As filed with the Securities and Exchange Commission on July 28, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDIS TECHNOLOGIES LTD.
(Exact name of registrant as specified in its charter)
Delaware 8999 13-3669062
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Organization) Classification Code Number) Identification Number)
805 Third Avenue
New York, New York 10022
(212) 935-8484
(Address, Including Zip Code, and Telephone Number, Including Area Code,
Of Registrant's Principal Executive Offices)
----------
ROBERT K. LIFTON, Chairman of the Board
MEDIS TECHNOLOGIES LTD.
805 Third Avenue
New York, New York 10022
(212) 935-8484
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
----------
Copy to:
ELLIOT BRECHER, ESQ.
STEPHEN E. FOX, ESQ.
COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C.
800 Third Avenue
New York, New York 10022
(212) 688-7000
Fax: (212) 755-2839
----------
Approximate date of commencement of proposed sale to the public: As soon
as possible after this Registration Statement becomes effective.
<PAGE>
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.|_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered registered per share price fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value ..... 5,174,914 shs.(1) N/A $ 26,795,292.81(2) $ 7,450
- --------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value ..... 9,935,618 shs.(3) $ 5.18(4) $ 51,466,501.24 $ 14,308
- --------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value ..... 1,187,098 shs.(5) $ 5.00(6) $ 5,935,490.00 $ 1,651
- --------------------------------------------------------------------------------------------------------------------
Total....................... N/A $ 84,197,284.05 $ 23,409
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
(1) Represents the maximum number of shares of our common stock issuable upon
the consummation of the exchange offer for outstanding ordinary shares of
Medis El Ltd., based upon an exchange ratio of 1.37 of our shares of
common stock for each Medis El ordinary share not beneficially owned by
us, assuming all Medis El shareholders validly tender their Medis El
ordinary shares.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f)(1) under the Securities Act. Market value was
based upon the maximum number of the ordinary shares of Medis El to be
received by us in the exchange offer (3,777,310 shares) multiplied by the
average of the bid and asked price for an ordinary share of Medis El as of
the close of business on July 26, 1999, as provided under Rule 457(c)
($7.09 per share).
(3) Represents the number of shares of our presently outstanding common stock
which may be offered for sale from time to time by our existing
stockholders.
(4) Based upon a bona fide estimate of the value of a share of our common
stock by dividing the average of the bid and asked price for an ordinary
share of Medis El as of the close of business on July 26, 1999 ($7.09 per
share), by 1.37 which is the exchange ratio for the exchange offer.
(5) Represents shares of our common stock issuable upon the exercise of
outstanding warrants.
(6) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(g)(1).
---------------------
Pursuant to Rule 416(a), this Registration Statement also covers an
indeterminate number of additional shares that may become issuable as a result
of anti-dilution adjustments deemed necessary or equitable by our Board of
Directors upon stock splits, stock dividends or other similar changes in
capitalization.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance
<PAGE>
with Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) up to 5,174,914
shares of our common stock, par value $.01 per share, pursuant to an exchange
offer for the outstanding ordinary shares of Medis El Ltd., assuming all Medis
El shareholders tender their ordinary shares and (ii) an additional 11,122,716
shares of our common stock for resale by the holders thereof, comprised of
9,935,618 of our presently outstanding shares of common stock and 1,187,098
shares of common stock underlying our presently outstanding warrants. The
warrants will not be tradeable upon the closing of this offering.
Following the prospectus for the exchange offer are the following pages of
the prospectus relating solely to the presently outstanding shares of our common
stock and shares of our common stock underlying our presently outstanding
warrants being registered for resale: alternate front and back cover pages, an
alternate table of contents and sections entitled "Selling Securityholders,"
"Plan of Distribution" and "Concurrent Exchange Offer." The following sections
of the prospectus for the exchange offer will not be used in the prospectus
relating to the selling securityholders' securities: "Prospectus Summary-The
Exchange Offer," "Determination of Offering Price," "Concurrent Securities
Offer," "The Exchange Offer," "Selected Financial Data of Medis El," "Price
Range of Medis El's Ordinary Shares," Description of Medis El's Securities,"
"Comparison of Shareholders' Rights," and "Certain United States Federal Income
Tax Consequences."
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission becomes effective. This preliminary
prospectus is not an offer to sell these securities nor does it seek offers to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
----------
<PAGE>
Subject to Completion, dated July 28, 1999
PROSPECTUS
MEDIS TECHNOLOGIES LTD.
----------
This is an offer to exchange shares of the common stock, par value $.01
per share, of Medis Technologies Ltd. for outstanding ordinary shares, par value
NIS 0.1 per share, of Medis El Ltd. We presently beneficially own approximately
64% of Medis El's outstanding ordinary shares.
----------
Terms of this Exchange Offer:
o Each Medis El shareholder validly tendering his or her ordinary shares
will receive 1.37 shares of our common stock for each ordinary share
tendered.
o We will issue an aggregate of 5,174,914 shares of our common stock if all
outstanding Medis El ordinary shares not already owned by us are properly
tendered and not withdrawn.
o This exchange offer is conditioned upon the tender of a minimum number of
Medis El ordinary shares to give us beneficial ownership of 80% of all
outstanding Medis El shares.
o This exchange offer will expire 5:00 p.m., New York City time, on ,
1999, unless extended.
o You may withdraw any ordinary shares tendered by you at any time prior to
the expiration date of this exchange offer.
o Neither we nor Medis El will receive any cash proceeds from this exchange
offer.
o The shares of our common stock issued in this exchange will be registered
under the Securities Act of 1933.
o Please see the other important terms of this exchange offer under "The
Exchange Offer" which, together with the accompanying Letter of
Transmittal, set forth all of the terms of this exchange.
----------
For a discussion of the risks that you should consider before tendering
your Medis El Ltd. ordinary shares in this exchange offer, please read the risk
factors beginning on page 10.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise.
----------
There is currently no public market for any of our securities. We intend
to have our common stock listed on the Nasdaq SmallCap Market under the symbol
MDTL upon the consummation of this exchange offer. Medis El's ordinary shares
are currently listed on the Nasdaq SmallCap Market under the symbol MDSLF. On
July 27, 1999, the last full trading day before we filed this prospectus, the
last reported sale price per Medis El ordinary share on the Nasdaq SmallCap
Market was $7.00.
----------
, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary...........................................................1
Risk Factors............................................................... 10
Determination of Offering Price.............................................17
The Exchange Offer..........................................................18
Dividend Policy.............................................................26
Price Range of Our Common Stock.............................................26
Price Range of Medis El's Ordinary Shares...................................26
Capitalization..............................................................28
Selected Consolidated Financial Data........................................29
Selected Consolidated Financial Data of Medis El............................31
Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................32
Business....................................................................38
Management..................................................................50
Principal Stockholders......................................................55
Certain Transactions........................................................57
Concurrent Securities Offer.................................................59
Description of Our Securities...............................................61
Description of Medis El's Securities........................................62
Comparison of Shareholders' Rights..........................................62
Certain United States Federal Income Tax Consequences.......................72
Legal Matters...............................................................74
Experts.....................................................................74
Available Information.......................................................74
Index to Financial Statements..............................................F-1
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all the information that is important to you. To understand
our business and this offering fully, you should read this entire prospectus
carefully, including the financial statements and related notes beginning on
page F-1.
Medis Technologies Ltd.
We were formed in April 1992 for the purpose of founding and financing the
activities of Medis El Ltd., an Israeli company, to develop and commercialize a
technology known as the CellScan. Medis El was subsequently formed as a result
of a joint venture we entered into in July 1992 with Israel Aircraft Industries
Ltd., a company wholly-owned by the State of Israel and a leader in aerospace
technology. Israel Aircraft was the original licensee from the University of
Bar-Ilan in Israel of the patents and other intellectual property rights
relating to the CellScan. Upon Medis El's formation, Israel Aircraft assigned
its license to the CellScan to Medis El. Pursuant to an agreement entered into
in August 1992 between Medis El and CDS Distributor, Inc., our wholly owned
subsidiary, we became the sole distributor of the CellScan in the United States,
its territories and possessions. In July 1998, we became Medis El's exclusive
agent in North America for coordinating all licensing arrangements with respect
to the stirling cycle linear system, a technology being developed by Medis El.
We currently own, through a wholly-owned subsidiary, approximately 64% of
Medis El's outstanding ordinary shares.
At the time of its initial public offering in December 1993, Medis El was
principally engaged in the development and clinical testing of the CellScan.
Medis El evolved into a multi-product company by 1997, as it sought out and
assisted in the development of advanced technologies in a number of unrelated
fields. Together with us, Medis El has embarked upon a business strategy to
become a greenhouse for the development of highly advanced, innovative,
proprietary technology products to license, sell or joint venture with large
international corporations. Medis El has strategic relationships with Israel
Aircraft, the University of Bar-Ilan in Israel and other institutions in and
outside of Israel to perform scientific research and development with respect to
its technologies.
Medis El's technologies, which are in varying stages of development,
presently include:
o CellScan
<PAGE>
The CellScan is a technology designed for the viewing and testing of
cells. The CellScan was originally developed to diagnose breast cancer by
testing a patient's blood sample. Various medical and research
institutions in Israel, the United States and other countries are
exploring the use of the technology for the detection of breast cancer,
prostate cancer and gynecological cancers, and for the detection of other
diseases such as atherosclerosis and tuberculosis. In addition, an
advanced version of the CellScan called the research CellScan has been
developed which, we believe, has research applications in a number of
areas including gene therapy and drug and vaccine development. Medis El
from time to time seeks to place the CellScan at medical and research
institutions around the world in order to develop new applications for the
CellScan in additional fields. Medis El believes its newly introduced
upgraded CellScan and the research CellScan are ready to be offered to
major pharmaceutical companies, medical device companies, research
laboratories and hospitals for joint venture or license.
o Stirling Cycle Linear Technology
Medis El's stirling cycle linear technology is a patented
refrigeration and air conditioning system consisting of a linear
compressor and a displacer - or expander which utilizes an efficient
thermodynamic technique known as the "stirling cycle." This technology
utilizes helium, a natural gas, as opposed to freon or other gases
commonly used that are believed to deplete the ozone layer. Medis El
believes that the technology will provide greater energy efficiency than
current refrigeration and air conditioning systems, thereby saving
considerable energy costs and reducing emissions which may harm the
environment. Medis El is applying the same principles to develop an air
conditioning and heating system for automobile use. Medis El has recently
entered into a technology development agreement with a U.S.-based
multinational company to jointly develop this technology for use in such
company's line of business and is developing a prototype of the system to
be submitted to such company and other interested companies for analysis.
o Fuel Cells; Highly Electrically Conductive Polymers; Catalytic Reagent
Medis El is developing fuel cells for cell phones and laptop
computers, as well as larger fuel cells which could be used for
refrigeration or home use. The fuel cells contain electrodes also
developed by Medis El which give the fuel cells their efficiency, ability
to operate at a lower cost and ability to last longer than currently
available fuel cells. The electrodes are made from highly electrically
conductive polymers and are mixed with a catalytic reagent which protects
the electrodes from impurities, helps its efficiency and gives it longer
life. In addition to their respective applications in the fuel cell
technology, the polymers have applications in such areas as anti-static
equipment and magnetic shielding and the catalyst has applications in such
areas as mineral fertilizer production and cleaning and purifying
industrial and automotive gases and exhaust fumes.
-2-
<PAGE>
o Reciprocating Electrical Machine
The patented reciprocating electrical machine, when developed, is
expected to take the back-and-forth motion of energy sources such as wind
or sea waves and convert that energy into electricity. Medis El believes
that the machine can reduce the cost of generating electricity by up to
30% over traditional power sources.
o Direct Current Regulating Device
The patented direct current regulating device is designed to enable
the transmission of high levels of direct current electricity without the
need to convert such current into alternate current electricity. Medis El
believes this accepted process of converting DC electricity into AC
electricity to be inefficient and costly. Medis El further believes the
device will eliminate the need for AC power lines and will allow the
transmission of two-thirds more electric current than the current system.
Medis El is applying the same principles to develop the device for
regulating and stabilizing the temperature inside electric furnaces during
steel melting, which Medis El believes is more accurate and economical
than current systems.
o Toroidal Engine and Compressor
The patented toroidal engine is an internal combustion engine that
is designed to be one-half the size and weight and, Medis El believes, at
least 30% more efficient than currently available internal combustion
engines. Medis El is applying the same principles to develop a compressor
for use in refrigeration units and for other applications that it expects
to be substantially smaller and more efficient than currently available
compressors.
o Device for Extracting Water from the Atmosphere
Medis El is preparing for a patent application for what it believes
will be a low-cost, energy efficient unit for household use that can
generate sufficient water from the atmosphere to meet a household's daily
needs.
Our offices are located at 805 Third Avenue, New York, New York 10022, and
our telephone number is (212) 935-8484. We were incorporated in Delaware on
April 7, 1992 and changed our name to Cell Diagnostics Inc. in May 1992. We
changed our name to Medis Technologies Ltd. on July 7, 1999. Medis El's offices
and research and development facilities are located in Yehud, Israel. It also
maintains a facility for production of certain aspects of the CellScan in the
high-tech community known as Har Hotzvim Industrial Park in Jerusalem, Israel.
Its Internet site can be accessed at http://www.medisel.com.
-3-
<PAGE>
Ownership Structure
The following charts illustrate our ownership structure prior to and
subsequent to the proposed exchange*:
Prior to Exchange
----------- ------------------- -----------
OTHER ISRAEL AIRCRAFT
PRIVATELY INDUSTRIES LTD. --| PUBLIC AND
HELD SHARES (Israel Corporation) | OTHERS
----------- ------------------- | ----------
| | | |
|63% |37% | |
| | | |
---------------------------------- | |
MEDIS TECHNOLOGIES LTD. | |
(Delaware Corporation) | |
---------------------------------- | |
| | | |
-----------| |100% |12% |24%
|100% | | |
- ---------------------- ----------------------- | |
CDS DISTRIBUTOR, INC. MEDIS INC. | |
(Delaware Corporation) (Delaware Corporation) | |
- ---------------------- ----------------------- | |
| | |
|64% | |
| | |
------------------------ | |
MEDIS EL -- |
(Israel Corporation) -------------------
PUBLIC COMPANY
------------------------
|
|70%
|
------------------------
MORE ENERGY LTD.
(Israel Corporation)
------------------------
Subsequent to Exchange
(assuming all Medis El
ordinary shares are tendered)
----------------- ---------------------
ISRAEL AIRCRAFT
PUBLIC INDUSTRIES LTD.
(Israel Corporation)
----------------- ----------------------
| |
|64% |36%
| |
--------------------------------------
MEDIS TECHNOLOGIES LTD.
(Delaware Corporation)
PUBLIC COMPANY
--------------------------------------
| |
-------------| |100%
|100% |
- ---------------------- -----------------------
CDS DISTRIBUTOR, INC. MEDIS INC.
(Delaware Corporation) (Delaware Corporation)
- ---------------------- -----------------------
|
|100%
|
------------------------
MEDIS EL LTD.
(Israel Corporation)
------------------------
|
|70%
|
------------------------
MORE ENERGY LTD.
(Israel Corporation)
------------------------
- ----------
* All parentheses are approximate.
-4-
<PAGE>
The Exchange Offer
Terms of the exchange offer ..........We are offering to exchange shares of our
common stock for each properly tendered
Medis El ordinary share, par value NIS
0.1, at an exchange rate of 1.37 of our
shares of common stock for each Medis El
ordinary share validly tendered. To be
eligible to receive our common stock
pursuant to this exchange offer, you must
validly tender and not properly withdraw
your Medis El ordinary shares on or prior
to , 1999. If all outstanding Medis El
ordinary shares not currently beneficially
owned by us are exchanged pursuant to this
exchange offer, a maximum of 5,174,914
shares of our common stock will be
exchanged for a maximum of 3,777,310 of
Medis El's ordinary shares, based on the
number of Medis El ordinary shares
outstanding on July 15, 1999. This
offering is conditioned on the exchange of
at least 1,692,514 of Medis El's ordinary
shares All Medis El ordinary shares
tendered in this exchange will be owned by
Medis Inc., our wholly-owned subsidiary.
We believe, based upon discussions with
such parties, that Israel Aircraft and
certain other Medis El shareholders will
tender their ordinary shares in this
exchange offer, however, there can be no
assurance that such parties will tender
their shares.
Purpose of the exchange offer ........We are offering to exchange our common
stock for all outstanding Medis El
ordinary shares for the purpose of
increasing our ownership of Medis El, thus
enhancing our ability to serve as an
effective financing vehicle for the
further development of Medis El's
technologies.
Determination of offering price ......Our board of directors has determined the
exchange ratio of 1.37 based upon various
factors. We are not making a
recommendation to Medis El shareholders as
to whether or not to accept this exchange
offer.
Expiration date; extension;
amendments ...........................The exchange offer and withdrawal rights
will expire at 5:00 P.M., New York City
time, on , 1999, unless we extend the
offer in our sole discretion for a period
up to .
We will make a public announcement as
promptly as
-5-
<PAGE>
practicable upon any extension,
termination or amendment of this exchange
offer. If we extend our offer, we will
make an appropriate public announcement
regarding the extension no later than 9:00
a.m., New York City time, on the next
business day after the previously
scheduled expiration date. In the event of
a fundamental change in the information
set forth in this prospectus, we shall
amend the registration statement of which
this prospectus is a part and recirculate
this prospectus.
Procedures for tendering
Medis El ordinary shares .............If you wish to accept this exchange offer,
you must complete, sign and date the
letter of transmittal which accompanies
this prospectus and deliver the letter of
transmittal together with certificate(s)
representing the tendered shares, if
required, and any other required
documentation, to American Stock Transfer
and Trust Company, as exchange agent. If
you hold your shares through The
Depository Trust Company and wish to
accept this exchange offer, you may do so
through DTC's Automated Tender Offer
Program, by which each tendering
participant will agree to be bound by the
accompanying letter of transmittal.
Special procedures for
beneficial owners ....................If your Medis El ordinary shares are
registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and you wish to tender such
shares in this exchange offer, you must
(a) contact such registered holder
promptly and instruct such registered
holder to tender on your behalf or (b)
prior to completing and executing the
letter of transmittal and delivering your
Medis El ordinary shares, either make
appropriate arrangements to register
ownership of your Medis El shares in your
own name or obtain a properly completed
stock power from the registered holder.
The transfer of registered ownership may
take considerable time and may not be able
to be completed prior to the expiration
date.
Guaranteed delivery
-6-
<PAGE>
procedures ...........................If you wish to tender your Medis El
ordinary shares but you are not
immediately available or you otherwise
cannot deliver your shares, the letter of
transmittal or any other documents
required by the letter of transmittal to
the exchange agent prior to the expiration
date, you must tender your shares
according to the guaranteed delivery
procedures set forth in the section of
this prospectus entitled "The Exchange
Offer-Guaranteed Delivery Procedures."
Acceptance of Medis El's
ordinary shares and delivery of our
common stock .........................Subject to the satisfaction or waiver of
the conditions to this exchange offer, we
will accept for exchange, through Medis
Inc., any and all Medis El ordinary shares
which are properly tendered prior to the
expiration date. We will deliver our
shares of common stock and cash in lieu of
fractional shares on the earliest
practicable date following the expiration
date.
Withdrawal rights ....................Subject to certain conditions, you may
withdraw your tendered shares at any time
prior to the expiration date of this
tender offer.
No fractional shares .................We will not distribute fractional shares
to any Medis El shareholder otherwise
entitled to receive a fractional share of
our common stock. Medis El shareholders
who would otherwise be entitled to receive
fractional shares of our common stock will
be paid in cash in lieu of such fractional
share.
Certain United States federal
income tax consequences of
the exchange offer ...................You may be subject to certain United
States federal income tax consequences
relating to the exchange of our common
stock for your Medis El ordinary shares.
Please see the section of this prospectus
entitled "Certain United States Federal
Income Tax Consequences" for a discussion
of such consequences. We are not including
any Israeli tax consequences in this
prospectus which may be applicable to
Medis El shareholders who are Israeli
citizens or an Israeli company.
Exchange agent........................American Stock Transfer and Trust Company
is serving as the exchange agent in
connection with this exchange
-7-
<PAGE>
offer.
Failure to exchange your Medis El
ordinary shares.......................We will issue our common stock in exchange
for Medis El's ordinary shares only after
timely receipt by the exchange agent of
such Medis El shares, a properly completed
and duly executed letter of transmittal
and all other required documents.
Therefore, if you desire to tender your
shares in exchange for our common stock,
you should allow sufficient time to ensure
timely delivery. Although we intend to
notify Medis El's shareholders of any
defects or irregularities with respect to
their tender we are not under any duty to
do so. Failure to tender your ordinary
shares for exchange may result in, among
other things, a lack of a public trading
market and subsequent lack of liquidity of
your Medis El ordinary shares.
We are not asking you for a proxy, and you are requested not to send us a
proxy. This prospectus and this exchange offer do not constitute a solicitation
of any proxies. Any such solicitations, if made, will be made only pursuant to
separate proxy solicitation materials complying with the requirements of Section
14(a) of the Exchange Act.
Any questions you have regarding the exchange offer, including tendering
procedures for your Medis El ordinary shares, should be directed to American
Stock Transfer and Trust Company as follows:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
(212) 936-5100
-8-
<PAGE>
Summary Consolidated Financial Data
The following table sets forth our summary consolidated financial data and
should be read in conjunction with the consolidated financial statements and
related notes appearing elsewhere in this prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
For the three months
For the year ended December 31, ended March 31,
----------------------------------------------------------------------- --------------------------
1994 1995 1996 1997 1998 1998 1999
----------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ................. $ -- $ -- $ -- $ -- $ 8,000 $ 8,000 $ --
Loss from operations ..... (236,000) (231,000) (193,000) (2,811,000) (5,485,000) (1,306,000) (1,323,000)
Net loss ................. (1,846,000) (1,623,000) (2,633,000) (1,544,000) (4,418,000) (1,085,000) (1,030,000)
Basic and diluted loss per
share ................. (0.56) (.47) (0.71) (0.33) (0.52) (0.13) (0.11)
Weighted average shares
outstanding ........... $ 3,287,500 3,460,000 3,734,129 4,645,232 8,581,774 8,257,613 9,465,649
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of December 31, As of March 31, 1999
----------------------------------------------------------------------- ---------------------------
1994 1995 1996 1997 1998 Actual As Adjusted (1)
----------- --------- --------- --------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficiency) ......... $ 663,000 $ (686,000) $ (1,728,000) $ 266,000 $ 3,536,000 $ 3,404,000 $ 3,404,000
Total assets ............ 5,522,000 3,819,000 3,621,000 14,433,000 14,755,000 14,343,000 37,882,000
Long term debt, excluding
current maturities.... 6,473,000 2,000,000 1,000,000 338,000 96,000 47,000 47,000
Accumulated deficit ..... (7,536,000) (9,117,000) (11,688,000) (13,232,000) (17,650,000) (18,680,000) (18,680,000)
Total stockholders'
(deficiency) equity .. (1,399,000) (2,980,000) (1,645,000) 11,378,000 12,406,000 12,181,000 36,970,000
</TABLE>
- ----------
(1) As adjusted to reflect the exchange offer which assumes the issuance of
5,174,914 shares of our common stock in exchange for 3,777,310 of Medis El's
ordinary shares. Also gives effect to goodwill of $23,539,000 resulting from the
exchange. See Footnote A to our unaudited pro forma consolidated balance sheet.
-9-
<PAGE>
RISK FACTORS
We and Medis El are attempting to invent, develop into commercial products
and introduce into the marketplace products which, in each of our fields of
effort, we believe to be breakthrough technologies. However, private and public
companies and governments around the world have spent and are continuing to
spend hundreds of millions of dollars to achieve these same goals. Therefore, we
and our investors and securityholders must be prepared for disappointments,
setbacks and failures as we attempt to bring our products to fruition. Even if
we succeed with some or all of our products, we must expect attacks on our
efforts to maintain our proprietary position, including attacks on our patents,
which are more fully described below.
You should carefully consider the following risk factors, as well as the
other information contained in this prospectus, before exchanging your Medis El
ordinary shares for our common stock. Unless otherwise noted, the risk factors
set forth below apply to us and Medis El, and affect you whether you are our
stockholder or Medis El's shareholder, as we have conducted all of our operating
activities through Medis El and we beneficially own approximately 64% of Medis
El. To the extent Medis El's business and operating results are materially
adversely affected, our business and operating results may be similarly
affected.
On a consolidated basis with Medis El, we have a history of losses, an
accumulated deficit and we cannot assure that we can achieve future
profitability
On a consolidated basis with Medis El, we have experienced net losses
since our inception in April 1992. There can be no assurance that we will ever
achieve profitability if Medis El is unable to successfully develop and market
any of its technologies or if Medis El's technologies fail to achieve widespread
acceptance. Furthermore, there can be no assurance that profitability, if
achieved, can be sustained on an ongoing basis. As of March 31, 1999, we had an
accumulated deficit of approximately $18,680,000. We anticipate incurring
substantial additional losses in the near future due to, among other factors,
the need to expend substantial amounts on developing, marketing and promoting
Medis El's technologies and general and administrative expenses associated with
those activities.
Medis El's technologies are in the early stages of development and may never
achieve full development
The recently upgraded CellScan was developed in response to findings of
certain deficiencies in the original model over a period of years. There can be
no assurance that, upon further testing, the upgraded CellScan will have
resolved all of the deficiencies of the original model or that it can be
commercially viable. Additionally, diagnostic testing using the CellScan
requires the development of antigens for each cancer and disease tested. If we
are unable to adequately develop or acquire antigens, the CellScan may not be
able successfully to diagnose such cancers and diseases.
Medis El is in the process of developing prototypes of its stirling cycle
linear system and engineering models of its fuel cells, but there can be no
assurance that these prototypes or models
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will achieve the performance levels we expect. As a general matter, there can be
no assurance that any of Medis El's technologies will achieve the results
expected.
Medis El's technologies will face intense competition and the risk of
technological obsolescence
Although we believe Medis El's technologies are technologically advanced,
frequent new product introductions and rapid technological developments occur
daily. Universities and other research facilities, governmental authorities,
private companies and other organizations, some of which have greater financial
or other resources than us, may be developing alternate technologies to some or
all of Medis El's technologies. Furthermore, companies have spent substantially
more money than Medis El to develop alternatives to our products or
"breakthrough" technologies intended to accomplish similar results, many of
which have failed. There can be no assurance that any of our technologies are
superior to any other technology being developed. Furthermore, there is no
assurance that other products may not be developed by others, employing new
scientific advances or using similar or new techniques, which would be cheaper,
quicker, more reliable, environmentally friendly or energy efficient or have
some combination of such advantages over products developed by us, or that we
will be able to respond effectively to these or similar developments.
Medis El's efforts to protect its intellectual property may not offer sufficient
protection, which could hinder the growth and success of Medis El.
We regard Medis El's patents, trade secrets, copyrights and similar
intellectual property rights as essential to our growth and success. Medis El
relies upon a combination of patent, copyright and trademark laws, trade secret
protection, confidentiality and non-disclosure agreements and contractual
provisions with employees and with third parties to establish and protect its
proprietary rights. Medis El owns, directly or indirectly through subsidiaries
or companies in which it has an interest, patents for certain technologies and
is currently applying for additional patents. There can be no assurance that
Medis El will succeed in receiving patent and other proprietary protection in
all markets it enters, or, if successful, that such protection will be
sufficient. Furthermore, we can give no assurance that our business activities
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against us. If Medis El successfully
develops and markets any or all of its technologies, we expect to face efforts
by larger companies and other organizations or authorities to undermine Medis
El's patents by challenging or copying its intellectual property. We intend to
vigorously defend Medis El's intellectual property against any challenges that
may arise.
Our and Medis El's survival may depend on additional financing which we have no
assurance of obtaining.
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Our and Medis El's ongoing survival may depend upon continuous outside
funding of operations. We have historically been a major source of funds for
Medis El which funds we receive through financing activities, including the sale
of our stock. There can be no assurance that we will have the required funds on
hand or commitments for such funds to meet Medis El's future financial
obligations, if necessary, or that a third party will be willing to make such
funds available. Medis El's failure to raise additional funds could have a
material adverse effect on its ability to develop its technologies. Furthermore,
Medis El's failure to successfully develop or market its technologies may
materially adversely affect its or our ability to raise additional funds. In any
event, it is not possible to make any reliable estimate of the funds required to
complete the development of each of the technologies, or of the funds required
to establish or otherwise procure adequate manufacturing capacity or to market
the products on a worldwide basis. If available funds should prove insufficient,
there can be no assurance that we or Medis El will be able to procure the
required additional funding, which could curtail developing, manufacturing or
marketing one or more of Medis El's technologies.
World instability could materially adversely affect Medis El's ability to
complete each technology's development or its ability to supply joint venture
partners or licensees
Medis El's offices and most of its manufacturing, research and development
facilities are located in the State of Israel. Medis El, and consequently we,
are directly affected by the political, economic and military conditions in
Israel. Any major hostilities involving Israel or the interruption or
curtailment of trade between Israel and the United States or Israel and Europe
could have a material adverse effect on Medis El's ability to complete the
development of any of the technologies or our ability to supply the technology
to development partners or vendors. Furthermore, any interruption or curtailment
of trade between Israel and any other country in which Medis El has strategic
relationships could similarly adversely affect such relationships. In addition,
certain of the manufacturing of the toroidal engine and compressor are taking
place in Russia. Any political, economic or military upheavals in Russia could
have a similar effect with respect to the toroidal engine and compressor.
Our ability to market the CellScan may be limited by United States and foreign
government regulations
It is likely that regulatory clearances, both United States and foreign,
will be required prior to marketing the CellScan as a diagnostic device.
Regulatory clearance processes can prove to be timely and costly and there can
be no assurance that any such clearance will be obtained.
We may also be subject to regulation by other federal and state agencies
under various statutes, regulations and ordinances, including environmental
laws, occupational health and safety laws, labor laws and any laws that may be
applicable for regulating any of Medis El's technologies.
Medis El's success is dependent upon its key personnel who, if Medis El is
unable to retain, could materially adversely affect Medis El's ability to
develop and market its products
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Our and Medis El's success depends to a significant extent upon Zvi Rehavi
and the scientists, engineers and technicians that seek out, recognize and
develop Medis El's technologies, and to a lesser extent on a number of
management and technical personnel employed by Medis El. The loss of the
services of Mr. Rehavi or any of Medis El's technical talent could have a
material adverse effect on Medis El's ability to develop its products and our
ability to market such products. Although all of Medis El's employees are
subject to employment agreements with Medis El, the majority of which are
automatically renewable on an annual basis, either party may terminate such
agreement upon notice to the other. The length of such notice varies depending
upon the individual, from 30 days to 180 days in length. Our future success will
depend to a great extent upon Medis El's and our continued ability to attract
and retain highly skilled technical, managerial and marketing personnel.
Competition for such personnel is intense and we cannot assure investors that
Medis El or we will be able to attract and/or retain such personnel.
Our right to issue preferred stock may facilitate management entrenchment which
may not be in the best interests of our stockholders
Our board of directors has the authority to issue up to 10,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of these shares without approval of our
shareholders. Any future issuance of shares of preferred stock could be employed
by our present management to delay, defer or prevent a change in our control or
to discourage bids for our common stock at a premium above its market price
solely to retain their respective management positions, which may not be in the
best interests of our stockholders, generally. We have no present plans to issue
any shares of preferred stock.
Our current stockholders will continue to control our affairs and other
stockholders may be unable to influence our corporate decisions
Upon completion of this exchange offer and assuming our current
stockholders do not sell their shares of common stock currently held by them nor
exercise their warrants, our four largest current stockholders, which includes
some of our officers and directors and a corporation controlled by such officers
and directors, collectively, will beneficially own approximately 57% of the then
issued and outstanding shares of our common stock and warrants to purchase
shares of our common stock. Accordingly, it is likely that our current
stockholders will continue to have the ability to elect all of the members of
our board and otherwise direct our affairs.
The market for our common stock after this offering may be volatile
The market price of our securities following this offering may be highly
volatile as has been usual with the securities of other small capitalization
companies and technology stocks in general. Factors such as our operating
results, the failure of Medis El's technologies to perform as expected or a
delay in a technology's development and various factors affecting related
industries in general may have a significant impact on the market price of our
securities. In addition, in recent months the stock market has experienced a
high level of price and volume volatility, especially with respect to technology
stocks, and the market prices for the securities of
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many companies which trade in the over-the-counter market have experienced high
price fluctuation which have not necessarily been related to the operating
performance of such companies.
We may be subject to the SEC's "penny stock rules" if our common stock falls
below $5.00 per share
If the trading price of our common stock were to fall below $5.00 per
share, trading in our securities would be subject to the requirements of the
SEC's penny stock rules. These rules require the delivery prior to any penny
stock transaction of a disclosure schedule explaining the penny stock market and
all associated risks and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors, which are generally defined as institutions or an
investor with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with a spouse. For these types of transactions the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. In addition, broker-dealers must disclose commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities they offer. The additional burdens imposed upon broker-dealers by
such requirements may discourage broker-dealers from effecting transactions in
our common stock which could severely limit its market price and liquidity.
We have never paid dividends and are unlikely to pay dividends in the future
We have not paid any dividends on our common stock to date and do not
anticipate declaring any dividends in the foreseeable future. The payment of
future dividends, if any, will be contingent upon our revenues and earnings, if
any, capital requirements and general financial condition. The payment of any
such dividends will be within the discretion of our board of directors. Our
board presently intends to retain all earnings, if any, for use in our business
operations.
There is no current public market for our shares and there can be no assurance
that one will develop
Prior to this offering, there has been no public market for our
securities, and there can be no assurance that such a market will develop at the
conclusion of this offering or that, if such a market is developed, it will be
sustained. The historical market for Medis El's ordinary shares may not be
indicative of the future market for our common stock. The lack of a sustainable
trading market may make it difficult for our stockholders to sell or otherwise
trade their common stock.
The large number of shares of our common stock available for future sale could
adversely affect the price of our publicly traded common stock
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All of our common stock presently outstanding, including shares underlying
warrants and stock options and all of our common stock issued in this exchange
offer will be freely tradeable without further restriction or further
registration under the Securities Act, upon the effectiveness of the
registration statement of which this prospectus forms a part and the
effectiveness of an additional registration statement to register shares of
stock under our stock option plan which we intend to file promptly after the
closing of this exchange offer. Future sales of substantial amounts of our
common stock in the public market, or even the ability of our stockholders to
sell substantial amounts of stock, could adversely affect the market price for
our common stock and could impair our future ability to raise capital through
the sale of equity securities.
This exchange offer will adversely affect the market and overall liquidity for
Medis El's ordinary shares
The exchange of Medis El's ordinary shares pursuant to this exchange offer
will reduce the number of holders of such shares and the number of such shares
that might otherwise trade publicly, and, depending upon the number of shares so
exchanged, could adversely affect the liquidity and market value of the
remaining shares held by the public, including ultimately causing the delisting
of Medis El's ordinary shares from the Nasdaq SmallCap Market.
System failures or miscalculations attributable to the Year 2000 issue could
disrupt our operations.
The Year 2000 issue is the result of computer programs only being able to
use two digits rather than four to define the applicable year. Thus,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. System failure or miscalculation, whether in our internal
operating systems or our products or those of our third party vendors or
suppliers, could result in our inability to process transactions, send invoices,
accept customer orders or timely provide customers with products and services.
Exchanging your ordinary shares for our shares of common stock may cause you
adverse tax consequences.
We have not included in this prospectus a discussion of all of the tax
consequences that may affect Medis El shareholders upon the exchange of their
Medis El ordinary shares for shares of our common stock. Tendering Medis El
ordinary shares in this exchange offer may cause the holders of such shares
adverse tax consequences. We advise all of Medis El's shareholders to consult
such holders' own tax advisor as to the specific tax consequences of this
exchange offer to such holder.
Forward looking statements found in this prospectus may not be accurate
indicators of our future performance.
This prospectus contains certain forward-looking statements and
information relating to Medis Technologies Ltd. and Medis El Ltd. We identify
forward-looking statements in this prospectus using words such as "believes,"
"intends," "plans," "expects," "predicts," "may,"
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"will," "would," "should," "contemplates," "anticipates" or similar statements.
These statements are based on our beliefs as well as assumptions we made
using information currently available to us by Medis El and others. Because
these statements reflect our current views concerning future events as they
relate to us and Medis El, these statements involve certain risks, uncertainties
and assumptions which may be significantly more adverse than the results or
expectations discussed in the forward-looking statements.
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DETERMINATION OF OFFERING PRICE
Our board of directors has determined the exchange ratio of 1.37 of our
shares of common stock for each Medis El ordinary share based upon:
o The number of Medis El ordinary shares we own prior to the exchange offer;
o The number of our shares of common stock and warrants outstanding compared
to the number of Medis El ordinary shares and options outstanding;
o The value attributed to our distribution arrangement with Medis El with
respect to the CellScan technologies; and
o The value attributed to our agency arrangement with Medis El with respect
to the stirling cycle linear technologies.
We have not obtained a fairness opinion or other analysis from an outside
party concerning the fairness or reasonableness of the terms of this exchange
offer from the perspective of a Medis El shareholder. We are not making a
recommendation to Medis El shareholders as to whether or not to accept this
exchange offer. You, as a Medis El shareholder, should make your own
determination based upon your own valuations, investment objectives,
circumstances and alternatives, following careful consideration of the
information contained in this prospectus.
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THE EXCHANGE OFFER
Terms of the Exchange Offer
We are offering to exchange 1.37 of our shares of common stock for each
properly tendered Medis El ordinary share, par value NIS 0.1. Only whole shares
of our common stock will be issued in exchange for Medis El ordinary shares.
Shareholders otherwise entitled to fractional shares of our common stock will
instead receive the cash equivalent of the fractional shares based upon the
closing price for Medis El ordinary shares on the Nasdaq SmallCap Market on the
date we accept such shares for exchange. We will not issue certificates or scrip
representing fractional shares of our common stock.
As of July 15, 1999, Medis El had 10,423,981 ordinary shares outstanding.
As of the same date, we owned, through Medis Inc., a wholly-owned subsidiary,
6,646,671, or approximately 64%, of such ordinary shares. We intend to offer our
shares in this exchange through Medis Inc. All Medis El ordinary shares tendered
in this exchange will be held by Medis Inc., our wholly-owned subsidiary.
If all outstanding Medis El ordinary shares not currently beneficially
owned by us are exchanged pursuant to this exchange offer, a maximum of
5,174,914 shares of our common stock will be exchanged for a maximum of
3,777,310 of Medis El's ordinary shares outstanding, based upon the number of
Medis El ordinary shares outstanding on July 15, 1999.
Purpose of the Exchange Offer
We are offering to exchange our common stock for all outstanding Medis El
ordinary shares for the purpose of increasing our ownership of Medis El. We
believe that our status as a domestic United States corporation with a readily
understandable and familiar capital and corporate governance structure, which
has rights not only to the Medis El technologies, but also to the distribution
and commercialization of the technologies, will enhance our ability to serve as
an effective financing vehicle for the further development of Medis El's
technologies.
Acceptance of Medis El Shares
This offering is conditioned upon the exchange of at least 1,692,514 of
Medis El's ordinary shares so that we beneficially own at least 80% of such
shares. We currently beneficially own approximately 64% of Medis El's
outstanding ordinary shares. Additionally, we are not required to accept for
exchange, or exchange our common stock for, any Medis El shares, and may
terminate this exchange offer before the acceptance of any Medis El shares, if
the exchange offer violates an applicable law, rule or regulation or an
applicable interpretation of such by the staff of the SEC.
Procedures for Tendering Medis El Shares
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This prospectus, the letter of transmittal and other relevant materials
will be mailed to registered Medis El shareholders and will be furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on Medis El's shareholder list
kept with American Stock Transfer and Trust Company, its transfer agent, or, if
applicable, who are listed as participants in a clearing agency's security
position listing.
Only a registered Medis El shareholder may tender his or her shares in
this exchange offer. To tender, a shareholder must complete, sign and date the
letter of transmittal accompanying this prospectus, guarantee the signatures if
required, and mail or otherwise deliver the letter of transmittal to American
Stock Transfer and Trust Company, our exchange agent, prior to the expiration
date. In addition, either:
o certificates for such Medis El shares must be received by the exchange
agent along with the properly completed and duly executed letter of
transmittal and any other required documents;
o a timely confirmation of a book-entry transfer of such Medis El shares, if
such procedure is available, into the exchange agent's account at The
Depository Trust Company pursuant to the procedure for book-entry transfer
described below, together with the letter of transmittal or a properly
transmitted agent's message, as described below, must be received by the
exchange agent prior to the expiration date; or
o the holder must comply with the guaranteed delivery procedures described
below.
Each tender will constitute an agreement between such tendering shareholder and
us in accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
We shall be deemed to have accepted validly tendered Medis El ordinary
shares when, as and if we have given oral or written notice of such to the
exchange agent. The exchange agent will act as agent for the tendering holders
of Medis El ordinary shares for the purposes of:
o receiving our common stock and cash in lieu of fractional shares from us;
and
o transmitting such common stock and cash, if applicable, to tendering
shareholders.
Under no circumstances will interest be paid by us by reason of any delay in
making such exchange.
The method of delivery of Medis El ordinary shares, the letter of
transmittal and all other required documents to the exchange agent, or delivery
through the book entry transfer facility, is at the election and risk of the
holder. Instead of delivery by mail, it is recommended that you use an overnight
or hand delivery service, properly insured. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. In all
cases, sufficient time
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should be allowed to assure delivery to the exchange agent before the expiration
date. Delivery will be deemed made only when actually received by the exchange
agent. No letter of transmittal or certificate representing Medis El ordinary
shares should be sent to us. You may request your broker, dealer, commercial
bank, trust company or nominee to effect the above transactions on your behalf.
If your Medis El ordinary shares are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and you wish to tender
such shares in this exchange offer, you should:
o contact such registered holder promptly and instruct such registered
holder to tender on your behalf; or
o prior to your completing and executing the letter of transmittal and
delivering your Medis El shares, either make appropriate arrangements to
register ownership of such Medis El shares in your name or obtain a
properly completed stock power from the registered holder.
The transfer of registered ownership may take considerable time and may not be
able to be completed prior to the expiration date. You are advised to allow for
sufficient time to make all appropriate arrangements.
Signatures
Signatures on a letter of transmittal must be guaranteed by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the letter of
transmittal, unless the tendered Medis El ordinary shares are tendered:
o by a registered shareholder who has not completed the box entitled
"Special Delivery Instructions" on the letter of transmittal; or
o for the account of an institution listed above that may guarantee a letter
of transmittal.
If the letter of transmittal is signed by a person other than the
registered shareholder, such shares must be endorsed or accompanied by a
properly completed stock power, properly signed by the registered shareholder.
If the letter of transmittal or any shares or stock powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
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Automated Tender Offer Program
American Stock Transfer and Trust Company and DTC have confirmed that any
financial institution that is a participant in DTC's system may utilize DTC's
Automated Tender Offer Program to tender your ordinary shares. Accordingly,
participants in such program may, instead of physically completing and signing
the letter of transmittal and delivering it to the exchange agent,
electronically transmit their acceptance of this exchange offer by causing DTC
to transfer the shares to the exchange agent in accordance with DTC's program
procedures for transfer. DTC will then send an agent's message, as defined
below, to the exchange agent.
The term "agent's message," as used above, means a message transmitted by
DTC, received by the exchange agent prior to the expiration date and forming
part of the book-entry confirmation, which states that DTC has received an
express acknowledgment from a participant in the DTC program that such
participant is tendering Medis El ordinary shares which are the subject of such
book entry confirmation, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery, and that the agreement
may be enforced against such participant.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of tendered Medis El ordinary shares will be determined
by us in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all shares not properly tendered or
any shares our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular shares. Our interpretation of the terms
and conditions of the exchange offer and the instructions in the letter of
transmittal will be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Medis El shares must be cured
within such time as we shall determine. Although we intend to notify Medis El
shareholders of any defects or irregularities with respect to their respective
tenders of Medis El shares, neither we, the exchange agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Medis El's ordinary shares will not be deemed to have been made until such
defects or irregularities have been cured or waived.
While we have no present plan to acquire any Medis El shares which are not
tendered in the exchange offer, we reserve the right in our sole discretion to
purchase or make offers for any Medis El shares that remain outstanding
subsequent to the expiration date or to terminate this exchange offer and, to
the extent permitted by applicable law, purchase Medis El shares in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of this exchange offer.
Expiration Date; Extension; Amendments
The expiration date shall be 5:00 p.m., New York City time, on ,
1999 unless we, in our sole discretion, extend the exchange offer, in which case
the expiration date shall be the latest date and time to which we extend this
exchange offer.
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We reserve the right, in our sole discretion:
o to delay accepting any Medis El shares;
o to extend the exchange offer; or
o to terminate this exchange offer, by giving notice of such delay,
extension or termination to the exchange agent.
Any such delay, extension or termination will be followed by our notification to
the exchange agent and registered Medis El shareholders of any delay, extension
or termination, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. If the exchange
offer is amended in a manner determined by us to constitute a material change,
we will distribute a prospectus supplement with such amendment, and we will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the amendment, applicable securities laws, and the
manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during such five to ten business day period. Without limiting
the manner in which we may choose to make a public announcement of any delay,
extension, amendment or termination of the exchange offer, and subject to
applicable law, we shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
Return of Medis El Shares
If less than 1,692,514 of Medis El's ordinary shares are tendered in this
exchange or we do not accept tendered Medis El ordinary shares for any valid
reason pursuant to the terms and conditions of this exchange offer, certificates
for such tendered shares will be returned without expense to the tendering
shareholder, or, in the case of shares tendered by book-entry transfer into the
exchange agent's account at DTC pursuant to the book-entry transfer procedures
described below, such shares will be credited to an account maintained with DTC
as promptly as practicable.
Book-Entry Transfer
The exchange agent will make, within two business days after the date of
this prospectus, a request to establish an account with respect to Medis El
shares at DTC, and any financial institution that is a participant in DTC's
systems may make book-entry delivery of Medis El shares by causing DTC to
transfer such Medis El shares into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. However, although delivery of
Medis El shares may be effected through book-entry transfer at DTC, the letter
of transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the exchange
agent on or prior to the expiration date or pursuant to the guaranteed delivery
procedures described below.
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Guaranteed Delivery Procedures
Medis El shareholders who wish to tender their shares and (a) whose shares
are not immediately available or (b) who cannot deliver their shares, the letter
of transmittal or any other required documents to the exchange agent prior to
the expiration date, may nonetheless effect a tender of their ordinary shares
if:
o the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the U.S. or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act which is a member of one of the
recognized signature guarantee programs identified in the letter of
transmittal;
o prior to the expiration date, the exchange agent receives from any of the
above such institutions a properly completed and duly executed notice of
guaranteed delivery substantially in the form provided by us setting forth
the name and address of the shareholder, the certificate number(s) of such
shares and the aggregate number of shares tendered, stating that such
holder is tendering his or her shares and guaranteeing that, within five
business days after the expiration date, the letter of transmittal
together with the certificate(s) representing the shares in proper form
for transfer or a book-entry confirmation, as the case may be, and any
other documents required by the letter of transmittal, will be deposited
by any of the above institutions with the exchange agent, or the exchange
agent receives a properly transmitted message from DTC regarding the
acknowledgment by such shareholder of certain conditions of tendering; and
o such properly executed letter of transmittal or a properly transmitted
agent's message, as well as the certificate(s) representing all tendered
shares in proper form for transfer or a book-entry confirmation and all
other documents required by the letter of transmittal, are received by the
exchange agent within five business days after the expiration date.
Upon request to the exchange agent, you will be sent a notice of
guaranteed delivery if you wish to tender your shares according to the
guaranteed delivery procedures set forth above.
Withdrawal Rights
You may withdraw your tendered Medis El ordinary shares prior to the
expiration date of this exchange offer upon submitting to the exchange agent a
written notice of withdrawal specifying your name, the number and amount of
securities withdrawn and the name or names in which the securities are so
registered, if registered in a name other than the tendering security holder.
The signature(s) on the notice of withdrawal must be guaranteed pursuant
to the same guarantee procedures for letters of transmittal as set forth above
in "Procedures for Tendering
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<PAGE>
Medis El Shares," unless such shares have been tendered for the account of an
eligible institution listed in such section.
If Medis El ordinary shares have been tendered pursuant to the procedures
for book-entry tender, any notice of withdrawal must specify the name and number
of the account at the book-entry transfer facility to be credited with the
withdrawn ordinary shares and must otherwise comply with such book-entry
transfer facility's procedures. If certificates have been delivered or otherwise
identified to the exchange agent, the name of the registered holder and the
serial numbers of the particular certificates evidencing the ordinary shares
withdrawn must also be furnished to the exchange agent prior to the physical
release of such certificates.
All questions as to the form and validity, including time of receipt, of
any notice of withdrawal will be determined by us, in our sole discretion, which
determination shall be final and binding. Neither we, the exchange agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or will incur any liability for
failure to give any such notification. Any ordinary shares properly withdrawn
will be deemed not to have been validly tendered for purposes of this exchange
offer. However, withdrawn ordinary shares may be retendered by following one of
the procedures described in this prospectus at any time prior to the expiration
date.
Acceptance of Medis El Shares and Delivery of Common Stock
Our common stock issued pursuant to this exchange offer will be delivered
to Medis El shareholders who properly tendered their ordinary shares on the
earliest practicable date following the expiration date, assuming all conditions
to this exchange offer have been satisfied or waived.
Exchange Agent
American Stock Transfer and Trust Company has been appointed exchange
agent for the exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery should be directed to American
Stock Transfer and Trust Company addressed as follows:
40 Wall Street
New York, NY 10005
Telephone Number: (212) 936-5100
By Facsimile Transmission: (718) 236-4588
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by our and our affiliates' officers and
regular employees.
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<PAGE>
American Stock Transfer and Trust Company, as exchange agent, will receive
reasonable and customary compensation for its services and will be indemnified
against certain liabilities and expenses in connection with its services,
including certain liabilities under the federal securities laws. We will not pay
any fees or commissions to any broker or dealer or other persons for soliciting
tenders of shares pursuant to this exchange offer. Brokers, dealers, commercial
banks and trust companies will be reimbursed by us for reasonable expenses
incurred by them in forwarding material to their customers.
The cash expenses to be incurred in connection with this exchange offer
will be paid by us and are estimated in the aggregate to be approximately $ .
Such expenses include registration fees, fees and expenses of the exchange
agent, accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, which are not based on income,
applicable to the exchange of Medis El's ordinary shares pursuant to this
exchange offer. If, however, a transfer tax is imposed for any reason other than
the exchange of Medis El's ordinary shares pursuant to this exchange offer, then
the amount of any such transfer taxes, whether imposed on the registered
shareholder or any other persons, will be payable by the tendering shareholder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering shareholder.
Participation in this exchange offer is voluntary. Medis El shareholders
are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
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<PAGE>
DIVIDEND POLICY
Neither we nor Medis El have paid dividends on our capital stock to date.
Our payment of future dividends, if any, will be contingent upon our revenues
and earnings, if any, capital requirements and general financial condition. The
payment of any such dividends will be within the discretion of our board of
directors. Our board presently intends to retain all earnings, if any, for use
in our business operations. Accordingly, we do not anticipate declaring any
dividends in the foreseeable future.
PRICE RANGE OF OUR COMMON STOCK
We do not have an established public trading market for our securities. We
are therefore unable to estimate the price of our stock if and when it is listed
on Nasdaq upon which we have applied for listing subject to the successful
completion of this exchange offer. Whether we own all or less than all of Medis
El's ordinary shares, the historical market for Medis El's ordinary shares may
not be indicative of the future market for our common stock.
PRICE RANGE OF MEDIS EL'S ORDINARY SHARES
Medis El's ordinary shares have traded on the Nasdaq SmallCap Market under
the symbol MDSLF since the effective date of its initial public offering on
December 21, 1993. The closing high and low sales prices of its ordinary shares,
as reported by Nasdaq, for the years ended December 31, 1998 and 1997 and for
the six months ended June 30, 1999 were as follows:
Quarter Ended High Low
------------- ---- ---
March 31, 1997 ............................. $ 8.875 $ 5.375
June 30, 1997 .............................. 6.750 5.000
September 30, 1997 ......................... 8.150 5.250
December 31, 1997 .......................... 7.000 4.750
March 31, 1998 ............................. 9.250 5.000
June 30, 1998 .............................. 9.050 6.563
September 30, 1998 ......................... 7.438 3.875
December 31, 1998 .......................... 8.125 3.875
March 31, 1999 ............................. 8.000 6.000
June 30, 1999 .............................. 7.500 6.125
As of June 30,1999, there were 65 record holders and approximately 620
beneficial owners of Medis El's ordinary shares. The closing price of Medis El's
ordinary shares on July
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<PAGE>
27, 1999, the last full trading day before we filed this prospectus, was $7.00
per share.
