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U. S. Securities and Exchange Commission
Washington, D. C. 20549
AMENDMENT NO.1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
HyperBaric Systems
(Name of Small Business Issuer in its charter)
California 77-0481056
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1127 Harker Avenue, Palo Alto, CA 94301
(Address of principal executive offices)
650-323-0943
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of Class)
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TABLE OF CONTENTS
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PART 1.......................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS..............................................................1
THE PLEXLIFE SYSTEM FOR PRESERVATION OF PLATELETS AND BIOLOGICS..............................1
(2) Any bankruptcy, receivership or similar proceeding...............................3
(3) Status of any publicly announced new product or service..........................3
(4) Competitive business conditions..................................................3
(5) Sources and availability of raw materials........................................5
(6) Dependence on one or a few major customers.......................................5
(7) Patents and trademarks...........................................................5
(8) Need for any government approval.................................................6
(9) Effect of existing or probable governmental regulations on the business..........8
(10) Estimate of the amount spent on research and development activities..............8
(11) Costs and effects of compliance with environmental laws..........................8
(12) Employees........................................................................8
Reports to Securities Holders............................................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............................9
Overview.................................................................................9
Liquidity and capital resources..........................................................9
Going Concern...........................................................................10
Development plan........................................................................10
Intellectual property...................................................................12
Plant and Significant Equipment Requirements:...........................................12
Changes in the Number of Employees......................................................12
ITEM 3. DESCRIPTION OF PROPERTY............................................................12
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................13
Security ownership of certain beneficial owners.........................................13
Security ownership of management........................................................14
ITEM 5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS........................16
ITEM 6: EXECUTIVE COMPENSATION..............................................................18
ITEM 7: CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS.......................................20
Transactions between the Company and management.........................................20
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ITEM 8: DESCRIPTION OF SECURITIES...........................................................25
Common Stock............................................................................25
The Warrants............................................................................25
Cumulative Voting.......................................................................25
Dividends...............................................................................25
Transfer Agent..........................................................................26
PART II.....................................................................................26
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................................................26
ITEM 2. LEGAL PROCEEDINGS...................................................................27
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.......................................28
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.............................................28
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................................31
PART F/S....................................................................................32
ITEM 1. FINANCIAL STATEMENTS................................................................32
ITEM 2. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................................32
ITEM 1. EXHIBIT INDEX.......................................................................56
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PART 1
Certain statements in this Form 10-SB, particularly under Items 1 and 2,
constitute "forward-looking statements." These forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements, expressed or
implied by the forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
(1) Form and year of organization
HyperBaric Systems was incorporated on February 26, 1998, in the State
of California, by the filing of Articles of Incorporation. The Articles of
Incorporation of the Company currently authorize the issuance of fifty million
(50,000,000) shares of common stock, no par value. On July 21, 1998 we amended
our Articles of Incorporation to increase the authorized number of shares of
Common Stock from 1 million to 10 million, and to effect a split of each share
of Common Stock then outstanding into 4 shares of Common Stock. On June 21, 1999
we amended our Articles of Incorporation to increase the authorized number of
shares of Common Stock from 10 million to 50 million.
THE PLEXLIFE SYSTEM FOR PRESERVATION OF PLATELETS AND BIOLOGICS
We are a developmental stage company whose principal business objective
is to develop and provide economical, non-toxic methods of biological material
preservation to the market place. We believe that our customers could include
hospitals, clinics, blood banks and similar organizations. We have not yet sold
any products or services or realized any operating revenues. We have been
entirely dependent to date on proceeds received in connection with private
placements.
Biologic material preservation is achieved by applying hydrostatic
pressure to the material using a proprietary container, process and solution to
prevent the cells from freezing under sub-zero temperatures. Each type of
biologic material will have varying solutions and processes that are specific to
the different cell types. On October 31, 1998 we filed a patent on a method and
apparatus for preserving biological materials, but this patent has not yet
issued.
We are in development of our PlexLife System, which is a proprietary
technology for preserving platelets (a blood component), heart valves, tissues
and organs such as kidneys, hearts, livers, and lungs. We believe that our
technology represents a breakthrough in the storage and preservation of living
biological materials that promises to reduce the waste inherent in current
technologies, while simultaneously increasing the worldwide availability of
precious biological materials needed to save human lives. If the technology is
proven through further testing and granted FDA approval, it should be
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considered unique and revolutionary in its ability to extend and maintain
functionality of these materials for much longer periods of time than is
currently possible. We are targeting blood banks, hospitals and tissue and organ
banks as our main customers in the worldwide markets.
During the initial months following our Company's incorporation, we
recruited key members of the management and technical team, conducted market
research and established the basic infrastructure and plan for our company.
On August 25, 1998 we established a branch office in Krasnoyarsk,
Russia, where the inventor, Vladimir Serebrennikov, resides. Mr. Serebrennikov
is our Technical Director of Research and Development for Preservation Systems.
Krasnoyarsk was chosen to take advantage of low cost technical expertise,
availability of low cost materials such as titanium, and also because two
members of the team, Mr. Serebrennikov and Leonid Babak, employees of our
Company, both reside there.
The Russian government has placed no restrictions on our ability to
operate our business, hire employees in Russia, and freely transport our assets
from Russia to the U.S. without any assessment or payments to the Russian
Federation. There are no material restrictions or regulations to which we are
subject in Russia as a result of our activities there. Conducting operations in
Russia does not affect Food and Drug Administration ("FDA") approval or our
proposed business activities in the United States, because no clinical trials
are or will be conducted there.
Initial non-clinical experiments and tests of platelet preservation and
other research and development activities are being conducted in Russia as well
as production of prototype and pre-production units. Such research includes
sub-zero storage of platelets utilizing our proprietary technology and process,
tests to measure the functional ability of platelets following storage, and the
development of new solutions for platelet preservation.
OUR DISPOSABLE VENEREAL DISEASE TEST SYSTEM
On September 1, 1998, we entered into a purchase agreement with Paul
Okimoto, an officer and director of the Company, acquiring all patent rights
owned by Mr. Okimoto to a disposable venereal disease test device called
Phemtest. Mr. Okimoto received no cash payment in consideration for the
assignment of the above mentioned patents. The product, a disposable venereal
disease test device for women, was developed during the early 1980's and the
first patent application was filed in 1985. It is based on the pH level reading
of the vaginal tract to determine the presence of bacterial infection. A pH
reading of higher than 4.5 is an indication that a pathology exists and that the
patient should see a physician for precise diagnosis and treatment. The
prototype has a retractable tip that can be extended well into the vestibule of
the vagina.
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The first patent (patent number 4,784,158) was granted on November 15, 1988 a
second patent (patent number 4,945,921) was granted on August 7, 1990. The 158
patent is for a vaginal testing applicator and method, and the 921 patent is for
a body cavity specimen collecting and testing apparatus. Both patents are valid
for a period of 17 years from the date of grant. Over 5 years remain on the
first patent and 7 years on the second. There has been no previous attempt to
produce a commercial unit or to market the product, except by a company called
MEDX which went out of business in 1985.
(2) Any bankruptcy, receivership or similar proceeding
We are not and never have been in bankruptcy, receivership or any other
similar proceedings.
(3) Status of any publicly announced new product or service
We are in development of our PlexLife System, which is a proprietary
technology for preserving platelets (a blood component), heart valves, tissues
and organs such as kidneys, hearts, livers, and lungs. We believe that our
technology represents a breakthrough in the storage and preservation of living
biological materials that promises to reduce the waste inherent in current
technologies, while simultaneously increasing the worldwide availability of
precious biological materials needed to save human lives. If the technology is
proven through further testing and granted FDA approval, it should be considered
unique and revolutionary in its ability to extend and maintain functionality of
these materials for much longer periods of time than is currently possible. We
are targeting blood banks, hospitals and tissue and organ banks as our main
customers in the worldwide markets.
On September 1, 1998, we entered into a purchase agreement with Paul
Okimoto, an officer and director of the Company, acquiring all rights to a
disposable venereal disease test device called Phemtest, for which Mr. Okimoto
owned the patents.
(4) Competitive business conditions
As a development stage company, we are entering a biological material
preservation market that is presently addressed by large companies with
extensive financial resources. Those companies include DuPont and Baxter, among
others. Additionally, smaller companies with which we may compete include
LifeCell for platelet preservation, Cerus for viral inactivation for platelets
and other blood products and Cryo Life for preserving heart valves by
cryo-preservation. We have limited funds with which to develop products and
services, and many of our competitors have significantly more resources than we
do. These companies are active in research and development of biological
material preservation, and we do not know the current status of their
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development efforts. Most of the above competitors have significantly greater
financial resources, technical expertise and managerial capabilities than we
currently possess.
Prior to the formation of our company, Vladimir Serebrennikov, our
Technical Director of Research and Development, conducted independent research
over a ten-year period, concerning the preservation of biologic material using
high pressure. After our Company was formed on February 26, 1998, the knowledge
he gained was applied to the preservation of blood platelets, a market focus of
our Company. New methods were developed in the container hardware design,
processes and solutions for platelets, which continue to evolve as we continue
our research and development effort.
A patent covering the hardware design of the container, preservation
methodologies and processes was filed by us on October 31, 1998 followed by a
continuation-in-part (CIP), which was filed in February of 1999 covering our
solutions and other preservation methodologies. We expect that additional
patents will follow for organ preservation and other biologic material as such
systems are developed. We are hopeful that our patents and other intellectual
property protection will enable us to compete effectively.
Existing technology for storing platelets is comprised of rocking
platelets in plasma at room temperature. It is necessary to develop special
plastic bags with defined gas permeability that allows platelets to be stored
for up to 5 days.
Our technology preserves platelet membrane integrity and reduces
metabolic activities to very low rates, allowing prolonged storage times. We
believe that platelets stored using this technology will also have superior
function after transfusion, compared to platelets stored with the existing
methodology.
LifeCell Corporation is attempting to develop and obtain FDA approval
for extending the storage time of blood platelets using cryo-preservatives.
Cerus Corporation has developed a viral inactivation product for platelets that
is intended to eliminate or reduce viral testing requirements. This product is
now in clinical trials. These products if approved could have a material adverse
impact on the market for extending platelet storage times using our technology.
We believe that most, if not all, of our competitors use toxic chemicals such as
Dimethyl Sulfoxide (DMSO) to preserve platelets, and store organs and other
biologic material. It is our intent to achieve longer preservation of such
material and provide higher quality material by using non-toxic solutions and by
storing the biologic material below the freezing point of water, without
destroying the cellular integrity of the material. We also believe that our
approach will be inexpensive in comparison to alternative preservation methods
because the toxic solutions used by our competition must be removed from the
material before use in most cases. The solution we use for platelet preservation
is intended to be directly usable.
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(5) Sources and availability of raw materials
Since we are in the development stage, we have not yet begun to
manufacture our products. Our products, as manufactured, should not use any
exotic or hard to find raw materials and we believe that suppliers can be
identified. We are constantly reviewing the materials used in the development
process, with particular attention to availability and future cost. We cannot
currently anticipate what the availability of materials and suppliers will be at
the time our products enter production.
(6) Dependence on one or a few major customers
It is our intent to market our platelet preservation products to blood
centers and hospitals through established medical specialty dealers and
distributors or equipment manufacturers that currently supply products to the
market. Similar strategies will be employed for other future preservation
products. It is our plan to license the manufacturing, sales and distribution of
our Phemtest product to a manufacturer that sells feminine disposable products
to the market. As we are in the development stage of operations, we currently
have no customers and dependency on particular customers cannot be anticipated
at this time.
(7) Patents and trademarks
On June 1, 1998, we were assigned the entire worldwide right, title and
interest in a preservation technology applicable to, but not limited to
platelets (a blood component), red blood cells, heart valves, tissue and organs.
This technology concerned all of the discoveries, concepts and ideas whether
patentable or not, invented and developed by Messrs. Leonid Babak and Vladimir
Serebrennikov, and was in exchange for 877,500 shares of common stock, to each,
valued at the time of issuance at $0.0025 per share.
At the time of assignment of this technology, it was unclear to the
Company which aspects, if any, of the technology, might be protectible by
patent, both within and without the United States, and which aspects of the
technology might be subject to other forms of protection, such as trade secret
protection. Since this assignment, the Company has been performing further
research and development on the technology assigned, and has filed one patent
application and a continuation in part, as described elsewhere herein. The
Company anticipates filing additional patents on other aspects of the technology
assigned by Messrs. Babak and Serebrennikov as additional inventions are reduced
to practice.
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Messrs. Babak and Serebrennikov are employees of the Company and
stockholders of the Company. We applied for a U.S. Patent on October 31, 1998,
which covers the hardware design of the container, preservation methodologies
and processes. A continuation-in-part (CIP) was filed in February of 1999
covering our solutions and other preservation methodologies.
We filed an international application with the Patent Cooperation Treaty
based on our U.S. patent application, designating all countries and regions on
October 12, 1999. It is management's and counsel's belief that the patent and
its extensions will protect the current core technology and provide the Company
with a long-term competitive advantage in the market.
New processes for preserving platelets were developed by us, which we
have proceeded to patent. Although we have advice from legal council that our
methods for preserving platelets are patentable, there can be no assurance that
the Company will be granted a patent. If such patents are not granted, this
could have a material adverse effect on our ability to compete with other
companies that have much greater financial and technical resources than we
currently possess.
We purchased the patents for a product titled Phemtest from Paul
Okimoto, an officer and director, on September 1, 1998. The patents "VENEREAL
TESTING APPLICATOR AND METHOD", Patent Number 4,784,158, was issued November 15,
1988, and "BODY CAVITY SPECIMEN COLLECTING AND TESTING APPARATUS", Patent Number
4,945,921, was issued August 7, 1990. In the Purchase Agreement for the patents
we agreed to pay, and did pay, to the law firm of Flehr, Hohbach, Test and
Herbert, $1,375 as a patent maintenance fee to assure that the patents would
remain in force. We also agreed to pay Mr. Okimoto a royalty payment of 5% of
gross sales of Phemtest for the next five years. The first $16,000 in royalty
payments are to be paid to a law firm to be designated by Mr. Okimoto, the next
$75,000 in royalties are to be paid to Mr. Okimoto in shares of Common Stock of
the Company, valued at $2.00 per share, and the remaining royalties to be paid
to Mr. Okimoto, if any, are to be paid in cash.
(8) Need for any government approval
The FDA and the European Union ("EU") have regulations for the
marketability of medical solutions and equipment. We have not developed our
products to the level where these approval processes can be started.
We believe that all of the products currently in development will
require FDA approval prior to marketing. Our initial products are at the
prototype development stage and preclinical testing. The Company intends to
submit its initial IND/IDE as soon as sufficient preclinical data is obtained.
IND refers to an Investigational New Drug Exemption and IDE refers to an
Investigational Device Exemption, both of which must
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be filed with the FDA prior to conducting clinical trials on human subjects.
The successful completion of clinical trials is the final step toward receiving
FDA approval of our product for marketing.
Our anticipated first product is a device to be utilized by blood
centers in the processing and storage of blood platelets. As such, the Company
must obtain regulatory approval from the FDA to market the medical device. In
addition, because the platelet product (stored in the medical device) is also a
regulated product, the Company must also obtain FDA approval for the platelet
product to be stored in the Company's device.
The Company intends to pursue 510(k) approval of its storage device,
although there is a possibility that the FDA could determine that an application
for a new device may be required. A 510(k) submission will require a showing of
"substantial equivalence" to one or more legally marketed devices. Regulatory
review of a 510(k) application should take a few months less than that for a new
device application. The Company believes that in either case the data required
would be approximately the same, preclinical and clinical data demonstrating
safety and efficacy.
In order for the Company to receive FDA 510(k) approval we believe that
we will need to show that platelets stored utilizing the Company's device must
be equivalent to platelets stored using currently approved methods. We would do
these utilizing laboratory tests of platelet function and results of a clinical
trial. If the Company determines that it will pursue new claims for platelets
stored using its device, more extensive clinical trials would be necessary. We
do not expect to pursue new claims initially, even if we believe that some may
be supported by our research.
We currently intend to file our initial IND/IDE in mid-year 2000.
Depending on the outcome of clinical trials and the claims submitted for
approval, we believe that it could take as long as two to four years to obtain
needed data, submit requests for marketing approval, and obtain regulatory
approval or denial.
It is our estimate the company will expend $8.3 million to reach our
goal of FDA approval. We have incurred costs of $718,800 from inception
(February 26, 1998 through September 30, 1999), and require additional funding
of $7.6 million.
Russian regulations governing patents and procedures for ownership of
patents have an effect on our Company to the extent that any patentable products
or ideas developed through the branch personnel will be the property of the
Company as long as the agreement with employees and outside sub-contract
personnel stipulate that such inventions shall be assigned to the Company. This
is similar to U.S. law. It is our practice to require that all personnel and
outside contractors sign such an agreement.
The assignment of products developed or patents granted prior to any
payment by the Company for the development of a product would require approval
by the Russian government. Even though Mr. Serebrennikov holds some patents
individually which could relate to our technology, we have elected not to
purchase these existing patents
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held by Mr. Serebrennikov because they have become public domain outside of
Russia, and because we do not feel that they are important to our business.
(9) Effect of existing or probable governmental regulations on the business.
As an approved medical device, the Company's storage product must
be manufactured according to Quality Systems Regulations ("QSR") and Good
Manufacturing Practices ("GMP"). We intend to be in compliance with these
regulations during product development. It is our plan to manufacture the
company's product devices through contract manufacturers experienced in the FDA
regulations and familiar with QSR requirements and whose facilities are in
compliance with QSR. We will audit all contract manufacturers to help assure
proper compliance. Components of the device are comprised of usual metals,
plastics, and electronic parts and should generate no unusual disposal streams.
(10) Estimate of the amount spent on research and development activities
From inception through September 31, 1999, our accumulated deficit is
$718,800, of which $240,200 has been a spent on research and development
activity
(11) Costs and effects of compliance with environmental laws
We have not incurred any costs in connection with the compliance with
environmental laws.
Manufacture of the company's devices is not anticipated to generate any
unusual waste other than that typical for metals and plastics fabrication. The
device is intended to be used only by facilities that are licensed in the
handling of blood and related products. The device itself does not produce
additional waste products from its use, other than those already being handled
by such facilities. No additional environmental compliance issues are
anticipated.
(12) Employees
The Company presently has seventeen (17) full time employees, 6 in the
U.S. and 11 in Russia. The Company's employees are currently not represented by
a collective bargaining agreement, and the Company believes that its relations
with its employees are good.
REPORTS TO SECURITIES HOLDERS
We intend to (i) send an annual report, including audited financial statements
to each holder of shares of our common stock, and (ii) file regular annual and
quarterly reports with the Securities and Exchange Commission. Additionally, you
can read and copy any
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and all such reports at the SEC's Public Reference Room at 450 Fifth Street, NW,
Washington, D.C. 20549. You can obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site at "www.sec.gov" that contains reports, proxy and information
statements, and other information regarding other issuers and us.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
We have a very limited operating history and have no revenue to date.
Our prospects must be considered in light of the risks and uncertainties
encountered by companies in an early stage of development involving new
technologies and overcoming regulatory approval process requirements before any
revenue is possible.
We have experienced operating losses since our inception. These losses
resulted from the significant costs incurred in the development of the
technology and the establishment of our research and development facility.
Expenditures will increase in all areas in order to execute our business plan,
particularly in research and development and in gaining regulatory approval to
market our products in the U.S. and abroad.
During the next 12 months we will continue efforts on prototype
development and the generation of preclinical data. It is anticipated that we
will submit our first IND/IDE and begin clinical testing of our first product
for blood platelet storage. Research will commence on kidney preservation,
developing solutions that will operate under sub-zero temperature conditions.
We anticipate filing a second patent relating to platelet preservation
during the next twelve months of operation which should strengthen our
competitive position in the platelet preservation marketplace. We will also seek
strategic alliances with companies that have the capability to provide technical
and clinical expertise as well as financial and marketing expertise to leverage
our current expertise in these areas.
We also plan to relocate our current Branch facility in Russia to a more
suitable location to accommodate more equipment and personnel, as well as to
locate a central administrative facility in the U.S.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through financing
from the founders and private investors, a public offering under Regulation D,
Rule 504 and private placements under Regulation D, Rule 506.
We anticipate continued growth in our operations and a corresponding
growth in our operating expenses and capital expenditures. The Company does not
anticipate any
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revenue from operations for the next 2 or 3 years. Therefore, the success of the
Company is dependent on funding from private placements. We believe that the net
proceeds of a private placement of $3 million in Common Stock currently in
process will be sufficient to meet anticipated cash requirements for working
capital and capital expenditures for 9 months if the full amount of the offering
is raised, although there is no assurance that the full amount will, in fact, be
received. In order to continue operations beyond the 9-month period following
the completion of this offering, we will seek additional funds through other
offerings of debt or equity securities, which could result in additional
dilution to stockholders. There is no assurance that financing will be available
on terms acceptable to the Company.
Our operating plan for calendar year 2000 is focused on development of
our products. It is our estimate a cash requirement of $3,288,000 is required to
support this plan. The expense estimates total $2,938,000 for operating expenses
and $350,000 for capital expenditures. The cost of legal and accounting services
associated with the filing of requisite reports under the Securities and
Exchange Act of 1934 will be pair out of current stock sales as further
disclosed in subsequent events of auditors report.
GOING CONCERN
We are in the second year of research and development, with an
accumulated loss during the development stage of $718,800. As of September 30,
1999 we are uncertain as to the completion date of this research and
development, or if a product will ever be completed as a result of this research
and development activity. We anticipate that the funds spent on research and
development activities will need to increase prior to completion of a product.
Additionally, we may not be able to secure funding, in the future, necessary to
complete our intended research and development activities.
Additionally, if we lose key personnel or are unable to attract and
retain additional qualified personnel we may not be able to successfully manage
the business and achieve our objectives.
These conditions give rise to substantial doubt about our ability to
continue as a going concern. Our continuation as a going concern is dependent
upon our ability to obtain additional financing from sale of our common stock.
The Report of our Independent Certified Public Accountants contains a
paragraph regarding the Company's ability to continue as a going concern.
DEVELOPMENT PLAN
We have engaged Quintiles, Inc., an international regulatory consulting
firm, to assist with planning and managing the regulatory approval process. This
firm specializes in the design and implementation of regulatory strategies
including experiment design and monitoring. We have not made any payments to
Quintiles in the reported periods and are committed to pay only what is expended
on a work order basis. We are
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committed to pay $3,000 of a work order total maximum of $20,000 for developing
a detailed strategic development plan for our platelet storage system. The
remaining $17,000 will be paid as we authorize additional work from Quintiles.
As an overall strategy, we intend to limit the system claims and to
progressively expand them as FDA and/or EU approval is granted for each
succeeding claim. We believe that this should provide a shorter time to market.
Development Phases
We have developed a 3-phase development strategy that considers FDA and
international approval processes.
- Phase 1 Platelet Preservation - Solution Only
The plan starts with a platelet preservation product using the PlexLife
solution by itself. A solution development process is underway with the
planned outcome of platelets that can be stored under refrigeration for
a period greater than 7 days. These platelets are to be strong viable
platelets with little or no bacterial growth. Currently the industry
stores platelets at ambient temperature for a maximum of 5 days, a FDA
imposed limit due to historic bacterial infection of the platelets.
