SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from
_________________ to _________________
For the fiscal year ended: DECEMBER 31, 1995 Commission File Number: 0-13092
SPECTRASCIENCE, INC.
(Name of small business issuer in its charter)
MINNESOTA 41-1448837
(State of incorporation) (I.R.S. Employer Identification No.)
5909 BAKER ROAD, SUITE 580, MINNETONKA, MINNESOTA 55345
TEL: (612) 931-9000
(Address and telephone number of principal executive offices)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
$.25 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES _X_ NO ___
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its fiscal year ended December 31, 1995, were: $134,652
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 14, 1996 was approximately $20,534,836 based on the
average of the bid price of $6.50 and the ask price of $7.50 per share.
The number of shares of the Registrant's Common Stock outstanding on February
14, 1996 was 2,933,548.
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference herein: Portions of the (1) definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders and (2) Form S-3
Registration Statement, to be filed with the Securities and Exchange Commission
on or before February 28, 1996 are incorporated herein by reference in Part III.
Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_
SPECTRASCIENCE, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business............................................ 3
Item 2. Description of Properties.......................................... 8
Item 3. Legal Proceedings.................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders................ 9
PART II
Item 5. Market for Common Equity and Related Shareholder Matters........... 9
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................10
Item 7. Financial Statements and Supplemental Data.........................12
Item 8. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure...........................................12
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...............12
Item 10. Executive Compensation..............................................13
Item 11. Security Ownership of Certain Beneficial Owners and Management......15
Item 12. Certain Relationships and Related Transactions......................15
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....16
Signatures...................................................................18
SPECTRASCIENCE, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
GENERAL
SpectraScience, Inc. (the "Company" or "SpectraScience"), is a
market-driven company which utilizes its expertise in the underlying core
technologies of spectroscopy, fiber optics, computer software and hardware, and
minimally-invasive medical delivery systems to design, develop, manufacture and
market medical products for the diagnosis and facilitation of treatment of a
broad range of human diseases.
The Company was incorporated in the state of Minnesota on May 4, 1983
as GV Medical, Inc. Subsequently the Company changed its name to SpectraScience,
Inc. on October 16, 1992, which was approved by the shareholders on May 13,
1993.
The executive offices of the Company are located at 5909 Baker Road,
Suite 580, Minnetonka, Minnesota 55345. Its telephone number is (612) 931-9000
and its fax number is (612) 933-9090.
The Company declared a one-for-five reverse split of its common stock
effective June 30, 1994. As a result, the stated par value of the common stock
was increased from five cents ($.05) to twenty-five cents ($.25) per share and
the number of authorized shares of common stock was reduced from 20,000,000
shares to 4,000,000 shares (the "Common Stock"). The changes did not adversely
affect the rights or preferences of the holders of the Company's outstanding
Common Stock.
In 1995, the Company raised a net total of $5,491,625 through the
completion of two private placements of preferred stock ("Private Placements"),
including the conversion of $525,000 of non-interest bearing bridge loans
("Bridge Loans") outstanding. A total of 1,467,498 shares of preferred stock,
par value $1.00, which are convertible to Common Stock, were sold to investors,
and warrants to purchase 796,508 shares of Common Stock ("Warrants"), were
issued to investors, lenders and selling agents. The Warrants, if exercised,
will raise a total of $4,900,213 for the Company. (Please refer to Item 5(d)
"Other Securities" for additional details.)
Proceeds from the Private Placements will be applied to accelerate
product development, conduct clinical trials, conduct studies on alternative
medical applications, expand the scope of the Company's international and future
domestic sales and marketing activities and for general corporate purposes,
including working capital.
(b) BUSINESS OF THE COMPANY
The Company initially pursued the development, manufacture and sale
of laser-enhanced angioplasty catheter systems for the treatment of heart and
blood vessel disease through 1989, by focusing on its LASTAC(R) ("LASTAC")
system. In April 1990, the Company developed a new laser angioplasty system,
known as the Laser Angiosurgery System ("LAS"), in conjunction with
Massachusetts Institute of Technology ("MIT") and Cleveland Clinic Foundation
("CCF"), which utilized laser induced fluorescence spectroscopy for the
diagnosis of the nature of tissue, and a unique catheter which allowed selective
removal of only diseased tissue. In 1992, the Company changed its name to
SpectraScience, Inc. and refocused its development efforts on a new diagnostic
product for cardiovascular applications, the Spectroscopic Guidewire(TM) System
("SGS"). The Company is also currently developing a similar product for cancer
detection, called the Optical Biopsy(TM) System ("OBS").
PRODUCTS AND MARKETS
Both the SGS and OBS (the "System(s)") are comprised of three
components, two of which are the Spectroscopic Diagnostic System console (the
"Console") and the proprietary system software (the "Software").
The third component of the SGS is a disposable optical core
Spectroscopic Guidewire (the "Guidewire") which also functions both mechanically
as a conventional coronary guidewire and optically in the transmission and
collection of light energy when connected to the Console.
The third component of the OBS is a disposable optical biopsy forceps
(the "Forceps") utilized in non-cardiovascular applications, instead of the
Guidewire.
The target markets for the Systems are as follows:
(a) The SGS is currently targeted for the detection of intracoronary thrombus
and differentiation of atherosclerotic plaque.
The primary market for this application is hospitals with
cardiovascular programs, both in the United States and overseas. Currently the
market size for all percutaneous transluminal coronary angioplasty ("PTCA")
procedures worldwide is estimated to be about 950,000 procedures worldwide, or
$1.3 billion. Slightly more than half of these procedures are performed at about
1,000 centers in the United States, 200 of which perform about 65% of the total
procedures in the United States. The number of PTCA procedures is growing
rapidly with the introduction of intracoronary stents that have been found to
reduce the rate of restenosis (i.e. reestablishment of blockage) in PTCA
procedures. The Company believes that the SGS would be able to provide
additional knowledge of the composition of plaque and detect the presence of
thrombus which may help the cardiologist select the most appropriate
cost-effective lesion-specific angioplasty modality. In addition, the use of the
SGS may offer significant benefits to the patient in terms of maximizing success
rate, minimizing complications and improving long-term patient outcomes.
(b) The OBS is currently targeted for the detection and differentiation of
cancerous, pre-cancerous and healthy tissues.
The Company will initially target the detection and differentiation of
cancer in the gastro-intestinal tract using minimally invasive endoscopic and
laparoscopic techniques. There are approximately 165,000 new cases of
gastro-intestinal cancer detected annually. The current method of detection is
through biopsies, which entails the insertion of an endoscope with a pair of
biopsy forceps, to harvest tissue samples to be analyzed in the pathology
laboratory. Both the physician and patient have to wait approximately two weeks
to obtain confirmation of results. The Company believes that the OBS could
potentially offer immediate feedback to the doctor with this application thereby
possibly reducing cost in biopsies and waiting time. The annual expenditure on
cancer screenings has been estimated to be between $3-$4 billion annually in the
United States alone. These include Pap smears, mammograms and colorectal exams.
Other areas that are also targeted by the Company include the detection of
cancer in the lung, bladder, prostate, and cervix. Direct annual expenditures in
the treatment of lung cancer and prostate cancer are approximately $5 billion.
DISTRIBUTION, MARKETING AND CUSTOMERS
The Company intends to build an in-house marketing department to
commercialize the Company's products worldwide and to provide clinical education
to physicians, nurses, and laboratory technicians. This department will consist
of marketing and clinical education personnel.
For cardiovascular applications in international markets, marketing and
distribution will be serviced by a strong strategic partner. To this end, in
August 1994, the Company and SCIMED Life Systems, Inc. ("SCIMED"), a company
which became a wholly-owned subsidiary of Boston Scientific Corporation
(NYSE:BSX) in February 1995, signed a three-year exclusive international
distribution agreement to distribute the SGS. SCIMED and Boston Scientific
Corporation ("BSC") are world leaders in the field of angioplasty and have a
strong subsidiary network throughout the world. There is no assurance that
SCIMED will be able to perform its role successfully. The Company's product is
one of many products that SCIMED or BSC, sells worldwide.
On August 14, 1995, the Company received the European Community
Certificate of Conformity from the TUV Product Service GmbH, Munich, Germany,
for the SGS. The TUV Product Service GmbH is a designated Competent Body in
accordance with the Council Directive on the harmonization of the laws of the
member countries of the European Community. This enabled the Company to put the
Conformite Europeane ("CE") mark on the SGS systems that the Company sells in
Europe. The CE mark is recognized worldwide as an assurance of product quality
and the Company believes that it will enhance market penetration in the European
markets.
For cardiovascular applications in the United States, the Company will
focus its marketing efforts on approximately 200 interventional cardiology
centers that perform a majority of the coronary angioplasty procedures. The
Company is currently in negotiations with possible strategic partners for the
distribution of the Company's products in the United States, once future
regulatory approval is obtained.
The Company is currently exploring various strategies for the
distribution of the Company's products worldwide for non-cardiovascular
purposes. These strategies may include forming the Company's own sales
organization or selling through distributors in various territories or a
combination of both of these strategies.
COMPETITION
The Company has no direct competitors in cardiovascular spectroscopic
diagnostics. While there are no similar products, the potentially competing
technologies presently in the cardiovascular market are intravascular ultrasound
imaging ("IVUS") and angioscopy. Companies currently marketing products
utilizing IVUS technology are Cardiovascular Imaging Systems/CVIS (Sunnyvale,
California), a wholly-owned subsidiary of BSC, Endosonics (Pleasanton,
California) and Hewlett Packard (Milpitas, California). Companies marketing
products based upon angioscopy technology are Baxter-Edwards (Irvine,
California), Olympus (Rye, New York) and A.D. Krauth (Germany).
Several prominent universities and medical institutions have basic
research projects involving "in-vivo" spectroscopic diagnostics. There is a
growing interest in the application of spectroscopic diagnostics for other
medical specialties, though few products, if any, have been commercialized. The
Company believes that Mediscience (New Jersey), Xillix (Canada) and Lifespex
(Texas) are development stage companies utilizing spectroscopic diagnostic
techniques for the identification of cancerous tissue.
MANUFACTURING AND SOURCES OF SUPPLY
The SGS is comprised of three components: the Console, the Software,
and the Guidewire. The OBS is comprised of the Console, the Software, and the
Forceps.
The basic assembly of the Console is completed by an outside
contractor. The Software is developed in-house in conjunction with outside
consultants. The Guidewire is produced by another contract manufacturer that is
experienced and specialized in the manufacture of medical guidewires and related
products. The Forceps is still in the design and pilot stage. The Company then
assembles certain proprietary components, inspects and tests the completed
Systems at the Company's facility.
There are risks involved in having sole sources of supply for the basic
assembly of the Console, and also the manufacturing of the Guidewire. While the
performance of these manufacturers have been satisfactory to-date, there is no
assurance that they will continue to perform up to the Company's high standards,
meet governmental regulations and handle labor unrest, if any. Any shortfalls in
the ability of these contract manufacturers to meet standards and regulations
could severely impact the Company's ability to test and sell its products.
The Company purchases many components from various suppliers that are
either standard components or are built to the Company's proprietary
specifications. In addition, the Company contracts with third parties to perform
certain manufacturing processes. Most of the purchased components and processes
are available from more than one vendor. Any supply interruption would have a
material adverse effect on the Company's ability to sell its products and could
have an adverse effect on the Company's business, financial condition and
results of operations. Although the Company is in the process of identifying
alternative vendors, the qualification of additional or replacement vendors for
certain components or services is a lengthy process, especially in the heavily
regulated medical device industry.
PATENTS
The Company has 8 United States and 16 foreign patents issued in 1994.
In 1995, the Company was issued 2 new patents in the United States, entitled
"Guidewire Catheter and Apparatus for Diagnostic Imaging" (Patent No. 5383467)
and "Method of Diagnosing Tissue with Guidewire" (Patent No. 5439000). The
Company expects to file additional patent applications in 1996. There is no
assurance that any additional patents will be issued, or if issued, that such
patents will afford the Company any competitive advantage.
In addition to the above, the Company also has an exclusive licensing
agreement with MIT for 31 issued patents and pending applications, relative to
the use of spectroscopy for the diagnosis of atherosclerotic cardiovascular
disease. This licensing agreement runs for the life of the patents and includes
technology developed under National Institute of Health funding.
The Company also has a licensing arrangement with the Massachusetts
General Hospital's Wellman Laboratory of Photomedicine ("Wellman Lab"). Any
patents that result from the Wellman Lab's research on cancer detection will be
licensed exclusively to the Company. There are currently 2 pending patent
applications in this area.
In 1989, the Company entered into a licensing agreement with the Patlex
Corporation ("Patlex"), which holds a number of laser patents granted in the
name of Mr. Gordon Gould, which involves the payment to Patlex of a nominal
license fee. Currently, the Company's Systems do not utilize any components or
technology that would entail the payment of any license fees to Patlex.
The Company believes its patent position to be strong and will assist
the Company in its research and development and marketing efforts.
INDUSTRY ECONOMICS
In the United States, the market for the Company's products are medical
institutions. The health care services that they provide to their patients are
paid by various third-party payers, such as Medicare, Medicaid, other government
programs and private insurance plans. Medicare and Medicaid determine whether a
particular procedure should be covered. Hospitals are reimbursed for medical
procedures at a fixed rate according to Diagnosis Related Groups ("DRG's")
established by the Health Care Financing Administration ("HCFA"). The fixed rate
of reimbursement is based on the procedure performed and is typically unrelated
to the specific devices used in that procedure. If a procedure is not covered by
a DRG, payers may deny reimbursement. In addition, payers may deny reimbursement
if they determine that the device used in a treatment was unnecessary,
inappropriate, experimental, used for a non-approved indication, or not
cost-effective.
Currently, there are no established DRG's covering spectroscopic
diagnostic procedures for either cardiovascular or cancer detection procedures.
Although reimbursement for PTCA procedures is covered under a DRG, the
amount of reimbursement is fixed. Therefore, the profit relating to the
procedure would be reduced to the extent the physician performs additional
procedures such as spectroscopic diagnostics. Nevertheless, the additional
information provided by the SGS may help physicians select the appropriate
treatment method, potentially reducing the number of therapeutic catheters used
during a PTCA procedure which would produce a more effective result.
Accordingly, physicians must determine that the clinical benefits of the SGS
justify the additional cost.
Governmental prospective reimbursement programs, which provide fixed
reimbursement based on DRG's, provide economic incentives for health care
institutions to reduce operating costs by being more efficient and productive.
For every illness to be treated or procedure to be performed, only an average
rate will be reimbursed. Therefore, the more cases that can be treated below the
designated rate with less major surgery and shorter hospitals stays, the higher
the level of profitability.
Capital costs for medical equipment purchased by hospitals are
reimbursed separately from DRG payments. Therefore, the market for the Company's
products could be adversely affected by changes in governmental and private
third-party payers' policies or by federal legislation that reduces
reimbursements under the capital cost pass through systems for the Medicare
program for capital equipment, such as the Company's Systems.
Certain trends are emerging in the medical device industry. These are
outlined below:
(a) Emphasis on lower cost of medical procedures.
This has led to increasing use of capitation pricing (i.e. fixed price
for one procedure, rather than the number of disposables or hospital supplies
used), and consignment sales from many hospital suppliers. It is possible that
this trend could accelerate and thereby affect the Company's selling strategies.
(b) More strident views on Medicare reimbursements.
This could lead to cuts in reimbursements for new procedures or
experimental procedures, which would affect the ability of smaller companies
with new technologies, like SpectraScience, to compete with larger established
firms.
(c) Emergence of dominant vendors to hospitals.
There is a trend towards consolidations in the medical device industry.
It appears that the ability of vendors to offer a range of products is important
to gain entry to hospitals, whether it be competition for shelf space or on the
basis of price. The spate of acquisitions by BSC exemplifies this trend. BSC in
1995 alone has acquired SCIMED, CVIS Corp, Meadox, and Heart Technology. The
pending acquisition of Cordis by Johnson & Johnson, which currently has the most
widely accepted intravascular stent in the market, is another example.
(d) Food and Drug Administration ("FDA") emphasis on clinical safety as well as
economic utility.
It is possible that this could lead to less advances in innovative
developmental technologies which will need to prove economic advantages
up-front.
(e) Foreign governmental issues.
These could potentially get more difficult, again with the emphasis on
costs and reimbursement levels. Other regulations such as import tariffs, duties
and taxes could severely impact the Company's ability to compete and enter those
foreign markets.
GOVERNMENT REGULATIONS
The Company's development, manufacturing and marketing activities are
subject to regulation by numerous governmental authorities in the United States
and other countries, particularly regarding safety and efficacy. In the United
States, medical device products are subject to approval and review by the Food
and Drug Administration ("FDA"). The Food, Drug, and Cosmetic Act, as amended by
the Safe Medical Devices Act of 1990, and modified by the Medical Device
Amendments of 1992, the Public Health Service Act and other federal statutes and
regulations, govern or influence the testing, manufacture, safety, labeling,
storage, record keeping, approval, advertising and promotion of such products.
In order to obtain FDA approval of a new medical device, the Company
must submit either a pre-market notification (510(k)) or Pre-Market Approval
("PMA") application. Receipt of 510(k) clearance normally takes at least three
months and may require the submission of clinical safety and efficacy data.
For cardiovascular applications, the SGS will require clinical trials
on humans to prove the safety and efficacy of the product. The Company received
an Investigational Device Exemption ("IDE") from the FDA on December 5, 1995,
which allowed the Company to begin its clinical trials at two clinical sites
with 15 patients each. These clinical trials began January 1996 and will require
approximately three months to complete.
For cancer detection, the Company will be starting clinical testing of
the OBS before the end of the second quarter 1996 at Wellman Lab.
If the FDA determines that the SGS is a "new" system (as opposed to
being "substantially equivalent" to what already existed in the market
pre-1976), then it will require a more rigorous review and approval process
through a full PMA application. The full PMA review and approval process
generally takes more than a year to complete from the date of filing and there
can be no assurance if or when a PMA may be approved.
There can be no assurance that FDA clearance for these products, any
future product or any modification of an existing product will be granted, or
that the process will not be unduly lengthy.
Clinical testing is also taking place in Europe. International sales of
the Company's products are subject to regulatory agency requirements of each
country. The regulatory review process varies from country to country. There can
be no assurance, however, that such approvals will be obtained on a timely basis
or at all.
The Company is required to register as a medical device manufacturer
with the FDA and state agencies. As such, the Company and/or its contract
manufacturers are inspected on a routine basis by the FDA for compliance with
the FDA's Good Manufacturing Practices ("GMP") regulations and various FDA
requirements for labeling. These regulations require that the Company
manufacture its products and maintain its documents in a prescribed manner with
respect to manufacturing, testing and control activities. One of the Company's
contract manufacturers was audited by the FDA in 1995 and no material
deficiencies were noted. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company believes that it complies in all material
respects with such applicable regulations; however, failure to comply could
subject the Company to fines or other enforcement actions.
The Company is also subject to other federal, state and local
regulations regarding environmental protection and hazardous substance controls,
among others. To-date, the costs or effects of compliance with federal, state
and local environmental laws are routine and customary for a development stage
medical device company.
PRODUCT RESEARCH AND DEVELOPMENT
During the years ended December 31, 1995, 1994 and 1993, the Company's
research and development expenditures were $660,504, $869,670 and $1,363,795,
respectively.
The Company's product research and development is focused on finalizing
the design of the Console that incorporates the Guidewire, and to continue
clinical research and gain FDA regulatory approval in the United States. As the
Company is seeking regulatory approval of the first generation SGS, it is
anticipated that the Company will continue to enhance the Systems, focusing on
other medical applications. The Company will also continue research and
development in tissue recognition algorithms and analysis software for
diagnostic spectroscopy in order to further advance the technology and enhance
the effectiveness of its innovative products.
EMPLOYEES
As of December 31, 1995, the Company's full-time work force consisted
of seven employees; four of whom were engaged in product design and development
and manufacturing, and the remaining three were engaged in marketing, management
and general finance and administration. The Company also relies on external
consultants in the areas of regulatory, software development and others. The
Company has been successful in attracting and retaining qualified technical
personnel. There is no assurance, however, that the Company will be able to
attract or retain the skilled employees it requires for profitable operations.
The Company is not subject to any collective bargaining agreement and believes
that its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's offices are located at 5909 Baker Road, Suite 580,
Minnetonka, Minnesota 55345. The facility consists of approximately 2,940 square
feet of office, laboratory, quality testing, and warehouse space. The lease
provides for monthly rental payments of $3,011 including a pro rata share of
operating expenses and real estate taxes. The lease expires in August, 1996. The
Company maintains adequate levels of standard property and casualty insurance
coverage on its property.
The Company is seeking additional adjacent space to accommodate normal
expansion, failing which the Company might be forced to move. The Company
anticipates that it will need a total of about 6,000 square feet.
ITEM 3. LEGAL PROCEEDINGS.