The exchange of Medis El's ordinary shares pursuant to this exchange offer
will reduce the number of holders of such shares and the number of such shares
that might otherwise trade publicly, and, depending upon the number of shares so
exchanged, could adversely affect the liquidity and market value of the
remaining shares held by the public including ultimately resulting in the
delisting of Medis El's ordinary shares from the Nasdaq SmallCap Market.
Depending upon the number of Medis El shares we acquire pursuant to this
exchange offer, following consummation of such offer, Medis El's ordinary shares
may no longer meet the requirements of the Nasdaq SmallCap Market for continued
listing. For example, published guidelines of the Nasdaq SmallCap Market
indicate that the Nasdaq SmallCap Market would consider delisting outstanding
shares if, among other things:
o the number of publicly held shares, exclusive of holdings of officers,
directors, and members of their immediate families and other concentrated
holdings of more than 10 percent of the total shares outstanding should
fall below 500,000;
o the number of round lot holders of shares should fall below 300; or
o the aggregate market value of publicly held shares should fall below $1
million.
If Nasdaq were to delist Medis El's ordinary shares, the market for such
shares would be adversely affected. It is possible that Medis El's ordinary
shares would be traded in the over-the-counter market, or through the National
Association of Securities Dealers, Inc. OTC Bulletin Board or by other sources.
The extent of the public market for Medis El's ordinary shares and the
availability of such quotations would, however, depend upon the number of
holders and/or the aggregate market value of the shares remaining at such time,
the interest in maintaining a market in the shares on the part of securities
firms, the possible termination of registration of Medis El's ordinary shares
under the Exchange Act, as described below, and other factors.
Medis El's ordinary shares are currently registered under the Exchange
Act. We may terminate such registration upon application to the SEC if the
outstanding shares are not listed on a national securities exchange and if there
are fewer than 300 holders of record of Medis El shares. Termination of
registration of Medis El's ordinary shares under the Exchange Act would reduce
the information required to be furnished by Medis El to its shareholders, the
SEC and the public and would make certain provisions of the Exchange Act, such
as filing an annual report, no longer applicable. If registration of Medis El's
ordinary shares under the Exchange Act were terminated, the shares would no
longer be eligible for Nasdaq reporting.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 and
as adjusted to give effect to the issuance of 5,174,914 shares of our common
stock and the acquisition of the minority interest in Medis El, pursuant to this
exchange offer. This table should be read in conjunction with our consolidated
financial statements and the notes to such statements and the other financial
information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
----------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Short term borrowings ....................................................... $ 196,000 $ 196,000
============ ============
Long term debt-excluding current maturities ................................. $ 47,000 $ 47,000
Minority interest in subsidiary ............................................. 1,250,000 --
Stockholders' equity:
Common Stock, $.01 par value; 9,608,618 shares issued and
outstanding actual; 14,783,532 shares issued and
outstanding on an as adjusted basis ..................................... 96,000 148,000
Additional paid in capital .................................................. 30,765,000 55,502,000
Accumulated deficit ......................................................... (18,680,000) (18,680,000)
------------ ------------
Total stockholders' equity .............................................. 12,181,000 36,970,000
------------ ------------
Total capitalization ........................................................ $ 13,478,000 $ 37,017,000
============ ============
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended
December 31, 1994 and 1995 and the selected consolidated balance sheet data as
of December 31, 1994, 1995 and 1996 have been derived from audited financial
statements not included in this prospectus. The selected consolidated statement
of operations data for the years ended December 31, 1996, 1997, and 1998 and the
selected consolidated balance sheet data as of December 31, 1997 and 1998 have
been derived from our audited financial statements included elsewhere in this
prospectus. The selected consolidated statement of operations data for the three
months ended March 31, 1998 and 1999 and the selected consolidated balance sheet
data as of March 31, 1999 are derived from unaudited condensed consolidated
financial statements included elsewhere in this prospectus that have been
prepared on the same basis as the audited consolidated financial statements and
in the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of our consolidated
operating results for such periods and our financial condition as of such date.
The historical results are not necessarily indicative of results to be expected
for any future period. The data should be read in conjunction with the
consolidated financial statements and the notes to such statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
-29-
<PAGE>
Statement of Operations Data:
<TABLE>
<CAPTION>
For the three months ended
For the Year Ended December 31, March 31,
-------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ..................... $ -- $ -- $ -- $ -- $ 8,000 $ 8,000 $ --
Cost of sales ................ -- -- -- -- 3,000 3,000 --
----------- ----------- -----------
Gross profit ................. -- -- -- -- 5,000 5,000 --
Operating expenses
Research and development
costs, net ................ -- -- -- 1,406,000 1,646,000 355,000 332,000
Selling, general and
administrative expenses .... 236,000 231,000 193,000 1,303,000 1,399,000 345,000 380,000
Amortization of goodwill ... -- -- -- 102,000 2,445,000 611,000 611,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses ..... 236,000 231,000 193,000 2,811,000 5,490,000 1,311,000 1,323,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations ......... (236,000) (231,000) (193,000) (2,811,000) (5,485,000) (1,306,000) (1,323,000)
Other income (expenses)
Interest and other income .. 53,000 85,000 9,000 64,000 63,000 10,000 28,000
Interest expense ........... (499,000) (535,000) (1,660,000) (381,000) (101,000) (47,000) (3,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before minority interest (682,000) (681,000) (1,844,000) (3,128,000) (5,523,000) (1,343,000) (1,298,000)
Equity in net losses of
unconsolidated subsidiaries .. (1,164,000) (942,000) (789,000) -- -- -- --
Minority interest in loss of
subsidiaries ............... -- -- -- 1,584,000 1,105,000 258,000 268,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss ..................... $(1,846,000) $(1,623,000) $(2,633,000) $(1,544,000) $(4,418,000) $(1,085,000) $ 1,030,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Basic and diluted net loss per
share ...................... $ (0.56) $ (0.47) $ (0.71) $ (0.33) $ (0.52) $ (0.13) $ (0.11)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding ................ 3,287,530 3,460,000 3,734,129 4,645,232 8,581,774 8,257,613 9,465,649
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------- As of March 31,
1994 1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Working capital
(deficiency) .......... $ 663,000 $ (686,000) $ (1,728,000) $ 266,000 $ 3,536,000 $ 3,404,000
Total assets ............ 5,522,000 3,819,000 3,621,000 14,443,000 14,755,000 14,343,000
Long-term debt, excluding
current maturities .... 6,473,000 2,000,000 1,000,000 338,000 96,000 47,000
Accumulated deficit ..... (7,536,000) (9,055,000) (11,668,000) (13,232,000) (17,650,000) (18,680,000)
Total stockholders'
equity (deficiency) ... (1,399,000) (2,980,000) (1,645,000) 11,378,000 12,406,000 12,181,000
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF MEDIS EL
The selected consolidated statement of operations data for the years ended
December 31, 1994 and 1995 and the selected consolidated balance sheet data as
of December 31, 1994, 1995 and 1996 have been derived from audited financial
statements not included in this prospectus. The selected consolidated statement
of operations data for the years ended December 31, 1996, 1997, and 1998 and the
selected consolidated balance sheet data as of December 31, 1997 and 1998 have
been derived from our audited financial statements included elsewhere in this
prospectus. The selected consolidated statement of operations data for the three
months ended March 31, 1998 and 1999 and the selected consolidated balance sheet
data as of March 31, 1999 are derived from unaudited condensed consolidated
financial statements included elsewhere in this prospectus that have been
prepared on the same basis as the audited financial statements and in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of our operating
results for such periods and our financial condition as of such date. The
historical results are not necessarily indicative of results to be expected for
any future period. The data should be read in conjunction with the financial
statements, related notes and other financial information included elsewhere in
this report.
Statements of Operations Data:
<TABLE>
<CAPTION>
For the three months ended
For the year ended December 31, March 31,
------------------------------------------------------------------------ -----------------------------
1994 1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ............... $ 75,000 $ 198,000 $ 32,000 $ -- $ 8,000 $ 8,000 $ --
Gross profit ........... 47,000 17,000 21,000 -- 5,000 5,000 --
Research and development
costs, net (1) ...... 1,296,000 1,023,000 815,000 1,406,000 1,646,000 355,000 $ 332,000
Net loss ............... $ (2,810,000) $ (2,240,000) $ (1,962,000) $ (2,647,000) $ (2,967,000) $ (671,000) $ 722,000)
Net loss per share-basic
and diluted ......... $ (0.33) $ (0.26) $ (0.22) $ (0.28) $ (0.31) $ (0.07) $ (0.07)
============ ============ ============ ============ ============ ============ ============
Weighted average number
of shares outstanding 8,642,000 8,650,000 8,790,000 9,325,000 9,624,000 9,542,000 10,055,000
========= ========= ========= ========= ========= ========= ==========
</TABLE>
- ----------
(1) Total research and development costs were offset in part by grants from
the Government of Israel for the years 1994-1996.
Balance Sheet Data:
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------
1994 1995 1996 1997 1998 As of March 31, 1999
------------ ------------ ------------ ------------ ------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital .......... $ 4,782,000 $ 2,324,000 $ 3,939,000 $ 1,209,000 $ 3,376,000 $ 2,411,000
Long-term debt ........... 451,000 681,000 489,000 293,000 96,000 47,000
Accumulated loss ......... (7,749,000) (9,988,000) (11,950,000) (14,597,000) (17,564,000) (18,286,000)
Total shareholders' equity 4,167,000 2,093,000 3,869,000 1,344,000 4,079,000 3,369,000
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
We serve as agent and distributor of certain technologies owned wholly or
in part by Medis El Ltd., an Israeli corporation of which we beneficially own
approximately 64%. To date we have devoted all of our efforts and resources to
help provide financing and assist in commercializing Medis El's technologies.
The financial presentation below is based upon our historical financial
statements which include the results of operations of Medis El beginning
December 15, 1997. Prior to that date, our investment in Medis El was accounted
for using the equity method of accounting. As we have conducted all of our
operating activities through Medis El, the presentation reflects primarily the
results of operations of Medis El. However, the presentation also includes
activities performed by us and are therefore different from the historical
financial statements of Medis El.
Results of Operations
From our inception in April 1992 through March 31, 1999, we have generated
a cumulative net loss of $18,680,000. We expect to incur additional operating
losses in 1999 and perhaps beyond, principally as a result of our continuing
anticipated research and development costs, and due to anticipated limited sales
of Medis El's technologies.
Quarter ended March 31, 1999 compared to quarter ended March 31, 1998
We sustained a net loss of $1,030,000 during the three months ended March
31, 1999 compared to $1,085,000 during the same period in 1998. The slight
decrease can primarily be attributed to slightly lower research and development
costs, increased interest income due to higher cash balances and lower interest
expense due to lower debt balances during the three months ended March 31, 1999
compared to the same period in 1998.
We continued to devote substantial resources to research and development
activities with respect to Medis El's newly upgraded and research CellScans,
stirling cycle linear technologies, toroidal engine and highly conductive
electrically polymers and related fuel cell technology. Total net research and
development costs for the three months ended March 31, 1999 were $332,000
compared to $355,000 for the three months ended March 31, 1998. The slight
decrease in research and development costs is primarily attributable to a
non-recurring payment of $200,000 by a large multi-national corporation to Medis
El under a technology development agreement entered into with Medis El in
December 1998 in which such corporation:
o paid $100,000 to obtain a right of first refusal to obtain exclusive
rights to use the stirling cycle and other technology in its field of
business; and
o paid $100,000 to assist in the development of the stirling cycle
technology for use in its
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<PAGE>
field of business.
Such payments aggregating $200,000 were recorded as a credit to research and
development costs for the three months ended March 31, 1999.
Selling, general and administrative expenses for the three months ended
March 31, 1999 were $380,000 compared to $345,000 for the three months ended
March 31, 1998. Such expenses for the three months ended March 31, 1999 included
depreciation on property and equipment of approximately $52,000, which was
primarily attributable to a transfer of Medis El's CellScan inventory to fixed
assets in the fourth quarter of 1998 and the first quarter of 1999, which was
not incurred for the three months ended March 31, 1998. As of June 30, 1999,
reflecting management's decision to use the CellScan to develop and test new
applications, we charged the CellScans remaining in fixed assets and other
related assets to research and development expense.
Year ended December 31, 1998 compared to year ended December 31, 1997
We received additional operating resources during 1998 from an influx of
equity capital which greatly improved our financial position. Total
shareholders' equity at December 31, 1998 was $12,406,000 compared to
$11,378,000 at December 31, 1997, with working capital at $3,536,000 at December
31, 1998 compared to $266,000 at December 31, 1997. We sustained a net loss of
$4,418,000 for the year ended December 31, 1998, compared to $1,544,000 for the
year ended December 31, 1997, primarily due to the amortization of goodwill
amounting to $2,445,000 compared to $102,000 for 1997, which increased total
operating expenses for the year to $5,490,000 from $2,811,000 in 1997. Such
goodwill was generated upon the acquisition of a minority interest in Medis
Inc., our wholly-owned subsidiary. The aggregate purchase price of the minority
interest was valued at $13,125,000, generating goodwill approximating
$12,227,000 which is being amortized over a five year period.
We devoted somewhat more resources to research and development activities,
incurring research and development costs of $1,646,000 for the year ended
December 31, 1998, compared to $1,406,000 for the year ended December 31, 1997.
Medis El channeled resources to the development of the CellScan, stirling cycle
linear technologies, toroidal engine and fuel cell technology.
Interest expense decreased to approximately $101,000 for the year ended
December 31, 1998 from $381,000 for the year ended December 31, 1997. This
decrease was substantially due to the retirement of long term debt in 1998
aggregating approximately $941,000. The holders of $650,000 of such debt
exchanged such debt for 325,000 shares of Medis El's common stock held by us.
Selling, general and administrative expenses for the year ended December
31, 1998 increased slightly to $1,399,000, compared to $1,303,000 for the year
ended December 31, 1997.
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<PAGE>
Year ended December 31, 1997 compared to year ended December 31, 1996
We began placing increasing emphasis on the research and development of
the stirling cycle linear technology, and, in December 1997, was awarded our
first patent for such technology. We sustained a net loss of $1,544,000 for the
year ended December 31, 1997, compared to $2,633,000 for the year ended December
31, 1996. This decrease is primarily due to a decrease in interest expense to
our long-term debt of approximately $1,279,000. Interest expense in 1996
includes $1,341,000 of non-cash interest which relates to amortization of an
in-the-money conversion feature on long-term debt issues in August 1996.
In 1996, we accounted for Medis El using the equity method of accounting.
Therefore, Medis El's research and development costs and selling, general and
administrative costs are not reflected as such in our financial statements.
We devoted substantially more resources to research and development
activities for the year ended December 31, 1997 compared to the year ended
December 31, 1996, incurring research and development costs of $1,406,000 in
1997. Medis El's research and development costs were $815,000 in 1996. The
increase was due principally to new research and development programs in the
United States and Israel, as we:
o continued to collaborate with scientists to discover and test new
applications for the CellScan;
o completed development of the argon laser (research) CellScan; and
o began the development of our stirling cycle linear technologies with the
expectation that an increasing amount of resources will be devoted to this
endeavor.
Selling, general and administrative expenses for the year ended December
31, 1997 increased sharply to $1,303,000 compared to $193,000 for the year ended
December 31, 1996. However, Medis El's selling, general and administrative costs
were $1,187,000 in 1996. Our selling, general and administrative costs together
with Medis El's costs show a slight decrease in selling, general and
administrative costs for 1997.
Liquidity and Capital Resources
We have historically financed our operations primarily through the
proceeds of investor equity financing, long-term bank loans, grants from the
Chief Scientist of the Ministry of Industry and Commerce of Israel with respect
to the CellScan, initial sales of our products and fees from the granting of
exclusive distributorship rights.
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<PAGE>
In 1996, $1,267,610 of senior secured subordinated notes were surrendered
by the holders of such notes as payment in full for the exercise of 316,902
shares of our common stock underlying warrants. In 1997, $2,314,290 of such
notes were surrendered as payment in full for the exercise of 578,573 shares of
our common stock underlying warrants. Also in 1997, we issued 60,000 additional
shares of our common stock upon the exercise of warrants at an aggregate
exercise price of $240,000. In 1998, we issued a total of 1,150,002 shares of
our common stock and 358,334 warrants for an aggregate of $4,600,008. In 1999,
as of the date of this prospectus, we issued a total of 528,003 shares of our
common stock and 176,001 warrants for an aggregate of $2,112,012.
In 1996, foreign investors purchased 675,000 of Medis El's ordinary shares
in private placements for an aggregate of $3,130,000. In January 1998, a foreign
investor purchased 300,000 of Medis El's ordinary shares in a private placement
for an aggregate of $1,334,000. Also during 1998, we paid to Medis El
$4,300,000, representing $2,000,000 of proceeds from the issuance of 400,000 of
Medis El's ordinary shares to us and $2,300,000 of final principal and interest
payments on a promissory note between Medis El and us. In May 1999, we purchased
318,181 of Medis El's ordinary shares in a private placement for an aggregate of
$1,750,000.
As of March 31, 1999, we had $3,729,000 in cash and cash equivalents. Our
working capital and capital requirements at any given time depend upon numerous
factors, including, but not limited to, the progress of research and development
programs, the status of Medis El's technologies, the results of pre-clinical
testing and clinical trials, the timing and costs involved in obtaining
regulatory approvals and the level of resources that Medis El devotes to the
development of its technologies, patents, marketing and sales capabilities.
Another contributing factor is the status of collaborative arrangements with
businesses and institutes for research and development.
As of March 31, 1999, we had long-term bank loans outstanding amounting to
$47,000. These loans are guaranteed by the State of Israel and collateralized by
a floating lien on all of Medis El's assets. The loans are repayable in New
Israeli Shekels, linked to the dollar, and bear interest at the rate of LIBOR
plus 2.4% to 2.6% per annum.
For the year ended December 31, 1998, we used $2,659,000 of available cash
on hand in connection with our operating activities, compared to $2,612,000 for
the year ended December 31, 1997. The increase was primarily attributable to the
increase in the net loss for the year, somewhat offset by the differences in
changes in certain working capital components during 1998 and 1997. The increase
in the net loss was principally due to a rise in research and development during
1998. For the three months ended March 31, 1999, we used $613,000 of available
cash on hand in connection with our operating activities, which is slightly less
than $701,000 for the three months ended March 31, 1998.
For the year ended December 31, 1998, we reported net cash used in
investing activities of $617,000, compared to net cash provided by investing
activities of $356,000 in 1997. The change was principally attributed to an
investment in a short-term deposit in 1998, contrasted with maturity of a
short-term deposit in 1997.
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<PAGE>
Management expects that our present funds are sufficient to support our
present activities for at least 12 months.
Tax Matters
As of December 31, 1998, for U.S. federal income tax purposes, we had net
operating loss carry-forwards of approximately $4,035,000. For Israeli income
tax purposes, we had net operating loss carry-forwards of $19,000,000. Since our
inception, we have not had any taxable income. Also, we have never been audited
by the United States or Israeli tax authorities since our incorporation.
Pursuant to United States federal tax regulations, our ability to utilize the
United States net operating loss carry-forwards may be limited due to changes in
ownership, as defined in the Internal Revenue Code.
Disclosure about Market Risk
Impact of Inflation and Devaluation on Results of Operations, Liabilities
and Assets
In connection with its currency use, Medis El operates in a mixed
environment. Most acquisitions and payroll are paid in local currency.
Consideration for virtually all sales is either in dollars or dollar-linked
currency. As a result, not all monetary assets and all monetary liabilities are
linked to the same base in the same amount at all points in time, which may
cause losses in terms of Israeli currency adjusted for the effects of changes in
its purchasing power. In order to help minimize such losses, Medis El currently
invests its liquid funds in both dollar-linked and Shekel based assets.
For many years prior to 1986, the Israeli economy was characterized by
high rates of inflation and devaluation of the Israeli currency against the
United States dollar and other currencies. However, since the institution of the
Israeli Economic Program in 1985, inflation, while continuing, has been
significantly reduced and the rate of devaluation has been substantially
diminished. During 1989 and 1990, the dollar declined in value relative to major
world currencies. Because governmental policies in Israel linked exchange rates
to a weighted basket of foreign currencies of Israel's major trading partners,
the exchange rate between the NIS and the dollar remained relatively stable
during this period. However, during 1991, 1992, 1993, 1994, 1995, 1996, 1997 and
1998 Israel effected devaluations of the NIS against the dollar of 11.5%, 21.1%,
8.0%, 1.1%, 3.9%, 3.7%, 8.8% and 17.6% respectively.
During the three years ended December 31, 1991 and the four years ended
December 31, 1996, the rate of inflation in Israel exceeded the rate of
devaluation of the NIS against the dollar, but in 1998, 1997 and 1992, the rate
of devaluation of the NIS against the dollar exceeded the rate of inflation in
Israel.
Impact of Political and Economic Conditions
The state of hostility which has existed in varying degrees in Israel
since 1948, its
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unfavorable balance of payments and its history of inflation and currency
devaluation, all represent uncertainties which may adversely affect our
business.
Year 2000 Compliance
We are aware of the potential for business disruption due to the Year 2000
problem, and have taken steps to assess and address these issues. We, including
Medis El, are in the process of addressing Y2K compliance in our products,
systems, accounting software and computer hardware. Management believes that we
will be Y2K compliant prior to the Year 2000.
In order to assess Y2K compliance of our products and systems, we
identified those systems which are critical to our operations and the operations
of our products. Based on the results of testing to date, we believe that all of
our systems and products will be brought into compliance by year end, 1999,
either by upgrades or replacement.
We do not believe that we, including Medis El, will incur material costs
in connection with becoming year 2000 compliant nor are there expected to be any
limitations in using any of our systems or products.
The area of Y2K compliance which poses the greatest risk to us and Medis
El is our third party vendors, because of our lack of control over their
products and operations. In order to assess their compliance, we are in the
process of surveying all major vendors. We are in the process of receiving
communications from our significant third party vendors and service providers
and those that responded have communicated that they are generally on target to
become year 2000 compliant in 1999 if they have not already done so. We expect
this process to be completed September 1999.
While management believes that its Y2K compliance program is on plan for
assessing and addressing any Y2K issues, full compliance cannot be assured until
this effort is complete. In particular, despite our best efforts, we may be
unable to establish with certainty the compliance of third party vendors,
including those outside the United States. It is possible that non-compliance of
a key vendor could have a material, adverse effect on our operations.
As this program progresses, we will be better able to assess our Y2K
status in all of the areas outlined above, and focus our efforts on any Y2K
issues which become identified. We have not as of this date drafted a
contingency plan to handle problems that might arise should we or our
significant third parties vendors and service providers sustain business
interruptions caused by year 2000 problems.
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BUSINESS
We were formed in April 1992 for the purpose of founding and financing the
activities of Medis El Ltd., an Israeli company, to develop and commercialize a
technology known as the CellScan. Medis El was subsequently formed as a result
of a joint venture we entered into in July 1992 with Israel Aircraft Industries
Ltd., a company wholly owned by the State of Israel and a leader in aerospace
technology. Israel Aircraft was the original licensee from the University of
Bar-Ilan in Israel of the patents and other intellectual property rights
relating to the CellScan. The CellScan and other technology was assigned to
Medis El by Israel Aircraft with a view towards commercializing Israel
Aircraft's technologies.
Upon Medis El's formation, Israel Aircraft assigned its license to the
CellScan to Medis El. Pursuant to an agreement entered into in August 1992 with
Medis El, we became the sole distributor of the CellScan in the United States,
its territories and possessions. In July 1998, we became Medis El's exclusive
agent in North America for coordinating all licensing arrangements with respect
to the stirling cycle system, a technology being developed by Medis El.
We currently own, through a wholly-owned subsidiary, approximately 64% of
Medis El's outstanding ordinary shares. Israel Aircraft directly owns
approximately 12% of Medis El's ordinary shares, and the remaining shares are
held by various third parties, including Medis El's public shareholders.
At the time of its initial public offering in 1993, Medis El was
principally engaged in the development and clinical testing of the CellScan.
Medis El evolved into a multi-product company by 1997, as it sought out and
assisted in the development of advanced technologies in a number of unrelated
fields. Together with us, Medis El has embarked upon a business strategy to
become a greenhouse for the development of highly advanced, innovative,
proprietary technology products to license, sell or joint venture with large
international corporations.
Medis El currently owns, in whole or in part, a number of different
technologies in various stages of development. Medis El focuses its efforts on
the lengthy and expensive process of preparing and submitting patents for its
technologies and concurrently applying its in-house technological capabilities
to maximize the development of the technologies to a point of exploitation
through licensing, sales and joint ventures. Towards this end, Medis El
maintains strategic relationships with Israel Aircraft, the University of
Bar-Ilan in Israel and other institutions in and outside of Israel to perform
scientific research and development with respect to its technologies.
Medis El completed its initial public offering of its common stock in
December 1993 and is currently traded on the Nasdaq SmallCap Market under the
symbol MDSLF.
Products and Technology
Medis El's technologies, which are in varying stages of development,
presently include:
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CellScan
Medis El's primary medical product, the CellScan, is a system for the
viewing and testing of cells. The CellScan was originally designed to develop
diagnostic tests for cancers and other diseases. Recently, Medis El completed
development of a research CellScan which has additional properties to measure
cell reaction to stimulation in a research setting. The CellScan measures the
intensity and direction of light emitted from cells marked with fluorescent dye
and stimulated with an antigen or chemical. The cells are then exposed to a
laser light to measure the surface reaction of each cell to the stimulant.
Current cell scanning techniques involve the use of either a traditional
microscope or a "flow" cytometer, which passes each cell by a viewer one at a
time. This system is not designed to revisit a particular cell for further
study, and a diagnosis is made based upon an average of all the cells viewed.
The CellScan, which is a "non-flow" cytometer, allows viewing of thousands of
cells in a living state, which provides the ability to revisit each cell. We
believe that the CellScan is the first technology available capable of doing
this in a timely and cost efficient manner. Instead of having each individual
cell monitored and then lost, the cells are arranged on a "cell carrier" which
consists of a 4 square millimeter matrix of 10,000 wells, each of which is
designed to hold one cell in a semi-immobilized state without injury to the cell
or its surface. Each cell is then monitored to detect changes in the intensity
and direction of light emanating from the cell which can then be measured and
recorded.
There are three processes involved in monitoring cells using the CellScan:
o Selecting and localizing individual cells within a cell population. Cells
from a blood sample are placed in wells on the disposable cell carrier
matrix. Because each well is tagged, the cell carrier permits each cell to
be tested and retested so that a statistical norm of the intensity and
direction of light can be established which is statistically more reliable
than an individual reading of the cells; we know of no other presently
available equipment capable of such retesting procedures.
o Stimulating the cells. The cells are then stimulated by a specific antigen
or chemical developed for such purpose and exposed to beams of laser light
at the rate of at least 5,000 times per second to activate a detectable
response in each cell's surface.
o Analysis. The detectable response is then analyzed for qualitative and
quantitative changes in the intensity and direction of light emanating
from each individual cell, which can be measured and recorded.
Development of an effective antigen capable of generating accurate and
repeatable results is a difficult and time consuming process. There can be no
assurance that Medis El will be able successfully to develop or acquire antigens
for any or all of the cancers and diseases which it expects to diagnose using
the CellScan.
The CellScan also permits real time monitoring of ongoing cellular events.
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Upgraded CellScan. Over a period of time, there have been inconsistent
results from using the original CellScan for tests to diagnose various cancers
at institutions around the world. This culminated in a failure of a CellScan
placed at a predecessor of North Shore LIJ Health Systems, Inc. in New York to
achieve results achieved elsewhere with the CellScan in tests for the diagnosis
of prostate cancer. This was attributed to design flaws in the CellScan
technology so that diagnostic results were dependent on the quality of the
particular CellScan and the abilities of the personnel using the CellScan. As a
result, Medis El redesigned the CellScan substantially to improve its accuracy,
repeatability and ease of handling. Tests of the new system for diagnostic and
other uses are now ongoing.
Potential applications of the CellScan which hold out the promise of broad
use include aiding in the early detection of certain cancers and other diseases,
including breast, prostate and gynecological cancers and tuberculosis and
atherosclerosis, and individualized patient chemotherapy. Medis El from time to
time seeks to place the CellScan at medical and research institutions around the
world in order to develop new applications for the system in additional fields.
The applicability of the CellScan in diagnosing various cancers and
diseases are currently being researched, or there is an intention to research,
at the following institutions:
o Rebecca Sief Medical Center. Researchers at the Rebecca Sief Medical
Center in Sefad, Israel are currently researching the applicability of the
CellScan as it relates to the detection of breast cancer and prostate
cancer. An article detailing the Center's research as it relates to
prostate cancer reflecting favorable conclusions with respect to the
CellScan has been accepted for publication in the Journal of Urology. In
addition, researchers are also researching the applicability of the
CellScan for the detection of tuberculosis. Broader testing of the
CellScan for breast cancer detection at the Center and other Israeli
institutions has recently begun.
o Sheba Medical Center and Tel Hashomer Hospital. Researchers at the Sheba
Medical Center and Tel Hashomer Hospital in Tel Aviv, Israel are currently
researching the applicability of the CellScan as it relates to the
detection of atherosclerosis. An article describing the results was
accepted for publication in the journal "Clinical Cardiology."
o Shotenstein CellScan Center. The Shotenstein CellScan Center at Bar-Ilan
University is researching various applications for the CellScan, which
results it shares with Medis El, although it has no obligation to do so.
Medis El from time to time provides Bar-Ilan with upgrades to its CellScan
at no charge.
o Pasteur Institute. Researchers at the Pasteur Institute in Paris have
tested the CellScan in studying cell death as it relates to HIV. Medis El
believes that the Pasteur Institute will continue its study upon the
placement of an upgraded CellScan at their facilities, which we intend to
do.
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o North Shore LIJ Health Systems, Inc. Medis El has sent a research CellScan
to North Shore LIJ which it intends to use to research the applicability
of the CellScan on papilloma, tuberculosis and lyme disease.
Additionally, there are CellScans located in Taiwan, Peru and Argentina which
were acquired for diagnostic testing. In the case of institutions in Taiwan and
Peru, Medis El is upgrading or planning to upgrade their respective CellScans.
We are currently involved in legal proceedings with an Argentinian company with
respect to its CellScan. See "Legal Proceedings" for a complete description of
such proceedings.
Research CellScan. Medis El has completed development of a research
CellScan which has additional properties, including the use of an argon laser,
to measure cell reaction to stimulation. Medis El believes the additional
properties of the research CellScan can be applied for use in the areas of
developing drugs, vaccines and antigens, which are immune system stimulants, and
in the fields of gene therapy and cell research. Gene therapy and targeted drug
delivery experiments are currently being carried out at Tel Aviv University's
Department of Biochemistry.
Medis El is now presenting the CellScan to medical device companies and
major pharmaceutical companies to jointly market and develop the system.
Bar-Ilan License of the CellScan. Pursuant to an agreement entered into in
October 1991 between Israel Aircraft and Bar-Ilan University in Israel, Bar-Ilan
granted to Israel Aircraft a perpetual worldwide license to develop,
manufacture, market and sell the CellScan, and to sublicense the right to
manufacture and sell the device. The license includes all of Bar-Ilan's rights
to the CellScan patents, know-how and inventions, including any subsequently
acquired, and all improvements thereto. In August 1992, Israel Aircraft assigned
all of its rights under the license to Medis El. Medis El is obligated to pay
Bar-Ilan a royalty through 2005 at the rate of 6.5% on proceeds of sales, after
deducting sales commissions and other customary charges, and 4.5% on any fees
received on account of the grant of territorial rights, and for the ensuing ten
years a royalty of 3.5% on all revenues, whether from sales or fees.
In addition, Medis El is required to make a grant of $100,000 to Bar-Ilan
during the first year in which its post-tax profits relating to the CellScan
exceed $300,000. Medis El is permitted to assign its rights under the license,
but subject to certain restrictions such as paying a portion of the sales
proceeds to Bar-Ilan under certain circumstances. The license contains
provisions relating to the joint protection of the licensed patent rights and
other provisions customary in such instruments.
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Stirling Cycle Linear Technology
Medis El's stirling cycle linear technology is a patented refrigeration
and air conditioning system for use in home and office refrigerators, freezers
and air conditioners and automobile air-conditioners. The system consists of a
linear compressor and a displacer - or expander - which utilizes an efficient
thermodynamic technique known as the "stirling cycle." Medis El believes the
technology will provide greater energy efficiency than current refrigeration and
air conditioning systems and would lower energy consumption and reduce emissions
which may harm the environment.
The linear compressor is based on, and we believe perfects, the stirling
cycle engine, which is a type of engine invented in 1816 and still in use today
in various limited applications, some relating to refrigeration and cryogenics.
Medis El believes that its stirling system offers an immediate solution to
current stirling cycle cooling system problems, such as the use of inferior
rotary bearings, compressor dynamic seal-related problems, debris and lubricant
contamination and helium leakage. Medis El's compressor uses a cylinder-piston
assembly containing a piston moving back and forth on air bearings. Since the
piston has only clearing seals and no rotating parts, there is minimal
dissipation of energy and consequently little heat loss and wear on the system.
Additionally, since the system's displacer uses helium as the working gas, which
is a natural gas found in the atmosphere that has no known depleting effect on
the ozone layer, it is environmentally friendly. Current refrigeration and
cooling systems use freon or a freon compound as refrigerants. These substances
contain chlorofluorocarbons, which are commonly believed to deplete the ozone
layer and contribute to the "greenhouse effect" and global warming. The greater
efficiency and the use of helium over freon or freon compounds will enable
manufacturers to meet new elevated environmental standards for refrigeration
system efficiency, including the U.S. Department of Energy's announcement that
refrigerators produced in 2001 will have to use 30% less electricity than those
on the market today, and require a reduction in the use of freon products.
Medis El intends to market the technology as a whole system but also to
offer the linear compressor as a stand-alone unit. This would allow
manufacturers to increase energy efficiency without needing to restructure a
refrigeration or air conditioning unit, which would be required in order to
install the displacer.
Automobiles. In addition to potential applications in home and office air
conditioners and refrigerators, Medis El is offering the stirling cycle
technology as a way to improve the efficiency of automobile air conditioner
compressors, which Medis El expects will reduce the amount of power required for
air conditioning by up to 50%. Medis El expects fuel consumption to be reduced
and the car to have more power for other operations. In addition, Medis El
believes the stirling cycle technology will benefit electric and hybrid
vehicles, which use a combination of fuel cells and traditional fuel such as
gasoline, because the system is expected to draw only one-half of the
electricity compared to present air conditioning systems. Medis El believes the
stirling cycle technology can also be adapted for heating, and is currently
planning the development of a heat pump for automobiles that is expected to
draw, from electric or hybrid vehicles, one-quarter of the electricity from the
fuel cells compared to present heating systems.
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Recent Development. In December 1998, Medis El entered into a technology
development agreement with a U.S.-based multi-national company, among other
things, to jointly develop the stirling cycle technology for application in such
company's line of business. The company has paid to Medis El $100,000 for a
right of first refusal to obtain exclusive rights for the sole use of the
stirling cycle and other technology in its field of business and an additional
$100,000 to assist in the development of the stirling cycle technology for use
in its field of business. A prototype of the system is now under development and
is being calibrated and tested. If successfully completed, the prototype will be
submitted to such company for its analysis pursuant to the agreement. Such
company will have up to seven months to evaluate the new prototype's performance
and subsequently whether to decide to make wide-scale use of the technology, in
its sole discretion. If the company decides to use the technology, it is
required to pay to Medis El $500,000 to fund tooling and manufacturing. Medis El
would be entitled to a royalty to be agreed upon for each unit manufactured for
use by such company.
Medis El is currently engaged in discussions with other companies in the
U.S. and Europe regarding their use of the stirling cycle technologies.
Fuel Cells; Highly Electrically Conductive Polymers; Catalytic Reagent
Medis El owns 70% of More Energy Ltd., a company whose founders developed
a proprietary fuel cell technology and highly electrically conductive polymers.
Fuel Cells. Scientists at More Energy are developing fuel cells for cell
phones and laptop computers, as well as larger fuel cells which Medis El
believes could be used to provide energy for refrigeration or home use. They are
being developed with a view to providing significantly more operating time than
the batteries or fuel cells currently used for such products. The fuel cells
contain electrodes also developed by More Energy which give the fuel cells their
efficiency, ability to operate at a lower cost and ability to last longer than
currently available fuel cells. Medis El intends to license the technology
underlying the electrodes to the automotive industry to ultimately develop a
fuel cell for hybrid vehicles.
The electrodes in turn are made from highly electrically conductive
polymers made by More Energy according to a proprietary formula. The electrode's
advantages of longevity, malleability, strength and low cost are due to:
o the use of a proprietary catalyst which, when combined with the electrode
polymer, creates a film which protects the electrode from harmful
impurities in the fuel, resulting in a longer service life for the
electrode; and
o the cost of the fuel cell is reduced due to the substantial reduction in
the platinum component of the cell, based on Medis El's special technology
and know-how for plating the electrode.
Highly Electrically Conductive Polymers. The polymers have the
characteristics of standard polyethylene together with high conductivity found
in certain metals. Medis El believes
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this break-though material will have, in addition to its applications in the
fuel cells, stand-alone applications in such fields as anti-static equipment,
active matrix polymer displays, plastic-coated electrodes and sensors, magnetic
shielding in electrical equipment and other uses.
New Catalyst. Medis El believes the catalytic agent which combines with
the polymers to create the electrodes has additional applications in such fields
as electro-synthesis, organic synthesis, producing mineral fertilizer and
reforming, cleaning and purifying industrial and automotive gases and exhaust
fumes.
Medis El is preparing patent applications for the catalytic reagent and
the electrodes. After patents are filed by September, 1999, Medis El intends to
meet with industrial and chemical companies with a view towards jointly
developing all of the technologies and their anticipated applications.
Reciprocating Electrical Machine
The patented reciprocating electrical machine, when developed, is expected
to take the reciprocating motions of energy sources such as wind or sea waves
and convert such energies' back-and-forth motion into electricity. The
reciprocating machine is based on principles incorporated into the stirling
cycle linear technology. Medis El believes that the machine can reduce the cost
of generating electricity by up to 30% and would be cleaner and environmentally
safer than traditional power sources. Medis El believes this machine to be
particularly useful in a country that depends heavily on importing fossil fuels
for its energy needs but has access to other energy sources.
Medis El intends to meet with major utility companies with a view towards
jointly developing the technology.
Direct Current Regulating Device
Medis El owns options, which it currently intends to exercise, to acquire
a 75% interest in a privately held company that owns patents for a technology
yet to be developed that switches and regulates direct current, or DC,
electricity in ranges of several thousand amperes, which is a base unit of
electric current. Medis El believes that, using currently-installed electric
wire, the direct current regulating device would enable the transmission of
two-thirds more current than the current system and would eliminate the need for
alternate current, or AC, power lines, which make up two of the four wires
presently used to supply electricity, and the transformers which convert DC to
AC. Furthermore, the elimination of transformers would end the electromagnetic
emission from electrical power lines thought by some to cause diseases in people
living or working in its vicinity. Medis El further believes that the device can
be applied to regulate and stabilize the temperature inside electric furnaces
during steel melting, which Medis El believes will be more economical and
accurate than current regulating devices for such purposes.
Medis El intends to meet with major utility companies with a view towards
jointly developing the technology.
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Toroidal Internal Combustion Engine And Compressor
In addition to its patents for the direct current regulating device, the
same company owns patents and related applications to a toroidal internal
combustion engine and compressor. Medis El intends to file additional patents
for the toroidal engine which extend the invention beyond the patents currently
in existence.
Toroidal Engine. The toroidal engine is a donut-shaped internal combustion
engine at least one-half the size and weight of conventional internal combustion
engines found in today's automobiles. Medis El believes the engine will deliver
substantially greater mileage per gallon than present internal combustion
engines because it will increase engine efficiency by at least thirty percent
over a traditional internal combustion engine and has a reasonable expectation
that the engine will be more efficient than a diesel engine, yet still use
regular gas which will not create the emissions or suffer other problems of
using diesel fuel.
Medis El believes other features of the engine to be:
o an enhanced combustion process which decreases the amount of non-burned
fuel;
o a 20% reduction of pollution; and
o up to a 30% reduction in manufacturing costs compared to conventional
internal combustion engines.
The engine is being developed in Russia by a team of scientists under
consulting contracts with Medis El pursuant to Medis El's patents. Medis El
expects to have prototypes by December 1999, and intends to meet with automobile
companies with a view towards jointly developing the technology.
Toroidal Compressor. The same scientists are also developing a compressor
for use in refrigeration units and other applications based on the same general
principles and Medis El patents as the engine. The weight and size of the
compressor is expected to be substantially smaller than current state-of-the-art
compressors. Medis El believes the compressor would provide greater energy
efficiency while still using freon compounds, and is expected to be cheaper to
manufacture than existing compressors.
Device For Extracting Water From the Atmosphere
Medis El is preparing for a patent application for what it believes could
be a low-cost unit for household use that can generate sufficient water from the
atmosphere to meet a household's daily needs in even the most arid parts of the
world.
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Patents
Medis El relies on certain proprietary technology and seeks to protect its
interests through a combination of licensed patents, know-how, trade secrets and
security measures, including confidentiality agreements. Medis El's policy is to
secure, directly or through licensing arrangements, patent protection for
significant innovations to the fullest extent practicable.
The following sets forth information on United States patents and
published applications relating to Medis El's technologies. This list does not
include other worldwide patents and filings relating to Medis El's technologies.
"System and Method for Cell Selection" - Covers both a method and an apparatus
for selecting cells, including a method of measuring and moving cells and a cell
carrier with first and second outer surfaces.
#4,729,949 (March 8, 1988)
#4,675,065 (June 23, 1987)
#5,272,081 (December 21, 1993)
"Manufacture of Microsieves and Resulting Microsieves" - Covers an improvement
to known photoresist methods to form a microsieve.
#4,772,540 (September 20, 1988)
"Apertured Cell Carrier" - Defines first and second outer surfaces and comprises
an ordered array of holes through the holes being in identifiable positions on
the carrier and sized to contain individual living cells.
#5,506,141 (April 9, 1996)
"Synchronous Twin Reciprocating Piston Apparatus" - Covers a linear compressor
designed for refrigeration systems and utilizes a technique known as the
stirling cycle, which works on a gas cycle.
#5,693,991 (December 2, 1997)
"Displacer Assembly For Stirling Cycle System" - Covers an assembly that
converts a pulse from a compressor via a thermodynamic cycle to cold or heat.
#5,907,201 (May 25, 1999)
"Synchronous Reciprocating Electric Machines" - Covers a device that converts
reciprocating movement of any type into electricity or converts electricity into
reciprocating motion.
#5,903,069 (May 11, 1999)
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"Direct Current Regulating Device" - Covers a gas discharge tube for regulating
the flow of high power direct current, and a method for its use.
#5,814,943 (September 29, 1998)
"Toroidal Engine" - Covers an internal combustion engine that comprises a
toroidal combustion chamber housing within which slides at least one piston.
#5,797,366 (August 25, 1998)
Medis El is the exclusive worldwide licensee of Bar-Ilan's patents, patent
applications and any other proprietary rights relating to the CellScan. Bar-Ilan
owns two United States patents, covering the structure and method of operation
of the Cell Carrier and certain aspects of its manufacture, and in addition has
two further pending applications for United States patents. In addition,
Bar-Ilan owns, or has applied for, corresponding patents in Europe, Japan,
Israel, Canada and various other countries. Patent applications filed in foreign
countries are subject to laws, rules and procedures which differ from those of
the United States, and even if foreign patent applications issue, some foreign
provide significantly less patent protection than the United States.
The status of patents involves complex legal and factual questions,
including the breadth of claims allowed. Accordingly, there can be no assurance
that patent applications filed by Medis El, or its subsidiary or companies to be
acquired, or in the case of the CellScan system, Medis El or Bar-Ilan
University, its licensor, will result in patents being issued or that the
patents of, and any patents that may be issued in the future to, Medis El or
Bar-Ilan, as the case may be, will afford protection against competitors with
similar technology. There can be no assurance that the patents on which Medis El
principally relies will not be invalidated or that any issued patent will
provide protection that has commercial significance. Litigation may be necessary
to protect Medis El's patent position. Such litigation can be costly and time
consuming and there can be no assurance that Medis El would be successful if
such litigation were instituted. The invalidation of patents owned or licensed
to Medis El could have a material adverse effect on Medis El and, consequently,
us.
There can be no assurance that Medis El's patents will provide broad
protection against any of its competitors. In addition, no assurances can be
given that patents issued to Medis El or its subsidiaries or companies to be
acquired or Bar-Ilan will not be infringed upon or designed around by others or
that others will not obtain patents that Medis El will need to license or design
around. Moreover, to the extent products are covered by third party patents,
development and marketing of such products by Medis El could require a license
under such patents. If existing or future patents containing broad claims are
upheld by the courts, the holders of such patents could require Medis El to
obtain licenses from them. If Medis El is found to be infringing third party
patents, there can be no assurance that licenses that might be required for
Medis El's products would be available on reasonable terms, if at all.
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Know-how and Trade Secrets
In addition to patent protection, Medis El relies on the laws of unfair
competition and trade secrets to protect its licensed or proprietary rights.
Medis El attempts to protect its trade secrets and other proprietary information
through agreements with its distributors, through confidentiality agreements
with employees, consultants, potential joint ventures and licensees and other
security measures.
Description of Property
We presently maintain our executive offices in premises of approximately
4,000 square feet at 805 Third Avenue, New York, New York 10022 under a sublease
from the Stanoff Corporation, which is controlled by Robert K. Lifton, our
chairman and chief executive officer, and Howard Weingrow, our president. We pay
approximately $24,000 for rent per year. The sublease is on a month to month
basis.
Medis El's executive offices, research laboratory and technology center
are located at a leased facility of approximately 7,000 square feet in Yehud,
Israel. The rental expense for this lease, which has an initial term until
November 1999 and two one-year options extending to November 2001 on most of the
facility, is approximately US $89,000 per year. Medis El also leases a facility
of approximately 3,000 square feet in Jerusalem, Israel for the manufacturing of
its CellScan cell carriers. The Jerusalem lease, approximately two-thirds of
which has been sublet to a third-party, expires on December 31, 1999 and
provides for an annual aggregate rental of approximately US $64,000.
Legal Proceedings
We are presently party to an action pending in the Supreme Court of the
State of New York, County of New York, entitled Cellscan Argentina, S.A. v.
Medis El Ltd., et al. In this action, plaintiff claims that we, Medis El and
others defrauded it into entering into a 1993 distribution agreement and a
related purchase of a CellScan machine. The plaintiff seeks an aggregate of
$10,000,000 in compensatory and punitive damages. We have answered the complaint
and have counterclaimed against the plaintiff for $3,145,000 arising from
plaintiff's failure to purchase additional machines from us, as was required by
the distribution agreement at issue. We are vigorously contesting the claims
against us and have been advised by our counsel that we have meritorious
defenses to the claims. In addition, we intend to pursue our counterclaim
against the plaintiff.
In July 1999, Medis El entered into an agreement with a Peruvian company
owning a CellScan. Pursuant to the agreement, in consideration of Medis El
upgrading the company's CellScan at cost, the company agreed to relinquish any
future claims against Medis El subject to a right to require Medis El to
repurchase its CellScan for $100,000 subsequent to the CellScan's upgrade.
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<PAGE>
We are not otherwise party to any material litigation, and we are not
aware of any threatened litigation that would have a material adverse effect on
us or our business.
Economic Conditions in Israel
Unfavorable Balance of Payments: Israel has an unfavorable balance of
payments due principally to defense expenditures which absorb a substantial
portion of the Israeli government's budget, excluding debt service. Defense
expenditures in 1998 absorbed approximately 15.2% of the State's budget,
excluding debt service. As a result, the share of the State's resources
available for economic development and other national purposes is limited.
Israel's foreign debt has been financed principally by military and economic aid
from the United States, personal remittances, sales of bonds primarily in the
United States, inter-governmental, institutional and free market loans and
contributions from the international Jewish community. Israel has never
defaulted on the payment of either principal or interest on any of its
indebtedness.
Israeli Inflation and Currency Devaluation: During the years 1986 to 1998,
the Israeli consumer price index increased by an average of approximately 13.7%
annually, compared to 445% and 185% in years 1984 and 1985, respectively. During
the first five months of 1999, the consumer price index decreased by 0.7%.
The following table sets forth for the periods indicated certain
information with respect to the rate of inflation in Israel, as measured by the
consumer price index, the devaluation of the New Israeli Shekel in relation to
the dollar and the comparison rate of yearly average inflation in the United
States.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Closing U.S. dollar exchange rate (1)..... 2.986 3.018 3.135 3.251 3.536 4.160
Average U.S. dollar exchange rate (1)..... 2.830 3.011 3.011 3.188 3.449 3.800
Highest U.S. dollar exchange rate (1)..... 2.998 3.060 3.175 3.292 3.592 4.367
Lowest U.S. dollar rate (1) .............. 2.718 2.962 2.939 2.080 2.242 3.548
Annual inflation (2) ..................... 11.2% 14.5% 8.1% 10.6% 7.0% 8.6%
U.S. devaluation (3) ..................... 8.0 1.1 3.9 3.7 8.8 17.6
Annual inflation adjusted for
devaluation (4) ....................... 3.0 13.2 4.0 6.6 (1.6) (7.7)
U.S. inflation rate (5) .................. 3.0 2.6 2.5 3.3 1.7 1.6
</TABLE>
- ----------
(1) Closing, highest and lowest exchange rate is the rate of the NIS for one
dollar as reported by the Bank of Israel. Average exchange rate is the
twelve monthly average rates divided by twelve.
(2) Annual inflation is the percentage change in the consumer price index
between December of the year indicated and December of the preceding year.
(3) U.S. devaluation is the percentage increase in the value of the dollar in
relation to the NIS during the calendar year.
(4) Annual inflation adjusted for devaluation is obtained by dividing the
December consumer price index for the year in question by the closing
exchange rate, thus first obtaining dollar-adjusted consumer price index
and then calculating the yearly percentage changes in this adjusted index.
(5) From consumer price index for all urban consumers, as published by the
Bureau of Labor Statistics of the United States Department of Labor.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors are as follows:
Positions with:
--------------------------------------------
Name Age Medis Technologies(1) Medis El
- ---- --- --------------------- --------
Robert K. Lifton...... 71 Chairman of the Board, Chief Chairman of the
Executive Officer and Secretary Board
Howard Weingrow....... 76 President, Treasurer and Director Director
Zvi Rehavi............ 64 Executive Vice President Executive Vice
President
Amos Eiran............ 63 Director Director
Jacob S. Weiss........ 46 Director Director
Zeev Nahmoni.......... 58 Director Director
Shmuel Peretz......... 59 Director Director
Key employee:
- -------------
Israel Fisher......... 51 Vice President-Finance Vice President-
Finance and
Secretary
- ----------
(1) Except for Messrs. Lifton and Weingrow, all of our officers and directors
are appointed to such positions pending and subject to the successful
completion of this exchange offer.
Robert K. Lifton has been our chairman of the board, chief executive
officer and secretary since our inception and chairman of the board of Medis El
since October 1993. Prior to that, Mr. Lifton was a director of Medis El since
its inception in July 1992. He is principally engaged in managing his own
investments through the Stanoff Corporation, of which he is a major shareholder
and a principal, and other investment vehicles. Mr. Lifton has recently been
named chairman of the advisory board of ActFit.com Inc., a developer of
interactive Internet programming, is the chairman of the board and chief
executive officer of FirstchoiceMD.com Inc., a startup Internet provider of
medical services, is a director of Bank Leumi USA, the co-chairman of the
U.S.-Middle East Project of the Council on Foreign Relations, chair of the
Public Health Research Institute and serves on the boards of numerous
philanthropic organizations. He also is an officer and director of a number of
privately held companies. From 1988 to 1994, he was president of the American
Jewish Congress and is the founding chairman and chairman emeritus of the Israel
Policy Forum. In 1983, he was a founder of Preferred Health Care Ltd. and served
as its president. In 1961, he co-founded the Transcontinental Investing
Corporation, serving as its president until 1968, when it was listed on the New
York Stock Exchange, and then chairman of the board until its merger in 1972.
Mr. Lifton was an associate attorney with the law firm of Kaye, Scholer,
Fierman, Hays and Handler in 1955 and 1956, after
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<PAGE>
receiving a law degree from Yale Law School and being admitted to the New York
Bar, and has taught at Yale and Columbia law schools. Mr. Lifton has written
extensively on business and political matters.