- Phase 2 Platelet Preservation - Complete PlexLife System
This phase of development is to result in longer storage times for
platelets. The development will combine the use of solutions, sub-zero
temperature and high pressure. It is our goal to develop a storage
method that will preserve the viability of platelets with little or no
bacterial growth for a period greater than 13 days. This will provide
the medical community with a new and economical method for long-term
platelet storage thereby reducing the current loss of product.
- Phase 3 Organs and Heart Valves
The third phase will incorporate storage of organs and heart valves.
This development will involve experiments with animal organs to
demonstrate our ability to harvest, store and transplant organs. The
goal is to achieve a level of physical condition and viability of these
organs that is equal to or superior to present storage methods and
storage times. The development process includes the development of
solutions, chambers and cooling methods. As the development experiments
are proven to be successful, higher life forms will be involved, until
the goal of human organ and heart valve preservation is obtained.
Governmental approval for human testing will be required for each of these three
phases of development. Our plan is to obtain the necessary approvals for each
stage.
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INTELLECTUAL PROPERTY
We consider our intellectual property a key cornerstone and asset of our
business. As such, the intellectual property, which consists of applied-for
patents, trade secrets, copyrights and know-how will be both developed and
protected as a primary goal of the company. We plan to gain wide protection for
our intellectual property worldwide by patent and trademark filings in major
foreign markets as well as the careful protection of trade secrets through
contract and procedure. Information regarding our patents can be found elsewhere
in this document under Patents and Trademarks.
PLANT AND SIGNIFICANT EQUIPMENT REQUIREMENTS:
It is our plan to purchase computer equipment, laboratory equipment and
office furniture over the next twelve month. The estimate for these expenditures
is $350,000. We do not expect to purchase any plant or significant equipment.
Our plan is to rent or lease facilities and any significant equipment necessary
during our development stage.
CHANGES IN THE NUMBER OF EMPLOYEES
We anticipate hat the growth of the company will require the addition of
several employees. We anticipate the number of employees will grow from our
present level of 17 employees to as many as 40 employees by the end of the year
2000. The addition of employees will be made on an as required basis.
ITEM 3. DESCRIPTION OF PROPERTY
The Company owns no real property and has no interest in any real
property. We have not yet entered into a lease on facilities in the United
States. Our principal address as reported herein is the residence of one of our
employees. Although the real estate leasehold market in California is highly
competitive, we believe that, as we require facilities in California we will be
able to find such available facilities at a reasonable cost.
We have been conducting platelet experiments at the Sacramento Blood
Foundation in Sacramento, California on a contract basis since April of 1999.
The experiments are conducted under our direction, but using the Foundation's
personnel. There are no long term contracts or commitments. We release a work
order authorizing such experiments prior to performing any work or experiments.
12
<PAGE> 16
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the outstanding shares of common stock of
the Company owned of record or beneficially by each person who owned of record,
or was known by the Company to own beneficially, more than 5% of the Company's
common stock on December 31, 1999. All of the per share numbers are calculated
to include the effect of a split of 1 share into 4 shares, effective July 21,
1998 (the "Split"). The company is in the process of a private placement
offering and has included the current effect of such offering on ownership in
the following tables.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PRINCIPAL SHAREHOLDER'S NAME NUMBER OF SHARES PERCENT PRIOR TO PERCENT ASSUMING
AND ADDRESS OWNED(1) OFFERING(2) ALL SHARES
OFFERED ARE
SOLD(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harry Masuda(3) 921,300(5) 12.8% 10.0%
1127 Harker Avenue
Palo Alto, CA 94301
YN Faarkaghyn Shiaght Lorne 917,500 12.8% 10.0%
House Trust Limited(4)
669 35th Street
Richmond, CA 94805
Leonid Babak
31 Apt. 16 Novaja Zarja St. 877,500 12.2% 9.6%
Krasnoyarsk, Russia 66028
Vladimir Serebrennikov 877,500 12.2% 9.6%
1A Apt 53 Academgorodok
Krasnoyarsk, Russia 66036
Max C. Tanner 600,000 8.3% 6.5%
2950 E. Flamingo Rd., Suite G
Las Vegas, NV 89121
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Restricted stock. Reflects July 1998 one to four stocks split.
(2) Assumes exercise of options to purchase an aggregate of 1,092,500
shares of restricted common stock at prices ranging from $0.01 to
$1.62 per
13
<PAGE> 17
share, expiring on dates ranging from 5/9/03 to 10/1/04. Does not
assume the exercise of warrants to purchase an aggregate of
100,000 shares of restricted common stock at $0.375 per share,
expiring on dates ranging from 3/24/00 to 6/15/00, nor the
warrants issuable in connection with the September 1999 to
present offering.
(3) An officer and/or director of the Company.
(4) Paul Okimoto, an officer and director of the Company, acted as
Trustee in receiving and forwarding the shares of HyperBaric
Systems to YN Faarkaghyn Shiaght Lorne House Trust Limited, for
the benefit of Mark Tameichi Okimoto, Michael Akira Okimoto, Eric
Yoshiro Okimoto, Daryl Takashi Okimoto, Mary T. Hernandez and
Betty Yamaguchi. The permanent Trustee is Ronald Buchanan of
Lorne House Management Ltd.
(5) Includes Mr. Masuda's purchase of 2,800 shares on September 8,
1998 and purchase of 1,000 shares on November 10, 1999.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the outstanding shares of common stock of
the Company owned of record or beneficially by each officer and director of the
Company on September 30, 1999 and by all officers and directors as a group.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
PERCENT
ASSUMING ALL
SHARES
PRINCIPAL SHAREHOLDER'S NAME NUMBER OF SHARES PERCENT PRIOR TO OFFERED ARE
AND ADDRESS OWNED(1) OFFERING(2) SOLD
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harry Masuda(3) 921,300(6) 12.8% 10.0%
1127 Harker Avenue
Palo Alto, CA 94301
YN Faarkaghyn Shiaght Lorne(4) 917,500 12.8% 10.0%
House Trust Limited
669 35th Street
Richmond, CA 94805
George Tsukuda(3) 173,600(5) 2.4% 1.9%
3729 McBeth Drive
San Jose, CA 95127
</TABLE>
14
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
Leonid Babak 877,500 12.2% 9.6%
31 Apt. 16 Novaja Zarja St.
Krasnoyarsk, Russia 66028
Vladimir Serebrennikov 877,500 12.2% 9.6%
1A Apt 53 Academgorodok
Krasnoyarsk, Russia 66036
Victor Ivashin 320,000 4.5% 3.5%
3645 Midway Drive
Santa Rosa, CA 95405
All Officers and Directors
as a Group (4 persons) 2,008,600(6) 28.0% 21.9%
</TABLE>
- -------------------
(1) Restricted stock reflects the July 1998 one to four stock split.
(2) Assumes exercise of options to purchase an aggregate of 1,092,500
shares of restricted common stock at prices ranging from $0.01 to
$1.62 per share, expiring on dates ranging from 5/9/03 to
10/1/04. Does not assume the exercise of warrants to purchase an
aggregate of 100,000 shares of restricted common stock at $0.375
per share, expiring on dates ranging from 3/24/00 to 6/15/00, nor
the Warrants issuable in connection with this Offering.
(3) An officer and/or director of the Company.
(4) Paul Okimoto, an officer and director of the Company, acted as
Trustee in receiving and forwarding the shares of HyperBaric
Systems to YN Faarkaghyn Shiaght Lorne House Trust Limited, for
the benefit of Mark Tameichi Okimoto, Michael Akira Okimoto, Eric
Yoshiro Okimoto, Daryl Takashi Okimoto, Mary T. Hernandez and
Betty Yamaguchi. The permanent Trustee is Ronald Buchanan of
Lorne House Management Ltd.
(5) Assumes the exercise of options to purchase 20,000 shares of
restricted common stock at $.025 per share, expiring on 7/9/03.
Does not assume the exercise of warrants to purchase 50,000
shares of restricted common stock at $0.375 per share, expiring
on 3/24/00.
(6) Includes Mr. Masuda's purchase of 2,800 shares on September 8,
1998 and purchase of 1,000 shares on November 10, 1999.
15
<PAGE> 19
ITEM 5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The names, addresses, ages and respective positions of the current
Directors and Officers of HyperBaric Systems are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name AGE POSITION
- --------------------------------------------------------------------------------
<S> <C> <C>
Harry Masuda 55 President, Chief Executive
Officer, and a Director
Paul Okimoto 64 Chairman of the Board and
Executive Vice President
Ardeth Sealy 52 Chief Financial Officer,
Secretary
Rocky Umar 60 Vice President, Marketing
Larry Bryant 55 Vice President, Business
Development
Dr. David Lucas 57 Scientific Director
George Tsukuda 55 Director
Leonid Babak 50 Branch Chief of Russian
Operations
Vladimir Serebrennikov 50 Technical Director of
Research and Development for
Preservation Systems
</TABLE>
Unless otherwise indicated each director serves for one-year terms.
HARRY MASUDA, age 55, joined the Company on February 26, 1998, as the
Chief Executive Officer, President, and a Director of the Company. Mr. Masuda
has served as Director of the Company since February 26, 1998. Mr. Masuda is the
former president of several high tech companies including Piiceon, Inc., a
manufacturer of computer peripheral products for microcomputers. Mr. Masuda
also founded HK Microwave; a manufacturer of high frequency phase locked
oscillators used in cellular telephone base stations, later acquired by Dynatech
Corporation. Mr. Masuda received his BSEE and
16
<PAGE> 20
MSEE from San Jose State University. Mr. Masuda has been president of HyperBaric
Systems since February 1998, was a Business Consultant from October 1997 to
February 1998, and was President of International Web Exchange from July 1995 to
October 1997.
PAUL OKIMOTO, age 64, joined the Company on February 26, 1998 as
Executive Vice President and a Director of the Company. Mr. Okimoto has been
Executive Vice President of HyperBaric Systems since February 26, 1998, and was
President of Sanhill Systems from 1991 to January 1998.
ARDETH SEALY, age 52, joined the Company on January 1, 1999, as the
Chief Financial Officer and Secretary of the Company. Mr. Sealy was formerly the
Vice President of Finance and Administration for several Dynatech Corporation
subsidiaries and for Capsco Sales, an electronic component distributor. Mr.
Sealy has been Chief Financial Officer for HyperBaric Systems since January
1999, and was a Financial Consultant from November 1995 to December 1998, and VP
Finance and Administration for Qualimetrics from 1992 to October 1995.
ROCKY UMAR, age 60, joined the Company on May 10, 1998, as Vice
President of Marketing. Mr. Umar served as Senior Executive for Product
Management, Marketing and Sales at Cogar Corporation, and was responsible for
acquisitions, marketing and sales, and planning for Singer Company, Business
Machines Division. Mr. Umar was also CEO of Witek, Inc. a wireless technology
company. Mr. Umar has been Vice President of Marketing for HyperBaric Systems
since May 1998, and was an Information Systems Consultant from 1993 to April
1998.
LARRY BRYANT, age 55, joined the Company on August 9, 1999, as Vice
President, Business Development. Mr. Bryant served as Chief Strategic Officer of
Surgica, a medical device company, and Chief Strategic Officer and Director of
Investor Relations for Intracom. Mr. Bryant has been Vice President, Business
Development since August 1999, and was Chief Strategic Officer of Surgica from
July 1999 to August 1999 (part time). Mr. Bryant has been Chief Strategic
Officer and Director of Investor Relations for Intracom from September 1997 to
August 1999, and Mr. Bryant left the Company on December 28, 1999. He was a
business consultant form January 1995 to September 1997. Mr. Bryant left our
company on December 28, 1999.
DR. DAVID LUCAS, Ph.D., age 57, joined the Company on January 1, 1999,
as Scientific Director Dr. Lucas obtained BA and Ph.D. degrees at Duke
University and did postdoctoral work at Harvard Medical Center. His doctoral
degree is in Microbiology and Immunology. He was a faculty member at the
University of Arizona for 16 years where he taught medical students and graduate
students. Previous industry positions were as Director of Research for American
Qualex, an immunochemicals company; Vice President of Protein Technology, where
he developed veterinary biologic products; Vice President for Research and
Technology Transfer at Children's Hospital Oakland; and President of PediaPharm
Corporation, a development stage pharmaceutical products company. Dr. Lucas has
been Scientific Director for HyperBaric Systems since
17
<PAGE> 21
December 1998, and was President of PediaPharm from 1994 to October 1998, and
worked at PediaPharm part time thereafter.
GEORGE TSUKUDA, age 55, joined the Company on February 26, 1998 as a
Director. Mr. Tsukuda was self-employed as a psychotherapist working primarily
with children doing play therapy. Since terminating his practice, he has worked
full-time on completing his doctoral dissertation in clinical social work
through Smith College School of Social Work in Northhampton, Massachusetts. Mr.
Tsukuda received his Ph.D. in August of 1998. Mr. Tsukuda was a Freelance Writer
from August 1998 to the present, performed Doctoral dissertation research in
clinical social work from September 1996 to August, 1998, and was a
Psychotherapist from 1987 to September, 1996.
LEONID BABAK, age 50, joined the Company on February 26, 1998, as Branch
Chief of Russian Operations. Mr. Babak graduated with a degree in physics and
mathematics from Krasnoyarsk State University in Russia. He has held various
positions within the University and the Geophysics department for the Metallurgy
Ministry. He also was president of Krasnoyarsk Marketing, and a trading company
called Sibina TK. Mr. Babak has been Branch Chief, Russian Operations for
HyperBaric Systems since February, 1998, was President of Sibina TK from 1997 to
February, 1998, and was President of Krasnoyarsk Marketing from 1992 to 1997.
VLADIMIR SEREBRENNIKOV, age 50 joined the Company on February 26, 1998,
as Director, Research and Development of Preservation Systems. He received a
degree in physics from Krasnoyarsk State University in Russia and a doctoral
degree in physics from the same university, specializing in high hydrostatic
pressure research. He taught physics at the same University for a number of
years and published numerous scientific papers related to high-pressure research
phenomenon. Dr. Serebrennikov received a number of patents related to
high-pressure storage of biological material at low temperatures. Dr.
Serebrennikov has been Director, Research and Development of Preservation
Systems for HyperBaric Systems since February 1998, and was Doctor and
Professor, Krasnoyarsk State University, Physics from 1993 to 1998.
ITEM 6: EXECUTIVE COMPENSATION
Our first year of operation ended December 31, 1998. As a start-up
company, executive compensation has been limited. No executive officer has
received compensation in an amount equal to or in excess of $100,000. Executive
officers did not receive any bonus amounts. All non-employee directors of the
Company do not receive compensation, but are reimbursed for direct expenses
related to their duties.
18
<PAGE> 22
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------- ------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
--------- ---- ------ ----- ------------ -------- ------------ ------- ------------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. Masuda 1998 $28,000 $0 $0 877,500 N/A N/A N/A
CEO, Pres. $21,941
1999 $66,000 $0 $0 N/A N/A N/A
N/A
P. Okimoto 1998 $28,000 $0 $0 877,500 N/A N/A N/A
Exec. VP $21,941
1999 $51,000 $0 $0 N/A N/A N/A
N/A
L. Bryant 1998 N/A $0 $0 N/A N/A N/A N/A
VP. Business
Development(2)
1999 $36,720 $0 $0 N/A N/A N/A N/A
R. Umar 1998 $21,000 $0 $0 N/A 200,000 N/A N/A
VP Mkt'g
1999 $45,000 $0 $0 N/A 0 N/A N/A
A. Sealy 1998 $0 $0 $0 N/A 90,000 N/A N/A
CFO, Secty
1999 $45,000 $0 $0 N/A 100,000 N/A N/A
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
--------- ----------------------- ------------------------ ------------ ----------
Number of Securities % of Total Options/SARs Exercise or
Underlying Options/SARs Granted to Base Expiration
Name Granted (#) Employees in Fiscal Year Price ($/Sh) Date
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CEO 0 0 0 N/A
R. Umar 200,000 19% $0.025 5/9/03
VP Mkt'g
A. Sealy 40,000 3.8% $0.025 6/15/03
CFO, Secty
A. Sealy 50,000 4.8% $0.25 11/06/03
CFO, Secty
1999
A. Sealy 60,000 18.9% $0.50 6/25/04
CFO, Secty
A. Sealy 40,000 12.6% $1.62 10/1/04
CFO, Secty
</TABLE>
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
19
<PAGE> 23
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
---- ----------- -------- ------------------------------- ---------------------------
Shares Number of Securities Underlying Value of Unexercised In-the
Acquired Value Unexercised Options/SARs at Money
on Exercise Realized FY-End (#) Options/SARs at FY-End ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
No Exercises
</TABLE>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payouts Under
Non-Stock
Priced-Based Plans
--------------------------------
(a) (b) (c) (d) (e) (f)
---- ---------------- ---------------------------- --------- -------- --------
Number of Shares, Performance or Other Period
Units or Until Threshold Target Maximum
Name Other Rights (#) Maturation or Payout ($ or #) ($ or #) ($ or #)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NO AWARDS
</TABLE>
1 The 877,500 shares were issued a value of $0.0025 per share.
2. Mr. Bryant left the Company on December 28, 1999, after four months of
service.
ITEM 7: CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS.
TRANSACTIONS BETWEEN THE COMPANY AND MANAGEMENT
Certain initial shareholders of the Company were issued an aggregate of
4,371,600 shares of restricted common stock, valued at an aggregate of $78,645.
These initial shares of restricted common stock were issued as follows:
<TABLE>
<CAPTION>
SHAREHOLDER SHARES
----------- ------
<S> <C>
Harry Masuda(1) 917,500
YN Faarkaghyn Shiaght Lorne House Trust Limited(2) 917,500
George Tsukuda(3) 153,600
Leonid Babak(4) 877,500
Vladimir Serebrennikov(5) 877,500
Victor Ivashin(6) 320,000
Natalia Lazouto(7) 88,000
John Webley(8) 80,000
</TABLE>
(1) Mr. Masuda, an officer and director of the Company, was
issued 877,500 shares, on February 26, 1998, valued at
$0.0025 per share, for services rendered in organizing and
planning the initial business structure and for his over
all business expertise and consultation. Mr. Masuda paid
$0.25 per share for additional 40,000 shares, July 18,
1998.
(2) Paul Okimoto, an officer and director of the Company,
acted as Trustee to YN Faarkaghyn Shiaght Lorne House
Trust Limited, for the benefit of Mark Tameichi Okimoto,
Michael Akira Okimoto, Eric Yoshiro Okimoto, Daryl Takashi
Okimoto, Mary T.
20
<PAGE> 24
Hernandez and Betty Yamaguchi, was issued 877,500 shares
on February 26, 1998 valued at $0.0025 per share, for
services rendered in organizing meetings with potential
business partners and providing business contacts. Mary T.
Hernandez, and Betty Yamaguchi, were each issued 20,000
shares, valued at $0.0025 per share, for services
rendered, which shares are held in this trust, February
26, 1998, a transfer to the trust was made in September
1998. The permanent Trustee is Ronald Buchannan of Lorne
House Management Ltd.
(3) Mr. Tsukuda, a director of the Company, was issued 60,000
shares, valued at $0.0025 per share on February 26, 1998,
for services rendered in organizing meetings with
potential business partners and providing general business
consultation services. Mr. Tsukuda paid $.25 per share for
an additional 60,000 shares, April 6, 1998. For his
investment of $15,000, Mr. Tsukuda was issued a warrant to
purchase 50,000 shares of restricted common stock of the
Company at $0.375 per share, expiring March 24, 2000. He
purchased 9,600 shares at a price of $0.25 per share on
July 17, 1998 and 64,000 at $0.25 on July 18, 1998.
(4) Mr. Babak was issued 877,500 shares, valued at $0.0025 per
share, February 26, 1998, for the entire worldwide right,
title and interest in and to his invention of technology
for preserving and transporting biologic and non-biologic
material.
(5) Mr. Serebrennikov was issued 877,500 shares, valued at
$0.0025 per share, February 26, 1998, for the entire
worldwide right, title and interest in and to his
invention of technology for preserving and transporting
biologic and non-biologic material.
(6) Mr. Ivashin was issued 320,000 shares, valued at $0.0025
per share, for technical consultation services rendered,
February 26, 1998.
(7) Ms. Lazouto was issued 88,000 shares, valued at $0.0025
per share, for translation services rendered, February 26,
1998.
(8) Mr. Webley was issued 80,000 shares, valued at $0.0025 per
share, for business consultation services rendered.
The Company issued the following options to purchase an aggregate of
1,092,500 shares of restricted common stock at an exercise price of $0.01 to
$1.62 per share, market value at date of grant, to the following individuals.
<TABLE>
<CAPTION>
OPTION HOLDER NUMBER OF SHARES GRANT DATE EXPIRATION DATE
------------- ---------------- ---------- ---------------
<S> <C> <C> <C>
</TABLE>
21
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
Rocky Umar (1) 200,000 7/21/98 5/09/03
Luis Toledo(2) 200,000 7/21/98 5/27/03
Ardeth Sealy(1) 40,000 7/21/98 6/15/03
50,000 11/27/98 11/26/03
60,000 6/25/99 6/24/04
40,000 10/29/99 10/1/04
David Lucas 75,000 1/1/99 12/31/03
75,000 6/25/99 6/24/04
Eric Slayton 40,000 7/21/98 6/23/03
Vince Yalon 40,000 7/21/98 6/24/03
Mike Strong 40,000 10/1/98 9/30/03
Group of 13 Individuals 232,500 7/21/98 to 7/21/03 to
7/5/99 7/5/04
</TABLE>
(1) An officer and/or director of the Company.
(2) Dr. Toledo is an internationally recognized authority on
organ transplantation and preservation. He is currently a
director of the Michigan Transplant Institute and sits on
BioPreserve's Advisory Board as well as the Company's
Advisory Board.
On July 21, 1998, we completed a one into four stock split.
On July 21, 1998, we issued to Max C. Tanner, counsel to the Company,
600,000 shares at $0.25 per share for services rendered and cash for an
aggregate amount of $149,400.
On May 10, 1998, we entered into an Employment Agreement with Rocky Umar
whereby Mr. Umar is employed as the Vice President of Marketing for a minimum
term of one year and the Company pays Mr. Umar a salary ranging from $2,000 per
month to $10,000 per month, depending upon performance. This Agreement includes
the payment by the Company of a commission equal to 1% of sales in excess of
$1,500,000 during a consecutive six-month period, not to exceed a $100,000
commission per 12-month period. Mr. Umar has been granted an option to purchase
200,000 shares of restricted common stock at $.025 per share pursuant to the
Company's Statutory Incentive Stock Option Plan. Further, Mr. Umar is eligible
for a bonus of up to $5,000 after the first year of employment, for the sole
purpose of exercising the stock options.
On June 1, 1998, we entered into an Employment Agreement with Vladimir
Serebrennikov whereby Mr. Serebrennikov is employed as the Technical Director of
Preservation Systems for a minimum one-year term. The Company pays Mr.
Serebrennikov $400 per month, which salary may be adjusted, with a bonus of
$25,000 upon the successful completion of project milestones according to the
Employment Agreement. On June 1, 1998, the Company also entered into an
Agreement of Assignment of Patent and Technology with Mr. Serebrennikov. Mr.
