facsimile transmission (with electronic or
written confirmation of receipt) and when addressed to the Corporation shall be
sent to it at its office, 2018 Oak Terrace, Sarasota, FL 34231 and when
addressed to the Committee shall be sent to it at the above address subject to
the right of either party to designate at any time hereafter in writing some
other address, facsimile number or person to whose attention such notice shall
be sent.
28. HEADINGS. The headings preceding the text of Sections and subparagraphs
hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Plan nor shall they affect its meaning, construction
or effect.
29. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of the
Corporation on February 7, 2000 and shall be effective on the date when it is
approved by the Corporation's Shareholders.
Dated as of February 7, 2000.
By: /s/ G. Michael Swor
--------------------------
G. Michael Swor,
Chairman of the Board and
Chief Executive Officer
By: /s/ Donald K. Lawrence
--------------------------
Donald K. Lawrence,
President and Chief
Operating Officer
By: /s/ David Collins
--------------------------
David Collins,
Acting Chief Financial
Officer, Treasurer and
Secretary
Operating Officer
EXHIBIT 13.1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Surgical Safety Products, Inc.
-------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing:
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on February 28, 2000
To the Stockholders of Surgical Safety Products, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Surgical Safety Products, Inc., a New York corporation (the "Company"), will be
held on February 28, 2000 at the offices of Surgical Safety Products, Inc.,
located at 2018 Oak Terrace, Sarasota, Florida 34231 at 10:00 AM for the
following purposes:
1. To elect nine (9) members to the Board of Directors to serve for a term of
one (1) year until the next annual meeting and until their successors are
duly elected and qualified.
2. To amend the Company's Articles of Incorporation, as amended, to increase
the authorized number of shares of Common Stock from 20,000,000 to
100,000,000.
3. To approve the Company's 2000 Stock Plan.
4. To consider and act upon a proposal to ratify the appointment of Kerkering,
Barbario & Co., P.A. as the Company's independent public accountants for
the fiscal years ending December 31, 2000.
5. To transact such other business as may be properly brought before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on February
8, 2000 as the record date for the determination of Stockholders entitled to
notice of and to vote at the Annual Meeting and at any adjournments thereof. A
list of such Stockholders will be available for inspection at the Company's
offices at 2018 Oak Terrace, Sarasota, Florida 34231 during ordinary business
hours for the ten-day period prior to the Annual Meeting.
All Stockholders are cordially invited to attend the Annual Meeting.
However, to ensure your representation, you are requested to complete, sign,
date and return the enclosed proxy as soon as possible in accordance with the
instructions on the proxy card. A return addressed envelope is enclosed for your
convenience.
BY ORDER OF THE BOARD OF DIRECT
David Collins
Corporate Secretary
Sarasota, Florida
February 7, 2000
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
2018 OAK TERRACE
SARASOTA, FLORIDA 34231
February 7, 2000
Dear Stockholder,
You are cordially invited to attend the 2000 Annual Meeting of
Stockholders of Surgical Safety Products, Inc. (the "Company") to be held at the
offices of Surgical Safety Products, Inc. on February 28, 2000 at 10:00 AM,
located at 2018 Oak Terrace, Sarasota, Florida 34231.
At the Annual Meeting, nine (9) people will be elected to the Board
of Directors. The Board of Directors recommends the election of the nine (9)
nominees named in the Proxy Statement. In addition, the Company will ask the
Stockholders to: approve and adopt an amendment to the Company's Articles of
Incorporation, as amended, to increase the authorized number of shares of Common
Stock; approve the Company's 2000 Stock Plan; and ratify the selection of
Kerkering, Barbario & Co. P.A. as the Company's independent public accountants.
Whether you plan to attend the Annual Meeting or not, it is
important that you promptly complete, sign, date and return the enclosed proxy
card. This will ensure your proper representation at the Annual Meeting.
Sincerely,
Dr. G. Michael Swor,
Chairman of the Board and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE REMEMBER PROMPTLY TO RETURN YOUR PROXY
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
2018 OAK TERRACE
SARASOTA, FLORIDA 34231
(941) 927-7874
-------------------------
PROXY STATEMENT
-------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Surgical Safety Products, Inc. (the
"Company" or "SSP"), a New York corporation, of proxies, in the accompanying
form, to be used at the Annual Meeting of Stockholders to be held at the offices
of Surgical Safety Products, Inc., located at 2018 Oak Terrace, Sarasota,
Florida 34231 on February 28, 2000 at 10:00 AM, and any adjournments thereof
(the "Meeting").
Where the Stockholder specifies a choice on the proxy as to how his
or her shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted (1) FOR the
election of the nine (9) nominees for Director named herein, (2) FOR the
amendment of the Company's Articles of Incorporation, as amended, to increase
the authorized number of shares of Common Stock from 20,000,000 to 100,000,000,
(3) FOR the approval of the Company's 2000 Stock Plan, and (4) FOR the
ratification of the appointment of Kerkering, Barbario & Co. P.A. as the
Company's independent public accountants for the fiscal year ending December 31,
2000.
You can revoke your proxy at any time before the voting at the
Meeting by sending a properly signed written notice of your revocation to the
Corporate Secretary of the Company, by submitting another proxy that is properly
signed and bears a later date or by voting in person at the Meeting. Attendance
at the Meeting will not itself revoke an earlier submitted proxy. You should
direct any written notices of revocation and related correspondence to: Surgical
Safety Products, Inc., 2018 Oak Terrace, Sarasota, Florida 34231, Attention:
Corporate Secretary.
Shares represented by valid proxies in the form enclosed, received
in time for use at the Meeting and not revoked at or prior to the Meeting, will
be voted at the Meeting. The presence, in person or by proxy, of the holders of
a majority of the outstanding shares of the Company's common stock, par value
$.001 per share ("Common Stock"), is necessary to constitute a quorum at the
Meeting. With respect to the tabulation of proxies for purposes of constituting
a quorum, abstentions and broker non-votes are treated as present. For purposes
of the proposal to amend the Company's Articles of Incorporation, as amended, to
increase the authorized number of shares of Common Stock (Item 2), abstentions
and broker non-votes will have the effect of a negative vote, and for purposes
of each of the other proposals, abstentions and broker non-votes will have no
effect on the vote.
The close of business on February 8, 2000 has been fixed as the
record date for determining the Stockholders entitled to notice of and to vote
at the Meeting. As of that date, the Company had 14,515,373 shares of Common
Stock outstanding and entitled to vote. Holders of Common Stock are entitled to
one vote per share on all matters to be voted on by Stockholders. This Proxy
Statement and the accompanying proxy are being mailed on or about February 18,
2000 to all Stockholders entitled to notice of and to vote at the Meeting.
The cost of soliciting proxies, including expenses in connection
with preparing and mailing this Proxy Statement, will be borne by the Company.
In addition, the Company will reimburse
<PAGE>
brokerage firms and other persons representing beneficial owners of Common Stock
of the Company for their expenses in forwarding proxy material to such
beneficial owners. Solicitation of proxies by mail may be supplemented by
telephone, telegram, telex, and other electronic means, and personal
solicitation by the Directors, officers or employees of the Company. No
additional compensation will be paid to Directors, officers or employees for
such solicitation.
The Form 10KSB for the fiscal year ended December 31, 1998 and the
Form 10QSB for the period ended September 30, 1999 is being mailed to the
Stockholders with this Proxy Statement, but does not constitute a part hereof.
SHARE OWNERSHIP
The following table sets forth certain information as of December
31, 1999, concerning the ownership of Common Stock by (i) each current member of
the Board of Directors of the Company, (ii) each nominee of the Board of
Directors of the Company, (iii) each executive officer of the Company named in
the Summary Compensation Table appearing under "Executive Compensation," below
and (iv) all current Directors, the nominee and executive officers of the
Company as a group. No Stockholder of the Company is known by the Company to be
the beneficial owner of more than 5% of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
Name and Address Type of Number
Current and Nominee Directors: Security of Shares Percentage
- ------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Dr. G. Michael Swor Common 3,763,890 (2) 25.93%
Frank M. Clark Common 62,000 (3) .43%
Donald K. Lawrence Common 250,000 (4) 1.72%
James D. Stuart Common 730,198 (5) 5.03%
Irwin Newman Common -0- 0.00%
Sam Norton Common 103,400 (6) .71%
David Swor Common 523,445 (6) 3.61%
Dr. William B. Saye Common 50,000 (6) .34%
David Collins Common 34,000 (3) .23%
All Executive Officers and 5,516,933 38.00%
Directors as a Group (nine (9)
persons)
</TABLE>
(1) The percentages are based upon 14,515,373 shares of Common Stock
outstanding, including the 6,000 shares to Ten Peaks for which the Company
is obligated, but has not delivered due to its belief that Ten Peaks has
failed to perform. In addition to the shares owned by the Executive
Officers and Directors, said officers and directors own (including those
beneficially held) options to purchase 5,497,149 shares of the Company's
Common Stock (without regard to the additional options to Dr. Saye which
accrue at the rate of 8,333 per
<PAGE>
month after December 31, 1999) pursuant to Employee and Consultant Stock
Option Plans adopted in 1994, 1998 and 1999. In the event all such options
to purchase were exercised, this group would own a total of 11,014,082
shares of the Company's Common Stock which would represent 55.04% of the
total shares of Common Stock outstanding. Under the 1994 ESOP, 1998 Revised
ESOP and 1999 Revised ESOP, none of these options may be exercised within
60 days unless registered.
(2) This includes 631,260 owned by Dr. Swor's wife of which he is deemed the
beneficial owner.
(3) In April 1999, Mr. Clark and Mr. Collins received 12,000 and 34,000 shares,
respectively, of the Company's restricted Common Stock in lieu of salary in
the amount of $7,812 due to Mr. Clark and consulting fees equal to $23,410
due to Mr. Collins.
(4) Mr. Lawrence received his shares of restricted Common Stock as part of the
acquisition of all of the assets of Endex by the Company.
(5) These shares are a portion of the 816,619 shares which Mr. Stuart received
as a gift from Dr. Swor in 1996.
