SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
Annual Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(FEE REQUIRED)
For the fiscal year ended
December 31, 1995
Commission file number
0-26694
Specialized Health Products International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 87-0431035
(State or other jurisdiction of (IRS employer identification no.)
incorporation)
655 East Medical Drive, (801) 578-3580
Bountiful, Utah 84010
(Address of principal executive (Registrant's telephone number,
offices) including area code)
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.02 Par Value None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [x]
The aggregate market value of voting stock held by non-affiliates of the
registrant at March 26, 1996, was $78,023,231. On that date, there were
8,566,653 outstanding shares of the registrant's common stock.
Documents Incorporated by Reference:
Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Report.
Specialized Health Products International, Inc.
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-K
YEAR ENDED DECEMBER 31, 1995
PART I
Item 1. Business. 3
Item 2. Properties. 15
Item 3. Legal Proceedings. 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. 15
Item 6. Selected Financial Data. 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 19
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 21
PART III
Item 10. Directors and Executive Officers of Registrant. 22
Item 11. Executive Compensation. 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management. 24
Item 13. Certain Relationships and Related Transactions. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. 24
PART I
Item 1. Business.
General
The Company primarily develops health care products that limit or prevent
the risk of accidental needle sticks which may cause the spread of blood-
borne diseases such as HIV and hepatitis B, and secondarily develops other
products for use in the health care industry.
The Company has created a portfolio of proprietary health care products
that are in various stages of production, pre-production, development and
research. The Company's products include those being currently
commercialized, those utilizing the ExtreSafe(TM) medical needle technology
and those relating to certain filmless digitized imaging technology.
In December 1994, the Company introduced the first in its line of newly
developed containers for the disposal of contaminated "sharps" (i.e.,needles,
syringes, blood collection systems, intravenous catheters, surgical blades,
lancets, etc.). Additional sizes and versions of its Safety Cradle(R) sharps
containers were released in the third and forth quarters of 1995. The
Company is developing a safety lancet (the "SafetyStrip(TM)"), a small hand-
held device for penetrating the skin to obtain blood for analysis.
Commercial production of the SafetyStrip(TM) is anticipated to commence in
1996.
The Company is also developing a line of products using the Company's
ExtreSafe(TM) medical needle technology (the"ExtreSafe(TM) Products"), which
incorporates a system to allow a contaminated needle to be automatically
retracted directly from a patient and immediately encapsulated without
exposure to the health care worker. Products under development that
incorporate the ExtreSafe(TM) medical needle technology include the
ExtreSafe(TM) blood draw system, ExtreSafe(TM) catheter and ExtreSafe(TM)
syringe. The Company expects to introduce additional products using this
technology. Prototypes of the first product using the ExtreSafe(TM) medical
needle technology were completed in April 1995 and commercial production is
anticipated to commence in December 1996, provided the necessary FDA
approvals are obtained, of which there is no assurance. Prototypes of the
ExtreSafe(TM) catheter and ExtreSafe(TM) syringe were completed in the second
half of 1995. The Company's concepts for a safety intravenous flow gauge and
blood collection needle are in the research stage.
The Company has also entered into a joint venture to design and produce an
improved filmless digitized imaging technology, to be used in the medical
field (the "Imaging Products") which is in the research stage.
Company Background and 1995 Reorganization
The Company was incorporated in 1986 as Santian Ventures, Inc., a Utah
corporation. Santian Ventures, Inc. was organized to engage in the business
of acquiring assets and properties of any kind without regard to any specific
type of business or industry. In 1989 the Company changed its name to
Ware/Hadley Ventures, Inc. Subsequently, the Company's corporate domicile was
changed to the State of Delaware, and its name was changed to Russco, Inc.,
effective December 20, 1990, by merger into a newly created Delaware
corporation. The Company had no operations until July 28, 1995. On that date
and pursuant to the terms of a Placement Agreement, the terms of which were
proposed by Capital Growth International ("Capital Growth")
the Company acquired Specialized Health Products, Inc. ("SHP"), a Utah
corporation (the "Acquisition"), through a merger with a subsidiary of the
Company, and the Company changed its name to "Specialized Health Products
International, Inc." Pursuant to an Agreement and Plan of Merger dated
June 23, 1995, among the Company, SHP and Scott R.
Jensen, the sole officer and director of the Company prior to the Acquisition
(the "Merger Agreement"), Scott R. Jensen resigned as the sole officer and
director of the Company effective upon consummation of the Acquisition
wherein SHP became a wholly owned subsidiary of the Company. The persons
serving as officers and directors of SHP immediately prior to the
consummation of the Acquisition were elected to the same offices with the
Company and retained their positions as directors and officers of SHP. In
addition, the outstanding securities of SHP became outstanding securities of
the Company. Prior to the Acquisition, neither SHP nor any affiliate of SHP
had an interest in Russco, Inc.
Products
Sharps Containers
In January 1994, SHP acquired the Sharp-Trap(R) name and all technology
developed by Sharp-Trap, Inc., a Michigan corporation, relating to a patented
container entry system that is designed to reduce the risk of accidental
needle sticks and exposure to contaminated instruments when disposing of
contaminated instruments. At the time of SHP's purchase of the Sharp-Trap(R)
technology, Sharp-Trap, Inc. was already manufacturing two sharps container
product configurations, a 0.5 quart and a 1.5 quart (the "Sharp-Trap(R)"
containers).