Howard Weingrow has been our president, treasurer and one of our directors
since our inception and a director of Medis El since its inception. Mr. Weingrow
is principally engaged in managing his own investments through the Stanoff
Corporation, of which he is a major shareholder and a principal, and other
investment vehicle. Mr. Weingrow has recently joined the advisory boards of
Creditcards.com, a registered independent service organization and ActFit.com
Inc., a developer of Interactive Internet programming, is the president of
FirstchoiceMD.com Inc., a start-up Internet provider of medical service, a
trustee of the Children's Medical Fund of Long Island Jewish Hospital and was a
member of the board of advisors of the American Jewish Congress. He is the
founder of the Weingrow Family Children's Research Laboratory of Long Island
Jewish Hospital and the Weingrow Collection of Avant Garde Art and Literature at
Hofstra University. He is also a trustee of the James S. Brody Presidential
Foundation, the Nassau County Museum of Art and the Children's Medical Fund. He
was chairman and a director of Mercury Paging & Communications, Inc. from 1995
until its sale in 1997.
Zvi Rehavi has been the executive vice-president and General Manager of
Medis El since its inception. Mr. Rehavi is also general manager of More Energy
Ltd., a subsidiary of Medis El. From 1989 to 1991, he was manager of development
and production of Patriot Missile Sensors, a joint venture of Israel Aircraft
and Martin Marietta. From 1984 to 1989, he was Israel Aircraft's director of
sensors and electro mechanical components. From 1966 to 1974, he was manager,
inertial components laboratory at Israel Aircraft. From 1958 to 1966, he served
with the Technical Office of the Ministry of Defense of Israel. He has a Master
of Engineering Science from the University of Pennsylvania. He was a Ph.D.
candidate in Applied Physics at Hebrew University, Jerusalem, and an MBA
candidate at the Wharton School.
Amos Eiran has been one of Medis El's directors since its inception. Mr.
Eiran serves as chairman of the Industrial Cooperation Authority, the agency in
charge of the buy back and offset program of the State of Israel. Mr. Eiran also
serves as director for Clal Insurance Group, an Israeli insurance company.
Previously, Mr. Eiran was director general of the Prime Minister's office during
Yitzhak Rabin's first term as Prime Minister and Director General and chairman
of Mivtahim, the largest pension fund in Israel.
Jacob S. Weiss has been one of Medis El's directors since October 1993.
Mr. Weiss serves as the corporate vice president and general counsel to Israel
Aircraft since 1996. Prior to that, he was deputy general counsel-international
division of Israel Aircraft. Mr. Weiss is a director of Fibersense, Inc., a
designer, developer and manufacturer of fiberoptic gyroscopes, a director of
Ellipso Inc., which was granted an FCC license to establish and operate a low
earth orbit mobile communications network and a director of West Indian Space, a
venture established to market and sell services from high resolution earth
observation satellites.
Zeev Nahmoni has been of Medis El's directors from August 1994 to March
1996 and
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from October 1996 to present. Mr. Nahmoni is the vice president and general
manager of the Electronics Group of Israel Aircraft since 1997 and the Deputy
General Manager of the Electronics Group of Israel Aircraft from 1995 to 1997.
Prior to that, he was the general manager of the Tamam Division of the
Electronics Group of Israel Aircraft from 1992 to 1995. Mr. Nahmoni is also a
director of West Indian Space.
Shmuel Peretz has been one of Medis El's directors since its inception.
Mr. Peretz is currently the president of Israel Aircraft Europe and has served
in such capacity since 1997. From 1988 to 1996, he was the corporate vice
president-finance of Israel Aircraft.
Israel Fisher has been the vice president-finance and secretary of Medis
El since its inception. Mr. Fisher is also vice president-finance of More Energy
Ltd., a subsidiary of Medis El. From 1980 to 1992, he served as the deputy
manager of Israel Aircraft for financial planning and credit management. From
1987 to 1990, he served as the deputy finance manager of the Tamam Plant of the
Electronics Division of Israel Aircraft. He has a MBA from the University of Tel
Aviv and two BA degrees from Bar-Ilan University: one in accounting and the
other in Economics and Businesses Administration.
In addition to the above, Messrs. Lifton, Weingrow, Eiran, Weiss and
Nahmoni are directors of Medis Inc., our wholly owned subsidiary.
Our board of directors intends to create a compensation committee and an
audit committee upon the completion of this exchange offer. Each committee will
consist of two or more independent directors. The compensation committee will
review our compensation policies and administer our stock option plan. The audit
committee will review the scope of our audit, the engagement of our independent
auditors and their audit reports.
Summary Compensation Table
The following table sets forth information with respect to compensation
earned by Robert K. Lifton, our chief executive officer, and Zvi Rehavi, our
only other executive officer who earns in excess of $100,000.
<TABLE>
<CAPTION>
Annual compensation Long-term compensation awards
---------------------------------- ------------------------------
Securities
Other annual Restricted underlying
Name And Principal Position Year Salary Bonus compensation stock award(s) options/SARs
--------------------------- ---- ------ ----- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert K. Lifton (1) ............ 1998 $100,000 -- -- -- 50,000
Chief Executive Officer
Zvi Rehavi(2)....................
Executive Vice President 1998 $109,000 $ 25,000 $ 60,600(3) -- 107,500
</TABLE>
- ----------
(1) Mr. Lifton's annual compensation was paid by Medis Inc., our wholly owned
subsidiary, with funds paid to Medis Inc. in quarterly installments by
Medis El for services rendered. As of January 1, 1999, Medis El began
paying such funds directly to us.
(2) Mr. Rehavi's annual compensation is for services rendered to Medis El and
is paid by Medis El.
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<PAGE>
(3) Includes a monthly apartment allowance aggregating $12,000 per annum, a
$15,000 payment per annum for an educational fund and a contribution of
$15,600 per annum by Medis El to a key person life insurance policy
whereby upon termination of employment, Mr. Rehavi shall receive a lump
sum distribution based upon the number of years of premium payout. Medis
El is the death beneficiary of such policy.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Number of securities Percent of total options/
underlying SARs granted to
option/SARs employees Exercise of base
Name granted (#) in fiscal year price ($/Sh) Expiration date
- ---------------------- -------------------- ------------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Robert Lifton ........ 50,000(2) 25.5% $7.20 7/01/02
Zvi Rehavi ........... 50,000(2) 25.5% $7.20 7/01/02
30,000(2) 15.3% $6.00 11/04/02
27,500 14.0% $7.42 2/14/00
</TABLE>
- ----------
(1) Such grants represent options/SARs to purchase Medis El's ordinary shares.
We did not issue any option/SARs in the fiscal year ended December 31,
1998.
(2) Such options are not exercisable within 60 days of the date of this
prospectus.
Employment Agreements
In June, 1999, Medis El entered into a one year employment agreement with
Zvi Rehavi, Medis El's executive vice president, retroactive to October 1, 1998,
which provides for an annual base salary of $120,000. The employment agreement
provides for the payment of severance equal to one-half Mr. Rehavi's annual
salary in the event of termination other than for "cause." The agreement may be
terminated by either party upon 180 days prior notice to the other.
1999 Stock Option Plan
We adopted our 1999 stock option plan on July 13, 1999. We have reserved
1,000,000 shares of common stock with respect to which options and stock
appreciation rights may be granted under the plan. The purpose of the plan is to
promote our interests and the interests of our stockholders by strengthening our
ability to attract and retain competent employees, to make service on our board
more attractive to present and prospective non-employee directors and to provide
a means to encourage stock ownership and proprietary interest in Medis
Technologies by officers, non-employee directors and valued employees and other
individuals upon whose judgment, initiative and efforts our financial growth
largely depends.
The plan may be administered by either the entire board or a committee
consisting of two or more members of our board, each of whom is a non-employee
director. The plan is currently administered by a stock option committee of our
board consisting of two non-employee directors.
Incentive stock options may be granted only to our and our subsidiaries'
officers and key employees. Nonqualified stock options and stock appreciation
rights may be granted to our officers, employees, directors, agents and
consultants. In determining the eligibility of an individual for grants under
the plan, as well as in determining the number of shares to be
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<PAGE>
optioned to any individual, the stock option committee takes into account the
position and responsibilities of the individual being considered, the nature and
value to us of his or her service or accomplishments, his or her present or
potential contribution to our success or the success of our subsidiaries, the
number and terms of options and stock appreciation rights already held by an
individual and such other factors as the stock option committee may deem
relevant.
The plan provides for the granting of incentive stock options to purchase
our common stock at not less than the fair market value on the date of the
option grant and the granting of nonqualified options and stock appreciation
rights with any exercise price. Stock appreciation rights granted in tandem with
an option have the same exercise price as the related option. The plan contains
certain limitations applicable only to ISOs granted thereunder. To the extent
that the aggregate fair market value, as of the date of grant, of the shares to
which incentive stock options become exercisable for the first time by an
optionee during the calendar year exceeds $100,000, the option will be treated
as a nonqualified option. In addition, if an optionee owns more than 10% of the
total voting power of all of our capital stock at the time the individual is
granted an incentive stock options the option price per share cannot be less
than 110% of the fair market value per share and the term of the incentive stock
options cannot exceed five years. No option or stock appreciation rights may be
granted under the plan after June 30, 2009, and no option or stock appreciation
rights may be outstanding for more than ten years after its grant.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash, check or, under certain
circumstances, in shares of our common stock, or any combination thereof. Stock
appreciation rights, which give the holder the privilege of surrendering such
rights for the appreciation in the common stock between the time of the grant
and the surrender, may be settled, in the discretion of our board or committee,
as the case may be, in cash, common stock, or in any combination thereof. The
exercise of an stock appreciation rights granted in tandem with an option
cancels the option to which it relates with respect to the same number of shares
as to which the stock appreciation rights was exercised. The exercise of an
option cancels any related stock appreciation rights with respect to the same
number of shares as to which the option was exercised. Generally, options and
stock appreciation rights may be exercised while the recipient is performing
services for us and within three months after termination of such services.
The plan may be terminated at any time by our board, which may also amend
the plan, except that without stockholder approval, it may not increase the
number of shares subject to the plan or change the class of persons eligible to
receive options under the plan.
To date, no options have been granted under the plan, however, each of the
current holders of options under Medis El's stock option plan has been granted
an option to purchase a number of our shares based upon the same exchange rate
as this exchange offer. Each of the grants is conditioned upon the closing of
this exchange offer and such option holder's agreement to forfeit his or her
existing Medis El options.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
our common stock as of June 30, 1999 by:
o each beneficial owner of five percent or more of our common stock;
o each of our directors and executive officers and our director and
executive officer nominees; and
o all of our directors and executive officers and our director and executive
officer nominees as a group.
Unless otherwise noted, the address of each holder of five percent or more of
our common stock is our corporate address.
<TABLE>
<CAPTION>
Amount
Beneficially Ownership Ownership
Owned Prior Percentage Amount Beneficially Percentage After
Name and Address to the Prior to the Owned After the
of Beneficial Owner Exchange(1) Exchange the Exchange(1)(2) Exchange(2)
------------------- ----------- -------- ------------------ -----------
<S> <C> <C> <C> <C>
Israel Aircraft Industries Ltd. (3) ... 3,700,457 37.1 5,412,957 35.7
Robert K. Lifton (4) .................. 1,544,951 15.1 1,812,633 (5) 11.3
Howard Weingrow (6) ................... 1,428,283 14.0 1,566,363 (5) 10.1
CVF, LLC (7) .......................... 966,668 9.5 966,668 6.3
Zvi Rehavi ............................ -- -- 75,350 (8) *
Amos Eiran ............................ -- -- 20,550 (9) *
Jacob S. Weiss(10) .................... -- -- 3,425 *
Zeev Nahmoni(11) ...................... -- -- 1,370 *
Shmuel Peretz(12) ..................... -- -- -- --
All directors and executive officers as
a group - (7 persons) (13) ............ 2,539,898 24.5 2,977,855 19.0
</TABLE>
- ----------
* Less than 1%
(1) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities which may be acquired by such person within 60 days
from the date on which beneficial ownership is to be determined, upon the
exercise of options, warrants or convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that options,
warrants and convertible securities that are held by such person, but not
those held by any other person, and which are exercisable within such 60
day period, have been exercised.
(2) Assumes all Medis El ordinary shares not beneficially owned by us are
tendered in the exchange.
(3) Includes 25,000 shares of our common stock underlying warrants held by
Israel Aircraft, which are currently exercisable. Israel Aircraft's
address is Ben Gurion International Airport, Tel Aviv 70100, Israel.
(4) Includes 176,615 shares of our common stock underlying warrants held by
Mr. Lifton, which are currently exercisable, and an aggregate of 433,336
shares of our common stock
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<PAGE>
and common stock underlying warrants held by the Stanoff Corporation,
which is beneficially owned by Messrs. Lifton and Weingrow. Does not
include an aggregate of 338,000 shares of our common stock held in trust
of which Mr. Lifton is a trustee.
(5) Includes options to acquire 15,000 of Medis El's ordinary shares, which
are currently exercisable, which will be exchanged for options to acquire
our common stock at an exchange ratio of 1.37:1.0 subsequent to the
completion of this offering.
(6) Includes 147,448 shares of our common stock underlying warrants held by
Mr. Weingrow, which are currently exercisable, and an aggregate of 433,336
shares of our common stock and common stock underlying warrants held by
the Stanoff Corporation, which is beneficially owned by Messrs. Lifton and
Weingrow.
(7) Includes 241,667 shares of our common stock underlying warrants held by
CVF, LLC, which are currently exercisable. CVF's address is 222 North
LaSalle Street, Chicago, IL 60601.
(8) Includes options to acquire 50,000 of Medis El's ordinary shares, which
are currently exercisable, which will be exchanged for options to acquire
our common stock at an exchange ratio of 1.37:1.0 subsequent to the
completion of this offering.
(9) Represents option to acquire 15,000 of Medis El's ordinary shares, which
are currently exercisable, which will be exchanged for options to acquire
our common stock at an exchange ratio of 1.37:1.0 subsequent to the
completion of this offering.
(10) Does not include shares held by Israel Aircraft Industries, of which Mr.
Weiss is corporate vice president and general counsel.
(11) Does not include shares held by Israel Aircraft Industries, of which Mr.
Nahmoni is a vice president.
(12) Does not include shares held by Israel Aircraft Industries, of which Mr.
Peretz is the president of one of its subsidiaries.
(13) Includes our director and executive officer nominees and an aggregate of
433,336 shares of our common stock and common stock underlying warrants
held by the Stanoff Corporation, which is beneficially owned by Messrs.
Lifton and Weingrow.
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<PAGE>
CERTAIN TRANSACTIONS
On December 15, 1997, we acquired from Israel Aircraft all of its shares
of Medis Inc., representing 40% of such company, in exchange for 3,600,457 of
our shares. Medis Inc. is now our wholly-owned subsidiary and the holder of all
of Medis El's shares beneficially owned by us. In connection with the
acquisition, certain of our stockholders entered into a shareholders agreement
with Israel Aircraft providing for certain management and control matters. The
shareholders agreement will terminate in accordance with its terms upon
consummation of the exchange offer.
We used $2,000,000 of proceeds from a private placement on June 30, 1998
to repay Medis El pursuant to a promissory note entered into between us and
Medis Inc. in December 1993, which had been assigned to Medis El through a
capital contribution.
In December 1998, we made the final $300,000 interest payment under the
promissory note to Medis El which had been repaid in June 1998. Such payment was
made with funds invested by the Stanoff Corporation, which is controlled by
Robert K. Lifton, our chairman and chief executive officer, and Howard L.
Weingrow, our president. The Stanoff Corporation received 25,000 units,
consisting of 75,000 shares of our common stock and 25,000 warrants to purchase
25,000 shares of our common stock at an exercise price of $5.00 per share, for
such investment. Also in December 1998, we purchased from Medis El in a private
placement 400,000 of Medis El's ordinary shares for an aggregate of $2,000,000.
On May 19, 1999, we purchased from Medis El in a private placement 318,181
of Medis El's ordinary shares for an aggregate of $1,750,000.
In May 1999, Israel Aircraft purchased from us in a private placement
25,000 units, consisting of 75,000 shares of our common stock and 25,000
warrants to purchase 25,000 shares of our common stock at an exercise price of
$5.00 per share, for an aggregate of $300,000.
On June 28, 1999 we transferred 718,181 shares of Medis El owned by us to
Medis Inc., our wholly-owned subsidiary.
In June 1999, Medis El entered into a one year employment agreement with
Zvi Rehavi, its executive vice president, which was effective retroactive to
October 1, 1998. Under the agreement, he will receive $120,000 as base salary.
Robert K. Lifton, receives an annual salary of $100,000 from Medis Inc.,
our wholly-owned subsidiary, which amount is paid by Medis El for services
rendered.
Distribution and Agency Agreements
Pursuant to an agreement between us and Medis El dated August 1992, we
became the sole distributor of the CellScan in the United States, its
territories and possessions. In July 1998, we became the exclusive agent to
Medis El in coordinating all licensing arrangements in North
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America with respect to Medis El's stirling cycle technology. Medis El's board
has recommended for the vote of its shareholders an amendment to the 1998
agreement whereby all Medis El technologies would be subject to such agreement
except the CellScan, for which our original 1992 distribution agreement with
Medis El would still apply. Medis El's shareholders have not voted on such
recommendation at this date and there is no guarantee that, when voted on, the
shareholders will approve such recommendation. We intend to vote in favor of
such recommendation subsequent to the successful completion of this exchange
offer.
Other responsibilities under the 1998 agency agreement include:
o finding potential licensees and cooperating with Medis El to demonstrate
its stirling cycle linear technologies;
o preparing licensing agreements between Medis El and third parties;
o overseeing legal proceedings between Medis El and third parties arising
out of or in connection with such licensing arrangements; and
o managing the collection of royalties payable by such third parties to
Medis El.
In exchange for these and other services, we are entitled to receive a fee equal
to 10% of all royalties payable to Medis El under each license agreement for the
first ten years of each such agreement and 5% of the royalties under each such
agreement thereafter.
Except for affiliates of which we are 100% owners, all ongoing and future
transactions between us and our affiliates, including Medis El, will be on terms
no less favorable than can be obtained from unaffiliated parties and will be
approved by a majority of our independent and disinterested directors.
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CONCURRENT SECURITIES OFFER
An additional 11,122,716 shares of our common stock and shares of our
common stock underlying warrants have been registered pursuant to a registration
statement filed under the Securities Act of 1933, of which this prospectus forms
a part, for sale by the holders of such securities. Sales of such common stock
or the common stock underlying warrants, if exercised, or even the potential of
such sales could have an adverse effect on the market price of our common stock.
The warrants will not be tradeable upon the closing of this offering.
Except as set forth below there are no material relationships between any
of the selling security holders and us or Medis El, nor have any such material
relationships existed within the past three years.
o Robert K. Lifton, our chairman, chief executive officer and
secretary, and the beneficial owner of 935,000 shares of our common
stock and the holder of 176,615 of our warrants, is the chairman and
a shareholder of Medis El;
o Howard L. Weingrow, our president, treasurer and a director, and the
beneficial owner of 847,499 shares of our common stock and 147,448
warrants, is a director and a shareholder of Medis El;
o The Stanoff Corporation, of which Messrs. Lifton and Weingrow are
principals and stockholders, is the beneficial owner of 325,002
shares of our common stock and 108,334 warrants;
o Israel Aircraft Industries, which is the beneficial owner of
3,675,457 shares of our common stock and 25,000 warrants, is the
original licensee of the CellScan technology and is a major
shareholder of Medis El. certain officers of Israel Aircraft are
members of our board of directors and Medis Inc.'s board of
directors; and
o Various other of our selling securityholders are shareholders of
Medis El.
The sale of the securities by our selling security holders may be effected
from time to time in transactions, which may include blocked transactions by or
for the account of the selling securityholders, in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling security holders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the selling security holders or through broker-dealers who make purchase shares
as principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the selling security holders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise, which compensation as to what particular broker-dealer
may exceed customary commissions.
Under applicable rules and regulations under the Exchange Act, any person
engaged in
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the distribution of the selling security holders securities may now
simultaneously engage in market making activities with respect to any of our
securities for a period of at least two and possibly nine business days prior to
the commencement of such distribution. In addition each selling security holder
desiring to sell such securities will be subject to the applicable provisions of
the Exchange Act and the rules and regulations thereunder including without
limitations regulations and which provisions may limit the timing of the
purchases and sales of shares of our securities of such selling security
holders.
The selling security holders and broker-dealers, if any, acting in
connection with such sales may be deemed to be "underwriters" within the meaning
of section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the security might be deemed to be underwriting
discounts and commissions under the Securities Act.
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DESCRIPTION OF OUR SECURITIES
General
Our authorized capitalization consists of 25,000,000 shares of common
stock, par value $.01 per share, and 10,000 shares of preferred stock, par value
$.01 per share. As of the date of this prospectus, 9,935,618 shares of our
common stock and warrants to purchase 1,187,098 shares of our common stock are
outstanding, held of record by 61 persons. In addition, we will have outstanding
options to purchase 356,337 shares of our common stock subsequent to the
completion of this exchange offer, upon the exchange of all outstanding Medis El
options for options granted under our 1999 stock option plan. No shares of
preferred stock are currently outstanding.
Common Stock
Each stockholder of record is entitled to one vote for each share of our
common stock owned by that stockholder on all matters properly submitted to the
stockholders for their vote. Our Certificate of Incorporation does not provide
for cumulative voting for the election of our directors, with the result that
stockholders owning or controlling more than 50% of the shares voted for the
election of directors can elect all of the directors. Subject to the dividend
rights of holders of preferred stock, if any, holders of common stock are
entitled to receive dividends when, as and if declared by our board out of funds
legally available for this purpose. In the event of our liquidation, dissolution
or winding up, the holders of common stock are entitled to receive on a pro rata
basis any assets remaining available for distribution after payment of our
liabilities and after provision has been made for payment of liquidation
preferences to all holders of preferred stock. Holders of common stock have no
conversion or redemption provisions or preemptive or other subscription rights.
The outstanding shares of common stock are, and when issued as set forth in this
prospectus, will be, fully paid and nonassessable.
Preferred Stock
Upon the successful completion of this exchange offer, our Certificate of
Incorporation authorizes us to issue 10,000 shares of so-called "blank check"
preferred stock having rights senior to our common stock. Our board of directors
is authorized, without further stockholder approval, to issue preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, redemption terms and liquidation preferences, and to fix the number of
shares constituting any series and the designations of these series.
The issuance of preferred stock may have the effect of delaying or
preventing a change of control of Medis Technologies. The issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the voting
power or other rights of the holders of common stock. We currently have no plans
to issue any shares of preferred stock.
Warrants
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Each warrant entitles the holder of record to purchase one share of our
common stock at a price of $5.00 per share, subject to adjustment in certain
circumstances, at any time until the warrants expire at 5:00 p.m., New York City
time, on June 30, 2002.
The exercise price and number of shares of common stock issuable on
exercise of the warrants are subject to adjustment upon the occurrence of
certain events such as stock dividends, or if we recapitalize, reorganize, merge
with another company or consolidate. Furthermore, the warrants are subject to
adjustment upon the issuance of common stock at a price below the warrants'
exercise price.
We have the right, in our sole discretion, to extend the expiration date
of the warrants upon prompt written notice to the warrantholders of any such
extension.
Warrantholders may exercise their respective warrants, in whole or in
part, by surrendering the warrant with the duly executed subscription form on or
prior to the warrants' expiration date at our corporate office in New York, New
York, accompanied by full payment of the exercise price, for the number of
warrants being exercised. Warrantholders do not have the rights or privileges of
holders of common stock.
No fractional shares will be issued upon exercise of the warrants nor
shall we be required to make any cash or other adjustments in respect of such
fraction of a share to which the warrantholder would otherwise be entitled.
We refer you to the form of warrant agreement, which has been filed as an
exhibit to the Registration Statement on Form S-1 of which this prospectus is a
part, for a complete description of the terms and conditions of the warrants.
DESCRIPTION OF MEDIS EL'S SECURITIES
Medis El's authorized capital consists of 30,000,000 ordinary shares, of
which 10,423,981 shares are currently outstanding.
All of Medis El's issued and outstanding shares are validly issued, fully
paid and non-assessable. The shares do not have preemptive rights. Neither Medis
El's Articles of Association nor the laws of the State of Israel restrict in any
way the ownership or voting of shares by non-residents of Israel.
COMPARISON OF SHAREHOLDER'S RIGHTS
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The following is a summary of the rights of our stockholders and Medis
El's shareholders. The rights of Medis El's shareholders are governed by the
Companies Ordinance of the State of Israel, Medis El's Articles of Association
and its Memorandum of Association. Upon the successful completion of this
exchange offer, Medis El's shareholders who properly tendered their ordinary
shares will become our stockholders, and their rights will be governed
principally by the General Corporation Law of the State of Delaware and our
charter and by-laws. This summary does not purport to identify all of the
differences that may be material to Medis El's shareholders and is subject to
the detailed provisions of the relevant laws and governing instruments.
Dividends
As a Medis El Shareholder:
Under Medis El's articles, all of Medis El's shares have the right to take
a uniform rate of the divisible profits of Medis El. Medis El has the right to
issue shares with different dividend rights, but has no current intention to do
so.
As Our Stockholder:
Under the Delaware code, a corporation may pay dividends out of surplus,
defined as the excess of net assets over capital. If no such surplus exists,
dividends maybe paid out of its net profits for the fiscal year, provided that
dividends may not be paid out of net profits if the capital of such corporation
is less than the aggregate amount of capital represented by the outstanding
stock of all classes having a preference upon distribution of assets. Our
charter allows for the payment of such dividends as may be declared by our board
of directors. Our By-Laws are silent as to the payment of dividends.
Neither we nor Medis El currently pay dividends to our respective
shareholders.
Voting Rights
As Our Stockholder and as a Medis El Shareholder:
Each of our shares of common stock and Medis El's ordinary shares is
entitled to one vote on matters submitted to a vote of shareholders. Neither our
nor Medis El's shareholders have cumulative voting rights in the election of
directors.
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Directors-Number of Directors; Vacancies
As a Medis El Shareholder:
Under the Companies Ordinance, a public company must have at least two
directors. Medis El's articles specify that its board size shall be determined
by ordinary resolution of its shareholders. The current number of directors is
six. If a place on the board of directors is not filled or becomes vacant, the
remaining members of the board of directors are entitled to act for all
purposes, so long as their number does not fall below a quorum. If the number of
members falls below a quorum, the board of directors will not be entitled to act
except in emergency matters and for the purpose of appointing additional
directors.
As Our Stockholder:
Our charter and By-Laws provide that our board size shall be determined by
our board. The current size of our board of directors is two, however, we have
nominated four additional members to our board of directors subject to the
successful completion of this exchange offer. Vacant director positions may be
filled by a majority of our directors then in office, even though less than a
quorum.
In addition, at the time of filling any vacant director position, if our
directors then in office constitute less than a majority of the board, the
Delaware Court of Chancery may, upon application of shareholders holding at
least ten percent of shares outstanding, summarily order an election to be held
to fill any such vacant director positions, or to replace the directors chosen
by the directors then in office.
When one or more directors resign from our board, a majority of directors
then in office, including those who have so resigned, may vote to fill the
vacancy.
Directors-Classification
As a Medis El Shareholder:
Medis El has no staggered terms of office. Each of Medis El's directors is
elected to serve until the annual meeting proceeding the general meeting at
which such director was elected, or until his or her earlier removal.
As Our Stockholder:
We have no staggered terms of office. Each of our directors is elected to
serve until the annual meeting proceeding the annual meeting at which such
director was elected, or until his or her earlier removal.
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Directors-Removal
As a Medis El Shareholder:
Medis El's articles provide that a director or the entire Medis El board
may be removed with or without cause by the holders of a majority of Medis El's
ordinary shares represented at a general meeting in person or by proxy.
As Our Stockholder:
Our By-Laws provide that any director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of the shares
entitled to vote in an election of directors.
Directors-Nominations
As a Medis El Shareholder:
Medis El's articles and memorandum are silent on the nomination procedure.
As Our Stockholder:
Our By-Laws provide that nominations for directors may be made only by or
at the direction of the our board of directors or by a shareholder entitled to
vote for the election of directors at a shareholders' meeting. Written notice of
such shareholder's intent to make a director nomination must be received by our
secretary in a manner and within the time period specified in our By-Laws.
Limitation on Directors Liability; Indemnification of Officers and Directors
As a Medis El Shareholder:
The Companies Ordinance permits a company's articles of association to
provide that:
o a company may obtain an insurance policy for an executive officer or
similar position without regard to the corporate title with respect to
liabilities incurred by such person as a result of a breach of his duty of
care or fiduciary duty to the company to the extent that he acted in good
faith and reasonably believed that the act would not prejudice the
company, as well as for monetary liabilities charged against him as a
result of an act or omission that he committed in connection with his
serving as an officeholder of a company; and
o a company may indemnify an office holder for monetary liability incurred
pursuant to a judgment from an action brought against him by a third
party, or as a result of a criminal charge of which he was acquitted.
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o a company may not indemnify an office holder as a result of the following:
o a breach of fiduciary duty, except for a breach of fiduciary duty to the
company while acting in good faith and having reasonable cause to assume
that such act would not prejudice the interests of the company;
o a willful breach of the duty of care or reckless disregard for the
circumstances or the consequences of a breach of the duty of care;
o an intentional, unlawful act to realize a personal gain; or
o a fine imposed for an offense.
Medis El's articles provide for the insurance and indemnification as
described above, and carries such insurance. Additionally, Israel Aircraft has
agreed to indemnify Mr. Rehavi, Medis El's executive vice president, and Mr.
Israel Fisher, Medis El's vice president-finance, for any claims arising out of
Medis El's initial public offering in 1993.
As Our Stockholder:
Section 102 of the Delaware code allows a corporation to include in its
certificate of incorporation a provision that limits or eliminates the personal
liability of directors to a corporation and its stockholders for monetary
damages for a breach of fiduciary duty as a director. However, a corporation may
not limit or eliminate the personal liability of a director for:
o any breach of the director's duty of loyalty to the corporation or its
stockholders;
o acts or omissions in bad faith or which involve intentional misconduct or
a knowing violation of law;
o intentional or negligent payments of unlawful dividends or unlawful stock
purchases or redemption; or
o any transaction from which the director derives an improper personal
benefit.
Section 145 of the Delaware code permits a corporation to indemnify any
person who was or is a party or is threatened to be made a party to:
o any action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation,
against expenses, including attorneys' fees, judgments, fines and
reasonable settlement amounts if such person acted in good faith and
reasonably believed that his or her actions were in or not opposed to the
best interests of such corporation and, with respect to any criminal
action or proceeding,
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had no reasonable cause to believe that his or her conduct was unlawful;
and
o any derivative action or suit on behalf of such corporation against
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense or settlement of such action or suit, if such
person acted in good faith and reasonably believed that his or her actions
were in or not opposed to the best interest of such corporation.
In the event that a person is adjudged to be liable to the corporation in
a derivative suit, the Delaware code prohibits indemnification unless either the
Delaware Court of Chancery or the court in which such derivative suit was
brought determines that such person is entitled to indemnification for those
expenses which such court deems proper. To the extent that a representative of a
corporation has been successful on the merits or otherwise in the defense of a
third party or derivative action, indemnification for actual and reasonable
expenses incurred is mandatory.
Our charter provides that we shall indemnify our directors to the maximum
extent permitted by the Delaware code. Our charter provides that we may, at the
discretion of our board of directors, indemnify our officers and employees.
Call of Special Meetings
As a Medis El Stockholder:
Under Section 109 of the Companies Ordinance, an extraordinary general
meeting of shareholders must be called by the board of directors upon a request
of the shareholders holding at least one-tenth of the paid-up capital of the
company carrying voting rights at general meetings. Under Medis El's articles,
an extraordinary general meeting of the shareholders may be called by its board
of directors upon a valid vote of the board of directors.
As Our Stockholder:
Under Section 211 of the Delaware code, special meetings of stockholders
may be called by the board of directors or by such other person or persons
authorized to do so by the corporation's certificate of incorporation or
By-Laws. Under our By-Laws, a special meeting of shareholders may be called only
by our chairman of the board or our president or by our president or secretary
at the request in writing of our board of directors.
Action of Shareholders Without a Meeting
As a Medis El Shareholder:
Neither the Companies Ordinance nor Medis El's articles or memorandum
address the issue of shareholders action without a meeting. However, under
section 110 of the Ordinance, in the event that shareholders holding at least
one-tenth of the paid-up capital of a company have
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asked the directors of such company to call a general meeting and the directors
did not do so within 21 days from the date of such request, such shareholders,
or shareholders holding more than 50% of the voting rights of such shareholders,
may call a general meeting.
As Our Stockholder:
The Delaware code permits the stockholders of a corporation to consent in
writing to any action without a meeting, unless the certificate of incorporation
of such corporation provides otherwise, which ours does not provide.
Shareholder Proposals
As a Medis El Shareholder:
Neither the Companies Ordinance nor Medis El's articles or memorandum
address the issue of shareholder proposals.
As Our Stockholder:
Our By-Laws provide that, to be timely, our secretary must receive written
notice at our principal executive offices not later than the close of business
on the 60th day nor earlier than the close of business on the 90th day prior to
the first anniversary of our annual meeting of stockholders. Such notice must
set forth (a) in the case of nominations for election or re-election as a
director, such information relating to such person that is required to be
disclosed pursuant to the Exchange Act, (b) in the case of any other business
the stockholder proposes to bring before the meeting, a brief description of
such business, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the nomination or proposal is made and (c) the name and
address of the stockholder and any such beneficial owner, if any, and the class
and number of shares of our stock owned beneficially and of record by such
stockholder and such beneficial owner.
Amendment to Charter; By-Laws
As a Medis El Shareholder:
Under the Companies Ordinance, an Israeli company may not amend its
memorandum of association, except to the extent allowed under the explicit
instructions in the Companies Ordinance, or under other limited circumstances in
accordance with Israeli law.
Under the Companies Ordinance, an Israeli company may, subject to its
memorandum of association, amend or supplement its articles of association by
"Special Resolution." A "Special Resolution" requires the approval, at a general
meeting with a quorum present, of seventy-five percent of the shareholders
present and voting in person or by proxy with regard to which notice which
includes the specific intention of proposing a special resolution has been
given, at least 21 days prior to the date of the meeting.
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As Our Stockholder:
Under the Delaware code, the charter of a corporation may be amended by
resolution of the board of directors and the affirmative vote of the holders of
a majority of the outstanding shares of voting stock then entitled to vote. The
Delaware code also permits a corporation to make provision in its certificate of
incorporation requiring a greater proportion of the voting power to approve a
specified amendment. Any amendment to the charter of a corporation that
adversely affects a particular class or series of stock requires the separate
approval of the holders of the affected class or series of stock.
Under our charter, our board of directors is expressly authorized to make,
alter, amend, change, add or repeal our By-Laws. If such action is to be taken
by shareholders, the affirmative vote of not less than 66 2/3% of the total
votes eligible to be cast by shareholders is required.
Conflicts of Interest
As a Medis El Shareholder:
Under the Companies Ordinance, certain "unusual transactions" of a
company, defined as transactions not in the ordinary course of business, not on
market terms or apt to substantially affect the corporation, in which an office
holder of the company has a "personal interest" must be approved by the
company's audit committee and its board of directors and, for certain events,
its shareholders. Furthermore, any transaction in which an office holder of a
company has a personal interest must be approved by the board of directors of
that company.
Medis El's articles provide that no director or officer shall be
disqualified by virtue of his office from holding any office or place of profit
in Medis El or in any company which Medis El holds shares of or contracts with.
Any such arrangement or contract requires Medis El's approval, which may be
approved, provided that the director or officer involved acts in good faith and
the arrangement or contract does not prejudice Medis El's interests. No director
or officer shall be liable to account to Medis El for any profit arising from
any such office or place of profit or realized by any such contract or
arrangement solely due to such interest. The nature of the interest, as well as
any material fact or document, must be disclosed by him at the meeting of the
board of directors at which the contract or arrangement is first considered, if
his interest then exists, or, no later than the first meeting of the board of
directors after the acquisition of his interest.
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As Our Stockholder:
Our By-Laws provide that no contract entered into between us and one or
more of our directors or officers or between us and any other organization in
which one or more of its directors or officers, are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present or participates in a meeting
of the board or committee which authorizes the contract or transaction, or
solely because his or her votes are counted for such purpose, if:
o the director or officer's relationship or interest in the contract or
transaction is disclosed or known to our board of directors, and the
disinterested directors authorize the contract or transaction in good
faith;
o the material facts as to the director or officer's relationship or
interest in the contract or transaction are disclosed or known to our
shareholders then entitled to vote, and the contract is approved in good
faith by the vote of our shareholders; or
o the contract or transaction is fair to the corporation as of the time it
is authorized, approved or ratified by our board of directors or by our
shareholders.
Business Combinations; Antitakeover Effects
As a Medis El Shareholder:
Under the Companies Ordinance, settlements and arrangements between a
company and any class of its shareholders, or any class of its creditors,
involving certain types of mergers, reorganizations, sales of assets and
dissolutions require:
o the approval of the majority of shareholders present and voting in person
or by proxy, who together own 75% of the value represented in the vote, at
an extraordinary meeting of shareholders; and
o the sanction of the Israeli District Court.
Once so approved and sanctioned, all shareholders of the relevant class
are bound by the arrangement.
As Our Stockholder:
Section 203 of the Delaware code generally prohibits a publicly held
corporation from engaging in a "business combination" with an "interested
stockholder" for three years after the date the person becomes an interested
shareholder. Neither our charter nor bylaws contains any provisions which modify
Section 203 of the Delaware code.
Our charter and By-Laws contain a number of provisions which may be deemed
to have
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potential anti-takeover effects.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain U.S. income tax consequences of the
exchange offer. This summary may not apply to certain classes of persons,
including, without limitation, foreign persons, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who
acquired shares pursuant to the exercise of employee stock options or rights or
otherwise as compensation and persons who hold shares as part of a straddle or
conversion transaction. This summary is based upon laws, regulations rulings and
decisions, all of which are subject to change (possibly with retroactive
effect), and no ruling has been or will be requested from the Internal Revenue
Service on the tax consequences of the exchange offer.
Our attorney's, Cooperman Levitt Winikoff Lester & Newman, P.C., have
advised us that, in their opinion, an exchange of Medis El shares for our common
stock pursuant to the exchange offer will be treated for federal income tax
purposes as an exchange pursuant to Section 368(a)(1)(B) of the Code only if
Medis Inc., our wholly-owned subsidiary, owns 80% or more of Medis El's stock
after the transaction and:
o no gain or loss will be recognized by a holder of Medis El shares
upon the exchange in the exchange offer of such Medis El shares
solely for our Common Stock, except with respect to the receipt of
cash in lieu of fractional shares of common stock;
o the aggregate adjusted tax basis of shares of our common stock
received in the exchange offer by a holder of Medis El shares
(including fractional shares of our common stock deemed received and
redeemed as described below) will be the same as the aggregate
adjusted tax basis of the Medis El shares exchanged therefor;
o the holding period of shares of our common stock received in the
exchange offer by a holder of Medis El shares (including fractional
shares of our common stock deemed received and redeemed as described
below) will include the holding period of the Medis El shares
exchanged therefor, provided such shares were held as capital
assets;
o a holder of Medis El shares who receives cash in lieu of fractional
shares of our common stock will be treated as having received such
fractional shares and then as having received such cash in
redemption of such fractional shares; and
o no gain or loss will be recognized by us or Medis El as a result of
the exchange offer.
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Under Section 302 of the Code, provided such fractional shares would have
constituted a capital asset in the hands of such holder and provided such deemed
redemption is "substantially disproportionate" with respect to such holder or is
"not essentially equivalent to a dividend" after giving effect to the
constructive ownership rules of the Code, the holder will generally recognize
capital gain or loss equal to the difference between the amount of cash received
and the holder's adjusted tax basis in such fractional shares. Such capital gain
or loss will be long-term capital gain or loss if the holder's holding period in
the fractional shares is more than one year.
The positions stated above are those of the Company's tax advisors. Unlike
a ruling from the Service, the opinion of the our tax advisors is not binding on
the Service, and there can be no assurance that the Service will not take a
position contrary to one or more positions reflected herein or that the
positions reflected herein will be upheld if challenged by the Service.
This summary does not address state, local or foreign tax consequences of
the exchange offer. Consequently, each holder should consult such holder's own
tax advisor as to the specific tax consequences of the exchange offer to such
holder. We are not including any Israeli tax effects in this prospectus. To the
extent you are Medis El shareholder and an Israeli citizen or an Israeli
company, please consult your tax advisor or counsel for the tax effects of this
exchange applicable to you.
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LEGAL MATTERS
The validity of our securities will be passed upon on our behalf by
Cooperman Levitt Winikoff Lester & Newman, P.C., New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus and the registration statement of which this prospectus is a
part have been audited by Grant Thornton LLP, independent certified public
accountants, as indicated in their reports, and are included herein in reliance
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Medis El Ltd. as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998 have been audited by Fahn, Kanne & Co., independent auditors, as indicated
in their reports and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 which
includes exhibits, schedules and amendments, pursuant to the Securities Act of
1933 with respect to this offering of our securities. This Prospectus is part of
the Form S-1 but does not contain all the information in the Form S-1. We refer
you to the Form S-1 for further information about us, our securities and this
exchange offer. Statements in this prospectus about documents filed as exhibits
to the Form S-1 are summaries of these documents, and each of these statements
is qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. The Form S-1 can be inspected and copied at the SEC's Public
Reference Room at:
Room 1024, Judiciary Plaza,
450 Fifth Street, N.W.,
Washington, D.C. 20549-1004,
and at the SEC regional offices located at:
7 World Trade Center,
Suite 1300,
New York, New York 10048,
and
Northwest Atrium Center,
500 West Madison Street, 14th Floor,
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Chicago, Illinois 60661.
The public may obtain information about the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains a web site at http://www.sec.gov which contains the Form S-1 and other
reports, proxy and information statements and information regarding issuers that
file electronically with the SEC.
Medis El files annual and other reports pursuant to the Securities
Exchange Act of 1934. Such reports and other information filed by Medis El can
be inspected and copied at the above-listed addresses at prescribed rates.
We will file, no later than the date of commencement of the exchange
offer, a statement on Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange
Act which contains certain information about the exchange offer. The Schedule
and any amendments to the Schedule can be inspected and copied as set forth
above.
We intend to furnish to each of our stockholders annual reports containing
audited financial statements. We will also furnish to each of our stockholders
such other reports, including proxy statements, as may be required by law.
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INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Medis Technologies Ltd. Financial Statements
Report of Independent Certified Public Accountants F-3
Financial Statements
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-31
Unaudited Pro Forma Consolidated Financial Statements
Introduction F-32
Unaudited Pro Forma Consolidated Balance Sheet - March 31, 1999 F-33
Note to Unaudited Pro Forma Consolidated Balance Sheet F-34
Unaudited Pro Forma Consolidated Statement of Operations - March 31, 1999 F-35
Note to Unaudited Pro Forma Consolidated Statement of Operations F-36
Unaudited Pro Forma Consolidated Statement of Operations - December 31, 1998 F-37
Note to Unaudited Pro Forma Consolidated Statement of Operations F-38
</TABLE>
F-1
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Medis El Ltd. Financial Statements
Unaudited Condensed Interim Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1998
and March 31, 1999 F-39
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1999 F-40
Condensed Consolidated Statement of Shareholders' Equity for the
three months ended March 31, 1999 F-41
Consolidated Statements of Cash Flow for the three months ended
March 31, 1998 and 1999 F-42
Notes to Condensed Consolidated Interim Financial Statements F-43 - F-44
Year-end Financial Statements
Independent Auditors' Report to the Shareholders of Medis El Ltd. F-45
Financial Statements
Consolidated Balance Sheets F-46
Consolidated Statements of Operations F-47
Consolidated Statements of Changes in Shareholders' Equity F-48
Consolidated Statements of Cash Flows F-49
Notes to Consolidated Financial Statements F-50 - F-62
</TABLE>
F-2
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Medis Technologies Ltd.
We have audited the accompanying consolidated balance sheets of Medis
Technologies Ltd. and Subsidiaries (formerly Cell Diagnostics, Inc. and
Subsidiaries) (a Delaware corporation) as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note B, the Company restated its 1996 and 1997 financial
statements to reflect, in 1996, the "in-the-money" conversion factor on
long-term debt, and, in 1997, the acquisition of the minority interest share of
Medis Inc.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Medis Technologies Ltd. and Subsidiaries as of December 31, 1997 and 1998, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
June 11, 1999 (except for Notes J-5 and M,
as to which the date is July 26, 1999)
F-3
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------- March 31,
1997 1998 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 772,000 $ 3,155,000 $ 3,729,000
Short-term deposits 500,000
Accounts receivable 87,000 66,000 86,000
Inventory 947,000 405,000 255,000
Prepaid expenses 46,000 89,000 136,000
------------ ------------ ------------
Total current assets 1,852,000 4,215,000 4,206,000
Property and equipment, net 456,000 860,000 1,068,000
Goodwill, net 12,125,000 9,680,000 9,069,000
------------ ------------ ------------
$ 14,433,000 $ 14,755,000 $ 14,343,000
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 903,000 $ 204,000 $ 196,000
Accounts payable 155,000 113,000 232,000
Accrued expenses 305,000 362,000 374,000
Accrued interest 223,000 -- --
------------ ------------ ------------
Total current liabilities 1,586,000 679,000 802,000
Long-term debt, excluding current maturities 338,000 96,000 47,000
Other long-term liabilities 28,000 61,000 63,000
------------ ------------ ------------
1,952,000 836,000 912,000
Minority interest in subsidiary 1,103,000 1,513,000 1,250,000
Commitments and contingencies
Stockholders' equity (deficiency)
Preferred stock, $.01 par value; 10,000 shares
authorized; none issued
Common stock, $.01 par value; 12,000,000
shares authorized; 8,257,613,
9,407,615 and 9,608,618 shares
issued and outstanding, at December 31,
1997 and 1998 and March 31, 1999,
respectively 83,000 94,000 96,000
Additional paid-in capital 24,527,000 29,962,000 30,765,000
Accumulated deficit (13,232,000) (17,650,000) (18,680,000)
------------ ------------ ------------
11,378,000 12,406,000 12,181,000
------------ ------------ ------------
$ 14,433,000 $ 14,755,000 $ 14,343,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
----------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ -- $ 8,000 $ 8,000 $ --
Cost of sales -- -- 3,000 3,000 --
----------- ----------- ----------- ----------- -----------
Gross profit -- -- 5,000 5,000 --
Operating expenses
Research and development costs, net -- 1,406,000 1,646,000 355,000 332,000
Selling, general and administrative
expenses 193,000 1,303,000 1,399,000 345,000 380,000
Amortization of goodwill -- 102,000 2,445,000 611,000 611,000
----------- ----------- ----------- ----------- -----------
Total operating expenses 193,000 2,811,000 5,490,000 1,311,000 1,323,000
----------- ----------- ----------- ----------- -----------
Loss from operations (193,000) (2,811,000) (5,485,000) (1,306,000) (1,323,000)
Other income (expenses)
Interest and other income 9,000 64,000 63,000 10,000 28,000
Interest expense (1,660,000) (381,000) (101,000) (47,000) (3,000)
----------- ----------- ----------- ----------- -----------
(1,651,000) (317,000) (38,000) (37,000) 25,000
----------- ----------- ----------- ----------- -----------
Loss before minority interest (1,844,000) (3,128,000) (5,523,000) (1,343,000) (1,298,000)
Equity in net losses of unconsolidated
subsidiaries (789,000) -- -- -- --
Minority interest in loss of subsidiary -- 1,584,000 1,105,000 258,000 268,000
----------- ----------- ----------- ----------- -----------
NET LOSS $(2,633,000) $(1,544,000) $(4,418,000) $(1,085,000) $(1,030,000)
=========== =========== =========== =========== ===========
Basic and diluted net loss per share $ (.71) $ (.33) $ (.52) $ (.13) $ (.11)
=========== =========== =========== =========== ===========
Weighted-average shares outstanding 3,734,129 4,645,232 8,581,774 8,257,613 9,465,649
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Total
---------------------------- paid-in Accumulated translation stockholders'
Shares Dollars capital deficit adjustment equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 3,460,000 $ 35,000 $ 6,102,000 $ (9,055,000) $ (62,000) $ (2,980,000)
Net loss -- -- -- (2,633,000) 62,000 (2,571,000)
Issuance of common stock in lieu of
interest on subordinated notes 175,308 2,000 349,000 -- -- 351,000
Issuance of common stock due to
exercise of warrants 316,902 3,000 1,264,000 -- -- 1,267,000
Issuance of Medis El common stock -- -- 947,000 -- -- 947,000
Allocation of proceeds of convertible
debt to additional paid-in capital -- -- 1,341,000 -- -- 1,341,000
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 3,952,210 40,000 10,003,000 (11,688,000) -- (1,645,000)
Net loss -- -- -- (1,544,000) -- (1,544,000)
Issuance of common stock in lieu of
interest on subordinated notes 66,373 1,000 32,000 -- -- 33,000
Issuance of common stock due to
exercise of warrants 638,573 6,000 2,548,000 -- -- 2,554,000
Minority share of capital contribution -- -- (1,145,000) -- -- (1,145,000)
Acquisition of minority interest in
Medis Inc. 3,600,457 36,000 13,089,000 -- -- 13,125,000
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 8,257,613 83,000 24,527,000 (13,232,000) -- 11,378,000
Net loss (4,418,000) (4,418,000)
Issuance of common stock 1,150,002 11,000 4,589,000 4,600,000
Compensation expense -- -- 9,000 -- -- 9,000
Increase attributable to changes in
Medis El shares outstanding -- -- 1,549,000 -- -- 1,549,000
Minority share of MTL's
investment in Medis El -- -- (712,000) -- -- (712,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 9,407,615 $ 94,000 29,962,000 (17,650,000) -- 12,406,000
Net loss -- -- -- (1,030,000) -- (1,030,000)
Issuance of common stock 201,003 2,000 803,000 -- -- 805,000
------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 1999
(unaudited) 9,608,618 $ 96,000 $ 30,765,000 $(18,680,000) $ -- $ 12,181,000
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
----------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(2,633,000) $(1,544,000) $(4,418,000) $(1,085,000) $(1,030,000)
Adjustments to reconcile net loss to net
cash used in operating activities
Equity in net loss of unconsolidated
subsidiaries 789,000 -- -- -- --
Non-cash interest 1,341,000 -- -- -- --
Depreciation and amortization 57,000 117,000 132,000 29,000 85,000
Amortization of goodwill -- 102,000 2,445,000 611,000 611,000
Changes in accrued severance payable -- 33,000 25,000 2,000
Losses of minority interest -- (1,584,000) (1,105,000) (258,000) (268,000)
Loss on sale of securities
available-for-sale -- 22,000 -- -- --
Compensation expense -- -- 61,000 -- 36,000
Write-off of foreign currency translation -- -- -- -- --
adjustment 22,000 -- -- -- --
Loss from sale of property and
equipment -- -- 10,000 -- --
Changes in operating assets and
liabilities -- -- -- -- --
Accounts receivable -- 29,000 21,000 21,000 (20,000)
Inventory -- (78,000) 113,000 4,000 (47,000)
Prepaid expenses -- 9,000 (43,000) (8,000) (47,000)
Other assets 30,000 -- -- -- --
Due to unconsolidated subsidiaries (500,000) -- -- -- --
Due to Bar-Ilan (250,000) -- -- -- --
Accounts payable -- 93,000 (42,000) (93,000) 53,000
Accrued interest and other expenses (181,000) 222,000 134,000 53,000 12,000
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities (1,325,000) (2,612,000) (2,659,000) (701,000) (613,000)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities
Capital expenditures -- (124,000) (134,000) (18,000) (60,000)
Sale of securities and short-term
investments -- 479,000 -- -- 500,000
Proceeds from sale of property, plant and
equipment -- 1,000 17,000 -- --
Purchases of short-term investments -- -- (500,000) -- --
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities -- 356,000 (617,000) (18,000) 440,000
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities
Repayment of subordinated notes payable -- (130,000) -- -- --
Repayment of long-term debt -- (196,000) (342,000) (49,000) (49,000)
Proceeds from long-term debt 650,000 240,000 45,000 45,000 --
Proceeds from issuance of common stock
- Medis El -- -- 1,350,000 1,334,000 --
Proceeds from issuance of common stock 351,000 33,000 4,600,000 -- 804,000
Proceeds from increase in short-term
credit -- 60,000 6,000 -- (8,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities 1,001,000 7,000 5,659,000 1,330,000 747,000
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (324,000) (2,249,000) 2,383,000 611,000 574,000
Cash and cash equivalents at beginning of
period 373,000 3,021,000 772,000 772,000 3,155,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 49,000 $ 772,000 $ 3,155,000 $ 1,383,000 $ 3,729,000
=========== =========== =========== =========== ===========
</TABLE>
F-7
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 297,000 $ 220,000 $ 305,000 $ -- $ --
Income taxes 6,000 1,000 4,000 3,400 3,200
Noncash investing and financing activities:
Decrease in long-term debt through
the issuance
of common stock $ 1,268,000 $ 2,314,000 $ 650,000 $ -- $ --
Acquisition of minority interest in
Medis Inc. (see Note C) $ -- $13,125,000 $ -- $ -- $ --
Decrease in inventory through
increase in
Fixed assets $ -- $ -- $ 429,000 $ -- $ 197,000
Non-cash purchases of fixed assets -- -- -- -- $ 36,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998
NOTE A - NATURE OF BUSINESS
Medis Technologies Ltd. (formerly Cell Diagnostics Inc.) ("MTL") is a
holding company which, through its majority-owned subsidiary, Medis El
Ltd. ("Medis El"), an Israeli corporation, was formed to engage in the
development, clinical testing and marketing of the CellScan, a machine
that was originally designed to develop diagnostic tests for cancers and
other diseases. By 1997, Medis El evolved into a multi-product company as
it sought out and assisted in the development of advanced technologies in
a number of unrelated fields. Medis El currently owns, in whole or in
part, a number of different technologies in various stages of development.