There is no current, pending or on-going litigation which involves the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the security holders since
the 1995 annual meeting.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
(a) MARKET INFORMATION
The Common Stock had been traded in the over-the-counter ("OTC") market
and quoted on the National Association of Security Dealers Automated Quotation
System ("NASDAQ") Small-Cap Market since November 13, 1984. In September 1992,
the stock symbol was changed from "GVMI" to "SPSC". On March 21, 1994, the
Company's stock was delisted by NASDAQ for a two-week period. It was relisted
until June 9, 1994, and then was again delisted after NASDAQ denied the
Company's request for a further extension to the minimum bid price exception
previously granted. The stock symbol was then changed to "SPSI". The Common
Stock is currently being traded on the OTC Bulletin Board. The Company intends
to seek relisting on NASDAQ in 1996.
On June 30, 1994, the Company had a 1 for 5 reverse stock split. The
following table sets forth (unadjusted for the reverse split in the quarters
ending March 31 and June 30, 1994), for the periods indicated, high and low bid
and ask prices as reported by NASDAQ and OTC Bulletin Board and also prices that
the Company obtained from third party sources, e.g. MetroData Services. To the
best of its knowledge, the Company believes that the information obtained from
these sources to be accurate.
<TABLE>
<CAPTION>
STOCK PRICES(1): 1995 1994
(in $ per share) High Bid Low Bid High Ask Low Ask High Bid Low Bid High Ask Low Ask
Quarter Ended
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31(2) 3.125 2 3.3125 2.25 0.75 0.125 1 0.625
June 30(2) 4.875 2.9375 5.25 3.125 0.625 0.0625 1 0.3125
September 30 6.125 3.5 6.375 4.25 3.75 0.375 4 0.625
December 31 7.625 4.625 8.375 5.125 3.5 1.625 4.125 1.875
</TABLE>
(1) The prices of the Company's stock reflect inter-dealer prices and do
not necessarily reflect the prices of actual transactions. The bid
prices reflect prices without retail mark-up, mark-down or commission.
(2) On June 30, 1994, the Company had a 1 for 5 reverse stock split. Stock
prices in the quarters ending March 31 and June 30, 1994, were not
adjusted to reflect this split.
On February 14, 1996, the closing bid and ask prices quoted for the
Common Stock were $6.50 and $7.50, respectively.
(b) HOLDERS
On February 14, 1996, there were 720 holders of record of 2,933,548
shares of the Common Stock, excluding shareholders that are registered in
"street-names".
(c) DIVIDENDS
Since its incorporation, the Company has not paid any dividends, and no
dividend payments are contemplated in the foreseeable future. The Company will
retain any earnings it may generate to provide for the operation and expansion
of its business.
(d) OTHER SECURITIES
On September 30, 1994, the Company raised a total of $300,000 in Bridge
Loans. Lenders were given five-year Warrants to purchase 100,000 shares of
Common Stock exercisable at $3.00 per share. In the first fiscal quarter of
1995, the Company raised $225,000 in additional Bridge Loans with the same
terms. This group of lenders was given five-year Warrants to purchase 74,998
shares of Common Stock exercisable at $3.00 per share. The Bridge Loans were
converted to preferred stock in the Private Placement which closed on June 29,
1995. The total number of Warrants issued to Lenders were 174,998, which if
exercised would raise an additional $524,994 for the Company.
Two Private Placements of convertible preferred stock with attached
Warrants were completed in 1995. Neither the shares of preferred stock nor the
Warrants are intended for trading in any official exchanges.
The first Private Placement, which closed on June 29, 1995, involved
the placement with qualified investors of 674,998 shares of Series A Preferred
Stock ("Preferred A"), par value $1.00, at $3.00 per share. A net amount of
$1,965,000 was raised. Of this amount, $525,000 was from the conversion of
Bridge Loans on March 31, 1995. Preferred A shares are non-voting, do not yield
dividends or interests, and are convertible to an equivalent number of shares of
Common Stock, after March 31, 1996, but generally one year from the date of
receipt of funds. Each Preferred A share was issued with a three-year Warrant to
buy one-third share of Common Stock at a price of $5.00 per share. A total of
225,000 Warrants was issued to investors in this Private Placement, which if
exercised would raise an additional $1,125,000 for the Company.
The second Private Placement, which closed on December 28, 1995,
involved the placement with qualified investors of 792,500 shares of Series B
Preferred Stock ("Preferred B"), par value $1.00, at $5.00 per share. A net
amount of $3,526,625 was raised. Preferred B shares are non-voting, do not yield
dividends, unless the holders of Common Stock fail to authorize sufficient
additional shares of Common Stock for the conversion of the Preferred B, and are
convertible to an equivalent number of shares of Common Stock on or after
December 28, 1996. Each Preferred B share was issued with a three-year Warrant
to buy one-third share of Common Stock at a price of $9.50 per share. A total of
264,175 Warrants was issued to investors in this Private Placement, which if
exercised would raise an additional $2,509,663 for the Company.
In addition, the selling agent for Preferred A, R.J. Steichen & Co.,
received two Warrants: a five-year Warrant to purchase 20,000 shares of Common
Stock at $3.00 per share and a three-year Warrant to purchase 6,667 shares of
Common Stock at $5.00 per share. The selling agent for Preferred B, Miller,
Johnson & Kuehn, received a five-year Warrant to purchase 79,250 shares of
Common Stock at $5.00 per share and a conditional five-year Warrant to purchase
up to an additional 26,418 shares of Common Stock at $9.50 per share. If all the
Warrants issued to the selling agents were exercised, it would raise another
$740,556 for the Company.
In all, there are a total of 1,467,498 preferred shares and 796,508
Warrants for the purchase of Common Stock outstanding.
As of February 14, 1996, there were 842,072 stock options outstanding,
77.0% of which were held by employees.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and footnotes which
follow.
PLAN OF OPERATION
In 1995, the Company raised a net total of $5,491,625 through the
completion of two Private Placements, including the conversion of Bridge Loans
outstanding. Proceeds from these Private Placements will be applied to
accelerate product development, conduct clinical trials, conduct studies on
alternative medical applications, expand the scope of the Company's
international and future domestic sales and marketing activities and for general
corporate purposes, including working capital.
The Company believes that this cash will last about two years, and thus
does not believe it will have to raise additional funds in the next twelve
months.
Due to acceleration of clinical studies and product development, the
Company expects to lease approximately 3,000 square feet of additional space. As
the current market for commercial space is tight, it is anticipated that the
Company will have to pay lease rates at least comparable to its current space,
or slightly higher.
The Company anticipates adding two individuals, one with strong
disposable medical products research and development background and the other
with strong spectroscopy, software and systems development background, to
spearhead its development efforts. It is possible that the Company might add an
additional two to three people in manufacturing, probably one manufacturing
engineer and the other(s) technician(s), if it is beneficial for the Company to
bring certain aspects of the manufacturing process, currently contracted by
outside vendors, in-house.
RESULTS OF OPERATIONS
Revenue
Gross revenue for the year ended December 31, 1995 was $134,652. This
compares favorably with $0 for 1994, and $35,002 in 1993.
Research and Development
Research and development expenses in 1995 totaled $660,504 compared
with $869,670 1994 and $1,363,795 in 1993. The reduction in research and
development expenses primarily resulted from the reduction in the engineering
prototype materials used in the development of the SGS and payroll expenses due
to fewer people employed in research and development activities.
In 1995, the Company signed a two-year research and development
agreement with Wellman Lab, to commence research on the detection and
differentiation of cancerous, pre-cancerous and healthy tissues. This agreement
called for the payment of approximately $50,000 per quarter to Wellman Lab. A
total of approximately $150,000 was expensed in 1995. The agreement expires in
March 1997.
In the fourth quarter of 1993, the Company reduced the license fees
paid to MIT by renegotiating its patent licensing agreement, which allowed the
Company to retain exclusive rights to the MIT patents. The license fees paid to
MIT annually is currently $50,000 per year until 2003, after which it decreases
to $30,000 per year until the expiration of the licensed patents. The Company
also realized additional expense savings during the year with the elimination of
eight employees and lower purchases of materials for engineering prototypes.
Selling, General & Administrative Expenses
Selling, general and administrative expenses in 1995 totaled $711,753,
compared with $701,278 in 1994, and $1,119,793 in 1993. The slight increase in
1995 was the result of the hiring of the Chief Financial Officer, who was
necessary to relieve the President in administrative matters, and enable the
President to focus on strategic business development, clinical studies and
international marketing. Nevertheless, the expenses in both 1995 and 1994 were
lower than 1993 because of a strong effort to curb costs through lower salary
expense resulting from fewer employees, reduced building rent due to significant
office space down sizing, and a lower asset base following the sale of unneeded
assets.
Interest and Other Income
Interest and other income was $16,608 in 1995 compared to $66,468 in
1994, and $181,897 in 1993, principally due to a reduction in interest income
resulting from a decrease in cash balances coupled with a lower interest rate
environment. This was partially offset by a gain on the sale of unneeded assets.
Net Losses
As a result of the above factors, the Company reported a net loss for
the year ended December 31, 1995 of $1,345,910 compared to $1,504,480 in 1994
and $2,443,006 in 1993. The loss per share was $.47 in 1995, $.55 in 1994 and
$.93 in 1993 (adjusted for splits).
LIQUIDITY AND SOURCES OF CAPITAL
On December 31, 1995, the working capital (current assets less current
liabilities) of the Company was $4,231,371. The positive working capital
position compares favorably to a deficit of $280,271 in 1994. The increased
working capital in 1995 resulted from the Private Placements in 1995 (previously
discussed) and the conversion of Bridge Loans outstanding.
Net cash used in operating activities was $1,399,518 in 1995, compared
with $1,593,130 in 1994 and $2,826,073 in 1993. This was achieved through a
combination of reduced operating expenses and asset levels. An increase in
accounts receivable and inventories in 1995 partially offset this result. Even
though net cash used in operating activities decreased from 1993 to 1994, it was
offset by a rapid increase in inventories which grew from $-0- to more than
$200,000.
Net cash (used in) provided by investing activities was ($107,079) in
1995, $25,742 in 1994 and $60,614 in 1993. The positive cash generated in both
1994 and 1993 was due to the sale of unneeded assets for $56,540 in 1994 and
$78,609 in 1993. The expenditure for the purchase of fixed assets in 1995
reflected acquisition of more current equipment needed for research and
development purposes.
Net cash provided by financing activities was $5,571,625 in 1995,
compared to $375,000 in 1994 and $3,230,814 in 1993. The increase in 1995 was
provided primarily in the Private Placements, and the exercise of stock options.
The 1995 amount only included $225,000 of the $525,000 Bridge Loans converted to
Preferred A, since $300,000 of the Bridge Loans was provided in 1994.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Reference is made to the Report of Independent Auditors and Financial
Statements included in the Index to Financial Statements at Page F of this
Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and executive officers of the Company and their ages as
of February 14, 1996 are as follows:
<TABLE>
<CAPTION>
Served as Officer or
Name Age Term Title Director Since
<S> <C> <C> <C> <C>
Brian T. McMahon(1) 42 1995/96 President, Chief Executive Officer and 1993
Director
Ching-Meng Chew(2) 39 1995/96 Vice President Finance and 1995
Administration, Chief Financial Officer,
Treasurer, Secretary
Henry M. Holterman(3) 40 1995/96 Director 1992
Nathaniel S. Thayer(4) 71 1995/96 Director 1992
</TABLE>
(1) BRIAN T. MCMAHON was elected Director, President and Chief Executive
Officer in May, 1993, and assumed the position of Acting Chairman of
the Board on May 27, 1994. Mr. McMahon joined the Company in the
capacity of Executive Vice President and Chief Operating Officer in
July, 1992, and prior to this, served as an independent consultant to
the Company since May, 1992. Mr. McMahon held a succession of
marketing, business development and sales management positions during a
10-year career with a prominent medical device company, SCIMED, his
last position there being the Director of Marketing and Business
Development.
(2) CHING-MENG CHEW joined the Company on August 30, 1995 as the Vice
President of Finance and Administration. He also holds the titles of
Chief Financial Officer, Treasurer and Secretary of the Company. Prior
to joining the Company, Mr. Chew served SCIMED for three years, his
last position as Treasurer. Prior to SCIMED, his background included
eight years with Norwest Bank Minnesota, N.A., his last position being
Vice President, International Banking, and a Master of Business
Administration from the Wharton School, University of Pennsylvania.
(3) HENRY M. HOLTERMAN is Managing Director of Reggeborgh Beheer BV, a
company located in Netherlands that invests in companies and owns
property projects generally located in Netherlands. Mr. Holterman is a
chartered accountant, and from 1987 to 1991, was group controller for
Transport Development Group PLC and the Dutch Holding Company ETOM NV.
From 1984 to 1988, Mr. Holterman was the President of the Board of
Directors of LETO Recycling, a Swedish-Dutch company involved in
recycling chemical waste.
(4) NATHANIEL S. THAYER has been a partner in the law firm of Blais
Cunningham & Crowe Chester since 1969.
All directors hold office until the next annual meeting of the
shareholders and until their successors have been duly elected and qualified.
The executive officers of the Company hold office at the discretion of the board
of directors.
DISCLOSURE OF SECTION 16(a) FILINGS
The Company's officers and directors and persons who are beneficial
owners of more than 10% of the Common Stock ("10% Shareholders") are required to
file reports of their holdings and transactions in the Common Stock with the
Securities and Exchange Commission and to furnish the Company with copies of
such reports. Based solely upon its review of the copies the Company has
received or upon written representations from certain reporting persons, the
Company believes that no such persons failed to file any of such forms on a
timely basis or any of the forms required by Section 16(a) during the most
recent fiscal year. In addition, the Company believes that no filings on Form 5
were required for such persons. The Company believes that during the year ended
December 31, 1995, all Section 16(a) filing requirements applicable to its
officers, directors, and 10% Shareholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
CASH COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the Chief Executive Officer ("CEO")and
each other officer ("Named Executive(s)") of the Company who received in excess
of $100,000 cash compensation paid for the year ended December 31, 1995. The
Company has adopted a 1991 Stock Option Plan, As Amended (the "Plan") to succeed
the stock option plans adopted in 1983 and 1988 which had expired. The Company
has not granted any restrictive stock awards or stock appreciation rights or
made any long-term incentive plan payouts.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
Other Annual Restricted Securities
Compen- Stock Underlying LTIP All Other
Name and Salary Bonus sation Award(s) Options/ Payments Compensation
Principal Position Year ($) ($) ($) ($) SAR's (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian T. McMahon, 1995 $146,490 N/A $8,580(2) N/A 150,000(6) N/A N/A
President and CEO(1) 1994 $110,000 N/A $20,976(3) N/A 350,000(5) N/A N/A
1993 $104,494 N/A N/A(4) N/A 150,000(5) N/A N/A
</TABLE>
(1) Mr. McMahon was elected President, Chief Executive Officer and Director
of the Company on May 13, 1993, and assumed the position of Acting
Chairman of the Board on May 27, 1994. Prior to his election, Mr.
McMahon was the Company's Executive Vice President and Chief Operating
Officer since July 1992.
(2) This included a $5,400 automobile allowance, $2,838 medical benefit,
and other fringe benefits.
(3) On June 30, 1994, the Company had a 1 for 5 reverse stock split which
had the effect of reducing the number of stock options granted while
increasing the exercise price by a factor of five. On October 14, 1994,
Mr. McMahon's 50,000 shares of non-qualified pre-split options were
canceled and reissued for 50,000 post-split shares at $2.50. The fair
market value at the date of reissuance was $2.75 which resulted in
$12,500 (50,000 shares x $.25) of compensation expense. Additional
perquisites include a $5,400 automobile allowance.
(4) The aggregate amount of perquisites and other personal benefits,
securities, or property is less than $50,000 or 10% of the total of
annual salary and bonus.
(5) In 1992, Mr. McMahon received incentive stock options for 150,000
shares and non-qualified stock options for 50,000 shares under the Plan
expiring in five years. In 1993, Mr. McMahon received incentive stock
options for an additional 150,000 shares expiring in five years. On
June 30, 1994, the Company had a 1 for 5 reverse stock split. On
October 14, 1994, these stock options were canceled and replaced with
non-qualified stock options for 50,000 shares and incentive stock
options for 300,000 shares at $2.50 and $3.00 per share, respectively.
(6) In 1995, Mr. McMahon received incentive stock options for 150,000
shares. On December 31, 1995, the total number of stock options that
Mr. McMahon held was 500,000. On January 24, 1996, Mr. McMahon received
an additional incentive stock option for 50,000 shares, expiring in ten
years, vesting one-third per year over 3 years, at an exercise price of
$7.00 per share. The total number of stock options that Mr. McMahon
held on February 14, 1996 was 550,000.
STOCK OPTIONS
The Company adopted the Plan to succeed the stock option plans adopted
in 1983 and 1988 which have expired. Management intends to seek approval from
shareholders to increase the number of shares available to be issued under the
Plan and also ratify other changes to the plan at the next shareholder meeting.
The following table sets forth information concerning individual grants
of stock options made to Named Executive(s) having cash compensation in excess
of $100,000 during the year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
% of Total Market
Options Granted Exercise Price on
Name and Options to Employees or Base Price Date of Grant Expiration
Principal Position Granted # in Fiscal Year (U.S. $/Sh) (U.S. $/Sh) Date
<S> <C> <C> <C> <C> <C>
Brian T. McMahon 150,000(1) 62.5% $3.00 $3.00 April 12, 2000
</TABLE>
(1) The five-year incentive stock options were granted pursuant to the
Plan. One third of the options vest on each anniversary date from the
date of grant, so that all the options are vested by the third
anniversary date.
OPTION VALUE TABLE
The following table sets forth certain information concerning
individual exercises of stock options during the year ended December 31, 1995
and the value of unexercised stock options as of December 31, 1995 for Mr.
McMahon. No shares were acquired through the exercise of options by Mr. McMahon
during 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of unexercised Value of unexercised
Shares options/SARs at FY-end (#) in-the-money options/SARs at
acquired on Value exercisable/ FY-end ($) exercisable/
Name exercise (#) realized ($) unexercisable unexercisable(1)
<S> <C> <C> <C> <C>
Brian T. McMahon N/A N/A 350,000/ $1,468,750/
150,000 $618,750
</TABLE>
(1) Upon the exercise of an option, the Optionee must pay the exercise
price in cash or stock. For the purpose of evaluating the value of the
stock options, the fair market value would be the closing bid price,
which is the realistic price at which the Common Stock can be readily
sold. Stock options are "in-the-money" if the closing bid price for the
Common Stock is greater than the exercise price of the stock options.
The closing bid price for the Common Stock on December 29, 1995 (last
business day of the fiscal year) was $7.125 per share. The value of the
options is calculated by taking the difference between the exercise
price and the closing bid price, and multiplying this difference by the
number of option shares.
COMPENSATION OF DIRECTORS
Non-employee directors are paid $500 for each Board or Committee
meeting that the directors attend. Directors are also reimbursed for
out-of-pocket expenses.
Non-employee directors are eligible to participate in the Plan. Under
the Plan, non-employee directors received options at fair market value to
purchase 25,000 shares when first elected to serve on the Board and 3,000 stock
options annually thereafter upon re-election. Options granted to non-employee
directors are ten-year options and vest in their entirety, six months after
grant date. The annual grant to non-employee directors was increased to 5,000 at
an October 1995 Board meeting. Shareholder ratification will be sought in the
upcoming annual meeting for this increase.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of February 14, 1996, by: (i)
persons known to the Company to be beneficial owners of more than 5% of the
Common Stock; (ii) each of the Company's directors and Named Executives; and
(iii) the officers and directors of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares. The number of shares of
the Common Stock outstanding on February 14, 1996 was 2,933,548.
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature of Percent
Class of Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Common Reggeborgh Beheer BV 184,000 6.3%
Postbox 319, Industrieweg 12
7460 AH Rijssen, Netherlands
Common Perkins Capital Management, Inc 558,205(1) 19.4%
730 East Lake Street,
Wayzata, MN 55391-1769
Common Brian T. McMahon 350,000(2) 10.7%
Common Henry M. Holterman 36,000(3) 1.2%
Common Nathaniel S. Thayer 487,238(4) 16.4%
Common Officers and Directors as a Group 873,238(5) 26.0%
(3 persons)
</TABLE>
(1) The Company relied upon information obtained from Schedule 13G under
the Securities Exchange Act of 1934, filed by Perkins Capital
Management, Inc. ("Perkins") on or about February 1, 1996. The number
of shares of Common Stock beneficially owned by Perkins is 558,205,
which includes 359,766 shares for which Perkins has sole voting power.
(2) Includes 350,000 shares issuable upon exercise of options held by Mr.
McMahon that are exercisable within 60 days of February 14, 1996.
(3) Includes 36,000 shares issuable upon exercise of options held by Mr.
Holterman that are exercisable within 60 days of February 14, 1996.
(4) Includes 33,000 shares issuable upon exercise of options held by Mr.
Thayer that are exercisable within 60 days of February 14, 1996. Mr.
Thayer owns 454,238 shares of Common Stock, which includes 200 shares
representing Mr. Thayer's beneficial ownership of a 50% interest in 400
shares held in a joint account.
(5) Includes 419,000 shares issuable upon exercise of options held by all
officers and directors that are exercisable within 60 days of February
14, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In October 1993, the Company entered into a consulting agreement with
Strategic Business Development Inc. ("SBDI"), a wholly-owned corporation of Mr.