(6) Each of these Directors purchased 50,000 shares of the Company's restricted
Common Stock and warrants to purchase 25,000 shares of the Company's
restricted Common Stock exercisable at the price of $1.00 for a term of
five (5) years on the same terms as other investors in a self-directed
private placement commenced by the Company in April 1999.
MANAGEMENT
Directors
The Company's Bylaws provide for a Board of Directors, the number of which
may be set from time to time by resolution. The Board of Directors currently
consists of nine (9), all of which are standing for re-election. For information
on the Directors being nominated for election, see "Election of Directors (Item
1)."
<PAGE>
The names of the Company's Directors and certain information about
them are set forth below:
Name Age Position(s) with Company
- ----------------------- ---- ----------------------------------
Dr. G. Michael Swor 42 Chairman and Chief Executive Officer
4485 S. Shade Avenue
Sarasota, FL 34237
Frank M. Clark (1)(2) 67 Director
7313 Oak Leaf Way
Sarasota, FL 34241
Donald K. Lawrence (1) 37 Director, President and Chief
716 Edgemer Lane Operating Officer
Sarasota, FL 34242
David Collins (1) 58 Director, Acting Chief Financial
6210 Sun Boulevard Officer,Treasurer and Secretary (3)
St. Petersburg, FL 33715
James D. Stuart 42 Director
880 Jupiter Park Drive
Suite 14
Jupiter, FL 33458
Irwin Newman (2) 51 Director
1515 SW 22nd Avenue Circle
Boca Raton, FL 33486
Sam Norton 40 Director and Chairman of the Stock
1819 Main Street Compensation Committee
Suite 610
Sarasota, FL 34236
David Swor 67 Director
6385 Presidential Court
Suite 104
Fort Meyers, FL 33919
Dr. William B.Saye (1) 60 Director and Medical Director of
4614 Chattahoochee Crossing ALTC VirtualLabs
Marietta, GA 30067
(1) Except for Mr. Clark, Mr. Lawrence, Dr. Saye and Mr. Collins, who had no
role in founding or organizing the Company, the above-named persons may be
deemed to be "promoters" and "parents" of the Company, as those terms are
defined under the Rules and Regulations promulgated under the Act.
(2) Mr. Collins is not engaged as a full time employee of the Company. He is
devoting and will continue to devote such time as required to fulfill the
obligations as the Company's Acting Chief Financial Officer, Treasurer and
Secretary. At such time as the Company has sufficient additional revenue or
is successful in securing additional funding from outside sources, it is
intended that Mr. Collins will be employed by the Company as the Chief
Financial Officer and that he will devote his full time to the business of
the Company.
<PAGE>
G. Michael Swor, M.D., M.B.A, age 42, has served as Chairman of the Board
and Medical/Technical Advisor of the Company since its inception in 1992 and
served as Treasurer to the Company from June, 1998 until January 31, 2000 and
has served as Chief Financial Officer of the Company since February 2000.
Dr. Swor, a board certified, practicing physician with a specialty in
OB/GYN, is the founder of Surgical. From 1992 until June 12, 1998, Dr. Swor also
served as President and CEO. With a Masters in Business Administration, Dr.
Swor's duties for the Company include investor relations, corporate financing,
and overall corporate policy and management. He is a clinical assistant
professor in the OB/GYN department at University of South Florida. Dr. Swor was
the inventor of SutureMate(R) and Prostasert(TM) and the original holder of the
patents issued to each of these products. Dr. Swor has written numerous
articles, published the "Surgical Safety Handbook," and given numerous lectures
on safety and efficiency in the surgical environment. His professional
affiliations include American College of Surgeons, American College of
Obstetrics and Gynecology and the Florida Medical Association. From 1996 until
the present, Dr. Swor has acted as an independent consultant for Concise Advise
which provides consulting services related to product development, patent,
research, distribution, joint venture, mergers and other business issues. From
1994 through 1996, Dr. Swor oversaw the operation of WDC. From 1987 through
1995,Dr. Swor was the managing partner of Women's Care Specialists/Physicians
Services Inc. where he oversaw four (4) physicians, two (2) practitioners and a
staff of over twenty five (25). From 1987 through 1992, Dr. Swor was a partner
and board member of Women's Ambulatory Services, Inc., a diagnostic testing
facility. From 1982 through 1985, Dr. Swor was the President of University of
Florida at Jacksonville, Health Sciences Center resident staff association with
over 200 members. Dr. Swor received a B.A degree in 1978 from the University of
South Florida, a M.D. degree from the University of South Florida College of
Medicine in 1981, and an M.B.A. degree from the University of South Florida in
1998. From 1981 through 1985 he received his training in OB/GYN from the
University of Florida Department of Obstetrics and Gynecology in Jacksonville,
Florida. He has received several special achievement awards including being
honored by the University of South Florida in May, 1998 with the Alumni Award
for Professional Achievement.
Frank M. Clark, age 67, has served as a Director since June, 1998.
Mr. Clark was President and Chief Executive Officer of the Company from
June 1998 until January 31, 2000. Currently, Mr. Clark provides consulting
services to the Company. While serving in those capacities, he was responsible
for the day to day operations of the Company and was responsible for new product
development and manufacturing and manages new business ventures, including
mergers, acquisitions, joint ventures, strategic alliances and
licensing/distribution agreements for the Company. Mr. Clark also serves on the
Board of GenSci Regeneration Sciences, Inc. From 1991 to 1997, Mr. Clark was
Chairman and CEO of Corporate Consulting Services Group where his primary
activities were providing consulting services to start-up companies, under-
performing companies and training people in career transitions. From 1984 to
1991, Mr. Clark was COO and Executive Vice President of Right Associates, a
consulting firm with responsibilities for business development with Fortune 100
corporations for which he acted. He acquired a Los Angeles based consulting firm
and became the Managing Principal. From 1981 to 1984, Mr. Clark was a Vice
President of National Medical Care, a subsidiary of W.R. Grace, Inc. where his
innovative marketing leadership helped the company recapture a dominant share of
the dialysis market. From 1978 to 1981, Mr. Clark served as President, Corporate
<PAGE>
Vice President and a Director of R.P. Scherer, Inc., the world's leading
producer of soft gelatin capsules where he was in charge of worldwide
businesses. From 1959 to 1978, Mr. Clark was employed by Johnson & Johnson,
Inc., first with Ethicon, Inc. where he served as a Vice President and Director,
then with Ethnor Medical Products where he was a Vice President, General Manager
and a Director and then with Stimulation Technology, where he served as
Executive Vice President and a Director. From 1956 to 1958, Mr. Clark was
employed by Federated Department stores in the executive training program at
Bloomingdales in New York City. Mr. Clark received a certificate from Teachers
College in Connecticut in 1955.
Donald K. Lawrence, age 37, has served as a Director since January 1998,
served as Vice President, Sales & Marketing and Secretary from May, 1997 until
January 31, 2000, served as Executive Vice President from January, 1998 until
January 31, 2000 and has served as President and Chief Operating Officer since
February 2000.
Mr. Lawrence's responsibilities include sales management, market planning,
advertising, and management for Compliance Plus products and as the Executive
Director of OASiS. His arrival to the Company was facilitated by the Company's
acquisition in 1997 of InterActive PIE Multimedia, Inc., of which Mr. Lawrence
was founder and Chief Executive Officer. From February 1996 until February 1997,
Mr. Lawrence was the CEO of InterActive PIE. From December 1991 until February
1996, Mr. Lawrence was employed by Ethicon Endo-Surgery/Johnson & Johnson as a
surgical sales representative. From July 1989 until December 1991, Mr. Lawrence
acted as a surgical sales representative for Davis and Geck. Prior to entering
the area of medical device sales, from February 1985 until July 1989, Mr.
Lawrence was an account executive with DHL Worldwide Express. During college,
Mr. Lawrence was an independent dealer for Southwestern Publishing Co. Mr
Lawrence received a B.S degree in Marketing and Communications in 1984 from
Appalachian State University.
David Collins, age 58, has served as a Director since January 1999 and its
Acting Chief Financial Officer since March 1999 and has served as its Treasurer
and Secretary since February 2000.
Mr. Collins responsibilities include overseeing the financial affairs of
the Company on a part time basis and he is currently engaged as a consultant to
the Company. Mr. Collins devotes such time as is necessary to fulfill his duties
to the Company. During 1997 and 1998, Mr. Collins was Controller for the Sales
and Marketing Division for GES Exposition Services, a subsidiary of the NYSE
listed Viad Corporation. From 1993 to 1996, Mr. Collins was General Manager and
Chief Financial Officer of Spectra Services Corporation. From 1989 to 1992, Mr.
Collins was a Partner and Consultant to Quantum Corporation, a venture capital
firm. From 1977 to 1988, Mr. Collins rose from Controller to Vice President of
Finance (1982) and then to Vice President of Finance and Chief Financial Officer
(1984) of R.P. Scherer Corporation, a NYSE listed company. From 1975 to 1977,
Mr. Collins was Vice President and Controller of Wheelhorse Products, a
subsidiary of American Motors/Chrysler. From 1971 to 1975, Mr. Collins rose from
Controller of the Midwest Dental Division to Vice President and Controller of
the American Hospital Division of American Hospital Supply Corporation (1974).
From 1969 to 1971, Mr. Collins was a Senior Auditor and Consultant in Public
Accounting with Deloitte & Touche. Mr. Collins received a BSBA from
<PAGE>
Northwestern University in 1964 and a MBA from the Kellogg Graduate School of
Management at Northwestern University in 1967. He became a Certified Public
Accountant in the State of Illinois in 1971.
James D. Stuart, age 42, has served as a Director since 1993, initially
acting as Director of Marketing and Sales.