Serebrennikov
22
<PAGE> 26
assigned to the Company the entire worldwide right, title and interest in and to
Mr. Serebrennikov's technology for preserving and transporting biologic and
non-biologic material and in and to all of the discoveries, concepts and ideas
whether patentable or not. Pursuant to this Agreement on Assignment of Patent
and Technology, Mr. Serebrennikov received 877,500 shares of the Company's
restricted common stock, as stated above. The amount which Mr. Serebrennikov was
to be paid in these transactions was arrived at by negotiations between Mr.
Serebrennikov and Mr. Masuda, President and CEO of our Company.
On June 1, 1998, we entered into an Employment Agreement with Leonid
Babak whereby Mr. Babak is employed as the Branch Chief of Russian Operations
for a minimum one-year term. The Company pays Mr. Babak $400 per month, which
salary may be adjusted, with a bonus of $5,000 upon the successful completion of
project milestones according to the Employment Agreement. On June 1, 1998, the
Company also entered into an Agreement of Assignment of Patent and Technology
with Mr. Babak. Mr. Babak assigned to the Company the entire worldwide right,
title and interest in and to Mr. Babak's technology for preserving and
transporting biologic and non-biologic material and in and to all of the
discoveries, concepts and ideas whether patentable or not. Pursuant to this
Agreement on Assignment of Patent and Technology, Mr. Babak received 877,500
shares of the Company's restricted common stock, as stated above. The amount
that Mr. Babak was to be paid in these transactions was arrived at by
negotiations between Mr. Babak and Mr. Masuda, President and CEO of our Company.
On May 28, 1998, we entered into a Consultant Agreement with Dr. Luis
Toledo, whereby Dr. Toledo was appointed to the Company's advisory board and is
a consultant for a minimum term of one year. Also pursuant to the Agreement, the
Company pays Dr. Toledo a commission equal to 5% of all sales within the organ
transplant market for a five-year period from the date of the agreement, so long
as Dr. Toledo remains a consultant and advisory board member. Such commission is
limited to a total of $1,000,000. Further, Dr. Toledo has been granted options
to purchase 200,000 shares of restricted common stock of the Company at $.025
per share pursuant to the Company's Non-Statutory Incentive Stock Option Plan.
Further, Dr. Toledo is eligible for a bonus of up to $5,000 after the first year
as a consultant and advisory board member up to the expiration of the stock
options for the sole purpose of exercising the stock options.
On June 24, 1998, we invited Eric Slayton, President of Global
Healthcare, to be a member of the advisory board. The Company has granted to Mr.
Slayton an option to purchase 40,000 shares of restricted common stock of the
Company at $.025 per share pursuant to the Company's Non-Statutory Incentive
Stock Option Plan.
On September 1, 1998 we entered into a purchase agreement with Paul
Okimoto, an officer and director of the Company, acquiring all rights to a
disposable venereal disease test device called Phemtest, for which Mr. Okimoto
owned two patents. The Company paid to the law firm of Flehr, Hohbach, Test and
Herbert, $1,375 for the patent maintenance fee, a fee imposed to maintain the
patent in good standing and preventing the patent from becoming public domain,
This maintenance fee was due immediately
23
<PAGE> 27
upon the transfer of the patent right to the Company. Such maintenance fees
become due the fourth, eighth, and twelfth year during the life of the patent.
The Company also agreed to pay Mr. Okimoto a royalty payment of 5% of gross
sales of Phemtest for the next five years. Mr. Okimoto has directed the Company
to pay the law firm of Flehr, Hohbach, Test and Herbert the first $16,000 of
royalties earned. The $16,000 was for legal expenses incurred in securing the
patents. These expenses were incurred from 1985 to 1989. The amounts payable to
Mr. Okimoto and the timing and method of such payments resulted from our
acceptance of a proposal put forward by Mr. Okimoto
September 8, 1998, we sold 1,000,000 common shares, raising $239,400
under Regulation D, Section 504, a public offering. On September 17, 1998, we
filed information to conform to Rule 15c2-11(a)(5) of the Securities Exchange
Act of 1934, as amended.
On August 9, 1999, we entered into an employment agreement with Larry
Bryant. Mr. Bryant was employed as our Vice President, Business Development for
a minimum term of 90 days, until his departure on December 28, 1999. His
agreement called for a salary of $1,800 per week.
From August 1 through October 6, 1999, Mr. Masuda loaned the company
$24,200. Mr. Tsukuda has loaned the Company $5,000 during the same period. The
loans are due during November 1999, and are scheduled to be re-paid with a 10%
annual interest rate. Mr. Tsukuda received a warrant to purchase 2,500 shares of
common stock at a price of $1.50; the warrant expires August 31, 2001.
On October 28, 1999, we entered into an employment agreement with Ardeth
Sealy. Mr. Sealy is employed as the Chief Financial Officer and Secretary for a
minimum term of one year. Company pays Mr. Sealy a salary ranging from $6,000
per month to $9,200 per month. Mr. Sealy has been granted three options to
purchase 150,000 shares of restricted common stock priced at $0.25, $0.50 and
$1.62 per share pursuant to a Stock Option Plan. Further, Mr. Sealy is eligible
for a bonus of $1,000 after January 1, 2000. Prior to January 1, 1999, Mr. Sealy
preformed consulting services to the Company and Mr. Sealy was granted an option
to purchase 40,000 shares of restricted common stock priced at $0.025 per share
pursuant to the Company's Non-Statutory Incentive Stock Option Plan.
We entered into a consultant agreement on November 20, 1999 with Dr.
Larry McCleary. Dr. McCleary will be providing market information, technical
contacts and business and investor contacts to the Company. The Company issued a
warrant to purchase up to an aggregate of 800,000 shares of common stock at the
exercise price of $1.50 in exchange for his services.
On January 2, 2000, we entered into a promotion agreement with Heartbeat
of America, Inc ("Heartbeat") where the Company will be featured on the
Heartbeat of America television show ("Show") and "Breaking News" marketing
videos. Heartbeat and the company have agreed to split equally any revenues
derived from the sales of the
24
<PAGE> 28
Show for a period of ten years. The Company is responsible to pay $45,000 of the
production cost. A warrant to purchase 700,000 shares of the Company's common
stock was granted to Heartbeat at an exercise price of $1.50 per share. Mr. Bert
Tenzer, President of Heartbeat, was granted an option to purchase 100,000 shares
of restricted common stock, at the exercise price of $1.50 per share pursuant to
a Stock Option Plan.
ITEM 8: DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company consists of 50,000,000
shares of common stock, no par value per share. The holders of common stock (i)
have equal ratable rights to dividends from funds legally available therefore,
when, as and if declared by the Board of Directors of the Company; (ii) are
entitled to share ratably in all of the assets of the Company available for
distribution or winding up of the affairs of the Company; (iii) do not have
preemptive subscription or conversion rights and there are no redemption rights
applicable thereto; and (iv) are entitled to cumulative voting on all matters
which shareholders may vote on at all meetings of shareholders.
THE WARRANTS
We have issued warrants to purchase common stock in exchange for
services, in connections with loan agreements or under terms of sale of common
stock. Individuals purchased common shares and received warrants priced at
$0.375 per share that expire on or before July 15, 2000. We issued warrants to
provide incentives to The Corporate Law Group, company legal counsel, and to
received favorable payment terms which is exercisable at $1.50 per share and
that expires on September 21, 2004. Under the terms of our current offering, for
every two shares of common stock purchased by an investor, the investor will
receive a warrant to purchase one share of common stock exercisable at $2.50 per
share until January 1, 2002.
CUMULATIVE VOTING
The holders of shares of common stock of the Company have cumulative
voting rights pursuant to California General Corporation Law. Upon the effective
election of cumulative voting by any shareholder, each shareholder entitled to
vote at any election of directors may cumulate such shareholder votes and give
one candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the shareholder's shares are normally
entitled, or distribute the shareholder's votes on the same principle among as
many candidates as the shareholder sees fit.
DIVIDENDS
To date we have not paid or declared any dividends and we have no
intention of declaring or paying any dividends in the foreseeable future. If we
decide to pay dividends, that decision will be made by our Board of Directors,
which will likely
25
<PAGE> 29
consider, among other things, our earnings, our capital requirements and our
financial condition, as well as other relevant factors.
TRANSFER AGENT
The Company has engaged the services of First American Stock Transfer,
Inc, 610 East Bell Road, Suite 2-15, Phoenix, AZ 85022-2393, as transfer agent
and registrar.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Since May 18, 1999, the Company's common stock has been traded on the
OTC Bulletin Board under the symbol "HYRB" and "HYRBE". The following table sets
forth, for the periods indicated closing prices for the common stock as reported
by the OTC Bulletin Board. The following quotations should not be construed to
imply that an established trading market exists for the common stock; trading to
date has been sporadic.
<TABLE>
<CAPTION>
1999 HIGH LOW
--------------- ---- ---
<S> <C> <C>
4th Quarter 1.75 0.75
3rd Quarter 2.28 0.59
2nd Quarter 1.00 0.25
</TABLE>
The market price for the Company's common stock has historically been
volatile. Significant volatility in the market price of shares of the Company's
common stock may arise in the future due to factors such as the Company's
developing business, historic losses and relatively low price per share. In
addition, future announcements concerning the Company or its competitors may
have a significant impact on the market price of the common stock. Such
announcements might include financial results, the results of testing,
technological innovations, new commercial products, changes to government
regulations, developments concerning proprietary rights, or litigation. As long
as there is only a limited public market for the common stock, the sale of a
significant number of shares of common stock at any particular time could be
difficult to achieve at the market prices prevailing immediately before such
shares are offered, and the offering of a significant number of shares of common
stock at one time could cause a severe decline in the price of the common stock.
There are currently approximately 958,200 shares of our common stock
which are freely tradable and which are held of record by approximately 70
people. The remaining 5,314,800 shares will become freely tradable in accordance
with the requirements of Rule 144, including the shares included in the table
below concerning certain recent private placements or sales of restricted
securities. Any shares held by an officer or director of the Company, which
would otherwise be freely tradable, will be subject to the resale
26
<PAGE> 30
limitations under Rule 144. In general, under Rule 144, as currently in effect,
a person, or persons whose shares are aggregated, who has beneficially owned
shares for at least one year would be entitled to sell, within any three month
period, that number of shares that does not exceed the greater of one percent
(1%) of the then-outstanding shares of common stock and the average weekly
trading volume in the common stock during the four calendar weeks immediately
preceding the date on which the notice of sale is filed with the Securities and
Exchange Commission, provided certain manner of sale and notice requirements and
public information requirements are satisfied. In addition, affiliates of the
Company must comply with the restrictions and requirements of Rule 144, other
than the one-year holding period requirement, in order to sell shares of common
stock. As defined in Rule 144, an "affiliate" of an issuer is a person who,
directly or indirectly, through the use of one or more intermediaries controls,
or is controlled by, or is under common control with, he issuer. Under Rule
144(k), a holder of "restricted securities" who is not deemed an affiliate of
the issuer and who has beneficially owned shares for at least two years would be
entitled to sell shares under Rule 144(k) without regard to the limitations
described in this paragraph.
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any security that 1) is priced under five
dollars, 2) is not traded on a national stock exchange or on NASDAQ, 3) may be
listed in the "pink sheets" or the NASD OTC Bulletin Board, 4) is issued by a
company that has less than $5 million in net tangible assets and has been in
business less than three years, or by a company that has under $2 million in net
tangible assets and has been in business for at least three years, or by a
company that has revenues of $6 million for 3 years.
Penny stocks can be very risky: penny stocks are low-priced shares of
small companies not traded on an exchange or quoted on NASDAQ. Prices often are
not available. Investors in penny stocks often unable to sell stock back to the
dealer that sold them the stock. Thus you may lose your investment. The
Company's common stock may be deemed to be a "penny stock" and thus will become
subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the common stock is listed on The
Nasdaq SmallCap Market. Consequently, the "penny stock" rules may restrict the
ability of broker/dealers to sell the Company's securities, and may adversely
affect the ability of holders of the Company's common stock to resell their
shares in the secondary market.
ITEM 2. LEGAL PROCEEDINGS
To the best knowledge of the Company's management, there is no legal
proceeding pending to which the Company is a party or to which the Company's
property is subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
27
<PAGE> 31
Not applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Company has conducted private placements of equity securities in the past
nineteen months pursuant to certain exemptions from registration provided by the
Securities Act of 1933.
We have made several sales of the Company's common stock by private placements.
The following table sets forth the prices for these sales.
<TABLE>
<CAPTION>
EVENT PRE STOCK SPLIT PRICE POST STOCK SPLIT PRICE
----- ---------------------- ----------------------
<S> <C> <C>
Founders Stock $0.01 $0.0025
February 26, 1998
Private Sales $1.00 $0.25
April 6, 1998 to
July 19, 1998
Private Sale N/A $0.25
September 2, 1998
Regulation D, Rule 504 N/A $0.25
September 4, 1998
Private Sale N/A $0.50
December 28, 1998
Private Sales N/A $1.50
February 4, 1999 to
May 13, 1999
Regulation D, Rule 506 N/A $1.50
September 22, 1999 to
Present
</TABLE>
On February 26, 1998, the Company issued an aggregate of 1,014,500
shares of common stock to 8 investors for services previously rendered to the
Company. The issuance of these shares was exempt from the registration
requirements of the Securities Act pursuant to Sections 4(2) and 3(b) of the
Securities Act of 1933, as amended (the "Act") and Regulation D promulgated
under the Act, and Rule 504 thereof. At the time of the issuance, the Company
was not subject to the reporting requirements of the Securities Exchange Act of
1934, and the value of the securities issued did not exceed $1,000,000 (at the
date of issuance, the shares had an aggregate value of $10,145). The shares were
issued for bona fide services previously provided to the Company, and were not
in connection with a capital-raising transaction.
On April 6, 1998, the Company closed a private placement of 15,000
shares of its common stock for an aggregate amount of $15,000. The issuance and
sale of these shares was exempt from the registration requirements of the Act
pursuant to Sections 4(2) and 3(b) thereof and Regulation D promulgated under
the Act, and Rule 504 thereof as a
28
<PAGE> 32
transaction by an issuer not involving a public offering. All of the purchasers
represented to the Company that they were acquiring the shares for their own
accounts and not for the account or benefit of another person; that the shares
were being acquired for investment and not with a view to the distribution
thereof; and that the purchasers did not intend to sell or otherwise dispose of
all or any part of the shares at the time of purchase or upon the occurrence or
nonoccurrence of any predetermined event. Each purchaser also agreed that he or
she would offer or resell shares only if the shares were registered under the
Securities Act or an exemption from such registration was available. No
advertising or public solicitation was used in the placement. The Company placed
a restrictive legend on the certificates representing the shares and placed
"stop transfer" instructions with the transfer agent.
Between July 1 and July 18, 1998, the Company closed a private placement
of 63,400 shares of its common stock, or an aggregate amount of $53,500. The
issuance and sale of these shares was exempt from the registration requirements
of the Securities Act pursuant to Sections 4(2) and 3(b) thereof and Regulation
D promulgated under the Act, and Rule 504 thereof as a transaction by an issuer
not involving a public offerings. All of the purchasers represented to the
Company that they were acquiring the shares for their own accounts and not for
the account or benefit of another person; that the shares were being acquired
for investment and not with a view to the distribution thereof; and that the
purchasers did not intend to sell or otherwise dispose of all or any part of the
shares at the time of purchase or upon the occurrence or nonoccurrence of any
predetermined event. Each purchaser also agreed that he or she would offer or
resell shares only if the shares were registered under the Securities Act or an
exemption from such registration was available. No advertising or public
solicitation was used in the placement. The Company placed a restrictive legend
on the certificates representing the shares and placed "stop transfer"
instructions with its transfer agent.
On September 2, 1998, the Company closed a private placement of 600,000
shares of its common stock, for services rendered in the amount of $149,400, and
cash in the amount of $600, for an aggregate amount of $150,000. The issuance
and sale of these shares was exempt from the registration requirements of the
Securities Act pursuant to Sections 4(2) and 3(b) thereof and Regulation D
promulgated under the Act, and Rule 504 thereof as a transaction by an issuer
not involving a public offering. The purchaser represented to the Company that
he was acquiring the shares for his own account and not for the account or
benefit of another person; that the shares were being acquired for investment
and not with a view to the distribution thereof; and that the purchaser did not
intend to sell or otherwise dispose of all or any part of the shares at the time
of purchase or upon the occurrence or nonoccurrence of any predetermined event.
The purchaser also agreed that he would offer or resell shares only if the
shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. The Company placed a restrictive legend on the certificates
representing the shares and placed "stop transfer" instructions with its
transfer agent.
On September 4, 1998, the Company consummated an offering of 1,000,000
29
<PAGE> 33
shares of its common stock pursuant to Sections 4(2) and 3(b) and Regulation D
promulgated under the Act, and Rule 504 thereof. An aggregate of $250,000 was
received in this offering; all purchasers represented to the Company that they
were "accredited investors" as defined in the Securities Act.
On December 28, 1998, the Company closed a private placement of 100,000
shares of its common stock, for aggregate proceeds of $50,000. The issuance and
sale of these shares was exempt from the registration requirements of the
Securities Act pursuant to Sections 4(2) and 3(b) thereof and Regulation D
promulgated under the Act, and Rule 504 thereof as a transaction by an issuer
not involving a public offering. All of the purchasers represented to the
Company that they were acquiring the shares for their own accord and not for the
account or benefit of another person; that the shares were being acquired for
investment and not with a view to the distribution thereof; and that the
purchasers did not intend to sell or otherwise dispose of all or any part of the
shares at the time of purchase or upon the occurrence or nonoccurrence of any
predetermined event. Each purchaser also agreed that he or she would offer or
resell shares only if the shares were registered under the Securities Act or an
exemption from such registration was available. No advertising or public
solicitation was used in the placement. The Company placed a restrictive legend
on the certificates representing the shares and placed "stop transfer"
instructions with its transfer agent.
Between February 4 and May 31, 1999, the Company closed a private
placement of 61,734 shares of common stock, for an aggregate amount of $ 91,601.
The issuance and sale of these shares was exempt from the registration
requirements of the Securities Act pursuant to Sections 4(2) and 3(b) thereof
and Regulation D promulgated under the Act, and Rule 504 thereof as a
transaction by an issuer not involving a public offering. All of the purchasers
represented to the Company that they were acquiring the shares for their own
accounts and not for the account or benefit of another person; that the shares
were being acquired for investment and not with a view to the distribution
thereof; and that the purchasers did not intend to sell or otherwise dispose of
all or any part of the shares at the time of purchase or upon the occurrence or
nonoccurrence of any predetermined event. Each purchaser also agreed that he or
she would offer or resell shares only if the shares were registered under the
Securities Act or an exemption from such registration was available. No
advertising or public solicitation was used in the placement. The Company placed
a restrictive legend on the certificates representing the shares and placed
"stop transfer" instructions with its agent.
On May 31, 1999, the Company closed a private placement of 5,000 shares of its
common stock, for services rendered, for an aggregate amount of $7,500. The
issuance and sale of these shares was exempt from the registration requirements
of the Securities Act pursuant to Sections 4(2) and 3(b) thereof and Regulation
D promulgated under the Act, and Rule 504 thereof as a transaction by an issuer
not involving a public offering. The purchaser represented to the Company that
he/she was acquiring the shares for his own accord and not for the account or
benefit of another person; that the shares were being acquired for investment
and not with a view to the distribution thereof; and that the purchaser did not
intend to sell or otherwise dispose of all or any part of the shares at the
30
<PAGE> 34
time of purchase or upon the occurrence or nonoccurrence of any predetermined
event. The purchaser also agreed that he would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. The Company placed a restrictive legend on the certificates
representing the shares and placed "stop transfer" instructions with its
transfer agent
On September 22, 1999, the Company began an offering of 3,000,000 shares
of its common stock pursuant to Section 4(2) of the Act and Rule 506 of
Regulation D promulgated under the Act. We consummated sales of 16,000 shares of
common stock, for an aggregate amount of $24,000 as of September 30, 1999. As of
January 11,2000 the Company has consummated sales of 251,632 shares of common
stock, for an aggregate amount of $377,448; all purchasers represented to the
Company that they were "accredited investors" as defined in the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and By-laws provide for indemnification of
the officers and directors of the Company to the fullest extent permissible
under California law. Additionally, the Company has entered into Indemnification
Agreements with each of its officers and therefore, purchasers of these
securities may have a more limited right of action than they would have except
for this limitation in the Articles of Incorporation and By-laws. In the opinion
of the Securities and Exchange Commission, indemnification for liabilities
arising under the Securities Act of 1933 is contrary to public policy and,
therefore, unenforceable.
31
<PAGE> 35
PART F/S
ITEM 1. FINANCIAL STATEMENTS
The following documents are filed as part of this report:
HyperBaric Systems Financial Statements
Report of BDO Seidman, LLP
Balance sheets as of December 31, 1998 and September 30,
1999.
Statements of operations for the nine month period ended
September 30, 1999 and from February 26, 1998, date of
inception, through December 31, 1998, through September 30,
1998 and 1999.
Statements of shareholder's deficit for the period from
February 26, 1998, date of inception, through December 31,
1998, and nine months ended September 30, 1999.
Statements of cash flows for the nine month period ended
September 30, 1999 and from February 26, 1998, date of
inception, through December 31, 1998, through September 30,
1998 and 1999.
Notes to financial statements
ITEM 2. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None -- Not Applicable
32
<PAGE> 36
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 34
FINANCIAL STATEMENTS
Balance sheets 35
Statements of operations 36
Statements of shareholders' deficit 37
Statements of cash flows 38
Notes to financial statements 39 - 55
</TABLE>
33
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of HyperBaric Systems
We have audited the accompanying balance sheet of HyperBaric Systems (a
development stage company), as of December 31, 1998 and the related statements
of operations, shareholders' deficit, and cash flows for the period February 26,
1998 (date of inception) to December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 HyperBaric Systems as of
December, 31, 1998, and the results of its operations and its cash flows for the
period from February 26, 1998 (date of inception) to December 31, 1998 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 shown in the accompanying financial
statements, the Company is a development stage company with a significant loss
to date. These conditions raise substantial doubts about the ability of the
Company to continue as a going concern. Management's plans with regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments relating to the recoverability and classification of reported
asset amounts or the amount and classification of liabilities that might result
from the outcome of this uncertainty.