Medis El's strategy is to become a greenhouse for the development of
technology products to license, sell, or enter into joint ventures with
large corporations. In addition to the CellScan, Medis El's technologies
include the Stirling Cycle Linear System, Fuel Cells, the Toroidal
Internal Combustion Engine, and the Reciprocating Electric Machine.
CDS Distributor, Inc. ("CDS"), a Delaware corporation and a wholly-owned
subsidiary of MTL, has the exclusive right to distribute the CellScan in
the United States for a period expiring twelve years after FDA approval of
the product. CDS also has agency rights for certain other technologies
developed by Medis El. See Note J-1 and J-2 for further discussion of
these distribution and agency rights.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of MTL
and its wholly-owned and majority-owned subsidiaries (collectively,
the "Company"). All intercompany transactions and balances have been
eliminated. Minority interest represents the minority shareholders'
proportionate share in the equity or income of Medis El. The
minority shareholders of Medis El include Israel Aircraft Industries
Ltd. ("IAI"), which is also a shareholder of MTL, certain other
shareholders of MTL, and owners of shares that are traded on the
NASDAQ Small Cap Market.
During the year ended December 31, 1996, MTL had accounted for its
investment in Medis Inc. (and therefore Medis El) under the equity
method of accounting (see Note C).
F-9
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE B (continued)
2. Cash and Cash Equivalents
Cash and cash equivalents consist of cash, certificates of deposit,
money market funds and highly liquid investments with a maturity of
three months or less when purchased. As of December 31, 1997 and
1998, cash and cash equivalents included $114,000 and $105,000,
respectively, of balances denominated in Israeli currency (NIS).
3. Inventory
Inventory, consisting primarily of finished goods, is valued at the
lower of cost or market. Cost is determined on a first-in, first-out
basis.
4. Research and Development Costs
Research and development costs are charged to operations as
incurred. Grants received by Medis El from the State of Israel are
offset against research and development costs.
5. Revenue Recognition
Revenue from sales is recognized upon delivery of product to the
customer.
6. Warranty Costs
The Company grants a one-year warranty on products sold and provides
for estimated warranty costs.
7. Use of Estimates
In preparing the Company's financial statements in conformity with
generally accepted accounting principles, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-10
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE B (continued)
8. Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the
Company's long-term debt at December 31, 1997 and 1998, approximates
the carrying value. Furthermore, the carrying value of all other
financial instruments potentially subject to valuation risk
(principally consisting of cash and cash equivalents) also
approximates fair value.
9. Translation of Foreign Currencies
The financial statements of the Company and its subsidaries have
been prepared in U.S. dollars, as the dollar is the Company's
functional currency.
Non-dollar transactions and balances were remeasured into dollars in
accordance with Statement of Financial Accounting Standards No. 52
("SFAS No. 52"), "Foreign Currency Translation."
10. Property and Equipment
Property and equipment are stated at cost (net of investment
grants). Depreciation is provided on the straight-line basis over
the estimated useful lives of such assets. Leasehold improvements
are amortized over the lives of the respective leases or useful
lives of the improvements, whichever is shorter.
The annual depreciation rates are as follows:
Annual rates
------------
Machinery and equipment 10% - 33%
Computers 20 - 33
Furniture and office equipment 7 - 15
Vehicles 15%
F-11
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE B (continued)
11. Stock-based Compensation
The Company has elected to follow Accounting Principles Board
Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its
employee stock options. Under APB No. 25, when the exercise price of
employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is
recorded. The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123").
12. Goodwill
Goodwill, representing the excess of the fair value of the minority
interest in Medis Inc. as of the date of acquisition (December 15,
1997) over the book value of the assets acquired as of that date, is
being amortized on a straight-line basis over five years. When
events and circumstances so indicate, all long-term assets,
including goodwill, are assessed for recoverability based upon cash
flow forecasts and fair value of the assets. No impairment losses
have been recognized in any of the periods presented.
13. Interim Financial Statements (Unaudited)
Information in the accompanying condensed consolidated financial
statements for the three months ended March 31, 1998 and 1999 is
unaudited.
The condensed consolidated financial statements as of March 31, 1999
and for the three months ended March 31, 1998 and 1999 have been
prepared in accordance with generally accepted accounting principles
applicable to interim financial information and the rules and
regulations promulgated by the Securities and Exchange Commission.
Accordingly, such condensed financial statements do not include all
of the information and footnote disclosures required by generally
accepted accounting principles.
In the opinion of the Company's management, the March 31, 1998 and
1999 unaudited interim condensed consolidated financial statements
include all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of such consolidated financial
statements. The results of operations for the three months ended
March 31, 1999 are not necessarily indicative of the results to be
expected for the entire year.
F-12
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE B (continued)
14. Net Loss Per Share
The Company computes net loss per share in accordance with Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share." Under the provisions of SFAS No. 128, basic
net loss per share is computed by dividing the net loss for the
period by the weighted-average number of common shares outstanding
during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted-average number
of common and common equivalent shares outstanding during the
period. However, as the Company generated net losses in all periods
presented, common equivalent shares, composed of incremental common
shares issuable upon the exercise of warrants, are not reflected in
diluted net loss per share because such shares are antidilutive.
15. Other Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130 ("SFAS No.
130"), "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting comprehensive income and its components in
financial statements. Other comprehensive income, as defined,
includes all changes in equity during a period from non-owner
sources. To date, the Company has not had any material transactions
that are required to be reported as other comprehensive income.
16. Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 131 ("SFAS
No. 131"), "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way
companies report information about operating segments in annual
financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The disclosures prescribed in SFAS No. 131 are effective
for the year ended December 31, 1998. The Company has determined
that it does not have any separately reportable business segments.
F-13
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE B (continued)
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives,
requires that all derivatives be carried at fair value, and provides
for hedge accounting when certain conditions are met. SFAS No. 133
as amended by SFAS 137 is effective for fiscal years beginning after
June 15, 2000. Although the Company has not fully assessed the
implications of SFAS No. 133, the Company does not believe that the
adoption of this statement will have a material impact on the
Company's financial position or results of operations.
17. Resatement of 1996 and 1997 Financial Statements
The Company has restated its 1996 and 1997 financial statements.
The effect of the 1996 restatement was to increase net loss by
$1,341,000 or $.36 per share. This change recorded amortization of
the "in-the-money" conversion factor on long-term debt issued in
August 1996. The full amortization was recorded in 1996 as the
conversion feature became exercisable beginning in November 1996.
The effect of the 1997 restatement was to reflect the aforementioned
transaction initially recorded in 1996, and to record goodwill in
connection with the Company's acquisition of the minority interest
in Medis Inc. The effect of the restatement was to increase net loss
by $102,000 or $.02 per share. (See Note C).
NOTE C - MINORITY INTEREST AND ACQUISITION OF MINORITY INTEREST
For the period from January 1, 1996 through December 15, 1997, MTL owned
60% of Medis Inc. while IAI owned 40% of Medis Inc. Through a
shareholders' agreement in effect during that time, control of Medis Inc.
was shared as the board of directors of Medis Inc. and Medis El each
consisted of six directors, of which three were designated by MTL and
three were designated by IAI. As neither party had control of Medis Inc.,
MTL had accounted for its investment in Medis Inc. (and therefore Medis
El) under the equity method of accounting.
F-14
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE C (continued)
As of December 15, 1997, MTL acquired IAI's 40% interest in Medis Inc.,
for aggregate consideration of 3,600,457 shares of MTL stock. As this was
an acquisition of a minority interest, the Company accounted for this
transaction using purchase accounting. The purchase price was valued based
on the value of Medis Inc.'s investment in Medis El, using the quoted
market price of Medis El shares as of December 15, 1997. The aggregate
purchase price was valued at $13,125,000 , which generated goodwill
approximating $12,227,000. Such goodwill is being amortized over a
five-year period. The operations of Medis El are included in results of
operations of the Company from the date of acquisition.
At December 31, 1997 and 1998, the Company reported minority interest in
the balance sheet of $1,584,000 and $1,105,000, respectively. For
financial reporting purposes, the assets, liabilities, and earnings of
Medis El are consolidated in MTL's financial statements, and the minority
investors' interest in Medis El has been recorded as "Minority interest"
in the balance sheet.
At December 31, 1997, MTL owned 100% of the common stock of Medis Inc.,
which in turn owned 6,250,000 shares, or 67.02%, of Medis El. The minority
shareholders (including public shareholders) owned 32.98% of Medis El's
common stock.
At December 31, 1998, MTL owned 100% of the common stock of Medis Inc.,
which in turn owned 5,925,000 shares, or 58.87%, of Medis El.
Additionally, MTL owned 400,000 shares of Medis El, or an additional
3.97%. The minority shareholders (including public shareholders) owned
37.16% of Medis El's common stock.
The following unaudited pro forma consolidated results of operations for
the year ended December 31, 1997 assumes that the acquisition of the
minority interest of Medis Inc. had occurred on January 1, 1997. The pro
forma data is for informational purposes only and may not necessarily
reflect results of operations as if the acquisition had occurred on
January 1, 1997.
Revenues $ --
===========
Net loss $ 4,598,000
===========
Basic and diluted
loss per share $ (.57)
===========
Shares used in calculation of basic
and diluted loss per share 8,077,997
===========
F-15
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE D - INVENTORIES
Inventories at December 31, 1997 and March 31, 1998 include eight CellScan
machines. All of such machines were designated by management as held for
sale.
Inventories at December 31, 1998 include three CellScan machines that
management designated as held for sale because the Company made certain
improvements to such machines and believed that it would be able to sell
such machines. There can be no assurance that such machines will actually
be sold during the next twelve months. The remaining five machines were
included in property and equipment as they were intended to be used as a
marketing tool to demonstrate and promote the CellScan technology.
During the three months ended March 31, 1999, the Company reclassified
three CellScans with a total cost of $197,000 from inventory to property
and equipment. This treatment, which resulted in all of the Company's
CellScans being classified as property and equipment, is consistent with
the Company's use of all its CellScans as a marketing tool to demonstrate
and promote the CellScan technology. Depreciation expense on the Company's
CellScans during the three months ended March 31, 1999, which was charged
to selling, general and administrative expense, amounted to $52,000.
Reference is made to Note M.
F-16
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
-------------------------
1997 1998
---------- ----------
Machinery and equipment $ 341,000 $ 776,000
Computers 150,000 174,000
Furniture and office equipment 80,000 84,000
Vehicles 146,000 154,000
Leasehold improvements 114,000 156,000
---------- ----------
831,000 1,344,000
Less accumulated depreciation 375,000 484,000
---------- ----------
Property and equipment - net $ 456,000 $ 860,000
========== ==========
Machinery and equipment at December 31, 1998 includes five CellScan
machines (see Note D).
NOTE F - GOODWILL
Goodwill consists of the following at December 31:
1997 1998
----------- -----------
Goodwill $12,227,000 $12,227,000
Accumulated amortization 102,000 2,547,000
----------- -----------
$12,125,000 $ 9,680,000
=========== ===========
F-17
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1997 1998
----------- -----------
Bank debt - Israel $ 491,000 $ 300,000
Subordinated notes payable 45,000 --
Bank loan 55,000 --
Senior exchangeable subordinated notes 650,000 --
----------- -----------
1,241,000 300,000
Less current portion (903,000) (204,000)
----------- -----------
$ 338,000 $ 96,000
=========== ===========
Bank Debt - Israel
Bank Debt - Israel represents Medis El's borrowings of bank loans that are
linked to the dollar, which bear interest at the LIBOR plus 2.4% to 2.6%
per annum and are guaranteed by the State of Israel. Such loans are
collateralized by all of the assets of Medis El.
Subordinated Notes
The subordinated notes were issued as part of the initial stock offerings
to MTL shareholders in July 1992 and November 1993. As of December 31,
1997, approximately $45,000 of such subordinated notes were outstanding
which were repaid in June 1998.
Senior Exchangeable Subordinated Notes
In August 1996, the Company issued $650,000 of outstanding senior
exchangeable subordinated notes to certain of its stockholders. The notes
bore interest at a rate of prime plus 2% payable semiannually. The notes
were exchangeable, beginning in November 1996, for shares of Medis El at
$2 per share. Since the market price of Medis El stock was greater than
the conversion price on the date of issuance, the Company restated its
1996 financial statements to reflect additional interest expense for
$1,341,000 to amortize the "in-the-money" conversion factor. (See Note
B-17.)
In March 1998, the holders of the senior exchangeable subordinated notes
exchanged such notes for 325,000 shares of Medis El common stock that were
held by MTL's wholly-owned subsidiary, Medis, Inc.
F-18
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE G (continued)
Bank Loan
At December 31, 1997, the Company had a bank loan outstanding for $55,000.
An additional $45,000 was borrowed in January 1998. The total outstanding
balance of $100,000 was repaid in June 1998. Such loan bore interest at
the prime rate.
The aggregate maturities of long-term debt are as follows:
Year ended December 31,
1999 $204,000
2000 86,000
2001 7,000
2002 3,000
--------
$300,000
========
NOTE H - STOCKHOLDERS' EQUITY
1. Medis Technologies Ltd.
In March 1998, the Company offered its existing shareholders the
opportunity to acquire 216,667 units at a price of $12 per unit,
each unit consisting of three shares of MTL common stock and one
warrant to purchase one share of MTL common stock at an exercise
price of $5.00 per share. In June 1998, 181,426 units were issued to
existing shareholders for approximately $2,177,000. The proceeds
were used to repay a $2,000,000 subordinated note due to Medis El,
and the outstanding subordinated notes and bank loan.
In November 1998, the Company offered an additional 176,908 units
with the same terms and conditions as the units mentioned above. The
proceeds of this offering were approximately $2,123,000. These
proceeds were used to purchase an additional 400,000 shares of Medis
El for $2,000,000 and to pay interest of $300,000 due on the note
which had already been paid. In December 1998, the Company sold an
additional 25,000 units with the same terms and conditions as
mentioned above. The aggregate proceeds were $300,000.
In March 1998, as consideration for providing guarantees on Company
debt, the Company granted a total of 100,000 warrants to purchase
100,000 shares of the Company's common stock exercisable at $5.00
per share to two officers.
F-19
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE H (continued)
Additionally, during 1998, 50,000 warrants were issued to a
nonemployee consultant.
The Company recorded approximately $9,000 of compensation expense
relating to the above grants, which represented management's
estimate of the fair value of such warrants.
2. Medis Technologies Ltd. Warrants
MTL warrants outstanding are summarized below:
Weighted-
average
exercise
Shares price
--------- -----------
Balance at January 1, 1996 1,460,000 $3.00-$5.00
Exercised (316,902) $ 4.00
Cancelled --
---------
Balance at December 31, 1996 1,143,098 $3.00-$5.00
Exercised (638,573) $ 4.00
Cancelled (15,000) $3.00-$5.00
---------
Balance at December 31, 1997 489,525 $ 5.00
Granted 521,572 $ 5.00
Exercised --
Cancelled --
---------
Balance at December 31, 1998 1,011,097 $ 5.00
=========
3. Medis El
In January 1998, Medis El sold 300,000 shares in a private
placement, to an existing shareholder for aggregate net proceeds of
$1,334,000. The Company recorded a gain on the issuance of these
shares of approximately $796,000, which is reflected as additional
paid-in capital.
F-20
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE H (continued)
4. Medis El Share Option Plan
In October 1993, the Board of Directors of Medis El adopted a share
option plan (the "Share Option Plan") pursuant to which 500,000
shares were reserved for issuance upon the exercise of options to be
granted to key employees and consultants of Medis El. The Share
Option Plan is administered by the Board of Directors, which
designates the quantities, dates and prices of the options granted.
Unless otherwise determined by the Board of Directors, the exercise
price of options will be the market price of the Ordinary Shares on
the date of grant.
Options granted under the Share Option Plan will expire after a
four-year period, but will be exercisable only after the second
anniversary of the grant date and then only if the option holder is
still an employee or consultant of Medis El. The options are
exercisable in full, two years after the date of grant. On January
21, 1998, the Board of Directors extended the expiration date of the
options issued on February 14, 1994, for an additional one-year
period until February 14, 1999. The extension pertains only to
options held by persons who were in the employ of Medis El on the
date the extension was adopted.
On March 19, 1996, the Board of Directors of Medis El granted
options to purchase Medis El's shares under the share option plan
adopted in October 1993 (see details of issuance below). Pursuant to
the grant, employees, directors, and a consultant of Medis El
received 164,100 options (of which 60,000 were granted to directors
and 3,300 were granted to a consultant) which are convertible into
shares on a one-to-one ratio at the market price on the date of the
grant ($0.5625).
On May 3, 1998, the Board of Directors of Medis El granted options
to purchase Medis El's shares under the Share Option Plan adopted in
October 1993 (see details of issuance below). Pursuant to the grant,
certain employees, a director, and a consultant of Medis El received
119,000 options (of which 50,000 were granted to a director) which
are convertible into shares on a one-to-one ratio at $7.20, which
was 80% of the market price on the date of the grant ($9.00).
On November 4, 1998, the Board of Directors of Medis El granted
options to purchase Medis El's shares under the Share Option Plan
adopted in October 1993 (see details of issuance below). Pursuant to
the grant, the executive vice-president of Medis El received 30,000
options which are convertible into shares on a one-to-one ratio at
$6.00. The market price on the date of the grant was $7.188.
F-21
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE H (continued)
The following table summarizes Medis El's option plan activity for the
three years ended December 31, 1998:
Weighted-
Number average
of exercise
Shares price
------- -----------
Balance at January 1, 1996 87,950 $ 7.42
Granted 164,100 0.56
Cancelled (7,300) 0.56
-------
Balance at December 31, 1996 244,750 3.03
Cancelled (9,000) 0.56
-------
Balance at December 31, 1997 235,750 3.12
Granted 196,400 7.07
Exercised (29,650) 0.66
Cancelled (87,950) 7.42
-------
Balance at December 31, 1998 314,550 4.61
=======
F-22
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE H (continued)
Outstanding Share Option Plan activity is summarized as follows:
<TABLE>
<CAPTION>
Number of options
Exercise -----------------------------------
Issue date price Issued Exercised Cancelled Outstanding Expires
----------------- --------- ------- --------- --------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
February 14, 1994 $ 7.42 143,150 (143,150) February 14, 1998
August 30, 1996 0.5625 89,700 (26,650) (14,900) 48,150(1) August 30, 2000
November 28, 1996 0.5625 11,100 (2,500) (1,400) 7,200 November 28, 2000
December 2, 1996 0.5625 63,300 63,300(2) December 2, 2000
February 14, 1998 7.42 47,400 (500) 46,900(1) February 14, 1999
July 1, 1998 7.20 105,000 105,000(3) July 1, 2002
November 5, 1998 7.20 14,000 14,000 November 5, 2002
November 4, 1998 6.00 30,000 30,000(4) November 4, 2002
</TABLE>
(1) Including to the executive vice president of Medis El - 27,500
options
(2) Including to directors of Medis El - 60,000 options
(3) Including to officers and directors of Medis El - 100,000
options
(4) All issued to the executive vice president of Medis El
Compensation costs charged to operations which Medis El records for
options granted to non-employees were $23,000 in 1998.
4. Effect of SFAS No. 123 on Medis El Share Options
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock-Based Compensation,"
and has been determined as if the Company had accounted for Medis
El's stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant
using a Black-Scholes Option Valuation model with the following
weighted-average assumptions for 1996 and 1998:
Medis El Medis El
options options
1996 1998
------------ ---------
Dividend yield 0% 0%
Risk-free interest rate 6.67% 5.00%
Volatility factor 0.31 0.10
Expected life in years
after vesting period 2 1 - 2
F-23
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE H (continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of the traded options, which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because Medis El's
stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimates, in
management's opinion, existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosure, the estimated fair value of
the options is amortized as an expense over the options' vesting
period. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Loss for the year as reported $(2,633,000) $(1,544,000) $(4,418,000)
Pro forma loss (2,677,000) (1,785,000) (4,592,000)
Weighted-average fair value of
Medis El options granted
during the year $ 7.13 $ 1.89
</TABLE>
The total compensation expense for employees included in the pro
forma information for 1996, 1997 and 1998 is $44,000, $144,000 and
$174,000, respectively.
NOTE I - COMMITMENTS AND CONTINGENCIES
1. CellScan License - Medis El acquired the rights to the CellScan in
August 1992 by assignment from IAI of a license from Bar Ilan
University to IAI. Medis El paid IAI $1,000,000 in consideration of
the assignment of the license and for certain tooling and equipment.
The license is a perpetual worldwide license to develop, manufacture
and sell the CellScan, and to sublicense the right to manufacture
and sell the device. The license includes all rights to the
University's CellScan patents,
F-24
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE I (continued)
know-how and inventions including any subsequently acquired, and all
improvements thereto. Medis El is obligated to pay the University a
royalty for a twenty-year period beginning in 1995. For the first
ten years, the royalty is at the rate of 6.5% of proceeds of sales
(after deducting sales commissions and other customary charges) and
4.5% on any fees received from granting territorial rights. The
royalty for the second ten-year period is 3.5% on all revenues. In
addition to such royalty payments, the Company is required to grant
$100,000 to the University during the first year that the Company's
after-tax profits exceed $300,000. No royalties were required to be
paid during the three years ended December 31, 1998.
2. Other Royalties - In consideration of grants by the State of Israel,
Medis El is obligated to pay royalties of 3% of sales of products
developed with funds provided by the State of Israel until the
dollar-linked amount equal to the grant payments received by Medis
El is repaid in full. All grants received from the State of Israel
related to the CellScan technology. Total grants received as of
December 31, 1998 aggregate $2,576,000. No royalties were required
to be paid during the three years ended December 31, 1998.
3. Lease Commitments - MTL's office space is provided to MTL for an
annual rental fee of approximately $24,000, by a company which is
controlled by the Chairman of the Board and the President of MTL.
Medis El has two leases for office space, laboratory and
manufacturing facilities. One lease terminates on December 31, 1999,
and provides for annual aggregate rental payments of approximately
$64,000. The second lease, which has an initial term through
November 1999, with two one-year options to extend the lease through
November 2001, provides for annual aggregate rentals of
approximately $89,000.
4. Litigation - An action was filed in 1998, in the Supreme Court of
the State of New York, entitled CellScan Argentina SA v. Medis El
Ltd., et al. where the plaintiff claims that Medis El defrauded it
into entering into a 1993 distribution agreement and in its
attendant purchase of a Cell-Scan machine. The plaintiff seeks
$10,000,000 in damages including punitive damages. The
F-25
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE I (continued)
Company has answered the complaint and has filed counterclaims
against the plaintiff for $3,145,000 arising from the plaintiff's
failure to purchase additional machines from the Company, as was
required by the distribution agreement. The Company intends to
vigorously defend its position and pursue its counterclaims.
Reference is made to Note M-8.
5. Other Agreements - In December 1998, Medis El entered into a
Technology Development Agreement with a large multinational
corporation pursuant to which such corporation paid Medis El in
January 1999, $100,000 for a right of first refusal to obtain
exclusive rights to use the stirling cycle and other technology in
its field of business and an additional $100,000 to assist in the
development of the stirling cycle technology for use in its field of
business, which the Company recorded as a credit to research and
development expense in the first quarter of 1999.
NOTE J - RELATED PARTY TRANSACTIONS
1. CellScan Distribution Agreement - Medis El and CDS have entered into
an agreement, whereby CDS has the sole distribution rights to the
CellScan in the United States continuing for a period of twelve
years after FDA approval of the product, but is subject to
termination in the event that certain annual performance criteria
are not met. CDS is obligated to pay the first $1,500,000 of costs
to obtain FDA approval, Medis El is obligated to pay the next
$500,000 and is obligated to loan CDS the next $500,000 which will
be repaid only if CellScan receives FDA approval. In the event that
the distribution agreement is transferred by CDS to a third party
for consideration, Medis El will be entitled to receive a pro rata
portion of such consideration (based on the share it bore of all FDA
costs) to the extent required to repay the loan it granted to the
distributor, referred to above.
2. Exclusive Agency Agreements - In July 1998, Medis El entered into an
Exclusive Agency Agreement with CDS. Under such agreement, CDS would
coordinate all licensing arrangements between the Company and third
parties within North America in respect of the Company's linear
technologies. In exchange, CDS would be entitled to receive a fee
equal to 10% of all royalties payable to the Company under the
specific license agreements for the first ten years of such
agreement and 5% of the royalties thereafter.
F-26
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE J (continued)
Additionally, on October 26, 1998, the Board of Directors authorized
Medis El to enter into an Exclusive Agency Agreement with CDS with
respect to Medis El's other technologies. The agreement would be on
terms similar to the agreement for linear technologies described
above, and is subject to approval at a general meeting of the
shareholders of Medis El. In January 1999, Medis El paid CDS
$20,000, which represented the royalty due to CDS for negotiating
the agreement with the large multinational corporation mentioned in
Note I-5.
3. Other Related Party Transactions - Medis El is required to utilize
IAI as its initial outside manufacturing source for products to be
manufactured by Medis El which IAI is capable of producing at
competitive prices and, if IAI is unable to satisfy Medis El's
requirement at such prices, Medis El is required to seek other
Israeli sources. Only after exhausting these two options, may Medis
El then have recourse to non-Israeli sources.
4. Insurance - Medis El is presently included as an additional insured
party on IAI's product and third party liability insurance policy.
5. Employment Agreement - Medis El had a one-year employment agreement
with its executive vice president, which terminated on September 30,
1998. Under the agreement, he received an annual base salary of
approximately $109,000. In June 1999, the Company and the executive
vice president signed a one-year employment agreement, which became
effective on October 1, 1998, which provides the executive vice
president an annual base salary of $120,000.
6. Board Members - Medis Inc. has a Board of Directors consisting of
six members, three of which are designated by MTL and three by IAI.
Medis El has a Board currently composed of six Directors, three of
which are designated by MTL and three by IAI. One of the founding
stockholders of MTL is the Chairman of the Board of Medis El, the
Chairman of the Board, Chief Executive Officer, and Secretary of MTL
and President and Chief Executive Officer of Medis Inc. He receives
an annual salary of $100,000 paid by Medis El. The other founding
shareholder is a Director of Medis El, Vice President of Medis Inc.
and President, Treasurer and a Director of MTL.
F-27
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE K - INCOME TAXES
The following represents the components of the Company's pre-tax
losses for each of the three years in the period ended December 31,
1998.
Year ended December 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
Domestic $(1,844,000) $ (481,000) $(2,556,000)
Foreign (789,000) (1,063,000) (1,862,000)
----------- ----------- -----------
$(2,633,000) $(1,544,000) $(4,418,000)
=========== =========== ===========
The Company files a consolidated Federal income tax return, which includes
MTL, Medis Inc., and CDS. At December 31, 1998, the Company has a net
operating loss ("NOL") carryforward for United States Federal income tax
purposes of approximately $4,035,000, expiring as follows:
2007 $ 210,000
2008 897,000
2009 684,000
2010 657,000
2011 1,115,000
2012 370,000
2013 102,000
----------
$4,035,000
==========
Pursuant to United States Federal income tax regulations, the Company's
ability to utilize this NOL may be limited due to changes in ownership, as
defined in the Internal Revenue Code, which may include the acquisition of
the minority interest in Medis Inc. as discussed in Note C.
The Company, through Medis El, has net operating losses, for Israeli tax
purposes, aggregating approximately $19,000,000, which, pursuant to
Israeli tax law, do not expire.
Deferred income tax assets arising from NOL carryforwards have been
reduced to zero through a valuation allowance. The Company continually
reviews the adequacy of the valuation allowance and will recognize
deferred tax assets only if a reassessment indicates that it is more
likely than not that the benefits will be realized.
F-28
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE K (continued)
Medis El is an Israeli corporation and is subject to income taxes under
the relevant Israeli tax law. Medis El has been issued a certificate of
approval as an "Approved Enterprise," which allows Medis El to have lower
tax rates under Israeli tax law. Such rates include a corporate tax on
income at a rate of 20% and a tax rate on distributed dividends of 15%.
These benefits may be in force through at least 2006.
No tax expense has been recorded in the financial statements of the
Company, as the Company has a loss in the current year, in each tax-paying
jurisdiction.
Temporary differences that give rise to deferred tax assets are as follows
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards - United States $ 1,649,000 $ 1,691,000
Net operating loss carryforwards - other 6,277,000 6,839,000
Other (350,000) (544,000)
----------- -----------
7,576,000 7,986,000
Valuation allowance (7,576,000) (7,986,000)
----------- -----------
Deferred tax assets, net of valuation
Allowance $ -- $ --
=========== ===========
</TABLE>
A reconciliation of the income tax benefit computed at the United States
Federal statutory rate to the amounts provided in the financial statements
is as follows:
Income tax benefit computed at Federal statutory rate $(668,000)
Effect of foreign income taxes 258,000
Change in valuation allowance 410,000
---------
$ --
=========
F-29
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE L - LIQUIDITY
Since inception, the Company has incurred operating losses and has used
cash in its operations. Accordingly, the Company has relied on financing
activities, principally the sale of its stock, to fund its research and
development activities. The Company believes this dependence will continue
unless it is able to successfully develop and market its technologies.
However, there can be no assurance that the Company will be able to
continue to obtain financing or successfully develop and market its
technology.
NOTE M - SUBSEQUENT EVENTS
1. In February and March 1999, the Company issued an additional 67,001
units with the same terms as those issued in 1998. Proceeds from
such sale aggregated approximately $804,000. In May 1999, the
Company issued 100,000 units, of which 25,000 were to IAI. Proceeds
from such sale aggregated $1,200,000. The purpose of the
aforementioned transactions was to generate additional cash to
purchase shares of Medis El in order to fund the research and
development activities of Medis El and for the Company's working
capital.
2. On May 19, 1999, the Company purchased an additional 318,181 shares
of Medis El for $1,750,000.
3. On June 8, 1999, the Company extended the expiration date of its
outstanding warrants which had previously expired on January 1,
2000, June 30, 2000 and December 31, 2000 through June 30, 2002.
4. The Company intends to file a Registration Statement with the
Securities and Exchange Commission to register all of its
outstanding shares and shares underlying warrants and to register
additional shares (to a maximum of 5,174,914) to be issued in
exchange for outstanding shares of Medis El that are tendered. Such
transaction is subject to the terms discussed in the Registration
Statement. The Company intends to issue 1.37 of its shares for each
share of Medis El that is tendered.
5. In 1999, Medis El issued an additional 51,150 shares upon exercise
of stock options by employees.
6. On June 30, 1999, the Company charged the eight CellScan machines
that were included in property and equipment with a net book value
of $522,000 to research and development expense. On the same date,
the Company also charged its inventory of cell carriers and antigens
with an aggregate cost of $168,000, used in connection with CellScan
diagnosis and research, to research and development expense. This
treatment reflects management's decision to use the CellScan in
developing and testing new applications.
F-30
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE M (continued)
7. In 1999, the Board of Directors of Medis El extended options
scheduled to expire on February 14, 1999 for those persons still in
the employ of Medis El (43,600 options) for another year to February
14, 2000.
8. In July 1999, Medis El reached an agreement with the Peruvian
company which owns a CellScan machine, whereby, in consideration of
Medis El upgrading the CellScan system at its cost, the owner of the
CellScan relinquished any future claims against Medis El except the
right to require Medis El to repurchase the CellScan system for
$100,000.
9. On July 13, 1999, the Company's Board of Directors approved the 1999
Stock Option Plan, and reserved 1,000,000 shares of common stock for
issuance as stock options or stock appreciation rights pursuant to
the plan. No options or stock appreciation rights have been granted
pursuant to the plan.
* * * * *
F-31
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
The following unaudited pro forma consolidated balance sheet as of March
31, 1999 gives effect to the exchange offer proposed by this Registration
Statement, as if it had occurred on March 31, 1999. The following
unaudited pro forma consolidated statements of operations for the year
ended December 31, 1998 and for the three months ended March 31, 1999,
give effect to the exchange offer proposed by this Registration Statement,
as if it had occurred at the beginning of each year presented. The
exchange offer proposed by this registration statement represents the
Company's acquisition of the shares held by minority shareholders of Medis
El.
The pro forma adjustments are based on available information and certain
assumptions that management believes are reasonable. The unaudited pro
forma consolidated financial statements and the notes thereto should be
read in conjunction with the consolidated financial statements and the
notes thereto. The unaudited pro forma financial information does not
purport to represent the financial condition or results of operations of
the Company after such transaction nor does it purport to project the
financial condition or results of operations of the Company as of any
future date or for any future period.
F-32
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1999
<TABLE>
<CAPTION>
Pro forma
Actual adjustments Pro forma
--------------- --------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,729,000 $ 3,729,000
Accounts receivable 86,000 86,000
Inventory 255,000 255,000
Prepaid expenses 136,000 136,000
--------------- ------------
Total current assets 4,206,000 4,206,000
PROPERTY AND EQUIPMENT, net 1,068,000 1,068,000
GOODWILL, net 9,069,000 $ 23,539,000(a) 32,608,000
--------------- --------------- ------------
$ 14,343,000 $ 23,539,000 $ 37,882,000
=============== =============== ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Current portion of long-term debt $ 196,000 $ 196,000
Accounts payable 232,000 232,000
Accrued expenses and other current liabilities 374,000 374,000
--------------- ------------
Total current liabilities 802,000 802,000
LONG-TERM DEBT 47,000 47,000
OTHER LONG-TERM LIABILITIES 63,000 63,000
--------------- ------------
Total liabilities 912,000 912,000
MINORITY INTEREST IN SUBSIDIARY 1,250,000 $ (1,250,000)(a) --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock 96,000 52,000(a) 148,000
Additional paid in capital 30,765,000 24,737,000(a) 55,502,000
Accumulated deficit (18,680,000) -- (18,680,000)
--------------- --------------- ------------
Total stockholders' equity 12,181,000 24,789,000 36,970,000
--------------- --------------- ------------
$ 14,343,000 $ 23,539,000 $ 37,882,000
=============== =============== ============
</TABLE>
F-33
<PAGE>
Medis Technologies Ltd. And Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1999
(a) Adjustment to reflect the excess of purchase price over assets acquired
upon completion of this exchange offer. Such adjustment was calculated
assuming that 3,777,310 shares of Medis El are tendered in the exchange
offer. The assumed market price for such shares was the quoted market
price of Medis El shares on March 31, 1999 of $6.5625. The excess of
purchase price over net assets acquired is considered goodwill and the
Company intends to amortize this goodwill over a five-year period. The
adjustment also eliminates the minority interest of Medis El, as it is
assumed to be settled upon completion of this transaction.
F-34
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended March 31, 1999
<TABLE>
<CAPTION>
Pro forma
Actual Adjustments Pro forma
----------- ----------- -----------
<S> <C> <C> <C>
Sales
Cost of sales
Gross profit
Operating expenses
Research and development costs, net $ 332,000 $ 332,000
Selling general and administrative
expenses 380,000 380,000
Amortization expense 611,000 $ 1,177,000 (a) 1,788,000
----------- ----------- -----------
Total operating expenses 1,323,000 1,177,000 2,500,000
----------- ----------- -----------
Loss from operations (1,323,000) (1,177,000) (2,500,000)
Other income (expenses)
Interest and other income 28,000 -- 28,000
Interest expense (3,000) -- (3,000)
----------- ----------- -----------
25,000 25,000
----------- -----------
Loss before minority interest (1,298,000) (1,177,000) (2,475,000)
Minority interest in losses of subsidiaries 268,000 (268,000)(a) --
----------- ----------- -----------
NET LOSS $(1,030,000) $(1,445,000) $(2,475,000)
=========== =========== ===========
</TABLE>
F-35
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
Three months ended March 31, 1999
(a) Adjustment to reflect the amortization of the excess of purchase price
over assets acquired upon completion of this exchange offer. Such
amortization was calculated on an assumed excess of purchase price over
assets acquired of $23,539,000, assuming that 3,777,310 shares of Medis El
are tendered at an assumed market price at March 31, 1999 of $6.5625. The
amortization for the three months ended March 31, 1999, was calculated
assuming that the amortization period is five years. Additionally, the
minority shareholders' share of the net loss of Medis El is eliminated
since, as of the beginning of the year, there are no minority
shareholders.
F-36
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments Pro Forma
------------- ------------- ------------
<S> <C> <C> <C>
Sales $ 8,000 $ 8,000
Cost of sales 3,000 3,000
------------- ------------
Gross profit 5,000 5,000
Operating expenses
Research and development costs, net 1,646,000 1,646,000
Selling, general and administrative
expenses 1,399,000 1,399,000
Amortization of goodwill 2,445,000 $ 4,708,000(a) 7,153,000
------------- ------------- ------------
Total operating expenses 5,490,000 4,708,000 10,198,000
------------- ------------- ------------
Loss from operations (5,485,000) (4,708,000) (10,193,000)
Other income (expenses)
Interest and other income 63,000 63,000
Interest expense (101,000) (101,000)
------------- ------------- ------------
(38,000) (38,000)
------------- ------------- ------------
Loss before minority interest (5,523,000) (4,708,000) (10,231,000)
Minority interest in losses of subsidiaries 1,105,000 (1,105,000)(a)
------------- ------------- ------------
NET LOSS $ (4,418,000) $ (5,813,000) $(10,231,000)
============= ============= ============
</TABLE>
F-37
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1998
(a) Adjustment to reflect the amortization of the excess of purchase price
over assets acquired upon completion of this exchange offer. Such
amortization was calculated on an assumed excess of purchase price over
assets acquired of $23,539,000, assuming that 3,777,310 shares of Medis El
are tendered at an assumed market price at March 31, 1999 of $6.5625. The
current year amortization was calculated assuming that the amortization
period is five years. Additionally, the minority shareholders' share of
the net loss of Medis El is eliminated since, as of the beginning of the
year, there are no minority shareholders.
F-38
<PAGE>
Medis El Ltd.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---------- ----------
(audited) (unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,960 $ 2,737
Short-term deposits 500 --
Accounts receivable - other 66 86
Inventory 405 255
Prepaid expenses 89 136
---------- ----------
Total current assets 4,020 3,214
---------- ----------
PROPERTY AND EQUIPMENT
Cost 1,344 1,637
Less accumulated depreciation (484) (569)
---------- ----------
860 1,068
---------- ----------
$ 4,880 $ 4,282
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term credit $ 204 $ 196
Trade payables 113 233
Accrued expenses and other liabilities 327 374
---------- ----------
Total current liabilities 644 803
---------- ----------
LONG-TERM LIABILITIES
Long-term debt 96 47
Accrued severance pay 61 63
---------- ----------
157 110
SHAREHOLDERS' EQUITY
Share capital 352 352
Additional paid-in capital 21,462 21,442
Accumulated loss (17,564) (18,286)
Cumulative translation adjustments 27 27
Deferred compensation under employee
stock option plan and other (198) (166)
---------- ----------
Total shareholders' equity 4,079 3,369
---------- ----------
$ 4,880 $ 4,282
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-39
<PAGE>
Medis El Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except net loss
per share amounts )
Three months ended March 31,
1998 1999
-------- --------
(unaudited)
Sales $ 8 $ --
Cost of sales 3 --
-------- --------
Gross profit 5 --
Research and development costs, net 355 332
-------- --------
(350) (332)
Selling, general and administrative expenses 325 414
-------- --------
Operating loss (675) (746)
Financial income, net 4 24
-------- --------
(671) (722)
Other expenses -- --
-------- --------
Net loss $ (671) $ (722)
======== ========
Net loss per share - basic and diluted $ (0.07) $ (0.07)
======== ========
Weighted - average number of shares outstanding $ 9,542 $ 10,055
======== ========
The accompanying notes are an integral part of these financial statements
F-40
<PAGE>
Medis El Ltd.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three months ended March 31, 1999 (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Deferred
Additional Cumulative Compensation Total
Share paid-in Accumulated translation ESOP and shareholders'
capital capital loss adjustments other equity
---------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 352 $ 21,462 $ (17,564) $ 27 $ (198) $ 4,079
Changes during the three-month period
ended March 31, 1999 (unaudited)
Issuance of shares -- 1 -- -- -- 1
Additional paid-in capital -- (21) -- -- -- (21)
Net loss -- -- (722) -- -- (722)
Grant of stock options -- -- -- -- 32 32
---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1999 $ 352 $ 21,442 $ (18,286) $ 27 $ (166) $ 3,369
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-41
<PAGE>
Medis El Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended March 31,
<TABLE>
<CAPTION>
1998 1999
------- -------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (671) $ (722)
Adjustments to reconcile loss to net
cash used in operating activities
Depreciation and amortization 29 117
Changes in accrued severance pay 25 2
Loss from sale of property and equipment -- --
Changes in assets and liabilities
Decrease (increase) in other accounts receivable
and prepaid expenses 13 (67)
Decrease (increase) in inventory 4 (47)
Increase (decrease) in accounts payable (101) 131
------- -------
Net cash used in operating activities (701) (586)
Cash flows from investing activities
Purchase of property and equipment (18) (60)
Proceeds from sales of property and equipment -- --
Investment in short-term deposits -- --
Proceeds from realization of short-term deposits -- 500
------- -------
Net cash provided by (used in) investing activities (18) 440
------- -------
Cash flows from financing activities
Short-term credit -- (8)
Proceeds from issuance of shares 1,334 1
Additional paid-in capital -- (21)
Repayments on long-term debt (49) (49)
------- -------
Net cash provided by (used in) financing activities 1,285 (77)
------- -------
Net increase (decrease) in cash and cash equivalents 566 (223)
Cash and cash equivalents at beginning of period 787 2,960
------- -------
Cash and cash equivalents at end of period $ 1,353 $ 2,737
======= =======
Grant of stock options $ -- $ --
======= =======
Reclassification of inventory $ -- $ 197
======= =======
Purchase of property and equipment $ -- $ 36
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-42
<PAGE>
Medis El Ltd.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998
NOTE 1 - GENERAL
Information in the accompanying condensed consolidated financial
statements for the three months ended March 31, 1998 and 1999 is
unaudited.
The condensed consolidated financial statements as of March 31, 1999 and
for the three months ended March 31, 1998 and 1999 have been prepared in
accordance with generally accepted accounting principles applicable to
interim financial information and the rules and regulations promulgated by
the Securities and Exchange Commission. Accordingly, such condensed
financial statements do not include all of the information and footnote
disclosures required by generally accepted accounting principles.
In the opinion of the Company's management, the March 31, 1998 and 1999
unaudited interim condensed consolidated financial statements include all
adjustments, consisting of normal recurring adjustments necessary for a
fair presentation of such consolidated financial statements. The results
of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire year.
The interim statements should be read in conjunction with the Company's
annual financial statements as of December 31, 1998 and for the year then
ended, together with their accompanying notes.
NOTE 2 - SIGNIFICANT MATTERS
During the first quarter of 1999, a U.S.-based multinational corporation
paid to the Company $100,000 for a right of first refusal to obtain
exclusive rights to use the stirling cycle and other technology in its
field of business and an additional $100,000 to assist in the development
of the stirling cycle technology for use in its field of business, which
the Company recorded as a credit to research and development expense. This
payment was made pursuant to a technology development agreement the
Company entered into with the corporation in December 1998 to, among other
things, jointly develop the stirling cycle system for application in such
corporation's line of business. Pursuant to the Company's agency agreement
with CDS Distributor, Inc. ("CDS"), a wholly-owned subsidiary of Medis
Technologies Ltd. - a major shareholder of the Company, it paid to CDS
$20,000, in connection with the above-described payment.
F-43
<PAGE>
Medis El Ltd.
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1998
NOTE 2 (continued)
During the three months ended March 31, 1999, the Company reclassified
three CellScans with a total cost of $197,000 from inventory to property
and equipment. This treatment, which results in all of the Company's
CellScans being classified as property and equipment, is consistent with
the Company's use of its CellScans as a marketing tool to demonstrate and
promote the CellScan technology. Depreciation expense on the Company's
CellScans during the three months ended March 31, 1999, which was charged
to selling, general and administrative expense, amounted to $52,000.
NOTE 3 - SUBSEQUENT EVENTS
1. On May 19, 1999, the Company issued to Medis Technologies Ltd.
318,181 of its ordinary shares for an aggregate of $1,750,000.
2. In 1999, the Company issued an additional 51,150 shares upon
exercise of stock options by employees.
3. On June 30, 1999, the Company charged the eight CellScan machines
that were included in property and equipment with a net book value
of $522,000 to research and development expense. On the same date,
the Company also charged its inventory of cell carriers and antigens
with an aggregate cost of $168,000, used in connection with CellScan
diagnosis and research, to research and development expense. This
treatment reflects management's decision to use the CellScan in
developing and testing new applications.
4. In 1999, the Board of Directors of the Company extended options
scheduled to expire on February 14, 1999 for those persons still in
the employ of Medis El (43,600 options) for another year to February
14, 2000.
5. In July 1999, the Company reached an agreement with the Peruvian
company which owns a CellScan machine whereby in consideration of
the Company upgrading the CellScan system at its cost, the owner of
the CellScan relinquished any future claims against the Company
except the right to require the Company to repurchase the CellScan
system for $100,000.
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS
OF
MEDIS EL LTD.
We have audited the consolidated balance sheets of "Medis El Ltd." and its
subsidiary (the "Company") as of December 31, 1998 and 1997 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors' Regulations (Mode
of Performance), 1973, which auditing standards are substantially identical to
generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance that
the financial statements are free of material misstatement, whether accidental
or intentional. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and 1997, and the results of its operations, its changes in
shareholders' equity and its cash flows for each of the three years in the
period ended December 31, 1998, in accordance with generally accepted accounting
principles in Israel and in the United States (as applicable to these financial
statements, such accounting principles are, in all material respects,
substantially identical).
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
Tel-Aviv, Israel
March 29, 1999
F-45
<PAGE>
MEDIS EL LTD.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 3) $ 787 $ 2,960
Short-term deposits -- 500
Accounts receivable - Other (Note 4) 87 66
Inventory 947 405
Prepaid expenses 46 89
-------- --------
Total current assets 1,867 4,020
-------- --------
Property and Equipment (Note 5):
Cost 831 1,344
Less - accumulated depreciation (375) (484)
-------- --------
456 860
-------- --------
-------- --------
$ 2,323 $ 4,880
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term credit $ 198 $ 204
Trade payables 155 113
Accrued expenses and other liabilities (Note 6) 305 327
-------- --------
Total current liabilities 658 644
-------- --------
Long-Term Liabilities:
Long-term debt (Note 7) 293 96
Accrued severance pay (Note 8) 28 61
-------- --------
321 157
-------- --------
Contingent Liabilities and Commitments (Note 9)
Shareholders' Equity:
Share capital (Note 10):
Authorized - 30,000,000 ordinary shares of NIS 0.1 par value,
Issued and outstanding - 10,054,650 shares 334 352
Additional paid-in capital 15,580 21,462
Accumulated loss (14,597) (17,564)
Cumulative translation adjustments 27 27
Deferred compensation under employee stock option plan and other -- (198)
-------- --------
Total shareholders' equity 1,344 4,079
-------- --------
-------- --------
$ 2,323 $ 4,880
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE>
MEDIS EL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Net Loss Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Sales $ 32 $ -- $ 8
Cost of sales 11 -- 3
------- ------- -------
Gross profit 21 -- 5
Research and development costs, net (Note 11) 815 1,406 1,646
------- ------- -------
(794) (1,406) (1,641)
Selling, general and administrative expenses (Note 12) 1,187 1,269 1,350
------- ------- -------
Operating loss (1,981) (2,675) (2,991)
Financial income, net 20 28 34
------- ------- -------
(1,961) (2,647) (2,957)
Other expenses (1) -- (10)
------- ------- -------
Net Loss $(1,962) $(2,647) $(2,967)
======= ======= =======
Net loss per share - basic and diluted $ (0.22) $ (0.28) $ (0.31)
======= ======= =======
Weighted average number of shares outstanding 8,790 9,325 9,624
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE>
MEDIS EL LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Deferred
Additional Cumulative Compensation Total
Share Paid-in Accumulated Translation ESOP and Shareholders'
Capital Capital Loss Adjustments Other Equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 313 11,741 (9,988) 27 -- 2,093
Changes During the Year Ended
December 31, 1996
Issuance of shares (*) 21 3,109 -- -- -- 3,130
Additional paid-in capital -- 608 -- -- -- 608
Net loss -- -- (1,962) -- -- (1,962)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1996 334 15,458 (11,950) 27 -- 3,869
Changes During the Year Ended
December 31, 1997
Additional paid-in capital -- 122 -- -- -- 122
Net loss -- -- (2,647) -- -- (2,647)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 334 15,580 (14,597) 27 -- 1,344
Changes During the Year Ended
December 31, 1998
Issuance of shares (*) 18 3,332 -- -- -- 3,350
Additional paid-in capital -- 2,300 -- -- -- 2,300
Net loss -- -- (2,967) -- (2,967)
Grant of stock options -- 250 -- -- (198) 52
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 $ 352 $ 21,462 $(17,564) $ 27 $ (198) $ 4,079
======== ======== ======== ======== ======== ========
</TABLE>
(*) Net of share issue expenses of $20,000 and $133,000 in 1998 and1996,
respectively
The accompanying notes are an integral part of the financial statements.
F-48
<PAGE>
MEDIS EL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,962) $(2,647) $(2,967)
Adjustments to reconcile loss to net cash used in
operating activities:
Depreciation and amortization 106 101 184
Changes in accrued severance pay (1) 13 33
Erosion of securities and short-term deposits (5) 22 --
Loss from sale of property and equipment 1 -- 10
Changes in assets and liabilities:
Decrease in trade accounts receivable 23 8 --
Decrease (increase) in other accounts receivable and
prepaid expenses 171 30 (22)
Decrease (increase) in inventory 16 (78) 113
Increase (decrease) in accounts payable (325) 83 (20)
------- ------- -------
Net cash used in operating activities (1,976) (2,468) (2,669)
------- ------- -------
Cash Flows from Investing Activities:
Purchase of property and equipment (137) (124) (134)
Proceeds from sales of property and equipment 62 1 17
Investment in securities and short-term deposits (496) -- (500)
Proceeds from realization of securities and short-term
deposits -- 479 --
------- ------- -------
Net cash provided by (used in) investing activities (571) 356 (617)
------- ------- -------
Cash Flows from Financing Activities:
Short-term credit (5) 1 6
Proceeds from issuance of shares 3,130 -- 3,350
Additional paid-in capital 608 122 2,300
Repayment of long-term debt (153) (192) (197)
------- ------- -------
Net cash provided by (used in) financing activities 3,580 (69) 5,459
------- ------- -------
Net increase (decrease) in cash and cash equivalents 1,033 (2,181) 2,173
Cash and cash equivalents at beginning of year 1,935 2,968 787
------- ------- -------
Cash and cash equivalents at end of year $ 2,968 $ 787 $ 2,960
======= ======= =======
Non-Cash Transactions:
Grant of stock options $ -- $ -- $ 250
Reclassification of inventory $ -- $ -- $ 429
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 1 - General
Medis El Ltd. (the "Company") was incorporated in July 1992 and is engaged in
the development, clinical testing and marketing of the CellScan System, a
diagnostic system designed for screening and detecting diseases by means of a
blood test. The System is designed to provide a new way to study cells, offering
the opportunity for early detection of cancer, AIDS, infectious diseases and
autoimmune diseases. CellScan Systems are utilized for basic research in cell
biology and for the detection of cancer, such as breast, colon, lung and
prostate, as well as personalized chemotherapy. The Company, through the
placement of the CellScan System at several medical institutions around the
world, is seeking to develop new applications for the CellScan System in
additional fields, such as AIDS detection, follow-up and preventive therapy and
the development of diagnostic tests in the field of infectious and autoimmune
diseases.
The Company is also engaged in developing and marketing its other technologies,
which include: The Stirling Cycle Technologies, The Toroidal Internal Combustion
Engine, The Fuel Cells, The Reciprocating Electric Machine, and The Neuritor.