Stephen M. Fry, Ph.D., who at that time was a Director of the Company. Under the
agreement, SBDI was to provide technical and management consulting services to
the Company in the areas of research and development, quality assurance,
regulatory affairs and manufacturing. Under the arrangement, the Company paid a
total of $41,567 and $70,860 to SBDI during 1994 and 1993, respectively,
including reimbursement for travel and entertainment expenses. No payments were
made to SBDI in 1995 and the Company does not anticipate any future payments to
be made to SBDI.
On May 27, 1994, the Company entered into a Severance and Settlement
Agreement with Mr. Daryl F. Yurek, the former Chairman of the Board of Directors
and a former employee. The agreement gave Mr. Yurek a lump sum severance amount
and he retained the rights to stock options that had been vested as of May 27,
1994, along with certain other nominal obligations of the Company and Mr. Yurek.
The options were all exercised in the first and second quarters of 1995. No
other payments were made to Mr. Yurek in 1995, and the Company does not
anticipate any future payments to be made to Mr. Yurek.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(A) The following documents are filed as part of this Form 10-KSB:
(1) FINANCIAL STATEMENTS. Audited financial statements for each of the three
years ended December 31, 1995, 1994 and 1993 are filed as part of this Form
10-KSB. See Index to financial Statements on Page F.
(2) REPORTS ON FORM 8-K. No Reports on Form 8-K were filed during the fourth
quarter of 1995.
(3) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B:
Exhibit
Number Description
3.1 Articles of Incorporation, As Amended, filed herein.
3.2 Bylaws, As Amended, filed herein.
10.1 Incentive Stock Option Plan adopted by the Company's Board of Directors
and shareholders on August 1, 1983, as amended March 5, 1987, and May 5,
1987. (Incorporated by reference to the Company's Registration Statement
on Form S-8, Commission File No. 2-93693-C, as filed on March 28, 1986,
effective April 17, 1986, as amended on June 2, 1987 and March 21,
1988.)
10.2 Incentive Stock Option Plan As Amended as adopted by the Company's Board
of Directors and shareholders on March 10, 1988 (Incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.)
10.3 1988 Stock Option Plan adopted by the Company's Board of Directors on
March 10, 1988 and shareholders on May 5, 1988 (Incorporated by
reference to the Company's Registration Statement on Form S-8,
Commission File No. 33-22052, as filed on May 25, 1988, effective
June 14, 1988.)
10.4 1990 Restricted Stock Plan adopted by the Company's Board of Directors
on March 15, 1990 and shareholders on May 17, 1990 (Incorporated by
reference to the Company's Registration Statement on Form S-8,
Commission File No. 33-36385, as filed on August 15, 1990, effective
August 15, 1990.)
10.5 1991 Stock Option Plan adopted by the Company's Board of Directors on
July 11, 1991 and shareholders on January 30, 1992. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991.)
10.6 Amendment to 1991 Stock Option Plan adopted by the Company's Board of
Directors on July 11, 1991 and shareholders on January 30, 1992.
(Incorporated by reference to the Company's Form 8-K Report filed with
the Securities and Exchange Commission on or about February 3, 1992.)
10.7 Amendment to 1991 Stock Option Plan adopted by the Company's
shareholders on June 28, 1995 (Incorporated by reference to the
Company's Registration Statement on Form S-8, Commission File No.
033-63047, as filed on September 28, 1995)
10.8 Amendment to 1991 Stock Option Plan adopted by the Company's Board of
Directors on October 4, 1995, to be submitted to shareholders for
ratification at the 1996 Annual Meeting of Shareholders (Incorporated by
reference to the Company's definitive Proxy Statement for its 1996
Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission on or before February 28, 1996).
10.9 Self-Insurance Trust Agreement between the Company and Richfield Bank
and Trust Co., as trustee dated March 5, 1987 (Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended December
31, 1986).
10.10 Form of Indemnification Agreement that the Company has provided to all
officers and directors. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1986.)
10.11 Yurek Employment Agreement dated February 3, 1992 by and between the
Company and Mr. Daryl F. Yurek. (Incorporated by reference to the
Company's Form 8-K report filed with the Securities and Exchange
Commission on or about February 17, 1992.)
10.12 Employment Agreement and Severance Agreement between the Company and
Brian T. McMahon dated September 30, 1992 (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended December
31, 1992.)
10.13 Lease between the Company and Plymouth Business Center dated September
1, 1992. (Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1992.)
10.14 Distribution Agreement between SCIMED Life Systems, Inc. and the
Company dated August 19, 1994 (Incorporated by reference to Annual
Report on Form 10-KSB, Exhibit 10.29, for the year ended December 31,
1994).
10.15 Clinical Research Agreement between The General Hospital Corporation,
doing business as Massachusetts General Hospital, and the Company dated
June 1, 1995, filed herein.
10.16 Bridge Loan Agreement, including form of Promissory Note and form of
Warrant by and between the Company and Qualified Lenders, dated
September 30, 1994 (Incorporated by reference to the Company's Annual
Report on Form 10-KSB, Exhibit 10.28, for the year ended December 31,
1994)
10.17 Form of Promissory Note that was issued in conjuction with the Bridge
Loan Agreement by and between the Company and Qualified Lenders, dated
September 30, 1994 (Incorporated by reference to the Company's Annual
Report on Form 10-KSB, Exhibit 10.28, page 45, for the year ended
December 31, 1994)
10.18 Form of Warrant (Incorporated by reference to the Company's Annual
Report on Form 10-KSB, Exhibit 10.28, for the year ended December 31,
1994; also incorporated by reference to the Company's Form S-3
Regisration Statement under The Securities Act of 1933, Exhibit 4.2,
to be filed with the Securities and Exchange Commission on or before
February 28, 1996.)
10.19 List of Lenders in the Bridge Loans, and Investors in the Company's
Preferred Stock (Incorporated by reference to the Company's Form S-3
Registration Statement under The Securities Act of 1933, Exhibit 99, to
be filed with the Securities and Exchange Commission on or before
February 28, 1996.)
10.20 Form of Subscription Agreement that was used in conjunction with the
Private Placements of the Company's Preferred Stock, filed herein.
23.1 Consent of Independent Auditors, filed herein.
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SPECTRASCIENCE, INC.
(Registrant)
Date: February 14, 1996 By: /s/ Brian T. McMahon
BRIAN T. MCMAHON
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Brian T. McMahon President, Chief Executive February 14, 1996
Brian T. McMahon Officer and Director
(Principal Executive Officer)
/s/ Ching-Meng Chew Vice President Finance and February 14, 1996
Ching-Meng Chew Administration, Chief Financial
Officer, Treasurer, Secretary
(Principal Financial and Accounting
Officer)
/s/ Dawn M. Leuer Controller February 14, 1996
Dawn M. Leuer
/s/ Henry M. Holterman Director February 14, 1996
Henry Holterman
/s/ Nathaniel S. Thayer Director February 14, 1996
Nathaniel S. Thayer
ITEM 13. (a)(1) FINANCIAL STATEMENTS.
The following financial statements of SpectraScience, Inc. are included
in Item 7.
CONTENTS
Page Reference
Report of Independent Auditors F-1
Balance Sheets -- December 31, 1995 and 1994 F-2
Statements of Operations -- Years Ended F-3
December 31, 1995, 1994 and 1993
Statement of Changes in Shareholders' Equity (Deficit) F-4
-- Years Ended December 31, 1995, 1994 and 1993
Statements of Cash Flows -- Years Ended F-5
December 31, 1995, 1994 and 1993
Notes to Financial Statements -- December 31, 1995 F-6
SPECTRASCIENCE, INC.
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Report of Independent Auditors
Board of Directors
SpectraScience, Inc.
We have audited the accompanying balance sheets of SpectraScience, Inc. as of
December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SpectraScience, Inc. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
January 19, 1996
<TABLE>
<CAPTION>
SpectraScience, Inc.
Balance Sheets
DECEMBER 31
1995 1994
--------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,123,326 $ 58,298
Accounts receivable (net of allowances of $50,000
in 1995 and $171,000 in 1994) 100,641 781
Inventory 181,871 200,468
Other current assets 80,197 78,245
--------------------------------------
Total current assets 4,486,035 337,792
Fixed assets:
Office furniture and equipment 232,492 232,492
Machinery and equipment 447,645 381,585
Tooling - 359,704
--------------------------------------
680,137 973,781
Less accumulated depreciation (521,907) (870,328)
--------------------------------------
158,230 103,453
Other assets - 37,444
--------------------------------------
$ 4,644,265 $ 478,689
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 150,278 $ 139,890
Accrued compensation and taxes 74,328 29,337
Accrued expenses 30,058 122,836
Deferred income - 26,000
Notes payable - 300,000
--------------------------------------
Total current liabilities 254,664 618,063
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, Series A, par value
$1.00 per share:
Authorized shares--5,000,000
Issued and outstanding shares--674,998 in 1995 674,998 -
Convertible preferred stock, Series B, par value
$1.00 per share:
Authorized shares--1,000,000
Issued and outstanding shares--792,500 in 1995 792,500 -
Common stock, $.25 par value:
Authorized shares--4,000,000
Issued and outstanding shares--2,933,348 in
1995 and 2,785,348 in 1994 733,337 696,337
Additional paid-in capital 43,136,284 38,765,897
Accumulated deficit (40,947,518) (39,601,608)
--------------------------------------
Total stockholders' equity (deficit) 4,389,601 (139,374)
--------------------------------------
Total liabilities and stockholders' equity $ 4,644,265 $ 478,689
======================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
SpectraScience, Inc.
Statements of Operations
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------------------
<S> <C> <C>
NET REVENUES
Product revenues $ 134,652 $ $ 28,683
-
Service revenues - - 6,319
-----------------------------------------------------
Total net revenues 134,652 - 35,002
Cost of products sold 124,913 - 176,317
-----------------------------------------------------
9,739 - (141,315)
EXPENSES
Research and development 660,504 869,670 1,363,795
Selling, general and administrative 711,753 701,278 1,119,793
Interest and other income (16,608) (66,468) (181,897)
-----------------------------------------------------
Total expenses 1,355,649 1,504,480 2,301,691
-----------------------------------------------------
Net loss $(1,345,910) $(1,504,480) $(2,443,006)
=====================================================
Net loss per share $(.47) $(.55) $(.93)
Weighted average common shares 2,857,738 2,753,128 2,622,125
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
SpectraScience, Inc.
Statement of Changes in Stockholders' Equity (Deficit)
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
--------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 1,880,882 $470,221 - $ - - $ -
Exercise of warrants 867,466 216,866 - - - -
Exercise of stock options 2,000 500 - - - -
Net loss - - - - - -
--------------------------------------------------------------------------------
Balance December 31, 1993 2,750,348 687,587 - - - -
Exercise of stock options 30,000 7,500 - - - -
Issuance of non-interest bearing notes - - - - - -
Issuance of common stock for services 5,000 1,250 - - - -
Stock options granted at below market
value - - - - - -
Net loss - - - - - -
--------------------------------------------------------------------------------
Balance December 31, 1994 2,785,348 696,337 - - - -
Exercise of stock options 148,000 37,000 - - - -
Issuance of non-interest bearing notes - - - - - -
Issuance of Series A convertible
preferred stock upon debt conversion - - 174,998 174,998 - -
Proceeds from issuance of Series A
convertible preferred stock, net of
expenses of $60,000 - - 500,000 500,000 - -
Proceeds from issuance of Series B
convertible preferred stock, net of
expenses of $435,875 - - - - 792,500 792,500
Net loss - - - - - -
--------------------------------------------------------------------------------
Balance December 31, 1995 2,933,348 $733,337 674,998 $674,998 792,500 $792,500
================================================================================
</TABLE>
(TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
------------------------------------------------
<S> <C> <C> <C>
Balance December 31, 1992 $35,657,449 $(35,654,122) $ 473,548
Exercise of warrants 3,008,948 - 3,225,814
Exercise of stock options 4,500 - 5,000
Net loss - (2,443,006) (2,443,006)
------------------------------------------------
Balance December 31, 1993 38,670,897 (38,097,128) 1,261,356
Exercise of stock options 67,500 - 75,000
Issuance of non-interest bearing notes 15,000 - 15,000
Issuance of common stock for services - - 1,250
Stock options granted at below market
value 12,500 - 12,500
Net loss - (1,504,480) (1,504,480)
------------------------------------------------
Balance December 31, 1994 38,765,897 (39,601,608) (139,374)
Exercise of stock options 343,000 - 380,000
Issuance of non-interest bearing notes 3,260 - 3,260
Issuance of Series A convertible
preferred stock upon debt conversion 350,002 - 525,000
Proceeds from issuance of Series A
convertible preferred stock, net of
expenses of $60,000 940,000 - 1,440,000
Proceeds from issuance of Series B
convertible preferred stock, net of
expenses of $435,875 2,734,125 - 3,526,625
Net loss - (1,345,910) (1,345,910)
------------------------------------------------
Balance December 31, 1995 $43,136,284 $(40,947,518) $4,389,601
================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
SpectraScience, Inc.
Statements of Cash Flows
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,345,910) $(1,504,480) $(2,443,006)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 52,302 53,192 97,944
Compensation expense recognized in connection with
granting of stock options - 12,500 -
Non-cash interest expense 3,260 15,000 -
Stock issued for services - 1,250 -
Gain on sale of fixed assets - (28,335) (24,725)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (99,860) 35,986 (12,169)
(Increase) decrease in inventories 18,597 (200,468) 8,718
Decrease (increase) in other assets 35,492 15,015 (31,385)
Increase (decrease) in current liabilities (63,399) 7,210 (421,450)
-----------------------------------------------------
Net cash used in operating activities (1,399,518) (1,593,130) (2,826,073)
INVESTING ACTIVITIES
Purchases of fixed assets (107,379) (30,798) (17,995)
Proceeds from sale of fixed assets 300 56,540 78,609
-----------------------------------------------------
Net cash (used in) provided by investing activities (107,079) 25,742 60,614
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 225,000 300,000 -
Proceeds from issuance of common stock 380,000 75,000 3,230,814
Proceeds from issuance of preferred stock 4,966,625 - -
-----------------------------------------------------
Net cash provided by financing activities 5,571,625 375,000 3,230,814
-----------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,065,028 (1,192,388) 465,355
Cash and cash equivalents at beginning of year 58,298 1,250,686 785,331
-----------------------------------------------------
Cash and cash equivalents at end of year $4,123,326 $ 58,298 $ 1,250,686
=====================================================
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Notes payable converted into preferred stock $ 525,000 $ - $ -
</TABLE>
See accompanying notes.
SpectraScience, Inc.
Notes to Financial Statements
December 31, 1995
1. BUSINESS
The Company was incorporated on May 4, 1983 as GV Medical, Inc. and was engaged
in the development of laser angioplasty catheter systems. Subsequently the
Company changed its name to SpectraScience, Inc. on October 16, 1992, which was
approved by the shareholders on May 13, 1993. The Company is now focused
primarily on the design, development, manufacturing and marketing of medical
products for the diagnosis and facilitation of treatment of a broad range of
human diseases.
During 1995, the Company received net proceeds of approximately $5.0 million in
conjunction with the issuance of convertible preferred stock (see Notes 3 and
4). Management believes that this capital infusion will be sufficient to fund
continued operations through December 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
FIXED ASSETS
Fixed assets are stated at cost. The Company depreciates the cost of the
property over its estimated useful life using the straight line method.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from the estimates.
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amount of assets and liabilities and their respective tax bases.
NET LOSS PER SHARE
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. Common
equivalent shares from stock options, warrants and convertible preferred stock
are excluded from the computation as their effect is antidilutive.
3. NOTES PAYABLE
During 1994, the Company received $300,000 of convertible bridge financing from
an investor group. The promissory notes were non-interest bearing and were due
on March 31, 1995. In connection with the notes payable, the Company granted
warrants to the participants in the bridge financing to purchase 100,000 shares
of the Company's common stock at $3.00 per share. The warrants are exercisable
for five years from the date of grant.
During 1995, the Company received $225,000 of convertible bridge financing from
an investor group. The promissory notes were non-interest bearing and were due
on March 31, 1995. In connection with the notes payable, the Company granted
warrants to the participants in the bridge financing to purchase 74,998 shares
of the Company's common stock at $3.00 per share. The warrants are exercisable
for five years from the date of grant.
Upon completion of the sale of convertible preferred stock, Series A in 1995
(see Note 4), bridge loans of $525,000 were converted into 174,998 shares of
convertible preferred stock at a price of $3.00 per share. In addition, the
Company issued warrants to the investors to purchase 58,335 shares of the
Company's common stock at $5.00 per share. The warrants are exercisable for
three years from the date of grant.
4. CAPITAL STOCK
During 1993, the Company received net proceeds of $3,225,814 from the exercise
of 867,466 warrants that had been issued in 1992. The remaining 465,867 warrants
expired. In addition, the Company issued 50,000 warrants to a company helping
the Company with its public relations in the investment community. These
warrants were exercisable at $2.50 per share. The warrants were canceled in 1995
and 50,000 options were reissued to the company and exercised in 1995 at $2.50
per share.
On June 30, 1994, the Company's Board of Directors approved a 1-for-5 reverse
stock split. Accordingly, all share, per share, weighted average share, and
stock option information has been restated to reflect the split.
From March 1995 to June 1995, the Company sold 500,000 shares of convertible
preferred stock, Series A at $3.00 per share in a private placement for
$1,500,000 less related costs of $60,000. The nondividend yielding shares of
convertible preferred stock are first convertible into an equivalent number of
shares of common stock on March 31, 1996. Holders of shares of the convertible
preferred stock also received warrants to purchase 166,665 shares of the
Company's common stock at $5.00 per share. The warrants are exercisable for
three years from the date of grant. In addition, the Company issued warrants to
the underwriter to purchase 20,000 shares of the Company's common stock at $3.00
per share. The warrants are exercisable for five years from the date of grant.
The Company issued additional warrants to the underwriter to purchase 6,667
shares of the Company's common stock at $5.00 per share. The warrants are
exercisable for three years from the date of grant.
In December 1995, the Company sold 792,500 shares of convertible preferred
stock, Series B at $5.00 per share in a private placement for $3,962,500 less
related costs of $435,875. Holders of shares of the convertible preferred stock
also received warrants to purchase 264,175 shares of the company's common stock
at $9.50 per share. The warrants are exercisable for three years from the date
of grant. In addition, the Company issued warrants to the underwriter to
purchase 79,250 shares of the Company's common stock at $5.00 per share. The
warrants are exercisable for five years from the date of grant. The Company
issued additional warrants to the underwriter to purchase 26,418 shares of the
Company's common stock at $9.50 per share, conditional upon exercise of the
previous warrant issued to the underwriter. The warrants are exercisable for
five years from the date of grant.
5. STOCK OPTIONS
The Company has a stock option plan under which selected employees and
non-employees may be granted incentive and non-qualified options to purchase
common stock of the Company. The options granted are exercisable over a period
of no longer than ten years and are granted at not less than 85% of the market
price on the date of the grant. The following table summarizes the stock option
activity for the three plans:
<TABLE>
<CAPTION>
SHARES STOCK OPTIONS
AVAILABLE OUTSTANDING UNDER PRICE
FOR GRANT THE PLANS PER SHARE
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1992 62,270 430,820 $2.50 - $11.25
Options granted (70,200) 70,200 5.00 - 5.80
Options exercised - (2,000) 2.50
Options forfeited 97,448 (97,448) 2.50 - 5.80
-----------------------------------
Balance December 31, 1993 89,518 401,572 2.50 - 11.25
Options granted (459,000) 459,000 2.50 - 3.00
Options exercised - (30,000) 2.50
Options forfeited 140,700 (140,700) 2.50 - 11.25
Options canceled 89,600 (89,600) 2.65
-----------------------------------
Balance December 31, 1994 (139,182) 600,272 2.50 - 11.25
Amendment to plan 540,000 - -
Options granted (320,000) 320,000 2.50 - 4.75
Options exercised - (148,000) 2.50 - 3.00
Options forfeited 5,000 (5,000) 3.00
Options canceled 5,000 (5,000) 2.50
Option plans terminated (30,890) - -
-----------------------------------
Balance December 31, 1995 59,928 762,272 $2.50 - $11.25
===================================
</TABLE>
At December 31, 1995, options for 527,184 shares were exercisable.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The Company has not determined the impact of the new statement on
its financial statements.
6. COMMITMENTS
The Company has an operating lease agreement for certain premises within a
building in Minneapolis, Minnesota that has a term extending through August
1996. The lease requires annual base rent of approximately $24,000 plus a
sharing of certain expenses. The Company incurred total lease and rental
expenses of $36,000, $37,000 and $107,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
In 1995, the Company entered into a clinical research agreement for up to two
years with a hospital. Under the terms of the agreement, the Company has agreed
to pay $200,000 for the first year of the study, of which $150,000 was charged
to expense in 1995. The second year of the study will not be initiated until the
partners have agreed to the amount of funding to be provided by the Company.
The Company entered into a license agreement with Massachusetts Institute of
Technology for the use of certain patents. Under the terms of the agreement, the
Company has agreed to pay $50,000 per year through October 2003 and $30,000 per
year thereafter until the expiration of the patent rights. The agreement will
immediately terminate if any scheduled payment is not made within 30 days of its
due date.