BDO Seidman, LLP
San Jose, California
October 12, 1999
34
<PAGE> 38
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 8) $ 22,600 $ 125,800
Other receivable 2,000 --
Prepaid expenses and other assets -- 1,000
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 24,600 126,800
PROPERTY AND EQUIPMENT, net (Note 2) 3,300 1,000
- ----------------------------------------------------------------------------------------------
$ 27,900 $ 127,800
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, net of discount of $10,542 $ 53,700 $ --
Accounts payable - trade 49,200 11,500
Accounts payable - related party 3,600
Accrued expenses -trade (Notes 3) 125,100 19,700
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 231,600 31,200
COMMITMENTS AND CONTINGENCIES (Notes 4 and 8)
SHAREHOLDERS' DEFICIT (Notes 4, 5, 8 and 9):
Common stock, no par value; 50,000,000 shares authorized;
6,154,334 and 6,071,600 shares issued and outstanding as
of September 30, 1999 and December 31, 1998, respectively 515,100 368,600
Deficit accumulated during the development stage (718,800) (272,000)
- ----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIT (203,700) 96,600
- ----------------------------------------------------------------------------------------------
$ 27,900 $ 127,800
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
35
<PAGE> 39
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Nine Months
Ended Period from February 26, 1998
September 30, (Date of Inception) to
------------- -------------------------------------------------
September 30, December 31, September 30,
1999 1998 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Stock based compensation $ 6,100 $ -- $ -- $ 6,100
Sales and marketing 32,100 11,400 20,800 52,900
Research and development 151,900 41,700 88,300 240,200
General and administrative 243,700 97,500 163,500 407,200
- -----------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS 433,800 150,600 272,600 706,400
OTHER INCOME:
Interest income (600) (500) (1,400) (2,000)
Interest expenses 12,000 -- -- 12,000
- -----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 11,400 (500) (1,400) 10,000
- -----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES 445,200 150,100 271,200 716,400
INCOME TAX EXPENSE 1,600 -- 800 2,400
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS $ 446,800 $ 150,100 $ 272,000 $ 718,800
=======================================================================================================================
BASIC AND DILUTED LOSS PER SHARE $ 0.08 $ 0.03 $ 0.06 $ 0.13
=======================================================================================================================
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,480,375 4,448,571 4,905,480 5,480,375
=======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
36
<PAGE> 40
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
================================================================================
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During
Period from February 26, 1998 (date of -------------------------- Development
inception) to September 30, 1999 Shares Amount Stage Total
================================================================================================================================
<S> <C> <C> <C> <C>
BALANCES, February 26, 1998 (date of inception) -- $ -- $ -- $ --
Issuance of common stock for founders' services 4,098,000 10,200 -- 10,200
Issuance of common stock for cash 373,600 118,400 -- 118,400
Issuance of common stock, in REG D offering net of
offering cost of $10,600 (Notes 4 and 9) 1,000,000 239,400 -- 239,400
Issuance of common stock for cash paid and services, net
of offering cost of $149,400 (Note 4) 600,000 600 -- 600
Net loss -- -- (272,000) (272,000)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 1998 6,071,600 368,600 (272,000) 96,600
Issuance of common stock and warrants 77,700 112,300 -- 112,300
Issuance of common stock for marketing and promotional
services 5,000 7,500 -- 7,500
Warrants issued in connection with debt securities (Note 6) 20,600 20,600
Stock based compensation 6,100 6,100
Net loss -- -- (446,800) (446,800)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCES, September 30, 1999 (unaudited) 6,154,300 $ 515,100 $(718,800) $(203,700)
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
37
<PAGE> 41
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
For the Period From
Nine Months Ended February 26, 1998
September 30, (Date of Inception) to
----------------- --------------------------------------------------
September 30, December 31, September 30,
1999 1998 1998 1999
=====================================================================================================================
(UNAUDITED) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(446,800) $(150,100) $(272,000) $(718,800)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock based compensation 6,100 6,100
Professional services rendered in
exchange for stock 7,500 10,200 10,200 17,700
Depreciation 400 -- -- 400
Interest Expense on debt securities 11,500 11,500
Changes in current assets and
liabilities:
Other receivable (2,000) -- -- (2,000)
Prepaid expenses and other assets 1,000 -- (1,000) --
Accounts payable - trade 37,700 3,600 11,500 49,200
Accounts payable - related party 3,600 -- -- 3,600
Accrued expenses 104,000 23,700 19,700 123,700
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (277,000) (112,600) (231,600) (508,600)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,700) -- (1,000) (3,700)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,700) -- (1,000) (3,700)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 112,300 308,500 358,400 470,700
Proceeds from borrowing on note payable 64,200 -- -- 64,200
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 176,500 308,500 358,400 534,900
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (103,200) 195,900 125,800 22,600
CASH AND CASH EQUIVALENTS, beginning of period 125,800 -- -- --
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, ending of period $ 22,600 $ 195,900 $ 125,800 $ 22,600
=====================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income tax $ 1,600 $ -- $ -- $ 1,600
Professional services rendered in exchange
for stock $ 7,500 $ 10,200 $ 10,200 $ 17,700
Interest expense related to debt
securities issued with detachable
warrants $ 11,500 $ -- $ -- $ 11,500
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
38
<PAGE> 42
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
1. SUMMARY OF ACCOUNTING POLICIES
The Company
HyperBaric Systems (a development stage company referred to as the "Company")
was incorporated on February 26, 1998 under the laws of the state of California.
The business purpose of the Company is to develop the technology for
preservation of certain biologic material, including platelets (a blood
component), red blood cells, heart valves, tissue and organs. The Company is in
the second year of its research and development activities. The Company's goal
is to develop the technology to extend and maintain functionality of these
materials for much longer periods of time than is currently possible. The
Company's research facility is located in Krasnoyarsk, Russia.
Unaudited Interim Results
The interim financial statements as of and for the nine months and eight months
ended September 30, 1999 and 1998, respectively together with the financial data
and other information for those periods disclosed in these notes to the
financial statements, are unaudited. In the opinion of management, the interim
financial statements have been prepared on the same basis as the audited
financial statements and reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the results of
interim periods. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future periods.
Basis of Presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is in the development
stage and has no operating revenue and an accumulated deficit of approximately
$272,000 as of December 31, 1998. The Company is in the second year of research
and development, with an accumulated loss during the development stage of
$718,800. As of September 30, 1999, management is uncertain as to the completion
date or if the product will be completed at all.
39
<PAGE> 43
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
These conditions give rise to substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include
adjustments relating to the recoverability and classification of reported asset
amounts or the amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to obtain
additional financing or sale of its common stock as may be required and
ultimately to attain profitability.
Management's plan, in this regard, is to complete a private placement of
2,000,000 shares of common stock at $1.50 per share. Each two shares will have a
warrant to purchase an additional share of common stock at $2.50 per share. The
anticipated proceeds to the Company will be $2,640,000. Management believes this
amount will be sufficient to finance the continuing research for the upcoming
year.
Stock Split
On July 21, 1998, the Company completed a four for one stock split. All shares
and per share data have been restated to reflect the stock split.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. The Company places its cash and
cash equivalents with high quality institutions. At times, such funds may be in
excess of the Federal Deposit Insurance Corporation limit of $100,000.
40
<PAGE> 44
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
Equipment
Equipment is stated at cost, net of accumulated depreciation. Depreciation is
provided on the straight-line method over five years.
Research and Development Costs
Research and development expenditures are charged to expense, as incurred.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS No. 109). Under SFAS No. 109, deferred tax
liabilities or assets at the end of each period are determined using the tax
rate expected to be in effect when taxes are actually paid or recovered.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
New Accounting Pronouncements
Comprehensive Income
The Company complies with the provisions of SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. During the period from Inception through December 31,
1998 and the nine and eight months ended September 30, 1999 and 1998,
respectively the Company has had no transactions that would be required to be
reported in other comprehensive income.
In February 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132, Employer's Disclosure about Pensions and Other Postretirement Benefits,
which standardizes the disclosure requirements for pension and other
postretirement benefits. The adoption of SFAS No. 132 had no impact on the
Company's current disclosures.
41
<PAGE> 45
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
In April 1998, the AICPA issued SOP 98-5 Reporting on the Costs of Start-Up
Activities. Start-up activities are defined broadly as those one-time activities
related to opening a new facility, introducing a new product or service,
commencing some new operation or organizing a new entity. Under SOP 98-5, the
cost of start-up activities should be expensed as incurred. The Company adopted
the provisions of SOP 98-5 at inception (February 26, 1998), and does not expect
the adoption to have a material effect on the Company's results of operations,
financial position and cash flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize
all derivatives contracts as either assets or liabilities in the balance sheet
and to measure them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS 133 in its quarter
ending June 30, 2000 and does not expect such adoption to have an impact on the
Company's results of operations, financial position or cash flows.
In 1998, the Company had not entered into derivatives contracts either to hedge
existing risks or for speculative purposes. Accordingly, the Company does not
expect adoption of the new standard on January 1, 2000 to affect its financial
statements.
42
<PAGE> 46
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
Stock Based Compensation
The Company applies Accounting Principles Board (APB) No. 25, Accounting for
Stock Issued to Employees, and Related Interpretations in accounting for stock
options issued to employees. Under APB Opinion No. 25, employee compensation
cost is recognized when the estimated fair value of the underlying stock on date
of grant exceeds the exercise price of the stock option. For stock options
issued to non-employees, the Company applies SFAS No. 123, Accounting for
Stock-Based Compensation, which requires the recognition of compensation cost
based upon the fair value of stock options at the grant date using the
Black-Scholes option pricing model.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents:
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates fair value.
Short term debt:
The fair value of short-term debt approximates cost because of the short
period of time to maturity.
Net Loss Per Common Share
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share. ("SFAS No. 128") and SEC Staff Accounting Bulletin No. 98
("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic net loss per
share is computed by dividing the net loss available to common shareholders for
the period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share gives effect to
common stock equivalents, however, potential common shares are excluded if their
effect is antidilutive. Potential common shares are excluded to repurchase
rights and incremental shares of common stock issuable upon the exercise of
43
<PAGE> 47
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
stock options and warrants. For the year ended December 31, 1998, options to
purchase 40,000 and 65,000 shares of common stock, respectively, were excluded
from the computation of diluted earnings per share since their effect would be
antidilutive.
2. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1999 1998
================================================================================
(UNAUDITED)
<S> <C> <C>
Equipment $3,700 $1,000
Less: accumulated depreciation 400 --
- --------------------------------------------------------------------------------
$3,300 $1,000
================================================================================
</TABLE>
3. ACCRUED EXPENSES
A summary of accrued expenses follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1999 1998
================================================================================
(UNAUDITED)
<S> <C> <C>
Wages payable $115,900 $ 16,500
Accrued expenses 8,400 2,400
Income tax payable 800 800
- --------------------------------------------------------------------------------
$125,100 $ 19,700
================================================================================
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Company has entered into various stock purchase agreements and employment
contracts with shareholders of the Company. As of July 31, 1999, the following
transactions and/or agreements have been consummated.
44
<PAGE> 48
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
On July 21, 1998, the Company issued 600,000 shares of common stock to its legal
counsel at their fair market value of $0.25 per share for services rendered in
connection with a private placement (Note 5) and $600 cash for an aggregate
value of $150,000. Since the services related to the offering, the cost has been
recorded as a cost of the offering. There was no effect on operations.
On May 10, 1998, the Company entered into an Employment Agreement with Rocky
Umar, as the Vice President of Marketing for a minimum term of one year and
whereby he receives a salary ranging from $2,000 per month to $10,000 per month,
depending upon performance and the possibility of a commission equal to 1% of
sales under Mr. Umar's management that exceeds $1,500,000 for a consecutive
six-month period, not to exceed a $100,000 commission per 12-month period. Mr.
Umar has been granted an option to purchase 200,000 shares of common stock at
$0.025 per share pursuant to a Stock Option Plan. Further, Mr. Umar is eligible
for a bonus of up to $5,000 after the first year of employment up to the
expiration of the stock options.
On June 1, 1998, the Company entered into an Agreement of Assignment of Patent
and Technology with Leonid Babak and Vladimir Serebrennikov whereby these
individuals assigned to the Company the entire worldwide right, title and
interest in and to their invention of technology for preserving and transporting
biologic and non-biologic material and in and to all of the discoveries,
concepts and ideas whether patentable or not. Pursuant to this Agreement on
Assignment of Patent and Technology, each individual received 877,500 shares of
the Company's common stock with an ascribed value of $2,190, which has been
expensed as research and development.
On June 1, 1998, the Company entered an Employment Agreement with Leonid Babak,
a shareholder, whereby Mr. Babak is employed as the Branch Chief of Russian
Operations for an indefinite term and receives base compensation of $400 a
month, which salary may be adjusted and be eligible for a performance based
bonus of $5,000 per year.
45
<PAGE> 49
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
On June 1, 1998, the Company also entered into a separate Employment Agreement
with Vladimir Serebrennikov, a shareholder, whereby Mr. Serebrennikov is
employed as the Technical Director of Preservation Systems for an indefinite
term and the Company pays Mr. Serebrennikov $400 per month, which salary may be
adjusted, with a bonus of $25,000 upon the successful completion of the Phase I
within the agreed upon time frame.
On May 28, 1998, the Company entered into a Consulting Agreement whereby Dr.
Luis Toledo was appointed to the Company's advisory board. Under the Consulting
Agreement the Company pays Dr. Toledo a commission equal to 5% of all sales
within the organ transplant market for the lessor of a five year period from the
date of the agreement, or as long as Dr. Toledo remains a consultant and
advisory board member. Such commission is limited to a total of $1,000,000.
Further, Dr. Toledo, a participant in a Non-Statutory Option Plan, has been
granted options to purchase 200,000 shares of common stock of the Company at
$0.025 per share pursuant to a Stock Option Plan. In addition, Dr. Toledo is
eligible for a bonus of up to $5,000 after the first year as a consultant and
advisory board member.
On June 24, 1998, the Company appointed Eric Slayton, President of Global
Healthcare, to be a member of the advisory board. The Company granted to Mr.
Slayton an option to purchase 40,000 shares of common stock of the Company at
$0.025 per share pursuant to a Non-Statutory Incentive Stock Option Plan.
On September 1, 1998, The Company entered into a purchase agreement with Paul
Okimoto, an officer and director of the Company, acquiring all rights to a
disposable venereal disease test device called Phemtest, for which Mr. Okimoto
owned the patent. The Company paid to the law firm of Flehr, Hohbach, Test and
Herbert, $1,375 for the patent maintenance fee, and has also agreed to pay Mr.
Okimoto a royalty payment of 5% of gross sales of Phemtest for the next five
years.
46
<PAGE> 50
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
5. COMMON STOCK
The Company undertook a public offering, under Regulation D, Rule 504 pursuant
to which it sold 1,000,000 shares of common stock at $0.25 per share to raise
$250,000 via an Offering Memorandum dated August 15, 1998 (the "Offering"). The
Offering commenced on August 15, 1998 and terminated on September 4, 1998. The
transfer of 42,800 of the 1,000,000 shares is limited under the provisions of
Rule 144(e) because these shares were issued to affiliates or control persons
and are therefore control stock. The remaining 957,200 of the 1,000,000 shares
were issued to non-affiliates and are therefore free trading. (Note 4)
All of the 1,000,000 shares were issued in reliance on the Federal exemption
from registration under Rule 504 of Regulation D and a Form D relating to these
shares was filed with the U.S. Securities Exchange Commission (the "SEC") on
September 9, 1998.
6. STOCK OPTION PLANS
The Company adopted the following plans during 1998:
Statutory Incentive Stock Option Plan
The purpose of this plan is to strengthen the Company, by providing incentive
stock options as a means to attract, retain and motivate corporate personnel.
The options may not be granted to employees who own stock possessing more than
10% of the total combined voting power of the stock of the Company. As of
December 31, 1998, 600,000 options have been authorized.
47
<PAGE> 51
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
A summary of the status of this plan as of December 31, 1998, and changes during
the year ended is presented in the following table:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------
Weighted
Average
Exercise
Shares Price
-------- --------
<S> <C> <C>
Authorized, February 26, 1998 (date of inception) 600,000 $ --
Granted (250,000) $ 0.07
--------
Ending, December 31, 1998 350,000 $ 0.07
========
Exercisable at year-end 40,000
Weighted-average fair value of options granted
during the year $ 0.04
</TABLE>
The following table summarizes information about stock options outstanding as
of December 31, 1998, follows
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- ------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise as of Contractual Exercise as of Exercise
Prices 12/31/98 Life Price 12/31/98 Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.025-$0.25 250,000 10 years $ 0.07 40,000 $ 0.03
-------- -------- -------- --------
250,000 $ 0.07 40,000 $ 0.03
======== ========
</TABLE>
48
<PAGE> 52
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
Employees may exercise their options to purchase his or her shares according to
the following schedule:
<TABLE>
<CAPTION>
Rocky Umar All others
---------- ----------
<S> <C> <C>
at inception 20% --
after 1st year 24% 30%
after 2nd year 32% 30%
after 3rd year 24% 40%
</TABLE>
Non-Statutory Incentive Stock Option Plan
The purpose of this plan is to promote the interest of the Company by providing
a method whereby non-employees, advisory board members, members of the board of
directors, consultants and independent contractors, who provide valuable
services to the Company, may be offered incentives as rewards which will
encourage them to acquire a proprietary interest in the Company.
As of December 31, 1998, 2,000,000 options have been authorized.
A summary of the status of this plan as of December 31, 1998, and changes during
the year ended is presented in the following table:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------
December 31, 1998
Weighted
Average
Exercise
Shares Price
---------- ----------
<S> <C> <C>
Authorized, February 26, 1998, (date of inception) 2,000,000 $ --
Granted (800,000) $ 0.24
----------
Ending, December 31, 1998 1,200,000 $ 0.24
==========
Exercisable at year-end 65,000
Weighted-average fair value of options granted
during the year $ 0.13
</TABLE>
49
<PAGE> 53
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
The following table summarizes information about stock options outstanding as
of December 31, 1998, follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise as of Contractual Exercise as of Exercise
Prices 12/31/98 Life Price 12/31/98 Price
============================================================================================
<S> <C> <C> <C> <C> <C>
$0.01-$0.25 800,000 10 years $ 0.24 65,000 $ 0.02
-------- -------- --------
800,000 $ 0.24 65,000 $ 0.02
======== ========
</TABLE>
Stock Purchase Warrants
As of December 31, 1998, the following common stock warrants were issued and
outstanding:
<TABLE>
<CAPTION>
Shares
Subject to Exercise Expiration
Issued with Respect to: Warrant Price Date
===============================================================================
<S> <C> <C> <C>
Non-employee Compensation 50,000 $ 0.375 March 24, 2000
Non-employee Compensation 50,000 $ 0.375 June 15, 2000
- -------------------------------------------------------------------------------
100,000
========
</TABLE>
50
<PAGE> 54
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
Proforma Information
The Company estimates the fair value of warrants at the grant date by using the
Black-Scholes option pricing-model with the following weighted-average
assumptions used for grants in 1999 and 1998. Detailed below is a summary of the
Black-Scholes information related to warrants:
<TABLE>
<CAPTION>
Risk Free Fair Value
Grant Number of Dividend Expected Interest Expected of
Month Warrants Yield Volatility Rate Life Warrants
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
May, 1998 100,000 0 121.60% 4.52% 2 Years 0
Jan, 1999 25,000 0 112.14% 4.63% 3 Years 6,100
</TABLE>
SFAS No. 123 requires the company to provide pro forma information regarding net
loss and loss per share as if compensation cost for the Company's stock option
plans had been determined in accordance with the fair market value based method
prescribed in SFAS No. 123. The Company estimates the fair market value of stock
options at the grant date by using the Black-Scholes option pricing-model with
the following weighted average assumptions used for grants in 1999 and 1998,
respectively.
Under the accounting provisions of SFAS No. 123, the Company's net loss and loss
per share is equaled to the pro forma amount as all options that were
exercisable were in excess of the amount computed uses the Black-Scholes model.
51
<PAGE> 55
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
On June 21, 1999, the shareholders approved an increase in the authorized number
of shares of common stock from 10,000,000 to 50,000,000 shares. As of this date,
the Company issued options to purchase an aggregate of 1,052,500 shares of
common stock at an exercise price of $0.01 to $0.50 per share with various
expiration dates through July 2009.
7. INCOME TAXES
Income tax expenses for the period ended December 31, 1998, comprise:
<TABLE>
<CAPTION>
1998 Current Deferred Total
=======================================================
<S> <C> <C> <C>
Federal $ -- $ -- $ --
State 800 -- 800
- -------------------------------------------------------
$ 800 $ -- $ 800
=======================================================
</TABLE>
The following summarizes the difference between the income tax (benefit) expense
and the amount computed by applying the federal income tax 34% and the state tax
rate of 8.84% (5.83%, net of federal tax benefit) in 1998 to loss before income
taxes:
<TABLE>
<CAPTION>
1998
=============================================================
<S> <C>
Federal income tax at statutory rate $ (92,500)
State income tax, net of federal tax benefit (15,900)
Tax benefit from losses not recognized 109,200
- -------------------------------------------------------------
INCOME TAX EXPENSE $ 800
=============================================================
</TABLE>
As of December 31, 1998, the Company had net operating loss carryforwards of
$266,700 for federal and state income tax purposes, respectively to offset
future taxable income, if any through the year 2018. In addition, the company
has tax credits of approximately $2,000 and $1,500 for federal and state income
tax purposes, respectively.
Deferred income taxes result primarily from differences in the treatment
52
<PAGE> 56
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
of depreciation, state income taxes, and net operating loss carryforwards, for
book and tax purposes. As of December 31, 1998, a 100% valuation allowance was
provided for the gross deferred tax asset as management could not determine
whether its realization was more likely than not.
Deferred tax assets comprise the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1999 1998
===============================================================================
<S> <C> <C>
Tax benefit from NOL carryforwards $ 276,300 $ 106,200
Research &Development credit 11,000 3,500
- -------------------------------------------------------------------------------
Gross deferred tax assets 287,300 109,700
Valuation allowances (287,300) (109,700)
- -------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ -- $ --
===============================================================================
</TABLE>
For the period ended September 30, 1999 and the year ended December 31, 1998,
the Company's valuation allowance on deferred tax assets increased $177,600 and
$109,700, respectively.
8. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash and cash equivalents. The Company
places its cash and cash equivalents with high quality financial institutions.
9. SUBSEQUENT EVENTS
The Company entered into an employment agreement with David Lucas on January 1,
1999, whereby Mr. Lucas as Scientific Director oversees the research and
development efforts of the Company. The Company pays Mr. Lucas $3,000 per month.
During August 1999, the primary shareholder advanced $24,200 to the Company.
These transactions are evidenced by two unsecured notes bearing interest at 10%
per annum, due on or before November, 1999. (Unaudited)
53
<PAGE> 57
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
Also during August 1999, two shareholders and an individual unrelated to the
Company, advanced a total of $15,000 to the Company. These loans are evidenced
by three unsecured notes bearing interest at 10% per annum, due on or before
November, 1999. These lenders were also granted warrants to purchase a total of
7,500 shares of the Company's common stock at $1.50 per share and are void after
August 31, 2001. (Unaudited)
During September 1999, an unrelated party advanced a total of $25,000 to the
Company. These loans are evidenced by two unsecured notes bearing interest at
10% per annum. The lender was also granted warrants to purchase a total of
12,500 shares of the Company's common stock at $1.50 per share and are void
after September 21, 2001. (Unaudited)
During October, 1999, the Company issued 115,666 shares of common stock to
shareholders for cash consideration of $165,999. Additionally, the Company
issued warrants, in connection with stock sales to related parties. For their
investment they received 64,833 warrants. These warrants shall be exercisable to
purchase 1 share of common stock for each warrant at a price equal to
$2.50/share. The warrants will expire after January 1, 2002. (Unaudited)
On October 28, the Company entered into an employment agreement with the Chief
Financial Officer and Secretary for a minimum term of one year. The compensation
will range from $6,000 to $9,200 per month. In addition, he has been granted
three options to purchase 150,000 shares or restricted common stock at $0.25,
$0.50 and $1.62 per share pursuant to the Employee Stock Option Plan. Further,
he is eligible for a bonus of $1,000 after January 1, 2000. (Unaudited)
During November, 1999 the Company issued 3,000 shares of common stock to
shareholders for cash consideration of $4,500. (Unaudited)
54
<PAGE> 58
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER, 1999 AND 1998 IS UNAUDITED)
================================================================================
On November 20, 1999 the company entered into a consulting agreement for
receiving market information, technical contracts and business and investor
contracts. In consideration the Company issued warrants to purchase up to
800,000 shares of common stock at an exercise price of $1.50 per share. The
warrants will expire on June 30, 2000. (Unaudited)
On January 2, 2000 the Company entered into a promotion agreement with a company
to produce a thirty-minute television documentary that will be aired nationally.