Year 2000 Compliance
Many computer systems which express dates using only the last two digits of the
year may malfunction due to the date change to the Year 2000. The risk to the
business relates not only to the Company's computer system, but also to some
degree to those of the customers and suppliers of the Company.
The Company has performed a review of its Year 2000 compliance relative to its
products and systems. No limitation is expected in using any of its products or
systems. However, there can be no assurance that the Company's products and
systems contain all of the necessary code changes. Moreover, the Company cannot
predict the consequences of the failure of its customers or suppliers to adopt
year 2000 compliant software or to comply with installations for Year 2000
solutions in a timely and accurate manner.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. ACCOUNTING PRINCIPLES
The financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") in Israel. Such Israeli accounting
principles, as applicable to these financial statements, are, in all
material respects, the same as accounting principles generally accepted in
the United States.
B. USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions in determining the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
C. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Medis El
Ltd. and its subsidiary, More Energy Ltd., of which Medis El owns 70%.
Consolidation was made based on the financial statements of the
subsidiary, after elimination of intercompany balances.
F-50
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
D. FINANCIAL STATEMENTS IN U.S. DOLLARS
1. These financial statements have been prepared in U.S. Dollars ("the
dollar") because the functional currency of the Company is the
dollar. The dollar is the currency of the primary economic
environment in which the operations of the Company are conducted.
Most of the sales of the Company are generated outside of Israel, in
dollars. The remainder of Company sales, which are generated in
Israel, are linked to the dollar. In addition, the Company manages
its operations in dollars.
Certain of the dollar amounts in the financial statements may
represent the dollar equivalent of other currencies, including the
New Israeli Shekel ("NIS"), which may not be exchangeable for
dollars.
2. Transactions and balances denominated in dollars are presented at
their dollar amounts. Non-dollar transactions and balances are
remeasured into dollars in accordance with the principles set forth
in the Statement of Financial Accounting Standards ("FAS") No. 52,
"Foreign Currency Translation", of the Financial Accounting
Standards Board of the United States.
Accordingly, items have been remeasured as follows:
o Monetary items - at the current exchange rate at each balance
sheet date;
o Nonmonetary items - at historical exchange rates;
o Income and expense items - at exchange rates current as of the
date of recognition of those items (excluding depreciation and
other items deriving from nonmonetary items).
o Exchange gains and loses from the aforementioned
remeasurements (which are immaterial for each year) are
reflected in the statements of income.
E. TRANSLATION OF FOREIGN CURRENCIES
Balances denominated in foreign currencies are translated at exchange
rates prevailing at the balance sheet date. Exchange rates between the NIS
and the U.S. dollar at December 31, 1998 and 1997 were NIS 4.16 = $ 1.00
and NIS 3.536 = $ 1.00, respectively.
F. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money-market funds and
certificates of deposit with a maturity of three months or less.
G. INVENTORY
Inventory is presented at the lower of cost or market value. Cost is
determined on the "first-in, first-out" basis.
H. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of investment grants
received in respect thereof. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives on the straight-line basis. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter. The annual
depreciation rates are as follows:
Annual Rates (%)
----------------
Machinery and equipment 10 - 20
Computers 20 - 33
Furniture and office equipment 7 - 15
Vehicles 15
F-51
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
I. REVENUE RECOGNITION
Revenue from sales is recognized upon delivery of the product to the
customer.
J. WARRANTY COSTS
The Company grants a one-year warranty on products sold and provides for
estimated warranty costs.
K. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
Grants received from the State of Israel for research and development are
offset against the Company's research and development costs.
L. EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
shares outstanding during each period. Stock options have been excluded
from the calculation of diluted loss per share as their effect would have
been anti-dilutive.
M. STOCK-BASED COMPENSATION
The Company has elected to follow the Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB-25"), in
accounting for its employee stock option plans. Under APB-25, when the
exercise price of the Company's employee stock options equals or exceeds
the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
NOTE 3 - CASH AND CASH EQUIVALENTS
December 31, December 31,
1997 1998
----------- -----------
In Israeli currency (NIS) $ 114 $ 105
In U.S. dollars 673 2,855
------ ------
$ 787 $2,960
====== ======
NOTE 4 - ACCOUNTS RECEIVABLE - OTHER
December 31, December 31,
1997 1998
----------- -----------
Government institutions $ 59 $ 15
Sundry 28 51
------ ------
$ 87 $ 66
====== ======
F-52
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 5 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------ ------
<S> <C> <C>
Cost (*)
Machinery and equipment $ 341 $ 776
Computers 150 174
Furniture and office equipment 80 84
Vehicles 146 154
Leasehold improvements 114 156
------ ------
$ 831 $1,344
====== ======
(*) Net of investment grants $ 93 $ 89
====== ======
Accumulated Depreciation
Machinery and equipment $ 131 $ 168
Computers 107 135
Furniture and office equipment 33 40
Vehicles 32 33
Leasehold improvements 72 108
------ ------
$ 375 $ 484
====== ======
</TABLE>
NOTE 6 - ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------ ------
<S> <C> <C>
Employees and related liabilities $ 136 $ 160
Accrued expenses 169 167
------ ------
$ 305 $ 327
====== ======
Includes amounts in NIS $ 168 $ 203
====== ======
</TABLE>
F-53
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 7 - LONG-TERM DEBT
A. The long-term debt is comprised of bank loans linked to the dollar,
bearing interest equal to the London Inter-Bank Offered Rate (LIBOR) plus
2.4% to 2.6% per annum and guaranteed by the State of Israel.
The aggregate maturities after the balance sheet date are as follows:
Year Ended December 31,
-----------------------
1999, current liability $ 196
-----
2000 86
2001 7
2002 3
-----
96
-----
-----
$ 292
=====
B. To collateralize the loans which the Company received from the bank, the
Company gave a floating lien on all its assets.
NOTE 8 - ACCRUED SEVERANCE PAY
The Company's liability for severance pay, pursuant to Israeli law, is fully
provided for through managers' insurance policies and by an accrual which
reflects the unfunded portion. The amounts maintained with insurance companies
are not under the control of the Company and, therefore, are not included in the
financial statements.
NOTE 9 - CONTINGENT LIABILITIES AND COMMITMENTS
A. The Company acquired the rights to the CellScan in August 1992 by
assignment from Israel Aircraft Industries Ltd. ("IAI" - a related party,
see note 14A) to the Company of a license from Bar Ilan University (the
"University") to IAI. The Company paid IAI $1,000,000 in consideration of
the assignment of the license and for certain tooling and equipment. The
license is a perpetual worldwide license to develop, manufacture, market
and sell the CellScan, and to sub-license the right to manufacture and
sell the device. The license includes all rights to the University's
CellScan patents, know-how and inventions, including any subsequently
acquired, and all improvements thereto. Beginning in 1995, the Company is
obliged to pay the University a royalty for a 20-year period. For the
first ten years, the royalty is at the rate of 6.5% on proceeds of sales
(after deducting sales commissions and other customary charges) and 4.5%
on any fees received on account of the grant of territorial rights. The
royalty in the ensuing ten years is 3.5% on all revenues, whether from
sales or fees. In addition to such royalty payments, the Company is to
make a further grant of $100,000 to the University for the first year in
which the Company's post-tax profits exceed $300,000.
F-54
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 9 - CONTINGENT LIABILITIES AND COMMITMENTS (cont.)
B. The Company acquired the rights to the Neuritor in August 1992 by
assignment from IAI to the Company of a license from Imexco General Ltd.
("Imexco"), for which assignment the Company paid $500,000. An additional
sum of $125,000 was paid in December 1995. In 1996, the Company
relinquished its exclusive right to market the Neuritor in consideration
of relief of its obligation to pay minimum royalties. The Company has to
pay Imexco royalties at rates ranging from 2% to 7% of the revenue
generated by the sale of the Neuritor.
C. In consideration of grants by the State of Israel, the Company is
obligated to pay royalties of 3% of sales of products developed with funds
provided by the State of Israel until the dollar-linked amount equal to
the grant payments received by the Company is repaid in full. This amount,
as of December 31, 1998, is approximately $2,576,000.
D. The Company is committed under two leases for office space, laboratory and
manufacturing facilities. Its corporate headquarters and principal
facility lease terminates on December 31, 1999 and provides for an annual
aggregate rental of approximately $64,000. Its Technology center facility
lease, which has an initial term until November 1999 and two one-year
options extending to November 2001 on most of the facility, provides for
an annual aggregate rental of approximately $89,000.
E. For commitments to related parties, see Note 14.
F. There is an action newly pending in the Supreme Court of the State of New
York, County of New York, entitled CellScan Argentina, S.A v. Medis El
Ltd., et al. In this action, plaintiff claims that the Company defrauded
it into entering into a 1993 distribution agreement with the Company and
in its attendant purchase of a CellScan machine. Plaintiff seeks $10
million, which amount includes punitive damages. The Company has answered
the complaint and has counterclaimed against the plaintiff for $3,145,000
arising from plaintiff's failure to purchase additional machines from the
Company, as was required by the distribution agreement at issue. The
Company intends to defend its position and pursue its counterclaim
vigorously. Although the Company's independent counsel cannot opine about
the outcome of this litigation, as there has been no discovery or
substantive motion practice, counsel has advised the Company that it
believes that the Company has meritorious defenses to the claim. The
Company did not make any provision in the Financial Statements for the
said claim.
G. In December 1998, the Company entered into a Technology Development
Agreement with a large multi-national corporation (hereinafter - "the
corporation") pursuant to which the corporation paid the Company, after
the balance sheet date, $100,000 for a right of first refusal to obtain
exclusive rights in its particular field for certain of
F-55
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - CONTINGENT LIABILITIES AND COMMITMENTS (cont.)
the Company's technologies including the Stirling Cycle Linear system and
$100,000 for the development for the Stirling Cycle Linear system. After
acceptance of the technology, In order to qualify to maintain its exclusivity
for the Stirling Cycle Linear system for a period of 10 years after first
commercialization, the corporation will pay the Company an additional $500,000
towards the cost of tooling for production.
NOTE 10- SHARE CAPITAL
A. NUMBER OF SHARES
<TABLE>
<CAPTION>
Authorized Issued and Outstanding
------------------------ ----------------------
December December December December
31, 1997 31, 1998 31, 1997 31, 1998
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Ordinary Shares of NIS 0.1 each 30,000,000 30,000,000 9,325,000 10,054,650
========== ========== ========= ==========
</TABLE>
Subsequent to the balance sheet date, the Company issued additional shares
(see Note 14F).
B. SHARE OPTION PLAN
In October 1993, the Board of Directors of the Company adopted a share
option plan (the "Share Option Plan") pursuant to which 500,000 shares
were reserved for issuance upon the exercise of options to be granted to
key employees and consultants of the Company. The Share Option Plan is
administered by the Board of Directors, which designates the quantities,
dates and prices of the options granted. Unless otherwise determined by
the Company's Board of Directors, the exercise price of options will be
the market price of the Ordinary Shares on the date of grant.
Options under the Share Option Plan will be for a four year period, but
will be exercisable only after the second anniversary of the grant date
and then only if the option holder is still an employee or consultant of
the Company. The options are exercisable in full, two years after the date
of grant. The grantee is responsible for all personal tax consequences of
the grant and the exercise thereof. The Company believes that no tax
consequences will result to the Company in connection with such grant or
exercise. On January 21, 1998, the Board of Directors extended the
expiration date of the options issued on February 14, 1994 for an
additional one-year period until February 14, 1999. The extension pertains
only to options held by persons who were in the employ of the company on
the date the extension was adopted.
On March 19, 1996, the Board of Directors of the Company granted options
to purchase the Company's shares under the share option plan adopted in
October 1993 (see details of issuance in D. below). Pursuant to the grant,
employees, directors, and a consultant of the Company received 164,100
options (of which 60,000 were granted to directors and 3,300 were granted
to a consultant) which are convertible into shares on a one to one ratio
at the market price on the date of the grant ($0.5625).
On May 3, 1998, the Board of Directors of the Company granted options to
purchase the Company's shares under the share option plan adopted in
October 1993 (see details of issuance in D. below). Pursuant to the grant,
certain employees, a director, and a consultant of the Company received
119,000 options (of which 50,000 were granted to a director) which are
convertible into shares on a one to one ratio at $7.20, which was 80% of
the market price on the date of the grant ($9.00).
On November 4, 1998, the Board of Directors of the Company granted options
to purchase the Company's shares under the share option plan adopted in
October 1993 (see details of issuance in D. below). Pursuant to the grant,
the executive vice-president of the Company received 30,000 options which
are convertible into shares on a one to one ratio at $6.00. The market
price on the date of the grant was $7.188.
F-56
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10- SHARE CAPITAL (cont.)
C. The following table summarizes option plan activity for the three years
ended December 31, 1998:
Weighted
Average
Number of Options Exercise Price
----------------- --------------
Balance at January 1, 1996 87,950 7.42
Changes During the Year Ended
December 31, 1996
Granted 164,100 0.56
Cancelled (7,300) 0.56
-------
Balance at December 31, 1996 244,750 3.03
Changes During the Year Ended
December 31, 1997
Cancelled (9,000) 0.56
-------
Balance at December 31, 1997 235,750 3.12
Changes During the Year Ended
December 31, 1998
Granted 196,400 7.07
Exercised (29,650) 0.66
Cancelled (87,950) 7.42
-------
Balance at December 31, 1998 314,550 4.61
=======
D. Outstanding Share Option Plan activity (see B. and C. above) is summarized
as follows:
<TABLE>
<CAPTION>
Number of Options
------------------------------------
Issue Date Exercise Price Issued Exercised Cancelled Outstanding Expires
----------------- -------------- ------ --------- --------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
February 14, 1994 $ 7.42 143,150 -- (143,150) -- February 14, 1998
August 30, 1996 $ 0.5625 89,700 (26,650) (14,900) 48,150(1) August 30, 2000
November 28, 1996 $ 0.5625 11,100 (2,500) (1,400) 7,200 November 28, 2000
December 2, 1996 $ 0.5625 63,300 -- -- 63,300(2) December 2, 2000
February 14, 1998 $ 7.42 47,400 (500) -- 46,900(1) February 14, 1999
July 1, 1998 $ 7.20 105,000 -- -- 105,000(3) July 1, 2002
November 5, 1998 $ 7.20 14,000 -- -- 14,000 November 5, 2002
November 4, 1998 $ 6.00 30,000 -- -- 30,000(4) November 4, 2002
</TABLE>
(1) Including to the executive vice president of the Company - 27,500
options.
(2) Including to directors of the Company - 60,000 options.
(3) Including to the executive vice president of the Company - 50,000
options.
F-57
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10- SHARE CAPITAL (cont.)
(4) All issued to the executive vice president of the Company
Compensation costs charged to operations which the Company records for
options granted to non-employees were $23,000 in 1998.
E. Pro-forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock-Based Compensation," and
has been determined as if the Company had accounted for its stock options
under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes Option
Valuation model with the following weighted-average assumptions for 1996
and 1998:
1996 1998
------- -------
Dividend yield 0% 0%
Risk-free interest rate 6.67% 5.00%
Volatility factor 0.31 0.10
Expected life in years
after vesting period 2 1-2
The Black-Scholes option valuation model was developed for use in
estimating the fair value of the traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimates, in management's opinion existing models do not
necessarily provide a reliable single measure of the fair value of its
stock options.
For purposes of pro-forma disclosure, the estimated fair value of the
options is amortized as an expense over the options' vesting period. The
Company's pro-forma information is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1997 1998
--------- --------- ---------
(In thousands, except per share amounts)
----------------------------------------
<S> <C> <C> <C>
Loss for the year as reported $ (1,962) $ (2,647) $ (2,967)
Pro-forma loss $ (2,072) $ (3,006) $ (3,244)
Loss per share as reported $ (0.22) $ (0.28) $ (0.31)
Pro-forma loss per share $ (0.24) $ (0.32) $ (0.34)
Weighted average fair value of options granted
during the year $ 7.13 -- $ 1.89
</TABLE>
The total compensation expense for employees included in the pro-forma
information for 1996, 1997 and 1998 is $110,000, $359,000 and $277,000,
respectively.
F-58
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 11- RESEARCH AND DEVELOPMENT COSTS, NET
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Salaries, materials, sub-contractors and other expenses $ 838 $ 1,333 $ 1,545
Depreciation expense 80 73 101
------- ------- -------
918 1,406 1,646
Government grants (103) -- --
------- ------- -------
$ 815 $ 1,406 $ 1,646
======= ======= =======
Distribution by field of research:
Medical $ 815 $ 1,328 $ 1,173
Stirling Cycle Technologies -- 78 354
Other -- -- 119
------- ------- -------
$ 815 $ 1,406 $ 1,646
======= ======= =======
</TABLE>
NOTE 12 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Selling expenses $ 147 $ 146 $ 146
General and administrative expenses 1,014 1,095 1,174
Depreciation expense 26 28 30
------- ------- -------
$ 1,187 $ 1,269 $ 1,350
======= ======= =======
</TABLE>
F-59
<PAGE>
MEDIS EL LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 13 - INCOME TAXES
A. Under the Income Tax Law (Adjustment for Inflation), 1985, income for tax
purposes is measured in terms of earnings in NIS, adjusted for the
increase in the Israeli CPI.
B. Tax benefits under the Law for the Encouragement of Capital Investments,
1959 (the "Law") are summarized as follows:
The Company has been issued a certificate of approval as an "Approved
Enterprise" under the Law.
In accordance with the above Law, the Company elected the "combined path",
pursuant to which the Company has the right to receive a government
guaranteed bank loan of 66% of the amount of the approved investment (see
Note 7). In addition, the Company has the right to receive a grant of 25%
of the approved investment, in which case the loan will be reduced by the
amount of the grant. As of the balance sheet date, the Company has
received grants in the amount of $97,000, of which $89,000 remains after
the sale of vehicles in respect of which investment grants were received.
The tax liability in respect of the Company's income deriving from its
Approved Enterprise activities is calculated as follows:
1. For a ten-year period, company tax at a rate of 20% of income.
2. Tax on dividends distributed at a rate of 15% (instead of 25%).
These tax benefits can be utilized at least through 2006.
C. A reconciliation of the theoretical tax expense, assuming all income was
taxed at the regular rate applicable to an Israeli corporation, and the
actual tax expense is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Theoretical tax benefit on losses (*) $ 706 $ 952 $ 1,068
Non-deductible expenses (4) (6) (5)
Tax adjustments in respect of inflation in
Israel and other items 40 (58) (189)
------- ------- -------
742 888 874
Valuation allowance (742) (888) (874)
------- ------- -------
Reported income tax expense $ -- $ -- $ --
======= ======= =======
(*) Applicable tax rate 36% 36% 36%
======= ======= =======
</TABLE>
D. The Company has not been audited by the Israeli tax authorities since its
incorporation.
F-60
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands)
NOTE 13 - INCOME TAXES (cont.)
E. Temporary differences giving rise to deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Net operating loss carryforward $ 6,277 $ 6,839
Temporary differences, net (350) (544)
------- -------
Total 5,927 6,295
Valuation allowance (5,927) (6,295)
------- -------
Deferred tax assets, net of valuation allowance $ -- $ --
======= =======
</TABLE>
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES
A. The Company is controlled directly and indirectly (via Cell Diagnostics
Inc. ("CDI") and its wholly owned subsidiary Medis Inc.), by a group of
Investors, which includes Company board members Robert K. Lifton and
Howard Weingrow and Israel Aircraft Industries Ltd. ("IAI"), a government
corporation.
B. The following transactions with related parties are included in the
financial statements:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Expenses $ 25 $ 32 $ 32
Participation of a related party in Company expenses (3) -- --
Reimbursement to related parties $ 145 $ 164 $ 161
</TABLE>
C. The Company's CellScan distribution agreement for the United States with a
subsidiary of CDI is for a period expiring 12 years after FDA approval of
the product, but is subject to termination in the event that certain
yearly performance criteria are not met. The distributor is obligated to
fund the effort to obtain FDA approval in accordance with the following
schedule:
1. First $1,500,000 - to be paid by the distributor.
2. Next $500,000 - to be paid by the Company.
3. Next $500,000 - to be loaned by the Company to the distributor but
to be repaid to the Company only if the CellScan receives FDA
approval.
In the event that the distribution agreement is transferred by CDI to a
third party for consideration, the Company will be entitled to receive a
pro rata portion of such consideration (based on the share it bore of all
FDA costs) to the extent required to repay the loan it granted to the
distributor, referred to in item 3 above.
In July 1998, the Company entered into an Exclusive Agency Agreement with
CDS Distributors Inc. or its affiliate ("CDS"). CDS Distributors Inc. is a
subsidiary of CDI - a principal beneficial shareholder of the Company.
Under such agreement, CDS would coordinate all licensing arrangements
between the Company and third parties within
F-61
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES (cont.)
North America in respect of the Company's linear technologies. In
exchange, CDS would be entitled to receive a fee equal to 10% of all
royalties payable to the Company under the specific license agreements for
the first ten years of such agreement and 5% of the royalties thereafter.
The agreement is subject to approval at a general meeting of the
shareholders of the Company.
Additionally, on October 26, 1998, the Board of Directors authorized the
company to enter into an Exclusive Agency Agreement with CDS Distributors
Inc. in respect of the Company's other technologies. The agreement would
be on terms similar to the agreement for linear technologies described
above, and would be subject to approval at a general meeting of the
shareholders of the Company.
D. The Company is required to utilize IAI as its initial outside
manufacturing source for products which IAI is capable of producing at
competitive prices and, if IAI is unable to satisfy the Company's
requirement at such prices, the Company is required to seek other Israeli
sources. Only after exhausting these two options, may the Company then
have recourse to non-Israeli sources.
E. The Company pays $150,000 per year to Medis Inc. for services rendered to
the Company, $100,000 of which is used to pay a salary to Robert K. Lifton
(Chairman of the Board of Directors of the Company) as President and Chief
Executive Officer of Medis Inc. Amos Eiran, a Director of the Company,
acts as a consultant to the Company for which he receives approximately
$1,400 per month.
F. In accordance with the amended shareholders agreement, CDI issued a
secured promissory note to Medis Inc., which note was assigned to the
Company as a capital contribution. During 1997, the Company and CDI
entered into agreements to amend certain terms of the note. The note,
which had an original principal amount of $2,500,000, bore interest at the
same rate as the Company's loan guaranteed by the State of Israel. The
note was amended to provide for payment of the remaining principal balance
of $2,000,000 in four installments of $500,000, with the first two of such
installments being payable on July 1, 1998 and the remaining two
installments being payable on each of January 1, 1999 and July 1, 1999.
During the second quarter of 1997, CDI paid the Company interest on the
note in the amount of $122,000 for the period from April 1, 1997 through
December 31, 1997. All other interest on the note was payable with the
final installment on July 1, 1999. On June 30, 1998, CDI repaid the entire
principal balance of the CDI Note in the amount of $2,000,000. In
connection with the aforementioned acquisition by CDI of all of the shares
of Medis Inc. owned by IAI, Messrs. Lifton and Weingrow guaranteed to the
Company, on a non-recourse basis, that the remaining obligations of CDI
under the CDI Note, specifically $300,000 of accrued interest, would be
repaid in full by December 31, 1998. The interest was paid in full on
December 31, 1998.
G. The Company issued to CDI, in December 1998, 400,000 of its ordinary
shares at a net price of $5 per share. The Board considered that the
issuance of shares at $5 per share - which was 20% below the most recent
closing price of $6.25 - to be advantageous to the Company.
H. The Company is presently included as an additional insured party on IAI's
product and third party liability insurance policy.
I. The Company's one-year employment agreement with its executive vice
president, terminated on September 30, 1998. Under the agreement, he
received approximately $109,000 as a base salary for the year.
NOTE 15 - FINANCIAL INSTURMENTS
Financial instruments, as part of general business, mainly include cash and cash
equivalents, accounts receivable, deposits, short-term credit, trade and other
accounts payable, other current liabilities and long-term liabilities. The fair
value of the above instruments is not materially different from the values at
which they are presented in the financial statements. The average interest rates
in respect of the Company's long-term liabilities are not materially different
from the interest rates offered, as of balance sheet date on similar Company
liabilities.
F-62
<PAGE>
================================================================================
Medis Technologies Ltd.
Exchange Offer
for
3,777,310 shares
of Common Stock
of
Medis El Ltd.
-------------------
PROSPECTUS
-------------------
, 1999
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, such information or representations must not
be relied on as having been authorized by us. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
offered hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized or is unlawful. The delivery of this prospectus shall not,
under any circumstances create any implication that the information herein is
correct as of any time subsequent to the date of the prospectus.
- --------------------------------------------------------------------------------
Until , 1999, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the
<PAGE>
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
================================================================================
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission becomes effective. This preliminary
prospectus is not an offer to sell these securities nor does it seek offers to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
---------------------
<PAGE>
Subject to Completion, dated July 28, 1999
PROSPECTUS
MEDIS TECHNOLOGIES LTD.
---------------
This is an offer to sell 11,122,716 shares of the common stock, par value
$.01, of Medis Technologies Ltd., held by certain of our shareholders. The
shares include 9,935,618 shares of our common stock and 1,187,098 shares of our
common stock underlying outstanding warrants currently held by our
securityholders.
Our selling securityholders may sell their respective securities offered
by this prospectus from time to time in one or more transactions that may take
place in the over-the-counter market, including ordinary broker's transactions,
privately negotiated transactions or through sales to one or more dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the selling securityholders.
The selling securityholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, with respect to the securities offered, and any profits
realized or commission received may be deemed underwriting compensation. We have
agreed to indemnify the selling securityholders against certain liabilities,
including liabilities under the Securities Act.
We will not receive any of the proceeds from the sale of securities by the
selling securityholders, however, we will receive gross proceeds of up to
$5,935,490 if the selling securityholders exercise their warrants.
On July 28, 1999, we filed a registration statement under the Securities
Act with the Securities and Exchange Commission relating to an exchange offer in
which we will exchange 1.37 of our shares of common stock for each Medis El Ltd.
ordinary share properly tendered.
---------------
For a discussion of the risks that you should consider before purchasing our
shares of common stock, please read the risk factors beginning on page xx.
---------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise.
We intend to have our common stock listed on the Nasdaq SmallCap Market
under the symbol MDTL upon the consummation of the exchange offer discussed
above.
---------------
, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Summary ....................................................................
Risk Factors ...............................................................
Dividend Policy ............................................................
Price Range of Our Common Stock ............................................
Capitalization .............................................................
Selected Consolidated Financial Data .......................................
Management's Discussion and Analysis
of Financial Condition and Results of Operations ..........................
Business ...................................................................
Management .................................................................
Principal Stockholders .....................................................
Selling Securityholders ....................................................
Plan of Distribution .......................................................
Certain Transactions .......................................................
Concurrent Exchange Offer ..................................................
Description of Our Securities ..............................................
Legal Matters ..............................................................
Experts ....................................................................
Additional Information .....................................................
Index to Financial Statements .............................................. F-1
<PAGE>
Alternative Page
SELLING SECURITYHOLDERS
An aggregate of up to 9,935,618 shares of our outstanding common stock and
1,187,098 share of our common stock underlying outstanding warrants may be
offered by our securityholders, which represents all of our outstanding
securities as of June 30, 1999.
The following table sets forth:
o each selling securityholder for whom we are registering our securities
for resale to the public;
o the number of shares of our common stock held by each selling
securityholder, which represents our outstanding common stock; and
o the number of shares of our common stock underlying warrants held by each
selling securityholder, which represents our outstanding warrants.
We will not receive any of the proceeds from the sale of these securities.
However, we will receive gross proceeds of up to $5,935,490 if the selling
securityholders exercise their warrants. All warrants are currently exercisable
at $5.00 per share. Except as described below, there are no material
relationships between us and any of the selling securityholders, nor have any
such material relationships existed within the past three years.
We believe, based on information supplied by the following persons, that
except as noted, the persons named in this table have sole voting and investment
power with respect to all shares of common stock, and exercise power with
respect to all warrants, which they beneficially own.
<TABLE>
<CAPTION>
Number of shares of our Number of shares of common
common stock stock underlying warrants
Selling Security Holder beneficially owned beneficially owned
----------------------- ------------------ ------------------
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
Israel Aircraft Industries, Ltd.(1) 3,675,457 25,000
Robert K.Lifton(2) ......................... 935,000 176,615
Howard Weingrow (3) ........................ 847,499 147,448
CVF, LLC ................................... 725,001 241,667
Stanoff Corporation (4) .................... 325,002 108,334
Leonard Moskowitz .......................... 230,185 43,997
Caron Haim(5) .............................. 169,000 --
Terry Vaccaro(5) ........................... 169,000 --
Karen Healy(6) ............................. 169,000 --
Betsy Hooper(6) ............................ 169,000 --
Royal Investment Co. ....................... 165,723 35,241
Abraham Portnoy ............................ 164,269 23,975
Stanley Spielman ........................... 128,019 5,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
Alternative Page
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
Herbert Goldsmith .......................... 122,183 41,989
Louis Gross ................................ 113,019 --
Philip Weisser ............................. 111,169 14,500
Schottenstein Stores Corp ................. 100,000 --
Ronald Portnoy.............................. 99,400 --
Paula Modell ............................... 97,604 21,610
Daniel Healy 1989 Grandchild's Trust ....... 84,500 --
Margaret Healy 1989 Grandchild's Trust ..... 84,500 --
Amy Hooper 1989 Grandchild's Trust ......... 84,500 --
Matthew Hooper 1989 Grandchild's Trust ..... 84,500 --
Irwin Kaplan ............................... 79,827 19,509
Martin Lifton .............................. 75,201 25,067
Jason Haim 1989 Original Trust(7) .......... 67,600 --
Jillian Haim 1989 Original Trust(7) ........ 67,600 --
Joanne Haim 1989 Original Trust(7) ......... 67,600 --
Jennifer Kamp 1989 Original Trust(7) ....... 67,600 --
Jonathan Kamp 1989 Original Trust(7) ....... 67,600 --
Arnold Saltzman ............................ 55,035 51,950
Jack Silver Grat TR2, Kamgil Harvey,
Trustee ................................... 51,000 17,000
Pristar Enterprises B.V. ................... 50,001 16,667
Isaac Cavaliero ............................ 44,071 15,303
Wachtel Family Partnership ................. 44,059 15,299
Joan W. Blum ............................... 39,884 1,628
Arthur Borden .............................. 33,190 9,750
Arthur Kayen Revocable Living Trust ........ 31,900 5,000
Nemir A. Kirdar ............................ 27,000 9,000
Nada Kirdar ................................ 25,002 8,334
Adel AI-Jubier ............................. 25,000 --
V&M Services Inc. .......................... 24,999 8,333
Barry Newman ............................... 21,364 6,765
Roslyn Sonder .............................. 20,063 18,962
Marcia Ross ................................ 17,125 5,625
Trust FBO Elizabeth and Amy Weisser ........ 16,125 9,375
Bertram Ostrau ............................. 13,000 535
Mark Sonder ................................ 7,421 7,013
Stanley Ostrau ............................. 5,699 233
Erica Baird ................................ 5,420 140
Ross J. Borden ............................. 5,420 140
Arthur Kobacker ............................ 5,000 --
Alfred Kobacker, II ........................ 5,000 --
Anthony Borden ............................. 3,141 47
Lindsey Borden ............................. 3,141 47
Thomas Kayen ............................... 2,500 --
David Kayen ................................ 2,500 --
Robert Kayen ............................... 2,500 --
Andrew Borden .............................. 1,000 --
Caron Berwind .............................. 1,500 --
Victor Savitsky ............................ -- 50,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Israel Aircraft was the original licensee of certain of the Medis El
technologies which was in turn licenced to Medis El. We are currently the
sole distributor of such technology in the
A-2
<PAGE>
Alternative Page
United States, its territories and possessions. Prior to the offer to
exchange all of Medis El's ordinary shares for shares of our common stock,
Israel Aircraft directly owned approximately 12% of Medis El's ordinary
shares.
(2) Robert K. Lifton is our chairman, chief executive officer and secretary
and the chairman of Medis El.
(3) Howard Weingrow is our president, treasurer and a director and a director
of Medis El.
(4) The Stanoff Corporation is beneficially owned by Messrs. Lifton and
Weingrow.
(5) Ms. Haim and Ms. Vaccaro are daughters of Mr. Weingrow.
(6) Ms. Healy and Ms. Hooper are daughters of Mr. Lifton.
(7) Mr. Lifton is a trustee of such trusts, of which the beneficiaries are Mr.
Weingrow's grandchildren.
A-3
<PAGE>
Alternative Page
PLAN OF DISTRIBUTION
The sale of the securities by the selling securityholders may be effected
from time to time in transactions, which may include block transactions by or
for the account of the selling securityholders, in the over-the-counter-market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the selling securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the selling securityholders or the purchasers
from whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise, which compensation as to a particular broker-dealer may
exceed customary commissions.
The selling securityholders and broker-dealers, if any, acting in
connection with these sales might be deemed to be "underwriters" within the
meaning of section 2(11) of the Securities Act. Any commission they receive and
any profit upon the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
Sales of any shares of common stock by the selling securityholders may
depress the price of our common stock in any market that may develop for our
common stock.
Any securities covered by this prospectus that qualify for sale pursuant
to SEC Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this prospectus.
There can be no assurance that the selling securityholders will sell any
or all of the shares of common stock covered by this prospectus.
A-4
<PAGE>
Alternative Page
CONCURRENT EXCHANGE OFFER
On the date of this prospectus, a registration statement under the
Securities Act was declared effective with respect to an offer to exchange a
maximum of 5,174,914 shares of our common stock for all of the outstanding
ordinary shares of Medis El.
A-5
<PAGE>
================================================================================
Medis Technologies Ltd.
11,122,716 shares
of Common Stock
-----------------
PROSPECTUS
-----------------
, 1999
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, such information or representations must not
be relied on as having been authorized by us. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
offered hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized or is unlawful. The delivery of this prospectus shall not,
under any circumstances create any implication that the information herein is
correct as of any time subsequent to the date of the prospectus.
-------------------
Until , 1999, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses which will be incurred in
connection with the exchange offer. Other than the SEC registration fee and NASD
filing fee, all amounts set forth below are estimates:
SEC registration fee ...........................$23,409
Blue sky fees and expenses ...........................*
Printing and engraving expenses ......................*
Legal fees and expenses ..............................*
Accounting fees and expenses .........................*
Transfer and Exchange Agent fees .....................*
NASDAQ listing fee ....................................
Miscellaneous expenses ......................... *
-------
$
=======
----------
* To be filed by amendment to this Registration Statement.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances for liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Act").
The registrant's Bylaws (the "Bylaws") provide that the registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the registrant), by reason of the fact that he is or was a
director, officer, employee or agent of the registrant or is or was serving at
the request of the registrant as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding.
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all securities of
Registrant sold by it since May 31, 1996:
In 1996:
o existing shareholders of the Registrant (the "Senior Noteholders")
purchased $650,000 of senior secured exchangeable subordinated notes (the
"Senior Notes") paying interest of prime plus 2%. The Notes were
exchangeable for shares of the common stock of Medis El at $2.00 per
share. In March 1998, the Senior Noteholders exchanged the Senior Notes
for 325,000 of Medis El's ordinary shares held by Medis Inc., the
Registrant's wholly-owned subsidiary.
o The Registrant issued 175,308 shares of common stock in lieu of interest
of $350,616 due on subordinated notes of the Registrant (the "Notes").
o Existing warrantholders surrendered an aggregate of $1,267,610 of the
Notes held by such warrantholders as payment in full for the exercise of
an aggregate of 316,902 warrants into such number of shares of common
stock of the Registrant.
In 1997:
o The Registrant issued 66,373 shares of common stock in lieu of interest of
$132,773 due on the Notes.
o Existing warrantholders surrendered an aggregate of $2,314,290 of the
Notes held by such warrantholders as payment in full for the exercise of
an aggregate of 578,573 warrants into such number of shares of common
stock of the Registrant.
o The Registrant issued 60,000 shares of common stock upon the exercise of
60,000 warrants for an aggregate exercise price of $240,000.
o On December 15, 1997, the Registrant issued 3,600,457 shares of its common
stock to Israel Aircraft Industries Ltd. ("IAI") in exchange for IAI's 40%
ownership share of Medis Inc., making Medis Inc. the Registrant's
wholly-owned subsidiary.
In 1998:
o In June 1998, the Registrant issued in a private placement 83,334 units to
the Stanoff Corporation, which is beneficially owned by Robert K. Lifton
and Howard Weingrow, the Registrants' chairman and chief executive officer
and president, respectively, and 98,092 units to certain other existing
stockholders, each unit consisting of three shares of
II-2
<PAGE>
the Registrant's common stock and one warrant to purchase one share of the
Registrant's common stock at an exercise price of $5.00 per share, at a
price of $12.00 per unit. The net proceeds to the Registrant from this
financing was $2,177,112.
o In November 1998, the Registrant issued in a private placement 10,241
units to certain existing stockholders and 166,667 units to new
stockholders, all of which met the definition of "accredited investor," as
such term is defined in the Securities Act of 1933, as amended
("accredited investor"), each unit consisting of three shares of the
Registrant's common stock and one warrant to purchase one share of the
Registrant's common stock at an exercise price of $5.00 per share, at a
price of $12.00 per unit (the "Units"). The net proceeds to the Registrant
from this financing was $2,122,896.
o In December 1998, the Registrant issued in a private placement 25,000
Units to the Stanoff Corporation. The net proceeds to the Registrant from
this financing was $300,000.
In 1999:
o In February 1999, the Registrant issued in a private placement 16,667
units to an existing stockholder. The net proceeds to the Registrant from
this financing was $200,004.
o In March 1999, the Registrant issued in a private placement 50,334 Units
to new shareholders, all of which were accredited investors. The net
proceeds to the Registrant from this financing was $604,008.
o In May 1999, the Registrant issued in a private placement 100,000 Units to
existing stockholders. The net proceeds to the Registrant from this
financing was $1,200,000.
o In June 1999, the Registrant issued in a private placement 9,000 Units to
a new shareholder who is an accredited investor. The net proceeds to the
Registrant from this financing was $108,000.
Exemption from registration under the Securities Act of 1933, as amended
(the "Securities Act"), in connection with the foregoing transactions, is
claimed under Section 4(2) of the Securities Act as a transaction by the issuer
not involving a public offering. Each certificate evidencing such shares of
Common Stock bears an appropriate restrictive legend and "stop transfer" orders
are maintained on Registrant's stock transfer records there against. None of
these sales involved participation by an underwriter or a broker-dealer.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of Exhibits filed herewith as part of the
Registration Statement:
II-3
<PAGE>
3.(i) Form of Restated Certificate of Incorporation of Registrant
3.(ii) Form of By-Laws of Registrant
4.1 Form of certificate evidencing shares of common stock
5.1* Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
5.2* Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C. regarding
tax matters
10.1 Registrant's 1999 Stock Option Plan
10.2 Distributorship Agreement dated as of August 13, 1992 by and between
Medis El Ltd. and CDS Distributor, Inc.
10.3 Exclusive Agency Agreement dated as of July 1, 1998 by and between
Medis El Ltd. and CDS Distributor, Inc.
10.4 Form of warrant agreement
10.5 Stock Purchase Agreement dated as of December 15, 1997 between Cell
Diagnostics Inc., Howard Weingrow and Robert K. Lifton and Israel
Aircraft Industries Ltd.
10.6 CDI Shareholders Agreement dated as of December 15, 1997 among Israel
Aircraft Industries Ltd., Howard Weingrow and Robert K. Lifton, Cell
Diagnostics Inc., Medis Inc., CDS Distributor, Inc. and Medis El Ltd.
10.7 Letter Agreement dated as of December 15, 1997 among Cell Diagnostics
Inc., Medis Inc., Medis El Ltd., Robert K. Lifton, Howard Weingrow
and Israel Aircraft Industries Ltd.
21.1 Subsidiaries of the Registrant
23.1 Consent of Grant Thornton LLP
23.2 Consent of Fahn, Kanne & Co.
23.3* Consent of Cooperman Levitt Winikoff Lester & Newman, P.C. (to be
included in Exhibit 5.1)
23.4* Consent of Zvi Rehavi
23.5* Consent of Amos Eiran
23.6* Consent of Zeev Nahmoni
23.7* Consent of Shmuel Peretz
23.8* Consent of Jacob S. Weiss
24.1 Power of Attorney (included on the signature page of Part II of this
Registration Statement)
27.1 Financial Data Schedule
99.1* Transmittal Letter
99.2* Notice of Guaranteed Delivery
99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees
99.4* Letter to Clients
- ----------
* To be filed by Amendment to this Registration Statement.
(b) Financial Statement Schedules.
II-4
<PAGE>
No schedules are required to be filed.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with
II-5
<PAGE>
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on July 28, 1999.
MEDIS TECHNOLOGIES LTD.
By: /s/ Robert K. Lifton
---------------------------
Robert K. Lifton
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Robert K. Lifton and Howard Weingrow, and each or
either of them, as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to approve, sign and file with the U.S.
Securities and Exchange Commission and any other appropriate authorities the
original of any and all amendments (including post-effective amendments) to this
Registration Statement and any other documents in connection therewith, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any of them, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
--------------------
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title
--------- -----
/s/ Robert K. Lifton Chairman of the Board, Chief July 28, 1999
- ---------------------- Executive Officer and Secretary
Robert K. Lifton (principal executive officer)
/s/ Howard Weingrow President, Treasurer and July 28, 1999
- ---------------------- Director (principal accounting
Howard Weingrow and financial officer)
II-7
Exhibit 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
MEDIS TECHNOLOGIES LTD.
UNDER SECTION 245 OF THE DELAWARE GENERAL CORPORATION LAW
Medis Technologies Ltd., a corporation organized and existing under the
Delaware General Corporation Law (the "Corporation"), DOES HEREBY CERTIFY as
follows:
FIRST: That the name of the corporation is MEDIS TECHNOLOGIES LTD.
SECOND: That the original Certificate of Incorporation of the
Corporation was filed on April 7, 1992 with the Secretary of State of the State
of Delaware under the name S.C.L.W. Corporation.
THIRD: That the following amendment and restatement of the Certificate
of Incorporation of the Corporation was declared advisable by Board of Directors
of the Corporation and was approved by written consents executed by the holders
of a majority of the outstanding stock of the Corporation entitled to vote
thereon in the manner prescribed by Sections 228 and 242 of the Delaware General
Corporation Law. This Restated Certificate of Incorporation was duly adopted in
the manner prescribed by Section 245 of the Delaware General Corporation Law.
FOURTH: That the text of the Certificate of Incorporation of
MEDIS TECHNOLOGIES CORP. is hereby restated to read in full as follows:
<PAGE>
"FIRST: The name of the corporation is
MEDIS TECHNOLOGIES CORP.
SECOND: The address of the initial registered and principal office of
this corporation is this state is 30 Old Rudnick Lane, Suite 100,
Dover, Delaware 19901, in the County of Kent, and the name of the
registered agent at said address is LEXIS Document Services Inc.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under
the Delaware General Corporation Law.
FOURTH: (a) The corporation shall be authorized to issue the
following shares:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES PAR VALUE
------------------------ ------------------------ --------------------
<S> <C> <C>
Common 25,000,000 .01
Preferred 10,000 .01
</TABLE>
b) The designations and the powers, preferences and
rights, and the qualifications or restrictions thereof are as follows:
The Preferred shares shall be issued from time to time in one
or more series, with such distinctive serial designations as shall be
stated and expressed in the resolution or resolutions providing for the
issue of such shares from time to time adopted by the Board of
Directors; and in such resolution or resolutions providing for the
issue of shares of each particular series, the Board of Directors is
expressly authorized to fix the annual rate or rates of dividends for
the particular series; the dividend payment dates for the particular
series and the date from which dividends on all shares of such series
issued prior to the record date for the first dividend payment date
shall be cumulative; the redemption price or prices for the particular
series; the voting powers for the particular series; the rights, if
any, of holders of the shares of the particular series to convert the
same into shares of any other series or class or other securities of
the corporation, with any provisions for the subsequent adjustment of
such conversion rights; and to classify or reclassify any unissued
preferred shares by fixing or altering from time to time any of the
foregoing rights, privileges and qualifications.
All the Preferred shares of any one series shall be identical
with each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which
dividends thereon shall be cumulative; and all Preferred shares shall
be of equal rank, regardless of series, and shall be identical in all
respects except as to the particulars fixed by the Board as hereinabove
provided or as fixed herein.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the corporation, and for
further definition, limitation and regulation of the powers of the
corporation and of its directors and stockholders:
(a) The number of directors of the corporation shall be such
as from time to time shall be fixed by, or in the manner provided in
the By-Laws. Election of directors need not
2
<PAGE>
be by ballot unless the By-Laws so provide.
(b) The Board of Directors shall have power without the assent
or vote of the stockholders:
(i) To make, alter, amend, change, add to or repeal
the By-Laws of the corporation; to fix and vary the amount to
be reserved for any proper purpose; to authorize and cause to
be executed mortgages and liens upon all or any part of the
property of the corporation; to determine the use and
disposition of any surplus or net profits; and to fix the
times for the declaration and payment of dividends.
(ii) To determine from time to time whether, and to
what times and places and under what conditions the accounts
and books of the corporation (other than the stock ledger) or
any of them, shall be open to the inspection of the
stockholders.
(c) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of the
stockholders or at any meeting of the stockholders called for the
purpose of considering any such act or contract, and any contract or
act that shall be approved or be ratified by the vote of the holders of
a majority of the stock of the corporation which is represented in
person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the
corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of the corporation, whether
or not the contract or act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
(d) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the corporation; subject, nevertheless,
to the provisions of the statutes of Delaware, of this certificate, and
to any By-Laws from time to time made by the stockholders; provided,
however, that no By-Laws so made shall invalidate any prior act of the
directors which would have been valid if such By-Law had not been made.
SIXTH: (a) The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by paragraph
(7) of subsection (b) of Section 102 of the Delaware General Corporation Law, as
the same may be amended and supplemented.
(b) The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as the same may be
amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all
of the expenses, liabilities or other matters referred to in or covered
by said section, and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall
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inure to the benefit of the heirs, executors and administrators of such a
person.
(c) If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
(d) No amendment to or repeal of this Article SIXTH shall
apply to or have any effect on the liability or alleged liability of
any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware, may, on the
application in a summary way of this corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths
(3/4) in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case
may be, agree to any compromise or arrangement and to any
reorganization of this corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of
Incorporation, and other provisions authorized by the laws of the State
of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this
Restated Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this
Article EIGHTH."
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and amends the provisions of the Certificate of Incorporation, as
amended, of the Corporation, and which has been duly adopted in accordance with
Sections 241 and 245 of the Delaware General Corporation Law, has been executed
by its duly authorized officer this ____ day of ________, 1999.
MEDIS TECHNOLOGIES LTD.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
4
Exhibit 3(ii)
RESTATED
BY-LAWS
OF
MEDIS TECHNOLOGIES LTD.
<PAGE>
TABLE OF CONTENTS
ARTICLE I. OFFICES............................................................1
Section 1. REGISTERED OFFICES.......................................1
Section 2. OTHER OFFICES............................................1
ARTICLE II. MEETINGS OF STOCKHOLDERS.........................................1
Section 1. PLACE OF MEETINGS........................................1
Section 2. ANNUAL MEETING OF STOCKHOLDERS...........................1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF............1
Section 4. VOTING...................................................1
Section 5. PROXIES..................................................2
Section 6. SPECIAL MEETINGS.........................................2
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS...........2
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST...........3
ARTICLE III. DIRECTORS........................................................3
Section 1. THE NUMBER OF DIRECTORS..................................3
Section 2. VACANCIES................................................3
Section 3. REMOVAL..................................................4
Section 4. POWERS...................................................4
Section 5. PLACE OF DIRECTORS' MEETINGS.............................4
Section 6. REGULAR MEETINGS.........................................4
Section 7. SPECIAL MEETINGS.........................................4
Section 8. QUORUM...................................................4
Section 9. ACTION WITHOUT MEETING...................................4
Section 10. TELEPHONIC MEETINGS......................................4
Section 11. COMMITTEES OF DIRECTORS..................................5
Section 12. MINUTES OF COMMITTEE MEETINGS............................5
Section 13. COMPENSATION OF DIRECTORS................................5
Section 14. CONFLICT OF INTEREST.....................................5
ARTICLE IV. OFFICERS.........................................................6
Section 1. OFFICERS.................................................6
Section 2. ELECTION OF OFFICERS.....................................6
Section 3. SUBORDINATE OFFICERS.....................................6
Section 4. COMPENSATION OF OFFICERS.................................6
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES....................6
Section 6. CHAIRMAN OF THE BOARD....................................7
Section 7. PRESIDENT................................................7
Section 8. VICE PRESIDENTS..........................................7
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Section 9. SECRETARY................................................7
Section 10. ASSISTANT SECRETARY......................................7
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER.....................7
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER OR TREASURER...........8
ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................8
ARTICLE VI. INDEMNIFICATION OF EMPLOYEES AND AGENTS.........................10
ARTICLE VII. CERTIFICATES OF STOCK..........................................11
Section 1. CERTIFICATES............................................11
Section 2. SIGNATURES ON CERTIFICATES..............................11
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES......11
Section 4. LOST CERTIFICATES.......................................11
Section 5. TRANSFERS OF STOCK......................................11
Section 6. FIXED RECORD DATE.......................................12
Section 7. REGISTERED STOCKHOLDERS.................................12
ARTICLE VIII. GENERAL PROVISIONS............................................12
Section 1. DIVIDENDS...............................................12
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES.................12
Section 3. CHECKS..................................................12
Section 4. FISCAL YEAR.............................................12
Section 5. CORPORATE SEAL..........................................12
Section 6. MANNER OF GIVING NOTICE.................................13
Section 7. WAIVER OF NOTICE........................................13
ARTICLE IX. AMENDMENTS......................................................13
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS..................13
<PAGE>
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICES. The registered office of the
corporation shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall
be held at any place within or outside the State of Delaware designated by the
Board of Directors. In the absence of any such designation, stockholders'
meetings shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual
meeting of stockholders shall be held each year on a date and a time designated
by the Board of Directors.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A
majority of the voting power of the shares of capital stock of the corporation
issued and outstanding and entitled to vote at any meeting of stockholders, the
holders of which are present in person or represented by proxy, shall constitute
a quorum for the transaction of business except as otherwise provided by law, by
the Certificate of Incorporation, as amended, or by these By-Laws. A quorum,
once established, shall not be broken by the withdrawal of enough votes to leave
less than a quorum and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, a majority of the voting power of the shares of
capital stock represented in person or by proxy at such meeting may adjourn the
meeting from time to time, without notice other than announcement at the meeting
of the time and place of the adjourned meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any
meeting, in all matters other than the election of directors, the vote of the
holders of stock representing a majority of the voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the Certificate of
Incorporation, as amended, or these By-Laws, or any rule, regulation or
statutory provision
<PAGE>
applicable to the corporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him/her by proxy appointed by an instrument in
writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless said instrument provides for a longer
period. All proxies must be filed with the Secretary of the corporation at the
beginning of each meeting in order to be counted in any vote at the meeting.
Section 6. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, as amended, may be called by the
Chairman of the Board or the President and shall be called by the President or
the Secretary at the request in writing of the Board of Directors. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(1) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-Law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is not within 30 days
before or after such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the close of business on the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
earlier of (i) the day on which notice of the meeting was mailed or (ii) the
date public announcement of the date of such meeting is first made by the
corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act
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of 1934, as amended (the "Exchange Act"), and Rule 14A-11 thereunder (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected), (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the nomination or
proposal is made and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder and of such beneficial owner, as they
appear on the corporation's books, and (ii) the class and number of shares of
the corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The
officer who has charge of the stock ledger of the corporation shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS. The number of directors
which shall constitute the entire Board shall be determined from time to time
solely by resolution adopted by the affirmative vote of a majority of the
directors. The directors need not be stockholders of the corporation. The
directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 2 of this Article, and each director elected shall hold
office until his/her successor is duly elected and qualified.
Section 2. VACANCIES. Vacancies on the Board of Directors by
reason of death, resignation, removal, or otherwise, and newly created
directorships resulting from any increase in the number of directors may be
filled (other than directors elected by one or more series of Preferred Stock)
solely by a majority of the directors then in office (although less than a
quorum) or by a sole remaining director. Each director so chosen shall hold
office until such director's successor shall have been duly elected and
qualified or until such director's earlier death, resignation, disqualification
or removal. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the entire Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen
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by the directors then in office.
Section 3. REMOVAL. No director may be removed from office by
the stockholders except for cause with the affirmative vote of the holders of
two-thirds (66 2/3%) of all outstanding securities of the corporation then
entitled to vote generally in the election of directors, voting together as a
single class.