Following additional research and discussions with medical product
distributors and end users, SHP designed an improved line of Safety Cradle(R)
sharps containers (the "Safety Cradle(R)") which retained the basic container
closure technology and incorporated improvements to make them safer, higher
quality, easier to use and less costly to manufacture than the Sharp-Trap(R)
containers. The self-closing Safety Cradle(R) containers allow for disposal
of sharps in a container that incorporates a self closing sharps containment
flap open/close/lock mechanism. Especially adapted for alternate site use,
SHP's new line of Safety Cradle(R) sharps containers provide convenience and
safety for portable applications. In addition, each of SHP's sharps
containers is designed to be used as a self-contained shipping container,
used in the transport of unused medical material, and readily converted at a
users site for use as a safe and efficacious sharps container. The Safety
Cradle(R) sharps container's novel, single-molded-part lid fits three sizes of
container wells to fill a broad spectrum of sharps containment applications,
especially alternate site use which includes, emergency vehicle, in-home and
insurance testing. As each Safety Cradle(R) sharps container is formed from
only two molded parts, unit manufacturing cost places SHP's sharps containers
in a competitive position, while the special design for transportability
permits the Safety Cradle(R) container to fill a unique market niche. These
containers are made of environmentally safe polypropylene material.
SHP has developed three sizes of the Safety Cradle(R) container wells.
Each container well uses the same top, but the bottom section varies in size
to allow different volumes to be accommodated (i.e., a 3 inch, a 5 inch and a
9 inch). By manufacturing the top separately, savings in manufacturing cost
are achieved. Also, the containers may be used not only as Safety Cradle(R)
sharps containers and transporters, but also as recyclers.
The Safety Cradle(R) products can be used for a variety of purposes,
including:
Safety Cradle(R) Sharps Container - all three sizes will be used as Safety
Cradle(R) sharps containers to contain and dispose of contaminated sharps.
Sale of the 3 inch and the 5 inch sizes began in March 1995 with earlier
models. Sales of the latest models began in December of 1995.
Transporter - all three sizes are designed to house medical kits and new
syringes for shipping to the customer. Upon arrival at a customer site, each
Safety Cradle(R) sharps container can be utilized as a sharps disposal
container. The first sales of Safety Cradle(R) products as transporter/sharps
containers are anticipated to take place in the second quarter of 1996.
Recycler - all three sizes are designed for use by medical product
manufacturers as a secured container, so that discarded sharps may be shipped
back to the manufacturer or to a sharps disposer for recycling. The Company
anticipates that it will be prepared to execute orders for its
SafetyCradle(R) products used as recyclers by the fourth quarter of 1996.
Closed lid design - an improved lid design was completed in March 1995.
The initial molds were completed in October 1995. In the new lid design, the
Safety Cradle(R) is located under the lid which closes over the
Safety Cradle(R) to drop the sharps into the safe holding compartment. This
model is designed for use in the home and home health care markets due to the
need to have a sharps container with a lid covering and locking over the
entry area for the sharps. The first sales took place in the fourth quarter
of 1995.
Products Under Development
The SafetyStripO Lancet
Lancets are small devices used to penetrate the skin, usually a finger, to
obtain a few drops of blood for analysis. Lancets are used by health care
workers and are self-administered by individuals, especially insulin users.
The same safety concerns exist with the handling of lancets as with needles,
because lancets become contaminated after they come into contact with blood.
There are a number of lancets on the market today, the most common of which
is a small "nail" type instrument which is pressed against the finger, and
the "nail" is then triggered to penetrate the skin by hand pressure. Some
lancets penetrate the skin with a blade, which is commonly considered to be
less painful to the patient than the "nail" and generally is more successful
in blood production. The nail type lancet is often inserted into a spring
loaded hand held device, about the size of a large pen. The device is
pressed against the skin of the patient's finger which is penetrated when the
spring is triggered. After triggering, the lancet handle must be emptied and
then reloaded with another single lancet for use on the next patient. The
Company is unaware of any lancets on the market today that provide absolute
protection against being used more than once on different patients.
Furthermore, existing lancet handle parts may become contaminated by blood
splattering when the finger is pierced. To help prevent contamination,
contaminated lancets parts should be sterilized or disposed of after each
use. In practice, however, sterilization usually does not take place on all
such parts after each use and some lancet parts are commonly used more than
once.
The Company's SafetyStrip(TM) lancets will be easy-to-use and provide
protection against being used more than once. SafetyStrip(TM) lancets will be
provided in cartridge strip housings of six lancets per strip. The strip
configuration is patent protected. Lancets are used one at a time, by
breaking off and discarding lancets immediately after use. A strip housing
is loaded into a convenient low-cost hand held carrier which also provides a
means for safely and conveniently triggering each lancet. After penetrating
the skin, the SafetyStrip(TM) automatically returns inside its housing and
cannot be refired for further use. The used lancet, encased by its
protective housing, is then broken off from the cartridge strip and
appropriately discarded. Reloading the handle with another cartridge is a
simple process. Use of the Company's SafetyStrip(TM) will be easier and
faster than use of existing lancets. Testing has shown the Company's
SafetyStrip(TM) to be less painful to the patient than traditional lancets
because of the revolutionary design of the blade and its rotary spring motio
which drives the blade both outward to lance and inward for retraction. It is
also noteworthy that part of the lancet in contact with the patient's skin
prior to lancing is sterile until contaminated by use. A prototype of the
SafetyStrip(TM) lancet was completed earlier this year and the Company
anticipates that commercial production will begin in July 1996.
ExtreSafe(TM) Blood Collection Needle
For certain blood tests it is necessary to draw blood from the patient for
analysis. The present method for obtaining a draw of blood involves the
insertion of a needle into a blood vessel an the drawing of blood by way of
vacuum pressure most often into a small evacuated tube-like container
commonly known as a Vacutainer(R) (the Vacutainer(R) is not a trademark of the
Company). After the blood draw, the needle is manually removed from the
patient and, while continuing to attend to the patient, the Vacutainer(R) and
needle are often placed on a tray or set aside. Afterward, the needle is
usually unscrewed and discarded into a sharps container. The Company's
ExtreSafeO blood collection needle provides a safer method. The device retracts
the inserted needle directly from the patient into a safe housing quickly and
automatically, minimizing the chance of an inadvertent stick by a "dirty"
needle. Retraction is initiated by a simple depression of a selected
distortable portion of the housing assuring that there is no action directed
toward or away from the patient which might affect the depth of needle
penetration. The Company's ExtreSafe(TM) medical needle technology has a
number of other applications, including an ExtreSafe(TM) catheter and
ExtreSafe(TM) syringe described hereafter. Prototypes of the ExtreSafe(TM)
blood collection needle were completed in 1995 and the Company anticipates
that commercial production will begin in December 1996 provided the necessary
FDA approvals are obtained, of which there is no assurance.