The Company shall participate equally in any revenues derived from the sales of
the show for a period of ten years. In consideration for this production the
Company shall pay $45,000 and grant a warrant to purchase up to 700,000 shares
of common stock at an exercise price of $1.50 per share. The warrant will expire
on January 2, 2010. In addition, the Company has issued a stock option, under
the Company's Non-Statutory Stock Option Plan, to purchase 100,000 shares of
common stock at $1.50 per share for consulting services. The vesting of these
options has not been determined at this time. (Unaudited)
On January 5, 2000 the Company issued to its legal council one warrant to
purchase 10,000 shares of its common stock at an exercise price of $1.50 per
share. The warrant shall expire on September 21, 2004. This warrant has been
issued to receive favorable payment terms. (Unaudited)
On January 11, 2000, the Company sold 251,632 shares of its common stock, for an
aggregate amount of $377,448. Under the terms of the current offering, for every
two shares of common stock purchased by an investor, the investor will receive a
warrant to purchase on share of common stock exercisable at $2.50 per share
until January 1, 2002. (Unaudited)
55
<PAGE> 59
PART III
ITEM 1. EXHIBIT INDEX
SEQUENTIAL NO.
(2) Articles of Incorporation and Bylaws
2.1 Articles of Incorporation and Amendments thereto
2.1.1 Articles of Incorporation
2.1.2 Action By Incorporator Of HyperBaric Systems
2.1.4 Amended and Restated Articles Of Incorporation, June 18, 1999
2.2. Bylaws
(3) Instruments Defining The Rights Of Security Holders
3.1 Stock Purchase Agreement For Founders (Common Stock) February 26,
1998
3.2 Representation Letter for Founders
3.3 Stock Purchase Agreement - Private Placement
3.4 Subscription Agreement, Regulation D, Rule 504
3.5 Subscription Agreement, Regulation D, Rule 506
(9) Voting Trust Agreement
(10) Material contracts
10.1 Assignment of Phemtest Patent and Technology
10.1 Phemtest Patents
US 4,945,921
US 4,784,158
10.3 Assignment of Patent and Technology - Vladimir Serebrennikov
10.4 Assignment of Patent and Technology - Leonid Babak
10.5 Consultant Agreement with Dr. Luis Toledo
10.6 Employment contract R. Umar
10.7 Employment contract L. Bryant
10.8 Non-Statutory Incentive Stock Option Plan
10.9 Statutory Incentive Stock Option Plan
10.10 Statutory Incentive Stock Option Grant - R. Umar, 5/10/98
10.11 Non- Statutory Incentive Stock Option Grant - A. Sealy, 7/21/98
10.12 Statutory Incentive Stock Option Grant - A. Sealy, 11/27/98
10.13 Statutory Incentive Stock Option Grant - A. Sealy, 6/25/99
10.14 Indemnification Agreement - H. Masuda
10.15 Indemnification Agreement - P. Okimoto
10.16 Indemnification Agreement - G. Tsukuda
10.17 Indemnification Agreement - R. Umar
10.18 Indemnification Agreement - A. Sealy
10.19 Indemnification Agreement - L. Bryant
10.20 Employment Agreement - Leonid Babak
10.21 Employment Agreement - Vladimir Serebrennikov
10.22 Employment Agreement - Ardeth Sealy
10.23 Statutory Incentive Stock Option Grant - A. Sealy, 10/1/99
10.24 Warrant to Purchase Shares of Common Stock - The Corporate Law
Group
56
<PAGE> 60
10.25 Consultant Agreement - Dr. Larry McCleary, 11/20/99
10.26 Warrant to Purchase Shares of Common Stock - Dr. Larry McCleary
10.27 Promotion Agreement - Heartbeat of America, 1/2/00
10.28 Warrant to Purchase Shares of Common Stock - Heartbeat of America
57
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective on June 1, 1998 between HYPERBARIC
SYSTEMS, whose address is 1127 Harker Avenue, Palo Alto, CA 94301, incorporated
under the laws of the State of California, hereinafter called "EMPLOYER", or
"COMPANY" and Leonid Babak, whose address is 31 Novoya Zary Street, Apt 16,
Krasnoyark, Russia 660028 hereinafter called "EMPLOYEE".
WITNESSETH:
1. PURPOSE OF AGREEMENT. HYPERBARIC SYSTEMS is a duly established
California corporation engaged in the business of designing, manufacturing and
marketing products for the medical, food and semiconductor industries, and
EMPLOYEE represents that he has experience in the area of general business
management in Russia and has a working knowledge of the technology. This
agreement between EMPLOYER and EMPLOYEE is entered into for the purpose of
defining the relationship, responsibilities, and agreement between EMPLOYER and
EMPLOYEE.
2. EMPLOYMENT: EMPLOYER hereby employs LEONID BABAK as the
Company's Branch Chief of Russian Operations.
3. EMPLOYEE DUTIES AND RESPONSIBILITIES. EMPLOYEE shall be
employed as Branch Chief of Russian Operations with the following duties and
responsibilities:
a. Manage the affairs of the Russian Branch Office under
the terms of the Branch Bylaws and as directed by the
President.
b. Manage the Branch office, laboratory and other
facilities as the COMPANY may require to carry out its
business.
c. Mange all personnel of the Branch in accordance with
the Bylaws and as instructed by the President.
<PAGE> 2
d. Manage all schedules and milestones under the Branch's
control to assure that they are carried out within the
agreed time frames.
e. Provide a complete financial and activity/progress
report including copies of all original expense receipts
and agreements of the Branch to the President on a monthly
basis and as requested by the EMPLOYER.
f. Perform other tasks and become involved in projects as
directed by the President.
4. EMPLOYEE'S PERFORMANCE. EMPLOYEE shall work as agreed upon by
the parties. Employee agrees to devote his best efforts to the Corporation's
business and devote his efforts to the Corporation for the performance of his
duties as Branch Chief of Russian Operations, and perform other duties and
responsibilities as directed by the President.
5. INVENTIONS AND PATENTS. EMPLOYEE agrees that all rights to
inventions and patents derived while employed by EMPLOYEE shall be the property
of the COMPANY and all necessary steps to transfer such rights, if required
under U.S. laws, shall be executed by EMPLOYEE.
6. TERM. The term of this Agreement shall be effective for a
period of one year from the date of signing of this agreement. It is the intent
of the parties that this contract shall continue indefinitely until terminated
by either party. Upon the expiration of the Term of this Agreement, it may be
terminated with thirty days written notice by either party.
7. COMPENSATION. For the services rendered by EMPLOYEE hereunder,
EMPLOYEE shall be compensated initially at an amount of $400 per month, but may
be adjusted as agreed to by the parties. Payment shall be made in Rubles based
on the Central Bank of the Russian Federation's prevailing exchange rate in
effect at the time of payment.
8. BONUS. A bonus amount of $5,000 shall be paid to EMPLOYEE upon
the successful completion of all of the Phase I milestones within the agreed
time frame. These milestones shall consist of the following items:
<PAGE> 3
a. Successfully complete Platelet experiments according to
protocols and conditions provided by the COMPANY. All
documentation of test results shall be delivered in writing
at the conclusion of the tests.
b. Deliver to the COMPANY all published and unpublished
articles that relate to the invention within two weeks from
the establishment of the Branch.
c. Deliver to the COMPANY all patent information necessary for
the COMPANY'S legal counsel to render an opinion that one or
more U.S. patents for the container and/or the technology
are likely to be granted.
d. A legal opinion by the COMPANY'S legal counsel that the
invention is likely to be granted a U.S. patent. This should
be accomplished within 30 days from the date that all
relevant documents are delivered to the COMPANY.
e. Deliver to the COMPANY a working container for the testing
of Platelets.
f. Sign a non-compete agreement.
g. Additional bonus and incentives for milestones (to be
defined at a future date) successfully completed for other
blood products, organs, vitrification and semiconductors
technology will be negotiated under a separate incentive
program agreement.
9. ASSIGNMENT AND PROSPECTIVE WORK. The EMPLOYEE shall assign all
the rights to all intellectual property created by EMPLOYEE according to the
AGREEMENT ON ASSIGNMENT OF PATENT AND TECHNOLOGY, signed between the parties,
which shall be an integral part of this Agreement.
10. DURATION OF WORKING TIME. A five day work week shall be
established for EMPLOYEE according to the Code of Labor Laws of the Russian
Federation (COLL RF).
11. HOLIDAYS. Work shall not be required on the following
holidays:
1-2 January - New Year
7 January - Christmas
8 March - International Women Day
1-2 May - Holiday of Spring and May
<PAGE> 4
9 May - Day of Victory
12 June - Day of Acceptance of Declaration on State Sovereignty
of the Russian Federation
7 November - Anniversary of Great October Social revolution
12. VACATION. EMPLOYEE shall be entitled to annual paid vacations
of four weeks per year in view of six-days work week, after the first 11 months
of service.
13. GUARANTEES AND COMPENSATION FOR BUSINESS TRIPS. The EMPLOYEE
shall have the right to cover expenses and receive other compensation in view of
business trips within the following rates:
a) Business Trips to Rural Place:
- Daily allowance for the period of the business trip -
$12/day
- Rent Payment - Up to $35/day
b) Business Trip to Cities of the RF
- Daily allowance - $15/day
- Rent Payment - Up to $35/day
c) Business Trips to Moscow, St. Petersburg, Capitals of the
Republics, incorporated into the RF, Regional or Territorial
Centers including cities with 1 million population:
- Daily allowance - $35/day
- Rent Payment - Up to $90/day
d) Business Trips to Western Europe, Canada, USA:
- Daily allowance - $70/day
- Rent Payment - Up to $150/day
Rent payments shall be effected on those actual expenses paid
with receipts (bills), and checks, but shall not exceed the
aforementioned rates.
Daily payment is to be effected according to the aforementioned
rates in view that the arrival and departure days are considered
as 2 days.
<PAGE> 5
Any changes to the aforementioned rates is possible only upon the
written instruction or approval of the President.
Compensation of return fare shall be effected for actual expenses
upon submission of tickets or other documents justifying such
expenses.
Any other regulations, guarantees and compensations on business
trips are to be effected in accordance with COLL RF.
14. COMPENSATION FOR WEAR OF INSTRUMENTS, EQUIPMENT AND TRANSPORT
THAT IS THE PROPERTY OF THE EMPLOYEE. The EMPLOYEE shall have he right to
receive compensation for wear of the instruments, equipment and transport when
using these for the benefit of the Company. Amounts and terms of the
compensation shall be stipulated by a separate agreement between EMPLOYEE and
Company.
15. TERMINATION UPON BREACH. This Agreement shall be terminated
upon material breach of any of the provisions herein, or breach of the material
provisions of any and all supplemental agreements which the EMPLOYEE and
EMPLOYER may mutually execute.
16. CONFIDENTIALITY AGREEMENT. EMPLOYEE agrees that all
information made available to EMPLOYEE regarding the products, clients and
software systems of EMPLOYER are confidential and require a high degree of
confidentiality so as not to violate the rights of others and to prevent the use
thereof for purposes detrimental to the interests of EMPLOYER and its clients.
Such information in any form shall be hereinafter referred to as "INFORMATION."
For purposes of this Agreement:
a. CONFIDENTIAL INFORMATION means INFORMATION disclosed to
or acquired by EMPLOYEE while employed by EMPLOYER, and includes but is not
limited to, INVENTIONS, Patent Applications, TRADE SECRETS, any other
information of value relating to the business and/or field of interest of
EMPLOYER including information with respect to which EMPLOYER is under an
obligation of confidentiality with any third party. CONFIDENTIAL INFORMATION
does not include information that is generally known in the relevant trade or
industry or any information known to and freely usable by EMPLOYEE before
EMPLOYEE'S association with EMPLOYER, provided, however, information for
purposes of this
<PAGE> 6
Agreement shall be considered CONFIDENTIAL INFORMATION if not known by the trade
generally, even though such information has been disclosed to one or more third
parties pursuant to distribution agreements, joint research agreements, or other
agreements entered into by EMPLOYER;
b. TRADE SECRET(S) means all information, know-how,
concepts, data, knowledge, ideas and materials however embodied, relating to the
business of EMPLOYER'S customers which have not been released publicly by an
authorized representative of EMPLOYER or have not otherwise lawfully entered the
public domain. TRADE SECRETS shall include but are not limited to information,
know-how, concepts, data, knowledge, computer programs, ideas and materials
relating to EMPLOYER'S existing and future products, processes, research and
development, technology, production costs, contract forms, drawings, designs,
plans, proposals, marketing and sales plans and strategies, cost or pricing
information, financial information, promotional methods, volume of sales, names
or classes of customers and vendors, management procedures, organization charts,
and employee directories.
17. PROPRIETARY INFORMATION OF OTHERS. EMPLOYEE shall not use or
disclose to EMPLOYER, or induce EMPLOYER to use, any information, know-how,
concepts, data, knowledge, computer programs, ideas or materials, however
embodied, with respect to which EMPLOYEE is under an obligation of
confidentiality to any third party imposed, by law or agreement prior to the
date hereof. EMPLOYER represents and covenants that it will not require EMPLOYEE
to violate any obligation to, or confidence with, another.
18. SECRECY AGREEMENT. EMPLOYEE acknowledges that he understands
the requirement for CONFIDENTIAL INFORMATION to be kept secret and used only as
authorized herein. EMPLOYEE shall at all times during the period of his
association with EMPLOYER under this agreement and thereafter keep in confidence
and trust all CONFIDENTIAL INFORMATION. EMPLOYEE shall use CONFIDENTIAL
INFORMATION only in the course of performing duties as Branch Chief of Russian
Operations for the Company and other duties as assigned by the Company
President, and not for unrelated personal gain.
<PAGE> 7
EMPLOYEE shall not, directly or indirectly, disclose any CONFIDENTIAL
INFORMATION to any person, organization or entity, except in the course of
performing duties as an EMPLOYEE of EMPLOYER and only in the manner prescribed
by EMPLOYER, or as required by the laws of the U.S. or the Russian Federation.
Employee shall abide by those EMPLOYER policies and regulations established from
time to time for the protection of CONFIDENTIAL INFORMATION. During EMPLOYEE'S
association with EMPLOYER under this Agreement, and after termination thereof,
EMPLOYEE shall not directly, or indirectly, either as an employee, employer,
agent, principal, partner, stockholder, corporate officer, director, or in any
other individual or representative capacity, engage or participate in any
activity of any nature whatsoever, the performance of which would have a
reasonable likelihood of placing EMPLOYEE in conflict with the obligations of
confidence and trust regarding CONFIDENTIAL INFORMATION imposed herein.
19. RETURN OF DOCUMENTS AND MATERIALS. EMPLOYEE agrees that all
documents, reports, drawings, materials, designs, plans, computer programs,
proposals, marketing and sales plans, reproductions, and other documents or
things made by EMPLOYEE or that come into EMPLOYEE'S possession in the course of
employment with EMPLOYER are the property of EMPLOYER and will not be used by
EMPLOYEE for any purpose other than the business of EMPLOYER. EMPLOYEE will not
deliver, reproduce or in any way allow such documents or things to be delivered
or be used by any third parties without specific direction or consent of
EMPLOYER. Upon termination of this Agreement, EMPLOYEE will promptly deliver to
EMPLOYER the above documents and materials together with any copies thereof.
20. NO DISCLOSURE. EMPLOYEE agrees not to divulge, disclose,
convey or make known to others or any other entity, any such information without
the express written consent of the President of HyperBaric Systems first
obtained. EMPLOYEE further agrees to take all necessary steps to safeguard such
information to prevent the unauthorized disclosure thereof.
<PAGE> 8
21. INJUNCTION. Recognizing that irreparable damage will result
to the business of EMPLOYER in the event of the breach of any of these covenants
and assurances by EMPLOYEE, the parties hereto agree that if EMPLOYEE shall
violate the terms of this Agreement, EMPLOYER shall be entitled to an injunction
to be issued by any court of competent jurisdiction enjoining and restraining
EMPLOYEE and each and every person, firm, association, partnership, company, or
corporation concerned therewith, from the continuance of such violation of the
terms of this Agreement, and in addition thereto, EMPLOYEE shall pay to EMPLOYER
all damages, including reasonable attorneys' fees sustained by EMPLOYER by
reason of the violation of this Agreement.
22. NO ASSIGNMENT. Neither the EMPLOYEE nor EMPLOYER may transfer
or assign this Agreement, or any right or obligation hereunder, without the
prior written consent of the other party. No right or obligation under this
Agreement may be waived, modified, or in any respect altered except by written
agreement of the parties executed in writing by both parties.
23. SUCCESSORS AND ASSIGNS. This agreement shall be binding on
the heirs, executors, successors and assigns of the parties.
24. ATTORNEY'S FEES. If any action is brought to enforce any
obligation created under this Agreement, the Court shall award to the prevailing
party, such reasonable fees, costs, and expenses as may have been incurred by
such party in enforcing its rights under this Agreement, including without
limitation, the fees, costs, and expenses of its attorney for services both
before or after litigation is instituted.
25. ENTIRE AGREEMENT. This Agreement may not be changed except in
writing signed by the President of the Company and the EMPLOYEE. The validity,
performance, construction, and effect of this Agreement shall be governed by the
laws of the State of California. Any other relationship between the parties not
stipulated by this Agreement shall be regulated by COLL RF and the Laws of the
United States/California if not in conflict with COLL RF. This Agreement is
executed in 2 originals, in English (one for each party). Both originals shall
have equal validity and force.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"EMPLOYER" "EMPLOYEE"
HYPERBARIC SYSTEMS. LEONID BABAK
1127 Harker Avenue 31 Novoya Zary Street, Apt 16
Palo Alto, California 94301 Krasnoyarsk, Russia 660028
By:
------------------------------- -----------------------------------
HARRY MASUDA, PRESIDENT LEONID BABAK
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective on June 1, 1998 between HYPERBARIC
SYSTEMS, whose address is 1127 Harker Avenue, Palo Alto, CA 94301, incorporated
under the laws of the State of California, hereinafter called "EMPLOYER", or
"COMPANY" and VLADIMIR SEREBRENNIKOV, whose address is Academgorodok 1A, Apt 53,
Krasnoyark, Russia 660036 hereinafter called "EMPLOYEE".
WITNESSETH:
1. PURPOSE OF AGREEMENT. HYPERBARIC SYSTEMS is a duly established
California corporation engaged in the business of designing, manufacturing and
marketing products for the medical, food and semiconductor industries, and
EMPLOYEE represents that he has technical expertise in the development of
preservation systems. This agreement between EMPLOYER and EMPLOYEE is entered
into for the purpose of defining the relationship, responsibilities, and
agreement between EMPLOYER and EMPLOYEE.
2. EMPLOYMENT: EMPLOYER hereby employs VLADIMIR SEREBRENNIKOV as
the Company's Technical Director of Preservation Systems.
3. EMPLOYEE DUTIES AND RESPONSIBILITIES. EMPLOYEE shall be
employed as Technical Director of Preservation Systems with the following duties
and responsibilities:
a. Direct all technical research and development efforts
of the COMPANY regarding preservation systems, reporting
to the Branch Chief and as directed by the President.
b. Assure that all chamber designs and testing of
platelets and other future products are done according to
specifications approved by the Company, and operate within
the specified limits.
c. Develop new products and technologies as directed by
the Company plan, under the direction of the Branch Chief
and President.
<PAGE> 2
d. Assure that all schedules and milestones under the
Technical Director's control are carried out within the
agreed time frames.
e. Provide a complete technical activity/progress report
including test results conducted at the Branch and other
locations under the Branch's control on a monthly basis
and as requested by the Branch Chief or the President.
Report directly and immediately to the President any
significant results that may impact the business of the
Company, including unfavorable test results or technical
delays.
f. Perform other tasks and become involved in projects as
directed by the President.
4. EMPLOYEE'S PERFORMANCE. EMPLOYEE shall work as agreed upon by
the parties. Employee agrees to devote his best efforts to the Corporation's
business and devote his efforts to the Corporation for the performance of his
duties as Technical Director of Preservation Systems, and perform other duties
and responsibilities as directed by the President.
5. INVENTIONS AND PATENTS. EMPLOYEE agrees that all rights to
inventions and patents derived while employed by EMPLOYER shall be the property
of the COMPANY and all necessary steps to transfer such rights, if required
under U.S. laws, shall be executed by EMPLOYEE.
6. TERM. The term of this Agreement shall be effective for a
period of one year from the date of signing of this agreement. It is the intent
of the parties that this contract shall continue indefinitely until terminated
by either party. Upon the expiration of the Term of this Agreement, it may be
terminated with thirty days written notice by either party.
7. COMPENSATION. For the services rendered by EMPLOYEE hereunder,
EMPLOYEE shall be compensated initially at an amount of $400 per month, but may
be adjusted as agreed to by the parties. Payment shall be made in Rubles based
on the Central Bank of the Russian Federation's prevailing exchange rate in
effect at the time of payment.
<PAGE> 3
8. BONUS. A bonus amount of $25,000 shall be paid to EMPLOYEE
upon the successful completion of all of the Phase I milestones within the
agreed time frame. These milestones shall consist of the following items:
a. Successfully complete Platelet experiments according to
protocols and conditions provided by the COMPANY. All
documentation of test results shall be delivered in writing
at the conclusion of the tests.
b. Deliver to the COMPANY all published and unpublished
articles that relate to the invention within two weeks from
the establishment of the Branch.
c. Deliver to the COMPANY all patent information necessary for
the COMPANY'S legal counsel to render an opinion that one or
more U.S. patents for the container and/or the technology
are likely to be granted.
d. A legal opinion by the COMPANY'S legal counsel that the
invention is likely to be granted a U.S. patent. This should
be accomplished within 30 days from the date that all
relevant documents are delivered to the COMPANY.
e. Deliver to the COMPANY a working container for testing
Platelets.
f. Sign a non-compete agreement.
g. Additional bonus and incentives for milestones (to be
defined at a future date) successfully completed for other
blood products, organs, verification and semiconductors
technology will be negotiated under a separate incentive
program agreement.
h. Sign a non-compete agreement.
9. ASSIGNMENT AND PROSPECTIVE WORK. The EMPLOYEE shall assign all
the rights to all intellectual property created by EMPLOYEE according to the
AGREEMENT ON ASSIGNMENT OF PATENT AND TECHNOLOGY, signed between the parties,
which shall be an integral part of this Agreement.
10. DURATION OF WORKING TIME. A five day work week shall be
established for EMPLOYEE according to the Code of Labor Laws of the Russian
Federation (COLL RF).
<PAGE> 4
11. HOLIDAYS. Work shall not be required on the following
holidays:
1-2 January - New Year
7 January - Christmas
8 March - International Women Day
1-2 May - Holiday of Spring and May
9 May - Day of Victory
12 June - Day of Acceptance of Declaration on State Sovereignty
of the Russian Federation
7 November - Anniversary of Great October Social revolution
12. VACATION. EMPLOYEE shall be entitled to annual paid vacations
of four weeks per year in view of six-days work week, after the first 11 months
of service.