7. INCOME TAXES
The tax effect of the Company's deferred tax assets is as follows:
DECEMBER 31
1995 1994
--------------------------------------
Net operating loss carryforward $14,616,000 $14,270,000
Accounts receivable allowance 18,000 62,000
Accrued liabilities 40,000 52,000
Tax credits 740,000 607,000
--------------------------------------
15,414,000 14,991,000
Valuation allowance (15,414,000) (14,991,000)
--------------------------------------
$ - $ -
======================================
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $40,600,000 that expire at various times through the year 2010. In
addition, the Company has research and development tax credits that expire at
various times through 2010. As a result of previous stock transactions, the
Company is limited as to the amount of net operating loss and tax credit
carryforwards which may be utilized in any one year. The annual limitation is
approximately $1,000,000.
8. BUSINESS SEGMENT AND EXPORT SALES INFORMATION
The Company is focused primarily on the design, development, manufacturing and
marketing of medical products for the diagnosis and facilitation of treatment of
a broad range of human diseases. Its product is marketed primarily through an
independent distributor in foreign countries. The Company's only export sales
were $28,000 in 1993.
9. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing and savings plan covering substantially
all employees. The plan allows employees to defer up to 15% of their annual
earnings. The Company will match 25% of the employee contributions to a maximum
of 4% of employee earnings. The contributions by the Company totaled
approximately $4,000, $4,000 and $10,000 for 1995, 1994 and 1993, respectively.
EXHIBIT 3.1 TO FORM 10-KSB:
ARTICLES OF INCORPORATION OF SPECTRASCIENCE, INC
INCLUDING AMENDMENTS
ARTICLES OF INCORPORATION
OF
SPECTRASCIENCE, INC.
The undersigned incorporator, a natural person 18 years of age or
older, in order to form a corporation under Minnesota Statutes, Section 302A,
hereby adopts the following Articles of Incorpration:
ARTICLE I
The name of this corporation is G V Medical, Inc.
ARTICLE I - AMENDED
The name of this corporation is SpectraScience, Inc.
ARTICLE II
The registered office of this corporation is located at 4200 IDS
Center, 80 South Eighth Street, Minneapolis, Minnesota 55402
ARTICLE II - AMENDED (A)
The registered office of this corporation is located at 3750 Annapolis
Lane, Minneapolis, Minnesota 55441
ARTICLE II - AMENDED (B)
The registered office of this corporation is located at 3750 Annapolis
Lane, Minneapolis, Minnesota 55447
ARTICLE II - AMENDED (C)
The registered office of this corporation is located at 5909 Baker
Road, Suite 580, Minnetonka, Minnesota 55345
ARTICLE III
The corporation is authorized to issue an aggregate total of 2,000,000
shares, par value of $.05 per share. All shares shall be of one class and one
series.
ARTICLE III - AMENDED (A)
The corporation is authorized to issue an aggregate total of 5,000,000
shares, par value of $.05 per share. All shares shall be of one class and one
series.
ARTICLE III - AMENDED (B)
CAPITAL STOCK
The authorized capital stock of this corporation shall be Twenty
Million (20,000,000) shares of common stock with a stated par value of twenty
five cents ($.05) per share (the "Common Stock") and Twenty Million (20,000,000)
shares of preferred stock with a stated par value of one dollar ($1.00) per
share (the "Preferred Stock"). The designation and the powers, preferences and
rights, and the qualifications, limitations or restrictions of the shares of
each class of stock shall be as follows:
SECTION 1. Common Stock. Subject to all of the rights of the Preferred Stock,
and except as may be expressly provided with respect to the Preferred Stock
herein, by law or by the Board of Directors pursuant to this Article III:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the corporation legally
available for the payment of dividends;
(b) the holders of the Common Stock shall have the exclusive right to
vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the net assets of the corporation shall
be distributed pro rata to the holders of the Common Stock in
accordance with their respective share ownership.
SECTION 2. Preferred Stock. The Preferred Stock may be issued from time to time
by the Board of Directors as shares of one or more series. Subject to the
provisions hereof and the limitations prescribed by law, the Board of Directors
is expressly authorized by adopting resolutions providing for the issuance of
shares of any particular series and, if and to the extent from time to time
required by law, by filing with the Minnesota Secretary of State a statement
with respect to the adoption of the resolutions pursuant to the Minnesota
Business Corporation Act (or other law hereafter in effect relating to the same
or substantially similar subject matter), to establish the number of shares to
be included in each such series and to fix the designation and relative powers,
preferences and rights and the qualifications and limitations or restrictions
thereof relating to the shares of each such series. The authority of the Board
of Directors with respect to each series shall include, but not be limited to,
determination of the following:
(a) the distinctive serial designation of such series and the number of
shares constituting such series, provided that the aggregate number of
shares constituting all series of Preferred Stock shall not exceed
Twenty Million (20,000,000);
(b) the annual dividend rate on shares of such series, if any, whether
dividends shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or
dates upon and after which such shares shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(d) the obligation, if any, of the corporation to retire shares of such
series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if
so, the terms and conditions of such conversion or exchange, including
the price or prices or the rate or rates of conversion or exchange and
the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights provided
by law, and, if so, the terms of such voting rights;
(g) the rights of the shares of such series in the event of the
voluntary or involuntary liquidation, dissolution or winding up of the
corporation; and
(h) any other rights, powers, preferences, qualifications, limitations
or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
ARTICLE III - AMENDED (C)
CAPITAL STOCK
The following text hereby replaces the first paragraph of Article III - Amended
(B):
The authorized capital stock of this corporation shall be Twenty
Million (20,000,000) shares of common stock with a stated par value of twenty
five cents ($.05) per share (the "Common Stock") and Twenty Million (20,000,000)
shares of preferred stock with a stated par value of one dollar ($1.00) per
share (the "Preferred Stock").
Effective as of 11:59 p.m. CDT on June 30, 1994, a one-for-five reverse
split of shares of Common Stock of the Corporation issued and outstanding
immediately prior to that time and date shall be and hereby is enacted, with
each holder of Common Stock of the Corporation of record as of 11:59 p.m. CDT on
June 30, 1994, to be deemed the owner of one share of Common Stock for every
three shares of Common Stock owned by such holder as of 11:59 p.m. CDT on June
30, 1994. Fractional shares of Common Stock shall not be issued and no payment
in lieu of fractional shares of Common Stock shall be made, but each fractional
share of Common Stock interest of .5 or more held by any one holder of Common
Stock shall be rounded up to the next higher full share, and each fractional
share of Common Stock interest of less than .5 held by any one holder of Common
Stock shall be rounded down to zero. Effective as of June 30, 1994, the stated
par value of the Common Stock shall be twenty-five cents ($.25) per share and
the number of authorized shares of Common Stock shall be reduced to four million
(4,000,000). The changes stated herein shall not adversely effect the rights or
preferences of the holders of outstanding shares of any class or series and
shall not result in the percentage of authorized shares that remains unissued
after the combination of shares of Common Stock exceeding the percentage of
authorized shares that were unissued before the combination. The designation and
the powers, preferences and rights, and the qualifications, limitations or
restrictions of the shares of each class of stock shall be as follows:
ARTICLE III AMENDED (D)
CAPITAL STOCK
The authorized capital stock of this corporation shall be Four Million
(4,000,000) shares of common stock with a stated par value of twenty five cents
($.25) per share (the "Common Stock") and Twenty Million (20,000,000) shares of
preferred stock with a stated par value of one dollar ($1.00) per share (the
"Preferred Stock"). The designation and the powers, preferences and rights, and
the qualifications, limitations or restrictions of the shares of each class of
stock shall be as follows:
SECTION 1. Common Stock. Subject to all of the rights of the Preferred Stock,
and except as may be expressly provided with respect to the Preferred Stock
herein, by law or by the Board of Directors pursuant to this Article III:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the corporation legally
available for the payment of dividends;
(b) the holders of the Common Stock shall have the exclusive right to
vote for the election of directors and on all matters requiring
shareholder action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the net assets of the corporation shall
be distributed pro rata to the holders of the Common Stock in
accordance with their respective share ownership.
SECTION 2. Preferred Stock. The Preferred Stock may be issued from time to time
by the Board of Directors as shares of one or more series. Subject to the
provisions hereof and the limitations prescribed by law, the Board of Directors
is expressly authorized by adopting resolutions providing for the issuance of
shares of any particular series and, if and to the extent from time to time
required by law, by filing with the Minnesota Secretary of State a statement
with respect to the adoption of the resolutions pursuant to the Minnesota
Business Corporation Act (or other law hereafter in effect relating to the same
or substantially similar subject matter), to establish the number of shares to
be included in each such series and to fix the designation and relative powers,
preferences and rights and the qualifications and limitations or restrictions
thereof relating to the shares of each such series. The authority of the Board
of Directors with respect to each series shall include, but not be limited to,
determination of the following:
(a) the distinctive serial designation of such series and the number of
shares constituting such series, provided that the aggregate number of
shares constituting all series of Preferred Stock shall not exceed
Twenty Million (20,000,000);
(b) the annual dividend rate on shares of such series, if any, whether
dividends shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or
dates upon and after which such shares shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(d) the obligation, if any, of the corporation to retire shares of such
series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if
so, the terms and conditions of such conversion or exchange, including
the price or prices or the rate or rates of conversion or exchange and
the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights provided
by law, and, if so, the terms of such voting rights;
(g) the rights of the shares of such series in the event of the
voluntary or involuntary liquidation, dissolution or winding up of the
corporation; and
(h) any other rights, powers, preferences, qualifications, limitations
or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative. Although the Board of Directors may fix
and determine the relative rights and preferences among the various series of
Preferred Stock in accordance with the authority set forth above, in all other
respects, the shares of all series shall be of equal rank with each other,
regardless of series.
2.1 Redemption and Conversion. Any share of any series of Preferred Stock which
has been redeemed or converted shall have the status of an authorized and
unissued share of Preferred Stock and may be reissued as a part of the series of
which it was originally a part or may be reissued as part of another series of
Preferred Stock established by the Board of Directors.
2.2 Preferential Distribution in Liquidation. Upon the liquidation, dissolution
or winding up of the corporation, the holders of the Preferred Stock then
outstanding shall be entitled to receive the amount per share fixed for the
various series before any of the assets of the corporation are distributed to
the holders of the Common Stock. If the assets of the corporation distributable
to the holders of the Preferred Stock have a value which is less that the full
amount so fixed for the various series, such assets shall be distributed among
the holders of the various series of Preferred Stock in accordance with any
preferences among the series that may have been established or, to the extent
that no such preferences shall have been established, pro rata among the holders
of all of the series of Preferred Stock. After distribution of the preferential
amounts required to be distributed to the holders of the Preferred Stock then
outstanding, the holders of the Common Stock shall be entitled, to the exclusion
of the holders of the Preferred Stock unless otherwise provided, to share in all
the remaining assets of the corporation.
SERIES A CONVERTIBLE STOCK
There is hereby established and created an initial series of Preferred Stock in
the number of shares and having the designation, relative rights, preferences
and limitations as follows:
2.3 Designation and Number of Shares. The distinctive designation of the series
shall be "Series A Convertible Preferred Stock" (par value $ 1.00 per share)
herein sometimes referred to as the "Series A Preferred Stock") and the number
of shares initially constituting the series shall be 5,000,000.
2.4 Dividends. The Series A Preferred Stock shall bear no dividends.
2.5 Preferences in Liquidation.
(a) Preferential Payment. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation, the holders
of shares of the Series A Preferred Stock then outstanding shall be
entitled to be paid according to their relationship with other holders
of Preferred Stock, out of the assets of the corporation available for
distribution to shareholders, whether from capital, surplus or
earnings, before any payment shall be made in respect of the
corporation's Common Stock, an amount equal to $1.00 per share. After
setting apart or paying in full the preferential amounts due the
holders of the Series A Preferred Stock and any other holders of
Preferred Stock, the remaining assets of the corporation available for
distribution to shareholders, if any, shall be distributed to the
holders of Common Stock unless otherwise provided. If upon liquidation,
dissolution or winding up of the corporation, the assets of the
corporation available for distribution to its shareholders shall be
insufficient to pay the holders of the Series A Preferred Stock the
full preferential distribution of $1 per share, the holders of the
Series A Preferred Stock shall share ratably in the distribution of
such assets.
(b) Notice. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the corporation shall,
within 10 days after the date the Board of Directors approves such
action, or within 20 days prior to any shareholders' meeting called to
approve such action, or within 20 days after the commencement of any
involuntary proceeding, whichever is earlier, give each holder of
shares of Series A Preferred Stock initial written notice of the
proposed action. Such initial written notice shall describe the
material terms and conditions of the proposed action, including a
description of the stock, cash and property to be received by the
holders of shares of Series A Preferred Stock upon consummation of the
proposed action and the date of delivery thereof. If any material
change in the facts set forth in the initial notice shall occur, the
corporations shall promptly give written notice to each holder of
shares of Series A Preferred Stock of such material change.
2.6 Voting Rights. Except as otherwise provided by law or as expressly provided
herein, the Common Stock shall have exclusive voting rights and powers,
including the exclusive right to notice of shareholders' meetings.
2.7 Conversion Rights.
(a) Optional Conversion. Shares of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after
March 31, 1996, (the "Conversion Period"), into fully paid and
nonassessable shares of Common Stock of the corporation.
(b) Conversion Ratio. Each share of Series A Preferred Stock shall be
converted into one share of the Common Stock of the corporation,
subject to adjustment as provided in paragraph 2.8 below.
(c) Procedure For Conversion. The holder of any shares of Series A
Preferred Stock may exercise the conversion rights during the
Conversion Period as to such shares or any part thereof by delivering
to the corporation during regular business hours, at the office of any
transfer agent of the corporation for the Series A Preferred Stock, or
at the principal office of the corporation, the certificate or
certificates for the shares to be converted, duly endorsed for transfer
to the corporation, accompanied by written notice stating that the
holder elects to convert such shares or a part thereof. Conversion
shall be deemed to have been effected on the date when such delivery is
made, and such date is referred to herein as the "Conversion Date". As
promptly as practicable thereafter the corporation shall issue and
deliver to or upon the written order of such holder, at such office or
other place designated by the corporation, a certificate or
certificates for the number of full shares of Common Stock to which
such holder is entitled and a check for cash with respect to any
fractional interest in a share of Common Stock as provided in paragraph
2.7(d). The holder shall be deemed to have become a shareholder of
record on the applicable Conversion Date unless the transfer books of
the corporation are closed on such date, in which event he shall be
deemed to have become a shareholder of record on the next succeeding
date on which the transfer books are open, but the Conversion Ratio
shall be that in effect on the Conversion Date. Upon conversion of only
a portion of the number of shares of Series A Preferred Stock
represented by a certificate surrendered for conversion, the
corporation shall issue and deliver to or upon the written order of the
holder of the certificate so surrendered for conversion, at the expense
of the corporation, a new certificate covering the number of shares of
Series A Preferred Stock representing the unconverted portion of the
certificate so surrendered.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued upon conversion of shares of Series A Preferred Stock.
If more than one share of Series A Preferred Stock shall be surrendered
for conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A
Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Preferred Stock, the corporation shall pay a cash
adjustment in respect of such fractional interest equal to the fair
market value of such fractional interest as determined by the Board of
Directors.
(e) Reserved Shares. The corporation shall reserve and keep available,
out of its authorized but unissued Common Stock, solely for the purpose
of effecting the conversion of the Series A Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of all
Series A Preferred Stock from time to time outstanding. The corporation
shall from time to time (subject to obtaining necessary director and
shareholder action) increase the authorized amount of its Common Stock
if at any time the authorized number of shares of its Common Stock
remaining unissued shall not be sufficient to permit the conversion of
all of the shares of Series A Preferred Stock at the time outstanding.
(f) Registration. If any shares of Common Stock to be reserved for the
purpose of shares of Series A Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock
exchange, or other regulatory body under any federal or state law or
regulation or otherwise, before such shares may be validly issued or
delivered upon conversion, the corporation will in good faith and as
expeditiously as reasonable endeavor to secure such registration,
listing or approval, as the case may be.
(g) Validly Issued. All shares of Common Stock which may be issued upon
conversion of the shares of Series A Preferred Stock will, upon
issuance by the corporation, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
(h) Negative Covenants. This corporation will not, by amendment of its
articles of incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed thereunder, but will at all times in good faith assist in the
carrying out of all the provisions hereof and in the taking of such
action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock
against impairment. In addition, the corporation shall at no time issue
or sell any shares of its Common Stock or Preferred Stock, options or
warrants for a consideration less than fair market value, as reasonably
determined by the Board of Directors, except for grants or awards of
Common Stock or options to acquire Common Stock made to the
corporation's employees, officers, and directors and to consultants and
other participants in the corporation's stock option, stock award,
stock purchase and other benefit plans, provided such grants and awards
made after the date of the first issuance of the corporation's Series A
Preferred Stock shall not represent more than 10% of the then
outstanding shares of Common Stock of the corporation.
2.8 Antidilution. The Conversion Ratio (referred to in paragraph 2.7 (b)) shall
be subject to adjustment from time to time, and the number of shares of Common
Stock issuable on conversion of any shares of Series A Preferred Stock shall be
subject to a resultant increase or decrease (calculated to the nearest 1/100th
of a share) by reason of such adjustment, as hereafter stated, except that no
adjustment shall be made, unless by reason of the occurrence of one or more of
the events hereinafter specified, the Conversion Ratio theretofore in effect
shall be changed by an amount equal to at least 5% thereof, but in the event
that an adjustment would be required except of insufficiency of amount, such
amount shall be carried forward and added to and shall be made at the time of
and together with any subsequent adjustment which, together with any adjustment
or adjustments so carried forward, amount to at least 5% of the Conversion Ratio
at such later time:
(a) Stock Dividends, Subdivisions and Combinations. In the event the
corporation shall declare a stock dividend with respect to its Common
Stock or shall effect a subdivision or combination of its Common Stock
into a greater or lesser number of shares without a proportionate and
corresponding stock dividend, subdivision or combination with respect
to its outstanding Series A Preferred Stock, then the existing
Conversion Ratio for the Series A Preferred Stock shall be increased or
decreased proportionately.
(b) Classification, Reclassification, Capital Reorganization, Etc. In
the case of any classification, reclassification, capital
reorganization or other change of outstanding shares of Common Stock
(other than a change in par value, or from without par value to par
value, or from par value to without par value, or as a result of an
issuance of Common Stock by way of dividend or other distribution or of
a subdivision or combination), or in case of any consolidation or
merger of the corporation with or into another corporation (other than
a merger with a subsidiary in which the corporation is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of the Common
Stock issuable upon conversion of the shares of the Series A Preferred
Stock) or in case of any sale or conveyance to another corporation of
the property of the corporation as an entirety or substantially as an
entirety, the corporation shall cause the holders of the Series A
Preferred Stock to have the right, by exercising their conversion
rights thereunder, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such
reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance, if any, which the holders of
the Series A Preferred Stock would have received had the conversion
taken place immediately prior to such event.
2.9 Changes Affecting Series A Preferred Stock. So long as any shares of Series
A Preferred Stock are outstanding, the corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of at least a majority of the total number of shares of
Series A Preferred Stock outstanding, voting separately as a class, (i) alter or
change any of the powers, preferences, privileges, or rights of the Series A
Preferred Stock; or (ii) amend the provisions of this paragraph 2.9; or (iii)
create any new class or series of shares having preferences prior to the Series
A Preferred Stock or reclassifying any class or series of any Common Stock or
any other shares of stock hereafter created junior to the Class A Preferred
Stock into shares having any preference or priority over the Series A Preferred
Stock.
ARTICLE III AMENDED (E)
CAPITAL STOCK
The authorized capital stock of this corporation shall be Four Million
(4,000,000) shares of common stock with a stated par value of twenty five cents
($.25) per share (the "Common Stock") and Twenty Million (20,000,000) shares of
preferred stock with a stated par value of one dollar ($1.00) per share (the
"Preferred Stock"). The designation and the powers, preferences and rights, and
the qualifications, limitations or restrictions of the shares of each class of
stock shall be as follows:
SECTION 1. Common Stock. Subject to all of the rights of the Preferred Stock,
and except as may be expressly provided with respect to the Preferred Stock
herein, by law or by the Board of Directors pursuant to this Article III:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the corporation legally
available for the payment of dividends;
(b) the holders of the Common Stock shall have the exclusive right to
vote for the election of directors and on all matters requiring
shareholder action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the net assets of the corporation shall
be distributed pro rata to the holders of the Common Stock in
accordance with their respective share ownership.