Section 4. POWERS. The property and business of the
corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board may exercise all such powers of the corporation
and do all such lawful acts and things as are not directed or required by
statute, by the Certificate of Incorporation, as amended, or by these By-Laws to
be exercised or done by the stockholders.
Section 5. PLACE OF DIRECTORS' MEETINGS. The directors may
hold their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.
Section 6. REGULAR MEETINGS. Regular meetings of the Board
of Directors may be held without notice at such time and place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on
forty-eight hours' notice to each director, either personally or by mail,
telecopier, or other means of electronic transmission at the address of such
director on the books and records of the corporation; special meetings shall be
called by the President or the Secretary in like manner and on like notice on
the written request of two directors.
Section 8. QUORUM. At all meetings of the Board of Directors a
majority of the then authorized number of directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the vote
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation, as
amended, or by these By-Laws. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted
by the Certificate of Incorporation, as amended, or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee designated by the Board of Directors may be taken without a
meeting, if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
Section 10. TELEPHONIC MEETINGS. Unless otherwise restricted
by the Certificate of Incorporation, as amended, or these By-Laws, members of
the Board of Directors, or
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any committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors, or of any committee, by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 11. COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution passed by a majority of the entire Board of Directors,
designate one or more committees, each such committee to consist of one or more
of the directors of the corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he/she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation, as
amended, adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution or the Certificate of
Incorporation, as amended, expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Section 12. MINUTES OF COMMITTEE MEETINGS. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when requested by the Board of Directors.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation, as amended, or these By-Laws,
the Board of Directors shall have the authority to fix the compensation of
directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 14. CONFLICT OF INTEREST. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers, are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board or committee which authorizes the
contract or transaction, or solely because his or their votes are counted for
such purpose, if:
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(a) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum;
(b) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the board of
directors, a committee or the shareholders.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board of
Directors or a President, or both, and a Secretary. The corporation may also
have at the discretion of the Board of Directors such other officers as are
desired, including a Vice-Chairman of the Board of Directors, a Chief Executive
Officer, a Chief Operating Officer, a Chief Financial Officer or Treasurer, one
or more Vice Presidents, one or more Assistant Secretaries and Assistant Chief
Financial Officers or Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 3 hereof. In the event there are two
or more Vice Presidents, then one or more may be designated as an Executive Vice
President, Senior Vice President or other similar or dissimilar title. At the
time of the election of officers, the directors may by resolution determine the
order of their rank. Any number of offices may be held by the same person,
unless the Certificate of Incorporation, as amended, or these By-Laws otherwise
provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors,
at its first meeting after each annual meeting of stockholders, shall choose the
executive officers of the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may
appoint, or grant to the executive officers the power to appoint, such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all
executive officers of the corporation shall be fixed by the Board of Directors.
The salaries of all other officers and agents of the corporation shall be fixed
by the executive officers of the corporation.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers
of the corporation shall hold office until their successors are chosen and
qualify in their stead. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the members of the Board of Directors. If the office of any officer or officers
6
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becomes vacant for any reason, the vacancy shall be filled by the Board of
Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if such an officer be elected, shall be the Chief Executive Officer of the
corporation and, if present, preside at all meetings of the Board of Directors
and exercise and perform such other powers and duties as may be from time to
time assigned to him/her by the Board of Directors or prescribed by these
By-Laws. If there is no President, the Chairman of the Board shall have the
powers and duties prescribed in Section 7 of this Article IV.
Section 7. PRESIDENT. Subject to the control of the Board of
Directors, the President shall have general supervision, direction and control
of the business and officers of the corporation. He/she shall preside at all
meetings of the stockholders and, in the absence of the Chairman of the Board,
or if there be none, at all meetings of the Board of Directors. He/she shall be
an ex-officio member of all committees and shall have the general powers and
duties of management usually vested in the office of President of corporations,
and shall have such other powers and duties as may be prescribed by the Board of
Directors or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of
the President, the Vice Presidents in order of their rank as fixed by the Board
of Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions
of the Board of Directors and all meetings of the stockholders and record all
votes and the minutes of all proceedings in a book to be kept for that purpose;
and shall perform like duties for the standing committees when required by the
Board of Directors. He/she shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or these
By-Laws. He/she shall keep in safe custody the seal of the corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and when
so affixed it shall be attested by his/her signature or by the signature of an
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his/her signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or
if there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall
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deposit all moneys and other valuable effects in the name and to the credit of
the corporation, in such depositories as may be designated by the Board of
Directors. He/she shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his/her transactions as Chief
Financial Officer or Treasurer and of the financial condition of the
corporation. If required by the Board of Directors, he/she shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his/her office and for the restoration to the corporation, in case of
his/her death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his/her
possession or under his/her control belonging to the corporation.
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER OR TREASURER.
The Assistant Chief Financial Officer or Treasurer, or if there shall be more
than one, the Assistant Chief Financial Officers or Treasurers in the order
determined by the Board of Directors, or if there be no such determination, the
Assistant Chief Financial Officer or Treasurer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer or
Treasurer, perform the duties and exercise the powers of the Chief Financial
Officer or Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he/she is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him/her in
connection with such action, suit or proceeding if he/she acted in good faith
and in a manner he/she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his/her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he/she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his/her conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he/she is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expenses
8
<PAGE>
(including attorneys' fees) actually and reasonably incurred by him/her in
connection with the defense or settlement of such action or suit if he/she acted
in good faith and in a manner he/she reasonably believed to be in or not opposed
to the best interests of the corporation except that no such indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director or officer of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b) of this Article
V, or in defense of any claim, issue or matter therein, he/she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him/her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this
Article V (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because he/she has met the
applicable standard of conduct set forth in paragraphs (a) and (b) of this
Article V. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorney's fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he/she is not entitled to be
indemnified by the corporation as authorized in this Article V. Such expenses
(including attorney's fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Article V shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his/her official capacity and as to action in another capacity while holding
such office.
(g) The Board of Directors may authorize, by a vote of a
majority of a quorum of the Board of Directors, the corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him/her and incurred by him/her in any such capacity, or
arising out of his/her status as such, whether or not the corporation
9
<PAGE>
would have the power to indemnify him/her against such liability under the
provisions of this Article V.
(h) For the purposes of this Article V, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article V with
respect to the resulting or surviving corporation as he/she would have with
respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he/she reasonably believed to be in the best interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may, at its option, indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he/she is or was an
employee or agent of the corporation or, while an employee or agent of the
corporation, is or was serving at the request of the corporation as an employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him/her in
connection with such action, suit or proceeding, to the extent permitted by
Section 145 of the General Corporation Law of the State of Delaware.
10
<PAGE>
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the
corporation shall be entitled to have a certificate signed by, or in the name of
the corporation by, the Chairman or Vice Chairman of the Board of Directors, or
the President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Chief Financial Officer or Treasurer or an Assistant Chief
Financial Officer or Treasurer of the corporation, certifying the number of
shares represented by the certificate owned by such stockholder in the
corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he/she were such officer, transfer agent, or
registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES.
If the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock; provided that, except as otherwise provided in section
202 of the General Corporation Law of the State of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 4. LOST CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his/her legal representative, to advertise the
same in such manner as it shall require and/or to give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the
corporation, or the transfer agent of the corporation, of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, it shall be the duty of the corporation to
11
<PAGE>
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of the stockholders, or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than 60 nor less than ten days before the
date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and accordingly shall not be bound to recognize any equitable or
other claim or interest in such share on the part of any other person, whether
or not it shall have express or other notice thereof, save as expressly provided
by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, as
amended, if any, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the Certificate of
Incorporation, as amended.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before
payment of any dividend there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interests of the corporation, and the directors may
abolish any such reserve.
Section 3. CHECKS. All checks or demands for money and
notes of the corporation shall be signed by such officer or officers as the
Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or
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<PAGE>
otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the
provisions of the Certificate of Incorporation, as amended, or of these By-Laws,
or any rule, regulation or statutory provision applicable to the corporation,
notice is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given (unless
otherwise provided) in writing, by mail, addressed to such director or
stockholder, at his/her address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by mail, telecopier, or other means of electronic
transmission at the address of such director on the books and records of the
corporation.
Section 7. WAIVER OF NOTICE. Whenever any notice is required
to be given under the provisions of the Certificate of Incorporation, as
amended, or of these By-Laws, or any rule, regulation or statutory provision
applicable to the corporation, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These
By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the
Board of Directors, when such power is conferred upon the Board of Directors by
the Certificate of Incorporation, as amended, or by the affirmative vote of not
less than 66 2/3% of the total voting power of all outstanding securities of the
corporation then entitled to vote generally in the election of directors, voting
together as a single class, at any regular meeting of the Board of Directors or
of the stockholders or at any special meeting of the Board of Directors or of
the stockholders if notice of such alteration, amendment, repeal or adoption of
new By-Laws be contained in the notice of such special meeting.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
Exhibit 4.1
<TABLE>
<S> <C> <C>
NUMBER SHARES
MDS MEDIS TECHNOLOGIES LTD.
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
---------------------------------------------- -------------------------------------------------
- ----------------------------------------------------MEDIS TECHNOLOGIES LTD.-------------------------------------------------------
---------------------------------------------- -------------------------------------------------
(the "Corporation"), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney
upon the surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued under and
are subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corporation and all amendments thereto,
copies of which are on file with the Transfer Agent, to all of which the holder of this certificate assents by acceptance hereof.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
MEDIS TECHNOLOGIES LTD.
CORPORATE
SEAL
1992
SECRETARY DELAWARE PRESIDENT
</TABLE>
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
BY TRANSFER AGENT
AUTHORIZED SIGNATURE
<PAGE>
MEDIS TECHNOLOGIES LTD.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ..........Custodian...........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ..........................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________ Shares
of the common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
__________________________________ Attorney to transfer the said stock on the
books of the within named Corporation with full power of substitution in the
premises.
Dated ___________________________
____________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
____________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKHOLDERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad 15.
Exhibit 10.1
MEDIS TECHNOLOGIES LTD.
1999 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the Medis Technologies Ltd. 1999 Stock Option Plan (the
"Plan") is to promote the interests of Medis Technologies Ltd., a Delaware
corporation (the "Company"), and its stockholders by strengthening the Company's
ability to attract and retain competent employees, to make service on the Board
of Directors of the Company (the "Board") more attractive to present and
prospective non-employee directors of the Company and to provide a means to
encourage stock ownership and proprietary interest in the Company by officers,
non-employee directors and valued employees and other individuals upon whose
judgment, initiative and efforts the financial success and growth of the Company
largely depend. The Plan became effective on July 13, 1999, by resolution of
the Board, subject to ratification of the Plan by a majority vote of the
stockholders of the Company by written consent.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or
treasury shares of Common Stock, $.O1 par value per share, of the Company
("Common Stock") for which options and stock appreciation rights ("SARs") may
be granted under the Plan shall be 1,000,000 subject to adjustment as
provided in Section 14 hereof, which shares may be of any class of Common
Stock; provided, however, that such number of shares may from time to time be
reduced to the extent that a corresponding number of issued and outstanding
shares of Common Stock are purchased by the Company and set aside for issue
upon the exercise of options.
(b) If an option granted or assumed hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for subsequent option grants under the
Plan; provided, however, that shares as to which an option has been surrendered
in connection with the exercise of a related SAR will not again be available for
subsequent option or SAR grants under the Plan.
(c) Stock issuable upon exercise of an option or SAR granted under the
Plan may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board.
3. Administration of the Plan.
The Plan shall be administered by the Board. No member of the Board shall
act upon any matter exclusively affecting an option or SAR granted or to be
granted to himself or herself under the Plan. A majority of the members of the
Board shall constitute a quorum, and any action may be taken by a majority of
those present and voting at any meeting. The decision of the Board as to all
questions of interpretation and application of the Plan shall be final, binding
and conclusive on all persons. The Board may, in its sole discretion, grant
options to purchase shares of Common Stock, grant SARs and issue shares upon
exercise of such options and SARs, as provided in the Plan. The
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<PAGE>
Board shall have authority, subject to the express provisions of the Plan, to
construe the respective option and SAR agreements and the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan, to determine the
terms and provisions of the respective option and SAR agreements, which may but
need not be identical, and to make all other determinations in the judgment of
the Board necessary or desirable for the administration of the Plan. The Board
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any option or SAR agreement in the manner and to the extent it
shall deem expedient to carry the Plan into effect and shall be the sole and
final judge of such expediency. No director shall be liable for any action or
determination made in good faith. The Board may, in its discretion, delegate its
power, duties and responsibilities to a committee, consisting of two or more
members of the Board, all of whom are "Non-Employee Directors" (as hereinafter
defined). If a committee is so appointed, all references to the Board herein
shall mean and relate to such committee, unless the context otherwise requires.
For the purposes of the Plan, a director or member of such committee shall be
deemed to be a "Non-Employee Director" only if such person qualified as a
"Non-Employee Director" within the meaning of paragraph (b)(3)(i) of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as such term is interpreted from time to time.
4. Type of Options.
Options granted pursuant to the Plan shall be authorized by action of the
Board (or a committee designated by the Board) and may be designated as either
incentive stock options meeting the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified options which
are not intended to meet the requirements of Section 422 of the Code, the
designation to be in the sole discretion of the Board. Options designated as
incentive stock options that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as non-qualified options
automatically on the date of such failure to continue to meet the requirements
of Section 422 of the Code without further action by the Board.
5. Eligibility.
Options designated as incentive stock options may be granted only to
officers and key employees of the Company or of any subsidiary corporation
(herein called "subsidiary" or "subsidiaries"), as defined in Section 424 of the
Code and the Treasury Regulations promulgated thereunder (the "Regulations").
Directors who are not otherwise employees of the Company or a subsidiary shall
not be eligible to be granted incentive stock options pursuant to the Plan. SARs
and options designated as non-qualified options may be granted to (i) officers
and key employees of the Company or of any of its subsidiaries, or (ii) agents
and directors of and consultants to the Company, whether or not otherwise
employees of the Company.
In determining the eligibility of an individual to be granted an option or
SAR, as well as in determining the number of shares to be optioned to any
individual, the Board shall take into account the recommendation of the
Company's President, the position and responsibilities of the individual being
considered, the nature and value to the Company or its subsidiaries of his or
her service and accomplishments, his or her present and potential contribution
to the success of the Company or its subsidiaries, and such other factors as the
Board may deem relevant.
2
<PAGE>
6. Restrictions on Incentive Stock Options.
Incentive stock options (but not non-qualified options) granted under this
Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of the
shares of Common Stock with respect to which incentive stock options are
granted, determined as of the date the incentive stock options are granted,
exercisable for the first time by an individual during any calendar year shall
not exceed $100,000. If an incentive stock option is granted pursuant to which
the aggregate fair market value of shares with respect to which it first becomes
exercisable in any calendar year by an individual exceeds such $100,000
limitation, the portion of such option which is in excess of the $100,000
limitation, and any such options issued subsequently in the same calendar year,
shall be treated as a non-qualified option pursuant to section 422(d)(1) of the
Code. In the event that an individual is eligible to participate in any other
stock option plan of the Company or any parent or subsidiary of the Company
which is also intended to comply with the provisions of Section 422 of the Code,
such $100,000 limitation shall apply to the aggregate number of shares for which
incentive stock options may be granted under this Plan and all such other plans.
(b) Ten Percent (10%) Stockholder. If any employee to whom an incentive
stock option is granted pursuant to the provisions of this Plan is on the date
of grant the owner of stock (as determined under Section 424(d) of the Code)
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary of the Company, then the
following special provisions shall be applicable to the incentive stock options
granted to such individual:
(i) The option price per share subject to such incentive stock
options shall be not less than 110% of the fair market value of the stock
determined at the time such option was granted. In determining the fair market
value under this clause (i), the provisions of Section 8 hereof shall apply.
(ii) The incentive stock option shall have a term expiring not more
than five (5) years from the date of the granting thereof.
7. Option Agreement.
Each option and SAR shall be evidenced by an agreement (the "Agreement")
duly executed on behalf of the Company and by the grantee to whom such option or
SAR is granted, which Agreement shall comply with and be subject to the terms
and conditions of the Plan. The Agreement may contain such other terms,
provisions and conditions which are not inconsistent with the Plan as may be
determined by the Board, provided that options designated as incentive stock
options shall meet all of the conditions for incentive stock options as defined
in Section 422 of the Code. No option or SAR shall be granted within the meaning
of the Plan and no purported grant of any option or SAR shall be effective until
the Agreement shall have been duly executed on behalf of the Company and the
optionee. More than one option and SAR may be granted to an individual.
3
<PAGE>
8. Option Price.
(a) The option price or prices of shares of Common Stock for options
designated as non-qualified stock options shall be as determined by the Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the option
price or prices of shares of Common Stock for options designated as incentive
stock options shall be at least the fair market value of such Common Stock at
the time the option is granted as determined by the Board in accordance with
clause (c) below.
(c) If the Common Stock is then listed on any national securities
exchange, the fair market value shall be the mean between the high and low sales
prices, if any, on the largest such exchange on the date of the grant of the
option or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant in accordance with Regulations Section
25.2512-2. If the Common Stock is not then listed on any such exchange, the fair
market value shall be the mean between the closing "Bid" and the closing "Ask"
prices, if any, as reported in the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") for the date of the grant of the option,
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales on the nearest date before and the nearest
date after the date of grant in accordance with Regulations Section 25.2512-2.
If the Common Stock is not then either listed on any such exchange or quoted in
NASDAQ, the fair market value shall be the mean between the average of the "Bid"
prices, if any, as reported in the National Daily Quotation Service for the date
of the grant of the option, or, if none, shall be determined by taking a
weighted average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant in accordance
with Regulations Section 25.2512-2. If the fair market value of the Common
Stock cannot be determined under the preceding three sentences, it shall be
determined in good faith by the Board in accordance with the Regulations
promulgated under Section 422 of the Code.
9. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock owned by the optionee having a fair market value equal in amount to
the exercise price of such options, or (iii) any combination of (i) and (ii);
provided, however, that payment of the exercise price by delivery of shares of
Common Stock owned by such optionee may be made only upon the condition that
such payment does not result in a charge to earnings for financial accounting
purposes as determined by the Board, unless such condition is waived by the
Board. The fair market value of any shares of Common Stock which may be
delivered upon exercise of an option shall be determined by the Board in
accordance with Section 8 hereof
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number
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<PAGE>
of shares with respect to which the option is being exercised, accompanied by
payment in full for such shares as provided in subparagraph (a) above. Upon such
exercise, delivery of a certificate for paid-up non-assessable shares shall be
made at the principal office of the Company to the person or persons exercising
the option at such time, during ordinary business hours, after three (3) days
but not more than ninety (90) days from the date of receipt of the notice by the
Company, as shall be designated in such notice, or at such time, place and
manner as may be agreed upon by the Company and the person or persons exercising
the option.
10. Exercise of Options and SARs.
Each option and SAR granted under the Plan shall, subject to Section 11(b)
and Section 13 hereof, be exercisable at such time or times and during such
period as shall be set forth in the Agreement; provided, however, that no option
or SAR granted under the Plan shall have a term in excess of ten (10) years from
the date of grant. To the extent that an option or SAR is not exercised when it
becomes initially exercisable, it shall not expire but shall be carried forward
and shall be exercisable, on a cumulative basis, until the expiration of the
exercise period. No partial exercise may be made for less than one hundred (100)
full shares of Common Stock. The exercise of an option shall result in the
cancellation of the SAR to which it relates with respect to the same number of
shares of Common Stock as to which the option was exercised.
11. Term of Options and SARs; Exercisability.
(a) Term.
(i) Each option shall expire not more than ten (10) years from the
date of the granting thereof, except as (a) otherwise provided pursuant to the
provisions of Section 6(b) hereof, and (b) earlier termination as herein
provided.
(ii) Except as otherwise provided in this Section 11, an option or
SAR granted to any grantee who ceases to perform services for the Company or one
of its subsidiaries shall terminate three months after the date such grantee
ceases to perform services for the Company or one of its subsidiaries, or on the
date on which the option or SAR expires by its terms, whichever occurs first.
(iii) If the grantee ceases to perform services for the Company
because of dismissal for cause or because the grantee is in breach of any
employment agreement, such option or SAR will terminate on the date the grantee
ceases to perform services for the Company or one of its subsidiaries.
(iv) If the grantee ceases to perform services for the Company
because the grantee has become permanently disabled (within the meaning of
Section 22(e)(3) of the Code), such option or SAR shall terminate twelve months
after the date such grantee ceases to perform services for the Company, or on
the date on which the option or SAR expires by its terms, whichever occurs
first.
(v) In the event of the death of any grantee, any option or SAR
granted to such grantee shall terminate twelve months after the date of death,
or on the date on which the option or
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SAR expires by its terms, whichever occurs first.
(b) Exercisability.
(i) Except as provided below, an option or SAR granted to a grantee
who ceases to perform services for the Company or one of its subsidiaries shall
be exercisable only to the extent that such option or SAR has accrued and is in
effect on the date such grantee ceases to perform services for the Company or
one of its subsidiaries.
(ii) An option or SAR granted to a grantee who ceases to perform
services for the Company or one of its subsidiaries because he or she has become
permanently disabled (as defined above) shall be exercisable with respect to the
full number of shares covered thereby, whether or not under the provisions of
Section 10 hereof the grantee was entitled to do so at the date he or she became
permanently disabled, and may be exercised by a legal representative on behalf
of the grantee.
(iii) In the event of the death of any grantee, the option or SAR
granted to such grantee may be exercised with respect to the full number of
shares covered thereby, whether or not under the provisions of Section 10 hereof
the grantee was entitled to do so at the date of his or her death, by the estate
of such grantee, or by any person or persons who acquired the right to exercise
such option or SAR by bequest or inheritance or by reason of the death of such
grantee.
12. Options Not Transferable.
The right of any grantee to exercise any option or SAR granted to him or
her shall not be assignable or transferable by such grantee other than by will
or the laws of descent, and any such option or SAR shall be exercisable during
the lifetime of such grantee only by him; provided, that the Board may permit a
grantee, by expressly so providing in the related Agreement, to assign or
transfer, without consideration (and only without consideration), the right to
exercise any option or SAR granted to him or her to his or her children,
grandchildren or spouse, to trusts for the benefit of such family members and to
partnerships in which such family members are the only partners. Any option or
SAR granted under the Plan shall be null and void and without effect upon the
bankruptcy of the grantee to whom the option is granted, or upon any attempted
assignment or transfer except as herein provided, including without limitation,
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such option or SAR.
13. Terms and Conditions of SARs.
(a) An SAR may be granted separately or in connection with an option
(either at the time of grant or at any time during the term of the option).
(b) The exercise of an SAR granted in connection with an option shall
result in the cancellation of the option to which it relates with respect to the
same number of shares of Common Stock as to which the SAR was exercised.
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(c) An SAR granted in connection with an option shall be exercisable or
transferable only to the extent that such related option is exercisable or
transferable.
(d) Upon the exercise of an SAR related to an option, the holder will be
entitled to receive payment of an amount determined by multiplying:
(i) the difference obtained by subtracting the purchase price of a
share of Common Stock specified in the related option from the fair market value
of a share of Common Stock on the date of exercise of such SAR (as determined by
the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(e) An SAR granted without relationship to an option shall be exercisable
as determined by the Board, but in no event after ten years from the date of
grant.
(f) An SAR granted without relationship to an option will entitle the
holder, upon exercise of the SAR, to receive payment of an amount determined by
multiplying:
(i) the difference obtained by subtracting the fair market value of
a share of Common Stock on the date the SAR was granted from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(g) Notwithstanding subsections (d) and (f) above, the Board may limit the
amount payable upon exercise of an SAR. Any such limitation shall be determined
as of the date of grant and noted on the instrument evidencing the SAR granted.
(h) At the discretion of the Board, payment of the amount determined under
subsections (d) and (f) above may be made either in whole shares of Common Stock
valued at their fair market value on the date of exercise of the SAR (as
determined by the Board in accordance with Section 8 hereof), or solely in cash,
or in a combination of cash and shares. If the Board decides to make full
payment in shares of Common Stock and the amount payable results in a fractional
share, payment for the fractional share shall be made in cash.
(i) Neither an SAR nor an option granted in connection with an SAR granted
to a person subject to Section 16(b) of the Exchange Act may be exercised before
six months after the date of grant.
14. Recapitalization, Reorganization and the Like.
In the event that the outstanding shares of Common Stock are changed into
or exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up,
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combination of shares, or dividends payable in capital stock, appropriate
adjustment shall be made in accordance with Section 424(a) of the Code in the
number and kind of shares as to which options and SARs may be granted under the
Plan and as to which outstanding options and SARs or portions thereof then
unexercised shall be exercisable, to the end that the proportionate interest of
the grantee shall be maintained as before the occurrence of such event; such
adjustment in outstanding options and SARs shall be made without change in the
total price applicable to the unexercised portion of such options and SARs and
with a corresponding adjustment in the exercise price per share.
In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the stockholders of
the Company as a result of such sale, conveyance or Change in Control, or the
Board may cancel all outstanding options and SARs in exchange for consideration
in cash or in kind which consideration in both cases shall be equal in value to
the value of those shares of stock or other securities the optionee would have
received had the option been exercised (to the extent then exercisable) and no
disposition of the shares acquired upon such exercise been made prior to such
sale, conveyance or Change in Control, less the exercise price therefor. Upon
receipt of such consideration, the options and SARs shall immediately terminate
and be of no further force and effect. The value of the stock or other
securities the grantee would have received if the option had been exercised
shall be determined in good faith by the Board, and in the case of shares of
Common Stock, in accordance with the provisions of Section 8 hereof.
The Board shall also have the power and right to accelerate the
exercisability of any options or SARs, notwithstanding any limitations in this
Plan or in the Agreement upon such a sale, conveyance or Change in Control. Upon
such acceleration, any options or portion thereof originally designated as
incentive stock options that no longer qualify as incentive stock options under
Section 422 of the Code as a result of such acceleration shall be redesignated
as non-qualified stock options.
A "Change in Control" shall be deemed to have occurred if any person, or
any two or more persons acting as a group, and all affiliates of such person or
persons, who prior to such time owned less than fifty percent (50%) of the then
outstanding Common Stock, shall acquire such additional shares of Common Stock
in one or more transactions, or series of transactions, such that following such
transaction or transactions, such person or group and affiliates beneficially
own fifty percent (50%) or more of the Common Stock outstanding.
If by reason of a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization, or liquidation, the Board shall authorize
the issuance or assumption of a stock option or stock options in a transaction
to which Section 424(a) of the Code applies, then, notwithstanding any other
provision of the Plan, the Board may grant an option or options upon such terms
and conditions as it may deem appropriate for the purpose of assumption of the
old option, or substitution of a new option for the old option, in conformity
with the provisions of such Section 424(a) of the Code and the Regulations
thereunder, and any such option shall not reduce the number of shares otherwise
available for issuance under the Plan.
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No fraction of a share shall be purchasable or deliverable upon the
exercise of any option or SAR, but in the event any adjustment hereunder in the
number of shares covered by the option or SAR shall cause such number to include
a fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
15. No Special Employment Rights.
Nothing contained in the Plan or in any option or SAR granted under the
Plan shall confer upon any grantee any right with respect to the continuation of
his or her employment by the Company (or any subsidiary) or interfere in any way
with the right of the Company (or any subsidiary), subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the grantee from the
rate in existence at the time of the grant of an option or SAR. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute termination of employment shall be determined in accordance with
Regulations Section 1.421-7(h)(2).
16. Withholding.
The Company's obligation to deliver shares upon the exercise of any
non-qualified option or SAR granted under the Plan shall be subject to the
option holder's satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements. The Company and optionee may agree
to withhold shares of Common Stock purchased upon exercise of an option or SAR
to satisfy the above-mentioned withholding requirements; provided, however, that
no such agreement may be made by a grantee who is an "officer" or "director"
within the meaning of Section 16 of the Exchange Act, except pursuant to a
standing election to so withhold shares of Common Stock purchased upon exercise
of an option, such election to be made not less than six months prior to such
exercise and which election may be revoked only upon six months prior written
notice.
17. Restrictions on Issuance of Shares.
(a) Notwithstanding the provisions of Section 9 hereof, the Company may
delay the issuance of shares covered by the exercise of an option or SAR and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such option or SAR has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such shares are
exempt from registration and qualification under applicable Federal and state
securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options and SARs shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions, within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a
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registration statement or a post-effective amendment to any registration
statement to be prepared for the purpose of covering the issue of shares in
respect of which any option may be exercised, except as otherwise agreed to by
the Company in writing.
18. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless the shares to be issued upon exercise of an option or SAR granted
under the Plan have been effectively registered under the Securities Act of
1933, as amended (the "1933 Act"), the Company shall be under no obligation to
issue any shares covered by any option or SAR unless the person who exercises
such option, in whole or in part, shall give a written representation and
undertaking to the Company which is satisfactory in form and scope to counsel
for the Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option or SAR for his or her own account as an investment and
not with a view to, or for sale in connection with, the distribution of any such
shares, and that he or she will make no transfer of the same except in
compliance with any rules and regulations in force at the time of such transfer
under the 1933 Act, or any other applicable law, and that if shares are issued
without such registration, a legend to this effect may be endorsed upon the
securities so issued.
In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an option or SAR shall have been exercised, or to qualify
any such shares for exemption from the 1933 Act or other applicable statutes,
then the Company may take such action and may require from each grantee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable indemnity
to the Company and its officers and directors from such holder against all
losses, claims, damages and liabilities arising from such use of the information
so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
19. Loans.
At the discretion of the Board, the Company may loan to the optionee some
or all of the purchase price of the shares acquired upon exercise of an option
granted under the Plan.
20. Modification of Outstanding Options and SARs.
Subject to limitations contained herein, the Board may authorize the
amendment of any outstanding option or SAR with the consent of the grantee when
and subject to such conditions as are deemed to be in the best interests of the
Company and in accordance with the purposes of the Plan.
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21. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate on
June 30, 2009. The Board may at any time terminate the Plan or make such
modification or amendment thereof as it deems advisable; provided, however, that
(i) the Board may not, without approval by a majority vote of the stockholders
of the Company, increase the maximum number of shares for which options and SARs
may be granted or change the designation of the class of persons eligible to
receive options and SARs under the Plan, and (ii) any such modification or
amendment of the Plan shall be approved by a majority vote of the stockholders
of the Company to the extent that such stockholder approval is necessary to
comply with applicable provisions of the Code, rules promulgated pursuant to
Section 16 of the Exchange Act, applicable state law, or applicable National
Association of Securities Dealers, Inc. or exchange listing requirements.
Termination or any modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option or SAR
theretofore granted to him or her.
22. Limitation of Rights in the Underlying Shares.
A holder of an option or SAR shall not be deemed for any purpose to be a
stockholder of the Company with respect to such option or SAR except to the
extent that such option or SAR shall have been exercised with respect thereto
and, in addition, a stock certificate shall have been issued theretofore and
delivered to the holder.
23. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: Chairman, and, if to the holder of an option or SAR, to the address
as appearing on the records of the Company.
11
Exhibit 10.2
DISTRIBUTORSHIP AGREEMENT
THIS AGREEMENT made and entered into as of the 13th day of August, 1992,
by and between MEDIS EL LTD., a company duly organized and registered under the
Laws of the State of Israel and having its principal place of business at
Ben-Gurion International Airport, Israel (hereinafter "Medis") and CDS
DISTRIBUTOR, INC., a Delaware corporation and a wholly-owned subsidiary of Cell
Diagnostics Inc., a Delaware corporation, having its principal place of business
at 805 Third Avenue, New York, New York 10022 (hereinafter, together with any
subdistributor, co-distributor or permitted assign appointed in accordance with
Article XVIII(C) hereof, the "Distributor").
W I T N E S S E T H:
WHEREAS, Medis, in conjunction with Bar-Ilan University of Ramat Gan,
Israel ("Bar-Ilan"), is currently developing a product designated the Cellscan
which is a cell scanning system with an intended application as an additional
tool in the detection of certain cancers, and is generally described in Exhibit
"A" hereto (hereinafter the "Scanner"), as well as the test kits (hereinafter
the "Test Kits") to be used in conjunction with the Scanner, generally described
in Exhibit "D" hereto (the Scanner and the Test Kits being collectively referred
to hereinafter as the "Product" or "Products"); and
WHEREAS, Medis has informed the Distributor that the Product is currently
undergoing development and is being tested in hospitals in the State of Israel,
as well as the general status of that development/test effort;
NOW, THEREFORE, THE PARTIES MUTUALLY AGREE AS FOLLOWS:
<PAGE>
ARTICLE I
PREAMBLE AND EXHIBITS
The Preamble to this Agreement and all Exhibits attached hereto form an
integral part hereof.
ARTICLE II
APPOINTMENT AREA OF RESPONSIBILITY
(A) Subject to the terms of this Agreement, Medis hereby appoints the
Distributor, and the Distributor hereby accepts Medis' said appointment, as
distributor for Medis of the Products in the United States, its territories and
possessions (hereinafter the "Marketing Area") to, and for, end use by customers
in the Marketing Area. Distributor accepts the grant of the exclusive rights of
distribution for the Marketing Area for the Products, subject to all of the
provisions of this Agreement (including without limitation the provisions of the
balance of this Article II).
(B) It is hereby agreed by the Parties that:
(1) Medis shall not, during the term of this Agreement, appoint, in
the Marketing Area, any other distributor for the Products, nor sell directly or
indirectly into the Marketing Area, other than through the Distributor and shall
obtain from each of its distributors other than Distributor a covenant,
substantially in the form of Section II(B)(2) hereof, protecting Distributor's
exclusive rights in the Marketing Area. Medis shall cooperate with Distributor
in strictly enforcing all such covenants. Medis shall promptly advise
Distributor of any inquiries that Medis receives regarding sales or other
distribution of the Products in or to the Marketing Area; and
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(2) the Distributor shall, during the term of this Agreement,
refrain outside of the Marketing Area from seeking customers for the Products
and/or from soliciting any business in respect of the Products and/or from
establishing any branch and/or from maintaining any distribution or marketing
facilities in respect of the Products; and
(3) the Distributor shall have no claim against Medis in respect of
sales of the Products in the Marketing Area by sources other than the
Distributor and/or of sales of the Products outside of the Marketing Area to
customers residing and/or domiciled and/or having a base in the Marketing Area
by sources other than the Distributor, unless such sales were a direct result of
Medis' breach of its undertaking under (B)(1) above. Medis shall not grant to
any Party other than the Distributor any right to sell, license, lease or
otherwise distribute the Products in the Marketing Area during the term of this
Agreement.
(C) (1) [Intentionally omitted.]
(2) [Intentionally omitted.]
(3) In consideration for granting the Distributor the rights
hereunder, the Distributor agrees to pay costs and expenses related to the
approval by the United States Food and Drug Administration of the use of the
Cellscan in accordance with, and only to the extent provided by, the provisions
of Section 6 of the Subscription and Shareholders Agreement, dated May 26, 1992,
among Cell Diagnostics, Inc., Israel Aircraft Industries, Ltd. and Medis, Inc.
(the "Shareholders Agreement"), a copy of which is annexed hereto as Exhibit E.
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ARTICLE III
MARKETING OF THE PRODUCT
(A) The Distributor undertakes, directly or through a permitted
sub-distributor, co-distributor or permitted assign in accordance with Article
XVIII(C) hereof, at all such times as this Agreement remains in force and at its
sole cost and expense, to promote the Products actively, diligently and
aggressively throughout the Marketing Area and, to this end, the Distributor
shall, inter alia:
(1) create, develop and put into effect a marketing campaign in
respect of the Products in the Marketing Area; and
(2) maintain an office with sufficient secretarial, telephone and
telex facilities and services for same; and
(3) submit, semi-annually, a report to Medis describing, generally,
(i) the Distributor's promotional and sales activities (including quotations and
sales data) during the immediately preceding half-year, (ii) the Distributor's
plans and projections regarding the forthcoming period; (iii) data received by
the Distributor concerning the use of the Products within the Marketing Area and
a description indicative of customer comments or complaints, whether written or
oral, received by the Distributor in respect of the Products, and (iv) any
information of which Distributor becomes aware relating to the development
and/or marketing of products or technologies which are likely to compete with
the Product or Test Kits; and
(4) use only personnel who, in the Distributor's reasonable
judgment, are highly qualified and trained for the promotion, sale, servicing
and support of the Products in the Marketing Area and employ a number of said
personnel who, in the
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Distributor's reasonable judgment, are sufficient to cover the Marketing Area
fully; and
(5) submit to Medis for review and approval any sales or promotional
literature to be used by the Distributor in the marketing of the Products
(provided the materials shall be deemed approved if no response is received
within thirty (30) days of submission thereof).
(B) In support of the overall marketing effort hereunder, within a
reasonable time after approval of the Products by the United States Food and
Drug Administration ("FDA Approval"), the Distributor shall maintain a team of
at least two (2) maintenance personnel and two (2) experts in biology (in each
case, who may be consultants) to train and support the customers in the
Marketing Area.
(C) Medis shall, during the term of this Agreement, keep the Distributor
currently advised of Medis' sales policies, and provide the Distributor with at
least 6 months' prior notice of any change in such policies, regarding the
Products and provide the Distributor with copies of Medis' current sales
literature, if any, relating to the Products.
(D) Medis shall provide, at no charge of any kind, a training program of
up to three (3) weeks for up to four (4) representatives of the Distributor in
the United States at a time to be mutually agreed by the Parties. The trainees
shall have appropriate expertise and experience for the tasks contemplated and
Medis shall notify the Distributor of the criteria that the trainees shall meet
in regard to experience and expertise. Distributor shall arrange for the use of
an appropriate laboratory setting and the necessary support equipment and
services for the training, as defined by Medis at least two weeks
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prior to the scheduled date for same. If the Product is modified to such a
substantial extent that a new training course is necessary, Medis shall provide
same on the same terms as set forth in this paragraph.
(E) Medis reserves the right:
(1) at any time and from time to time, to make changes in Products
specifications (Medis shall keep the Distributor currently informed of any
anticipated or implemented substantive changes to the Products specifications);
and
(2) to discontinue, temporarily or permanently, the manufacture
and/or sale of the Scanner and/or Test Kits, and/or any part thereof, in which
event, Medis shall give the Distributor twelve (12) months notice of any such
discontinuance and consult with the Distributor so that outstanding commitments
to customers can be properly addressed.
Commencing with the delivery of a notice of discontinuance, Medis
and the Distributor shall cooperate and use their best efforts to effect sales
of any Scanners and/or Test Kits so discontinued which are then held in
inventory by the Distributor, and, to the extent unsold six (6) months after
delivery of such notice, Medis shall repurchase from the Distributor, at the
Distributor's cost, up to two (2) Scanners.
In addition, Medis agrees to use best efforts to assist the Distributor to
minimize a decrease in the commercial value of its inventory which may result
from such changes or discontinuance and to enable the Distributor to meet
outstanding obligations to its customers in respect of the Scanner, Test Kits
and spare parts on terms no less favorable than are applicable to other
distributors of the Products.
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<PAGE>
ARTICLE IV
UNDERTAKING TO PURCHASE
(A) The Distributor hereby undertakes to purchase the Products and any
auxiliary equipment used in respect of the Products exclusively from Medis.
(B) Subject to the time frames set forth in Section 6 of the Shareholders
Agreement, the Distributor hereby undertakes to meet the Performance Criteria as
set forth in Exhibit 6(a)(ii) to the Shareholders Agreement (the "Performance
Criteria") with respect to the purchase and sale of Products; provided that if
the Distributor shall fail to meet such criteria, the sole consequences thereof,
other than termination of this Agreement pursuant to Article XIII hereof, shall
be as set forth in Section 6 of the Shareholders Agreement. A copy of the
Performance Criteria is annexed hereto as Exhibit F.
(C) The price of the Products purchased by Distributor under (B) above
shall be as set forth in Sub-Article VI(A) below.
ARTICLE V
ORDERING PROCEDURES, SCHEDULING OF DELIVERY,
DELIVERY AND SHIPMENT
(A) Ordering Procedures and Scheduling of Delivery:
The Distributor shall order Products in accordance with the following
procedures:
(1) Orders by the Distributor of the Scanner hereunder may be in an
order of one (1) Scanner per order and orders for Test Kits of at least one
thousand (1,000) per batch.
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(2) The Distributor shall order from Medis, by letter or facsimile,
the quantity of the Scanners/Test Kits sought to be purchased by the
Distributor. The price, terms of payment, lead times and other terms of such
order shall be as set forth in this Agreement and the Performance Criteria.
(B) Delivery and Shipment:
Medis shall pack the Products in suitable packaging for air or sea
shipment, and deliver same to Distributor FOB, Israeli Port of Exit in
accordance with the Distributor's shipping instructions (hereinafter referred to
as "Delivery").
(C) [Intentionally omitted.]
(D) Final Sales:
It is understood and agreed that all sales made by Medis to the
Distributor pursuant to the terms of this Agreement are final sales and are not
sales on consignment. Medis shall not be required to accept the return of any
Products for refund or credit, and no right of return is granted to the
Distributor, except if required by the Warranty set forth in Exhibit "C" hereto
or as set forth in Sub-Article III(E) (2).
ARTICLE VI
PRICES AND TERMS OF PAYMENT
(A) Prices:
(1) The prices applicable for firm orders placed by Distributor with
Medis (for delivery in accordance with applicable Medis lead times) shall be as
set forth in Section 6 of the Shareholders Agreement and in the Performance
Criteria.
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(2) By no later than ninety days prior to the end of the calendar
year, beginning with calendar year 1993 and each year thereafter, Medis will
notify the Distributor of the prices for Scanners and Test Kits applicable to
firm orders by Distributor during the following calendar year, which shall be at
the most favorable unit price and on the most favorable terms as would apply to
a third party distributor based on similar quantities.
(B) (1) The Distributor shall pay Medis a down payment of fifteen
percent (15%) of the purchase order price upon placement of any order of
Scanners and the effectiveness of such purchase order shall be subject to Medis'
receipt of such down payment. In the event that Medis does not deliver a Scanner
within the lead time set forth in the Performance Criteria, the Distributor, by
written notice to Medis, may cancel such order, in which event the Distributor's
sole remedy shall be the refund of the down payment applicable to such Scanner,
plus interest on such down payment payable from the date of Medis' receipt of
such down payment to the date of the foregoing order cancellation, at the rate
announced by Chemical Bank is its "prime rate", adjusted to and when such prime
rate changes (the "Prime Rate"), plus 1%.
(2) Payment of the entire balance of the purchase order price shall
be effected by Letter of Credit submitted to Medis in accordance with
subparagraph (3) below.
(3) The Distributor shall furnish to Medis, within ten (10) days of
the issuance of a purchase order for any Scanner (pursuant to Sub-Article
V(A)(2) hereof), an irrevocable Letter of Credit in an amount equal to the
unpaid balance of the price of such Scanner. The said Letter of Credit shall (1)
be issued or confirmed by a United States Bank having capital and surplus in
excess of $100,000,000 or otherwise acceptable to Medis, (2)
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remain in effect for sixty (60) days beyond the Delivery date established in the
purchase order for such Scanner, and (3) be in the following form:
"Payment is available hereunder on or after the forty-fifth
day following presentation of your draft drawn on [Bank]. Draft must
be marked "Drawn on [Bank] under Letter of Credit No.____." Draft
must be accompanied by the following documents:
1. Certification purportedly signed by a representative of
Medis Israel Ltd., stating "[Scanner] has passed its
factory acceptance test"; and
2. One of the following:
(a) Copy of shipper's bill of lading in respect of
[Scanner] issued to Medis Israel Ltd. at Israeli
port of exit; or
(b) Receipt purportedly signed by a representative of
[Distributor], stating that "Receipt of [Scanner]
by [Distributor] is hereby acknowledged."'
(C) All Test Kits and/or Spare Parts ordered by Distributor shall be paid
for to Medis by Distributor net forty-five (45) days after receipt of Medis'
invoice for same after the delivery FOB Israel.
(D) All sums payable to Medis under this Agreement shall be made in United
States of America dollars, net and free of and without any reduction for any and
all income, withholding or any other taxes, levies, duties, assessments or
deductions, provided that income, withholding or any other taxes, levies,
duties, and assessments imposed by an Israeli taxing authority (except a tax
imposed on Distributor by such Israeli authority based upon the income or
revenues of Distributor) shall be Medis' sole responsibility.
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<PAGE>
ARTICLE VII
WARRANTY, USE LIMITATION AND INDEMNITY
(A) (1) Medis' warranty for the Product sold hereunder is set forth in
Exhibit "C" attached hereto. Notwithstanding the last sentence of paragraph "F"
of the warranty, the terms thereof shall not affect the obligations of Medis to
the Distributor under the terms of this Agreement, including but not limited to
any indemnity obligations of Medis to the Distributor under this Article VII.
(2) The Distributor shall include Medis' Warranty in any sales
agreement with its customers in the Marketing Area and shall also include the
following additional clause:
"[Customer's Name] hereby expressly acknowledges that the rights
granted to it under the manufacturer's warranty are the sole and
exclusive rights of [Customer's Name] against the manufacturer."
(3) The Distributor is not entitled to give any warranty, other than
set forth in Exhibit "C" in respect of the Product/s or Test Kits (or components
thereof) purchased hereunder and re-sold/transferred by the Distributor.
(B) Distributor shall include in every contract of sale (whether in the
form of a purchase order, letter agreement or otherwise) a clear and highlighted
warning that the Products shall be used only as an additional cancer detection
tool and for other purposes either approved in writing by Medis or otherwise as
specifically permitted by Medis' Product literature and only in strict adherence
to the operation and maintenance manuals issued or approved in writing by Medis.
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<PAGE>
(C) (1) Distributor hereby releases and agrees to defend, indemnify and
hold harmless Medis from and against any and all liabilities, claims, damages,
losses, settlements and judgments (whether in contract, tort, or negligence of
any degree and including attorneys' fees) to the extent based upon (a) any
action taken by the Distributor or any failure to act which would be or cause a
breach of this Agreement, or (b) any claim arising out of services performed by
the Distributor in respect of the Products.
(2) Medis hereby releases and, subject to the terms of Medis'
Warranty disclaimer under Exhibit C below which should be passed on to
Distributor's customers as stated above, agrees to defend, indemnify and hold
harmless Distributor from and against any and all liabilities, claims, damages,
losses, settlements and judgments (whether in contract, tort, or negligence of
any degree and including attorneys' fees), which may be recoverable from
Distributor in respect of any claim by a customer or user or patient or any
other third party for personal injury to the extent that the claim is based upon
damage caused by the faulty manufacture or faulty design of the Product or
defective documentation from Medis on the proper use, operation or maintenance
of the Product.
(3) Prior to the initial Delivery hereunder, each party shall
present to the other insurance certificates from an insurance carrier acceptable
to such other party certifying the purchase and effectiveness of the insurance
covering their respective obligations under Sub Paragraphs (C)(1) and (2) above,
provided that such insurance is available on a commercially reasonable basis.
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<PAGE>
ARTICLE VIII
DISTRIBUTOR SALES
(A) All re-sales by the Distributor of the Products, as well as the
after-sales services related thereto, shall be in the Distributor's name only
and at the Distributor's own risk, subject to warranty obligations of Medis.
Medis' Warranty shall be transferable and apply to Distributor's first retail
customer only.
(B) After-Sales Service and Support:
The Distributor shall provide its customers with after-sales service and
support in the Marketing Area and, without limiting the generality of the
foregoing, shall:
(1) maintain an adequate stock of spare parts and Test Kits so as to
provide, in the Distributor's reasonable judgment, effective support to Products
owners in the Marketing Area; and
(2) cooperate with Medis in respect of Medis' provision of warranty
services to customers in the Marketing Area; and
(3) provide all other reasonable functions and services which are
required by Scanner owners in the Marketing Area for the operation, maintenance
and support of the Scanner; and
(4) furnish all after-sales service and support efficiently and on
reasonable prices and terms so as to promote further sales of the Products in
the Marketing Area.
(C) Medis Technical Support:
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<PAGE>
(1) Medis shall provide to the Distributor a reasonable number of
maintenance and operation manuals in English for the Scanner as well as updates
to same as issued by Medis.
(2) Medis shall establish a program of periodic seminars/refresher
courses for distributors and their customers to be held in Israel on a
tuition-free basis. Medis shall not bear the travel or living expenses of the
participants in said seminars/courses.
(3) Medis shall provide reasonable technical assistance, free of
charge, to the Distributor by fax and phone to help solve any technical problems
encountered by the Distributor or its customers. If deemed necessary, Medis and
Distributor will agree on the basis for Medis to provide on-site technical
assistance in the Marketing Area to help resolve special technical problems
which may arise.
(4) Notwithstanding anything else contained herein, Medis shall
offer for sale to Distributor Scanner spare parts for a Scanner sold to
Distributor hereunder for a period of at least five (5) years after the sale of
such Scanner.
(5) At Medis' request, Distributor shall promptly send any replaced
part of a Product to Medis, at Medis' expense (subject to the terms of any
applicable warranty), so as to enable Medis to maintain Quality Assurance
records of the Product.
(6) During the two-year period following FDA Approval, Medis agrees
to place on consignment with Distributor two (2) sets of PC Boards of the
Product for use by the Distributor in supporting its customers. If the use by
Distributor of said Boards is not covered under the Medis Warranty in respect of
the
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<PAGE>
Product in which it is placed, Distributor shall pay to Medis US$1,000.00 for
each such Board so used. If the use by Distributor of said Boards is covered
under the Medis warranty in respect of the Product in which it is placed, Medis
shall replace such Board in accordance with the terms of such warranty.
ARTICLE IX
PROPRIETARY RIGHTS, IMPROVEMENTS AND NON-COMPETITION
(A) Proprietary Rights:
(1) Medis reserves exclusively to itself all right, title and
interest in and to all trade secrets, patents, trade names and trademarks
relating in any way to the Products, their manufacture, use, sale and
maintenance, provided that Medis shall not have any rights in any trade names,
trademarks or service marks of the Distributor, whether or not used in
connection with the Products, their sale or maintenance.
(2) The Distributor agrees and acknowledges that all information
supplied by Medis to the Distributor, other than information which (a) was known
to the public prior to the date of communication thereof to the Distributor or
which became known to the public thereafter other than through communication by
the Distributor, (b) was in Distributor's possession prior to disclosure thereof
by Medis to Distributor or (c) is disclosed to distributor by a third party not
under any obligation of confidentiality to Medis, is proprietary to Medis and
shall be kept in confidence by the Distributor, its employees, agents and
contractors. In addition, Distributor may disclose information of the kind which
would be disclosable in a filing with a government agency in connection with a
sale or offer of shares of the Distributor but not information for which
confidential treatment by the U.S. Securities and Exchange Commission might
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<PAGE>
reasonably be requested. The Distributor undertakes to utilize said information
solely for the purpose of furthering the sale, service and support of the
Products in the Marketing Area, to the extent that same is permitted pursuant to
the provisions of this Agreement.
(B) Non-Competition:
The Distributor undertakes that, throughout the period during which this
Agreement is in full force and effect and for a period of two (2) years
thereafter, the Distributor will not be involved, either directly or indirectly,
in the development, manufacture, marketing, sale, service and/or support of any
products in the Marketing Area which may compete with the Scanner and/or Test
Kits or any part thereof in the field of non-intrusive blood testing systems for
cancer diagnosis.
ARTICLE X
LICENSES, PERMITS AND GOVERNMENTAL APPROVAL
(A) (1) Subject to Section 6 of the Shareholders Agreement and only to
the extent provided therein, Distributor shall, at its sole expense and
responsibility, obtain all necessary approvals, licenses and/or certifications
from the federal and/or local governmental and/or medical authorities in the
Marketing Area for the sale, support and use of the Products through the
Marketing Area (hereinafter collectively "Government Approvals"). Distributor
will keep Medis currently informed of its efforts in this regard and forward to
Medis copies of any material communications, requests, inquiries and Government
Approvals from any such authorities.
(2) [Intentionally Omitted.]
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<PAGE>
(B) Any sales tax, export duties or other charges imposed by any Israeli
governmental authority in connection with the sale of Product to the Distributor
or on the exportation of such Product from Israel shall be the sole
responsibility of and shall be paid for by Medis. All other sales taxes, import
duties, and any other charges, taxes and/or levies imposed by any governmental
authority whatsoever, other than an Israeli governmental authority, in
connection with the purchase, importation, use of the Product and/or Test Kits
shall be the sole responsibility of and shall be paid for by the Distributor.
ARTICLE XI
RELATIONSHIP OF PARTIES
(A) It is hereby agreed that the Distributor is authorized to represent
itself as Medis' distributor of the Product in the Marketing Area.
(B) It is agreed that the Distributor is acting under this Agreement as an
independent contractor, and the Distributor does not have the power to bind or
act for Medis in any manner whatsoever. The Distributor shall be exclusively
responsible for all wages, salaries, traveling expenses and any other expenses
and liabilities of any kind whatsoever, incurred by Distributor in the
performance of its obligations under this Agreement.