13. GUARANTEES AND COMPENSATION FOR BUSINESS TRIPS. The EMPLOYEE
shall have the right to cover expenses and receive other compensation in view of
business trips within the following rates:
a) Business Trips to Rural Place:
- Daily allowance for the period of the business trip -
$12/day
- Rent Payment - Up to $35/day
b) Business Trip to Cities of the RF
- Daily allowance - $15/day
- Rent Payment - Up to $35/day
c) Business Trips to Moscow, St. Petersburg, Capitals of the
Republics, incorporated into the RF, Regional or Territorial
Centers including cities with 1 million population:
- Daily allowance - $35/day
- Rent Payment - Up to $90/day
d) Business Trips to Western Europe, Canada, USA:
- Daily allowance - $70/day
<PAGE> 5
- Rent Payment - Up to $150/day
Rent payments shall be effected on those actual expenses paid
with receipts(bills), and checks, but shall not exceed the
aforementioned rates.
Daily payment is to be effected according to the aforementioned
rates in view that the arrival and departure days are considered
as 2 days.
Any changes to the aforementioned rates is possible only upon the
written instruction or approval of the President.
Compensation of return fare shall be effected for actual expenses
upon submission of tickets or other documents justifying such
expenses.
Any other regulations, guarantees and compensations on business
trips are to be effected in accordance with COLL RF.
14. COMPENSATION FOR WEAR OF INSTRUMENTS, EQUIPMENT AND TRANSPORT
THAT IS THE PROPERTY OF THE EMPLOYEE. The EMPLOYEE shall have he right to
receive compensation for wear of the instruments, equipment and transport when
using these for the benefit of the Company. Amounts and terms of the
compensation shall be stipulated by a separate agreement between EMPLOYEE and
Company.
15. TERMINATION UPON BREACH. This Agreement shall be terminated
upon material breach of any of the provisions herein, or breach of the material
provisions of any and all supplemental agreements which the EMPLOYEE and
EMPLOYER may mutually execute.
16. CONFIDENTIALITY AGREEMENT. EMPLOYEE agrees that all
information made available to EMPLOYEE regarding the products, clients and
software systems of EMPLOYER are confidential and require a high degree of
confidentiality so as not to violate the rights of others and to prevent the use
thereof for purposes detrimental to the interests of EMPLOYER and its clients.
Such information in any form shall be hereinafter referred to as "INFORMATION."
For purposes of this Agreement:
a. CONFIDENTIAL INFORMATION means INFORMATION disclosed to
or acquired by EMPLOYEE while employed by EMPLOYER, and includes but is not
limited to, INVENTIONS,
<PAGE> 6
Patent Applications, TRADE SECRETS, any other information of value relating to
the business and/or field of interest of EMPLOYER including information with
respect to which EMPLOYER is under an obligation of confidentiality with any
third party. CONFIDENTIAL INFORMATION does not include information that is
generally known in the relevant trade or industry or any information known to
and freely usable by EMPLOYEE before EMPLOYEE'S association with EMPLOYER,
provided, however, information for purposes of this Agreement shall be
considered CONFIDENTIAL INFORMATION if not known by the trade generally, even
though such information has been disclosed to one or more third parties pursuant
to distribution agreements, joint research agreements, or other agreements
entered into by EMPLOYER;
b. TRADE SECRET(S) means all information, know-how,
concepts, data, knowledge, ideas and materials however embodied, relating to the
business of EMPLOYER'S customers which have not been released publicly by an
authorized representative of EMPLOYER or have not otherwise lawfully entered the
public domain. TRADE SECRETS shall include but are not limited to information,
know-how, concepts, data, knowledge, computer programs, ideas and materials
relating to EMPLOYER'S existing and future products, processes, research and
development, technology, production costs, contract forms, drawings, designs,
plans, proposals, marketing and sales plans and strategies, cost or pricing
information, financial information, promotional methods, volume of sales, names
or classes of customers and vendors, management procedures, organization charts,
and employee directories.
17. PROPRIETARY INFORMATION OF OTHERS. EMPLOYEE shall not use or
disclose to EMPLOYER, or induce EMPLOYER to use, any information, know-how,
concepts, data, knowledge, computer programs, ideas or materials, however
embodied, with respect to which EMPLOYEE is under an obligation of
confidentiality to any third party imposed, by law or agreement prior to the
date hereof. EMPLOYER represents and covenants that it will not require EMPLOYEE
to violate any obligation to, or confidence with, another.
18. SECRECY AGREEMENT. EMPLOYEE acknowledges that he understands
the requirement for CONFIDENTIAL INFORMATION to be kept secret and used only as
authorized herein.
<PAGE> 7
EMPLOYEE shall at all times during the period of his association with EMPLOYER
under this agreement and thereafter keep in confidence and trust all
CONFIDENTIAL INFORMATION. EMPLOYEE shall use CONFIDENTIAL INFORMATION only in
the course of performing duties as Technical Director for Preservation Systems
for the Company and other duties as assigned by the Company President, and not
for unrelated personal gain. EMPLOYEE shall not, directly or indirectly,
disclose any CONFIDENTIAL INFORMATION to any person, organization or entity,
except in the course of performing duties as an EMPLOYEE of EMPLOYER and only in
the manner prescribed by EMPLOYER, or as required by the laws of the U.S. or the
Russian Federation. Employee shall abide by those EMPLOYER policies and
regulations established from time to time for the protection of CONFIDENTIAL
INFORMATION. During EMPLOYEE'S association with EMPLOYER under this Agreement,
and after termination thereof, EMPLOYEE shall not directly, or indirectly,
either as an employee, employer, agent, principal, partner, stockholder,
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any activity of any nature whatsoever, the
performance of which would have a reasonable likelihood of placing EMPLOYEE in
conflict with the obligations of confidence and trust regarding CONFIDENTIAL
INFORMATION imposed herein.
19. RETURN OF DOCUMENTS AND MATERIALS. EMPLOYEE agrees that all
documents, reports, drawings, materials, designs, plans, computer programs,
proposals, marketing and sales plans, reproductions, and other documents or
things made by EMPLOYEE or that come into EMPLOYEE'S possession in the course of
employment with EMPLOYER are the property of EMPLOYER and will not be used by
EMPLOYEE for any purpose other than the business of EMPLOYER. EMPLOYEE will not
deliver, reproduce or in any way allow such documents or things to be delivered
or be used by any third parties without specific direction or consent of
EMPLOYER. Upon termination of this Agreement, EMPLOYEE will promptly deliver to
EMPLOYER the above documents and materials together with any copies thereof.
20. NO DISCLOSURE. EMPLOYEE agrees not to divulge, disclose,
convey or make known to others or any other entity, any such information without
the express written consent of the President of HyperBaric Systems first
obtained. EMPLOYEE further agrees to take all necessary steps to safeguard such
information to prevent the unauthorized disclosure thereof.
<PAGE> 8
21. INJUNCTION. Recognizing that irreparable damage will result
to the business of EMPLOYER in the event of the breach of any of these covenants
and assurances by EMPLOYEE, the parties hereto agree that if EMPLOYEE shall
violate the terms of this Agreement, EMPLOYER shall be entitled to an injunction
to be issued by any court of competent jurisdiction enjoining and restraining
EMPLOYEE and each and every person, firm, association, partnership, company, or
corporation concerned therewith, from the continuance of such violation of the
terms of this Agreement, and in addition thereto, EMPLOYEE shall pay to EMPLOYER
all damages, including reasonable attorneys' fees sustained by EMPLOYER by
reason of the violation of this Agreement.
22. NO ASSIGNMENT. Neither the EMPLOYEE nor EMPLOYER may transfer
or assign this Agreement, or any right or obligation hereunder, without the
prior written consent of the other party. No right or obligation under this
Agreement may be waived, modified, or in any respect altered except by written
agreement of the parties executed in writing by both parties.
23. SUCCESSORS AND ASSIGNS. This agreement shall be binding on
the heirs, executors, successors and assigns of the parties.
24. ATTORNEY'S FEES. If any action is brought to enforce any
obligation created under this Agreement, the Court shall award to the prevailing
party, such reasonable fees, costs, and expenses as may have been incurred by
such party in enforcing its rights under this Agreement, including without
limitation, the fees, costs, and expenses of its attorney for services both
before or after litigation is instituted.
25. ENTIRE AGREEMENT. This Agreement may not be changed except in
writing signed by the President of the Company and the EMPLOYEE. The validity,
performance, construction, and effect of this Agreement shall be governed by the
laws of the State of California. Any other relationship between the parties not
stipulated by this Agreement shall be regulated by COLL RF and the Laws of the
United States/California if not in conflict with COLL RF. This Agreement is
executed in 2 originals, in English (one for each party). Both originals shall
have equal validity and force.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"EMPLOYER" "EMPLOYEE"
HYPERBARIC SYSTEMS. VLADIMIR SEREBRENNIKOV
1127 Harker Avenue Academgorodok, 1A, Apt 53
Palo Alto, California 94301 Krasnoyarsk, Russia 660036
By:
-------------------------------- -----------------------------------
HARRY MASUDA, PRESIDENT VLADIMIR SEREBRENNIKOV
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective on October 28, 1999, between HYPERBARIC
SYSTEMS, whose address is 1127 Harker Avenue, Palo Alto, CA 94301, incorporated
under the laws of the State of California, hereinafter called "EMPLOYER", or
"COMPANY and Ardeth Sealy, whose address is 902 Santa Rosa Court, Roseville, CA
95661, hereinafter called "EMPLOYEE".
WITNESSETH:
1. PURPOSE OF AGREEMENT. HYPERBARIC SYSTEMS is a duly established
California corporation engaged in the business of designing, manufacturing and
marketing products for the medical, food and semiconductor industries, and
EMPLOYEE represents that he has experience in the area of accounting, finance,
humane resources and materials management for high technology companies. This
agreement between EMPLOYER and EMPLOYEE is entered into for the purpose of
defining the relationship, responsibilities, and agreement between EMPLOYER and
EMPLOYEE.
2. EMPLOYMENT: EMPLOYER hereby employs Ardeth Sealy as the
Company's Chief Financial Officer and Secretary, effective January 1, 1999.
3. EMPLOYEE DUTIES AND RESPONSIBILITIES. EMPLOYEE shall be
employed as Chief Financial Officer and Secretary with the following duties and
responsibilities:
a. Establish and maintain the company's financial records.
b. Establish and maintain the company's human resource
functions.
c. Establish and maintain the company's public reporting
process.
d. Manage the accounting, financial reporting, investor
relations, information technology and human resource
departments and functions.
e. Ensure the COMPANY is in compliance with all regulatory
bodies.
f. Perform tasks and become involved in projects as
directed by the President.
g. Establish liability risk options for the COMPANY, to
purchase insurance or the COMPANY to establish operating
procedures that limit the risk liability.
<PAGE> 2
4. EMPLOYEE'S PERFORMANCE. EMPLOYEE shall work as agreed upon by
the parties. Employee agrees to devote his best efforts to the Corporation's
business and devote his efforts to the Corporation for the performance of his
duties as Chief Financial Officer and Secretary, and perform other duties and
responsibilities as directed by the President.
5. TERM. The term of this Agreement shall be effective for a
minimum term of one year from the date of this Agreement and continue until
thirty days' written notice of termination by either party. It is the intent of
the parties that this contract shall continue indefinitely until terminated by
either party.
6. COMPENSATION. For the services rendered by EMPLOYEE hereunder,
EMPLOYEE shall be compensated at an amount to be determined by the following
formula, but may be adjusted as agreed to by both parties.
a. $6,000 per month commencing October 1999 until the
Company raises $1,000,000 in funding pursuant to the
Private Placement Memorandum dated September 1, 1999
or later.
b. $7,000 per month when the Company raises at least
$1,000,000 pursuant to the Private Placement
Memorandum dated September 1, 1999 or later.
c. $8,000 per month when the Company raises at least
$2,000,000 pursuant to the Private Placement
Memorandum dated September 1, 1999 or later.
d. $9,200 per month when the Company raises at least
$3,000,000 pursuant to the Private Placement
Memorandum dated September 1, 1999 or later.
e. Employee will be eligible to participate in any
executive compensation and bonus plans the Employer
may establish.
7. STOCK OPTION. For the purpose of further motivating EMPLOYEE,
the following STATUTORY INCENTIVE STOCK OPTIONS are hereby granted under the
Statutory Incentive Stock Option Plan of the Company, and issued under the
Notice of Grant of Statutory Stock Option, and the Statutory Stock Option
Agreement, which are included as part of this Agreement and listed as Exhibit A.
The Stock Option Grant requires approval by the Board of Directors.
<PAGE> 3
a. 40,000 shares at a price equal to the last close price
as of October 1, 1999 vested over three years, exercisable yearly at the rate of
30%, 30% and 40% respectively.
8. BONUS After the first year of employment (January 1, 2000) and
up to the expiration of the options, Employer agrees to grant a bonus of up to
$1,000 to EMPLOYEE.
9. VACATION, HOLIDAYS AND ABSENCE. EMPLOYEE shall be entitled to
annual paid vacations of fifteen days per year plus such holidays as adopted by
the Company as paid holidays.
10. EMPLOYEE BENEFITS. Employee shall be entitled to participate
in all benefits offered to the COMPANY'S employees. Such benefits may include by
not limited to group medical, dental and vision insurance, life insurance or
other insurance or benefits adopted by the Company.
11. TERMINATION UPON BREACH. This Agreement shall be terminated
upon material breach of any of the provisions herein, or breach of the material
provisions of any and all supplemental agreements which the EMPLOYEE and
EMPLOYER may mutually execute.
12. CONFIDENTIALITY AGREEMENT. EMPLOYEE agrees that all
information made available to EMPLOYEE regarding the products, clients and
software systems of EMPLOYER are confidential and require a high degree of
confidentiality so as not to violate the rights of others and to prevent the use
thereof for purposes detrimental to the interests of EMPLOYER and its clients.
Such information in any form shall be hereinafter referred to as "INFORMATION."
For purposes of this Agreement:
a. CONFIDENTIAL INFORMATION means INFORMATION disclosed to
or acquired by EMPLOYEE while employed by EMPLOYER, and includes but is not
limited to, INVENTIONS, Patent Applications, TRADE SECRETS, any other
information of value relating to the business and/or field of interest of
EMPLOYER including information with respect to which EMPLOYER is under an
obligation of confidentiality with any third party. CONFIDENTIAL INFORMATION
does not include information that is generally known in the relevant trade or
industry or any information known to and freely usable by EMPLOYEE before
EMPLOYEE's association with EMPLOYER, provided, however, information for
purposes of this Agreement shall be considered CONFIDENTIAL INFORMATION if not
known by the trade generally, even though such information has been disclosed to
<PAGE> 4
one or more third parties pursuant to distribution agreements, joint research
agreements, or other agreements entered into by EMPLOYER;
b. TRADE SECRET(S) means all information, know-how,
concepts, data, knowledge, ideas and materials however embodied, relating to the
business of EMPLOYER's customers which have not been released publicly by an
authorized representative of EMPLOYER or have not otherwise lawfully entered the
public domain. TRADE SECRETS shall include but are not limited to information,
know-how, concepts, data, knowledge, computer programs, ideas and materials
relating to EMPLOYER's existing and future products, processes, research and
development, technology, production costs, contract forms, drawings, designs,
plans, proposals, marketing and sales plans and strategies, cost or pricing
information, financial information, promotional methods, volume of sales, names
or classes of customers and vendors, management procedures, organization charts,
and employee directories.
13. PROPRIETARY INFORMATION OF OTHERS. EMPLOYEE shall not use or
disclose to EMPLOYER, or induce EMPLOYER to use, any information, know-how,
concepts, data, knowledge, computer programs, ideas or materials, however
embodied, with respect to which EMPLOYEE is under an obligation of
confidentiality to any third party imposed, by law or agreement prior to the
date hereof. EMPLOYER represents and covenants that it will not require EMPLOYEE
to violate any obligation to, or confidence with, another.
14. SECRECY AGREEMENT. EMPLOYEE acknowledges that he understands
the requirement for CONFIDENTIAL INFORMATION to be kept secret and used only as
authorized herein. EMPLOYEE shall at all times during the period of his
association with EMPLOYER under this agreement and thereafter keep in confidence
and trust all CONFIDENTIAL INFORMATION. EMPLOYEE shall use CONFIDENTIAL
INFORMATION only in the course of performing duties as Chief Financial Officer
and Secretary for the Company and other duties as assigned by the Company
President, and not for unrelated personal gain. EMPLOYEE shall not, directly or
indirectly, disclose any CONFIDENTIAL INFORMATION to any person, organization or
entity, except in the course of performing duties as a EMPLOYEE of EMPLOYER and
only in the manner prescribed by EMPLOYER. Employee shall abide by those
EMPLOYER policies and regulations established from time to time for the
protection of CONFIDENTIAL INFORMATION. During EMPLOYEE's association with
EMPLOYER
<PAGE> 5
under this Agreement, and after termination thereof, EMPLOYEE shall not
directly, or indirectly, either as an employee, employer, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual or
representative capacity, engage or participate in any activity of any nature
whatsoever, the performance of which would have a reasonable likelihood of
placing EMPLOYEE in conflict with the obligations of confidence and trust
regarding CONFIDENTIAL INFORMATION imposed herein.
15. RETURN OF DOCUMENTS AND MATERIALS. EMPLOYEE agrees that all
documents, reports, drawings, materials, designs, plans, computer programs,
proposals, marketing and sales plans, reproductions, and other documents or
things made by EMPLOYEE or that come into EMPLOYEE's possession in the course of
employment with EMPLOYER are the property of EMPLOYER and will not be used by
EMPLOYEE for any purpose other than the business of EMPLOYER. EMPLOYEE will not
deliver, reproduce or in any way allow such documents or things to be delivered
or be used by any third parties without specific direction or consent of
EMPLOYER. Upon termination of this Agreement, EMPLOYEE will promptly deliver to
EMPLOYER the above documents and materials together with any copies thereof, at
EMPLOYER expense.
16. NO DISCLOSURE. EMPLOYEE agrees not to divulge, disclose,
convey or make known to others or any other entity, any such information without
the express written consent of the President of HyperBaric Systems first
obtained. EMPLOYEE further agrees to take all necessary steps to safeguard such
information to prevent the unauthorized disclosure thereof.
17. INJUNCTION. Recognizing that irreparable damage will result
to the business of EMPLOYER in the event of the breach of any of these covenants
and assurances by EMPLOYEE, the parties hereto agree that if EMPLOYEE shall
violate the terms of this Agreement, EMPLOYER shall be entitled to an injunction
to be issued by any court of competent jurisdiction enjoining and restraining
EMPLOYEE and each and every person, firm, association, partnership, company, or
corporation concerned therewith, from the continuance of such violation of the
terms of this Agreement, and in addition thereto, EMPLOYEE shall pay to EMPLOYER
all damages, including reasonable attorneys' fees sustained by EMPLOYER by
reason of the violation of this Agreement.
18. NO ASSIGNMENT. Neither the EMPLOYEE nor EMPLOYER may transfer
or assign this Agreement, or any right or obligation hereunder, without the
prior written
<PAGE> 6
consent of the other party. No right or obligation under this Agreement may be
waived, modified, or in any respect altered except by written agreement of the
parties executed in writing by both parties.
19. SUCCESSORS AND ASSIGNS. This agreement shall be binding on
the heirs, executors, successors and assigns of the parties.
20. ATTORNEYS FEES. If any action is brought to enforce any
obligation created under this Agreement, the Court shall award to the prevailing
party, such reasonable fees, costs, and expenses as may have been incurred by
such party in enforcing its rights under this Agreement, including without
limitation, the fees, costs, and expenses of its attorney for services both
before or after litigation is instituted.
21. ENTIRE AGREEMENT. This Agreement may not be changed except in
writing signed by the President of the Company and the EMPLOYEE. The validity,
performance, construction, and effect of this Agreement shall be governed by the
laws of the State of California
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"EMPLOYER" "EMPLOYEE"
HYPERBARIC SYSTEMS Ardeth Sealy
1127 Harker Avenue 902 Santa Rosa Court
Palo Alto, California 94301 Roseville, CA 95661
By:
-------------------------------- -----------------------------------
HARRY MASUDA, PRESIDENT Ardeth Sealy
<PAGE> 7
HYPERBARIC SYSTEMS
NOTICE OF GRANT OF STATUTORY STOCK OPTION
NOTICE is hereby given of the following stock option grant (the
"Option") to purchase shares of the Common Stock of HYPERBARIC SYSTEMS (the
"Company"):
EMPLOYEE OPTIONEE : ARDETH N. SEALY
GRANT DATE : 10/1/99
OPTION PRICE : $1.62 PER SHARE
NUMBER OF OPTIONED
SHARES : 40,000
EXPIRATION DATE : 10/1/04
TYPE OF OPTION : EMPLOYEE INCENTIVE STOCK OPTION
EXERCISE SCHEDULE : 30% AFTER FIRST YEAR 10/1/00
30% AFTER SECOND YEAR 10/1/01
40% AFTER THIRD YEAR 10/1/02
Employee/Optionee understands that the Option is granted subject to and
in accordance with the express terms and conditions of the HYPERBARIC SYSTEMS,
1998 Statutory Stock Option Plan (The "Plan"). Employee/Optionee agrees to be
bound by the terms and conditions of the Plan and the terms and conditions of
the Option as set forth in the Statutory Incentive Stock Option Agreement
attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as Exhibit B.
Dated: HYPERBARIC SYSTEMS
-----------------------------
By
---------------------------------
HARRY MASUDA, President
"EMPLOYEE/OPTIONEE"
---------------------------------
(Signature)
Ardeth N. Sealy
---------------------------------
(Type Name)
902 Santa Rosa Court
---------------------------------
Roseville, CA 95661
---------------------------------
(Address)
<PAGE> 1
EXHIBIT 10.23
STATUTORY INCENTIVE STOCK
OPTION AGREEMENT
This AGREEMENT is made between HYPERBARIC SYSTEMS, having a principal
place of business at 1127 Harker Avenue, Palo Alto, CA 94301, hereafter referred
to as "Employer," and , hereinafter referred to as "Employee."
OPTION GRANTED
1. Employer hereby grants Employee an option to purchase shares of
common stock at a purchase price of $ per share.
TIME OF EXERCISE OF OPTION
2. Employee may exercise this option to purchase his or her shares
according to the following schedule:
30% After 1st year 10/1/00
30% After 2nd year 10/1/01
40% After 3rd year 10/1/02
until termination of the option as provided in Paragraph 7, below, so long as at
all times, beginning with the date of the grant of this option and ending three
months prior to the date of exercise, or 12 months prior to the date of exercise
if the employee is disabled within the meaning of Internal Revenue Code Section
22(e)(3), Employee remains employed. For purposes of this Agreement,
"employment" means that Employee is employed by Employer, a parent or subsidiary
corporation of such a corporation issuing or assuming a stock option in a
transaction to which Internal Revenue Code Section 424(a) applies.