SECTION 2. Preferred Stock. The Preferred Stock may be issued from time to time
by the Board of Directors as shares of one or more series. Subject to the
provisions hereof and the limitations prescribed by law, the Board of Directors
is expressly authorized by adopting resolutions providing for the issuance of
shares of any particular series and, if and to the extent from time to time
required by law, by filing with the Minnesota Secretary of State a statement
with respect to the adoption of the resolutions pursuant to the Minnesota
Business Corporation Act (or other law hereafter in effect relating to the same
or substantially similar subject matter), to establish the number of shares to
be included in each such series and to fix the designation and relative powers,
preferences and rights and the qualifications and limitations or restrictions
thereof relating to the shares of each such series. The authority of the Board
of Directors with respect to each series shall include, but not be limited to,
determination of the following:
(a) the distinctive serial designation of such series and the number of
shares constituting such series, provided that the aggregate number of
shares constituting all series of Preferred Stock shall not exceed
Twenty Million (20,000,000);
(b) the annual dividend rate on shares of such series, if any, whether
dividends shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or
dates upon and after which such shares shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(d) the obligation, if any, of the corporation to retire shares of such
series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if
so, the terms and conditions of such conversion or exchange, including
the price or prices or the rate or rates of conversion or exchange and
the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights provided
by law, and, if so, the terms of such voting rights;
(g) the rights of the shares of such series in the event of the
voluntary or involuntary liquidation, dissolution or winding up of the
corporation; and
(h) any other rights, powers, preferences, qualifications, limitations
or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative. Although the Board of Directors may fix
and determine the relative rights and preferences among the various series of
Preferred Stock in accordance with the authority set forth above, in all other
respects, the shares of all series shall be of equal rank with each other,
regardless of series.
2.1 Redemption and Conversion. Any share of any series of Preferred Stock which
has been redeemed or converted shall have the status of an authorized and
unissued share of Preferred Stock and may be reissued as a part of the series of
which it was originally a part or may be reissued as part of another series of
Preferred Stock established by the Board of Directors.
2.2 Preferential Distribution in Liquidation. Upon the liquidation, dissolution
or winding up of the corporation, the holders of the Preferred Stock then
outstanding shall be entitled to receive the amount per share fixed for the
various series before any of the assets of the corporation are distributed to
the holders of the Common Stock. If the assets of the corporation distributable
to the holders of the Preferred Stock have a value which is less that the full
amount so fixed for the various series, such assets shall be distributed among
the holders of the various series of Preferred Stock in accordance with any
preferences among the series that may have been established or, to the extent
that no such preferences shall have been established, pro rata among the holders
of all of the series of Preferred Stock. After distribution of the preferential
amounts required to be distributed to the holders of the Preferred Stock then
outstanding, the holders of the Common Stock shall be entitled, to the exclusion
of the holders of the Preferred Stock unless otherwise provided, to share in all
the remaining assets of the corporation.
SERIES A CONVERTIBLE STOCK
There is hereby established and created an initial series of Preferred Stock in
the number of shares and having the designation, relative rights, preferences
and limitations as follows:
2.3 Designation and Number of Shares. The distinctive designation of the series
shall be "Series A Convertible Preferred Stock" (par value $ 1.00 per share)
herein sometimes referred to as the "Series A Preferred Stock") and the number
of shares initially constituting the series shall be 5,000,000.
2.4 Dividends. The Series A Preferred Stock shall bear no dividends.
2.5 Preferences in Liquidation.
(a) Preferential Payment. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation, the holders
of shares of the Series A Preferred Stock then outstanding shall be
entitled to be paid according to their relationship with other holders
of Preferred Stock, out of the assets of the corporation available for
distribution to shareholders, whether from capital, surplus or
earnings, before any payment shall be made in respect of the
corporation's Common Stock, an amount equal to $1.00 per share. After
setting apart or paying in full the preferential amounts due the
holders of the Series A Preferred Stock and any other holders of
Preferred Stock, the remaining assets of the corporation available for
distribution to shareholders, if any, shall be distributed to the
holders of Common Stock unless otherwise provided. If upon liquidation,
dissolution or winding up of the corporation, the assets of the
corporation available for distribution to its shareholders shall be
insufficient to pay the holders of the Series A Preferred Stock the
full preferential distribution of $1 per share, the holders of the
Series A Preferred Stock shall share ratably in the distribution of
such assets.
(b) Notice. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the corporation shall,
within 10 days after the date the Board of Directors approves such
action, or within 20 days prior to any shareholders' meeting called to
approve such action, or within 20 days after the commencement of any
involuntary proceeding, whichever is earlier, give each holder of
shares of Series A Preferred Stock initial written notice of the
proposed action. Such initial written notice shall describe the
material terms and conditions of the proposed action, including a
description of the stock, cash and property to be received by the
holders of shares of Series A Preferred Stock upon consummation of the
proposed action and the date of delivery thereof. If any material
change in the facts set forth in the initial notice shall occur, the
corporations shall promptly give written notice to each holder of
shares of Series A Preferred Stock of such material change.
2.6 Voting Rights. Except as otherwise provided by law or as expressly provided
herein, the Common Stock shall have exclusive voting rights and powers,
including the exclusive right to notice of shareholders' meetings.
2.7 Conversion Rights.
(a) Optional Conversion. Shares of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after
March 31, 1996, (the "Conversion Period"), into fully paid and
nonassessable shares of Common Stock of the corporation.
(b) Conversion Ratio. Each share of Series A Preferred Stock shall be
converted into one share of the Common Stock of the corporation,
subject to adjustment as provided in paragraph 2.8 below.
(c) Procedure For Conversion. The holder of any shares of Series A
Preferred Stock may exercise the conversion rights during the
Conversion Period as to such shares or any part thereof by delivering
to the corporation during regular business hours, at the office of any
transfer agent of the corporation for the Series A Preferred Stock, or
at the principal office of the corporation, the certificate or
certificates for the shares to be converted, duly endorsed for transfer
to the corporation, accompanied by written notice stating that the
holder elects to convert such shares or a part thereof. Conversion
shall be deemed to have been effected on the date when such delivery is
made, and such date is referred to herein as the "Conversion Date". As
promptly as practicable thereafter the corporation shall issue and
deliver to or upon the written order of such holder, at such office or
other place designated by the corporation, a certificate or
certificates for the number of full shares of Common Stock to which
such holder is entitled and a check for cash with respect to any
fractional interest in a share of Common Stock as provided in paragraph
2.7(d). The holder shall be deemed to have become a shareholder of
record on the applicable Conversion Date unless the transfer books of
the corporation are closed on such date, in which event he shall be
deemed to have become a shareholder of record on the next succeeding
date on which the transfer books are open, but the Conversion Ratio
shall be that in effect on the Conversion Date. Upon conversion of only
a portion of the number of shares of Series A Preferred Stock
represented by a certificate surrendered for conversion, the
corporation shall issue and deliver to or upon the written order of the
holder of the certificate so surrendered for conversion, at the expense
of the corporation, a new certificate covering the number of shares of
Series A Preferred Stock representing the unconverted portion of the
certificate so surrendered.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued upon conversion of shares of Series A Preferred Stock.
If more than one share of Series A Preferred Stock shall be surrendered
for conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A
Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Preferred Stock, the corporation shall pay a cash
adjustment in respect of such fractional interest equal to the fair
market value of such fractional interest as determined by the Board of
Directors.
(e) Reserved Shares. The corporation shall reserve and keep available,
out of its authorized but unissued Common Stock, solely for the purpose
of effecting the conversion of the Series A Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of all
Series A Preferred Stock from time to time outstanding. The corporation
shall from time to time (subject to obtaining necessary director and
shareholder action) increase the authorized amount of its Common Stock
if at any time the authorized number of shares of its Common Stock
remaining unissued shall not be sufficient to permit the conversion of
all of the shares of Series A Preferred Stock at the time outstanding.
(f) Registration. If any shares of Common Stock to be reserved for the
purpose of shares of Series A Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock
exchange, or other regulatory body under any federal or state law or
regulation or otherwise, before such shares may be validly issued or
delivered upon conversion, the corporation will in good faith and as
expeditiously as reasonable endeavor to secure such registration,
listing or approval, as the case may be.
(g) Validly Issued. All shares of Common Stock which may be issued upon
conversion of the shares of Series A Preferred Stock will, upon
issuance by the corporation, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
(h) Negative Covenants. This corporation will not, by amendment of its
articles of incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed thereunder, but will at all times in good faith assist in the
carrying out of all the provisions hereof and in the taking of such
action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock
against impairment. In addition, the corporation shall at no time issue
or sell any shares of its Common Stock or Preferred Stock, options or
warrants for a consideration less than fair market value, as reasonably
determined by the Board of Directors, except for grants or awards of
Common Stock or options to acquire Common Stock made to the
corporation's employees, officers, and directors and to consultants and
other participants in the corporation's stock option, stock award,
stock purchase and other benefit plans, provided such grants and awards
made after the date of the first issuance of the corporation's Series A
Preferred Stock shall not represent more than 10% of the then
outstanding shares of Common Stock of the corporation.
2.8 Antidilution. The Conversion Ratio (referred to in paragraph 2.7 (b)) shall
be subject to adjustment from time to time, and the number of shares of Common
Stock issuable on conversion of any shares of Series A Preferred Stock shall be
subject to a resultant increase or decrease (calculated to the nearest 1/100th
of a share) by reason of such adjustment, as hereafter stated, except that no
adjustment shall be made, unless by reason of the occurrence of one or more of
the events hereinafter specified, the Conversion Ratio theretofore in effect
shall be changed by an amount equal to at least 5% thereof, but in the event
that an adjustment would be required except of insufficiency of amount, such
amount shall be carried forward and added to and shall be made at the time of
and together with any subsequent adjustment which, together with any adjustment
or adjustments so carried forward, amount to at least 5% of the Conversion Ratio
at such later time:
(a) Stock Dividends, Subdivisions and Combinations. In the event the
corporation shall declare a stock dividend with respect to its Common
Stock or shall effect a subdivision or combination of its Common Stock
into a greater or lesser number of shares without a proportionate and
corresponding stock dividend, subdivision or combination with respect
to its outstanding Series A Preferred Stock, then the existing
Conversion Ratio for the Series A Preferred Stock shall be increased or
decreased proportionately.
(b) Classification, Reclassification, Capital Reorganization, Etc. In
the case of any classification, reclassification, capital
reorganization or other change of outstanding shares of Common Stock
(other than a change in par value, or from without par value to par
value, or from par value to without par value, or as a result of an
issuance of Common Stock by way of dividend or other distribution or of
a subdivision or combination), or in case of any consolidation or
merger of the corporation with or into another corporation (other than
a merger with a subsidiary in which the corporation is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of the Common
Stock issuable upon conversion of the shares of the Series A Preferred
Stock) or in case of any sale or conveyance to another corporation of
the property of the corporation as an entirety or substantially as an
entirety, the corporation shall cause the holders of the Series A
Preferred Stock to have the right, by exercising their conversion
rights thereunder, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such
reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance, if any, which the holders of
the Series A Preferred Stock would have received had the conversion
taken place immediately prior to such event.
2.9 Changes Affecting Series A Preferred Stock. So long as any shares of Series
A Preferred Stock are outstanding, the corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of at least a majority of the total number of shares of
Series A Preferred Stock outstanding, voting separately as a class, (i) alter or
change any of the powers, preferences, privileges, or rights of the Series A
Preferred Stock; or (ii) amend the provisions of this paragraph 2.9; or (iii)
create any new class or series of shares having preferences prior to the Series
A Preferred Stock or reclassifying any class or series of any Common Stock or
any other shares of stock hereafter created junior to the Class A Preferred
Stock into shares having any preference or priority over the Series A Preferred
Stock.
SERIES B CONVERTIBLE STOCK
There is hereby established and created a second series of Preferred Stock in
the number of shares and having the designation, relative rights, preferences
and limitations as follows:
2.10 Designation and Number of Shares. The distinctive designation of the series
shall be "Series B Convertible Preferred Stock" (par value $ 1.00 per share)
herein sometimes referred to as the "Series B Preferred Stock") and the number
of shares initially constituting the series shall be 1,000,000.
2.11 Dividends. Except as provided below, the Series B Preferred Stock shall
bear no dividends. In the event that the corporation has not increased the
number of authorized shares of its Common Stock to the extent sufficient to
enable the corporation to reserve a number of shares of Common Stock sufficient
to cover the conversion of the shares of Series B Preferred Stock and the
exercise of all Warrants issued in connection with the offering of the Series B
Preferred Stock by December 15, 1996, the Series B Preferred Stock shall bear an
8% cumulative annual dividend, payable quarterly, commencing upon the
corporation's failure to satisfy such condition and terminating on the date
compliance with such condition is satisfied.
2.12 Preferences in Liquidation.
(a) Preferential Payment. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation, the holders
of shares of the Series B Preferred Stock then outstanding shall be
entitled to be paid according to their relationship with other holders
of Preferred Stock, out of the assets of the corporation available for
distribution to shareholders, pari passu, whether from capital, surplus
or earnings, before any payment shall be made in respect of the
corporation's Common Stock, an amount equal to $1.00 per share. After
setting apart or paying in full the preferential amounts due the
holders of the Series B Preferred Stock and any other holders of
Preferred Stock, the remaining assets of the corporation available for
distribution to shareholders, if any, shall be distributed to the
holders of Common Stock unless otherwise provided. If upon liquidation,
dissolution or winding up of the corporation, the assets of the
corporation available for distribution to its shareholders shall be
insufficient to pay the holders of the Series B Preferred Stock the
full preferential distribution of $1 per share, the holders of the
Series B Preferred Stock shall share ratably in the distribution of
such assets.
(b) Notice. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the corporation shall,
within 10 days after the date the Board of Directors approves such
action, or within 20 days prior to any shareholders' meeting called to
approve such action, or within 20 days after the commencement of any
involuntary proceeding, whichever is earlier, give each holder of
shares of Series B Preferred Stock initial written notice of the
proposed action. Such initial written notice shall describe the
material terms and conditions of the proposed action, including a
description of the stock, cash and property to be received by the
holders of shares of Series B Preferred Stock upon consummation of the
proposed action and the date of delivery thereof. If any material
change in the facts set forth in the initial notice shall occur, the
corporations shall promptly give written notice to each holder of
shares of Series B Preferred Stock of such material change.
2.13 Voting Rights. Except as otherwise provided by law or as expressly provided
herein, the Common Stock shall have exclusive voting rights and powers,
including the exclusive right to notice shareholders' meetings.
2.14 Conversion Rights.
(a) Optional Conversion. Shares of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after
December 28, 1996 (the "Conversion Period"), into fully paid and
nonassessable shares of Common Stock of the corporation.
(b) Conversion Ratio. Each share of Series B Preferred Stock shall be
converted into one share of the Common Stock of the corporation,
subject to adjustment as provided in paragraph 2.15 below.
(c) Procedure For Conversion. The holder of any shares of Series B
Preferred Stock may exercise the conversion rights during the
Conversion Period as to such shares or any part thereof by delivering
to the corporation during regular business hours, at the office of any
transfer agent of the corporation for the Series B Preferred Stock, or
at the principal office of the corporation, the certificate or
certificates for the shares to be converted, duly endorsed for transfer
to the corporation, accompanied by written notice stating that the
holder elects to convert such shares or a part thereof. Conversion
shall be deemed to have been effected on the date when such delivery is
made, and such date is referred to herein as the "Conversion Date". As
promptly as practicable thereafter the corporation shall issue and
deliver to or upon the written order of such holder, at such office or
other place designated by the corporation, a certificate or
certificates for the number of full shares of Common Stock to which
such holder is entitled and a check for cash with respect to any
fractional interest in a share of Common Stock as provided in paragraph
2.14(d). The holder shall be deemed to have become a shareholder of
record on the applicable Conversion Date unless the transfer books of
the corporation are closed on such date, in which event he shall be
deemed to have become a shareholder of record on the next succeeding
date on which the transfer books are open, but the Conversion Ratio
shall be that in effect on the Conversion Date. Upon conversion of only
a portion of the number of shares of Series B Preferred Stock
represented by a certificate surrendered for conversion, the
corporation shall issue and deliver to or upon the written order of the
holder of the certificate so surrendered for conversion, at the expense
of the corporation, a new certificate covering the number of shares of
Series B Preferred Stock representing the unconverted portion of the
certificate so surrendered.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued upon conversion of shares of Series B Preferred Stock.
If more than one share of Series B Preferred Stock shall be surrendered
for conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series B
Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series B Preferred Stock, the corporation shall pay a cash
adjustment in respect of such fractional interest equal to the fair
market value of such fractional interest as determined by the Board of
Directors.
(e) Reserved Shares. The corporation shall reserve and keep available,
out of its authorized but unissued Common Stock, solely for the purpose
of effecting the conversion of the Series B Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of all
Series B Preferred Stock from time to time outstanding. The corporation
shall from time to time (subject to obtaining necessary director and
shareholder action) increase the authorized amount of its Common Stock
if at any time the authorized number of shares of its Common Stock
remaining unissued shall not be sufficient to permit the conversion of
all of the shares of Series B Preferred Stock at the time outstanding.
(f) Registration. If any shares of Common Stock to be reserved for the
purpose of shares of Series B Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock
exchange, or other regulatory body under any federal or state law or
regulation or otherwise, before such shares may be validly issued or
delivered upon conversion, the corporation will in good faith and as
expeditiously as reasonable endeavor to secure such registration,
listing or approval, as the case may be.
(g) Validly Issued. All shares of Common Stock which may be issued upon
conversion of the shares of Series B Preferred Stock will, upon
issuance by the corporation, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
(h) Negative Covenants. This corporation will not, by amendment of its
articles of incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed thereunder, but will at all times in good faith assist in the
carrying out of all the provisions hereof and in the taking of such
action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series B Preferred Stock
against impairment.
2.15 Antidilution. The Conversion Ratio (referred to in paragraph 2.14 (b))
shall be subject to adjustment from time to time, and the number of shares of
Common Stock issuable on conversion of any shares of Series B Preferred Stock
shall be subject to a resultant increase or decrease (calculated to the nearest
1/100th of a share) by reason of such adjustment, as hereafter stated, except
that no adjustment shall be made, unless by reason of the occurrence of one or
more of the events hereinafter specified, the Conversion Ratio theretofore in
effect shall be changed by an amount equal to at least 5% thereof, but in the
event that an adjustment would be required except of insufficiency of amount,
such amount shall be carried forward and added to and shall be made at the time
of and together with any subsequent adjustment which, together with any
adjustment or adjustments so carried forward, amount to at least 5% of the
Conversion Ratio at such later time.
(a) Stock Dividends, Subdivisions and Combinations. In the event the
corporation shall declare a stock dividend with respect to its Common
Stock or shall effect a subdivision or combination of its Common Stock
into a greater or lesser number of shares without a proportionate and
corresponding stock dividend, subdivision or combination with respect
to its outstanding Series B Preferred Stock, then the existing
Conversion Ratio for the Series B Preferred Stock shall be increased or
decreased proportionately.
(b) Classification, Reclassification, Capital Reorganization, Etc. In
the case of any classification, reclassification, capital
reorganization or other change of outstanding shares of Common Stock
(other than a change in par value, or from without par value to par
value, or from par value to without par value, or as a result of an
issuance of Common Stock by way of dividend or other distribution or of
a subdivision or combination), or in case of any consolidation or
merger of the corporation with or into another corporation (other than
a merger with a subsidiary in which the corporation is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of the Common
Stock issuable upon conversion of the shares of the Series B Preferred
Stock) or in case of any sale or conveyance to another corporation of
the property of the corporation as an entirety or substantially as an
entirety, the corporation shall cause the holders of the Series B
Preferred Stock to have the right, by exercising their conversion
rights thereunder, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such
reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance, if any, which the holders of
the Series B Preferred Stock would have received had the conversion
taken place immediately prior to such event.
2.16 Changes Affecting Series B Preferred Stock So long as any shares of Series
B Preferred Stock are outstanding, the corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of at least a majority of the total number of shares of
Series B Preferred Stock outstanding, voting separately as a class, (i) alter or
change any of the powers, preferences, privileges, or rights of the Series B
Preferred Stock; or (ii) amend the provisions of this paragraph 2.16; or (iii)
create any new class or series of shares having preferences prior to the Series
B Preferred Stock or reclassifying any class or series of any Common Stock or
any other shares of stock hereafter created junior to the Class B Preferred
Stock into shares having any preference or priority over the Series B Preferred
Stock.
ARTICLE IV
The name and address of the incorporator is Thomas H. Garrett III, 4200
IDS Center, 80 South Eighth Street Minneapolis, Minneosta 55402.
ARTICLE V
No shareholder of this corporation shall have any cumulative voting
rights.
ARTICLE VI
No shareholder of this corporation shall have any preemptive rights to
subscribe for, purchase, or acquire any shares of the corporation of any class,
whether unissued or now or hereafter authorized, or any obligations or other
securities convertible into or exchangeable for any such shares.
ARTICLE VII
The affirmative note of the holders of a majority of the voting power
of the shares represented and voting at a duly held meeting of the shareholders
of this corporation is required for an action of the shareholders, except where
Minnesota Statutes, Section 302A requires the affirmative vote of a majority of
the voting power of all voting shares.
ARTICLE VIII
The number of directors of this corporation shall be fixed in the
manner provided in the bylaws.
ARTICLE IX
Any action required or permitted to be taken at a meeting of the board
of directors of this corporation not needing approval by the shareholders under
Minnesota Statutes, Section 302A, may be taken by written action signed by the
number of directors that would be required to take such action at a meeting of
the board of directors at which all directors were present.
ARTICLE X
DIRECTOR LIABILITY
No director of this corporation shall be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders; (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) under Sections 302A.559 or 80A.23 of the Minnesota
Statutes; (iv) for any transaction from which the director derived any improper
personal benefit; (v) for any act or omission occurring prior to the date when
this provision becomes effective.
The provisions of this Article X shall not be deemed to limit or
preclude indemnification of a director by the corporation for any liability of a
director which has not been eliminated by the provisions of this Article.