Mr. Stuart served as Executive Vice President from 1993 until June, 1998
and initially acted as the Director of Marketing and Sales. During his time as
an officer of the Company, Mr. Stuart was responsible for new product
development and manufacturing and manages new business ventures, including
mergers, acquisitions, joint ventures, strategic alliances and
licensing/distribution agreements for the Company. From November 1994 until July
1996, Mr. Stuart acted as President and CEO of WDC and was responsible for
managing and operating the facility. From March 1986 until May 1993, Mr. Stuart
was employed by Liquid Air Corporation, Buld Gases Division first as a Business
Manager for South Florida and then as a Program Manager for Food Freezing. From
February 1981 until February 1986, Mr. Stuart was employed by NCR Corporation in
the Systemedia Division initially as a Territory Manager and then as a Senior
Account Manager. Mr. Stuart received a B.A. degree in marketing in 1980 from the
University of South Florida.
Irwin Newman, age 51, has served as a Director since 1993
Currently, Mr. Newman provides financial advisory services to the Board of
Directors. From 1993 to the present, Mr. Newman has served as the President and
CEO of Jenex Financial Services, Inc. ("Jenex"). Mr. Newman is the principal of
Jenex. Mr. Newman is and has been a practicing attorney since 1973. From 1993 to
1998, Mr. Newman served as Vice President and General Counsel for Boca Raton
Capital Corporation, a publicly owned, NASDAQ listed investment holding company
where he completed an Initial Public Offering for a $4 million subsidiary,
completed a $3.5 million secondary offering and was responsible for shareholder
and investor relations. From 1983 to 1988, Mr. Newman served with the New York
Stock Exchange firms of Gruntal & Co. and Butcher and Signer, specializing in
common and preferred stocks, options, municipal and corporate bonds and GNMA's.
During part of this period, he broadcast a daily television market comments
program over the Financial News Network. Mr. Newman received a B.S. degree in
Business Administration from Syracuse University in 1970 and a J.D. degree from
the University of Florida in 1973.
Sam Norton, age 40, has served as a Director since 1992.
Mr. Norton provides business and legal advisory services to the Board of
Directors. Mr. Norton is the Chairman of the Stock Compensation Committee. Mr.
Norton is an attorney with the firm Norton, Gurley, Hammersley & Lopez, P.A. in
Sarasota, Florida. Mr. Norton practices primarily in the areas of real estate,
banking, corporate and business transactions and is a Florida Bar board
certified real estate specialist, having earned such certification in 1991. He
has practiced law in Sarasota since 1985 and is the past Chairman of the Joint
Committee of the Sarasota Board of Realtors/Sarasota County Bar Association. Mr.
Norton is active in Sarasota civic organizations and currently serves as a
member of the Board of Directors of Sarasota Bank. Mr. Norton graduated from the
University of Florida in 1981 and earned a J.D. degree from Stetson University
<PAGE>
School of Law in 1984 where he graduated Cum Laude. While in law school, Mr.
Norton was chosen to serve on the Law Review. He was admitted to the Florida Bar
in 1985.
David Swor, age 67, has served as a Director since 1992.
Mr. Swor, who is the father of Dr. Swor, provides business advisory
services for the Board of Directors. From 1985 until the present, Mr. Swor had
been engaged in the real estate brokerage business as the owner of Swor, Inc.
The firm specializes in the development of commercial real estate properties
along with operating other related business interest, holdings and investment
properties. From 1992 to the present, Mr. Swor has been a member of the Board of
Directors of SunTrust Bank in Sarasota, Florida. From 1974 until 1985, Mr. Swor
was a co-owner of the real estate firm of Swor & Santini, Inc. which specialized
in commercial real estate and investments. From 1973 until 1975, Mr. Swor was a
realtor with Russ Gorgone, Inc. From 1971 until 1973, Mr. Swor was Vice
President and co-owner of Carroll Oil Company, which operated a Texaco
distributorship in Fort Myers, Florida. From 1959 until 1971, Mr. Swor was a
salesman for Texaco and from 1958 until 1959, Mr. Swor was in advertising sales
for the Orlando Sentinel Star. Mr. Swor received a B.A. degree from the
University of Kentucky in 1955 and holds teaching certificates from the states
of Kentucky and Florida.
William B. Saye, MD, FACOG, FACS, age 60, has served as Medical Director of
ALTC VirtualLabs since November 1998 and as a Director since January, 1999.
Dr. Saye is the founder, CEO and Medical Director of ALTC. ALTC was started
in 1990. Dr. Saye is also the Clinical Assistant Professor of OB/GYN for Emory
University School of Medicine in Atlanta, Georgia. Dr. Saye, with another
pioneering surgeon, made medical history when he performed the first
laparoscopic cholecystectomy (removal of the gall bladder) in the United States.
In the past nine (9) years, Dr. Saye has been instrumental in training more than
15,000 surgeons in various laparoscopic techniques and spearheaded the
development of a new minimally invasive therapy, laparoscopic Doderlien
hysterectomy. Dr. Saye received a BS from Georgia Institute of Technology in
1962 and his MD degree from Tulane University Medical School in 1965. Dr. Saye
is board certified in Obstetrics and Gynecology and in Advance Operative
Paparoscopy. Dr. Saye is the author of numerous articles on laparoscopic surgery
and techniques.
Committees of the Board and Meetings
During the fiscal year ended December 31, 1999, there were four (4)
meetings of the Board of Directors, and there were no formal meetings of the
Stock Compensation Committee of the Board of Directors. No Director attended
fewer than fifty percent (50%) of the total number of meetings of the Board of
Directors and its Committees on which he served during the fiscal year. In
addition, the members of the Board of Directors and its Committee acted at
various times by unanimous written consent pursuant to New York law.
The Stock Compensation Committee, which did not met during fiscal 1999,
currently has three members, Irwin Newmann, David Swor and Sam Norton. Mr.
Norton is the Chairman. The Stock Compensation Committee reviews, approves and
makes recommendations on the Company's
<PAGE>
stock compensation plans, compensation policies, practices and procedures to
ensure that legal and fiduciary responsibilities of the Board of Directors are
carried out and that such policies, practices and procedures contribute to the
success of the Company. The Committee also oversees the retention and
development of key management employees of the Company. The Committee
administers the Company's stock plans.
Compensation of Directors
The Company's policy is not to pay cash compensation to members of
the Board for serving as a Director or for their attendance at Board meetings or
Committee meetings. Directors are eligible to participate in the Company's stock
plans.
Executive Officers
All of the Company's Executive Officers are Directors of the
Company. The executive officers serve at the pleasure of the Board of Directors
and the Chief Executive Officer.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table sets forth summary
information as to compensation received by the Company's Executive Officers as
executive officers of the Company through June 30, 1999 (collectively, the
"named executive officers") for services rendered to the Company in all
capacities during the three fiscal years ended December 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
- -------------------------------------------------------- ------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Compen- Award(s) Options/ LTIP Compen-
Position Year Salary ($) Bonus ($) sation ($) ($) SARs (f) Payouts sation ($)
(1)
G. 1996 - 5,280
Michael 1997 - 4,877
Swor, 1998 32,500 5,400
Chairman 1999 47,500 20,000 5,400
of the
Board
and Chief
Executive
Officer
(2)
- -----------------------------------------------------------------------------------------------------------
Frank M. 1996 -
Clark 1997 -
President 1998 32,731 50,000 70,417
and CEO 1999 57,477 12,000 20,000
into 2000
(3)
- -----------------------------------------------------------------------------------------------------------
Donald 1996 -
K. 1997 16,675 13,657
Lawrence 1998 57,278 17,604
President 1999 57,499 170,000
and Chief
Operating
Officer
(4)
- -----------------------------------------------------------------------------------------------------------
James D. 1996 49,536 8,944
Stuart 1997 47,166 5,676
Former 1998 6,000 4,020
Executive
Vice
President
(6)
- -----------------------------------------------------------------------------------------------------------
David 1999 38,795 15,575 34,000 85,000
Collins, (6)
Acting
Chief
Financial
Officer,
Treasurer
and
Secretary
(5)
- --------------------------
</TABLE>
(1) All other compensation includes certain health and life insurance benefits
paid by the Company on behalf of its employee.
<PAGE>
(2) Dr. Swor did not receive any salary prior to June 1998 at which time the
Company and he executed an Employment Agreement for a salary of $60,000 per
year. Other compensation includes life insurance paid by the Company.
(3) Mr. Clark executed an Employment Agreement with the Company in June 1998
for an annual salary of $60,000. As a signing bonus, Mr. Clark received
50,000 shares of restricted stock in the Company which is valued at $50,000
and options to purchase 200,000 shares of the Company's Common Stock at an
exercise price of $1.75 per share. The Company's options have no current
trading value. Mr. Clark retired as President and Chief Executive Officer
in January 2000.
(4) In April 1999, Mr. Clark and Mr. Collins received 12,000 and 34,000 shares
of the Company's restricted Common Stock in lieu of salary in the amount of
$7,812 due to Mr. Clark and consulting fees equal to $23,410 due to Mr.
Collins.
(5) Mr. Lawrence executed an Employment Agreement with the Company in May 1997
for an annual salary of $50,000. Effective in January 1998, the salary of
Mr. Lawrence was increased to $100,000 per year; however, he agreed to
defer receipt of the additional amounts until a mutually agreed date. The
Company began installment payments of the deferred amount on September 1,
1999. As consideration for the acquisition of the assets of Endex, Mr.
Lawrence received 250,000 shares of restricted stock in the Company. Such
shares were valued at the asset value of $13,657. In June 1998, the Company
granted Mr. Lawrence options to purchase 100,000 shares of the Company's
Common Stock at an exercise price of $1.75 per share. The Company's options
have no current trading value.
(6) Mr. Stuart acted as the Executive Vice President of the Company until June,
1998. Other compensation includes a portion of his health insurance
premiums which were paid by the Company and life insurance.
Option Grants in Last Fiscal Year
The following table provides information regarding the grant of
stock options during fiscal year 1999 to the named executive officers.