ARTICLE XII
ACTS OF GOD AND FORCE MAJEURE
(A) No party shall be liable for any failure or delay in the performance
of its obligations under this Agreement, other then obligations for the payment
of money, when such failure or delay is caused by acts of God, Force Majeure,
riot or civil commotion, strike, lockout or other labor disturbances, fire, act
or any order of government, flood, war, peril of sea, or any
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<PAGE>
other cause or peril whether of the same or of similar nature beyond such
party's reasonable control.
(B) Upon the occurrence of any of the foregoing, all schedules and time
periods for the performance of the affected party's obligations hereunder shall
be extended for a period equal to the duration of the said occurrence and the
effects thereof, it being understood, however, that the affected party shall
make reasonable efforts to remove and/or minimize the effects of such
occurrence.
(C) Each party shall immediately bring to the knowledge of the other the
occurrence of any event which it considers to be within the scope of (A) above.
ARTICLE XIII
TERMINATION
(A) Medis shall, upon thirty (30) days written notice to the Distributor
and the Distributor's failure to cure with such thirty (30) day notice period,
be entitled, without prejudice to its other recourses in contract, law or
otherwise, to terminate this Agreement, in whole or in part, in any one of the
following cases:
(1) The Distributor's failure to open, in favor of Medis, a Letter
of Credit as provided for in Sub-Article VI(B) above;
(2) The Distributor's breach of its undertaking under Paragraph (B)
(2) of Article I to refrain from seeking customers for the Product and/or from
soliciting any business in respect of the Product and/or from establishing any
branch and/or from
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<PAGE>
maintaining any distribution or marketing facilities in respect of the Products
outside of the Marketing Area; and/or
(3) Upon the default or breach by the Distributor of any material
term or condition of this Agreement except as otherwise provided under
Sub-Articles (C) and (D) below.
(B) Notwithstanding anything in this Agreement to the contrary, in the
event that, and at such time as, (1) the Distributor fails to meet the minimum
sale requirement for any year as set forth in the Performance Criteria, or (2)
Cell Diagnostics, Inc. terminates its obligation to make any further purchase of
Preferred Shares pursuant to Section 3(c) of the Shareholders Agreement or fails
to pay for any Preferred Shares pursuant to Section 3(d) of the Shareholders
Agreement, this Agreement shall automatically terminate.
(C) Medis shall, upon written notice to the Distributor, be entitled,
without prejudice to its other recourses in contract, law or otherwise, to
terminate this Agreement forthwith in the event of the institution by (or
against if not dismissed with ninety (90) days) the Distributor of proceedings
in bankruptcy or the Distributor's adjudication as a bankrupt, or the insolvency
of the Distributor.
(D) In the event the Distributor fails to make any payment due to Medis
under this Agreement within fourteen (14) business days of such payment's due
date, then beginning immediately after said fourteen (14) days of grace period
until payment is received by Medis, Distributor shall pay to Medis interest on
the amount of such delayed payment for each day of said delay an amount based
upon the Prime Rate plus one percent.
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<PAGE>
ARTICLE XIV
PARTIES' OBLIGATIONS UPON EXPIRATION OR TERMINATION
(A) Save as otherwise provided in (B) below, the Parties hereby agree that
all obligations and liabilities under this Agreement shall cease, and neither
Party shall have any claim against the other, upon the expiration of the term of
this Agreement, or upon the expiration of any extension of the term of this
Agreement, or upon the prior termination of this Agreement pursuant to Article
XIII, except to the extent any such claim accrued prior to such termination. IN
NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
(B) For the sake of clarity, it is further agreed that, on the expiration
or prior termination of this Agreement, Medis shall not be obligated to
remunerate, repay, reimburse or otherwise compensate the Distributor for loss of
profit, loss of goodwill, loss of clientele or other like items, and/or for
advertising costs, and/or for other expenses and costs incurred by the
Distributor, and/or to refund or reimburse Distributor for any of the payments
payable to Medis under the provisions of Sub-Article II(C) (3) above, except to
the extent provided in Section 6 of the Shareholders Agreement.
ARTICLE XV
ARBITRATION AND GOVERNING LAW
Any dispute between the Parties arising under this Agreement or in
connection herewith shall be resolved by arbitration under the rules of the
International Chamber of Commerce in front of one arbitrator. The arbitration
shall be held in the English language and the tribunal shall sit in New York
City, New York. The substantive law to be applied to the interpretation of this
Agreement and its implementation shall be the law of the State of New York.
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<PAGE>
ARTICLE XVI
NOTICES
(A) Any notice required to be given by either Party to the other hereunder
or in connection therewith shall be in writing and delivered personally or by
registered mail, facsimile or telex to the other Party. Notice shall be deemed
effective upon the date of personal delivery thereof (if personally delivered)
or upon the tenth (10th) day after such notice is mailed (if sent by registered
mail), or two (2) days after being sent by telex or facsimile.
(B) For the purposes of (A) above, the following are the addresses of the
Parties, provided that either party may change such address upon notice to the
other in the manner provided in this Article:
DISTRIBUTOR: CDS DISTRIBUTOR, INC.
805 Third Avenue
New York, New York 10022
Attention: Mr. Robert K. Lifton
Fax No.: (212) 935-9610
with a copy to:
Rosenman & Colin
575 Madison Avenue
New York, New York 10022
Attention: Arthur Borden, Esq.
Fax No.: (212) 940-8776
MEDIS MEDIS EL LTD.
Givat Shmuel
Israel
Attention: Mr. Moshe Oren
Fax No. 972-3-5315140
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<PAGE>
ARTICLE XVII
TERM OF THIS AGREEMENT
This Agreement shall enter into effect upon signature by the last party
hereto to sign (the "Effective Date"), and shall, unless terminated pursuant to
the provisions of Article XIII above, continue in full force and effect until
the twelfth (12th) anniversary of FDA Approval. Upon the request of either
Party, the Parties will meet six (6) months prior to the end of the term of
this Agreement to negotiate the possible extension of this Agreement for a
further term. If no extension is so agreed upon in writing and duly signed by
the Parties hereto, upon the expiration of the term of this Agreement, this
Agreement shall automatically be terminated without the need for any notice or
other correspondence between the Parties.
ARTICLE XVIII
MISCELLANEOUS
(A) All correspondence, information, specifications, reports, notices and
any other written or oral communications between the Parties shall be in the
English language.
(B) The failure of a Party to insist in any one or more instances upon
strict performance of any of the terms of this Agreement or to exercise any
rights herein conferred shall not be construed as a waiver or relinquishment to
any extent by said Party of said Party's right to assert or rely upon any such
term or right on any future occasion.
(C) (1) Other than in accordance with this Article XVIII(C), this
Agreement may not, in whole or in part, be assigned or otherwise transferred by
Distributor, and shall not inure to the benefit of any of Distributor's
assignees or
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<PAGE>
transferees, without the prior written consent of Medis and any assignment or
transfer without such consent shall be null and void.
(2) CDS Distributor, Inc. may assign its rights under this Agreement
to, or enter into a sub-distribution or co-distribution agreement with respects
to its rights under this Agreement with, any other unaffiliated entity meeting
the "Successor Marketing Entity" criteria set forth in Section 6(b) of the
Shareholders Agreement. In connection therewith, Medis shall cooperate with CDS
Distributor, Inc. in effecting such assignment, sub-distribution arrangement or
co-distribution arrangement.
(3) Medis has the right to assign this Agreement, and all of its
rights and obligations hereunder, to an existing or newly established company
which will be designated by Medis subject to the company undertaking all
obligations and rights under this Agreement.
(D) The caption hearings of the Articles of this Agreement are for
convenience only and shall not be construed as in any way limiting or extending
the language of the provisions to which the captions refer.
(E) The terms and conditions of this Agreement constitute the entire
agreement between the Parties and shall supersede all previous communications,
representations or agreements, whether oral or written, between said Parties
with respect to the subject matter hereto. No agreement or understanding, either
oral or written, between the Parties will be binding upon either Party unless in
writing, signed by a duly authorized representative of each Party.
(F) Nothing in this Agreement, whether express or implied, is intended to
confer any rights or remedies under or by reason of this Agreement on any
persons other than the parties hereto and their respective permitted successors
and assigns.
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly
authorized representatives to execute this Agreement in counterparts and
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<PAGE>
in two (2) duplicate originals, of which one (1) is left with Medis and one (1)
with the Distributor, all as of the date first hereinabove written.
MEDIS EL LTD. CDS DISTRIBUTOR, INC.
By: /s/ Moshe Oren By: /s/ Robert K. Lifton
------------------------------ ------------------------------------
Name: Moshe Oren Name: Robert K. Lifton
---------------------------- ----------------------------------
Title: President Title: Secretary
--------------------------- ---------------------------------
By: /s/ Moshe Keret
------------------------------
Name: Moshe Keret
----------------------------
Title:
---------------------------
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Exhibit 10.3
Exclusive Agency Agreement
This Agreement entered into as of the 1st day July, 1998, by and between
MEDIS EL LTD, a Company organized and registered under the laws of State of
Israel and having its principal place of business at 5 Kiryat Mada Street,
Jerusalem, Israel 91450 (hereinafter: "MEDIS"), and CDS DISTRIBUTOR INC., a
Delaware corporation and a wholly-owned subsidiary of Cell Diagnostics Inc., a
Delaware corporation, having its principal place of business at 805 Third
Avenue, New York, New York 10022 (hereinafter: the "Agent").
W I T N E S S E T H
WHEREAS, Medis is currently engaged in the research and development of
technology for products designated the Synchronous Twin Piston Reciprocating
Linear Compressor and expander displacer assembly for Stirling Cycle System and
a Synchronous Reciprocating Electric Machine, and Media currently owns or has
pending related patents;
WHEREAS, Medis has determined that the licensing of rights to such
technology is necessary to properly bring such technology to the commercial
markets in North America; and
WHEREAS, Medis desires to retain the Agent, and the Agent desires to be
retained by Medis, to serve as the exclusive agent to coordinate Medis licensing
arrangement in North America with respect to the Licensed Products (as
hereinafter defined) and to help Media seek possible funding resources for all
aspects of Medis' work with regard to the Patents and Licensed Know-How (as
defined below).
NOW, THEREFORE, THE PARTIES MUTUALLY AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
"Licensed Patents" shall mean U.S. Patent No. 5693991 issued on December
2, 1997 entitled " Synchronous Twin Piston Reciprocating Apparatus", the
continuation of Patent No. 569331, application of 599,206 Displacer Assembly
for Stirling Cycle Systern, U.S. Patent Application No 08/933856 entitled
"Synchronous Reciprocating Electric Machine", and any other United States and
foreign patents and patent applications based upon the foregoing or in any
manner related to the Licensed
<PAGE>
Products owned or controlled by Medis on the date hereof or hereafter including
subsequent application derived therefrom, and the foreign counterparts based
thereon.
"Licensed Know How" shall mean any and all data, information, technology
or special ability on the part of Medis including, without limitation,
processes, techniques, methods, products, materials and compositions relating in
any way to the research, development, manufacture, testing, marketing or use of
Licensed Products owned or controlled by Medis on the date hereof or hereafter.
"Licensed Product" shall mean all devices, systems and products making
use of or embodying in whole or in part the invention(s) covered by any or all
of the Licensed Patents and Licensed Know-How, including, without limitation, a
synchronous twin piston reciprocating linear compressor.
ARTICLE II
APPOINTMENT AND AGENCY
(A) Subject to the terms of this Agreement, Medis hereby appoints the
Agent, and the Agent hereby accepts Medis' said appointment, as the exclusive
agent of Medis to present Medis' technology for licensing (subject to the
potential licensee signature on a non-disclosure agreement and any other
document as shall be demanded by Medis) and to coordinate all aspects relating
to the licensing arrangements between Medis and third parties within North
America (hereafter the "Marketing Area") in respect of the licensing to such
third parties under the Licensed Patents arid the Licensed Know-How to make,
have made, use and sell the Licensed Products.
To avoid any doubt it is hereby expressly declared that the Agent has no
authority to incur any obligation on behalf of Medis or any way to pledge Medis'
credit and/or to submit or accept on behalf of Medis any proposal, contract,
offer and/or order or otherwise commit Medis to any agreement or arrangement.
(B) In exchange for such agency services, Medis shall pay to the agent a
fee equal to 10% of gross amount of all royalties and other amounts payable to
Medis under all licensing arrangements entered into by Medis pursuant to the
clause (A) above during the first ten years of each such arrangement and a fee
of 5% of such amounts thereafter. Such fees shall be payable within 30 days
after the end of each calendar month based upon the royalties and other amounts
which have been paid to Medis under such licensing arrangements during such
calendar month. To avoid any doubt it is hereby agreed that the delivery of
promissory notes or any other security to ensure payment by the Licensee shall
not be considered a payment and shall not entitle the Agent to any payment,
until, and to the extent, that said notes are paid. Any sales tax, export
duties or other charges imposed by any Israeli government authority, in
connection with the licensing of the Licensed Products and the collection of
royalties and other amounts with respect thereto, shall be the sole
responsibility of and shall be paid for by Medis. If license fees paid to Medis
are in a form of consideration other than royalty payment the parties will
equitably adjust so that Medis makes appropriate compensation to Agent.
<PAGE>
(C) Medis agrees to provide the Agent with written quarterly reports with
respect to all royalties and other amounts payable pursuant to clause (B) above
within 10 days after each calender quarter, whether or not any such royalties
and other amounts are payable during such quarter.
(D) Medis shall not, during the term this Agreement, appoint in the
Marketing Area, any other licensing agent for the Licensed Products, the
Licensed Know How or the Licensed Patents. Medis shall promptly advise the Agent
of any inquiries that Medis receives regarding the licensing of the Licensed
Products, the Licensed Know-How and/or the licensed Patents in the Marketing
Area.
ARTICLE III
LICENSING AND PROMOTION OF THE LICENSED PRODUCTS
(A) The Agent undertakes at all such times as this Agreement remains in
force and at its sole cost and expense, to seek potential licensees of Licensed
Products by promoting the Licensed Products actively, diligently and
aggressively in cooperation with Medis throughout the Marketing Area and, to
this end, the Agent shall inter alia;
(1) create, develop and put into effect in cooperation with Medis a
marketing campaign to present the Licensed Products in the Marketing Area,
including demonstrations of the Licensed Products;
(2) locate potential licensees and inform Medis of them. Medis will
decided which of these potential licensees should be further approached.
3) coordinate with Medis and Medis' legal counsel the preparation
and negotiation of documentation relating so proposed licensing arrangements;
4) cooperate with Medis in overseeing all legal proceeding between
Medis and third parties arising out of or in connection with licensing
arrangements within the scope of this Agreement;
5) manage the collection of royalties payable to Medis pursuant to
licensing arrangements within the scope of this Agreement, and maintain an
office with sufficient secretarial, telephone and telex facilities and service
for same;
6) submit periodically reports to Medis describing the Agent's
activities performed pursuant to the terms of this Agreement;
7) use only personnel who, in Agent's reasonable judgement, are
highly qualified and trained for the licensing promotion and otherwise carrying
out the Agent's duties under this Agreement, and employ a number of said
personal who, in the Agent's reasonable judgement, are sufficient to cover the
Marketing Area fully; and
<PAGE>
(8) submit to Medis for review and approval any promotional
literature to be used by the Agent in presenting and marketing the Licensed
Products.
(B) Medis shall use its best efforts to make available in the Marketing
Area, at no charge of any of any kind, such of its personal as may be reasonably
requested by the Agent to coordinate with the Agent in the promotion of the
Licensed Products.
(C) Upon request from Medis, the Agent will cooperate with Medis to
identify possible funding resources for all aspects of Medis-El's work with
regard to Medis-El's Technology.
ARTICLE IV
PROPRIETARY RIGHTS AND NON-COMPETITION
(a) Proprietary Rights:
(1) Medis reserves exclusively to itself all right, title and
interest in and to the Licensed Patents, the Licensed Know-How and all other
intellectual property rights relating in any way to the Licensed Products, and
their manufacture, use, sale and maintenance.
(2) The Agent agrees and acknowledges that all information supplied
by Medis to the Agent, other than information which (a) was known to the public
prior to the date of communication thereof to the Agent or which became known to
the public thereafter other than through communication by the Agent, (b) was in
the Agent's possession prior to disclosure thereof by Medis to the Agent; or (c)
is disclosed to the Agent by a third party not under any obligation of
confidentiality to Medis, is proprietary to Medis and shall be kept in
confidence by the Agent, its employees, agents and contractors. In addition, the
Agent may disclose information of the kind which would be disclosable in a
filing with a government agency in connection with a sale or offer of shares of
the Agent out not information for which confidential treatment by the U.S.
Securities and Exchange Commission might reasonably be requested. The Agent
undertakes to utilize said information solely for the purpose of furthering the
promotion of the Licensed Products in the Marketing Area, to the extent that
same is permitted pursuant to the provisions of this Agreement.
To avoid any doubt, it hereby expressly agreed that the provisions of
sub-article 2 (b) above do not exempt the Agent from its obligation to keep in
strict confidence any and all information which was given to the Agent, or any
of its employees, agents, managers or owners, prior to the execution of this
Agreement, whether such information was given as part of the negotiations
towards this Agreement or whether it was gives with no connection thereto.
(B) Non-Competition:
The Agent undertakes that, throughout the period during which this
Agreement is in full force and effect and for a period of four years thereafter,
the Agent will not be
<PAGE>
involved, either directly or indirectly, in the development, manufacture,
marketing, sales, service and/or support of any product in the Marketing Area
which may compete with the Licensed Products or any part thereof.
ARTICLE V
RELATIONSHIP OF PARTIES
(A) It is hereby agreed that the Agent is authorized to represent itself
as Medis' exclusive licensing agent for the Licensed Products in the Marketing
Area.
(B) It is agreed that the Agent acting under this Agreement as an
independent contractor, and that this Agreement does not confer upon the Agent
the power to bind or act for Medis in any other manner whatsoever.
The Agent shall be exclusively responsible for all wages, salaries, travelling
expenses and any other expenses and liabilities of any kind whatsoever, incurred
by the Agent or its employees in the performance of its obligations under this
Agreement.
ARTICLE VI
TERM OF THIS AGREEMENT
The Agreement shall enter into effect upon signature by the last party
hereto to sign and shall, unless terminated as provided below, continue in full
force and effect until the fifteenth (15th) anniversary of the date hereof. Upon
the request of either party, the parties will meet six months prior to the end
of the term of this Agreement to negotiate the possible extension of this
Agreement for a further term. If no extension is so agreed upon in writing and
duly signed by the parties hereto, upon the expiration of the term of this
Agreement, this Agreement shall automatically be terminated without the need for
any notice or other correspondence between the between the parties. This
Agreement may, at the option of Medis, be terminated upon 30 days written
notice to the Agent upon (i) the breach or default by the Agent of any material
provision of this Agreement, or (ii) the institution by (or against if not
dismissed within ninety (90) days) the Agent of proceeding in bankruptcy or the
Agent's adjudication as a bankrupt, or the insolvency of the Agent. The parties
hereby agree that, except as provided for in Article II(B) hereof with respect
to licensing arrangements entered into prior to the date of termination, all
obligations and liabilities under this Agreement shall cease, and neither party
shall have any claim against the other, upon the term of this Agreement, or upon
the expiration of any extension of the term of this Agreement, or upon the prior
termination of this Agreement, except to the extent any such claim accrued prior
to such expiration or termination. For the sake of clarity, it is further agreed
that, on the expiration or prior termination of this Agreement Medis shall not
be obligated to remunerate, repay, reimburse or otherwise compensate the Agent
for loss of profit, loss of goodwill, loss of clientele or other like item,
and/or for promotional costs, and/or for other expenses and costs incurred by
the Agent.
<PAGE>
ARTICLE VII
ARITRATION AND GOVERNING LAW
Any dispute between the parties arising under this Agreement or in
connection herewith shall be resolved by arbitration under the rules of the
International Chamber of Commerce in front of one arbitrator. The arbitration
shall be held in the English language and the tribunal shall sit in New York
City, New York. The substantive law to be applied to the interpretation of the
Agreement and in implementation shall be the law of the State of New York.
ARTICLE VIII
NOTICES
(A) Any notice required to be given by either party to the other hereunder
or in connection therewith shall be in writing and delivered personally or by
registered mail, facsimile or telex to the other party. Notice shall be deemed
effective upon the date of personal delivery thereof (if personally delivered)
or upon the tenth day after such notice is mailed (if sent by registered mail),
or two days after being sent by telex or facsimile.
(B) For the purposes of clause (A) above, the following are the addresses
of the parties, provided that either party may change such address upon notice
to the other in the manner provided in this Article:
Agent CDS DISTRIBUTOR, INC.
c/o Cell Diagnostics, Inc.
805 Third Avenue
New York, New York 10022
Attention: Mr. Robert K. Lifton
Fax No: (212) 935-9216
Medis: MEDIS EL LTD.
5 Kiryat Mada Street
Jerusalem Israel 91450
Attention: Mr. Zvi Rehavi
Fax No: 001-972-2-587-0454
ARTICLE IX
MISCELLANEOUS
(A) All correspondence, information, specifications, reports, notices and
any other written or oral communications between the parties shall be in the
English Language.
<PAGE>
(B) The failure of a party to insist in any one or more instances upon
strict performance of any of the terms of this Agreement or to exercise any
rights herein conferred shall not be construed as a waiver or relinquishment to
any extent by said party of said party's right to assert or rely upon any such
term or right on any future occasion.
(C) Either party may assign this Agreement, and all of its right and
obligations hereunder, to its existing or newly established affiliates subject
to an undertaking of all obligations and rights under this Agreement.
(D) The caption headings or the Articles of this Agreement are for
convenience only and shall not be constructed as in any way limiting or
extending the language of the provision to which the caption refer.
(E) The terms and conditions of this Agreement constitute the entire
agreement between the parties and shall supersede all previous communications,
representations or agreements, whether oral or written, between said parties
with respect to the subject matter hereto. No agreement or understanding, either
oral, or written, between the parties will be binding upon either party unless
in writing, signed by a duly authorized representative of each party.
(F) Nothing in this Agreement, whether expressed or implied, is intended
to confer any rights or remedies under or by reason of this Agreement on any
persons other than the parties hereto and their perspective permitted successors
and assigns.
(G) Except as provided for in paragraph IX C above, the Agent may not
subcontract or assign all or any of its rights or obligations under this
Agreement without the previous written consent of Medis.
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized representatives to execute this Agreement in counterparts and in two
duplicate originals, of which one is left with Medis and one with the Agent, all
as of first herein above written.
MEDIS EL LTD. CDS DISTRIBUTOR, INC.
By: /s/ Zvi Rehavi By: /s/ Robert K. Lifton
--------------------------- ----------------------------------
Name: ZVI REHAVI Name: Robert K. Lifton
------------------------- --------------------------------
Title: EXECUTIVE VICE PRESIDENT Title: Chairman
------------------------ -------------------------------
By: /s/ Israel Fisher
---------------------------
Name: ISRAEL FISHER
-------------------------
Title: VICE PRESIDENT FINANCE
------------------------
Exhibit 10.4
WARRANT
VOID AT 5:00 P.M., NEW YORK CITY TIME, ON _________________ OR, IF NOT A
BUSINESS DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK CITY TIME, ON THE NEXT
FOLLOWING BUSINESS DAY, UNLESS EXTENDED BY MEDIS TECHNOLOGIES LTD., AS PROVIDED
HEREIN.
NO. RW-
TRANSFER RESTRICTED -- WARRANT TO PURCHASE _____
SEE SECTIONS 7.01 AND 7.02 SHARES OF COMMON STOCK
WARRANT TO PURCHASE
COMMON STOCK OF MEDIS TECHNOLOGIES LTD.
This certifies that, for value received, _______________, or registered
assigns, is entitled to purchase from Medis Technologies Ltd., a Delaware
corporation (the "Company"), subject to the terms and conditions hereof, at any
time before 5:00 P.M., New York City time, on _________________ (or, if such day
is not a Business Day, as defined herein, before 5:00 P.M., New York City time,
on the next following Business Day) or such later time to which this Warrant may
be extended by the Company as provided in Section 2.01 hereof, the number of
fully paid and non-assessable shares of the Company's Common Stock stated above
at an exercise price of Five Dollars ($5.00) per share (the "Warrant Price").
The number of shares purchasable hereunder and the price at which such shares
may be purchased being subject to adjustment as provided below.
ARTICLE I
DEFINITIONS
SECTION 1.01. 1. The term "Additional Shares of Common Stock" as used
herein means shares (including treasury shares) of Common Stock issued or sold
by the Company after the date hereof, whether or not subsequently reacquired or
retired by the Company.
2. The term "Business Day" as used herein means a day other than a
Saturday, Sunday or other day on which banks in the State of New York are
authorized or required by law to close.
3. The term "Common Stock" as used herein means the Common Stock, $.01
par value, of the Company as constituted on the date hereof, any stock into
which such Common Stock shall have been changed after such date or any stock
resulting from any reclassification of such Common Stock, and all other stock of
any class or classes (however designated) of the Company the holders of which
have the right, without limitation as to amount, either to all or to a share of
the balance of current dividends and liquidating dividends remaining after the
payment of dividends and distributions upon any shares entitled to preference.
4. The term "Company" as used herein means Medis Technologies Ltd., a
Delaware corporation, and any other corporation which shall succeed to or assume
the obligations of Medis Technologies Ltd. in compliance with Section 3.09
hereof.
5. The term "Convertible Securities" as used herein means any evidences
of indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or
<PAGE>
exchangeable for Common Stock but shall exclude the Warrants.
6. The term "Expiration Date" as used herein means 5:00 P.M., New York
City time, on December 31, 2000, except that if such date is extended as
provided in Section 2.01 hereof, it shall mean the latest date and time until
which this Warrant may be exercised.
7. The term "Options" as used herein means any rights, options or
warrants granted in any such case to holders of Securities of the Company as a
class to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
8. The term "Other Securities" as used herein means any stock (other
than Common Stock) and other securities of the Company or of any other person
(corporate or otherwise) which the holders of the Warrants shall at any time be
entitled to receive, or shall have received, upon the exercise of the Warrants,
in lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of Common
Stock.
9. The term "Securities" as used herein shall have the meaning ascribed
thereto in Section 2(1) of the Securities Act of 1933.
10. The term "Warrants" as used herein means this Warrant and all other
warrants of like tenor, representing in the aggregate a right to purchase 9,000
shares of the Company's Common Stock.
11. The terms "Warrant Holder" or "Holder" as used herein means the
person or entity in whose name this Warrant shall be registered upon the books
to be maintained by the Company for that purpose.
12. The term "Warrant Price" means the price at which this Warrant may
be exercised at the time of exercise.
13. The term "Warrant Shares" as used herein means the shares of Common
Stock or Other Securities deliverable upon exercise of this Warrant, as may be
adjusted from time to time pursuant to Article III hereof.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
SECTION 2.01. Subject to the provisions of Section 4.01 hereof, this
Warrant may be exercised at any time before the Expiration Date. If the
Expiration Date is extended from the date originally fixed (December 31, 2000),
the Company shall give the Warrant Holder prompt written notice of any such
extension. If this Warrant is not exercised prior to the Expiration Date it
shall become void, and all rights hereunder shall thereupon cease.
SECTION 2.02. 1. The Warrant Holder may exercise this Warrant, in whole
or in part, upon surrender of this Warrant with the duly executed subscription
form attached hereto, to the Company at its corporate office in New York, New
York, together with the Warrant Price for each share of Common Stock to be
purchased in lawful money of the United States, or by certified check, bank
draft or postal or express money order payable in United States dollars to the
order of the Company and upon compliance with and subject to the conditions set
forth herein.
2
<PAGE>
2. Upon receipt of this Warrant with the subscription form attached
hereto duly executed and accompanied by payment of the aggregate Warrant Price
for the shares of Common Stock for which this Warrant is then being exercised,
the Company will cause to be issued certificates for the total number of whole
shares (as provided in Section 4.03 hereof, of Common Stock and/or Other
Securities for which this Warrant is being exercised in such denominations as
are required for delivery to the Warrant Holder, and the Company shall thereupon
deliver such certificates to the Warrant Holder.
3. In case the Warrant Holder shall exercise this Warrant with respect
to less than all of the Warrant Shares, the Company will execute a new Warrant
for the balance of the shares of Common Stock and/or Other Securities that may
be purchased upon exercise of this Warrant and deliver such new Warrant to the
Warrant Holder.
4. The Company covenants and agrees that it will pay when due and
payable any and all transfer taxes which may be payable in respect of the issue
of this Warrant, or the issue of any Warrant Shares upon the exercise of this
Warrant, except that the Company shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance or delivery of
this Warrant or of any Warrant Shares in a name other than that of the Warrant
Holder at the time of surrender, and until the Warrant Holder shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid, the Company shall not be required to
issue such Warrant Shares.
ARTICLE III
ADJUSTMENT OF WARRANT PRICE
SECTION 3.01. In case the Company at any time or from time to time
shall issue or sell Additional Shares of Common Stock for consideration less
than the Warrant Price then in effect, then in each case the Warrant Price shall
be adjusted, concurrently with such issue or sale (or immediately after the
close of business on the record date fixed for the determination of holders of a
class of securities entitled to receive Options or Convertible Securities which
are deemed to be Additional Shares, pursuant to Section 3.02 hereof, to a price
(the "Adjusted Warrant Price") calculated to the nearest cent by multiplying the
Warrant Price then in effect for such Period by a fraction:
1. the numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding immediately prior to such issuance or sale (or at
the close of business on such record date) multiplied by the Warrant Price then
in effect plus (ii) the aggregate consideration received by the Company upon
such issuance or sale; and
2. the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issuance or sale (or at the close of
business on such record date) multiplied by the Warrant Price then in effect;
PROVIDED, that no Warrant Price shall be so reduced at such time if the amount
of any such reduction would be an amount less than $.05, but any such amount
shall be carried forward and made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $.05 or more; and PROVIDED FURTHER,
that for the purposes of this Section 3.01, (a) immediately after any Additional
Shares of Common Stock are deemed issued pursuant to Section 3.01 hereof, such
Additional Shares shall be deemed to be outstanding, and (b) treasury shares
shall not be deemed to be outstanding.
SECTION 3.02. In case the Company at any time or from time to time
after the date hereof shall
3
<PAGE>
issue, sell, grant or assume any Options, or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Options for Convertible Securities, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption, or, in case such a record date shall have been fixed, as of
the close of business on such record date; PROVIDED that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 3.03 hereof) of such shares would be
less than the Warrant Price in effect on the Business Day immediately prior to
such issue, sale, grant or assumption or on such record date, as the case may
be; and PROVIDED FURTHER, that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
1. Upon the expiration of any such Options or any rights of conversion
or exchange under such Convertible Securities with respect thereto which shall
not have been exercised, the Warrant Price or Prices computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon such expiration, be recomputed as if:
a. in the case of Options for Common Stock, the only
Additional Shares of Common Stock issued or sold were the shares of
Common Stock, if any, actually issued or sold upon the exercise of such
Options and the consideration received therefor was the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised; and
b. in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the
exercise thereof were issued at the time of the issue, sale, grant or
assumption of such Options, and the consideration received by the
Company for the Additional Shares of Common Stock deemed to have then
been issued was the consideration actually received by the Company for
the issue, sale, grant or assumption of all such Options, whether or
not exercised, plus the consideration deemed to have been received by
the Company (pursuant to Section 3.03 hereof) upon the issue or sale of
the Convertible Securities with respect to which such Options were
actually exercised; and
2. No readjustment pursuant to clause (1) above shall have the effect
of increasing any Warrant Price by an amount in excess of the amount, if any, by
which the Warrant Price was previously reduced as a result of the issue, sale,
grant or assumption of such Options or Convertible Securities with respect
thereto.
SECTION 3.03. For the purposes of this Article III, the consideration
received by the Company for the issue or sale of any Additional Shares of Common
Stock shall be computed as follows:
1. Such consideration shall:
a. insofar as it consists of cash, be computed at the net
amount of cash received by the Company, excluding amounts paid or
payable for accrued interest but before deducting all expenses paid or
incurred by the Company and all commissions and compensations paid and
concessions and discounts allowed to underwriters, dealers or others
performing similar services in connection with such issue; and
4
<PAGE>
b. insofar as it consists of property (including Securities)
other than cash, be computed at the fair value thereof at the time of
such issue or sale, as determined in good faith by the Board of
Directors of the Company; and
c. in any case in which Additional Shares of Common Stock are
issued or sold together with other stock or securities or other assets
of the Company for consideration which covers both, by the proportion
of such consideration so received, computed as provided in clauses (a)
and (b) above, as determined in good faith by the Board of Directors of
the Company.
2. The consideration per share received by the Company for Additional
Shares of Common Stock deemed to have been issued pursuant to Section 3.02
hereof, relating to Options and Convertible Securities with respect thereto,
shall be determined by dividing:
a. the total amount, if any, received or receivable by the
Company as consideration for the issue, sale, grant or assumption of
such Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for
a subsequent adjustment of such consideration) payable to the Company
upon exercise of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and
the conversion or exchange of such Convertible Securities; by
b. the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
SECTION 3.04. In case the Company shall at any time declare or pay any
dividend on the Common Stock payable in Common Stock, the Warrant Price shall be
proportionately adjusted as of the day after the record date for the dividend or
subdivision. In case of any capital reorganization or any reclassification of
the Common Stock of the Company, the Warrant Holder, on exercise of this
Warrant, shall be entitled to receive the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Company deliverable upon exercise of this Warrant immediately prior to
such event would have been entitled, and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the Warrant Holder, to the end that the provisions set
forth herein (including provisions with respect to changes in and other
adjustments of the Warrant Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of this Warrant.
SECTION 3.05. In case any Other Securities shall be issued or sold on
or prior to the Expiration Date, or shall become subject to issue or sale upon
the conversion or exchange of any capital stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other person referred to in
Section 3.07 hereof, or to subscription, purchase or other acquisition pursuant
to any Options issued or granted by the Company (or any such other issuer or
person) for a consideration such as to dilute the purchase rights granted by
this Warrant, the computations, adjustments and readjustments provided for in
this Article III with respect to the Warrant Price shall be made as nearly as
possible in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable upon the exercise of the Warrants and
the purchase price thereof, so as to protect the holders of the Warrants against
the effect of such dilution. If, in any case, the foregoing terms and conditions
are for any reason not specifically applicable to any stated facts
5
<PAGE>
which shall arise, the Warrant Price shall be determined by the Board of
Directors of the Company in its discretion so as to carry out as nearly as
practicable the principle in this Article III and any such determination by the
Board of Directors shall be binding for all purposes on the Warrant Holder.
SECTION 3.06. In case the outstanding shares of Common Stock shall be
(i) combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, or (ii) subdivided, by reclassification or
otherwise, into a greater number of shares of Common Stock, the Warrant Price in
effect immediately prior to the effectiveness of such combination or
consolidation shall be proportionately increased and the Warrant Price in effect
immediately prior to the effectiveness of such subdivision shall be
proportionately decreased. The number of Warrant Shares purchasable by exercise
of this Warrant upon an adjustment of the Warrant Price as a result of the
application of the provisions of this Section 3.06 shall be determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this Section 3.06) be issuable upon such exercise immediately
prior to such adjustment, by a fraction of which (i) the numerator is the
Warrant Price in effect immediately prior to such adjustment and (ii) the
denominator is the Warrant Price so adjusted.
SECTION 3.07. In case the Company, prior the Expiration Date, shall
consolidate with or merge into any other person (other than a merger with a
subsidiary in which merger the Company is the continuing corporation and which
does not result in any reclassification or change of outstanding shares of
Common Stock), or shall transfer all or substantially all of its properties and
assets to any other person and, in connection with such transfer, shares of
stock or other securities or property of such person or any other person shall
be issuable or deliverable in exchange for the Common Stock of the Company, or
shall effect a capital reorganization or reclassification of the Common Stock of
the Company, then, and in each such case, proper provision shall be made so
that, on the terms and in the manner provided in this Article III, the Warrant
Holder, upon the exercise hereof at any time after the consummation of such
consolidation, merger, transfer and exchange, reorganization or
reclassification, shall be entitled to receive, in lieu of the Common Stock (or
Other Securities) issuable upon such exercise prior to such consummation, the
stock and other securities and property to which the Warrant Holder would have
been entitled upon such consummation if the Warrant Holder had so exercised this
Warrant immediately prior thereto, subject to adjustments (subsequent to such
corporate action) as nearly equivalent as possible to the adjustments provided
for in this Article III.
SECTION 3.08. If, prior to the Expiration Date, there should be (1) a
taking of record by the Company of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend payable out of surplus at the same rate as
that of the last cash dividend theretofore paid and other than a dividend on the
Common Stock payable in Common Stock) or other distribution or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or (2) any
capital reorganization or reclassification of the Common Stock of the Company or
any transfer of all or substantially all the assets of the Company to, or
consolidation with or merger of the Company with or into, any other person, or
(3) any voluntary or involuntary dissolution, liquidation or winding-up of the
Company, then and in each such event the Company shall mail to the Warrant
Holder at the same time notice is sent to stockholders generally, but in no
event later than 10 days prior to the date thereof, a notice specifying (a) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, and (b) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding-up is expected to become effective, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer,
6
<PAGE>
consolidation, merger, dissolution, liquidation or winding-up; PROVIDED,
HOWEVER, that if the Warrant Holder exercises this Warrant after receipt of the
aforementioned notice in anticipation of an event specified in either clause
(1), (2) or (3) of this Section 3.08 and subsequent to such exercise the
contemplated action is not consummated, such holder shall have the right and
option to rescind such exercise by notifying the Company within 10 Business Days
subsequent to the date on which such action was anticipated to be taken and
returning any shares of Common Stock issued in connection with such exercise to
the Company. In the event that the Warrant Holder elects such right of
rescission, the Company shall, upon receipt of the shares of Common Stock (or
Other Securities) issued upon exercise, return such holder's Warrant and such
Warrant shall be deemed not to have been exercised.
SECTION 3.09. The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrant Holder against
dilution. Without limiting the generality of the foregoing, the Company (1) will
not permit the par value of any shares of capital stock receivable upon the
exercise of the Warrants to exceed the amount payable therefor upon such
exercise, (2) will use its best efforts to take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of capital stock upon the exercise of all
Warrants from time to time outstanding, and (3) will require as a condition to
any (a) transfer of all or substantially all of its properties and assets to any
other person, or (b) consolidation with or merger into any other person where
the Company is not the continuing or surviving person, or (c) consolidation with
or merger into the Company where the Company is the continuing or surviving
person but, in connection with such consolidation or merger, the Common Stock
(or Other Securities) then issuable upon the exercise of this Warrant shall be
changed into or exchanged for stock or other securities or property of any other
person, that the other person acquiring such properties and assets, continuing
or surviving after such consolidation or merger or issuing or distributing such
stock or other securities or property, as the case may be, shall expressly
assume in writing and be bound by all the terms of the Warrants.
SECTION 3.10. In each case of any adjustment or readjustment in the
shares of Common Stock (or Other Securities) issuable upon the exercise of the
Warrants, or in the Warrant Price, the Company at its expense will promptly
compute such adjustment or readjustment in accordance with the terms hereof, and
prepare and furnish to the Warrant Holder a certificate, signed by the principal
financial or accounting officer of the Company, setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company will, upon written request of the Warrant
Holder, but in no event more than twice a year, furnish to such Holder a like
certificate setting forth (1) such adjustment and readjustments, and (2) the
number of shares of Common Stock (or Other Securities) outstanding, and (3) the
Warrant Price at the time in effect.
SECTION 3.11. 1. The Company will mail to each Warrant Holder
registered on the books of the Company promptly (but no later than 20 days)
after their becoming available (without duplication) copies of all financial
statements, reports and proxy statements which the Company shall have sent to
its stockholders.
2. Any determination called for by the Board of Directors
of the Company for purposes of this Article III shall be conclusive and shall be
described in a written statement signed by the President or a Vice President of
the Company and made available to the Warrant Holder at the principal offices of
the Company.
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<PAGE>
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF WARRANT HOLDER
SECTION 4.01. The Warrant Holder, as such, shall not be entitled to
vote or receive dividends or be deemed the holder of shares of Common Stock for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the Warrant Holder, as such, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any action by the
Company (whether upon any recapitalization, issue of stock, reclassification of
stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings or other action affecting stockholders (except for notices provided for
in this Warrant), receive dividends or subscription rights, or otherwise, until
this Warrant shall have been exercised and the Warrant Shares purchasable upon
the exercise hereof shall have become deliverable as provided in Article II, at
which time the person or persons in whose name or names the certificate or
certificates for the Warrant Shares being purchased are to be issued shall be
deemed the holder or holders of record of such shares for all purposes;
PROVIDED, HOWEVER, that any such exercise on any date when the stock transfer
books of the Company shall be closed shall constitute the person or persons in
whose name or names the certificate or certificates for such shares are to be
issued as the record holder or holders thereof for all purposes at the opening
of business on the next succeeding day on which such stock transfer books are
open and this Warrant shall not be deemed to have been exercised, in whole or in
part as the case may be, until such next succeeding day on which stock transfer
books are open for the purpose of determining entitlement to dividends on such
Common Stock, and such exercise shall be at the Warrant Price in effect at such
date.
SECTION 4.02. 1. The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise of this Warrant such number of
authorized shares of Common Stock as are sufficient to permit the exercise in
full of this Warrant.
2. Prior to the issuance of any shares of Common Stock upon exercise of
this Warrant if the issuance of such shares is subject to a registration
statement under the Securities Act of 1933 (the "Act") and the Rules and
Regulations promulgated thereunder, the Company shall use its best efforts to
secure the listing of such shares of Common Stock upon any securities exchange
or automated quotation system upon which shares of Common Stock are then listed.
3. The Company covenants that all shares of Common Stock issued on
exercise of this Warrant will be validly issued, fully paid, nonassessable and
free of preemptive rights.
SECTION 4.03. Anything contained herein to the contrary
notwithstanding, the Company shall not be required to issue any fraction of a
share in connection with the exercise of this Warrant, and in any case where the
Warrant Holder would, except for the provisions of this Section 4.03, be
entitled under the terms of this Warrant to receive a fraction of a share upon
the exercise of this Warrant, the Company shall, upon the exercise of this
Warrant and receipt of the Warrant Price, issue the largest number of whole
shares purchasable upon exercise of this Warrant. The Company shall not be
required to make any cash or other adjustment in respect of such fraction of a
share to which the Warrant Holder would otherwise be entitled. The Warrant
Holder, by the acceptance of the Warrant, expressly waives his right to receive
a certificate for any fraction of a share or a fractional Warrant upon exercise
hereof.
SECTION 4.04. Notices to the Warrant Holder provided for in this
Warrant shall be deemed given or made by the Company if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed to the
Warrant Holder at his last known address as it shall appear on the books of the
Company.
8
<PAGE>
ARTICLE V
TREATMENT OF WARRANT HOLDER
SECTION 5.01. Prior to due presentment for registration of transfer of
this Warrant, the Company may deem and treat the Warrant Holder as the absolute
owner of this Warrant (notwithstanding any notation of ownership or other
writing hereon) for the purpose of any exercise hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
ARTICLE VI
SPLIT-UP, COMBINATION, EXCHANGE,
TRANSFER OR LOSS OF WARRANT
SECTION 6.01. This Warrant may be split-up, combined or exchanged for
another Warrant or Warrants of like tenor to purchase a like aggregate number of
shares of Common Stock. If the Warrant Holder desires to split-up, combine or
exchange this Warrant he shall make such request in writing delivered to the
Company at its office in New York, New York and shall surrender this Warrant and
any other Warrants to be so split-up, combined or exchanged at said office. Upon
any such surrender for a split-up, combination or exchange, the Company shall
execute and deliver to the person entitled thereto a Warrant or Warrants, as the
case may be, as so requested. The Company shall not be required to effect any
split-up, combination or exchange which will result in the issuance of a Warrant
entitling the Warrant Holder to purchase upon exercise a fraction of a share of
Common Stock or a fractional Warrant. The Company may require such Warrant
Holder to pay a sum sufficient to cover any transfer tax or governmental charge
that may be imposed in connection with any split-up, combination or exchange of
Warrants.
SECTION 6.02. Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office in New York,
New York, with the Form of Assignment annexed hereto duly executed and with
payment of funds sufficient to pay any transfer tax or other governmental charge
that may be imposed in connection with any such assignment. In such event the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled. Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, or destroyed Warrant shall thereupon become void. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not the Warrant so lost, stolen or destroyed
shall be at any time enforceable by anyone.
ARTICLE VII
TRANSFER RESTRICTED
SECTION 7.01. This Warrant and the Warrant Shares may not be sold or
otherwise disposed of except as follows:
a. to a person, who, in the opinion of counsel satisfactory to
the Company, is a person
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to whom this Warrant, or Warrant Shares, may legally be transferred without
registration and without the delivery of a current prospectus under the Act with
respect thereto and then only, if in the opinion of counsel to the Company then
required under the Act, against receipt of an agreement of such person to comply
with the provisions of this Warrant with respect to any resale or other
disposition of such securities; or
b. to any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities (as to which a
registration statement under the Act shall then be in effect) and the
offering thereof for such sale or disposition.
SECTION 7.02. 1. THIS WARRANT, AND THE SHARES THAT MAY BE ACQUIRED UPON
THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE ACT. NEITHER
THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, PLEDGED, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE ACT. TRANSFERABILITY OF THIS WARRANT AND THE SHARES THAT MAY
BE ACQUIRED UPON THE EXERCISE OF THIS WARRANT IS FURTHER LIMITED BY THE
PROVISIONS OF THIS ARTICLE VII. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY
BE TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS WARRANT, AND NO
TRANSFER OF THIS WARRANT OR ANY SUCH SHARES SHALL BE VALID OR EFFECTIVE UNLESS
AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
2. Each certificate for Warrant Shares (unless at the time of issuance
such Warrant Shares are registered under the Act) and each certificate issued
upon the transfer or exchange of any such certificate for Warrant Shares (except
as otherwise permitted by this Section 7.02) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW, AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY
BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW. THE TRANSFER OF SUCH SECURITIES IS SUBJECT TO THE
RESTRICTIONS SET FORTH IN SECTIONS 7.01 AND 7.02 OF THE WARRANT, DATED
____________, ISSUED BY MEDIS TECHNOLOGIES LTD. IN FAVOR OF
_______________, AND SUCH SECURITIES MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF SAID WARRANT."
ARTICLE VIII
OTHER MATTERS
SECTION 8.01. The Company will from time to time promptly pay, subject
to the provisions of paragraph (4) of Section 2.02, all taxes and charges that
may be imposed upon the Company in respect of the issuance or delivery of
Warrant Shares upon the exercise of this Warrant.
SECTION 8.02. All the covenants and provisions of this Warrant by or
for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
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<PAGE>
SECTION 8.03. Notice or demand pursuant to this Warrant to be given or
made by the Warrant Holder to or on the Company shall be sufficiently given or
made if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, as follows:
Medis Technologies Ltd.
805 Third Avenue
New York, NY 10022
Attention: Howard Weingrow, President
Any notice or demand authorized by this Warrant to be given or made by the
Company to or on the Warrant Holder shall be given in accordance with the
provisions of Section 4.04.
SECTION 8.04. The validity, interpretation and performance of this
Warrant shall be governed by the internal laws of the State of New York.
SECTION 8.05. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be construed, to
confer upon, or give to, any person or corporation other than the Company and
the Warrant Holder any right, remedy or claim under promise or agreement hereof,
and all covenants, conditions, stipulations, promises and agreements contained
in this Warrant shall be for the sole and exclusive benefit of the Company and
its successors and of the Warrant Holder.
SECTION 8.06. The Article headings herein are for convenience only and
are not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of
-------, ----.
MEDIS TECHNOLOGIES LTD.
By:
------------------------
Howard Weingrow, President
[CORPORATE SEAL]
Attest: ________________________
Secretary
11
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SUBSCRIPTION
To Be Executed By The Warrant Holder Who Desires
To Exercise The Warrant In Whole Or In Part:
To: MEDIS TECHNOLOGIES LTD.
The undersigned............................................
(...........................................)
Please insert Social Security or other
identifying number of Subscriber
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder,____________________ shares of
Common Stock provided for therein and tenders payment to MEDIS TECHNOLOGIES LTD.
by payment of $ ________________ in lawful money of the United States, or by
certified check, bank draft or postal or express money order payable in United
States dollars to the order of Medis Technologies Ltd.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name:
-------------------------------
Address:
-----------------------------
Deliver to:
---------------------------
Address:
-----------------------------
Social Security (or other identifying) Number:
----------------------------
and, if said number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under the within Warrant be registered
in the name of, and delivered to, the undersigned at the address stated below:
Address:
------------------------------------------------------------
Date ,19
---------------- --
Signature:
-----------------------------------
Note: The signature on this Subscription must
correspond with the name as written upon the
face of this Warrant without alteration or
enlargement or any change whatsoever.
12
<PAGE>
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________* the right to purchase ____________ shares of
Common Stock evidenced by the within Warrant, and appoints __________________
to transfer the same on the books of MEDIS TECHNOLOGIES LTD. with the full
power of substitution in the premises.
Date: ,
-------------- ----
---------------------------------------
(Signature must conform in all respects
to the name of Warrant Holder as
specified on the face of the Warrant,
without alteration, enlargement or any
change whatsoever, and the signature
must be guaranteed in the usual manner)
Signature Guaranteed:
- ------------------------------
*Social Security (or other identifying) Number is:
----------------------------
13
EXHIBIT 10.5
EXECUTION COPY
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 15, 1997 (the
"Agreement"), between CELL DIAGNOSTICS INC., a corporation organized under the
laws of the State of Delaware ("CDI"), HOWARD WEINGROW and ROBERT K. LIFTON,
individuals residing within the State of New York (the "CDI Stockholders"), and
ISRAEL AIRCRAFT INDUSTRIES LTD., a corporation organized under the laws of the
State of Israel ("IAI").
W I T N E S S E T H:
WHEREAS, IAI owns of record and beneficially 50 shares (the
"Purchased Shares") of the Class A Common Stock, $.01 par value, of Medis Inc.,
a Delaware Corporation ("INC"), represented by stock certificate no. C-1; and
WHEREAS, prior to the date hereof, the parties agreed in principle
that IAI would sell and transfer to CDI, and CDI would acquire from IAI, the
Purchased Shares in exchange for the Issued Shares (as defined in Section 1.1
below), upon the terms and subject to the conditions set forth herein (the
"Exchange").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
Purchase and Sale of the Purchased Shares
1.1 Purchase and Sale. Concurrently with the execution and delivery
of this Agreement, IAI shall sell, assign, convey, transfer and deliver to CDI,
and CDI shall purchase from IAI, the Purchased Shares, free and clear of all
liens, encumbrances, pledges, security interests, rights of third parties and
restrictions of every kind and nature ("Liens"), by delivering to CDI the stock
certificates representing the Purchased Shares, duly endorsed in blank or
accompanied by stock powers duly executed in blank and with all necessary
transfer stamps affixed thereto, sufficient to transfer the Purchased Shares to
CDI, and, in consideration therefor, CDI shall issue and deliver to IAI stock
certificates, registered in the name of IAI, representing 3,600,457 shares (the
"Issued Shares") of the Common Stock, $.01 par value ("Common Stock"), of CDI,
subject to adjustment pursuant to Section 8 of the letter agreement (the "Letter
Agreement"), dated as of the date hereof, from CDI, INC, Medis El Ltd. ("EL")
and the CDI Stockholders to IAI, individually and as Collateral Agent.
<PAGE>
ARTICLE II
Representations and Warranties of CDI
CDI represents and warrants to IAI as follows:
2.1 Organization and Good Standing. CDI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. CDI is the sole record and beneficial owner of (a) all of the
outstanding shares of capital stock of CDS Distributor, Inc., a Delaware
corporation ("CDS"), and (b) 75 shares of the Class A Common Stock, $.01 par
value, of INC. CDI has full and legal title to said shares of INC and CDS, free
and clear of all Liens except as set forth in the Letter Agreement and the
Amendment to Shareholders Agreement, dated as of December 20, 1993, by and among
IAI, CDI INC and EL. INC is the sole record and beneficial owner of the shares
set forth on Schedule 2.1 hereto. INC has full and legal title to such shares
set forth on said Schedule 2.1, free and clear of all Liens. Except as set forth
in this Section 2.1 and on said Schedule 2.1, none of CDI, CDS or INC has any
direct interest in any other shares of stock or any other securities of any
corporation, firm, partnership, association or other entity. A true, complete
and correct copy of the Certificate of Incorporation and By-Laws of each of CDI,
CDS and INC, as in effect on the date hereof, has been delivered to IAI.