ExtreSafe(TM) Catheter
Contemporary catheter use has problems similar to those faced in blood
draw. Inserting a catheter involves a percutaneous needle stick followed by
threading the catheter over the needle into a patient's vein or artery. This
method is unsafe in two respects. First, when the needle is pulled out of
the catheter there is a discharge of blood which could contaminate the health
care worker. Second, needle sticks occur when the needle is withdrawn from
the catheter because, in some instances, the needle is temporarily left
exposed while the patient is being attended to by the health care worker.
Like the ExtreSafe(TM) blood collection needle, the Company's ExtreSafe(TM)
catheter is a needle extractor which retracts a contaminated needle from a
patient and encloses the needle in a safe housing when an operator squeezes a
portion of the housing at the time the needle is to be extracted from the
patient and catheter. Further, in one version of the ExtreSafe(TM) catheter,
a manually closeable portion of the catheter stem permits the catheter
channel to be held closed until a connection is made to a medical line
thereby restricting blood loss. Prototypes of one version of the ExtreSafe(TM)
catheter were completed earlier this year and the Company anticipates that
commercial production will begin in 1997 provided the necessary FDA approvals
are obtained, of which there is no assurance.
ExtreSafeTM Syringe
Another area where there is significant risk of needle sticks is in
syringe use. Contemporarily, there are many different aspects of syringe use
which range from integral units which combine a filled syringe and attached
needle for unit dose applications to syringe needles which are attached to
separate syringes by leur-lock connectors. Generally, access to the needle
for a medical procedure involves removing a protective needle cover just
prior to performing the procedure. In the past, medical personnel attempted
needle protection by replacing the needle cover after performing the
procedure, but the volume of accidental needle sticks related to needle
replacement resulted in the banning of such needle cover replacement.
Following this ban, medical personnel attempted to supplant cover replacement
by carrying the needles to sharps containers (normally found within each
patient care room) and by providing needle/syringe apparatus having a shroud
which can be extended over the exposed needle after the procedure.
The ExtreSafeTM syringe provides an extendible needle which is retractable
into a safe housing in a manner similar to the retraction of the
ExtreSafe(TM) blood draw and catheter systems described above. Prototypes of
the ExtreSafeTM syringe were completed in 1995. Production is forecast for
1997 provided the necessary FDA approvals are obtained, of which there is no
assurance.
Filmless Digitized Imaging Technology
The procedure for taking a large area x-ray image having generally
acceptable resolution and presenting the x-ray to the attending physician for
interpretation, has changed little over the past forty years. The most
common x-ray image today is taken by way of a film which requires development
in a darkroom. The physician personally handles the x-ray, which is generally
imprinted on a 14" x 17" film sheet. For record keeping purposes, hospitals
usually maintain an inventory of x-rays for at least six years. X-ray
storage and retrieval is a costly problem for many medical facilities. While
some filmless x-ray systems have recently been introduced, none fulfill
desired and necessary resolution requirements of commonly performed x-ray
procedures.
In October 1995, the Company entered into a joint venture with Zerbec,
Inc., a Texas corporation, to develop, manufacture, distribute and market
products and technologies using a patented solid state filmless digitized
imaging technology through Quantum Imaging Corporation, a newly formed Utah
corporation. The filmless digitized imaging technology involves a method o
directly producing an electrical signal from an image recorded on an x-ray
plate. The signal is instantly digitized and stored on a CD-ROM and the same
x-ray plate is then available for a later
procedure. The filmless digitized imaging technology will eliminate film as
the x-ray image recording form and will also enable x-ray films to be
translated to a CD-ROM format to simplify their storage, retrieval and
handling. The Company believes the filmless digitized imaging technology
will provide a unique method for revolutionizing the way in which x-ray images
are taken, interpreted and stored, while also providing clearer images having
high resolution that are more easily interpreted than x-ray films.
Furthermore, the technology will provide a breakthrough for the use of x-ray
facilities in mobile medical emergency units which has not been achieved to
date because of the necessity for local chemical handling equipment associated
with film processing.
Under the terms of the joint venture agreement, Zerbec, Inc. and the
Company formed Quantum Imaging Corporation, a Utah corporation, to finish the
development and commercialize the filmless digitized imaging technology. A
research prototype of the filmless digitized imaging technology has been
demonstrated. A new prototype which is being produced to demonstrate picture
resolution compatible with breast cancer diagnosis was fabricated and
demonstration in the first quarter of 1996, provided timely funding is
obtained. An alpha test system is scheduled for completion in 1996. A beta
test system is scheduled for completion in 1997 and production is scheduled
for 1998.
At present, the Company and Zerbec, Inc. are the sole and equal owners of
Quantum Imaging Corporation. Pursuant to the terms of the joint venture
agreement, Zerbec, Inc. assigned the patented filmless digitized imaging
technology to Quantum Imaging Corporation, and will provide ongoing support
in the development and commercialization of the technology. The joint venture
agreement also provides that the Company will support the development and
commercialization of the technology, in part, by contributing up to $30,000
per month for a twelve month period to Quantum Imaging Corporation, which
funds shall be used to support the company's operations. For Quantum Imaging
Corporation to be successful, the Company estimates that between $3,000,000 and
$6,000,000 will have to be raised through available financing channels, if
any. It is anticipate that at least one-third of the outstanding shares of
Quantum Imaging Corporation will be sold to fund development through initial
production of related filmless digitized imaging systems. The Company and
Zerbec, Inc., are seeking to bring in additional venturers to provide
funding, depending on financing needs. As a result, the Company's ownership
interest may decrease, but its financial and other obligations to support the
development and commercialization of the technology may not decrease.