METHOD OF EXERCISE
3. This option shall be exercised by Employee, or in the case of the
exercise after Employee's death, the Employee's executor, administrator, heir or
legatee, as the case may be, by written notice delivered to Employer at its
principal place of business, stating the number of shares for which the option
is being exercised. The notice must be accompanied by a check or other payment
in full in any other form which the Committee who administers the Plan, may, in
its discretion, approve at the time of the exercise in accordance with Paragraph
4 of this Agreement.
<PAGE> 2
In the case of the exercise of an Employee's option after death, the
person or persons exercising on behalf of the deceased Employee shall provide
appropriate documentation establishing their right to act on behalf of the
decedent.
LOANS
4. The Committee acting as plan administrator may, in its absolute
discretion and without any obligation to do so, assist the Employee in the
exercise of this option by (1) authorizing the extension of a loan to the
Employee from the Company or (ii) permitting the Employee to pay the option
price for the purchased shares of stock in installments over a period of years.
The terms of the loan or installment method of payment (including the interest
rate, the collateral requirements and terms of repayment) shall be established
by the Committee as plan administrator, in its sole discretion.
CAPITAL ADJUSTMENTS
5.(a) The existence of this option shall not affect in any way the right
or power of Employer or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in Employer's
capital structure or its business, or any merger or consolidation of Employer or
any issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting the common stock or the rights thereof, or the issuance of any
securities convertible into any common stock or of any rights, options, or
warrants to purchase any common stock, or the dissolution or liquidation of
Employer, any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceedings of Employer, whether of a similar
character or otherwise.
(b) The shares with respect to which this option is granted are shares
of the common voting stock of HYPERBARIC SYSTEMS as presently constituted, but
if and whenever, prior to the delivery by Employer of all the shares of the
stock with respect to which this option is granted, Employer shall effect a
subdivision or consolidation of shares or other capital readjustment, the
payment of a stock dividend, or other increase or reduction of the number of
shares of the stock outstanding without receiving compensation therefor in
money, services, or property, the number of shares of stock then remaining
subject to this option shall (a) in the event of an increase in the number of
outstanding shares, be proportionately increased, and the cash consideration
payable per share shall be proportionately reduced; and (b) in the event of a
reduction in the number of outstanding shares, be proportionately reduced, and
the cash consideration payable per share shall be proportionately increased.
MERGER AND CONSOLIDATION
6.(a) Following the merger of one or more corporations into Employer or
any consolidation of Employer and one or more corporations in which Employer is
the surviving corporation, the exercise of these options shall apply to the
shares of the surviving corporation.
(b) Notwithstanding any other provision of this Agreement, this option
shall terminate on the dissolution or liquidation of Employer, or on any merger
or consolidation in which Employer is not the surviving corporation.
TRANSFER OF OPTION
7. During Employee's lifetime, this option shall be exercisable only by
Employee. This option shall not be transferable by Employee other than by the
laws of the descent and distribution upon Employee's death. In the event of
Employee's death during employment or during the applicable period after
termination of employment specified in Paragraph 2 above, Employee's personal
representatives may exercise any portion of this option that remains unexercised
at the time of Employee's death, provided that any such exercise must be made,
if at all, during the period within one year after Employee's death, and subject
to the option termination date specified in Paragraph 7(c) below.
<PAGE> 3
TERMINATION OF OPTION
8. This option shall terminate on the earliest of the following dates:
a. The expiration of three months from the date of Employee's
termination of employment, as defined in Paragraph 2, above, except for
termination due to death or permanent and total disability.
b. The expiration of twelve months from the date on which
Employee's employment, as defined in Paragraph 2 above, is terminated due to
permanent and total disability, as defined in Internal Revenue Code Section
22(e)(3); or,
c. Five years from the date of the granting of this option.
RIGHTS AS SHAREHOLDER
9. Employee will not be deemed to be a holder of any shares pursuant to
the exercise of this option until Employee pays the option price and a stock
certificate is delivered to Employee for those shares. No adjustments shall be
made for dividends or other rights for which the record date is prior to the
date the stock certificate is delivered.
CONSTRUCTION
10. This Agreement and the option evidenced hereby are made and granted
pursuant to the Plan and are in all respects limited by and subject to the
express terms and provision of the Plan. All decisions of the Plan Administrator
and/or Compensation Committee with respect to any question shall be conclusive
and binding on all persons having an interest in this option.
GOVERNING LAW
11. The interpretation, performance, and enforcement of this Agreement
shall be governed by the laws of the State of California.
EFFECTIVE DATE OF THIS AGREEMENT
12. The effective date of this Agreement and granting of option to the
Employee shall be the date this agreement is signed and written herein below.
EXECUTED THIS DAY OF OCTOBER, 1999, AT PALO ALTO, CALIFORNIA.
"EMPLOYER" "EMPLOYEE"
HYPERBARIC SYSTEMS
BY:
-------------------------------- (Signature)
HARRY MASUDA, PRESIDENT
Ardeth N. Sealy
(Type Name)
902 Santa Rosa Court
Roseville, CA 95661
(Type Address)
<PAGE> 1
EXHIBIT 10.24
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT TO THE SECURITIES UNDER THE ACT OR PURSUANT TO RULES 144
OR 144A UNDER THE ACT OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY, AND ITS COUNSEL THAT THERE IS AN EFFECTIVE EXEMPTION FROM SUCH
REGISTRATION.
HYPERBARIC SYSTEMS
WARRANT TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M. PACIFIC STANDARD TIME
ON SEPTEMBER 21, 2004
FOR VALUE RECEIVED, The Corporate Law Group (the "Warrant Holder") is
entitled to subscribe for and purchase, subject to the terms and conditions set
forth in this Warrant, Ten Thousand Five Hundred (10,000) shares of Common Stock
("Stock") of HYPERBARIC SYSTEMS, a California corporation (the "Company"). The
exercise price of this warrant (the "Exercise Price") and purchase price of the
Stock shall be $1.50 per share.
1. CONDITIONS TO EXERCISE THIS WARRANT. Subject to the provisions and
upon the terms and conditions herein set forth, this Warrant may be exercised in
whole, or in part as set forth herein, at any time during the period ending at
5:00 p.m., Pacific Standard Time on September 21, 2004 (the "Warrant Termination
Date"). In no event may this Warrant be exercised after the Warrant Termination
Date.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. The purchase
right represented by this Warrant may only be exercised by the registered holder
hereof, in whole or in part as set forth herein, by the surrender of this
Warrant (with the notice of exercise provision contained on the last page hereof
duly executed) at the principal office of the Company, and by the payment to the
Company, by check, cancellation of indebtedness, or both, of an amount equal to
the Exercise Price per share multiplied by the number of shares then being
purchased. Notwithstanding the terms hereof allowing partial exercise of this
Warrant, in no event may this Warrant be exercised at any time for less than
twenty-five percent (25%) of the number of shares for which this Warrant is
originally exercisable. In the event of the partial exercise hereof, a
replacement warrant in substantially the form hereof, but for the number of
shares for which this Warrant is not exercised shall be delivered to the Warrant
Holder within a
<PAGE> 2
reasonable period of time following such partial exercise. In the event of any
exercise of this Warrant, certificates for the shares of Stock so purchased
shall be delivered to the holder hereof as soon as practicable. Such exercise
shall be deemed to have been made immediately prior to the close of business on
the date of surrender of this Warrant.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All shares of Stock which
may be issued upon the exercise of this Warrant will, upon issuance, be duly
authorized and validly issued, and fully paid and non-assessable, and free from
all taxes, liens, and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant may be exercised, the
Company will use its best efforts to cause to be authorized, and thereafter at
all times have authorized, and reserved for the purpose of the issue upon
exercise of the purchase rights evidenced by this Warrant, a sufficient number
of shares of its Stock to provide for the exercise of the rights represented by
this Warrant.
4. ADJUSTMENTS IN CONVERSION PRICE. In the event the Company hereof
shall fix a record date for any stock split, reverse split, combination or
recapitalization or for the determination of holders of common stock entitled to
receive a dividend or other distribution payable in additional shares of common
stock or other securities or rights convertible into or entitling the holder
thereof to receive directly or indirectly, additional shares of common stock
("Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of common stock or Common Stock Equivalents, then, as
of such record date, (or the date of such event if no record date is Fixed), the
price per share of Common Stock for which this Warrant may be exercised shall be
appropriately decreased or increased so that the number of shares of Common
Stock issuable on exercise hereof shall be increased or decreased in proportion
to such increase or decrease of outstanding shares, with any such Common Stock
Equivalents evaluated on a full dilution, full conversion basis. The Company
shall not, by amendment of its Certificate of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms or provisions to
be observed or performed under this provision.
5. FRACTIONAL SHARES. No fractional shares of Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor equal to the product of such
fraction and the Exercise Price.
6. COMPLIANCE WITH SECURITIES LAWS; DISPOSITION OF WARRANT AND SHARES OF
COMMON STOCK.
(a) Compliance With Securities Laws. The holder of this Warrant,
by acceptance hereof, acknowledges that this Warrant and the shares of Stock to
be issued upon exercise hereof are being acquired for investment purposes only
and that such Holder will not offer, sell or otherwise dispose of this Warrant
or any shares of Stock to
<PAGE> 3
be issued upon exercise hereof except under circumstances which will not result
in a violation of the Securities Act of 1933, as amended (the "Act"), or any
state securities laws. Upon exercise of this Warrant, the holder hereof shall,
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of Stock so purchased are being acquired for investment
purposes only and not with a view toward distribution or resale. This Warrant
and all shares of Stock issued upon exercise of this Warrant shall be stamped or
imprinted with a legend therein setting forth substantially the following
statement (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES
AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT BE SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO SUCH SALE OR TRANSFER, OR IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, SUCH REGISTRATION IS UNNECESSARY, OR
AN EXCEPTION THEREFROM IS AVAILABLE UNDER THE ACT.
(b) Transfer of Warrant or Shares of Stock. Each certificate
representing the shares of Stock issued hereunder shall bear a legend as to the
restrictions on transferability in order to insure compliance with applicable
securities laws unless, in the opinion of counsel for the Company, such legends
are not required. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
7. "MARKET STAND-OFF" AGREEMENT. The Warrant Holder agrees that, during
that period of duration specified by the Company and an underwriter of common
stock (or other securities) of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, the Warrant Holder shall not, to the extent requested by the Company
and such underwriter, directly or indirectly, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any common stock of the Company held by Holder at any time during such
period except common stock included in such registration, provided, however,
that (a) such agreement shall be applicable only to the first such registration
statement of the Company which covers common stock (or other securities) to be
sold on its behalf to the public in an underwritten offering, and (b) all
officers and directors of the Company and all persons with registration rights
with respect to securities of the Company enter into similar agreements.
<PAGE> 4
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to such common stock held by Holder
until the end of such period.
8. RIGHTS OF SHAREHOLDERS. This Warrant shall not entitle the Holder to
be deemed the holder of stock or any other securities of the Company which may
be issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the certificates representing the Shares
purchasable upon the exercise hereof shall have been issued, as provided herein.
HYPERBARIC SYSTEMS,
A CALIFORNIA CORPORATION
BY:
-----------------------------------------
MR. ARDETH SEALY, CHIEF FINANCIAL OFFICER
AND SECRETARY
<PAGE> 5
NOTICE OF EXERCISE
TO: HYPERBARIC SYSTEMS
1. The undersigned hereby elects to purchase _________________
(___________) shares of Common Stock of HYPERBARIC SYSTEMS (the "Company")
pursuant to the terms of the foregoing Warrant, and tenders herewith payment of
the purchase price for such shares in full, together with all applicable
transfer taxes, if any.
2. Please issue a certificate or certificates representing such
securities in the name of the undersigned or in such other name as is specified
below:
-------------------------------
(NAME)
-------------------------------
-------------------------------
(ADDRESS)
3. The undersigned represents that the shares of Stock set forth above
are being acquired for the account of the undersigned for investment purposes
only and not with a view to, or for resale in connection with, the distribution
thereof and that the undersigned has no present intention of distributing or
reselling such shares. In support thereof, the undersigned agrees to execute an
investment representation statement in a form reasonably requested by the
Company as a condition to the exercise herein noticed.
BY:
------------------------------------
AUTHORIZED SIGNER
------------------------------------
DATE
<PAGE> 1
EXHIBIT 10.25
CONSULTANT AGREEMENT
THIS AGREEMENT is made effective on November 20, 1999 between HYPERBARIC
SYSTEMS, whose address is 1127 Harker Avenue, Palo Alto, CA 94301, incorporated
under the laws of the State of California, hereinafter called "COMPANY", and Dr.
Larry McCleary, whose address is 1795 Foothills Drive South, Golden, CO 80401
hereinafter called "CONSULTANT".
WITNESSETH:
1. PURPOSE OF AGREEMENT. HYPERBARIC SYSTEMS is a duly established
California corporation engaged in the business of designing, manufacturing and
marketing products for the medical, food and semiconductor industries, and
CONSULTANT represents that he has expertise in the area of medicine and business
contacts. This agreement between COMPANY and CONSULTANT is entered into for the
purpose of defining the relationship, responsibilities, and agreement between
COMPANY and CONSULTANT.
2. CONSULTANT: COMPANY hereby appoints Dr. Larry McCleary to
provide medical market due diligence and business consulting services to
COMPANY.
3. CONSULTANT DUTIES AND RESPONSIBILITIES: CONSULTANT shall be
engaged as a Consultant with the following tasks:
a. Assist in providing due diligence and market
information in possible uses of the Technology within the
pediatric medical market.
b. Assist in providing technical contacts that may serve
on the Advisory Board.
c. Assist in providing business and investor contacts that
may make investments in COMPANY.
4. CONSULTANT'S PERFORMANCE. CONSULTANT agrees to devote a
reasonable amount of time to meet the objectives outlined in Paragraph 3. The
Company acknowledges that Consultant is not an employee of the Company.
<PAGE> 2
5. TERM. The term of this Agreement shall be effective for a
period of 9 months from the date of this Agreement unless terminated earlier by
fulfillment of the services to be provided.
6. WARRANTS. Subject to the provisions and upon the terms and
conditions set forth herein and in that certain Warrant to Purchase Shares of
Common Stock attached as Attachment 1, COMPANY shall grant to Consultant a
warrant to purchase up to an aggregate of Eight Hundred Thousand (800,000)
shares of Common Stock of COMPANY at the exercise price of $1.50 per share.
7. TERMINATION UPON BREACH. This Agreement shall be terminated
upon material breach of any of the provisions herein, or breach of the material
provisions of any and all supplemental agreements which the CONSULTANT and
COMPANY may mutually execute.
8. CONFIDENTIALITY AGREEMENT. CONSULTANT agrees that all
information made available to CONSULTANT regarding the products, clients and
software systems of COMPANY are confidential and require a high degree of
confidentiality so as not to violate the rights of others and to prevent the use
thereof for purposes detrimental to the interests of COMPANY and its clients.
Such information in any form shall be hereinafter referred to as "INFORMATION."
For purposes of this Agreement:
a. CONFIDENTIAL INFORMATION means INFORMATION disclosed to
or acquired by CONSULTANT while employed by COMPANY, and includes but is not
limited to, INVENTIONS, Patent Applications, TRADE SECRETS, any other
information of value relating to the business and/or field of interest of
COMPANY including information with respect to which COMPANY is under an
obligation of confidentiality with any third party. CONFIDENTIAL INFORMATION
does not include information that is generally known in the relevant trade or
industry or any information known to and freely usable by CONSULTANT before
CONSULTANT"S association with COMPANY, provided, however, information for
purposes of this Agreement shall be considered CONFIDENTIAL INFORMATION if not
known by the trade generally, even though such information has been disclosed to
one or more third parties pursuant to distribution agreements, joint research
agreements, or other agreements entered into by COMPANY;
b. TRADE SECRET(S) means all information, know-how,
concepts, data, knowledge, ideas and materials however embodied, relating to the
business of COMPANY'S customers which have
<PAGE> 3
not been released publicly by an authorized representative of COMPANY or have
not otherwise lawfully entered the public domain. TRADE SECRETS shall include
but are not limited to information, know-how, concepts, data, knowledge,
computer programs, ideas and materials relating to COMPANY'S existing and future
products, processes, research and development, technology, production costs,
contract forms, drawings, designs, plans, proposals, marketing and sales plans
and strategies, cost or pricing information, financial information, promotional
methods, volume of sales, names or classes of customers and vendors, management
procedures, organization charts, and CONSULTANT directories.
9. PROPRIETARY INFORMATION OF OTHERS. CONSULTANT shall not use or
disclose to COMPANY, or induce COMPANY to use, any information, know-how,
concepts, data, knowledge, computer programs, ideas or materials, however
embodied, with respect to which CONSULTANT is under an obligation of
confidentiality to any third party imposed, by law or agreement prior to the
date hereof. COMPANY represents and covenants that it will not require
CONSULTANT to violate any obligation to, or confidence with, another.
10. SECRECY AGREEMENT. CONSULTANT acknowledges that he
understands the requirement for CONFIDENTIAL INFORMATION to be kept secret and
used only as authorized herein. CONSULTANT shall at all times during the period
of his association with COMPANY under this agreement and thereafter keep in
confidence and trust all CONFIDENTIAL INFORMATION. CONSULTANT shall use
CONFIDENTIAL INFORMATION only in the course of performing duties as Consultant
and Advisory Board Member for the Company and other duties as assigned by the
Company President, and not for unrelated personal gain. CONSULTANT shall not,
directly or indirectly, disclose any CONFIDENTIAL INFORMATION to any person,
organization or entity, except in the course of performing duties as a
CONSULTANT of COMPANY and only in the manner prescribed by COMPANY. CONSULTANT
shall abide by those COMPANY policies and regulations established from time to
time for the protection of CONFIDENTIAL INFORMATION. During CONSULTANT'S
association with COMPANY under this Agreement, and after termination thereof,
CONSULTANT shall not directly, or indirectly, either as an CONSULTANT, COMPANY,
agent, principal, partner, stockholder, corporate officer, director, or in any
other individual or representative capacity, engage or participate in any
activity of any nature whatsoever, the performance of which would have a
reasonable likelihood
<PAGE> 4
of placing CONSULTANT in conflict with the obligations of confidence and trust
regarding CONFIDENTIAL INFORMATION imposed herein.
11. RETURN OF DOCUMENTS AND MATERIALS. CONSULTANT agrees that all
documents, reports, drawings, materials, designs, plans, computer programs,
proposals, marketing and sales plans, reproductions, and other documents or
things made by CONSULTANT or that come into CONSULTANT'S possession in the
course of employment with COMPANY are the property of COMPANY and will not be
used by CONSULTANT for any purpose other than the business of COMPANY.
CONSULTANT will not deliver, reproduce or in any way allow such documents or
things to be delivered or be used by any third parties without specific
direction or consent of COMPANY. Upon termination of this Agreement, CONSULTANT
will promptly deliver to COMPANY the above documents and materials together with
any copies thereof.
12. NO DISCLOSURE. CONSULTANT agrees not to divulge, disclose,
convey or make known to others or any other entity, any such information without
the express written consent of the President of HyperBaric Systems first
obtained. CONSULTANT further agrees to take all necessary steps to safeguard
such information to prevent the unauthorized disclosure thereof.
13. INJUNCTION. Recognizing that irreparable damage will result
to the business of COMPANY in the event of the breach of any of these covenants
and assurances by CONSULTANT, the parties hereto agree that if CONSULTANT shall
violate the terms of this Agreement, COMPANY shall be entitled to an injunction
to be issued by any court of competent jurisdiction enjoining and restraining
CONSULTANT and each and every person, firm, association, partnership, company,
or corporation concerned therewith, from the continuance of such violation of
the terms of this Agreement, and in addition thereto, CONSULTANT shall pay to
COMPANY all damages, including reasonable attorneys' fees sustained by COMPANY
by reason of the violation of this Agreement. However, in no event shall the
total damages exceed the amount paid to CONSULTANT.
14. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision, or such portion
of such provisions as may be necessary, shall be excluded from this Agreement
and the balance of the Agreement shall be interpreted as if such provision were
so excluded and shall be thereafter enforceable, in accordance with its terms.
<PAGE> 5
15. SURVIVAL OF WARRANTIES. The representations, warranties, and
covenants of the Consultant and Company contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement.
16. NO ASSIGNMENT. Neither the CONSULTANT nor COMPANY may
transfer or assign this Agreement, or any right or obligation hereunder, without
the prior written consent of the other party. No right or obligation under this
Agreement may be waived, modified, or in any respect altered except by written
agreement of the parties executed in writing by both parties.
17. SUCCESSORS AND ASSIGNS. This agreement shall be binding on
the heirs, executors, successors and assigns of the parties.
18. ATTORNEYS FEES. If any action is brought to enforce any
obligation created under this Agreement, the Court shall award to the prevailing
party, such reasonable fees, costs, and expenses as may have been incurred by
such party in enforcing its rights under this Agreement, including without
limitation, the fees, costs, and expenses of its attorney for services both
before or after litigation is instituted.
19. ENTIRE AGREEMENT. This Agreement may not be changed except in
writing signed by the President of the Company and the CONSULTANT. The validity,
performance, construction, and effect of this Agreement shall be governed by the
laws of the State of California
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"COMPANY" "CONSULTANT"
HYPERBARIC SYSTEMS DR. LARRY MCCLEARY
1127 Harker Avenue 1795 Foothills Dr. South
Palo Alto, California 94301 Golden, Colorado 80401
By:
--------------------------------
HARRY MASUDA, PRESIDENT DR. LARRY MCCLEARY, CONSULTANT
<PAGE> 1
EXHIBIT 10.26
ATTACHMENT 1
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). SUCH SECURITIES AND ANY SECURITIES OR
SHARES ISSUED HEREUNDER MAY NOT BE SOLD OR TRANSFERRED UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH SALE OR
TRANSFER, OR IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, SUCH
REGISTRATION IS UNNECESSARY, OR AN EXCEPTION THEREFROM IS AVAILABLE
UNDER THE ACT.
HYPERBARIC SYSTEMS
WARRANT TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M. PACIFIC COAST TIME
ON JUNE 30, 2000
FOR VALUE RECEIVED, DR. LARRY MCCLEARY, (the "Warrant Holder") is
entitled to subscribe for and purchase, subject to the terms and conditions set
forth in this Warrant, Eight Hundred Thousand (800,000) shares of Common Stock
("Stock") of HYPERBARIC SYSTEMS, a California corporation (the "Company"). The
exercise price of this warrant (the "Exercise Price") and purchase price of the
Stock shall be $1.50 per share. The value of this Warrant, as of the date of its
issuance, as indicated herein, shall be One Cent ($0.01).