If the Minnesota Statues hereafter are amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Minnesota Statutes, as so amended.
EXHIBIT 3.2 TO FORM 10-KSB FOR THE FISCAL YEAR ENDING DECEMBER 31, 1995
SPECTRASCIENCE, INC
AMENDED BYLAWS
ARTICLE I
OFFICERS, CORPORATE SEAL
AND SHAREHOLDER CONTROL AGREEMENT
SECTION 1.01. REGISTERED AND OTHER OFFICES. The registered office of
the corporation in Minnesota shall be that set forth in the Articles of
Incorporation or statement of the Board of Directors filed with the Secretary of
State of Minnesota changing the registered office in the manner prescribed by
law. The corporation may have such other offices, within or without the State of
Minnesota, as the Board of Directors shall, from time to time, determine.
SECTION 1.02. CORPORATE SEAL. If so directed by the Board of Directors,
the corporation may use a corporate seal. The failure to use such seal, however,
shall not affect the validity of any documents executed on behalf of the
corporation. The seal need only include the word "seal", but it may also
include, at the discretion of the Board, such additional wording as is permitted
by law.
SECTION 1.03. SHAREHOLDER CONTROL AGREEMENT. In the event of any
conflict or inconsistency between these Bylaws, or any amendment thereto, and
any shareholder control agreement or any stock repurchase or redemption
agreement, whenever adopted, such shareholder control agreement shall govern.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.01. TIME AND PLACE OF MEETINGS. Regular or special meetings
of the shareholders, if any, shall be held on the date and at the time and place
fixed by the President in the absence of Board of Director action, except that a
special meeting called by, or at the demand of a shareholder or shareholders,
pursuant to Minnesota Statutes, Section 302A.431, Subd. 2, shall be held in the
county where the principal executive office is located.
SECTION 2.02. REGULAR MEETING. At any regular meeting of the
shareholders there shall be an election of qualified successors for directors
who serve for an indefinite term or whose terms have expired or are due to
expire within six (6) months after the date of the meeting. Any business
appropriate for action by the shareholders may be transacted at a regular
meeting. No meeting shall be considered a regular meeting unless specifically
designated as such in the notice of meeting unless all the shareholders are
present in person or by proxy and none of them objects to such designation.
Regular meetings may be held no more frequently than once per year.
SECTION 2.03. DEMAND BY SHAREHOLDERS. Regular or special meetings may
be demanded by a shareholder or shareholders, pursuant to the provisions of
Minnesota Statutes, Section 302A.431, Subd. 2, and 302A.433, Subd. 2,
respectively.
SECTION 2.04. QUORUM; ADJOURNED MEETINGS. The holders of a majority of
the voting power of the shares entitled to vote at a meeting constitute a quorum
for the transaction of business; said holders may be present at the meeting
either in person or by proxy. If a quorum is present when a duly called or held
meeting is convened, the shareholders present may continue to transact business
until adjournment, even though withdrawal of shareholders originally present
leaves less than the proportion or number otherwise required for a quorum.
A meeting of the shareholders at which there is a quorum may be
adjourned as to all or part of the matters to be considered at the meeting upon
motion by the person presiding at such meeting and by a majority vote of shares
represented in person or by proxy at such meeting. Such adjournment shall be
until a specific time and place, and the time and place for the reconvened
meeting shall be announced at the meeting and reflected in the minutes thereof.
SECTION 2.05. VOTING. At each meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Unless otherwise provided by the Articles of Incorporation or a
resolution of the Board of Directors filed with the Secretary of State, each
shareholder shall have one vote for each share held. Upon demand of any
shareholder, the vote upon any question before the meeting shall be by ballot.
SECTION 2.06. CLOSING OF BOOKS. The Board of Directors may fix a time,
not exceeding sixty (60) days preceding the date of any meeting of shareholders,
as a record date for the determination of the shareholders entitled to notice
of, and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. The Board of Directors
may close the books of the corporation against the transfer of shares during the
whole or any part of such period. If the Board of Directors fail to fix a record
date for determination of the shareholders entitled to notice of, and to vote
at, any meeting of shareholders, the record date shall be the sixtieth (60th)
day preceding the date of such meeting.
SECTION 2.07. NOTICE OF MEETINGS. Notice of all meetings of
shareholders shall be given to every holder of voting shares, except where the
meeting is an adjourned meeting and the date, time and place of the meeting was
announced at the time of adjournment. The notice shall be given at least ten
(10) days, but not more than sixty (60) days, before the date of the meeting,
except that written notice of a meeting at which an agreement of merger is to be
considered shall be given to all shareholders, whether entitled to vote or not,
at least fourteen (14) days prior thereto. Every notice of any special meeting
shall state the purpose or purposes for which the meeting has been called, and
the business transacted at all special meetings shall be confined to the purpose
stated in the call, unless all of the shareholders are present in person or by
proxy and none of them object to consideration of a particular item of business.
SECTION 2.08. WAIVER OF NOTICE. A shareholder may waive notice of any
meeting of shareholders. A waiver of notice by a shareholder entitled to notice
is effective whether given before, at or after the meeting and whether given in
writing, orally or by attendance.
SECTION 2.09. AUTHORIZATION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting as authorized by law.
ARTICLE III
DIRECTORS
SECTION 3.01. GENERAL PURPOSES. Except as authorized by the
shareholders pursuant to a shareholder control agreement or unanimous
affirmative vote, the business and affairs of the corporation shall be managed
by or shall be under the direction of the Board of Directors.
SECTION 3.02. NUMBER, QUALIFICATIONS AND TERM OF OFFICE. The Board of
Directors shall consist of five Directors, which number may be increased by the
Board of Directors and additional Directors elected by the existing Board of
Directors, without approval of the shareholders; but this number shall only be
decreased in accordance with Section 302A.223 of the Minnesota Business
Corporation Act. Directors need not be shareholders. The Board of Directors, in
its discretion, may elect a Chairman of the Board of Directors, who, when
present, shall preside at all meetings of the Board of Directors, and who shall
have such powers as the Board shall prescribe. Each of the directors shall hold
office until the regular meeting of the shareholders next held after his
election, until his successor shall have been elected and shall qualify, or
until he shall resign or shall have been removed as provided by law.
SECTION 3.03. BOARD MEETINGS; PLACE AND NOTICE. Meetings of the Board
of Directors may be held from time to time at any place within or without the
State of Minnesota that the Board of Directors may designate. In the absence of
designation by the Board of Directors, Board meetings shall be held at the
principal executive office of the corporation, except as may be otherwise
unanimously agreed orally or in writing or by attendance. Any director may call
a Board meeting by giving twenty-four (24) hours notice to all directors of the
date and time of the meeting. The notice need not state the purpose of the
meeting. Notice may be given by mail, telephone, telegram, or in person. If a
meeting schedule is adopted by the Board of Directors, or if the date and time
of a Board meeting has been announced at a previous meeting, no notice is
required.
SECTION 3.04. WAIVER OF NOTICE. A director may waive notice of a
meeting of the Board of Directors. A waiver of notice by a director is
effective, whether given before, at or after the meeting and whether given in
writing, orally or by attendance.
SECTION 3.05. QUORUM. A majority of the whole Board is a quorum for the
transaction of business, except that when a vacancy or vacancies exist, a
majority of the remaining directors shall constitute a quorum.
SECTION 3.06. VACANCIES. Vacancies on the Board of Directors resulting
from the death, resignation or removal of a director may be filled by the
affirmative voting of a majority of the remaining directors, even though less
than a quorum. Each director elected under this Section to fill a vacancy holds
office until a qualified successor is elected by the shareholders at their next
regular meeting or at any meeting duly called for that purpose.
SECTION 3.07. COMMITTEES. The Board may, by resolution, establish
committees in the manner provided by law. Committee members need not be
directors.
SECTION 3.08. COMPENSATION. Directors shall not receive any stated
salary for their services in such capacity, but by resolution of the Board may
receive a fixed fee and expenses of attending meetings. Nothing herein precludes
any director from serving in another capacity and receiving compensation for
such other capacity.
SECTION 3.09. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a Board of Directors
meeting.
SECTION 3.10. AUTHORIZATION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of the Board or any committee may be taken
without a meeting as authorized by law.
ARTICLE IV
OFFICERS
SECTION 4.01. NUMBER. The officers of the corporation shall consist of
a President and may also consist of one or more Vice Presidents, a Secretary and
a Treasurer. The Board may elect or appoint any other officers it deems
necessary for the operation and management of the corporation, each of whom
shall have the powers, rights, duties, responsibilities and terms of office
determined by the Board from time to time. Any number of offices or functions of
those offices may be held or exercised by the same person.
SECTION 4.02. ELECTION AND TERM OF OFFICE. The Board of Directors shall
from time to time elect a President and may elect one or more Vice Presidents, a
Secretary and a Treasurer and any other officers or agents the Board deems
necessary. Such officers shall hold their offices until their successors are
elected and qualified.
SECTION 4.03. PRESIDENT. Unless otherwise stipulated, the President
shall be the chief executive officer and the chief financial officer of the
corporation and shall have responsibility for the general active management of
the corporation. When present, he shall preside at all meetings of the
shareholders and, unless a Chairman of the Board of Directors has been elected
and is present, shall preside at meetings of the Board of Directors and see that
all orders and resolutions of the Board of Directors are carried into effect.
The President, unless some other person is specifically authorized by vote of
the Board of Directors, shall sign all certificates of stock, bonds, deeds,
mortgages, agreements, modification of mortgage agreements, leases, and
contracts of the corporation. The President, if no Secretary has been elected,
shall maintain records of and, whenever necessary, certify all proceedings of
the Board of Directors and the shareholders. As chief financial officer, the
President shall keep accurate financial records of the corporation; deposit all
money, drafts and checks in the name of and to the credit of the corporation in
the banks and depositories designated by the Board of Directors; endorse for
deposit all notes, checks, and drafts received by the corporation as ordered by
the Board of Directors, making proper vouchers therefor; and disburse corporate
funds and issue checks and drafts in the name of the corporation, as ordered by
the Board of Directors. The President shall perform such other duties as the
Board of Directors shall designate.
SECTION 4.04. VICE PRESIDENT. If a Vice President or Vice Presidents
have been elected, they shall have such powers and perform such duties as may be
prescribed by the Board of Directors or by the President. In the event of
absence or disability of the President, Vice Presidents shall succeed to the
President's power and duties in the order designated by the Board of Directors.
SECTION 4.05. SECRETARY. If a Secretary has been elected, the Secretary
shall keep accurate minutes of all meetings of the shareholders and the Board of
Directors, shall give proper notice of meetings of shareholders and directors,
shall certify all proceedings of the Board of Directors and the shareholders,
and shall perform such other duties and have such other powers as the Board of
Directors or the President may from time to time prescribe. In the Secretary's
absence at any meeting an Assistant Secretary or a Secretary Pro Tempore shall
perform the Secretary's duties.
SECTION 4.06. TREASURER. If a Treasurer has been elected, the Treasurer
shall assist the President in carrying out the President's duties as chief
financial officer and perform such other duties and have such other powers as
the Board of Directors or the President may from time to time prescribe.
SECTION 4.07. REMOVAL AND VACANCIES. Any officer may be removed from
his office by a majority of the whole Board of Directors, with or without cause.
Such removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy may be filled for the
unexpired term by the Board of Directors.
SECTION 4.08. DELEGATION OF AUTHORITY. An officer elected or appointed
by the Board may delegate some or all of the duties or powers of his office to
other persons, provided that such delegation is in writing.
ARTICLE V
SHARES AND THEIR TRANSFER
SECTION 5.01. CERTIFICATES FOR SHARES. Every shareholder of this
corporation shall be entitled to a certificate, to be in such form as prescribed
by law and adopted by the Board of Directors, certifying the number of shares of
the corporation owned by him. The certificates shall be numbered in the order in
which they are issued and shall be signed by the President (or such other
officer or officers as the Board of Directors may designate) and shall have
typed or printed thereon such legend as may be required by any shareholder
control agreement or stock repurchase or redemption agreement. Such signatures
may be by facsimile if authorized by the Board of Directors. Every certificate
surrendered to the corporation for exchange or transfer shall be canceled, and
no new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled.
SECTION 5.02. ISSUANCE OF SHARES. The Board of Directors is authorized
to cause to be issued shares of the corporation up to the full amount authorized
by the Articles of Incorporation in such amounts as may be determined by the
Board of Directors and as may be permitted by applicable law. Shares shall be
allotted only in exchange for consideration in such forms as may be permitted by
applicable law. At the time of any such allotment of shares, the Board of
Directors making such allotment shall state, by resolution, their determination
of the fair value of the corporation in monetary terms of any consideration
other than cash for which shares are allotted. The amount of consideration to be
received in cash or otherwise shall not be less than the par value of the shares
so allotted.
SECTION 5.03. TRANSFER OF SHARES. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholders'
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares. The corporation may treat as the absolute owner of
shares of the corporation the person or persons in whose name or names the
shares are registered on the books of the corporation.
SECTION 5.04. LOST CERTIFICATES. Any shareholder claiming that a
certificate for shares has been lost, destroyed or stolen shall make an
affidavit of the fact in such form as the Board of Directors shall require and
shall, if the Board of Directors so requires, give the corporation a sufficient
indemnity bond, in form, in an amount, and with one or more sureties
satisfactory to the Board of Directors, to indemnify the corporation against any
claims which may be made against it on account of the reissue of such
certificates. A new certificate shall then be issued to said shareholder for the
same number of shares as the one alleged to have been destroyed, lost or stolen.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.01. DISTRIBUTIONS. Subject to the provisions of the Articles
of Incorporation, the Board of Directors may cause the corporation to make
distributions pursuant to the provisions of the Minnesota Statutes, Section
302A.551.
SECTION 6.02. RECORD DATE. Subject to any provisions of the Articles of
Incorporation, the Board of Directors may fix a date preceding the date fixed
for the payment of any distribution or allotment of other rights as the record
date for the determination of the shareholders entitled to receive payment of
such distribution or allotment of such rights; and in such case only
shareholders of record on the date so fixed shall be entitled to receive payment
or allotment notwithstanding any transfer of shares on the books of the
corporation after such record date. The Board of Directors may close the books
of the corporation against the transfer of shares during the whole or any part
of such period.
ARTICLE VII
BOOKS AND RECORDS; FISCAL YEAR
SECTION 7.01. BOOKS AND RECORDS. The Board of Directors of the
corporation shall cause to be kept in such place as it may designate:
(a) a share register, giving the names and addresses of the
shareholders, the number and classes of shares held by each, and the dates on
which the certificates therefor were issued;
(b) records of all proceedings of shareholders and directors;
(c) such other records and books of account as shall be necessary and
appropriate to the conduct of corporate business; and
(d) Bylaws of the corporation and all amendments thereto.
SECTION 7.02. FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
ARTICLE VIII
INSPECTION OF BOOKS
SECTION 8.01. EXAMINATION BY SHAREHOLDERS. Every shareholder of the
corporation and every holder of a voting trust certificate shall have the right
to examine, in person or by agent or attorney authorized in writing to represent
the shareholder, at any reasonable time or times, for any proper purpose, and at
the place or places where usually kept, the share register, books of account and
records of the proceedings of the shareholders and directors and to make
extracts therefrom.
SECTION 8.02. INFORMATION TO SHAREHOLDERS. Upon written request by a
shareholder of the corporation, the Board of Directors shall furnish to him a
statement of profit and loss for the last fiscal year and a balance sheet
containing a summary of the assets and liabilities as of the close of such
fiscal year.
ARTICLE IX
INDEMNIFICATION
Any person who at any time shall serve or shall have served as a
director, officer, or employee of the corporation, or of any other enterprise at
the request of the corporation, and the heirs, executors and administrators of
such person shall be indemnified by the corporation in accordance with, and to
the fullest extent permitted by, the provisions of the Minnesota Business
Corporation Act, as it may be amended from time to time.
ARTICLE IX (AMENDED)
INDEMNIFICATION
SECTION 9.01. DEFINITIONS.
(a) For purposes of this Article, the terms defined in this Section
have the meanings given them.
(b) "CORPORATION" includes a domestic or foreign corporation that was
the predecessor of the corporation referred to in this section in a merger or
other transaction in which the predecessor's existence ceased upon consummation
of the transaction.
(c) "OFFICIAL CAPACITY" means (1) with respect to a director, the
position of director in the corporation, (2) with respect to a person other than
a director, the elective or appointive office or position held by an officer,
member of a committee of the Board, or the employment relationship undertaken by
an employee of the corporation, (3) with respect to a director, officer or
employee of the corporation who is or was serving at the request of the
corporation or whose duties in that position involve or involved service as a
director, officer, partner, trustee, or agent of another organization or
employee benefit plan, the position of that person as director, officer,
partner, trustee, employee or agent, as the case may be, of the other
organization or employee benefit plan.
(d) "PROCEEDING" means a threatened, pending or completed civil,
criminal, administrative, arbitration or investigative proceeding, including a
proceeding by or in the right of the corporation.
(e) "SPECIAL LEGAL COUNSEL" means counsel who has not represented the
corporation or a related corporation, or a director, officer, member of a
committee of the Board or employee whose indemnification is in issue.
SECTION 9.02. INDEMNIFICATION MANDATORY; STANDARD.
(a) Subject to the provisions of Section 4, a corporation shall
indemnify a person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of the person against
judgments, penalties, fines, including without limitation, excise taxes assessed
against the person with respect to an employee benefit plan, settlements and
reasonable expenses, including attorneys' fees and disbursements, incurred by
the person in connection with the proceeding if, with respect to the acts or
omissions of the person complained of in the proceeding, the person:
(1) has not been indemnified by another organization or employee
benefit plan for the same judgments, penalties, fines,
including without limitation, excise taxes assessed against
the person with respect to an employee benefit plan,
settlements and reasonable expenses, including attorneys' fees
and disbursements incurred by the person in connection with
the proceeding with respect to the same acts or omissions;
(2) acted in good faith;
(3) received no improper personal benefit and Section 302A.255, if
applicable, has been satisfied;
(4) in the case of a criminal proceeding, had no reasonable cause
to believe the conduct was unlawful; and
(5) in the case of acts or omissions occurring in the official
capacity described in Section 1, paragraph (c), clause (1) or
(2), reasonably believed that the conduct was in the best
interests of the corporation, or in the case of acts or
omissions occurring in the official capacity described in
Section 1, paragraph (c), clause (3), reasonable believed that
the conduct was not opposed to the best interests of the
corporation. If the person's acts or omissions complained of
in the proceeding relate to conduct as a director, officer,
trustee, employee, or agent of an employee benefit plan, the
conduct is not considered to be opposed to the best interests
of the corporation if the person reasonably believed that the
conduct was in the best interests of the participants or
beneficiaries of the employee benefit plan.
(b) The termination of a proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent does not, of
itself, establish that the person did not meet the criteria set forth in this
Section 2.
SECTION 9.03. ADVANCES. Subject to the provisions of Section 4, if a
person is made or threatened to be made a party to a proceeding, the person is
entitled, upon written request to the corporation, to payment or reimbursement
by the corporation of reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in advance of the final disposition of the
proceeding, (a) upon receipt by the corporation of a written affirmation by the
person of a good faith belief that the criteria for indemnification set forth in
Section 2 have been satisfied and a written undertaking by the person to repay
all amounts so paid or reimbursed by the corporation, if it is ultimately
determined that the criteria for indemnification have not been satisfied, and
(b) after a determination that the facts then known to those making the
determination would not preclude indemnification under this Article. The written
undertaking required by clause (a) is an unlimited general obligation of the
person making it, but need not be secured and shall be accepted without
reference to financial ability to make the repayment.
SECTION 9.04. PROHIBITION OR LIMIT ON INDEMNIFICATION OR ADVANCES. The
Articles or Bylaws either may prohibit indemnification or advances of expenses
otherwise required by this Article or may impose conditions on indemnification
or advances of expenses in addition to the conditions contained in Sections 2
and 3 including, without limitation, monetary limits on indemnification or
advances of expenses, if the conditions apply equally to all persons or to all
persons within a given class. A prohibition or limit on indemnification or
advances may not apply to or affect the right of a person to indemnification or
advances of expenses with respect to any acts or omissions of the person
occurring prior to the effective date of a provision in the Articles or the date
of adoption of a provision in the Bylaws establishing the prohibition or limit
on indemnification or advances.
SECTION 9.05. REIMBURSEMENT TO WITNESS. This section does not require
or limit the ability of a corporation to reimburse expenses, including
attorneys' fees and disbursements, incurred by a person in connection with an
appearance as a witness in a proceeding at a time when the person has not been
made or threatened to be made a party to a proceeding.
SECTION 9.06. DETERMINATION OF ELIGIBILITY.