Company Strategy
The Company's primary objective is to establish itself as a leading
provider of safety medical products and devices. The manufacture of these
products will be subcontracted to reputable manufacturers. To achieve this
objective, the Company's growth strategy is focused on the following four
principal elements.
- Capturing significant market share of the sharps
container, lancet, blood draw, IV catheter and syringe
markets.
- Broadening the Company's existing products lines and
developing product lines to increase penetration into closely
related markets.
- Seeking additional market opportunities based on the
Company's proprietary technology.
- Developing agreements with large medical product marketing
and distributing organizations.
Sharps Containers
The Company was only able to produce sharps containers on a limited basis
in 1995 because the related molds had not been completed. Full scale
production of the Company's SafetyCradle(R) sharps containers is currently
beginning and the Company anticipates significantly expanding its production
of Safety Cradle(R) sharps container products in 1996. The Company believes
the manufacture and sale of its Safety Cradle(R) products should find a
significant niche in home sharps container and combined new instrument
transport/sharps container applications.
The Company also intends to develop license/joint venture agreements in
international markets. Entrance into such markets is not anticipated until
after the Company's Safety Cradle(R) sharps container products are being
successfully marketed in the United States.
Products in Development
The Company's SafetyStrip(TM), ExtreSafe(TM) blood collection needle,
ExtreSafe(TM) catheter, ExtreSafe(TM) syringe, intravenous flow gauge, blood
collection system, other ExtreSafe(TM) medical needle technology products and
the filmless digitized imaging technology are in various stages of research
and/or development. The Company plans to continue development of each of these
products/systems. The necessary production equipment and testing, however,
must be completed before such products are brought to market.
The Company intends to minimize the cost and time necessary to bring these
products to market by using the information and experience gained in the
design, development and assembly of its Safety Cradle(R) sharps containers.
In addition, the Company is seeking alliances with large medical product
marketing, sales and distribution companies to sell its Safety Cradle(R) sharps
container products and these follow-on products. There can be no assurance,
however, that the Company will be able to form an alliance and that the
Company will be able to complete development of these products.
Future Market Opportunities
The Company will seek to enter additional markets in situations where it
believes that it can gain significant market share based on patent protected
intellectual properties or by capitalizing on its sales channels for
complementary products. There are a number of possible future applications
for the Company's technology, but there can be no assurance that the Company
will commence development of any such products.
Marketing and Sales
The Company currently intends to market and sell its products in the United
States and possibly in select foreign countries through third party
manufacturers and distributors. The Company's plan for the distribution and
sales of its products will target major segments of the respective markets
for those products, including, major hospital and institutional buying
groups, pharmaceutical companies, distributors and wholesalers, and
government and military agencies. The Company intends to market and
distribute its products through one or more companies that have a major
presence in these markets.
The Company will not sell its ExtreSafe(TM) medical needle technology for
commercial use in the United States until proper regulatory approval is
obtained. See "Business -- Government Regulation." The Company must also
comply with the laws and regulations of the various foreign countries in
which the Company plans to sell its products prior to selling such products
in such foreign countries. Certain foreign countries may only require the
Company to submit evidence of the FDA's pre-market clearance of the relevant
products prior to selling in such countries. However, some foreign countries
may have more stringent requirements and require additional testing and
approvals. See "Business -- Government Regulation."
The Company currently plans to hire a limited number of sales and marketing
personnel; however, the number will vary depending on the extent to which the
Company contracts with third parties or forms strategic alliances with other
parties to market and sell its products. The Company may seek third parties
to market and distribute its products in select foreign countries. The
Company will seek third parties to market and distribute its products in the
United States. The Company may enter into contracts, licensing agreements
and joint ventures with such third parties whereby the Company would receive
a licensing fee and/or royalty payments based on the licensee's revenues. The
Company would likely enter into such licensing arrangements with several
companies, possibly by country, geographical regions and/or product types but
may enter into an exclusive arrangement with a single company having a major
presence in all markets the Company seeks to penetrate. The Company has not
entered into any such licensing arrangements and there can be no assurance that
the Company will be able to enter into such licensing arrangements on
acceptable terms.
The Company intends to market its products by, among other things,
attending trade shows and advertising in industry publications. The Company
intends to distribute samples of some or all of its products free of charge
to various health care institutions and professionals in the United States
and in selected foreign countries to introduce and create a demand for the
products in the marketplace.
Industry
Market
Health care is one of the largest industries in the world and continues to
grow. There is increasing demand in the health care market for products that
are safer, more efficacious and cost-effective. The Company's products
target segments of this market. While traditional, non-safety, products in
the market segments which the Company seeks to address compete primarily on
the basis of price, the Company expects to compete on the basis of healthcare
worker safety, ease of use, reduced cost of disposal, patient comfort and
compliance with OSHA regulations, but not on the basis of purchase price.
However, the Company believes that when all indirect costs (disposal of
needles, and testing , treatment and workers compensation expense related to
needle stick injuries) are considered, the Company's products will compete
effectively both with "traditional" products and the safety products of the
Company's competitors.
Accidental Needle Sticks
Needles for hypodermic syringes, phlebotomy sets and intravenous
catheters are used for introducing drugs and other fluids into the body and
drawing out blood and other bodily fluids. Among the applications for
needles are the injection of drugs (hypodermic needles), the drawing of blood
(phlebotomy sets) and the infusion of drugs and nutrients (catheters). There
is an increasing awareness of the potential danger of infections and illness
that result from accidental needle sticks and of the need for safer needle
devices which reduce the number of accidental needle sticks that occur each
year.