1. CONDITIONS TO EXERCISE THIS WARRANT. Subject to the provisions and
upon the terms and conditions set forth in that certain Consultant Agreement and
herein, this Warrant may be exercised in whole, or in part, at any time prior to
March 31, 2000 inclusive. After April 1, 2000 inclusive, Warrant Holder may,
purchase Stock in accordance with the following schedule: (i) seventy-five
percent (75%) of the Stock otherwise purchasable hereunder at any time from
April 1, 2000 to April 30, 2000 inclusive; (ii) fifty percent (50%) of the Stock
otherwise purchasable hereunder at any time from May 1, 2000 to May 31, 2000
inclusive; (iii) twenty-five percent (25%) of the Stock otherwise purchasable
hereunder at any time from June 1, 2000 to June 30, 2000 inclusive; and (iv) the
Warrant shall expire and be void on and after 5:00 p.m., Pacific Coast Time on
June 30, 2000 (the "Warrant Termination Date"). In no event may this Warrant be
exercised after the Warrant Termination Date.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. The purchase
right represented by this Warrant may only be exercised by the registered holder
hereof, in whole or in part, by the surrender of this Warrant (with the notice
of exercise provision contained on the last page hereof duly executed) at the
principal office of the Company, and by the payment to the Company, by check,
cancellation of indebtedness, or both, of an amount equal to the Exercise Price
per share multiplied by the number of shares then being purchased. In the event
of any exercise of the rights represented by this Warrant, certificates for the
shares of Stock so purchased shall be delivered to the holder hereof as soon as
practicable. Such exercise shall be deemed to have been made immediately prior
to the close of business on the date of surrender of this Warrant.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All shares of Stock which
may be issued upon the exercise of this Warrant will, upon issuance, be duly
authorized and validly issued, and fully paid and nonassessable, and free from
all taxes, liens, and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant may be exercised, the
Company will use its best efforts to cause to be authorized, and thereafter at
all times have authorized, and reserved for the purpose of the issue upon
exercise of the purchase rights evidenced by this Warrant, a sufficient number
of shares of its Stock to provide for the exercise of the rights represented by
this Warrant.
<PAGE> 2
4. RECLASSIFICATION OF STOCK. In the event of the reclassification of
the Stock, the Company agrees that the Warrant Holder will be entitled to the
same rights to acquire such reclassified Stock ("New Stock") as those rights
granted hereby, as the Warrant Holder shall have to purchase the Stock stated
herein. All of the terms and conditions of this Warrant shall apply equally to
the purchase or acquisition of any New Stock.
5. FRACTIONAL SHARES. No fractional shares of Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor equal to the product of such
fraction and the Exercise Price.
6. COMPLIANCE WITH SECURITIES LAWS; DISPOSITION OF WARRANT AND SHARES OF
COMMON STOCK.
(a) Compliance With Securities Laws. The holder of this Warrant,
by acceptance hereof, acknowledges that this Warrant and the shares of Stock to
be issued upon exercise hereof are being acquired for investment purposes only
and that such Holder will not offer, sell or otherwise dispose of this Warrant
or any shares of Stock to be issued upon exercise hereof except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Act"), or any state securities laws. Upon exercise of
this Warrant, the holder hereof shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of Stock so
purchased are being acquired for investment purposes only and not with a view
toward distribution or resale. This Warrant and all shares of Stock issued upon
exercise of this Warrant shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES
AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT BE SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO SUCH SALE OR TRANSFER, OR IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, SUCH REGISTRATION IS UNNECESSARY, OR
AN EXCEPTION THEREFROM IS AVAILABLE UNDER THE ACT.
(b) Transfer of Warrant or Shares of Stock. Each certificate
representing the shares of Stock issued hereunder shall bear a legend as to the
restrictions on transferability in order to insure compliance with applicable
securities laws unless, in the opinion of counsel for the Company, such legends
are not required. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
7. RIGHTS OF SHAREHOLDERS. This Warrant shall not entitle the Holder to
be deemed the holder of stock or any other securities of the Company which may
be issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the certificates representing the Shares
purchasable upon the exercise hereof shall have been issued, as provided herein.
8. CONTINUING REPURCHASE RIGHT.
a. Continuing Repurchase Right. The Company is hereby granted the
right (the "Repurchase Right"), exercisable at any time during the period from
March 1, 2000 until September 30, 2000, to repurchase at the Exercise Price all
or (at the discretion of the Company and with the consent of the Warrant Holder)
any portion of the shares purchased pursuant to this Warrant (the "Purchased
Shares") in which the Warrant Holder
<PAGE> 3
has not acquired a vested interest in accordance with the vesting provisions of
this Section 8(c) (such shares to be hereinafter called the "Unvested Shares").
Additionally, as April 1, 2000, this Warrant shall cease to be exercisable for
any and all Unvested Shares.
b. Exercise. The Continuing Repurchase Right shall be exercisable
by written notice delivered to the Warrant Holder. The notice shall indicate the
number of Unvested Shares to be repurchased and the date on which the repurchase
is to be effected, such date to be not more than thirty (30) days after the date
of notice. Warrant Holder shall, prior to the close of business on the date
specified for the repurchase, deliver to the Secretary of the Company the
certificates representing the Unvested Shares to be repurchased, each
certificate to be properly endorsed for transfer. The Company shall,
concurrently with the receipt of such stock certificates, pay to Warrant Holder
in cash or cash equivalent (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased.
c. Termination of the Repurchase Right. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under this Section 8(b). In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to the number of shares
calculated as follows: the product of (i) 3, and (ii) the aggregate amount of
investment received by the Company from investors first introduced to the
Company by the Warrant Holder, as of the close of business on January 15, 2000.
HYPERBARIC SYSTEMS,
A CALIFORNIA CORPORATION
BY:
------------------------------------
MR. HARRY MASUDA, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE> 4
NOTICE OF EXERCISE
TO: HYPERBARIC SYSTEMS
1. The undersigned hereby elects to purchase _____________________
(________) shares of Common Stock of HYPERBARIC SYSTEMS (the "Company") pursuant
to the terms of the foregoing Warrant, and tenders herewith payment of the
purchase price for such shares in full, together with all applicable transfer
taxes, if any.
2. Please issue a certificate or certificates representing such
securities in the name of the undersigned or in such other name as is specified
below:
Name:
---------------------------
Address:
---------------------------
---------------------------
3. The undersigned represents that the shares of Stock set forth above
are being acquired for the account of the undersigned for investment purposes
only and not with a view to, or for resale in connection with, the distribution
thereof and that the undersigned has no present intention of distributing or
reselling such shares. In support thereof, the undersigned agrees to execute an
investment representation statement in a form reasonably requested by the
Company as a condition to the exercise herein noticed.
NAME:
---------------------------
DR. LARRY MCCLEARY
ADDRESS:
---------------------------
---------------------------
DATE:
---------------------------
<PAGE> 1
EXHIBIT 10.27
PROMOTION AGREEMENT
THIS AGREEMENT made and entered into as of JANUARY 2, 2000, by and
between Heartbeat of America, Inc., 1180 South Beverly Drive, Suite 512, Los
Angeles, California 90035 ("Heartbeat") and HyperBaric Systems, 1127 Harker
Avenue, Palo Alto, California 94301 ("HyperBaric").
R E C I T A L S
WHEREAS, Heartbeat's management is experienced in the production of
thirty minute television shows that feature businesses in a news magazine style
and is desirous of producing such a show that would feature HyperBaric and be
entitled Heartbeat of America, and
WHEREAS, HyperBaric wishes to be featured on said television show and
"Breaking News" marketing videos described below and participate in same under
the terms and conditions set forth below.
NOW, THEREFORE, THE PARTIES DO HEREBY AGREE AS FOLLOWS:
1. THE PRODUCTION
Heartbeat shall write, direct, and produce a professional
thirty-minute television show entitled Heartbeat of America (the "Show"). The
Show will be produced in a news magazine format including anchors and reports,
and will feature HyperBaric. HyperBaric will travel at its own expense to
Heartbeat's television studio in Southern California for a "breaking news"
interview taped on Heartbeat's news set and conducted by one or more of
Heartbeat's anchors. HyperBaric will arrive the day before the shoot for a
script conference. The date for this studio interview will be set at a time
convenient for both Heartbeat and HyperBaric. Heartbeat, at its option, may
repeat portions of the show for the benefit of the viewers who tune in late. The
script will be completed in approximately two months from the date of this
Agreement and the Show and Videos described in Paragraph 5 will be completed
approximately two months after the script is completed. Heartbeat shall use best
efforts to incorporate HyperBaric's comments into the script.
2. GUARANTEED AIR TIME
Heartbeat guarantees that the Show will be aired one time nationally via
cable or satellite within three months after completion of Show, the exact date,
time and channel to be determined by Heartbeat.
3. SALES RIGHTS
The thirty-minute television Show shall be the property of Heartbeat.
Heartbeat and HyperBaric shall split equally any revenues derived from the sales
of the Show for a period of ten years from the date of this Agreement.
HyperBaric shall also have the unlimited right to use and duplicate the tape of
the Show without any payment of royalty or license for its use in marketing and
promotion as long as the tape is not sold commercially or used for television
broadcast purposes.
4. SCRIPT
HyperBaric shall provide Heartbeat with as much information as
available, written and verbal, on HyperBaric's background, history, current
operations, future plans, and all other information as reasonably required by
Heartbeat. Heartbeat will have final script rights with regard to its anchors
and all questions for HyperBaric will be prepared by both Heartbeat and
HyperBaric.
<PAGE> 2
5. "BREAKING NEWS" MARKETING VIDEOS
Heartbeat shall extract from the Show three "Breaking News" marketing
videos, (approximately five minutes, ten minutes and fifteen minutes in length)
(the "Videos") and turn over to HyperBaric a Beta-Master for each such video
plus 5 VHS copies of each plus 200 Heartbeat of America "breaking news" labels
for the video cassettes. HyperBaric shall have the perpetual rights to make
unlimited additional tape copies, as well as transfer the videos to CDs or any
other format for non-broadcast use in marketing its business, without payment of
royalty or license fees to Heartbeat.
6. WILLIAM SHATNER PERFORMANCE
William Shatner will appear on the non-broadcast Show and Videos, but
not on the thirty-minute television broadcast Show. He will introduce each such
video and briefly set the stage for what is to follow, as well as perform the
close. Shatner's introductions and closes will be the same or similar for the
Show and Videos so as to create a continuing Heartbeat of America identity. All
on camera personalities and celebrities who perform on the broadcast Show will
appear on the Videos. Heartbeat shall collect and retain, and indemnify and hold
HyperBaric harmless from any loss, cost, damage or liability in connection with,
models and actors releases, without any obligation to pay any royalties or
additional amounts beyond that paid by Heartbeat, for all people appearing in
the Show and Videos.
7. TERM.
The term of this Agreement shall commence on the date first set forth
above, and shall continue in effect until the earlier of (I) that date when
Heartbeat has fulfilled all of its obligations hereunder, and (ii) nine (9)
months following the date first set forth above unless it is terminated earlier
in accordance with the terms and conditions set forth herein.
8. COMPENSATION
All costs, charges, expenses, and obligations of any kind whatsoever
arising from the production of the Show and the "Breaking News" marketing Videos
shall be the sole responsibility of Heartbeat and HyperBaric will not be
responsible for any costs or charges whatsoever beyond that set forth below:
Forty-Five Thousand Dollars ($45,000) to be paid to Heartbeat as
follows:
a) One-third upon execution of this agreement.
b) One-third upon completion of script.
c) One-third upon commencement of video taping.
Subject to Section 10, HyperBaric shall grant Heartbeat a Warrant, as
Attachment 1 hereto, to purchase up to an aggregate of Seven Hundred Thousand
(700,000) shares of HyperBaric's common stock at an exercise price of One Dollar
Fifty Cents ($1.50) per share, exercisable for Ten (10) years commencing on the
date first set forth above in accordance with the following schedule:
a) The Warrant shall be exercisable for Two Hundred Thousand (200,000)
shares in two (2) weeks after signing this agreement;
b) The Warrant shall be exercisable for One Hundred Fifty Thousand
(150,000) shares upon completion of the studio shoot;
c) The Warrant shall be exercisable for One Hundred Fifty Thousand
(150,000) shares upon the airing of the Show; and
d) The Warrant shall be exercisable for Two Hundred Thousand (200,000)
shares upon the fulfillment of Heartbeat's obligations set forth in Section 5.
<PAGE> 3
Additionally, HyperBaric shall use all reasonable efforts to register
the Warrant within six (6) months but no later than nine (9) months of the date
first set forth above. In the event of such registration to occur later than
nine (9) months of the date first set forth above, subject to terms and
conditions set forth herein, Heartbeat shall be granted an additional Warrant to
purchase Fifty Thousand (50,000) shares of HyperBaric's Common Stock at an
exercise price of One Dollar Fifty Cents ($1.50) per share, exercisable
immediately, in whole or in part, for ten (10) years commencing on the date
first set forth above. Such additional Warrant shall also be registered along
with other Warrant already granted.
Bert Tenzer will receive a stock option to purchase One Hundred Thousand
(100,000) shares of common stock at $1.50 per share for consulting services, to
vest according to HyperBaric's stock option Plan and Agreement.
9. TERMINATION OF AGREEMENT
Either party may terminate this Agreement in the event of a material
breach by the other party hereto and failure to cure such breach within thirty
(30) days following notice of default.
10. REMEDIES
In the event of a material breach by HyperBaric of this Agreement,
Heartbeat will have no further obligation to HyperBaric and its sole and
exclusive remedy for such breach shall be the following: (i) termination of the
Agreement under Section 9, and (ii) retaining all monies previously paid to
Heartbeat, and (iii) any vested portion of the Warrant or stock purchased under
the Warrant.
In the event of a material breach by Heartbeat of this Agreement,
HyperBaric will have no further obligation to Heartbeat and its sole and
exclusive remedy for such breach shall be the following: (i) termination of the
Agreement under Section 9, (ii) cancellation of unexercised shares of stock of
the Warrant granted in Section 8.b), and (iii) returning of all exercised shares
of stock of the Warrant granted in Section 8.b), and (iv) returning of all
payments made to Heartbeat in Section 8.a).
11. INDEMNITY
Heartbeat and HyperBaric will indemnify and hold each other harmless,
from and against any and all losses, claims, damages, or liabilities to which
Heartbeat or HyperBaric, as the case may be, may become subject, including
reasonable costs and attorneys fees, insofar as such losses, claims, damages or
liabilities arise out of or are based on any act or omission of Heartbeat or
HyperBaric, as the case may be, in connection with the Agreement.
12. MISCELLANEOUS
a) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California and all parties agree to the
exclusive jurisdiction of the state and federal courts in the State of
California.
b) Amendment. This Agreement is subject to amendment only with the
unanimous written consent of all parties hereto.
c) Arbitration. At the option of either party, any and all disputes or
controversies, whether of law or fact, and of any nature whatsoever arising from
this Agreement, shall be decided by arbitration by the American Arbitration
Association in accordance with the rules and regulations of that Association.
d) Entire Agreement. This Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof, and supersedes
all prior negotiations and agreements, whether written or oral, with respect to
the subject matter of this Agreement.
<PAGE> 4
e) Notice. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three (3) days after mailing (one business day in the case of express
mail or overnight courier service), to the respective address of Heartbeat and
HyperBaric set forth above.
f) Relationship of Parties. The parties to this Agreement are
independent contractors. There is no relationship of partnership, joint venture,
employment, franchise, or agency between the parties. No party shall have the
power to bind any other party or incur obligations on any other party's behalf
without such other party's prior written consent.
g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
h) Assignment. Neither party may assign this Agreement or any part
thereof without the prior consent in writing to the other party, except that it
may be assigned without such consent to a successor of HyperBaric or Heartbeat,
or to a person, firm, or corporation acquiring all or substantially all of the
business and assets of HyperBaric or Heartbeat. No assignment of this Agreement
shall relieve the assignor until this Agreement shall have been assumed by the
assignee. When duly assigned in accordance with the foregoing, this Agreement
shall be binding upon and shall inure to the benefit of the assignee. This
Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied shall give or be construed to
give to any person, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
i) Attorneys Fees. In the event of any claim, dispute, litigation,
arbitration or action concerning or related to this Agreement, or any alleged
breach of this Agreement, the prevailing party shall be entitled to reasonable
attorneys fees, costs of suit and disbursements in addition to any other
remedies or damages which may be properly awarded or awardable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and date first above written.
HYPERBARIC SYSTEMS
By:
--------------------------------
Harry Masuda, President
HEARTBEAT OF AMERICA, INC.
By:
--------------------------------
Bert Tenzer, President
<PAGE> 1
EXHIBIT 10.28
ATTACHMENT 1
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). SUCH SECURITIES AND ANY SECURITIES OR
SHARES ISSUED HEREUNDER MAY NOT BE SOLD OR TRANSFERRED UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH SALE OR
TRANSFER, OR IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, SUCH
REGISTRATION IS UNNECESSARY, OR AN EXCEPTION THEREFROM IS AVAILABLE
UNDER THE ACT.
HYPERBARIC SYSTEMS
WARRANT TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M. PACIFIC COAST TIME
ON JANUARY 2, 2010
FOR VALUE RECEIVED, HEARTBEAT OF AMERICA, INC., (the "Warrant Holder")
is entitled to subscribe for and purchase, subject to the terms and conditions
set forth in this Warrant, up to Seven Hundred Thousand (700,000) shares of
Common Stock ("Stock") of HYPERBARIC SYSTEMS, a California corporation (the
"Company"). The exercise price of this warrant (the "Exercise Price") and
purchase price of the Stock shall be One Dollar and Fifty Cents ($1.50) per
share. The value of this Warrant, as of the date of its issuance, as indicated
herein, shall be One Cent ($0.01).
1. CONDITIONS TO EXERCISE THIS WARRANT. Subject to the provisions and
upon the terms and conditions set forth in that certain Promotion Agreement and
herein, this Warrant may be exercised in whole, or in part, at any time prior to
January 2, 2010. The Warrant shall be exercisable in accordance with the
following schedule: (i) the Warrant shall be exercisable for Two Hundred
Thousand (200,000) shares upon execution and delivery of the Promotion
Agreement; (ii) the Warrant shall be exercisable for One Hundred Fifty Thousand
(150,000) shares upon completion of the studio shoot as set forth in the
Promotion Agreement; (iii) the Warrant shall be exercisable for One Hundred
Fifty Thousand (150,000) shares upon the airing of the Show defined in Section 1
of the Promotion Agreement; and (iv) the Warrant shall be exercisable for Two
Hundred Thousand (200,000) shares upon the fulfillment of Heartbeat's
obligations set forth in Section 5 of the Promotion Agreement. The Warrant shall
expire and be void on and after 5:00 p.m., Pacific Coast Time on January 2, 2010
(the "Warrant Termination Date"). In no event may this Warrant be exercised
after the Warrant Termination Date.
2. TRANSFER OF WARRANT. Subject to compliance with applicable federal
and state securities laws and Section 7, this Warrant and all rights (but only
with all related obligations) hereunder are transferable in whole or in party by
the Warrant Holder upon the prior written consent of the Company. The transfer
shall be recorded on the books of the Company upon (i) the surrender of this
Warrant, properly endorsed, to the Company at its principal offices, (ii) the
payment to the Company of all transfer taxes and other governmental charges
imposed on such transfer and (iii) such transferee's (the "Registered Holder")
agreement in writing to be bound by and subject to the terms and conditions of
this Warrant. In the event of a partial transfer, the Company shall issue to the
Warrant Holder one or more appropriate new warrants.
3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. The purchase
right represented by this Warrant may only be exercised by the Registered Holder
hereof in accordance with
<PAGE> 2
Section 1, in whole or in part, by the surrender of this Warrant (with
the notice of exercise provision contained on the last page hereof duly
executed) at the principal office of the Company, and by the payment to the
Company, by check, cancellation of indebtedness, or both, of an amount equal to
the Exercise Price per share multiplied by the number of shares then being
purchased. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of Stock so purchased shall be delivered to
the Registered Holder hereof as soon as practicable. Such exercise shall be
deemed to have been made immediately prior to the close of business on the date
of surrender of this Warrant.
4. STOCK FULLY PAID; RESERVATION OF SHARES. All shares of Stock which
may be issued upon the exercise of this Warrant will, upon issuance, be duly
authorized and validly issued, and fully paid and nonassessable, and free from
all taxes, liens, and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant may be exercised, the
Company will use its best efforts to cause to be authorized, and thereafter at
all times have authorized, and reserved for the purpose of the issue upon
exercise of the purchase rights evidenced by this Warrant, a sufficient number
of shares of its Stock to provide for the exercise of the rights represented by
this Warrant.
5. RECLASSIFICATION OF STOCK. In the event of the reclassification of
the Stock, the Company agrees that the Warrant Holder will be entitled to the
same rights to acquire such reclassified Stock ("New Stock") as those rights
granted hereby, as the Warrant Holder shall have to purchase the Stock stated
herein. All of the terms and conditions of this Warrant shall apply equally to
the purchase or acquisition of any New Stock.
6. FRACTIONAL SHARES. No fractional shares of Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor equal to the product of such
fraction and the Exercise Price.
7. COMPLIANCE WITH SECURITIES LAWS; DISPOSITION OF WARRANT AND SHARES OF
COMMON STOCK.
(a) Compliance With Securities Laws. The holder of this Warrant,
by acceptance hereof, acknowledges that this Warrant and the shares of Stock to
be issued upon exercise hereof are being acquired for investment purposes only
and that such Holder will not offer, sell or otherwise dispose of this Warrant
or any shares of Stock to be issued upon exercise hereof except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Act"), or any state securities laws. Upon exercise of
this Warrant, the holder hereof shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of Stock so
purchased are being acquired for investment purposes only and not with a view
toward distribution or resale. This Warrant and all shares of Stock issued upon
exercise of this Warrant shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES
AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT BE SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO SUCH SALE OR TRANSFER, OR IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, SUCH REGISTRATION IS UNNECESSARY, OR
AN EXCEPTION THEREFROM IS AVAILABLE UNDER THE ACT.
(b) Transfer of Warrant or Shares of Stock. Each certificate
representing the shares of Stock issued hereunder shall bear a legend as to the
restrictions on transferability in order to insure compliance with
<PAGE> 3
applicable securities laws unless, in the opinion of counsel for the Company,
such legends are not required. The Company may issue stop transfer instructions
to its transfer agent in connection with such restrictions.
8. RIGHTS OF SHAREHOLDERS. This Warrant shall not entitle the Holder to
be deemed the holder of stock or any other securities of the Company which may
be issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the certificates representing the Shares
purchasable upon the exercise hereof shall have been issued, as provided herein.
9. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and the Warrant
Holder and their respective successors and assigns.
10. SURVIVAL. The warranties, representations and covenants contained in
or made pursuant to this Warrant shall survive the execution, delivery and
exercise, if any, of this Warrant.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be
executed by an officer thereunto duly authorized as of the day and date first
above written.
HYPERBARIC SYSTEMS
By:
-----------------------------------
Harry Masuda, President
HEARTBEAT OF AMERICA, INC.
By:
-----------------------------------
Bert Tenzer, President
<PAGE> 4
NOTICE OF EXERCISE
TO: HYPERBARIC SYSTEMS
1. The undersigned hereby elects to purchase _____________________
(________) shares of Common Stock of HYPERBARIC SYSTEMS (the "Company") pursuant
to the terms of the foregoing Warrant, and tenders herewith payment of the
purchase price for such shares in full, together with all applicable transfer
taxes, if any.
2. Please issue a certificate or certificates representing such
securities in the name of the undersigned or in such other name as is specified
below:
Name:
---------------------------
Address:
---------------------------
---------------------------
3. The undersigned represents that the shares of Stock set forth above
are being acquired for the account of the undersigned for investment purposes
only and not with a view to, or for resale in connection with, the distribution
thereof and that the undersigned has no present intention of distributing or
reselling such shares. In support thereof, the undersigned agrees to execute an
investment representation statement in a form reasonably requested by the
Company as a condition to the exercise herein noticed.
NAME:
------------------------------
TITLE:
ADDRESS:
------------------------------
------------------------------
DATE:
------------------------------