(a) All determinations whether indemnification of a person is required
because the criteria set forth in Section 2 have been satisfied and whether a
person is entitled to payment or reimbursement of expenses in advance of the
final disposition of a proceeding as provided in Section 3 shall be made:
(1) by the Board by a majority of a quorum. Directors who are at
the time parties to the proceeding shall not be counted for
determining either a majority or the presence of a quorum;
(2) if a quorum under clause (1) cannot be obtained by a majority
of a committee of the Board, consisting solely of two or more
directors not at the time parties to the proceeding, duly
designated to act in the matter by a majority of the full
Board, including directors who are parties;
(3) if a determination is not made under clause (1) or (2) by
special legal counsel, selected either by a majority of the
Board or a committee by vote pursuant to clause (1) or (2) or,
if the requisite quorum of the full Board cannot be obtained
and the committee cannot be established, by a majority of the
full Board including directors who are parties;
(4) if a determination is not made under clauses (1) to (3) by the
shareholders, excluding the votes of shares held by parties to
the proceeding; or
(5) if an adverse determination is made under clauses (1) to (4)
or under paragraph (b), or if no determination is made under
clauses (1) to (4) or under paragraph (b) within 60 days after
the termination of a proceeding or after a request for an
advance of expenses, as the case may be, by a court in this
state, which may be the same court in which the proceeding
involving the person's liability took place, upon application
of the person and any notice the court requires.
(b) With respect to a person who is not, and was not at the time of the
acts or omissions complained of in the proceedings, a director, officer or
person possessing, directly or indirectly, the power to direct or cause the
direction of the management or policies of the corporation, the determination
whether indemnification of this person is required because the criteria set
forth in Section 2 have been satisfied and whether this person is entitled to
payment or reimbursement of expenses in advance of the final disposition of a
proceeding as provided in Section 3 may be made by an annually appointed
committee of the Board, having at least one member who is a director. The
committee shall report at least annually to the Board concerning its actions.
SECTION 9.07. INSURANCE. A corporation may purchase and maintain
insurance on behalf of a person in that person's official capacity against any
liability asserted against and incurred by the person in or arising from that
capacity, whether or not the corporation would have been required to indemnify
the person against the liability under the provisions of this section.
SECTION 9.08. DISCLOSURE. A corporation that indemnifies or advances
expenses to a person in accordance with this section in connection with a
proceeding by or on behalf of the corporation shall report to the shareholders
in writing.
SECTION 9.09. INDEMNIFICATION OF OTHER PERSONS. Nothing in this section
shall be construed to limit the power of the corporation to indemnify other
persons by contract or otherwise.
ARTICLE X
AMENDMENTS
SECTION 10.01. Subject to Section 10.02, these Bylaws may be amended by
a vote of the majority of the whole Board of Directors at any meeting, provided
that notice of such proposed amendment shall have been included in the notice of
such meeting given to the directors. The Board of Directors shall not adopt,
amend or repeal any Bylaw fixing a quorum for meetings of shareholders,
prescribing procedures for removing directors or filling vacancies in the Board
of Directors, or fixing their qualification, classification, term of office or
number; except that the Board may adopt or amend any Bylaw to increase its
number.
SECTION 10.02. Notwithstanding the provisions of Section 10.01, the
shareholders may amend or repeal any Bylaw by a majority vote of the
shareholders present or represented at any regular meeting or at any special
meeting of shareholders called for such purpose.
END
EXHIBIT 10.15 TO FORM 10-KSB FOR FISCAL YEAR ENDING DECEMBER 31, 1996
SPECTRASCIENCE, INC
CLINICAL RESEARCH AGREEMENT
Agreement made this first day of June, 1995, ("Effective Date") between
The General Hospital Corporation, a not-for-profit corporation doing business as
Massachusetts General Hospital, having a principal place of business at Fruit
Street, Boston, Massachusetts 02114 ("General") and SpectraScience, Inc., a
corporation having an office at 5909 Baker Road, Suite 580. Minnetonka, MN 55345
("SpectraScience").
1. For the purposes of this Agreement, the following terms shall have
the following meanings:
(a) "Invention" shall mean any invention which constitutes a new use of
or modification to the Study Device which any Investigator, solely or jointly,
conceives and reduces to practice in the performance of the Study.
(b) "Investigator" shall mean the Principal Investigator together with
other General professional staff members, students, research fellows, and
employees who perform the Study under his or her direction.
(c) "Study" shall mean the scientific research described in the
research protocol (s) attached hereto as Exhibit A on the Effective Date or
thereafter appended hereto pursuant to paragraph 2(b) below and funded by
SpectraScience and performed by the Investigators.
(d) "Study Device" shall mean the Spectroscopic Guidewire System
(comprised of the Spectroscopic Diagnostics System console, proprietary system
software, and the disposable optical core Spectroscopic Guidewire) provided by
SpectraScience for the Study at General.
2. (a) General, through a Principal Investigator, agrees to conduct
clinical research of the Study Device in accordance with the study protocol (s)
attached hereto as Exhibit A (hereinafter referred to as the "Study"). In the
event of any conflict between Exhibit A and the provisions of this Agreement,
the provisions of this Agreement shall govern.
(b) At any time during the term of this Agreement either party may
propose in writing additional research pertaining to the Study Device not
previously described in any research protocol appended hereto as Exhibit A. Each
such protocol shall name the individual at General who will be the Principal
Investigator and shall include a description of the additional research proposed
and a budget of the costs to be funded by SpectraScience and a schedule of
payment of such costs. Unless the parties shall otherwise agree in writing,
negotiations between them over any such protocol shall not extend beyond the
sixtieth (60) day next following the date when the protocol shall have first
been proposed, and whenever such negotiations shall end without agreement
between the parties to proceed with the proposed research, the party proposing
the additional research may go ahead without the other party and seek funding
from any other sponsor including but not limited to a commercial sponsor for
such protocol. When such protocol is accepted by General and SpectraScience, the
Principal Investigator shall, when necessary under the applicable regulations,
submit such protocol to the General's IRB and , if approved, it shall be
appended hereto as a Study and shall be subject to the terms and conditions of
this Agreement unless otherwise specified, and the research described therein
shall commence and budgeted amounts shall be paid as set forth in the protocol
or as otherwise agreed by the parties in writing.
(c) The Study will be conducted by a Principal Investigator at General
with the prior approval and ongoing review of all appropriate and necessary
review authorities and in accordance with all federal, state and local laws and
regulations. Principal Investigator shall provide SpectraScience with written
evidence of review and approval of the Study by General's Institutional Review
Board prior to the initiation of the Study and of the Board's continuing review
and approval of the Study whenever it is reviewed, but at least once per year.
All volunteers will meet the legal age requirements of the Commonwealth of
Massachusetts, the state in which the Study is to be conducted.
3. Principal Investigator will furnish SpectraScience with the data
resulting from the Study in signed case report forms within a reasonable time
after completion of each case and SpectraScience shall have the unrestricted
right to use such data including, but only to the extent that subjects' consents
have been obtained, the subjects' names, any identifying information, and any
audiotapes, photographs or other likenesses. Study records shall be made
available to SpectraScience representatives upon request for comparison with
case report forms. Such records will also be made available upon request for
review by representatives of the U.S. Food and Drug Administration. Records of
the Study including either the original or a copy of all volunteer consent forms
shall be retained in conformance with applicable federal regulations.
SpectraScience shall notify Principal Investigator of the date a premarket
approval application (PMA) is approved for the device; or if the application is
not approved, SpectraScience shall notify Principal Investigator when all
clinical investigations have been discontinued and the FDA notified.
4. Principal Investigator will be free to publish the results of the
Study subject only to the provisions of Paragraph 5 regarding SpectraScience's
proprietary information. SpectraScience will be furnished with a copy of any
proposed publication for review and comment prior to submission for publication,
for manuscripts, at least thirty (30) days prior to submission, and for
abstracts, at least seven (7) days prior to submission. At the expiration of
such thirty (30) day or seven (7) day period, Principal Investigator may proceed
with submission for publication.
5. In the event that SpectraScience discloses to any General personnel
any information which relates to the Study that SpectraScience considers
confidential, the rights and obligations of the parties with respect to such
information shall be governed by the terms and conditions set forth in Exhibit
B.
6. The Principal Investigator and any other Investigator who shall make
an Invention, solely or jointly, shall promptly report such Invention to General
and shall assign all of his or her rights, title and interest in the Invention
to General. General shall promptly advise SpectraScience in writing of each
Invention disclosed to General and shall discuss with SpectraScience whether a
patent application or applications (hereinafter referred to, together with any
patents issued thereon, as "Patent Rights") pertaining to such Invention should
be filed and in which countries. In the event of joint inventorship between
SpectraScience personnel and General Investigators, SpectraScience personnel
shall assign all of their rights, title and interest in the Invention to
SpectraScience, and General Investigators shall assign all of their rights,
title and interest in the Invention to General, and the Invention will be deemed
to be jointly owned. If both parties mutually agree that Patent Rights should be
filed, applications assigned solely to General shall be filed by General, and
applications owned jointly by General and SpectraScience shall be filed as
mutually agreed upon by the parties. In the event SpectraScience is not
interested in having Patent Rights filed with respect to a particular Invention,
SpectraScience shall advise General of such fact within ninety (90) days from
the date on which the Invention was disclosed to SpectraScience by General and
General shall be free to file and prosecute Patent Rights on such Invention at
its own expense and to license such Patent Rights to any other party.
All information given to SpectraScience by General in accordance with
this paragraph 6 will be held in confidence by SpectraScience so long as such
information remains unpublished or publicly undisclosed by General
All patent costs pertaining to any Patent Rights filed by mutual
agreement of SpectraScience and General, including preparation, filing,
prosecution, issuance and maintenance costs, shall be borne by SpectraScience.
As to any Patent Rights assigned in whole or in part to General and
filed by mutual agreement of the parties, to the extent not prohibited by the
United States Government or prevented by the obligations of General to any other
sponsor of research at General, SpectraScience shall have for the twelve (12)
months next following the filing of such Patent Rights in the United States
Patent and Trademark Office the option to obtain a world-wide, royalty bearing,
exclusive license under General's rights therein with the right to sublicense.
In the event that General is prohibited or prevented as aforesaid from granting
an exclusive license to any Patent Right hereunder, General will grant to
SpectraScience the most exclusive license that it is able to grant to
SpectraScience. The option is to be exercised by written notice to General
during said twelve month period and the negotiation of a license agreement
containing license terms standard for agreements between universities and
industry including without limitation clauses providing for payment of
reasonable royalties to General, objective, time-limited due diligence
provisions for the development, commercialization and marketing of a product
embodying the Invention and product liability indemnification and insurance
requirements which are acceptable to General's liability insurance carrier. In
the absence of such notice by SpectraScience and Agreement on license terms,
General may grant a license to such Patent Rights to any other party.
7. The term of this Agreement shall be two (2) years from the Effective
Date. Any party hereto shall have the right to terminate this Agreement at any
time upon thirty (30) days prior written notice thereof to the other parties. In
the event of termination, the amount of the research grant by SpectraScience to
support the Study shall be appropriately prorated. The obligations of the
parties under Paragraphs 3,4,5,6,8,10,11 and 13 shall survive the termination of
this Agreement.
8. SpectraScience shall provide, install and maintain, without cost to
General, the Study Device to General to conduct the Study. The Study Device
shall remain the property of SpectraScience.
9. In consideration of said undertaking by General, SpectraScience
agrees to support the Study with research grants to General in accordance with
the budgets included in the research protocol appended as Exhibit A. Such
research grants shall include indirect costs computed at a rate of 28% of total
direct costs payable to General.
Checks should be made payable "The General Hospital Corporation" and
sent, along with a letter indicating the name of the Principal Investigator and
the specific clinical trial agreement for which the funds are intended, to:
Director
Office of Technology Affairs
Massachusetts General Hospital
Thirteenth Street, Building 149, Suite 1101
Charlestown, MA 02129
10. (a) SpectraScience shall indemnity, defend and hold harmless
General and its trustees, officers, medical and professional staff, employees,
and agents and their respective successors, heirs and assigns (the
"Indemnities"), against any liability, damage, loss, or expense (including
reasonable attorney's fees and expenses of litigation) incurred by or imposed
upon the Indemnities or any one of them in connection with any claims, suits,
actions, demands or judgments: (i) arising out of any theory of product
liability (including, but not limited to, actions in the form of tort, warranty,
or strict liability) concerning the Study Device or any modification thereof
developed pursuant to this Agreement; (ii) arising out of any side effect or
adverse reaction, illness or injury resulting from Indemnities' performance of
the Study and occurring to any person involved in the Study; or (iii) arising
out of damage to any property resulting from and occurring during the
Indemnities' performance of the Study. General agrees to notify SpectraScience
promptly of any such claim, suit, action, demand or judgment and General and
Principal Investigator agree to reasonably cooperate with SpectraScience in the
handling thereof.
(b) SpectraScience's indemnification under (a) above shall not apply to
any liability, damage, loss or expense to the extent that it is attributable to
the: (i) negligent activities, reckless misconduct or intentional misconduct of
the Indemnities; or (ii) failure of the indemnities to adhere to the terms or
the protocol for the Study
(c) SpectraScience agrees, at its own expense, to provide attorneys
reasonably acceptable to the General to defend against any actions brought or
filed against any party indemnified hereunder with respect to the subject of
indemnity contained herein, whether or not such actions are rightfully brought.
(d) SpectraScience also agrees to reimburse General for the costs of
the care and treatment of any illness or injury to a subject resulting from his
or her participation in the Study to the extent that such costs are not covered
by the subject's medical or hospital insurance or governmental programs
providing such coverage.
11. (a) At such time as the Study Device or any modification thereof is
being commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by SpectraScience or by a licensee, affiliate or agent of
SpectraScience, SpectraScience shall, at its sole cost and expense, procure and
maintain commercial general liability insurance in amounts not less than
$2,000,000 per incident and $2,000,000 annual aggregate and naming the
Indemnities as additional insureds. Such commercial general liability insurance
shall provide (i) product liability coverage and (ii) broad form contractual
liability coverage for SpectraScience's' indemnification under Paragraph 10 of
this Agreement. If SpectraScience elects to self-insure all or part of the
limits described above (including deductibles or retentions which are in excess
of $250,000 annual aggregate) such self-insurance program must be acceptable to
the General and the Risk Management Foundation of the Harvard Medical
Institutions, Inc. The minimum amounts of insurance coverage required under this
Paragraph 11 shall not be construed to create a limit of SpectraScience's
liability with respect to its indemnification under Paragraph 10 of this
Agreement.
(b) SpectraScience shall provide General with written evidence of such
insurance upon request of General. SpectraScience shall provide General with
written notice at least fifteen (15) days prior to the cancellation, non-renewal
or material change in such insurance.
(c) SpectraScience shall maintain such commercial general liability
insurance during (i) the period that the Study Device or any modification
thereof is being commercially distributed or sold (other than for the purpose of
obtaining regulatory approvals) by SpectraScience or by a licensee, affiliate or
agent of SpectraScience and (ii) a reasonable period after the period referred
to in (c) (i) above which in no event shall be less that fifteen (15) years.
12. The terms of this Agreement can be modified only by a writing which
is signed by General, Principal Investigator and SpectraScience.
13. No party to this Agreement shall use the name of any other party or
of any staff member, employee or student of any other party or any adaptation
thereof in any advertising, promotional or sales literature or in any publicity
without the prior written approval of the party or individual whose name is to
be used. For General, such approval shall be obtained from the Director of
Public Affairs.
14. The provisions of this Agreement shall be interpreted under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
SPECTRASCIENCE, INC. THE GENERAL HOSPITAL CORPORATION
(Federal Tax ID No. : 042 697 983)
BY: /s/ Brian T. McMahon BY:
TITLE: Brian T. McMahon TITLE: Vice President for Patents,
President & CEO Licensing and Industry
Sponsored Research
DATE: 5/31/95 DATE: 6/6/95
Exhibit A
STUDY PROTOCOLS
The parties agree that the attached protocol entitled "Optical
Diagnostic Techniques for GI Endoscopy" is a Study protocol under the Agreement.
The study will be conducted under the direction of Norman Nishioka, M.D.
("Principal Investigator") at General.
Pursuant to paragraph 9 of the Agreement, SpectraScience agrees to
provide payment to General in the amount of One Hundred Ninety-Nine Thousand
Eight Hundred and Fifty Dollars ($199,850) which includes indirect costs in the
amount of Forty-Three Thousand Seven Hundred Seventeen Dollars ($43,717) for the
first year of the Study. Such grant shall be payable as follows:
Forty-Nine Thousand Nine Hundred Sixty-Two Dollars and Fifty Cents
($49,962.50) upon execution of the Agreement;
Forty-Nine Thousand Nine Hundred Sixty-Two Dollars and Fifty Cents
($49,962.50) on or about September 1, 1995;
Forty-Nine Thousand Nine Hundred Sixty Two Dollars and Fifty Cents
($49,962.50) on or about December 1, 1995; and,
Forty-Nine Thousand Nine Hundred Sixty-Two Dollars and Fifty Cents
($49,962.50) on or about March 1, 1996.
The parties agree that the Study may continue for two (2) years and
further agree that the second year of the Study will not be initiated until the
parties have agreed in writing to the amount of funding to be provided by
SpectraScience.
Checks should be made payable to "The General Hospital Corporation" and
sent, along with a letter indicating the name of the Principal Investigator and
the specific clinical trial agreement for which the funds are intended, to:
Director
Office of Technology Affairs
Massachusetts General Hospital
Thirteenth Street, Building 149, Suite 1101
Charlestown, MA 02129
I have read the Agreement and agree to comply with the obligations of the
Principal Investigator stated therein. In addition, I have read Exhibit B and
agree to comply with the obligations of General stated therein.
/s/ Norman Nishioka, M.D.
Name: Norman Nishioka, M.D.
Date: 6/9/95
Exhibit A
Optical Diagnostic Techniques for GI Endoscopy
MASSACHUSETTS GENERAL HOSPITAL - SPECTRASCIENCE
COLLABORATIVE RESEARCH PROJECT TO DEVELOP NOVEL
OPTICAL DIAGNOSTIC METHODS
STATEMENT OF WORK
Under this research agreement, Dr. Nishioka's research group at the
Massachusetts General Hospital will perform investigations aimed at developing
optical diagnostic capabilities to augment gastrointestinal endoscopy. Whenever
possible, the program will seek to develop optical methods for tissue diagnosis
without the use of exogenous dyes or markers. Because previous research has
indicated that tissue optical signals are very sensitive to metabolic
conditions, the most reliable data are those obtained from living tissue. For
this reason, the proposed research program will make extensive use of optical
measurements from clinical subjects (in vivo). In the first year, the main focus
of the investigations will be the detection of neoplasia in several settings
including the determination of neoplasia in polyps (hyperplastic vs. adenomatous
polyps) and the location of "flat"dysplasia (e.g. ulcerative colitis and
Barrett's esophagus). Whenever possible the techniques developed in the course
of this work will be tested in other organ systems (specifically, skin, bladder
and gynecology) to test the general applicability of the techniques. The initial
optical techniques to be examined will be laser-induced fluorescence emission
spectroscopy, fluorescence excitation spectroscopy and reflectance spectroscopy.
Based on data obtained from clinical subjects, we plan to use statistical
methods to develop algorithms capable of making reliable discriminations between
tissue types. Although preliminary, recent measurements by us suggest that
wavelengths outside the visible range might provide enhanced diagnostic
accuracy. In the gastrointestinal tract, it is anticipated that specialized
devices will be needed to make optical measurements of high quality that can be
accurately correlated with tissue histology. The development of such devices
will be guided by MGH investigators but will require the expertise of
SpectraScience for design and fabrication.
In the second year, work on the optical techniques developed in year
one will continue and the application of the most promising techniques to other
organ systems will be examined in a systematic fashion. Studies examining the
feasibility of using optical techniques to enhance diagnostic accuracy in
non-neoplastic lesions of the gastrointestinal tract will also be started.
Specifically, the use of optical techniques to predict the risk of recurrent
bleeding from ulcers and the presence of Helicobacter pylori infection in the
gastric antrum will be examined.
FACILITIES
Wellman Laboratories
Wellman Laboratories of Photomedicine occupies 23,000 square feet on
the main campus of MGH. The majority of this space was specifically designed for
laser biology research. All Wellman facilities will be available for this work.
Only equipment most germane to the proposed research is described. Two portable
laser-induced fluorescence systems are available for diagnostic use. The systems
employ a fiber-optic pulsed nitrogen laser and an intensified optical
multi-channel analyzer capable of gating to 10 ns. Several filtered-flash,
filtered CCD cameras interfaced to personal computers are available for
fluorescence and non-fluorescence image acquisition and analysis. A portable
fiber-optic coupled reflectance spectrometer is also available. For in vitro
measurements, a UV/VIS/NIR spectrophotometer, a diode-array spectrophotometer, a
spectrofluorometer/phosphorimeter system, complete tissue culture facilities,
two high-performance liquid chromatographs and a cold room are available. The
photopathology laboratory is able to process specimens for routine light
microscopy, frozen sections, immunohistrochemistry, special stains, computerized
image analysis, transmission and scanning electron microscopy. For analysis of
light microscopic samples, there is a PC-based imaging system. Images can be
input to a computer utilizing a Newvicon tube camera attached to a microscope
for routine bright field examination or a SIT camera for low intensity images
such as fluorescence examination. The electron microscopy facilities include a
Phillips CM-10 transmission electron microscope, Riechert Ultracut E
ultramicrotome, critical point and sputter coater. There is access to an Amray
1400 scanning electron microscope in an adjacent laboratory.