<TABLE>
<CAPTION>
Individual Grants Potential realizable value at Alternative to
assumed annual rates of stock (f) and (g):
price appreciation for option Grant date
term value
Name Number of Percentage of Exercise or Expiration 5% $/sh (f) 10% $/sh (g) Grant date
(a) Securities Total base price Date (e) present value
underlying options/SAR' ($/sh) (d) $/sh (f)
Options/SA s granted to
R's employees
Granted during fiscal
(#) (b) year (c)
<S> <C> <C> <C> <C> <C> <C> <C>
G. 10,000 4.1% $1.00 12/26/09 $1.63 $2.59 $1.00
Michael 10,000 $1.00 12/31/08 $0.815 $1.295 $0.50
Swor
Frank M. 10,000 4.1% $1.00 12/26/09 $1.63 $2.59 $1.00
Clark 10,000 $1.00 12/31/08 $0.815 $1.295 $0.50
Donald K. 10,000 35.0% $1.00 12/26/09 $1.63 $2.59 $1.00
Lawrence 150,000 $1.00 05/24/09 $1.271 $2.02 $0.78
10,000 $1.00 12/31/08 $0.815 $1.295 $0.50
David 10,000 18.7% $1.00 12/26/09 $1.63 $2.59 $1.00
Collins 65,000 $1.00 01/18/09 $1.532 $2.435 $0.94
10,000 $1.00 12/31/08 $0.815 $1.295 $0.50
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values
<PAGE>
The following table provides information regarding the aggregate exercises
of options by each of the named executive officers. In addition, this table
includes the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 1998, and the values of "in-the-money" options,
which values represent the positive spread between the exercise price of any
such option and the fiscal year-end value of the Company's Common Stock.
Year End Option Values for Executive Officers
<TABLE>
<CAPTION>
Name Exercised Value Realized No. of Value of
Unexercised Unexercised
Exercisable/ Exercisable/
Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G. Michael 0 0 3,870,686/0 $ 473,634/0
Swor
Frank M. Clark 0 0 200,000/0 $ 0/0
Donald K. 0 0 100,000/0 $ 0/0
Lawrence
James D. Stuart 0 0 (1) (1)
(1)
</TABLE>
(1) Mr. Stuart was not an executive officer at the year end 1998 and the number
of unexercised exercisable/unexercised and the value of unexercised
exercisable/unexercised options were not included in this table.
Employment Contracts
The Company has an arrangement with Staff Leasing, a Florida licensed
employee leasing company, and has entered into Employee Agreements with Dr. Swor
and Mr. Lawrence and had an Employee Agreement with Mr. Clark prior to his
retirement. Dr. Swor, Mr. Lawrence and Mr. Clark are or were treated as
co-employees by Staff and the Company.
The agreement with Dr. Swor was entered into on June 15, 1998 which was
renewed June 1999.
<PAGE>
Dr. Swor is employed as the Treasurer and Medical Director of the Company at an
annual salary of $60,000. The agreement is for a term of one (1) year, which
term is renewable year to year unless either party provides notice to the other
within fourteen (14) days prior to the expiration that it seeks to terminate the
agreement. Dr. Swor is required to devote such time as is required to fulfill
his duties to the Company. Dr. Swor is reimbursed reasonable and necessary
expenses incurred on behalf of the Company. Prior to the execution of this
agreement, Dr. Swor received no salary for his services to the Company since its
inception.
The agreement with Mr. Clark was entered into on June 15, 1998 which was
renewed June 1999. Mr. Clark is employed as the President and CEO of the Company
for a term of one (1) year at a salary of $60,000, which term is renewable year
to year unless either party provides notice to the other within fourteen (14)
days prior to the expiration that it seeks to terminate the agreement. Mr. Clark
is required to devote such time as is required to fulfill his duties to the
Company. Mr. Clark is reimbursed reasonable and necessary expenses incurred on
behalf of the Company. Mr. Clark received a signing bonus of 50,000 shares of
restricted stock in the Company and was granted options to purchase 200,000
shares of the Company's Common Stock at an exercise price of $1.75 per share.
Mr. Clark retired as President and Chief Executive Officer in January 31, 2000.
The agreement with Mr. Lawrence was entered into on April 1, 1997 which was
renewed April 1998 and April 1999. Mr. Lawrence is employed as the Marketing
Director of the Company for a term of one (1) year at a salary of $50,000, which
term is renewable year to year unless either party provides notice to the other
within fourteen (14) days prior to the expiration that it seeks to terminate the
agreement. Commencing January 1, 1998, Mr. Lawrence became the Executive Vice
President of the Company. Effective January 1998, Mr. Lawrence's salary was
increased to $100,000 per year; however, he agreed to defer receipt of the
additional amount until a mutually agreed date. The Company began installment
payments on the deferred amount of September 1, 1999. Mr. Lawrence is required
to devote such time as is required to fulfill his duties to the Company. Mr.
Lawrence is reimbursed reasonable and necessary expenses incurred on behalf of
the Company.
Market Information
The Common Stock of the Company is quoted on the OTC Bulletin Board under
the symbol "SURG". The high and low bid information for each quarter for the
years ending December 31, 1996, December 31, 1997, December 31, 1998 and
December 31, 1999 are as follows:
Quarter High Bid Low Bid Average Bid
----------------------------------------------------------------------
First Quarter 1996 1/4 3/16 .218
Second Quarter 1996 3/4 1/8 .445
Third Quarter 1996 1/4 1/8 .177
Fourth Quarter 1996 1/4 1/8 .176
First Quarter 1997 1/4 3/32 .135
Second Quarter 1997 1/4 3/32 .106
Third Quarter 1997 3/8 1/8 .183
Fourth Quarter 1997 9/64 1/8 .132
First Quarter 1998 29/32 9/64 .215
Second Quarter 1998 3-1/8 11/16 2.299
Third Quarter 1998 2-9/64 1-9/64 1.646
Fourth Quarter 1998 31/32 17/32 .750
First Quarter 1999 13/16 1/3 .57
Second Quarter 1999 1-7/8 7/16 1.156
Third Quarter 1999 2-7/8 1-1/4 2.0625
Fourth Quarter 1999 1-11/16 13/16 1.196
<PAGE>
The quotations may reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not reflect actual transactions.
REPORT ON EXECUTIVE COMPENSATION BY THE STOCK COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
The Stock Compensation Committee (the "Committee") comprises three members
of the Board of Directors, each of which is an independent member at this time.
It is the responsibility of the Committee to review, recommend and approve
changes to the Company's compensation policies and benefits programs, to
administer the Company's stock plans, including approving stock awards to
directors, stock option grants to executive officers and certain other stock
option grants, and to otherwise ensure that the Company's compensation
philosophy is consistent with the Company's best interests and is properly
implemented.
Compensation Philosophy
The compensation philosophy of the Company is to (i) provide a competitive
total compensation package that enables the Company to attract and retain key
executive and employee talent needed to accomplish the Company's goals and (ii)
directly link compensation to improvements in Company financial and operational
performance and increases in Stockholder value as measured by the Company's
stock price.
Compensation Program
The Company's compensation program for all employees emphasizes variable
compensation, primarily through performance-based grants of long-term,
equity-based incentives in the form of stock options. Salaries at all employee
levels are generally targeted at median market levels. The Company also
maintains a cash-based incentive program with awards targeted to provide fully
competitive levels of total cash compensation based on the degree of achievement
of Company financial and operational performance measures.
The Committee conducts ongoing reviews of total compensation levels,
structure, and design with the assistance of independent members who are
consultants to the Board of Directors. The objective of the reviews is to ensure
that management and key employee total compensation opportunity links total
compensation to the Company's performance and stock price appreciation and keeps
pace with the Company's competitive trends.
The Company has actively managed compensation levels to ensure that they
are fully competitive and capable of retaining top performers over the long
term. As a result of the competitive reviews and compensation actions, the
Committee believes that the base salary, total cash compensation, and stock
appreciation opportunities for senior management, as well as those of the broad
employee population, are consistent with competitive market levels.
<PAGE>
Base Salaries
The Committee reviews each senior executive officer's salary annually. In
determining appropriate salary levels, the Committee considers the officer's
impact level, scope of responsibility, prior experience, past accomplishments,
and data on prevailing compensation levels in relevant executive labor markets.
Based on the findings of the most recent compensation review, the Committee is
considering base salary increases for certain executive officers to be effective
in fiscal 2000 which, will maintain total cash compensation levels in line with
competitive levels and with the Company's compensation philosophy.
Stock Options and Awards
The Committee believes that granting stock options on an ongoing basis
provides officers with a strong economic interest in maximizing stock price
appreciation over the longer term. The Company believes that the practice of
granting stock options is critical to retaining and recruiting the key talent
necessary at all employee levels to ensure the Company's continued success.
Further, the Committee believes that stock awards to Directors is critical
to recruiting and maintaining qualified persons to assist the Company in its
continuing development.
The Committee is responsible for administering the Company's stock
programs, including Director awards, individual stock option grants to officers
and aggregate grants to all plan participants. It is the Company's practice to
set option exercise prices at not less than 100% of the stock fair market value
on the date of grant. Thus, the value of the Stockholders' investment in the
Company must appreciate before an optionee receives any financial benefit from
the option. Options are generally granted for a term of ten years.
In determining the size of stock option grants, the Committee considers the
officer's responsibilities, the expected future contribution of the officer to
the Company's performance and the number of shares which continue to be subject
to vesting under outstanding options. In addition, the Committee examines the
level of equity incentives held by each officer relative to the other officers'
equity positions, their tenure, responsibilities, experience, and value to the
Company.
The Committee monitors the Company's equity-based compensation program on
an ongoing basis to ensure that Stockholders' resources are used effectively and
in the best interests of the Company. During the past several fiscal years, the
Committee has monitored the program to ensure that dilution from stock option
plans is managed within levels consistent with the Company's staffing levels,
market value and prevailing levels of option dilution for growth companies. Over
the past several years, the Company has steadily reduced the level of
outstanding options as a percentage of Common Stock outstanding.
The Committee will continue to monitor the Company's compensation program
in order to maintain the proper balance between cash compensation and
equity-based incentives and may consider further revisions in the future,
although it is expected that equity-based compensation will remain one of the
principal components of compensation.
The Committee believes that the Company's stock option plans have been very
effective in attracting, retaining, and motivating executives and employees of
the Company over time and have proven to be an important component of the
overall compensation program.