2.2 Agreement Authorized; Binding and Enforceable. CDI has the
corporate power and authority to enter into and perform its obligations under
this Agreement and the Shareholders Agreement being entered into concurrently
herewith among CDI, IAI and the CDI Stockholders (the "CDI Shareholders
Agreement"), and CDI has received all necessary approvals of its directors and
stockholders in connection therewith. This Agreement and the CDI Shareholders
Agreement are valid, legal and binding obligations of CDI, enforceable against
it in accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws affecting creditors' rights and by
equitable principles of general application which may limit the availability of
certain remedies.
2.3 No Conflict. The execution, delivery and performance of this
Agreement and the CDI Shareholders Agreement do not conflict with or violate, or
constitute a breach under, the Certificate of Incorporation or By-laws of CDI or
any contract, indenture, instrument, order, judgment, decree, law or regulation
by which CDI is bound or by which its assets may be affected.
2
<PAGE>
2.4 Required Approvals. No consent or approval of, waiver from or
notice to any party is required in order for CDI to execute, deliver and perform
this Agreement and the CDI Shareholders Agreement or to consummate the
transactions contemplated hereby and thereby, except as have been obtained.
2.5 Capitalization. CDI is authorized to issue only 10,000,000
shares of Common Stock, and 10,000 shares of preferred stock, $.01 par value
(the "Preferred Stock"); and, prior to giving effect to the issuance of the
Issued Shares, has heretofore issued, and has outstanding: (i) 4,657,156 shares
of Common Stock, owned of record and beneficially as set forth on Schedule 2.5
hereto and (ii) no shares of Preferred Stock. Except as set forth on said
Schedule 2.5, none of CDI, CDS or INC has outstanding any options to purchase,
or any rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, warrants, convertible securities
or obligations ("Rights"). The Issued Shares will, upon their issuance to IAI in
accordance with Section 1 above, be validly issued, fully paid and
non-assessable.
2.6 Liabilities. Except as set forth on Schedule 2.6 hereto, none of
CDI, CDS or INC has any liabilities, whether absolute, contingent or otherwise
and whether direct or indirect, known or unknown, matured or unmatured or
asserted or unasserted.
2.7 Contracts. Except for (a) the Existing Shareholders Agreement
(as defined in Section 4.5 hereof), (b) the Secured Promissory Note, dated
December 20, 1993, as amended, made by CDI to EL in the remaining principal
amount of $2,000,000 (the "Promissory Note") and (c) the Distributorship
Agreement, dated as of August 13, 1992, between EL and CDS, none of CDI, CDS or
INC is a party to any written or oral contract, agreement, license, lease,
instrument or other commitment.
2.8 Litigation. There is no action, suit, proceeding or
investigation pending or threatened against or affecting CDI, CDS, INC or any of
their respective assets. None of CDI, CDS or INC is subject to or in default
under or with respect to any judgment, order, writ, injunction or decree of any
court or any federal, state, municipal or other governmental authority,
department, commission, board, agency or other instrumentality.
2.9 Compliance with Laws. Each of CDI, CDS and INC has complied with
all applicable laws, regulations and orders of any federal, state, municipal or
other governmental department, commission, board, agency or instrumentality.
3
<PAGE>
2.10 Taxes.
(i) CDI, CDS and INC have timely filed all tax returns
required to be filed by them for all taxable periods ending on or before the
date hereof and all such tax returns are true, correct and complete;
(ii) CDI, CDS and INC have paid to the appropriate tax
authorities all taxes for all taxable periods ending on or before the date
hereof;
(iii) except for the extensions filed by CDI, CDS and INC for
tax returns relating to the 1997 fiscal year, no extension of time has been
requested or granted for CDI, CDS or INC to file any tax return that has not yet
been filed or to pay any tax that has not yet been paid and CDI, CDS and INC
have not granted a power of attorney that remains outstanding with regard to any
tax matter;
(iv) CDI, CDS and INC have not received notice of a
determination by a tax authority that taxes are owed by CDI, CDS or INC (such
determination being referred to hereafter as a "Tax Deficiency") and, to the
best knowledge of CDI, CDS and INC and their employees, no Tax Deficiency is
proposed or threatened;
(v) no issue has been raised in any examination,
investigation, audit, suit, action, claim or proceeding relating to taxes (a
"Tax Audit") which, by application of similar principles to any past, present or
future period, would result in a Tax Deficiency for such period;
(vi) there are no pending or, to the best knowledge of CDI,
CDS and INC and their employees, threatened Tax Audits of CDI, CDS and INC;
(vii) CDI, CDS and INC are not now, nor have ever been, (a)
includable members of an "affiliated group" within the meaning of Section
1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"), other
than an affiliated group consisting only of CDI, CDS and INC, (b) members of any
consolidated, combined or unitary tax return filing group other than a group
consisting only of CDI, CDS and INC, or (c) a party to an agreement that
obligates either of them to make any payment computed by reference to the taxes,
taxable income or tax losses of any other individual or entity; and
(viii) no claim has been made by any tax authority that CDI,
CDS or INC is subject to tax in a jurisdiction in which it is not then paying
tax of the type asserted.
4
<PAGE>
Each reference to a provision of the Code in this Section 2.10 shall be treated
for state and local tax purposes as a reference to analogous or similar
provisions of state and local law. The reference to "tax" in this Section 2.10
includes taxes of any kind whatsoever.
ARTICLE III
Representations and Warranties of the CDI Stockholders
The CDI Stockholders represent and warrant to IAI as follows:
3.1 Organization and Good Standing. CDI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. CDI is the sole record and beneficial owner of (a) all of the
outstanding shares of capital stock of CDS, and (b) 75 shares of the Class A
Common Stock, $.01 par value, of INC. CDI has full and legal title to said
shares of INC and CDS, free and clear of all Liens except as set forth in the
Letter Agreement and the Amendment to Shareholders Agreement, dated as of
December 20, 1993, by and among IAI, CDI INC and EL. INC is the sole record and
beneficial owner of the shares set forth on Schedule 2.1 hereto. INC has full
and legal title to such shares set forth on said Schedule 2.1, free and clear of
all Liens. Except as set forth in this Section 3.1 and on said Schedule 2.1,
none of CDI, CDS or INC has any direct interest in any other shares of stock or
any other securities of any corporation, firm, partnership, association or other
entity. A true, complete and correct copy of the Certificate of Incorporation
and By-Laws of each of CDI, CDS and INC, as in effect on the date hereof, has
been delivered to IAI.
3.2 Agreement Authorized; Binding and Enforceable. To the best of
their knowledge, (i) CDI has the corporate power and authority to enter into and
perform its obligations under this Agreement and the CDI Shareholders Agreement,
(ii) CDI has received all necessary approvals of its directors and stockholders
in connection therewith and (iii) this Agreement and the CDI Shareholders
Agreement are valid, legal and binding obligations of CDI, enforceable against
it in accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws affecting creditors' rights and by
equitable principles of general application which may limit the availability of
certain remedies.
3.3 No Conflict. To the best of their knowledge, the execution,
delivery and performance of this Agreement and the CDI Shareholders Agreement do
not conflict with or violate, or constitute a breach under, the Certificate of
Incorporation or By-laws of CDI or any contract, indenture, instrument, order,
5
<PAGE>
judgment, decree, law or regulation by which CDI is bound or by which its assets
may be affected.
3.4 Required Approvals. To the best of their knowledge, no consent
or approval of, waiver from or notice to any party is required in order for CDI
to execute, deliver and perform this Agreement and the CDI Shareholders
Agreement or to consummate the transactions contemplated hereby and thereby,
except as have been obtained.
3.5 Capitalization. CDI is authorized to issue only 10,000,000
shares of Common Stock, and 10,000 shares of Preferred Stock; and, prior to
giving effect to the issuance of the Issued Shares, has heretofore issued, and
has outstanding: (i) 4,657,156 shares of Common Stock, owned of record and
beneficially as set forth on Schedule 2.5 hereto and (ii) no shares of Preferred
Stock. Except as set forth on said Schedule 2.5, none of CDI, CDS or INC has
outstanding any Rights. The Issued Shares will, upon their issuance to IAI in
accordance with Section 1 above, be validly issued, fully paid and
non-assessable.
3.6 Liabilities. To the best of their knowledge, except as set forth
on Schedule 2.6 hereto, none of CDI, CDS or INC has any liabilities, whether
absolute, contingent or otherwise and whether direct or indirect, known or
unknown, matured or unmatured or asserted or unasserted.
3.7 Contracts. To the best of their knowledge, except for (a) the
Existing Shareholders Agreement, (b) the Promissory Note and (c) the
Distributorship Agreement, dated as of August 13, 1992, between EL and CDS, none
of CDI, CDS or INC is a party to any written or oral contract, agreement,
license, lease, instrument or other commitment.
3.8 Litigation. To the best of their knowledge, there is no action,
suit, proceeding or investigation pending or threatened against or affecting
CDI, CDS, INC or any of their respective assets, and none of CDI, CDS or INC is
subject to or in default under or with respect to any judgment, order, writ,
injunction or decree of any court or any federal, state, municipal or other
governmental authority, department, commission, board, agency or other
instrumentality.
3.9 Compliance with Laws. To the best of their knowledge, each of
CDI, CDS and INC has complied with all applicable laws, regulations and orders
of any federal, state, municipal or other governmental department, commission,
board, agency or instrumentality.
6
<PAGE>
3.10 Taxes. To the best of their knowledge:
(i) CDI, CDS and INC have timely filed all tax returns
required to be filed by them for all taxable periods ending on or before the
date hereof and all such tax returns are true, correct and complete;
(ii) CDI, CDS and INC have paid to the appropriate tax
authorities all taxes for all taxable periods ending on or before the date
hereof;
(iii) except for the extensions filed by CDI, CDS and INC for
tax returns relating to the 1997 fiscal year, no extension of time has been
requested or granted for CDI, CDS or INC to file any tax return that has not yet
been filed or to pay any tax that has not yet been paid and CDI, CDS and INC
have not granted a power of attorney that remains outstanding with regard to any
tax matter;
(iv) CDI, CDS and INC have not received notice of a
determination by a tax authority that taxes are owed by CDI, CDS or INC (such
determination being referred to hereafter as a "Tax Deficiency") and no Tax
Deficiency is proposed or threatened;
(v) no issue has been raised in any examination,
investigation, audit, suit, action, claim or proceeding relating to taxes (a
"Tax Audit") which, by application of similar principles to any past, present or
future period, would result in a Tax Deficiency for such period;
(vi) there are no pending or threatened Tax Audits of CDI, CDS
and INC;
(vii) CDI, CDS and INC are not now, nor have ever been, (a)
includable members of an "affiliated group" within the meaning of Section
1504(a) of the Code other than an affiliated group consisting only of CDI, CDS
and INC, (b) members of any consolidated, combined or unitary tax return filing
group other than a group consisting only of CDI, CDS and INC, or (c) a party to
an agreement that obligates either of them to make any payment computed by
reference to the taxes, taxable income or tax losses of any other individual or
entity; and
(viii) no claim has been made by any tax authority that CDI,
CDS or INC is subject to tax in a jurisdiction in which it is not then paying
tax of the type asserted.
Each reference to a provision of the Code in this Section 3.10 shall be treated
for state and local tax purposes as a reference to analogous or similar
provisions of state and local law. The
7
<PAGE>
reference to "tax" in this Section 3.10 includes taxes of any kind whatsoever.
ARTICLE IV
Representation and Warranties of IAI
IAI represents and warrants to CDI as follows:
4.1 Organization and Good Standing. IAI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Israel.
4.2 Agreement Authorized; Binding and Enforceable. Except for the
limitations of IAI under its credit facility with a consortium of lenders of
which Bank Leumi is the lead lending institution (the "IAI Credit Facility"),
IAI has the corporate power and authority to enter into and perform its
obligations under this Agreement and the CDI Shareholders Agreement and, except
as so limited, this Agreement and the CDI Shareholders Agreement are valid,
legal and binding obligations of IAI enforceable against it in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights and by equitable principles of general
application which may limit the availability of certain remedies.
4.3 No Conflict. Except for the obligations of IAI under the IAI
Credit Facility, the execution, delivery and performance of this Agreement and
the CDI Shareholders Agreement by IAI do not conflict with or violate, or
constitute a breach under, the Memorandum or Articles of Association or other
charter document of IAI or any contract, indenture, instrument, order, judgment,
decree, law or regulation by which IAI is bound or by which its assets may be
affected.
4.4 Required Approvals. Except for the consents and approvals
required under the IAI Credit Facility, no consent or approval of, waiver from
or notice to any party is required in order for IAI to execute, deliver and
perform this Agreement and the CDI Shareholders Agreement or to consummate the
transactions contemplated hereby and thereby.
4.5 Title to the Purchased Shares. IAI is the sole record and
beneficial owner of the Purchased Shares, free and clear of any Liens, other
than Liens granted under the IAI Credit Facility, and subject to no proxies,
options, warrants, contracts, calls or other commitments (except as set forth in
the Amended and Restated Subscription and Shareholders Agreement, originally
dated May 26, 1992, as amended and restated on August 13, 1992, and effective as
of June 1, 1992 (the "Existing
8
<PAGE>
Shareholders Agreement")). IAI has full right, power and authority to sell,
transfer, assign, convey and deliver to CDI the full record and beneficial
ownership of the Purchased Shares, and the sale, transfer, assignment,
conveyance and delivery of the Purchased Shares under this Agreement shall
transfer to CDI full and legal title to the Purchased Shares free and clear of
all Liens, other than Liens granted under the IAI Credit Facility. IAI has not
taken any action which has or will result in the imposition of any Lien on or
Right with respect to any of the shares set forth in Schedule 2.1 hereto.
ARTICLE V
Miscellaneous
5.1 Representations and Warranties. All representations, warranties
and indemnifications contained in this Agreement shall survive the date hereof.
5.2 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been given (a) when received, if delivered in person, (b) five
(5) business days following the mailing thereof if mailed by certified first
class mail, postage prepaid, return receipt requested, or (c) upon confirmed
electronic answer-back, if sent by telecopier, in any case as follows:
If to CDI or the CDI Stockholders, to:
805 Third Avenue
New York, NY 10022
Attn: Mr. Robert K. Lifton
Telecopier: (212) 935-9216
with a copy to:
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, NY 10022
Attn: Elliot Brecher, Esq.
Telecopier: (212) 755-2839
If to IAI, to:
Ben-Gurion International Airport
Lod, Israel 70100
Attn: Jacob Weiss, Esq.
Telecopier: 011-972-3-935-8987
9
<PAGE>
with a copy to:
Gratch Jacobs & Brozman, P.C.
950 Third Avenue
New York, NY 10022
Attn: Adam Stein, Esq.
Telecopier: (212) 319-0856
or at such other address as either party may have advised in the manner provided
in this Section 5.2.
5.3 Complete Agreement. This Agreement, together with the Schedules
and Exhibit hereto, sets forth the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior or contemporaneous
agreements, contracts, promises, representations, warranties, statements,
arrangements and understandings, if any, among the parties hereof or their
representatives. No waiver, modification or amendment of any provision, term or
condition hereof shall be valid unless in writing and signed by the party to be
charged therewith and any such waiver, modification or amendment shall be valid
only to the extent therein set forth.
5.4 Further Assurances. Each of the parties hereto shall, from time
to time after the date hereof, upon the request of the other party hereto duly
execute, acknowledge and deliver or cause to be duly executed, acknowledged and
delivered, all such further instruments and documents reasonably required to
further effectuate the intent and purpose of this Agreement.
5.5 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that neither party may assign this Agreement without the
prior written consent of the other party.
5.6 Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and for reference and in no way define, limit or
describe the scope and intent of this Agreement or any of the provisions hereof.
5.7 Expenses of the Transaction. Each of the parties hereto agrees
to pay its own expenses and the fees and expenses of its own counsel in
connection with this Agreement and the transactions hereby contemplated.
5.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
10
<PAGE>
5.9 Counterparts. This Agreement may be executed in counterparts and
all such counterparts taken together shall constitute one agreement.
5.10 Indemnification. Each of CDI and the CDI Stockholders, on the
one hand, and IAI, on the other hand, agrees to indemnify the other and hold the
other harmless from and against, any and all losses, damages, liabilities,
costs, professional fees and expenses incurred by the other by reasons of a
breach of the respective representations, warranties or covenants made
hereunder.
5.11 Shareholders Agreements. The CDI Shareholders Agreement, in the
form of Exhibit A hereto, is being entered into concurrently with the execution
and delivery of this Agreement. Upon the execution and delivery hereof and
thereof, certain provisions of the Existing Shareholders Agreement shall, in
accordance with the terms of the CDI Shareholders Agreement, terminate.
5.12 Additional Remedies. In addition to any remedies that IAI may
have by virtue of any breach of the representations and warranties contained in
Article II hereof, IAI shall have the remedies provided for in Section 10 of the
Letter Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
CELL DIAGNOSTICS INC.
By: /s/
------------------------------
ISRAEL AIRCRAFT INDUSTRIES LTD.
By: /s/
------------------------------
CDI STOCKHOLDERS,
/s/ Howard Weingrow
----------------------------------
Howard Weingrow
/s/ Robert K. Lifton
----------------------------------
Robert K. Lifton
11
EXHIBIT 10.6
EXECUTION COPY
CDI SHAREHOLDERS AGREEMENT
CDI SHAREHOLDERS AGREEMENT, dated as of December 15, 1997, among
ISRAEL AIRCRAFT INDUSTRIES LTD., a corporation organized under the laws of the
State of Israel ("IAI"), Howard Weingrow and Robert K. Lifton, individuals
residing within the State of New York (the "Controlling Shareholders"; together
with IAI, the "Shareholders"), CELL DIAGNOSTICS INC., a corporation organized
under the laws of the State of Delaware (the "Corporation"), MEDIS INC., a
corporation organized under the laws of the State of Delaware ("Medis"), CDS
DISTRIBUTOR, INC., a corporation organized under the laws of the State of
Delaware ("CDS"), and MEDIS EL LTD., a corporation organized under the laws of
the State of Israel ("EL").
W I T N E S S E T H:
WHEREAS, IAI and the Corporation have entered into a Stock Purchase
Agreement (the "Purchase Agreement"), of even date herewith, pursuant to which
3,600,457 shares of the Corporation's Common Stock, $.01 par value ("Common
Stock"), are being issued to IAI.
WHEREAS, after giving effect to the aforesaid issuance, the
Shareholders will collectively own of record approximately 64% of the
outstanding shares of Common Stock; and
WHEREAS, the Shareholders believe that this Agreement is in the best
interest of themselves and the Corporation and will promote harmonious
relationships among the Shareholders with respect to the conduct of the affairs
of the Corporation and its subsidiaries.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations set forth herein and in the Purchase Agreement, and in
order to induce IAI to enter into the Purchase Agreement, the parties hereto
hereby agree as follows:
1. Management Matters. (a) The Corporation shall use its best efforts to,
and each of the Shareholders shall, take and cause to be taken all necessary
action (corporate or other), including the voting of shares of Common Stock and
common stock of the "Subsidiaries" (as defined below), to maintain a Board of
Directors of the Corporation and each of its direct and indirect subsidiaries
(including Medis, CDS and EL) (collectively, "Subsidiaries") consisting of only
six directors, three of whom shall be designees of the Controlling Shareholders
and three of whom shall be designees of IAI, with each director having the same
voting rights as the others. At each annual meeting of the shareholders of the
Corporation, the Shareholders shall nominate such designees for election as
directors of the Corporation, and the Shareholders shall vote all of their
shares, and shares for
<PAGE>
which they hold a proxy, in person or by proxy, for the election of such persons
as directors of the Corporation and for the election, as successor to any
director of the Corporation who shall resign, die, be removed or whose term of
office shall otherwise expire or be terminated (collectively, a "Retired
Director"), of such person as may be designated to succeed the Retired Director
by that Shareholder who designated the Retired Director. For so long as Robert
K. Lifton takes an active management role in the operations of the Corporation
and until he resigns or is unable or unwilling to continue to perform his duties
as Chairman of the Board, the Shareholders shall direct their respective
director designees to vote for the election of Robert K. Lifton as Chairman of
the Board of Directors and Chief Executive Officer of the Corporation and of the
boards of directors of each of the Subsidiaries. The Board of Directors may
elect or appoint such other officers as it may from time to time determine. The
duties and functions of the officers shall be those duties and functions
described in the Corporation's By-Laws.
(b) Any Shareholder vote that is inconsistent with Section 1(a)
above, or that otherwise results in a Board of Directors that does not consist
only of three IAI designees and three designees of the Controlling Shareholders,
shall be void ab initio and shall have no force and effect and, in such event,
in order to accomplish the agreements set forth in Section 1(a), above, with
respect to all matters submitted to a vote of the shareholders of the
Corporation or the shareholders of the Subsidiaries, any Shareholder that voted
inconsistently with Section 1(a) above, automatically, and without further
action by anyone, grants to IAI, if the inconsistent vote was by a Controlling
Shareholder, or to the Controlling Shareholders, if the inconsistent vote was by
IAI, an irrevocable proxy for all of the Common Stock owned by such Shareholder,
solely for the purpose of allowing the proxy holder to vote those shares of
Common Stock consistently with Section 1(a), above. Each Shareholder
acknowledges that such proxy is coupled with an interest, is irrevocable for so
long as this Agreement remains in effect and is exercisable only if a
Shareholder for any reason fails or refuses to vote its shares of Common Stock
in such manner as will best give effect to the provision of Section 1(a),
above.
(c) So long as any of the Ordinary Shares, NIS 0.1 par value, of EL
("Ordinary Shares") are owned or controlled, directly or indirectly, by any of
the Shareholders, such Ordinary Shares shall be voted in such a manner as to
effect the provisions of Section 1(a) above.
2
<PAGE>
2. Special Approval Requirements for Certain Actions. The Corporation
shall not, and shall not permit any of its Subsidiaries, without the consent of
both IAI and at least one of the Controlling Shareholders, do any of the
following:
(a) Increase, decrease or reclassify its capital stock or the
capital stock of any of its Subsidiaries.
(b) Issue or sell any of its equity interests or equity interests of
any of its Subsidiaries.
(c) Amend its Certificate of Incorporation or comparable instrument
or the Certificate of Incorporation or comparable instrument of any of its
Subsidiaries.
(d) Amend its By-Laws or comparable instrument or the By-Laws or
comparable instrument of any of its Subsidiaries.
(e) Sell, mortgage, convey or in any other manner encumber all or
substantially all of its assets or substantially all of the assets of any of its
Subsidiaries.
(f) Merge or consolidate with another entity.
(g) Guarantee or in any other manner be responsible for the debts or
obligations of another entity or person.
(h) License, assign or otherwise dispose of technology or know-how
to any person or entity.
(i) Transfer or encumber in any manner shares of its capital stock
or the capital stock of any of its Subsidiaries.
(j) Approve any modification to its capitalization or the
capitalization of any of its Subsidiaries.
(k) Subject to Section 10 of the Amended and Restated Subscription
and Shareholders Agreement, originally dated May 26, 1992, as amended and
restated on August 13, 1992, and effective as of June 1, 1992 (the "Existing
Shareholders Agreement"), and except as otherwise agreed by the Shareholders,
invest in any Product, as defined therein.
(l) Permit EL to approve a "Successor Marketing Entity" pursuant to
Section 6(b)(y) of the Existing Shareholders Agreement.
(m) Approve the Corporation's budget and that of any of its
Subsidiaries.
(n) Vote the shares of any Subsidiary.
3
<PAGE>
3. Board Deadlock. Subject to the delegation of management
responsibilities under this Agreement and the Corporation's By-Laws, the Board
of Directors shall be charged with the general management of the Corporation. In
the case of an irreconcilable deadlock with respect to the approval of the
Corporation's annual budget, the most recent approved budget shall remain in
effect pending resolution of such deadlock.
Non-Disclosure. Each of the Shareholders covenants and agrees that,
subject to the following two sentences, it will not at any time disclose to
anyone or use for any purpose whatsoever (except to the extent reasonable
necessary for it to perform its duties for the Corporation, including obtaining
distributors for Products and financing for the production of Products) any
"confidential information", as such term is hereinafter qualified, concerning
the business or affairs of the Corporation or its subsidiaries which it may have
acquired in the course of or as incident to its being a Shareholder, and any of
its designees being an officer or a director, of the Corporation, including,
without limitation, business or trade secrets of the Corporation, or methods or
techniques used by the Corporation in or about its business. For the purposes of
this Section, confidential information shall not include information which was
known to the public prior to the date of communication thereof by the
Shareholder or which became known to the public thereafter other than through
communications by a Shareholder. In addition, a Shareholder may disclose
information of a kind which would be disclosable in a filing with a government
agency in connection with a sale or offer of shares of Common Stock, but not
information for which confidential treatment by the Commission might reasonably
be requested.
4. Legend. Each certificate for the shares of Common Stock subject to the
provisions hereof shall be marked on the face thereof with a legend in
substantially the following form:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS,
AND ACCORDINGLY NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE SOLD,
TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR AN
EXCEPTION FROM REGISTRATION IS AVAILABLE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A
SHAREHOLDERS AGREEMENT, DATED AS OF DECEMBER 15, 1997, AMONG CELL DIAGNOSTICS
INC., ISRAEL AIRCRAFT INDUSTRIES LTD., HOWARD WEINGROW, ROBERT K. LIFTON, CDS
DISTRIBUTOR, INC., MEDIS INC. AND MEDIS EL LTD., COPIES OF WHICH AGREEMENT ARE
ON FILE AT THE PRINCIPAL OFFICE OF CELL DIAGNOSTICS INC.
4
<PAGE>
5. Termination. This Agreement shall terminate on the earliest to occur of
the following events: (a) the dissolution or complete liquidation of the
Corporation, (b) the mutual written agreement of the Shareholders, (c) such time
as more than 30% of the shares of Common Stock then outstanding are freely
tradeable without restrictions under the Securities Act of 1933, as amended, and
are listed and traded on a U.S. national securities exchange or quoted on the
NASDAQ System or a comparable interdealer quotation system, (d) the merger or
consolidation of the Corporation with or into any other person, or the sale of
all or substantially all of the Corporation's assets to any other Person, which
is duly approved pursuant to Section 2 hereof, (e) the aggregate number of
shares of Common Stock owned or controlled, directly or indirectly, by the
Shareholders shall constitute less than 10% of the total number of shares of
Common Stock outstanding, (f) IAI shall not own any of the 1,250,000 Ordinary
Shares of EL presently owned by it and (g) the date ten years after the date of
this Agreement; provided, however, that no such termination shall relieve either
party of any liability for a prior breach or default.
6. Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been given (a) when received, if delivered in person, (b) five
(5) business days following the mailing thereof if mailed by certified first
class mail, postage prepaid, return receipt requested, or (c) upon confirmed
electronic answer-back, if sent by telecopier, in any case as follows:
If to the Controlling Shareholders, the Corporation, Medis, CDS or
EL to:
c/o Medis Inc.
805 Third Avenue
New York, NY 10022
Attn: Mr. Robert K. Lifton
Telecopier: (212) 935-9216
with a copy to:
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, NY 10022
Attn: Elliot Brecher, Esq.
Telecopier: (212) 755-2839
5
<PAGE>
If to IAI, to:
Ben-Gurion International Airport
Lod, Israel 70100
Attn: Jacob Weiss, Esq.
Telecopier: 011-972-3-935-8987
with a copy to:
Gratch Jacobs & Brozman, P.C.
950 Third Avenue
New York, NY 10022
Attn: Adam Stein, Esq.
Telecopier: (212) 319-0856
or at such other address as either party may have advised in the manner provided
in this Section 6.
7. Termination of Existing Shareholders Agreement Provisions. The Existing
Shareholders Agreement shall, upon the execution and delivery hereof, terminate
and be of no further force and effect, except for clauses (i) and (j) of Section
5, Section 6 and Section 10(b) thereof which, as the same may have been amended,
shall survive until the termination of this Agreement under Section 5 hereof and
be deemed incorporated by reference into this Agreement as if such provisions
were stated herein in their entirety, and shall be binding upon the parties
hereto notwithstanding the termination provisions of the Existing Shareholders
Agreement.
8. Distributorship Agreement. Each of CDS and EL reaffirms to the other
their respective rights and obligations pursuant to the Distributorship
Agreement, dated as of August 13, 1992, between EL and CDS.
9. Miscellaneous. (a) The Shareholders agree to vote their shares of
Common Stock to effectuate the provisions of this Agreement.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, subject to the
provisions of this Section 9(b). Shares of Common Stock acquired by any third
party, as well as shares of Common Stock of a deceased Shareholder in the hands
of his legal representative or distributees, shall continue to be bound by the
terms and conditions of this Agreement which are applicable to its or his
transferor. Any transfer of shares of Common Stock to any such person or entity
shall be contingent on confirmation to the Corporation and the other parties
hereto by the proposed transferee, in writing in a manner satisfactory to the
Corporation, that the proposed transferee is bound by the
6
<PAGE>
terms and conditions of this Agreement which are applicable to its or his
transferor. Notwithstanding the foregoing, at such time as shares of Common
Stock are listed and traded on a national securities exchange or quoted on
Nasdaq System or a comparable interdealer quotation system, the foregoing
provisions of this Section 9(b) shall no longer be applicable with respect to
shares of Common Stock to be sold to or held by any person or entity other than
the Shareholders and any persons or entities owned or controlled, directly or
indirectly, by the Shareholders and the second legend referred to in Section 4
of this Agreement shall not be required with respect to such shares.
(c) This Agreement sets forth the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior or
contemporaneous agreements, contracts, promises, representations, warranties,
statements, arrangements and understandings, if any, among the parties hereof or
their representatives. No waiver, modification or amendment of any provision,
term or condition hereof shall be valid unless in writing and signed by the
party to be charged therewith and any such waiver, modification or amendment
shall be valid only to the extent therein set forth.
(d) If any provision of this Agreement, or portion thereof, shall be
held invalid or unenforceable by a court of competent jurisdiction, such
invalidity or unenforceability shall attach only to such provision, or portion
thereof, and shall not in any manner affect or render invalid or unenforceable
any other provision of this Agreement, or portion thereof, and this Agreement
shall be carried out as if any such invalid or unenforceable provision, or
portion thereof, were not contained herein. In addition, any such invalid or
unenforceable provision, or portion thereof, shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.
(e) The captions appearing in this Agreement are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope and intent of this Agreement or any of the provisions hereof.
(f) Each party hereto shall cooperate and shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
(g) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
7
<PAGE>
(h) This Agreement may be executed in counterparts and all such
counterparts taken together shall constitute one agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
set forth above.
ISRAEL AIRCRAFT INDUSTRIES LTD. CDS DISTRIBUTOR INC.
By: /s/ M. Keret By: /s/ Robert K. Lifton
----------------------------- -----------------------------
Name: M. Keret Name: Robert K. Lifton
Title: Title: Ch. of Bd.
By: /s/ N. Gilad
----------------------------- MEDIS EL LTD.
Name: N. Gilad
Title:
By: /s/ Robert K. Lifton
-----------------------------
CONTROLLING SHAREHOLDERS: Name: Robert K. Lifton
Title: Ch. of Bd.
/s/ Howard Weingrow By:
- --------------------------------- -----------------------------
Howard Weingrow Name:
Title:
/s/ Robert K. Lifton
- ---------------------------------
Robert K. Lifton MEDIS INC.
CELL DIAGNOSTICS INC. By: /s/ Robert K. Lifton
-----------------------------
Name: Robert K. Lifton
By: /s/ Robert K. Lifton Title: Ch. of Bd.
-----------------------------
Name: Robert K. Lifton
Title: Ch. of Bd.
8
EXHIBIT 10.7
CELL DIAGNOSTICS INC.
805 Third Avenue
New York, New York 10022
As of December 15, 1997
ISRAEL AIRCRAFT INDUSTRIES LTD.
Ben Gurion International Airport
70100 ISRAEL
Attention: Jacob Weiss, Esq.
Gentlemen:
Reference is made to the Amendment to Shareholders Agreement (the
"Amendment"), dated as of December 20, 1993, by and among Israel Aircraft
Industries Ltd., an Israeli corporation ("IAI"), Cell Diagnostics Inc., a
Delaware corporation ("CDI"), Medis Inc., a Delaware corporation ("INC"), and
Medis El Ltd., an Israeli corporation ("EL"). Concurrently herewith, IAI and CDI
are entering into a Stock Purchase Agreement (the "Purchase Agreement") pursuant
to which CDI is issuing to IAI 3,600,457 shares of the common stock of CDI, $.01
par value (the "CDI Common Stock"), subject to adjustment pursuant to Sections 8
and 10 below, in exchange for the transfer by IAI to CDI of all of the shares of
INC owned by IAI. In consideration of and as a condition to entering into the
Purchase Agreement, IAI has required that the CDI Stockholders, defined below,
CDI, INC and EL enter into this agreement with IAI (the "Agreement"). Also,
concurrently herewith, IAI, CDI, CDS Distributor, Inc., INC, EL and the CDI
Stockholders, defined below, are entering into a shareholders agreement, dated
as of the date hereof (the "Shareholders Agreement") and CDI, IAI and the CDI
Stockholders are entering into a letter agreement, dated as of the date hereof,
relating to certain debt obligations of CDI. One of the purposes of this
Agreement is to give effect to the intention of the CDI Stockholders and IAI
that, if the Note, as defined in the Amendment, has not been fully paid, with
interest, by July 1, 1998 and, by such date, the Note has not been fully secured
by a letter of credit in form and substance satisfactory to IAI, there shall be
an automatic mechanism for IAI, as Collateral Agent, as defined below, for EL,
to exercise its rights as secured party hereunder, including, without
limitation, the right to sell the Pledged Shares, defined below, or the New
Pledged Shares, defined below, or both, without any waiting period, except as
described
<PAGE>
Israel Aircraft Industries Ltd.
As of December 15, 1997
Page 2
below, or other limitation and without any procedural or other obstacle, and for
IAI, as EL's agent, to apply the proceeds of such sale to the full repayment of
the Note.
1. Pursuant to the provisions of a written consent to be executed by
shareholders of CDI, a form of which is annexed hereto as Exhibit 1, CDI shall
issue up to 650,000 newly issued shares of CDI Common Stock and up to 216,667
warrants to purchase shares of CDI Common Stock in units consisting of three
shares of CDI Common Stock and one warrant ("Units") at the price determined by
the CDI Stockholders, in their sole discretion, to be the fair market of the
Units at the time of issuance, but in no event greater than $12.00 per Unit. IAI
hereby consents to the foregoing Unit issuance. CDI shall and hereby agrees to
apply the proceeds from the sale of such Units as follows: first, to pay the
expenses incurred by CDI in connection with the issuance of the Units, including
legal fees and disbursements; second, to pay the principal of and accrued
interest on the Note and any other liabilities of CDI; and third, to the extent
of any remaining proceeds, for such purposes as shall be approved by the Board
of Directors of CDI.
2. Subject to the provisions of Section 13 below, Howard Weingrow and
Robert K. Lifton (the "CDI Stockholders") hereby (i) guarantee to EL the prompt
payment in full when due of all now or hereafter existing obligations of CDI
under the Note, as amended through the date hereof, in accordance with the terms
thereof and (ii) covenant with EL that on or before July 1, 1998, the principal
of and accrued interest on the Note either will have been paid in full or will
have been fully secured by an irrevocable letter of credit, in form and
substance satisfactory to IAI, as described below (such obligations described in
clauses (i) and (ii) being hereafter referred to together as the "Guaranteed
Obligations" and the guaranty of such Guaranteed Obligations being hereafter
referred to as the "Guaranty").
3. Concurrently with the execution and delivery of this Agreement and the
Purchase Agreement, and as security for the payment of the Guaranteed
Obligations, the CDI Stockholders hereby pledge to EL, and grant to EL a
continuing first priority and perfected security interest in, 875,018 shares of
the CDI Common Stock owned by them, together with the certificates representing
such shares and all the products and proceeds of such shares (the shares,
certificates, products and proceeds
<PAGE>
Israel Aircraft Industries Ltd.
As of December 15, 1997
Page 3
being referred to hereafter as the "New Pledged CDI Shares"). The number of
shares of CDI Common Stock constituting the New Pledged CDI Shares shall be
adjusted as necessary so that, at all times, the product of (i) the percentage
that the value of the New Pledged CDI Shares is of the value of all of the
outstanding CDI Common Stock, (ii) the percentage that the value of the INC
stock owned by CDI is of the value of all of the outstanding INC stock and (iii)
the number of issued and outstanding Ordinary Shares, par value NIS 0.1 per
share, of EL (the "EL Common Stock") owned by INC, shall be equal to 500,000
shares of EL Common Stock; provided, however, that so long as no default shall
have occurred and be continuing under the Note or this Agreement, or by the CDI
Stockholders under the Shareholders Agreement, the CDI Stockholders shall be
entitled to exercise any and all voting and other consensual rights pertaining
to the New Pledged CDI Shares and, subject to the following proviso, to receive
all cash dividends and other distributions paid from time to time with respect
to the New Pledged CDI Shares; provided, further, however, that any dividends or
other distributions with respect to the New Pledged CDI Shares shall be held by
IAI, as Collateral Agent, as defined below, for EL, on behalf of the CDI
Stockholders, as further security for the Guaranteed Obligations, until either
all amounts due under the Note have been paid in full to EL or the Letter of
Credit, defined below, has been deposited with IAI, as Collateral Agent, as
defined below, for EL. INC, CDI, IAI and the CDI Stockholders shall and hereby
agree to take all actions necessary to insure that, until all amounts due under
the Note have been paid in full to IAI, as Collateral Agent, as defined below,
for EL, and all other obligations hereunder have been satisfied, the common
stock of INC, $.01 par value, shall be INC's only class of outstanding stock and
the CDI Common Stock shall be CDI's only class of outstanding stock.
Concurrently herewith, the CDI Stockholders shall deliver the stock certificates
representing the New Pledged CDI Shares to IAI, as Collateral Agent, as defined
below, for EL, duly endorsed in blank or accompanied by stock powers duly
executed in blank, and in all other respects in a form sufficient to transfer
the New Pledged CDI Shares on the books of CDI.
4. EL hereby makes, constitutes and appoints IAI as its true and lawful
agent and attorney-in-fact ("Collateral Agent") to act for EL and in EL's name,
place, stead and behalf, specifically with respect to, and limited only to, any
and all matters relating to or arising out of (i) the security interest
<PAGE>
Israel Aircraft Industries Ltd.
As of December 15, 1997
Page 4
held by EL in the New Pledged CDI Shares granted to EL pursuant to Section 3
above, which New Pledged Shares are being transferred to IAI, as Collateral
Agent, upon execution of this Agreement, (ii) the security interest in the
Pledged Shares, as defined in the Amendment, granted to EL pursuant to Section 5
of the Amendment, which Pledged Shares (as adjusted pursuant to Section 5 of the
Amendment to give effect to the distribution of EL shares to CDI and the
transfer of such EL shares from CDI to the holders of the convertible note
obligations described on Schedule 2.6 to the Purchase Agreement in the principal
amount of $650,000 (the "Convertible Notes") upon conversion of the Convertible
Notes) are being transferred to IAI, as Collateral Agent, upon execution of this
Agreement, (iii) the Note, including, without limitation, the collection of all
amounts due thereunder on behalf of EL and (iv) the Letter of Credit, as defined
below, including, without limitation, the right to hold such collateral and any
other collateral for the Guaranteed Obligations and the Guaranty at any time
granted to EL or to IAI, as Collateral Agent for EL, hereunder and under the
Amendment, the perfection and protection of EL's security interests relating
thereto and the enforcement of EL's rights and remedies in respect of such
collateral and security interests. EL hereby gives and grants to IAI, as said
Collateral Agent, the full power and authority to do and perform each and every
act and thing whatsoever requisite, necessary and appropriate to be done in
connection with the foregoing specified matters, including, without limitation,
the execution and delivery of any agreements, including amendments thereto, and
any other documents, as fully, for all intents and purposes, as EL could do if
personally acting, hereby ratifying and confirming whatsoever said Collateral
Agent shall and may do by virtue hereof. IAI's sole duty with respect to the
custody, safe-keeping and physical preservation of the collateral in its
possession pursuant to the terms hereof, under Section 9-207 of the UCC, as
defined below, or otherwise, shall be to deal with it in the same manner as IAI
deals with similar securities and property for its own account. No failure on
the part of IAI, as Collateral Agent or otherwise, to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right. The
rights and remedies herein provided are cumulative and not exclusive of any
remedies or rights provided by law or by any other agreement by or among the
undersigned. Notwithstanding
<PAGE>
Israel Aircraft Industries Ltd.
As of December 15, 1997
Page 5
any obligation hereunder or imposed by law, IAI will have no liability to any of
the undersigned for any action, wrongful or otherwise, taken by IAI in its
capacity as Collateral Agent for EL, except for an action taken in contravention
of Section 13 below.
5. Subject to the provisions of Section 13 below, if, on July 1, 1998,
there shall be due to EL any remaining amount of principal of or accrued
interest on the Note (the "July 1 Amount Due"), then the CDI Stockholders shall,
by no later than such date, deposit with IAI an irrevocable letter of credit
(the "Letter of Credit") in form and substance satisfactory to IAI, as
Collateral Agent for EL, in an amount equal to the July 1 Amount Due, which
Letter of Credit shall be payable to IAI, as Collateral Agent for EL, in
accordance with the provisions of Section 4 above. The Letter of Credit shall
secure the full and timely payment of all amounts due under the Note including
but not limited to the July 1 Amount Due, and no person including the issuer of
the Letter of Credit and the CDI Stockholders shall have any recourse, whether
by subrogation, contribution or otherwise, against any of CDI, INC, EL or IAI
arising out of any drawdown or other action taken under the Letter of Credit.
Upon receipt by IAI of the Letter of Credit, in form and substance satisfactory
to IAI, IAI, as Collateral Agent, shall deliver to CDI the Pledged Shares and
shall deliver to the CDI Stockholders the New Pledged CDI Shares, and EL's
security interest in the Pledged Shares granted under Section 5 of the Amendment
and this Agreement, and its security interest in the New Pledged CDI Shares
granted hereby, shall terminate.
6. If, on July 1, 1998, there shall be any amount due to EL under the Note
and IAI, as Collateral Agent for EL, shall not have received the Letter of
Credit, in form and substance satisfactory to IAI, as provided in Section 5
above, then the entire unpaid balance of the principal of and accrued interest
on the Note immediately shall accelerate and become due and payable, and IAI, as
Collateral Agent for EL, thereupon may, without demand of performance or other
demand or notice of any kind whatsoever, except the notice specified in Section
7 below of time and place of public or private sale, exercise any and all rights
and remedies with respect to the Note, the Pledged Shares and the New Pledged
CDI Shares as IAI, in such capacity and in its sole discretion, shall determine.
<PAGE>
Israel Aircraft Industries Ltd.
As of December 15, 1997
Page 6
7. If any default by CDI in the payment of any of its obligations under
the Note shall have occurred and be continuing, IAI, as Collateral Agent for EL,
shall have all of the rights and remedies with respect to the New Pledged CDI
Shares of a secured party under the New York Uniform Commercial Code ("UCC"), as
in effect from time to time. In the event that IAI, as Collateral Agent for EL,
seeks to dispose of any or all of the New Pledged CDI Shares pursuant to the
immediately preceding sentence, IAI, as Collateral Agent for EL, shall give to
the CDI Stockholders at least 10 days prior written notice of the time and place
of any public sale of the New Pledged CDI Shares or of the time and place after
which any private sale or any other intended disposition of the New Pledged CDI
Shares is to be made. Each of IAI, as Collateral Agent for EL, EL, the CDI
Stockholders and the other undersigned parties hereby acknowledge that 10 days
prior written notice of any such sale or disposition is reasonable notice.
8. If EL or IAI, as Collateral Agent for EL, executes upon the Pledged
Shares, pursuant to the security interest in the Pledged Shares granted to EL
pursuant to Section 5 of the Amendment, CDI shall, and the CDI Stockholders
shall and hereby agree to vote their CDI Common Stock and take all other actions
necessary to cause CDI to, issue to IAI, in its individual capacity, such number
of shares of CDI Common Stock as will result in the product of (i) the
percentage that the value of the CDI Common Stock owned by IAI in its individual
capacity is of the value of all of the outstanding CDI stock, (ii) the
percentage that the value of the INC common stock owned by CDI (not including
the INC common stock that is transferred to IAI, as Collateral Agent for EL) is
of the value of all of the outstanding INC stock (including the INC common stock
that is transferred to IAI, as Collateral Agent for EL) and (iii) the number of
shares of EL Common Stock owned by INC being equal before and after the transfer
of the Pledged Shares to EL or to IAI, as Collateral Agent for EL, and before
and after any sale of other disposition of the Pledged Shares.
9. Upon payment in full of all amounts of principal and accrued interest
due to EL under the Note, either as a result of payments by CDI on the Note or
by the CDI Stockholders under the Guaranty or out of the proceeds from the sale
of the Pledged Shares or the New Pledged CDI Shares, IAI, as Collateral Agent
for EL, shall deliver to CDI the Pledged Shares or such portion
<PAGE>
Israel Aircraft Industries Ltd.
As of December 15, 1997
Page 7
of the Pledged Shares as was not sold by IAI, as Collateral Agent for EL, and
shall deliver to the CDI Stockholders the New Pledged CDI Shares or such portion
of the New Pledged CDI Shares as was not sold by IAI, as Collateral Agent for
EL, and EL's security interest in The Pledged Shares granted under Section 5 of
the Amendment and this Agreement, and the security interest in the New Pledged
CDI Shares granted hereby, shall terminate.
10. In the event of a breach of any of the representations, warranties or
covenants of CDI in the Purchase Agreement (a "Breach"), CDI shall, and the CDI
Stockholders shall and hereby agree to vote their CDI Common Stock and take all
other actions necessary to cause CDI to, issue to IAI, in its individual
capacity, such number of shares of CDI Common Stock, as will result in IAI, in
its individual capacity, owning, after such issuance, both (i) a percentage of
the issued and outstanding capital stock of CDI that is equal to the percentage
of the CDI Common Stock that IAI owned in its individual capacity before such
issuance and (ii) additional CDI Common Stock having a value equal to the amount
of the "Loss", as defined in the next sentence, suffered by CDI or IAI, as the
case may be, as a result of the Breach. For purposes of the previous sentence, a
"Loss" shall mean any loss, liability, obligation, damage, cost, expense,
including, without limitation, attorneys' and accountants' fees and
disbursements and the costs and expenses of investigation of the Loss, and any
diminution in value of property, including any CDI stock owned by IAI, INC stock
owned by CDI or EL stock owned by INC arising out of, related to or incurred in
connection with a Breach. In the event that IAI incurs any out-of-pocket costs,
fees or expenses in connection with a Loss (an "Out-of-Pocket Loss"), (i) CDI
shall and hereby agrees to cause INC, and INC shall and hereby agrees, to sell
such number of shares of EL Common Stock as will provide INC with cash equal to
the amount of such Out-of-Pocket Loss and to distribute that cash to CDI and CDI
shall and hereby agrees to use such cash to fully reimburse IAI for and
indemnify and hold IAI harmless against such Out-of-Pocket Loss and (ii) CDI
shall, and the CDI Stockholders shall and hereby agree to vote their CDI Common
Stock and take all other actions necessary to cause CDI to, issue to IAI, in its
individual capacity, such number of shares of CDI Common Stock, as will result
in the product of (i) the percentage that the value of the CDI Common Stock
owned by IAI in its individual capacity is of the value of all of the
outstanding CDI stock, (ii) the percentage that the value of the
<PAGE>
Israel Aircraft Industries Ltd.
As of December 15, 1997
Page 8
INC common stock owned by CDI (not including the INC common stock that is
transferred to IAI, as Collateral Agent for EL) is of the value of all of the
outstanding INC stock (including the INC common stock that is transferred to
IAI, as Collateral Agent for EL) and (iii) the number of shares of EL Common
Stock owned by INC being equal before and after the sale of such shares of EL
Common Stock to reimburse IAI for such Out-of-Pocket Loss.
11. Except as specifically modified above or by the Shareholders
Agreement, all of the terms of the Amendment shall remain unchanged and in full
force and effect. Each of the undersigned and IAI shall cooperate and shall take
such further action and shall execute and deliver such further documents as may
be reasonably requested by any of the undersigned and IAI in order to carry out
the provisions and purposes of this Agreement. The rights and obligations of the
undersigned, of IAI and of IAI, as Collateral Agent for EL, hereunder may not be
assigned without the consent of all parties hereto. This letter Agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of law. This letter Agreement
may be executed in counterparts, each of which shall be deemed an original and
all of which taken together shall constitute one and the same instrument.
12. Nothing in this Agreement shall limit or impair the rights of EL and
of IAI, as Collateral Agent for EL, with respect to the Pledged Shares.
13. Notwithstanding anything to the contrary contained herein, the
undersigned and IAI, individually and as Collateral Agent for EL, agree that
their sole recourse against the CDI Stockholders in respect of the Guaranty and
the Guaranteed Obligations and otherwise hereunder shall be to the New Pledged
CDI Shares, and that they shall have no right to look to the CDI Stockholders or
any of their respective assets, other than the New Pledged CDI Shares, for the
satisfaction of the Guaranty and the Guaranteed Obligations and the CDI
Stockholders shall have no other personal obligation in respect of the Guaranty
and the Guaranteed Obligations and otherwise hereunder.
14. INC shall and hereby agrees to distribute 325,000 shares of EL Common
Stock to CDI for distribution by CDI to the holders of the Convertible Notes.
<PAGE>
Israel Aircraft Industries Ltd.
As of December 15, 1997
Page 9
Please sign this letter where indicated below to confirm the above
agreements.
Very truly yours,
CELL DIAGNOSTICS INC.
By: /s/ Robert K. Lifton
-----------------------------------
Name: Robert K. Lifton
Title: Chairman of the Board
MEDIS INC.
By: /s/ Robert K. Lifton
-----------------------------------
By:
-----------------------------------
MEDIS EL LTD.
By: /s/ Robert K. Lifton
-----------------------------------
By:
-----------------------------------
CDI STOCKHOLDERS:
/s/ Robert K. Lifton
---------------------------------------
Robert K. Lifton
/s/ Howard Weingrow
---------------------------------------
Howard Weingrow
CONFIRMED AND AGREED TO:
ISRAEL AIRCRAFT INDUSTRIES LTD.,
individually and as Collateral Agent
By: /s/ M. Keret
-----------------------------
M. Keret
By: /s/ N. Gilad
-----------------------------
N. Gilad
SUBSIDIARIES OF THE REGISTRANT
Medis Inc., a Delaware corporation - The Registrant directly owns 100% of the
common stock of Medis Inc.
CDS Distributor, Inc., a Delaware corporation - The Registrant directly owns
100% of the common stock of CDS Distributor, Inc.
Medis El Ltd., an Israel corporation - The Registrant, through Medis Inc., its
wholly-owned subsidiary, owns approximately 64% of the common equity of Medis El
Ltd. Medis El will become a wholly-owned subsidiary of Medis Inc. upon the
closing of the Registrant's exchange offer for all of Medis El's common equity
not beneficially owned by the Registrant, assuming all such common equity are
tendered.
More Energy Ltd., an Israel corporation - The Registrant indirectly owns
approximately 44.8% of the common equity of More Energy Ltd. Such indirect
ownership is through Medis El Ltd.'s 70% interest in More Energy Ltd.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 11, 1999 (except for Notes J-5 and M as to
which the date is July 26, 1999) accompanying the consolidated financial
statements of Medis Technologies Ltd. and Subsidiaries (formerly Cell
Diagnostics Inc. and Subsidiaries) contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
GRANT THORNTON LLP
New York, New York
July 26, 1999
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated March 29, 1999, accompanying the consolidated
financial statements of Medis El Ltd. and Subsidiary contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
Fahn, Kanne & Co
Certified Public Accountants (Isr.).
Tel Aviv, Israel
July 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
this Schedule contains summary financial information extracted from the
Consolidated financial statements of Medis Technologies Ltd. and Subsidiaries
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,155,000
<SECURITIES> 500,000
<RECEIVABLES> 66,000
<ALLOWANCES> 0
<INVENTORY> 405,000
<CURRENT-ASSETS> 4,215,000
<PP&E> 1,344,000
<DEPRECIATION> 484,000
<TOTAL-ASSETS> 14,755,000
<CURRENT-LIABILITIES> 679,000
<BONDS> 96,000
0
0
<COMMON> 94,000
<OTHER-SE> 12,312,000
<TOTAL-LIABILITY-AND-EQUITY> 14,755,000
<SALES> 8,000
<TOTAL-REVENUES> 8,000
<CGS> 3,000
<TOTAL-COSTS> 3,000
<OTHER-EXPENSES> 5,490,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,000
<INCOME-PRETAX> (4,418,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,418,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,418,000)
<EPS-BASIC> (.52)
<EPS-DILUTED> (.52)
</TABLE>