Medical Endoscopy Unit
The Medical Endoscopy Unit at MGH is fully-equipped with state-of-the
art gastrointestinal endoscopy equipment manufactured by Olympus and Pentax. All
procedures are performed with the capability of digitally capturing and storing
images for later retrieval, printing or analysis. The unit performs close to
5,000 endoscopic procedures per year.
weeks 5/10/95
INVESTIGATOR: Norm Nishioka, M.D.
TITLE OF STUDY: Optical Diagnostic Techniques for GI Endoscopy
SPONSOR: SpectraScience
BUDGET PERIOD: 06/01/95 - 05/31/96
PERSONNEL
<TABLE>
<CAPTION>
Role in % Base Fringe
Name Project Effort Salary Salary Benefits Total
26.04%
<S> <C> <C> <C> <C> <C> <C>
Norm Nishioka, M.D. P.I. 25% $82,915 $20,729 5,398 $26,127
Kevin Schomacker, Ph.D. Investigator 35% $46,782 $16,374 4,264 $20,637
Postdoctoral Fellow, TBN 100% $30,000 $30,000 7,812 $37,812
Clinical Fellow, TBN 50% $35,000 $17,500 4,557 $22,057
Subtotal: $106,633
EQUIPMENT
Computer 6,000
Compact Ex/Em Spectrometer (SPEX) 28,000
SUPPLIES
Fibers, optical components, software
8,000
TRAVEL
To attend ASLMS, SPIE and DIG DIS week 6,000
MISCELLANEOUS COSTS
Publication Costs 1,500
TOTAL DIRECT COSTS 156,133
INDIRECT COSTS (28%) 43,717
TOTAL COSTS $199,850
</TABLE>
/s/ Marcia L. Smith
Marcia L. Smith, Manager, Pre-Award
Grant/Contract Administration
Reused 5/12/95
Exhibit B
SPECTRASCIENCE PROPRIETARY INFORMATION
It is anticipated that in the performance of the Study Sponsored by
SpectraScience, the Principal Investigator and members of the research team
designated by him/her will be provided with or given access by SpectraScience to
certain information which the SpectraScience considers proprietary. The rights
and obligations of the parties with respect to such information are as follows:
1. PROPRIETARY INFORMATION. For the purposes of this Agreement,
"Proprietary Information" refers to information of any kind which is
disclosed by SpectraScience to General and which, by appropriate
marking, is identified as confidential and proprietary at the time of
disclosure. In the event that proprietary information must be provided
visually or orally, obligations or confidence shall attach only to that
information which is confirmed by SpectraScience in writing within ten
(10) working days as being confidential.
2. LIMITATIONS ON USE. General shall use the SpectraScience's Proprietary
Information solely for the purposes of the conducting the Study,
obtaining any required review of the Study or its conduct, or ensuring
proper medical treatment of any patient or subject. It is agreed by
SpectraScience and General that the transfer of Proprietary Information
shall not be construed as a grant of any right or license with respect
to the information delivered except as set forth herein or in a duly
executed license agreement.
3. CARE OF PROPRIETARY INFORMATION . The SpectraScience and General agree
that all Proprietary Information communicated by SpectraScience and
accepted by General in connection with this Agreement shall be kept
confidential by General as provided herein unless specific written
release is obtained from SpectraScience. General agrees to exert
reasonable efforts (no less than the protection given its own
confidential information) to maintain such Proprietary Information in
confidence, to make such Proprietary Information available only to
those employees and students who require access to it in the
performance of this Agreement and to inform them of the confidential
nature of such information.
General shall be deemed to have discharged its obligations hereunder
provided General has exercised the foregoing degree of care and
provided further that General shall immediately, upon discovery of any
disclosure not authorized hereunder, notify SpectraScience and take
reasonable steps to prevent any further disclosure or unauthorized use.
When the Proprietary Information is no longer required for the purpose
of this Agreement, General shall return it or dispose of is as directed
by the SpectraScience. General's obligations of confidentiality with
respect to Proprietary Information provided under this Agreement will
expire five (5) years after the date of this Agreement.
4. INFORMATION NOT COVERED. It is agreed by SpectraScience and General
that information shall not be deemed Proprietary Information in the
event:
(a) it is publicly available prior to the date of the Agreement or
becomes publicly available thereafter through no wrongful act of
General;
(b) it was known to General prior to the date of disclosure or becomes
known to General thereafter from a third party having an apparent bona
fide right to disclose the information;
(c) it is disclosed by General in accordance with the terms of the
SpectraScience's prior written approval;
(d) it is disclosed by SpectraScience without restriction on further
disclosure;
(e) it is independently developed by General; or
(f) General is obligated to produce pursuant to an order of a court of
competent jurisdiction or a valid administrative or Congressional
subpoena, provided that General (a) promptly notifies the
SpectraScience and (b) cooperates reasonably with the SpectraScience's
efforts to contest or limit the scope of such order
EXHIBIT 10.20 TO FORM-10KSB FOR FISCAL YEAR
ENDING DECEMBER 31, 1995
SPECTRASCIENCE, INC
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "Agreement") dated as of
______________, 1995, is made by and between SPECTRASCIENCE, INC., a Minnesota
corporation (the "Company"), and _____________________________
___________________________________ (the "Investor").
RECITALS
(a) Whereas, the Company needs additional cash to fund its 1995
Business Plan; and
(b) Whereas, the Investor desires to subscribe for shares of the
Company's preferred stock and certain warrants on the terms and conditions set
forth in this Agreement,
Accordingly, in consideration of the foregoing, the mutual promises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties thereto agree as
follows:
1. PREFERRED STOCK. Pursuant to the terms hereof, the Company shall
sell to the Investor, and the Investor shall purchase from the Company, shares
of the Company's Series B preferred stock (the "Preferred Shares").
(a) Purchase Price. The purchase price for the Preferred Shares
shall be Five Dollars ($5.00) per share.
(b) Convertibility. At any time during the period commencing on
the first anniversary of the closing of the sale of the
Preferred Shares and ending on the third anniversary of such
event, the Investor may convert all or any number of the
Preferred Shares into an equivalent number of shares of the
Company's common stock.
(c) Voting Rights. The Investor shall have no voting rights with
respect to the Preferred Shares other than the right to vote
on matters which specifically change the rights of holders of
the same series of the Company's preferred stock.
* THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH AT
THE BOTTOM OF THE LAST PAGE HEREOF.
(d) Liquidation Preference. Upon liquidation of the Company, the
Preferred Shares shall have a liquidation preference as to the
par value of such shares.
(e) Dividends. In the event that the Company has not increased the
number of authorized shares of its common stock to the extent
sufficient to enable the Company to reserve a number of shares
of common stock sufficient to cover the conversion of the
shares of Series B Preferred Stock and the exercise of all
Warrants issued in connection with the offering of the Series
B Preferred Stock by December 15, 1996, the Series B Preferred
Stock shall bear an 8% cumulative annual dividend, payable
quarterly, commencing upon the Company's failure to satisfy
such condition and terminating on the date compliance with
such condition is satisfied.
2. WARRANTS. In partial consideration of the Investor's subscription
for the Preferred Shares, the Company shall issue to the Investor concurrently
with delivery of each three shares of preferred stock, a warrant, in the form
attached hereto as Exhibit A (the "Warrant"), to purchase one share of common
stock of the Company ("Warrant Stock"). Each Warrant shall have an exercise
price equal to $9.50 per share of Warrant Stock . Each Warrant shall have a term
of three years.
3. CLOSING. The closing of the sale and purchase of the Preferred
Shares and the issuance of the Warrants shall take place at 10:00 a.m.,
Minnesota time, on or before December 15, 1995. At the closing, the Investor
will pay the purchase price for the Preferred Shares and Warrants by a wire
transfer into an account designated by the Company or by the delivery of a
certified or bank cashiers' check payable to the order of the Company in the
amount of such purchase price. At the closing, the Company shall deliver to the
Investor a certificate for the Preferred Shares and the Warrants.
4. REGISTRATION. The Company shall register the shares of common stock
issuable upon conversion of the Preferred Shares and shall use its best efforts
to have such registration declared effective by the SEC no later than one year
from the date of closing.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Investor that this Agreement has been duly
authorized by all necessary corporate action on behalf of the Company, has been
duly executed and delivered by an authorized officer of the Company, and is a
valid and binding agreement on the part of the Company. All corporate action
necessary to authorize, issue and deliver the Preferred Shares, the Warrants and
the Warrant Stock has been or will be taken on or prior to the date thereof.
6. REPRESENTATIONS, WARRANTIES, AND ACKNOWLEDGMENTS OF THE INVESTOR.
The Investor represents, warrants, and acknowledges to the Company as follows:
(a) That the Investor has received and carefully reviewed the
Business Plan of the company, dated March, 1995 and has had
the opportunity to discuss with officers of the Company events
and facts relating to the Company's business and prospects;
(b) That the Investor believes the Investor is able to bear the
economic risk of the investment in the Preferred Shares and
the Warrants;
(c) That the Investor believes that the Investor has knowledge and
experience in financial and business matters, that the
Investor is capable of evaluating the merits and risks of the
prospective investment in the Preferred Shares, the Warrants
and Warrant Stock and that the Investor is able to bear such
risks;
(d) That the Investor understands investments in the Preferred
Shares and the Warrants are highly speculative but believes
that the investments are suitable for the Investor based upon
the investment objectives and financial needs of the Investor,
and has adequate means for providing for his current financial
needs and personal contingencies and has no need for liquidity
of investment with respect to the Preferred Shares and the
Warrants;
(e) That the Investor has been given access to full and complete
information regarding the Company (including the opportunity
to meet with Company officers and review all the documents as
the Investor may have requested in writing) and has utilized
such access to his satisfaction for the purpose of obtaining
information in addition to, verifying information included in,
the Business Plan;
(f) That the Investor recognizes that the Preferred Shares and the
Warrants, as investments, involve a high degree of risk;
(g) That the Investor recognizes that (i) the purchase of the
Preferred Shares and the Warrants is a long-term investment,
(ii) the purchaser of the Preferred Shares and the Warrants
must bear the economic risk of investment for an indefinite
period of time because neither the Preferred Shares, the
Warrants nor the Warrant Stock have been registered under the
Act of 1933 (the "Act") and, therefore, cannot be sold unless
they are subsequently registered under said Act or an
exemption from such registration is available and (iii) the
transferability of the Preferred Shares, the Warrants and the
Warrant Stock is restricted and (A) requires conformity with
the restrictions contained herein and (B) will be further
restricted by a legend placed on the Preferred Shares, the
Warrants and certificate(s) representing the Warrant Stock
stating that such have not been registered under the Act and
referring to the restrictions on transferability, and by stop
transfer orders or notations on the Company's records
referring to the restrictions on transferability.
(h) Except as provided in Section 4 above or in Section 8 of the
Warrant, the Investor has been advised that neither the
Preferred Shares, the Warrants nor the Warrant Stock are being
registered under the Act or the relevant state securities laws
pursuant to exemptions from the Act and laws, and that the
Company's reliance upon such exemptions is predicated in part
on the representations of the Investor to the Company as
contained herein. The Investor represents and warrants that
the Preferred Shares and the Warrants are being purchased for
the Investor's own account and for investment and without the
intention of reselling or redistributing the same of the
Preferred Shares and the Warrant Stock, that the investor has
made no agreement with others regarding the Preferred Shares
and the Warrants or any of the Warrant Stock and that the
financial condition of the Investor is such that it is not
likely that it will be necessary to dispose of the Preferred
Shares, the Warrants or the Warrant Stock in the foreseeable
future. The Investor is aware that, in the view of the
Securities and Exchange Commission and applicable state bodies
that administer state securities laws, a purchase of a
security with an intent to resell by reason of any foreseeable
specific contingency or anticipated change in market values,
or any change in the condition of a company or its business,
or in with a contemplated liquidation or settlement of any
loan obtained for the acquisition of the shares and for which
the shares were pledged as security, would represent an intent
inconsistent with the representations set forth above. The
Investor further represents and agrees that if, contrary to
his foregoing intentions, the Investor should later desire to
dispose of or transfer the Preferred Shares, the Warrants or
any of the Warrant Stock in any manner, the Investor shall not
do so without first obtaining (a) the opinion of counsel
designated by the Company that such proposed disposition or
transfer lawfully may be made without the registration of the
Preferred Shares, the Warrants or the Warrant Stock for such
purpose pursuant to the Act, as then in effect, and applicable
state securities laws or (b) such registrations (it being
expressly understood that the Company shall not have any
obligation except as otherwise provided in Section 4 above, to
register the Preferred Shares, the Warrants or the Warrant
Stock for such purpose).
(i) The Investor agrees that the Company may place a restrictive
legend on the Preferred Shares, the Warrants and
certificate(s) representing the Warrant Stock, containing
substantially the following language:
"The shares represented by this Certificate were
issued without registration under the Securities Act
of 1933, as amended (the "Act") and without
registration under Minnesota securities laws, and
reliance upon exemptions contained in the Act and
such laws. No transfer of these shares or any
interest therein may be made except pursuant to
effective registration statements under said laws
unless this Corporation has received an opinion of
counsel satisfactory to it that such transfer or
disposition does not require registration under said
laws and, for any sales under Rule 144 of the Act,
such evidence as it shall request for compliance with
that rule."
(j) The Investor agrees and consents that the Company may place a
stop transferorder on the Preferred Shares, the Warrants and
certificate(s) representing the Warrant Stock when issued, to
assure the Investor's compliance with this Agreement and the
matters referenced above.
(k) The Investor agrees to save and hold harmless, defend and
indemnify theCompany and its directors, officers and agents
from any claims, liabilities, damages, losses, expenses or
penalties arising out of any misrepresentation of information
furnished by the Investor to the Company in this Agreement.
(l) The Investor represents and warrants that at the time of the
execution of this Agreement, the Investor is a bona fide
resident of, and is domiciled in, the State of
________________ and that the Warrants are being acquired
solely for the beneficial interest of the Investor and not as
nominee for, or on behalf of, or for the beneficial interest
of, or with the intention to transfer to, anyother person,
trust or organization, except as specifically set forth
herein.
(m) The Investor represents, warrants and agrees that the Investor
is an "Accredited Investor' within the meaning of Section
501(a) of Regulation D of the Act, and acknowledges,
represents and warrants that the following responses, if
applicable, are true and correct:
(i) The yearly income of the Investor from all sources
for each of the two most recent calendar years was:
1993 1994
Less than $200,000 ____ ____
More than $200,000 ____ ____
(ii) The Investor reasonably expects that the yearly
income of the Investor for the current calendar year
will be:
1995
Less than $200,000 ____
More than $200,000 ____
(iii) The yearly joint income of the Investor and the
spouse of the Investor (if married) from all sources
during the two most recent years was:
1993 1994
Less than $300,000 ____ ____
More than $300,000 ____ ____
(iv) The Investor together with the spouse of the Investor
reasonably expects that the joint income of the
Investor and the spouse of the Investor for the
current year will be:
1995
Less than $300,000 ____
More than $300,000 ____
(v) The individual net worth of the Investor, or joint
net worth with the spouse of the Investor, at fair
market value is:
____ Less than $1,000,000
____ Greater than $1,000,000
(vi) If the Investor is not an individual, and the entity
was formed for the purpose of this investment, all of
the equity owners qualify as an accredited investor
under paragraphs (1), (2), (3), (4), (5), (6), or (7)
of Section 501(a) or Regulation D.
(vii) The Investor is one of the following types of
accredited investors (check type of investor
applicable):
____ Any Bank defined in Section 3(a)(2) or a
savings and loan association or other
institution defined in Section 3(a)(5)(A) of
the Act;
____ Insurance Company as defined in Section
2(13) of the Act;
____ Investment Company registered under the
Investment Company Act of 1940 or a business
development company as defined in Section
2(a)(48) of the Act;
____ Small Business Investment Company licensed
by U.S. SmallBusiness Administration under
Section 301(c) or (d) of the Small Business
Investment Act of 1958;
____ Employee Benefit Plan within the meaning of
Title I of theEmployee Retirement Security
Act of 1974 and the investment decision to
purchase the Shares is being made by a plan
fiduciary as defined in Section 3(21) of
such Act, which is either a bank, savings
and loan association, insurance company or
registered investment adviser, or said
employee benefit plan has total assets in
excess of $5,000,000 or if a self-directed
plan, a plan whose investment decisions are
made solely by persons who are accredited
investors;
____ Any private business development company
defined in Section 202(a)(22) of the
Investment Advisers Act of 1940;
____ Any organization described in Section
501(c)(3) of the Internal Revenue Code,
Corporation, Massachusetts or similar
business trust, or partnership with total
assets in excess of $5,000,000;
____ Any Director or Executive Officer of the
Company;
____ A trust with total assets in excess of
$5,000,000 whose purchase is directed by a
sophisticated person as described in Rule
506(b)(2)(ii) of the Act;
____ An entity, all of whose members are
Accredited Investors. All of the foregoing
information which the Investor has provided
concerning the investor and the financial
position of the Investor and the Investor's
knowledge of financial and business matters
or in the case of a corporation,
partnership, trust or other entity,
concerning the knowledge of financial and
business matters of the person making the
investment decision on behalf of such
entity, is correct and complete as of the
date hereof, and if there should be any
adverse change in such information prior to
the acceptance of the subscription of the
Investor, the Investor will immediately
provide theCompany with such information.
The Investor is informed of the significance
to the Company of the foregoing
representations, and they are made with the
intention that the Company will rely upon
them.
(n) Type of Ownership (check one):
____ Individual Ownership ____ Joint Tenant with Right
of Survivorship (both
parties must sign)
____ Trust or Estate ____ Other (attach
(describe and description)
enclose authority)
The Investor further represents and warrants that if the
Preferred Shares and the Warrant are to be acquired by a
corporation, general partnership, limited partnership or other
entity, the Investor has the requisite authority to sign this
Agreement on behalf of such entity and bind such entity
hereunder; the description of such entity attached hereto is
true and correct; and each of the equity owners of such entity
is a natural person (1) who had an individual income in excess
of $200,000, or together with any spouse had a joint income in
excess of $300,000, in each of the years 1993 and 1994 and
reasonable expects an income in excess of $200,000, or joint
income in excess of $300,000 in 1995 or (2) whose individual
net worth, or joint net worth with such person's.spouse, as of
the date hereof and at the time of purchase exceeds
$1,000,000.
(o) The Investor acknowledges and understands that:
(i) This Agreement is and shall be irrevocable, but the
Investor shall not have any obligations hereunder if
this agreement is not accepted by the Company.
(ii) The Company shall have the right to accept or reject
this Agreement, in whole or in part, and the Investor
will be notified of its decision.
(p) Other:
(i) This Agreement and the rights and obligations of the
parties hereunder shall not be assignable, in whole
or in part, by any party without the prior written
consent of the other party, and neither this
Agreement nor any provision hereof may be amended,
modified, waived or discharged without the written
consent of the party against whom enforcement of such
amendment, modification, waiver, or discharge is
sought.
(ii) This Agreement, including the exhibits attached
hereto, constitutes the entire agreement of the
parties relative to the subject matter hereof and
supersedes any and all other agreements and
understandings, whether written or oral, relative to
the matters discussed herein.
(iii) This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
(iv) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an
original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed.
INVESTOR: COMPANY:
SPECTRASCIENCE, INC.
______________________________________
______________________________________ By:
Brain T. McMahon
Its: President & CEO
Print Names: ________________________ Social Security Number(s) or
________________________ Taxpayer Identification
Address: ________________________ Number(s): ___________________
Telephone #: ________________________ ___________________
Exhibit 23.1 -- Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-3 no. 33-57116) pertaining to 1,083,333 shares of common stock and
50,000 shares of common stock issuable upon exercise of warrants, (Form S-3 No.
33-45536) pertaining to 1,810,000 shares of common stock, (Form S-8 No.
33-63047) pertaining to the 1991 Stock Option Plan, (Form S-8 No. 33-45523)
pertaining to the 1991 Stock Plan, (Form S-8 No. 33-36385) pertaining to the
1990 Restricted Stock Plan, (Form S-8 No. 33-22052) pertaining to the 1988
Employee Incentive Stock Plan and (Form S-8 No. 2-93693-C) pertaining to the
1983 Employee Stock Option Plan of GV Medical, Inc., of our report dated January
19, 1996, with respect to the financial statements of SpectraScience (formerly
GV Medical, Inc.) included in this Annual Report (Form 10-KSB) for the year
ended December 31, 1995.
Ernst & Young LLP
Minneapolis, Minnesota
February 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,123,326
<SECURITIES> 0
<RECEIVABLES> 150,641
<ALLOWANCES> 50,000
<INVENTORY> 262,068
<CURRENT-ASSETS> 4,486,035
<PP&E> 680,137
<DEPRECIATION> 521,907
<TOTAL-ASSETS> 4,644,265
<CURRENT-LIABILITIES> 254,664
<BONDS> 0
733,337
0
<COMMON> 1,467,498
<OTHER-SE> 2,188,766
<TOTAL-LIABILITY-AND-EQUITY> 4,644,265
<SALES> 134,652
<TOTAL-REVENUES> 134,652
<CGS> 124,913
<TOTAL-COSTS> 124,913
<OTHER-EXPENSES> 1,372,257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (16,608)
<INCOME-PRETAX> (1,345,910)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,345,910)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> 0
</TABLE>