<PAGE>
Policy on Deductibility of Compensation
Section 162(m) of the U.S. Internal Revenue Code limits the tax
deductibility by a company of compensation in excess of $1 million paid to any
of its five most highly compensated executive officers. However, compensation
which qualifies as "performance-based" is excluded from the $1 million limit if,
among other requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals under a plan approved by
Stockholders. Accordingly, the Committee has recommended that an Executive
Incentive Plan be considered for the future, and, if determined to be in the
best interest of the Company, submitted to the Company's Stockholders. The
Committee has also approved the adoption of the 2000 Stock Plan and has
recommended that such plan be submitted to the Company's Stockholders so that
the options granted under the plan will be qualified as "performance- based"
under Section 162(m) and the income recognized by participants upon exercise
will be deductible by the Company.
Very truly yours,
Sam Norton,
Chairman, Stock Compensation Committee
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors and officers, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Directors, officers and greater than
ten percent (10%) holders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) reports they file.
To the Company's knowledge, except as noted below, based solely on review
of the copies of the above-mentioned reports furnished to the Company and
written representations regarding all reportable transactions, during the fiscal
year ended December 31, 1998 and for the quarters ended March 31, 1999, June 30,
1999, September 30, 1999 and December 31, 1999, all Section 16(a) filing
requirements applicable to its Directors and officers and greater than ten
percent (10%) beneficial owners were complied with on time. The Company became a
reporting company subject to Section 16(a) on November 27, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no transactions between the Company and any of its officers,
directors, principal shareholders, employees or consultants which have not been
reported in the Company's filings with the Securities and Exchange Commission,
except for the following:
In May 1999, the Company granted Mr. Lawrence options to purchase 150,000
shares of the Company's restricted Common Stock under the 1999 ESOP for his work
in developing the Long Term US Surgical agreement and for his contributions to
the development of OASiS. At the same time, the Company granted options to
purchase 1,000 shares under the 1999 ESOP to each of two (2)
<PAGE>
persons who assisted Mr. Lawrence in his efforts. The options are exercisable
for a term of ten (10) years at an exercise price of $1.00 per share. The
issuance was made pursuant to Section 4(2) of the Act and Rule 506.
In June 1999, the Company granted options to purchase 25,000 shares of the
Company's restricted Common Stock under the 1999 ESOP to each of its five (5)
outside directors, that is Mr. Newmann, Mr. Norton, Dr. Saye, Mr. David Swor and
Mr. Stuart. The options are exercisable for a term of ten (10) years at an
exercise price of $1.72 per share. The issuance was made pursuant to Section
4(2) of the Act and Rule 506.
In December 1999, the Company granted three (3) consultants a total of
12,500 shares, one person was granted 7,500 shares the Company's restricted
Common Stock for his work with the Company's patents, one person was granted
2,500 shares of restricted Common Stock for his work on OASiS, and the third, a
nurse at SMH, was granted 2,500 shares of restricted Common Stock for her work
on OASiS. The nurse at SMH declined, stating that such grant would not be
appropriate under SMH policy. The issuance was made pursuant to Section 4(2) of
the Act and Rule 506.
In December 1999, the Company executed the TK Loan Commitment with TK, as
Agent and Lender, whereby TK agreed to make loans to the Company of up to
$5,000,000 in installments for a period commencing with the date of the
agreement and ending on November 30, 2002. The TK Loan Commitment permits
instalments aggregating $500,000 in any 90-day period. The proceeds of the loan
are to pay agent fees and for working capital purposes. The TK Loan Commitment
provides that the offering has been conducted under Regulation S of the Act.
Under the terms of the TK Loan Commitment, each installment is supported by a
convertible note and security agreement and the Agent and Lender are granted
warrants to purchase shares of the Company's Common Stock. Prior to each
instalment, the Company is obligated to escrow shares under the terms of an
escrow agreement. The convertible note bears interest at 8% per annum and may be
prepaid at any time. The note is convertible at any time at the option of TK at
the higher of (i) $.375 or (ii) the lower of $.8203 or 75% of the closing bid
price of the Company's Common Stock on the conversion date. The security
agreement grants TK a security interest in all of the Company's equipment,
inventory, accounts, contract rights, chattel paper and instruments, and the
proceeds of any of the collateral. Both the Lender's and the Agent's warrants
are exercisable at $1.09375 per share, subject to defined adjustments. The
warrants are exercisable 20% immediately and at the rate of 1% for each $25,000
of principal borrowed. The Company was obligated to issue 2,700,000 shares of
its Common Stock to be held in escrow for the potential conversion under the
notes or exercise of the warrants. TK acts as escrow agent for the shares and is
authorized to release such shares upon receipt of a notice of note conversion
notice or warrant exercise. The Company granted TK registration rights and is
obligated to file a Form S-3 within sixty (60) days of the agreement. The Form
S-3 registration is to cover 20,038,097 shares. In the event the Company's
registration statement is not declared effective within 120 days of a specified
deadline, the Company is required to pay a penalty equal to 2% of the principal
amount of the loans outstanding plus the total number of warrant outstanding at
their closing bid price. Under the terms of the TK Loan Commitment, an initial
loan of $650,000 was made on December 30, 1999, the Lender was granted a warrant
to purchase 3,428,571 shares and the Agent was granted a warrant to purchase
1,142,857 shares. The issuance of the securities was made pursuant to Regulation
S of the Act.
In December 1999, the Company granted options to purchase 2,500 shares of
the Company's restricted Common Stock under the 1999 ESOP to two (2) persons who
assisted the Company in its
<PAGE>
efforts over the year. The options are exercisable for a term of ten (10) years
at an exercise price of $1.00 per share. In addition, at year end, the Company
granted options exercisable for a term of ten (10) years at a price of $.75 per
share under the 1999 ESOP to key employees and officers as follows:
Dr. Swor 10,000
Mr. Clark 10,000
Mr. Lawrence 10,000
Mr. Collins 10,000
Kim Conroy 2,500
Eric Hill 10,000
Stacy Quaid 5,000
Michael Williams 10,000
The granting of such options was made pursuant to Section 4(2) of the Act and
Rule 506.
ELECTION OF DIRECTORS
(Item 1)
The Company's Bylaws provide for a Board of Directors, the number of
which may be set from time to time by resolution. The Board of Directors
currently consists of nine (9), all of which are standing for re-election.
Background information appears below for each of the nominees for
election as Directors. Although the Company does not anticipate that any of the
persons named below will be unwilling or unable to stand for election, in the
event of such an occurrence, proxies may be voted for a substitute designated by
the Board of Directors.
Name Age Business Experience
- ------- ----- -------------------------
Dr. G. Michael Swor 42
Dr. Swor has served as Chairman of the Board and
Medical/Technical Advisor of the Company since its inception
in 1992, served as Treasurer to the Company from June, 1998
until January 31, 2000 and has served as Chief Executive
Officer sinceFebruary 2000. Dr. Swor, a board certified,
practicing physician with a specialty in OB/GYN, is the
founder of Surgical. From 1992 until June 12, 1998, Dr. Swor
also served as President and CEO. With a Masters in Business
Administration, Dr. Swor's duties for the Company include
investor relations, corporate financing, and overall
corporate policy and management. He is a clinical assistant
professor in the OB/GYN department at University of South
Florida. Dr. Swor was the inventor of SutureMate(R)and
Prostasert(TM) and the original holder of the patents issued
to each of these products. Dr. Swor has written numerous
articles, published the "Surgical Safety Handbook," and
given numerous lectures on safety and efficiency in the
surgical environment. His professional affiliations include
American College of Surgeons, American College of Obstetrics
and Gynecology and the Florida Medical
<PAGE>
Association. From 1996 until the present, Dr. Swor has acted
as an independent consultant for Concise Advise which
provides consulting services related to product development,
patent, research, distribution, joint venture, mergers and
other business issues. From 1994 through 1996, Dr. Swor
oversaw the operation of WDC. From 1987 through 1995,Dr.
Swor was the managing partner of Women's Care
Specialists/Physicians Services Inc. where he oversaw four
(4) physicians, two (2) practitioners and a staff of over
twenty five (25). From 1987 through 1992, Dr. Swor was a
partner and board member of Women's Ambulatory Services,
Inc., a diagnostic testing facility. From 1982 through 1985,
Dr. Swor was the President of University of Florida at
Jacksonville, Health Sciences Center resident staff
association with over 200 members. Dr. Swor received a B.A
degree in 1978 from the University of South Florida, a M.D.
degree from the University of South Florida College of
Medicine in 1981, and an M.B.A. degree from the University
of South Florida in 1998. From 1981 through 1985 he received
his training in OB/GYN from the University of Florida
Department of Obstetrics and Gynecology in Jacksonville,
Florida. He has received several special achievement awards
including being honored by the University of South Florida
in May, 1998 with the Alumni Award for Professional
Achievement.
Frank M. Clark (1) 67
Mr. Clark has served as a Director since June 1998, served
as CEO and President from June, 1998 to January 31, 2000
when he retired. Mr. Clark continues to provide consulting
services to the Company. While President, Mr. Clark was
responsible for the day to day operations of the Company and
was responsible for new product development and
manufacturing and manages new business ventures, including
mergers, acquisitions, joint ventures, strategic alliances
and licensing/ distribution agreements for the Company. Mr.
Clark also serves on the Board of GenSci Regeneration
Sciences, Inc. From 1991 to 1997, Mr. Clark was Chairman and
CEO of Corporate Consulting Services Group where his primary
activities were providing consulting services to start-up
companies, under-performing companies and training people in
career transitions. From 1984 to 1991, Mr. Clark was COO and
Executive Vice President of Right Associates, a consulting
firm with responsibilities for business development with
Fortune 100 corporations for which he acted. He acquired a
Los Angeles based consulting firm and became the Managing
Principal. From 1981 to 1984, Mr. Clark was a Vice President
of National Medical Care, a subsidiary of W.R. Grace, Inc.
where his innovative marketing leadership helped the
<PAGE>
company recapture a dominant share of the dialysis market.