Infections contracted as a result of accidental needle sticks are a
major concern to health care institutions, health care workers, sanitation
and environmental services workers and the regulatory agencies charged with
the task of making their working environment safe. Accidental needle sticks
may result in the spread of infectious diseases such as hepatitis B, HIV (which
may lead to AIDS), diphtheria, gonorrhea, typhus, herpes, malaria, rocky
mountain spotted fever, syphilis and tuberculosis. According to The American
Hospital Association's (the "AHA") report dated December 1992, an estimated
800,000 occupational needle sticks occur nationwide each year. The number of
reported needle sticks, however, is believed to be only a portion of the
actual number of occurrences. The AHA report estimates that the direct costs
(excluding costs such as time lost from work and other administrative
activities) for medical evaluation and follow-up treatment after a single
needle stick injury range from $200 to $1,200. While it is difficult to
estimate the total costs associated with treating accidental needle stick
injuries with any degree of confidence, Theta Corporation, in its Report
No. 346 on Medical Needles and Syringes dated January 1994, estimates that
the total cost associated with treating accidental needle sticks in the
United States averages $3 billion each year. The AHA and other authorities have
also stated that the benefits resulting from the prevention of accidental
needle sticks (and the resulting incidence of infection, illness, time lost from
work and death) cannot be measured solely by savings in the costs of medical
treatment. Currently available safety needle devices are priced at
approximately two to twelve times that of standard devices. Notwithstanding
the price differential, the Company believes that, based upon the estimated
costs associated with accidental needle sticks, its products should be
considered cost-effective by the marketplace.
The possibility of health care workers becoming infected from
contaminated needles has caused and continues to cause a great deal of
concern in the health care field and the agencies regulating that area.
OSHA has adopted regulations requiring employers to institute universal
precautions to prevent contact with blood and other potentially infectious
materials. OSHA's regulations also require employers to establish engineering
controls (e.g., sharps disposal containers and self-sheathing needles) and
safe work practices to insure compliance with these universal precautions.
OSHA does not mandate specific technologies; rather, employers are permitted
to choose the most appropriate and effective safety control devices to meet
their specific institutional needs. According to OSHA guidelines, while
employers do not have to institute the most sophisticated engineering
controls, it is the employer's responsibility to evaluate the effectiveness
of existing controls and the evaluate the feasibility of instituting more
advanced engineering controls. OSHA specifically prohibits the recapping,
bending or removal of needles, unless there is no feasible alternative or if
required for a specific medical procedure. If recapping, bending or removal
is necessary, workers must use either a mechanical device or a one-handed
technique.
In April 1992, the FDA issued a safety alert to hospitals warning of the
risks of needle stick injuries from the use of hypodermic needles with
intravenous equipment. Among other things, the safety alert stated that
although the FDA could not recommend specific products, it urged the use of
needleless systems or recessed needle system devices with a fixed safety
feature. According to the alert, (1) a fixed safety feature should provide a
barrier between the hands and needle after use; (2) the safety feature should
allow or require the worker's hand to remain behind the needle at all times;
(3) the safety feature should be an integral part of the device, and not an
accessory; (4) the safety feature should be in effect before disassembly and
remain in effect after disposal to protect the users and trash haulers and
for environmental safety; and (5) the safety feature should be as simple as
possible, and require little or no training to use effectively.
The majority of health care workers' adverse exposures to blood are either
product-mediated (e.g., needle sticks) or could be prevented by the use of
appropriate products (e.g., sharps containers). Increasing pressure is
mounting from the government and private sectors for the health care industry
to develop medical devices that will provide a safer working environment for
health care workers and their patients. The Company's products attempt to
address the growing demand for medical devices that reduce the risk of
accidental exposure to blood-borne diseases.
Disposal of Sharps
There is extensive everyday use of "sharps" (i.e., needles, syringes, blood
collection systems, intravenous catheters,surgical blades, lancets, etc.) by
doctors, nurses and other health care workers who are in danger of accidenta
exposure to transmittable blood-borne diseases such as AIDS and hepatitis B.
The most extensively used sharp is the medical needle. About six billion
needles a year are used in U.S. hospitals. Needle stick injuries are the
most common cause of disease transmission in the health care industry. More
than once each minute, about eight hundred thousand times a year, a health
care worker is accidentally injured by a potentially contaminated needle. Every
year as many as 12,000 workers become infected by accidental exposure to
hepatitis B, which is more contagious than AIDS.
OSHA mandates the use of special containers for sharps disposal purposes to
reduce the incidence of accidental transmission of blood-borne diseases.
OSHA requires that the design of sharps containers meet certain minimum
standards of safety. It also makes recommendations with respect to the safe
handling of needles. One of the most common causes of accidental needle
sticks occurs when a worker tries to recap a needle. The most recent OSHA
regulations require that needles not be recapped or purposely bent or broken.
After they are used, disposable syringes, needles, and other sharp items
should be placed in closeable, disposable, puncture-resistant containers that
are leak proof on the sides and bottom and labeled, according to OSHA
guidelines.
Facilities now being affected by current state and federal legislation
regarding the disposal of biohazardous items include hospitals, laboratories,
clinics, nursing homes, blood banks, physicians' offices and mortuaries.
Stricter legislation may be introduced that relates to all environments where
sharps can befound (e.g., homes, public facilities, etc.). In addition, some
states have passed legislation and others considering legislation relating to
the disposal of sharps.