From 1978 to 1981, Mr. Clark served as President, Corporate
Vice President and a Director of R.P. Scherer, Inc., the
world's leading producer of soft gelatin capsules where he
was in charge of worldwide businesses. From 1959 to 1978,
Mr. Clark was employed by Johnson & Johnson, Inc., first
with Ethicon, Inc. where he served as a Vice President and
Director, then with Ethnor Medical Products where he was a
Vice President, General Manager and a Director and then with
Stimulation Technology, where he served as Executive Vice
President and a Director. From 1956 to 1958, Mr. Clark was
employed by Federated Department stores in the executive
training program at Bloomingdales in New York City. Mr.
Clark received a certificate from Teachers College in
Connecticut in 1955.
Donald K. Lawrence (1) 37
Mr. Lawrence has served as a Director since May 1997, served
as Vice President, Sales & Marketing and Secretary from May,
1997 to January 31, 2000, served as Executive Vice President
from January, 1998 to January 31, 2000 and has served as
President and Chief Operating Officer since February 2000.
Mr. Lawrence's responsibilities include sales management,
market planning, advertising, and management for Compliance
Plus products and acting as the Executive Director of OASiS.
His arrival to the Company was facilitated by the Company's
acquisition in 1997 of InterActive PIE Multimedia, Inc., of
which Mr. Lawrence was founder and Chief Executive Officer.
From February 1996 until February 1997, Mr. Lawrence was the
CEO of InterActive PIE. From December 1991 until February
1996, Mr. Lawrence was employed by Ethicon Endo-
Surgery/Johnson & Johnson as a surgical sales
representative. From July 1989 until December 1991, Mr.
Lawrence acted as a surgical sales representative for Davis
and Geck. Prior to entering the area of medical device
sales, from February 1985 until July 1989, Mr. Lawrence was
an account executive with DHL Worldwide Express. During
college, Mr. Lawrence was an independent dealer for
Southwestern Publishing Co. Mr Lawrence received a B.S
degree in Marketing and Communications in 1984 from
Appalachian State University.
David Collins(1) 58
Mr. Collins has served as a Director since January 1999, has
served as the Acting Chief Financial Officer since March
1999 and has served as Secretary and Treasurer since
February 2000. Mr. Collins responsibilities include
overseeing the financial affairs of the Company on a part
time basis and he is currently engaged as a consultant to
<PAGE>
the Company. Mr. Collins devotes such time as is necessary
to fulfill his duties to the Company. During 1997 and 1998,
Mr. Collins was Controller for the Sales and Marketing
Division for GES Exposition Services, a subsidiary of the
NYSE listed Viad Corporation. From 1993 to 1996, Mr. Collins
was General Manager and Chief Financial Officer of Spectra
Services Corporation. From 1989 to 1992, Mr. Collins was a
Partner and Consultant to Quantum Corporation, a venture
capital firm. From 1977 to 1988, Mr. Collins rose from
Controller to Vice President of Finance (1982) and then to
Vice President of Finance and Chief Financial Officer (1984)
of R.P. Scherer Corporation, a NYSE listed company. From
1975 to 1977, Mr. Collins was Vice President and Controller
of Wheelhorse Products, a subsidiary of American
Motors/Chrysler. From 1971 to 1975, Mr. Collins rose from
Controller of the Midwest Dental Division to Vice President
and Controller of the American Hospital Division of American
Hospital Supply Corporation (1974). From 1969 to 1971, Mr.
Collins was a Senior Auditor and Consultant in Public
Accounting with Deloitte & Touche. Mr. Collins received a
BSBA from Northwestern University in 1964 and a MBA from the
Kellogg Graduate School of Management at Northwestern
University in 1967. He became a Certified Public Accountant
in the State of Illinois in 1971.
James D. Stuart 42
Mr. Stuart has served as a Director since 1993. Mr. Stuart
served as Executive Vice President from 1993 until June,
1998 and initially acted as the Director of Marketing and
Sales. During his time as an officer of the Company, Mr.
Stuart was responsible for new product development and
manufacturing and manages new business ventures, including
mergers, acquisitions, joint ventures, strategic alliances
and licensing/distribution agreements for the Company. From
November 1994 until July 1996, Mr. Stuart acted as President
and CEO of WDC and was responsible for managing and
operating the facility. From March 1986 until May 1993, Mr.
Stuart was employed by Liquid Air Corporation, Buld Gases
Division first as a Business Manager for South Florida and
then as a Program Manager for Food Freezing. From February
1981 until February 1986, Mr. Stuart was employed by NCR
Corporation in the Systemedia Division initially as a
Territory Manager and then as a Senior Account Manager. Mr.
Stuart received a B.A. degree in marketing in 1980 from the
University of South Florida.
<PAGE>
Irwin Newman 51
Mr. Newman has served as a Director since 1993. Currently,
Mr. Newman provides financial advisory services to the Board
of Directors. From 1993 to the present, Mr. Newman has
served as the President and CEO of Jenex Financial Services,
Inc. ("Jenex"). Mr. Newman is the principal of Jenex. Mr.
Newman is and has been a practicing attorney since 1973.
From 1993 to 1998, Mr. Newman served as Vice President and
General Counsel for Boca Raton Capital Corporation, a
publicly owned, NASDAQ listed investment holding company
where he completed an Initial Public Offering for a $4
million subsidiary, completed a $3.5 million secondary
offering and was responsible for shareholder and investor
relations. From 1983 to 1988, Mr. Newman served with the New
York Stock Exchange firms of Gruntal & Co. and Butcher and
Signer, specializing in common and preferred stocks,
options, municipal and corporate bonds and GNMA's. During
part of this period, he broadcast a daily television market
comments program over the Financial News Network. Mr. Newman
received a B.S. degree in Business Administration from
Syracuse University in 1970 and a J.D. degree from the
University of Florida in 1973.
Sam Norton 40
Mr. Norton has served as a Director since 1992 and is the
Chairman of the Stock Compensation Committee. Mr. Norton
provides business and legal advisory services to the Board
of Directors. Mr. Norton is an attorney with the firm
Norton, Gurley, Hammersley & Lopez, P.A. in Sarasota,
Florida. Mr. Norton practices primarily in the areas of real
estate, banking, corporate and business transactions and is
a Florida Bar board certified real estate specialist, having
earned such certification in 1991. He has practiced law in
Sarasota since 1985 and is the past Chairman of the Joint
Committee of the Sarasota Board of Realtors/Sarasota County
Bar Association. Mr. Norton is active in Sarasota civic
organizations and currently serves as a member of the Board
of Directors of Sarasota Bank. Mr. Norton graduated from the
University of Florida in 1981 and earned a J.D. degree from
Stetson University School of Law in 1984 where he graduated
Cum Laude. While in law school, Mr. Norton was chosen to
serve on the Law Review. He was admitted to the Florida Bar
in 1985.
David Swor 67
Mr. Swor has served as a Director since 1992. Mr. Swor, who
is the father of Dr. Swor, provides business advisory
services for the Board of Directors. From 1985 until the
present, Mr. Swor had been engaged in the real estate
<PAGE>
brokerage business as the owner of Swor, Inc. The firm
specializes in the development of commercial real estate
properties along with operating other related business
interest, holdings and investment properties. From 1992 to
the present, Mr. Swor has been a member of the Board of
Directors of SunTrust Bank in Sarasota, Florida. From 1974
until 1985, Mr. Swor was a co-owner of the real estate firm
of Swor & Santini, Inc. which specialized in commercial real
estate and investments. From 1973 until 1975, Mr. Swor was a
realtor with Russ Gorgone, Inc. From 1971 until 1973, Mr.
Swor was Vice President and co-owner of Carroll Oil Company,
which operated a Texaco distributorship in Fort Myers,
Florida. From 1959 until 1971, Mr. Swor was a salesman for
Texaco and from 1958 until 1959, Mr. Swor was in advertising
sales for the Orlando Sentinel Star. Mr. Swor received a
B.A. degree from the University of Kentucky in 1955 and
holds teaching certificates from the states of Kentucky and
Florida.
Dr. William B.Saye (1) 60
Dr. Saye has served as Medical Director of ALTC VirtualLabs
since November 1998 and as a Director since January, 1999.
Dr. Saye is the founder, CEO and Medical Director of ALTC.
ALTC was started in 1990. Dr. Saye is also the Clinical
Assistant Professor of OB/GYN for Emory University School of
Medicine in Atlanta, Georgia. Dr. Saye, with another
pioneering surgeon, made medical history when he performed
the first laparoscopic cholecystectomy (removal of the gall
bladder) in the United States. In the past nine (9) years,
Dr. Saye has been instrumental in training more than 15,000
surgeons in various laparoscopic techniques and spearheaded
the development of a new minimally invasive therapy,
laparoscopic Doderlien hysterectomy. Dr. Saye received a BS
from Georgia Institute of Technology in 1962 and his MD
degree from Tulane University Medical School in 1965. Dr.
Saye is board certified in Obstetrics and Gynecology and in
Advance Operative Paparoscopy. Dr. Saye is the author of
numerous articles on laparoscopic surgery and techniques.
Vote
A plurality of the votes cast at the Meeting is required to elect each
nominee as a Director. Unless authority to vote for any of the nominees named
above is withheld, the shares represented by the enclosed proxy will be voted
FOR the election as Directors of such nominees.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF EACH OF THE ABOVE NAMED
INDIVIDUALS AS DIRECTORS AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN
FAVOR OF SUCH ELECTIONS.
<PAGE>
AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION, AS AMENDED,
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
(Item 2)
The Company's Articles of Incorporation, as amended (the "Certificate of
Incorporation"), authorizes the issuance of 20,000,000 shares of Common Stock,
$.001 par value, and Preferred Stock, the aggregate number of which, the class
or series of classes, whether a class is with or without par value, the relative
rights and preferences and the limitations, if any, of which are determined by
the Board of Directors. As of February 7, 2000, the Board of Directors of the
Company approved an amendment to the Certificate of Incorporation to increase
the authorized number of shares of Common Stock from 20,000,000 to 100,000,000
and to submit the proposed amendment to the Stockholders at this Meeting.