Patents and Proprietary Rights
The Company owns four United States patents and has other patent
applications pending in the United States and in other countries which are
directly applicable to the Company's Safety Cradle(R) sharps container
products. The Company also owns two United States patents relating to its
SafetyStrip(TM), and four United States patents and allowed patent applications
relating to its ExtreSafeO medical needle technology. The Company has three
additional United States patent applications pending relating to its
safe-needle retraction technology. None of the above referenced patents
expire before April 1, 2006.
Quantum Imaging Corporation, an affiliate of the Company, owns three United
States patents and has three Canadian patents relating to the filmless
digitized imaging technology. These patents expire in May 2001, September
2002 and September 2005. The Company expects that additional patents will be
applied for relating to the technology owned by Quantum Imaging Corporation.
The future success of the Company may depend upon the strength of its
intellectual property. The Company believes that the scope of its
patents/patent applications is sufficiently broad to prevent competitors
from introducing devices of similar novelty and design to compete with its
current products and that such patents and patent applications are or will be
valid and enforceable. This belief, however, may prove to be incorrect if
such patents are challenged. In addition, patent applications filed in
foreign countries and patents granted in such countries are subject to laws,
rules and procedures which differ from those in the United States. Patent
protection in such countries may be different from patent protection provided
by U.S. laws and may not be as favorable to the Company. The Company plans
to timely file international patents in all countries in which the Company
is seeking market share.
The Company is not aware of any patent infringement claims against the
Company. Litigation to enforce patents issued to the Company, to protect
proprietary information owned by the Company, or to defend the Company
against claimed infringement of the rights of others, may occur. Such
litigation would be costly and could divert the resources of the Company from
other planned activities. There can be no assurance that the Company would be
successful in any such litigation.
The Company's policy is to seek patent protection for all developments,
inventions and improvements that are patentable and which have potential
value to the business of the Company and to protect as trade secrets other
confidential and proprietary information. The Company intends to vigorously
defend its intellectual property rights.
Manufacturing
The Company has designed and paid for the construction of various molds
and machinery used to manufacture its Safety Cradle(R) sharps containers.
The Company owns all molds used to manufacture its Safety Cradle(R) sharps
containers. The Company contracts for the manufacture of its Safety
Cradle(R) sharps containers from outside sources. Presently a single
corporation is manufacturing the Company's Safety Cradle(R) sharps container
products. In the past, polypropylene resin, the major plastic material used
in the Company's Safety Cradle(R) sharps containers, has been in short supply
for limited periods of time. While alternative manufacturers exist, changes
in the Company's manufacturer or an unforeseen short supply of polypropylene
could disrupt production schedules and could materially and adversely affect
the Company.
Final arrangements have not been made for the manufacture of the
SafetyStrip(TM), ExtreSafe(TM) blood collection needle protection system,
ExtreSafe(TM) catheter, ExtreSafe(TM) syringe, intravenous flow gauge,
blood collection needle, other ExtreSafe(TM) medical needle technology products
or filmless digitized imaging technology although one molding company has
been preliminarily selected to build pre-production molds for the
ExtreSafe(TM) blood collection needle. A company has also been selected to
produce molds and pre-production parts for the SafetyStrip(TM). Effective May
1995, prototype drawings for lancet molds were approved. The company chosen
to produce molds for the ExtreSafe blood collection needle is targeting
completion of preproduction prototypes for the ExtreSafeO blood collection
needle for June 1996. The materials that the Company plans to use to produce
these products are generally widely available. The Company does not
anticipate difficulty in obtaining such materials. At present, there are a
number of manufacturers that could produce lancet and needle retraction
products and a number of suppliers could supply necessary parts. Any
difficulties that may arise, however, with respect to the availability of
manufacturers and/or suppliers could disrupt the planned production of each
such product and could materially and adversely affect the Company.
Competition
The leading manufacturers in the sharps container market are Sage Products,
Inc., Devon Industries, Inc., Becton Dickinson and Company, and Baxter
International, Inc. There are also numerous smaller manufacturers. A
variety of sharps disposal products have been introduced into the
marketplace. Some of these disposal containers accommodate only the needle
while others accommodate the needle, syringe and limited surgical instruments.
The majority of the sharps containers on the market, however, allow
contaminated instruments to fall out when inverted. Many of the products are
unstable if not supported by wall supports or other apparatus. Access to
many sharps containers are too accessible. In addition, there are no sharps
disposable transporters or recycler/transporter type products on the market
today.
The leading manufacturers in the lancet market are Becton Dickinson and
Company, Surgicutt, Inc., Miles, Inc., Diagnostic Corporation, Boehringer
Mannheim, Inc., and Sherwood Medical Company, a subsidiary of American Home
Products Corporation. There are also numerous smaller manufacturers. To the
best of the Company's knowledge, there are no safety lancets on the market
today that operate in a manner similar to the Company's SafetyStrip(TM) lancet.
The leading manufacturers of standard needles are Becton Dickinson and
Company, Sherwood Medical Company, Inc. and Terumo Medical Corporation of
Japan. The Company is aware of no products on the market today that are
comparable to the ExtreSafe(TM) blood collection needle (i.e., that is
transversely activated to automatically extract a contaminated needle from a
patient and immediately retracts the needle into a safe housing).
Applications for the Company's needle retraction technologies may also be
found in percutaneous catheter insertion, syringes, and other medical needle
devices.
While traditional, non-safety, products in the market segments which the
Company seeks to address compete primarily on the basis of price, the Company
expects to compete on the basis of healthcare worker safety, ease of use,
reduced cost of disposal, patient comfort and compliance with OSHA
regulations, but not on the basis of purchase price. However, the Company
believes that when all indirect costs (disposal of needles, and testing ,
treatment and workers compensation expense related to needle stick injuries)
are considered, the Company's products will compete effectively both with
"traditional" products and the safety products of the Company's competitors.
It should be noted, however, that the health care products market is highly
competitive. Many of the Company's competitorshave longer operating
histories and are substantially larger, better financed and better situated
in the market than the Company.
Acquisition of Technology/Research and Development
The Company has devoted substantially all of its efforts since the
formation of SHP to acquiring its health care products and research and
development relating thereto. Research and development costs were $290,950
for the year ended December 31, 1994 and $568,787 for the year ended December
31, 1995. The Company plans to acquire additional technologies that it
determines are advantageous to acquire. In addition, the Company plans to
continue research and development on its current products. See "Business --
Products Under Development"
Government Regulation
The Company and its products are regulated by the FDA, pursuant to various
statutes, including the FD&C Act, as amended and supplemented by the Medical
Device Amendments of 1976 (the "1976 Amendments") and the Safe Medical
Devices Act of 1990. Pursuant to the 1976 Amendments, the FDA classifies
medical devices intended for human use into three classes, Class I, Class II and
Class III. The controls applied to the different classifications are those
the FDA believes are necessary to provide reasonable assurance that a device
is safe and effective. Class I devices are products not requiring pre-market
notification, which can be adequately regulated by the same types of controls
the FDA has used on devices since the passage of the FD&C Act in 1938. These
"general controls" include provisions related to labeling, producer
registration, defect notification, records and reports and good manufacturing
practices ("GMPs"). GMPs include implementation of quality assurance
programs, written manufacturing specifications and processing procedures,
written distribution procedures and record keeping requirements. Class
II devices are products for which the general controls of Class I devices are
deemed not sufficient to assure the safety and effectiveness of the device
and require special controls. Special controls for Class II devices include
performance standards, post-market surveillance, patient registries and the
use of FDA guidelines. Standards may include both design and performance
requirements. Class III devices have the most restrictive controls and
require pre-market approval by the FDA. Generally, Class III devices are
limited to life-sustaining, life-supporting or implantable devices.
Section 510(k) of the FD&C Act requires individuals or companies
manufacturing medical devices intended for human use to file a notice with
the FDA at least ninety (90) days before introducing the product into the
marketplace. The notice (a "510(k) Notification") must state the class in
which the device is classified and the actions taken to comply with performanc
standards or pre-market approval which may be needed if the device is a Class II
registrant states the device is unclassified, it must explain the basis for
that determination.
In some cases obtaining pre-market approval can take several years.
Clearance pursuant to a 510(k) Notification can be obtained in much less
time. In general, clearance of a 510(k) Notification for a Class II device
may be obtained if the registrant can establish that the new device is
"substantially equivalent" to another device of such Class that is already on
the market. This requires the new device to have the same intended use as a
legally marketed predicate device and have the same technological
characteristics as the predicate device. If the technological
characteristics are different, the new device can still be found to be
"substantially equivalent" if information submitted by the applicant
(including clinical data if requested) supports a finding that the new device
is as safe and effective as a legally marketed device and does not raise
questions of safety and efficacy that are different from the predicate device.
The Company has a notification from the FDA that its Sharp Trap(R) sharps
containers are substantially equivalent to legally marketed predicate devices.
The Company's Safety Cradle(R) sharps containers are subject to the general
controls of the FD&C Act and the additional controls applicable to Class II
devices. The Company believes that its Safety Cradle(R) sharps container is
sufficiently similar to the Sharp Trap(R) container to preclude necessity for
another FDA submittal.
OSHA also insists, in part, that sharps containers are closeable,
disposable, puncture-resistant, leak proof on the sides and bottom and
appropriately labeled. The Company's Safety Cradle(R) sharps containers are
in compliance with present OSHA regulations. Future regulations, however,
may be imposed which might have a material adverse effect on the Company
and/or one or more of its products.
The Company's follow-on products (i.e., the SafetyStrip(TM), ExtreSafe(TM)
medical needle technology, intravenous flow gauge and blood collection
needle) are still in the development stage. The Company expects the
SafetyStrip(TM) to be a Class I device and to be subject to lower level
controls than are imposed on its Safety Cradle(R) sharps containers.
In March 1995, the FDA issued a draft guidance document on 510(k)
Notifications for medical devices with sharps injury prevention features, a
category that would cover most of the Company's follow-on ExtreSafe(TM)
technology products. The draft guidance provisionally placed this category
of products into Class II Tier 3 for purposes of 510(k) review, meaning that
such products will be subject to the FDA's most comprehensive and rigorous
review for 510(k) products. However, review under this classification is
expedited. The draft guidance also states that in most cases, FDA will
accept, in support of a 510(k) notification, data from tests involving
simulated use of such a product by health care professionals, although in
some cases the agency might require actual clinical data.
The Company expects its other follow-on products to be Class II devices.
The Company also expects that its follow-on products will not require
pre-market approval applications but will be eligible for marketing clearance
through the 510(k) notifications procedure based upon its substantial
equivalence to a previously marketed device or devices. Although the 510(k)
pre-market clearance process is ordinarily simpler and faster than the pre-
market approval application process, there can be no assurance that the
Company will obtain 510(k) pre-market clearance to market its follow-on
products, or that the Company's follow-on products will be classified as set
forth above, or that, in order to obtain 510(k) clearance, the Company will
not be required to submit additional data or meet additional FDA requirements
that may substantially delay the 510(k) process and add to the Company's
expenses. Moreover, such 510(k) pre-market clearance, if obtained, may be
subject to conditions on the marketing or manufacturing of the corresponding
follow-on products that may impede the Company's ability to market and/or
manufacture such products.
In addition to the requirements described above, the FD&C Act requires that
all medical device manufacturers and distributors register with the FDA
annually and provide the FDA with a list of those medical devices which they
distribute commercially. The FD&C Act also requires that all manufacturers
of medical devices comply with labeling requirements and manufacture devices
in accordance with GMPs, which require that companies manufacture their
products and maintain their documents in a prescribed manner with respect to
manufacturing, testing, and quality control activities. The FDA's Medical
Device Reporting regulation requires that companies provide information to
the FDA on death or serious injuries alleged to have been associated with the
use of their products, as well as product malfunctions that would likely
cause or contribute to death or serious injury if the malfunction were to
recur. The FDA further requires that certain medical devices not cleared for
marketing in the United States have FDA approval before they are exported.