Purpose and Effect of the Amendment
The general purpose and effect of the proposed amendment to the Company's
Certificate of Incorporation will be to authorize 80,000,000 additional shares
of Common Stock. The Board of Directors believes that it is prudent to have the
additional shares of Common Stock available for general corporate purposes,
including payment of stock dividends, stock splits or other recapitalizations,
acquisitions, equity financings, grants of stock options and to satisfy
obligations relative to financing made available to the Company in December
1999.
Although the Board of Directors has not decided to effect a stock
split, the Board wants to maintain the ability to effect a stock split. The
Company has never split its stock, but would like the ability to make such
decision if it believes that it will improve the liquidity afforded its
Stockholders or if it believes that it will allow the the Company's shares to
become more attractive to individual investors when it is possible to acquire a
larger number of them for the same total dollar amount. Prior to such
determination, the Board of Directors will consider a number of factors,
including general market conditions, in deciding whether or when to effect a
stock split, and any of these factors could cause the Board to decide against
effecting a stock split at any particular time. The Company has determined that
securing Stockholder approval of 80,000,000 additional authorized shares of
Common Stock would be appropriate in order to provide the Company with the
flexibility to consider a combination of possible actions, including
acquisitions or stock splits, that might require the issuance of additional
shares of Common Stock.
The Company currently has 20,000,000 authorized shares of Common
Stock. As of December 31, 1999, the Company had approximately 14,515,373 shares
issued and outstanding and of the remaining 5,484,627 authorized but unissued
shares, the Company negotiated convertible debt and a commitment to lend up to
$5,000,000 to the Company under terms which require the Company to reserve
shares in connection with the possible conversion of such debt and to register
initially 20,038,097 shares. Such commitment to register requires the Company to
amend its Articles of Incorporation in any event. In addition, 10,000,000 shares
are reserved pursuant to the Company's option plans.
Except in connection with the reserved shares described above or the
anticipated reserve for the contemplated convertible debt, the Company currently
has no arrangements or understandings for the issuance of additional shares of
Common Stock, although opportunities for acquisitions and equity financings
could arise at any time. If the Board of Directors deems it to be in the best
interests of the Company and the Stockholders to issue additional shares of
Common Stock in the future, the Board of Directors generally will not seek
further authorization by vote of the Stockholders, unless such authorization is
otherwise required by law or regulations.
The increase in the authorized number of shares of Common Stock
could have an anti-takeover effect. If the Company's Board of Directors desired
to issue additional shares in the future, such issuance could dilute the voting
power of a person seeking control of the Company, thereby deterring or rendering
more difficult a merger, tender offer, proxy contest or an extraordinary
corporate transaction opposed by the Company.
<PAGE>
Vote
The affirmative vote of a majority of the outstanding shares of
Common Stock entitled to vote at the Meeting will be required to approve the
amendment to the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 20,000,000 to 100,000,000.
THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE AMENDMENT TO
THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF
COMMON STOCK FROM 20,000,000 to 100,000,000, AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON
THE PROXY.
APPROVAL OF THE COMPANY'S 2000 STOCK PLAN
(Item 3)
General
The Company's Stockholders are being asked to approve the adoption
of the Company's 2000 Stock Plan (the "2000 Plan"). The 2000 Plan will supercede
the Company's existing stock option plans under which option grants have been
made to officers, directors, employees and consultants of the Company. All of
the Company's officers, directors, employees and select consultants are eligible
to participate in the 2000 Plan. The 2000 Plan will become effective immediately
upon such Stockholder approval. It is anticipated that, if approved by the
Stockholders, the 2000 Plan will be used in lieu of the all other plans
previously adopted by the Company. The 2000 Plan is similar to the Company's
1999 Revised ESOP.
The 2000 Plan will be funded initially with 10,000,000 shares of
Common Stock reserved for issuance under the plan. The Company has experienced
the need, on occasion, to make grants of options to purchase restricted stock in
connection with the hiring of officers and anticipates encountering such need in
the future. Including stock options in the 2000 Plan will enable the Company to
use awards of options in those instances the Company determines it appropriate
and necessary in connection with the hiring or retention of selected employees.
Further, the Company believes that to attract and maintain quality
persons to act as Directors, it should have a mechanism to grant awards of
restricted stock and/or options to purchase restricted stock when a new Director
first joins the Board and annually upon reelection. Including stock awards
and/or options to purchase restricted stock to Directors in the 2000 Plan will
enable the Company to use awards and options in those instances the Company
determines it appropriate and necessary in connection with the attracting and
maintaining Directors.
The Company's growth during recent years have generated substantial
need for meaningful option grants to attract and retain talented employees
critical to the Company's ongoing growth and success. In order to continue to
attract and retain key talent, the Company must offer market competitive
long-term compensation opportunities. Stock options, because of their upside
potential and vesting requirements, are a key component in recruiting and
retaining these employees.
The Company's Board of Directors believes that the stock option
plans have been very
<PAGE>
effective for these purposes over time and have proven to be an important
component of the Company's overall compensation strategy for all employees. The
Company is committed to broad- based participation in the stock option program
by employees at all levels. Under the stock options program, all full-time
employees are eligible for and most key employees receive option grants at hire
and annually thereafter, in accordance with a performance assessment process.
During fiscal year 1998, non-officer employees received 15.4% of the stock
options granted and in fiscal year 1999, non- officer employees received 35.1%
of the stock options granted. The Company believes that the stock option
program, with its emphasis on highly competitive performance-based grants to
nearly all employees, is important in order to maintain the Company's culture,
employee motivation, and continued success.
The Stock Compensation Committee of the Board of Directors (the
"Committee") monitors the Company's stock programs on an ongoing basis to ensure
that stock options and other stock awards are used effectively and in the best
interests of the Company and its Stockholders.
During the past fiscal year, the Committee has revised and monitored
the program to ensure that dilution from stock option plans is managed within
levels consistent with the Company's staffing levels and market value and taking
into account market and industry analysis. By carefully managing Stockholder
resources, the Company seeks to continue providing stock-price growth to
Stockholders and meaningful performance-based compensation opportunities for its
employee population.
The Company is seeking Stockholder approval of the 2000 Plan in
order for option grants under the 2000 Plan to qualify as "performance-based"
compensation under Section 162(m) of the Internal Revenue Code and to allow for
non-qualified awards of restricted stock to Directors. The 2000 Plan will be
funded initially with 10,000,000 shares reserved for issuance under the plan.
Pursuant to the Company's ESOP adopted in 1994, the Company has
granted options to purchase 4,166,316 shares of the Company's Common Stock
representing proceeds on exercise of $1,320,000, 708,329 shares of the Company's
Common Stock representing proceeds on exercise of $708,329 under the 1998
Revised ESOP (without regard to the additional options to Dr. Saye which accrue
at the rate of 8,333 per month after December 31, 1999) and 345,000 shares of
the Company's Common Stock representing proceeds on exercise of $435,000 under
the 1999 Revised ESOP to date.
Pursuant to the Company's CSOP adopted in 1994, the Company has
granted options to purchase 346,115 shares of the Company's Common Stock
representing proceeds of $110,700 to the Company under the 1994 CSOP, options to
purchase 129,000 shares of the Company's Common Stock representing proceeds of
$114,500 to the Company under the 1998 Revised CSOP and 312,500 shares of the
Company's Common Stock representing proceeds of $312,500 under the 1999 Revised
ESOP to date.
The following is a summary of the principal features of the 2000
Plan.
Material Features of the 2000 Plan
The purpose of the 2000 Plan is to attract, retain and motivate
employees, directors, officers and consultants through the issuance of awards to
Directors and options to purchase Common Stock of the Company and to encourage
ownership of Common Stock by most employees, directors and certain consultants
of the Company. The 2000 Plan will be administered by the Stock Compensation
<PAGE>
Committee of the Board of Directors (the "Committee"). Subject to the provisions
of the 2000 Plan, the Committee determines the persons to whom awards and
options will be granted, the number of shares to be covered by each award or
option and the terms and conditions upon which an awards or option may be
granted.
All employees, directors and consultants of the Company and its
affiliates (as defined in the 2000 Plan, "Affiliates") are eligible to
participate in the 2000 Plan, although the Company has discretion in identifying
those people who actually receive grants.
Options granted under the 2000 Plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) non-qualified
stock options. Other than certain minimum requirements described below, the
Committee has the discretion to fix the terms of options granted under the 2000
Plan. Incentive stock options may be granted under the 2000 Plan to employees of
the Company and its Affiliates. Non- qualified stock options may be granted, in
the Company's discretion, to consultants, directors and employees of the Company
and its Affiliates.
Directors of the Company may receive non-qualified stock awards
and/or options as the sole form of compensation for their services (not
including reimbursement of expenses). The 2000 Plan provides for an initial
grant to each Director, upon first being elected or appointed to the Board of
Directors, awards of 25,000 shares of Common Stock and/or options to purchase
25,000 shares of Common Stock (or such higher number of awards and/or options as
determined by the Committee for recruitment purposes) if the Stock Compensation
Committee or the Board decides to make the award. The 2000 Plan also provides
for an annual grant on the date following the annual meeting of Stockholders of
the Company of each year, after giving effect to the election of any director or
directors at such annual meeting of Stockholders, to each Director (who has
served for at least six months as a director) of an award of 25,000 shares of
Common Stock and/or option to purchase 25,000 shares of Common Stock if the
Stock Compensation Committee or the Board decides to make the award.
All options granted under the 2000 Plan will (i) have an exercise
price equal to the fair market value of the Common Stock on the grant date, (ii)
have a term of ten years, and (iii) be immediately exercisable (subject to the
rules under Section 16 of the Exchange Act).
Incentive and non-qualified stock options granted under the 2000
Plan may not be granted with an exercise price less than the fair market value
of the Common Stock on the date of grant (or 110% of fair market value in the
case of incentive stock options granted to participants holding 10% or more of
the voting stock of the Company). Stock options granted under the 2000 Plan
expire not more than ten years from the date of grant, or not more than five
years from the date of grant in the case of incentive stock options granted to a
participant holding more than 10% of the voting stock of the Company. The
aggregate fair market value (determined at the time of grant) of shares issuable
pursuant to incentive stock options which become exercisable in any calendar
year under any incentive stock option plan of the Company by an employee may not
exceed $100,000. An option granted under the 2000 Plan is not transferable by an
optionholder except by (i) will or by the laws of descent and distribution or
(ii) as determined by the Committee and set forth in the Option Agreement. An
option is exercisable only by the optionholder or one who receives the option
pursuant to a permitted transfer.
<PAGE>
An incentive stock option granted under the 2000 Plan may be exercised
after the termination of the optionholder's employment with the Company (other
than by reason of death, disability or termination for cause as defined in the
2000 Plan) to the extent exercisable on the date of such termination, for up to
thirty (30) days following such termination, provided that such incentive stock
option has not expired on the date of such exercise. In granting any
non-qualified stock option, the Committee may specify that such non-qualified
stock option shall be subject to such termination or cancellation provisions as
the Committee may specify. In the event of death or permanent and total
disability while an optionholder is employed by the Company or within three (3)
months of termination of employment, incentive stock options and non-qualified
stock options may be exercised, to the extent exercisable on the date of
termination of employment (as calculated under the 2000 Plan), by the
optionholder or the optionholder's survivors at any time prior to the earlier of
the option's specified expiration date or one year from the date of the
optionholder's termination of employment (all as more specifically provided in
the 2000 Plan). In the event of retirement, the optionee has ninety (90) days in
which to exercise and all rights to exercise terminate in the event of
termination for cause.
If the shares of Common Stock are subdivided or combined into a
greater or smaller number of shares or if the Company issues any shares of
Common Stock as a stock dividend on its outstanding Common Stock, the number of
shares of Common Stock deliverable upon surrender of awarded stock or upon the
exercise of an option or award granted under the 2000 Plan shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
The Stockholders of the Company may amend the 2000 Plan. The 2000
Plan may also be amended by the Board of Directors or the Committee, provided
that any amendment approved by the Board of Directors or the Committee which is
of a scope that the Committee determines requires Stockholder approval, shall be
subject to obtaining such Stockholder approval. The Committee may amend
outstanding option agreements and terms of an award of stock as long as the
amendment is not materially adverse to the participant. Amendments that are
materially adverse to the participant can be effected only with the consent of
the participant.
The Committee has not made any awards or granted any options under
the 2000 Plan. The maximum number of options that can be granted to an
individual in any fiscal year of the Company may not exceed $100,000.
Federal Income Tax Considerations
The following is a description of certain U.S. Federal income tax
consequences of the issuance and exercise of options under the 2000 Plan:
Incentive Stock Options. An incentive stock option ("ISO") does not
result in taxable income to the optionee or a deduction to the Company at the
time it is granted or exercised, provided that the optionee does not dispose of
any acquired ISO shares within two years after the date the ISO was granted or
within one (1) year after he acquires the shares (the "ISO holding period").
However, the difference between the fair market value of the stock on the date
he exercises the option (and acquires the stock) and the option price therefor
will be an item of tax preference includible in "alternative minimum taxable
income." Upon disposition of the stock after the expiration of the ISO holding
period, the optionee will generally recognize long term capital gain or loss
based on the difference between the disposition proceeds and the option price
paid for the stock. If the stock is disposed of prior to the expiration of the
ISO holding period, the optionee generally will recognize ordinary
<PAGE>
income, and the Company will have a corresponding deduction, in the year of the
disposition equal to the excess of the fair market value of the stock on the
date of exercise of the option over the option price. If the amount realized
upon such a disqualifying disposition is less than the fair market value of the
stock on the date of exercise, the amount of ordinary income will be limited to
the excess of the amount realized over the optionee's adjusted basis in the
stock.
Non-Qualified Stock Options. The grant of a non-qualified stock option will
not result in taxable income to the optionee or deduction to the Company at the
time of grant. When the Optionee exercises his or her option to purchase the
stock, the amount of the excess of the then fair market value of the shares
acquired over the option price is treated as supplemental compensation and is
taxable as ordinary income. The Company is entitled to a corresponding
deduction.
Awards of Stock to Directors. The grant of an award of stock to a Director
will result in taxable income to the recipient and a deduction to the Company at
the time of grant.
Deductibility of Compensation. If the Stockholders approve the 2000 Plan,
options granted under this Plan will qualify as "performance-based" compensation
under Section 162(m) of the Internal Revenue Code, so as to allow the Company to
take corresponding deductions for all supplemental income that Optionees realize
upon the exercise of their stock options. Awards of stock granted to Directors
under the 1999 Plan will not qualify as "performance based" compensation under
Section 162(m) of the Internal Revenue Code, Directors should not be deemed to
be"covered employees," as such term is defined under Section 162(m), and
therefore the Company should be able to deduct related expenses to the extent
such expenses exceed $1,000,000 in any year. Reference is made to the Report of
the Stock Compensation Committee, under "Deductibility of Compensation
Expenses," above.
Approval
The affirmative vote of a majority of the votes cast at the Meeting is
required to approve the 2000 Plan.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE 2000 PLAN, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR OF SUCH PLAN UNLESS A STOCKHOLDER
HAS INDICATED OTHERWISE ON THE PROXY.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
(Item 4)
The Board of Directors has appointed Kerkering, Barbario & Co., P.A.,
independent public accountants, to audit the financial statements of the Company
for the fiscal year ending December 31, 2000. The Board proposes that the
Stockholders ratify this appointment. Kerkering, Barbario & Co., P.A. has
audited the Company's financial statements since 1994. The Company expects that
representatives of Kerkering, Barbario & Co., P.A. will be present at the
Meeting, with the opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions.
In the event that ratification of the appointment of Kerkering, Barbario &
Co., P.A. as the independent public accountants for the Company is not obtained
at the Meeting, the Board of Directors will reconsider its appointment.
<PAGE>
Ratification
The affirmative vote of a majority of the votes cast at the Meeting is
required to ratify the appointment of the independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS, AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
to the Meeting. If any other business is properly brought before the Meeting, it
is intended that proxies in the enclosed form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy statement relating to
the 2001 Annual Meeting of Stockholders, Stockholder proposals must be received
no later than October 1, 2000. To be considered for presentation at the Annual
Meeting, although not included in the proxy statement, proposals must be
received no later than November 1, 2000, nor earlier than October 1, 2000. All
Stockholder proposals should be marked for the attention of Corporate Secretary,
Surgical Safety Products, Inc., 2018 Oak Terrace, Sarasota, Florida 34231.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
By order of the Board of Directors:
David Collins
Corporate Secretary
Sarasota, Florida
February 7, 2000
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
THIS PROXY IS BEING SOLICITED BY SURGICAL SAFETY PRODUCTS, INC.'S
BOARD OF DIRECTORS
The undersigned, revoking previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated February 7,
2000 in connection with the Annual Meeting to be held at Surgical Safety
Products Inc. on February 28, 2000 at 10:00 AM, located at 2018 Oak Terrace,
Sarasota, Florida 34231 and hereby appoints Dr. Michael Swor, Frank Clark and
Donald K. Lawrence and each of them (with full power to act alone), the
attorneys and proxies of the undersigned, with power of substitution to each, to
vote all shares of the Common Stock of Surgical Safety Products, Inc. registered
in the name provided herein which the undersigned is entitled to vote at the
2000 Annual Meeting of Stockholders, and at any adjournment or adjournments
thereof, with all the powers the undersigned would have if personally present.
Without limiting the general authorization hereby given, said proxies are, and
each of them is, instructed to vote or act as follows on the proposals set forth
in said Proxy.
This Proxy when executed will be voted in the manner directed
herein. If no direction is made this Proxy will be voted FOR each of the
proposals set forth on the reverse side. With respect to the tabulation of
proxies for purposes of the proposal to amend the Company's Articles of
Incorporation to increase the authorized number of shares, abstentions and
broker non-votes are treated as votes against the proposal.
In their discretion the proxies are authorized to vote upon such
other matters as may properly come before the meeting or any adjournments
thereof.
SEE REVERSE SIDE FOR ALL OF THE PROPOSALS. If you wish to vote in
accordance with the Board of Directors' recommendations, just sign on the
reverse side. You need not mark any boxes.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[SEE REVERSE SIDE]
<PAGE>
[x] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR Proposals 1-4.
o Election of Nine (9)Directors (or if any nominee is not available
for election, such substitute as the Board of Directors may
designate).
Nominees: G. Michael Swor, Frank M. Clark, Donald K.
Lawrence, James D. Stuart, Irwin Newman, Sam Norton,
David Swor, Dr. William Saye and David Collins.
FOR [ ] [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[ ] -----------------------------
For all nominees except as noted above
FOR AGAINST ABSTAIN
o Amendment of Articles [ ] [ ] [ ]
of Incorporation to increase
the number of authorized shares.
o Approval of the Company's 2000 [ ] [ ] [ ]
Stock Plan.
o Proposal to ratify the appointment of [ ] [ ] [ ]
Kerkering, Barbario & Co., P.A.as the
Company's independent public accountants
for the fiscal year ending December 31, 2000.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournments thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as name(s) appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
Signature:______________________ Date______ Signature:____________________
Date_______
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001063530
<NAME> Surgical Safety Products, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Currency
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 516,799
<SECURITIES> 0
<RECEIVABLES> 17,086
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 652,454
<PP&E> 203,533
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,276,106
<CURRENT-LIABILITIES> 590,557
<BONDS> 0
0
0
<COMMON> 14,516
<OTHER-SE> 35,549
<TOTAL-LIABILITY-AND-EQUITY> 1,276,106
<SALES> 0
<TOTAL-REVENUES> 174,983
<CGS> 1,025,625
<TOTAL-COSTS> 1,214,424
<OTHER-EXPENSES> 309,028
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,747
<INCOME-PRETAX> (1,039,441)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,039,441)
<EPS-BASIC> (0.091)
<EPS-DILUTED> 0
</TABLE>