The FDA inspects medical device manufacturers and distributors, and has
broad authority to order recalls of medical devices, to seize noncomplying
medical devices, to enjoin and/or to impose civil penalties on manufacturers and
distributions marketing non-complying medical devices, and to criminally
prosecute violators.
In addition to laws and regulations enforced by the FDA and OSHA, the
Company is subject to government regulations applicable to all businesses,
including, among others, regulations related to occupational health and
safety, workers' benefits and environmental protection.
Distribution of the Company's products in countries other than the United
States may be subject to regulations in those countries. There can be no
assurance that the Company will be able to obtain the approvals necessary to
market its blood collection needle or any other product outside the United
States.
Seasonality of Business
The Company products sales are not subject to seasonal variations.
Backlog
As a result of purchasing practices typical to the medical supply industry
in which the Company operates, there is no material backlog of unfilled orders.
Employees
As of March 1, 1996, the Company employed ten people, including five
research and development employees, two sales and marketing employees and
three administrative employees. The Company expects to add to the number of
employees, principally in the areas of sales and marketing. The planned
increase in personnel is based primarily on expected increases in production
and sales. The Company's employees are not represented by a labor union, and
the Company believes its employee relations are good.
Item 2. Properties.
The Company's offices are located at 655 East Medical Drive, Bountiful,
Utah, under terms of a lease with an unaffiliated lessor which expires in
June 1998, with an annual rent of approximately $72,000. The lease covers
approximately 4,400 square feet of space.
Item 3. Legal Proceedings.
During 1994, SHP entered into various agreements with Mold Threads, Inc., a
Connecticut corporation ("MT"), whereby MT would construct various molds and
manufacture sharps containers for SHP. SHP alleges that MT did not complete
its obligations in a timely or satisfactory manner. When SHP attempted to
move the mold work and production to another mold maker/manufacturer MT
refused to release SHP's molds. In January 1995, SHP filed suit in the
United States District Court for the District of Utah against MT alleging
breach of contract, conversion, and intentional interference with business
relations. Thereafter, MT agreed to release SHP's molds. In January 1996, MT
counterclaimed in the amount of $22,328, exclusive of attorney's fees and
costs, for funds it alleges are owed on a purchase order. SHP believes that
MT waived its right to assert any additional counterclaims. The litigation
is in the early stages, is subject to all of the risks and uncertainties of
litigation and the outcome cannot presently be predicted. Specifically,
there is no assurance that SHP will be successful in this lawsuit or that the
lawsuit will be resolved on acceptable terms, and SHP may incur significant
costs in asserting its claims.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
stockholders during the fourth quarter of 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Dividend Policy
To date, the Company has not paid dividends on its common stock. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Board
of Directors does not intend to declare any dividends in the foreseeable
future, but instead intends to retain all earnings, if any, for use in the
Company's operations.
Share Price History
The Company's common stock (the "Common Stock") has been quoted on Nasdaq
Small-Cap Market since October 1995 under the trading symbol "SHPI." From
July 1995 through October 1995 the Common Stock was quoted on the NASD
Over-the-Counter market. Prior to July 1995, 294,872 shares of Common Stock
were effectively free trading, although no active trading market existed for the
Company's Common Stock. On March 26, 1996, the reported high and low bid and
ask prices of the Common Stock were $11.0625 and $10.875, respectively. The
following table sets forth the high and low bid information of the Common
Stock for the periods indicated. It should be understood that only 294,872
shares of Common Stock have been available for trading to date, and that such
over the counter market quotations reflect inter-dealer prices without retail
markup, markdown or commission, and the quotations may not reflect any actual
market transactions in the Common Stock.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
1995
----
<S> <C> <C>
September 30 $5.25 $2.50
December 31 $8.625 $8.25
1996
----
March 31(through March $11.06 $7.375
26) 25
</TABLE>
Holders of Record
At March 27, 1996 there were 340 holders of record of the Company's Common
Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Item 6. Selected Financial Data.
The following data have been derived from consolidated financial statements
that have been audited by KPMG Peat Marwick LLP, independent auditors. The
information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the Financial
Statements and related Notes appearing elsewhere in this Form 10-K:
<TABLE>
Year Ended (1)
--------------
Nov. 19, 1993 Dec. 31, Dec. 31,
(inception) to 1994 1995
Dec. 31, 1993
<CAPTION>
<S> <C> <C> <C>
Statement of Operations Data:
Sales $ -- 33,256 447,844
Cost of sales -- 21,669 294,171
-------------- -------- ---------
Gross profit -- 11,587 153,673
Expenses:
Research and development expense -- 290,950 568,787
General and administrative expense 3,450 620,022 2,368,873
Write off of operating assets -- -- 255,072
-------------- -------- -------
Total expenses 3,450 910,972 3,192,732
-------------- -------- -------
Operating loss (3,450) (899,385) (3,039,059)
Net interest income (expense) -- (7,563) 119,570
Net loss (3,450) (906,948) (2,919,489)
Dividends on preference stock -- (16,780) (11,389)
Net loss attributable to common $ (3,450) (923,728) (2,908,100)
stockholders =============== ========= ==========
Net loss per common share $ -- (.76) (.68)
=============== ========= ==========
Weighted average number of shares
used for net loss per share 1,170,000 1,224,074 4,269,131
computation (2) =============== ========== ==========
Balance Sheet Data (at period end):
Working capital $ (12,150) (287,723) 4,194,567
Total assets 16,550 656,865 5,950,729
Long-term debt, less current -- 458,333 --
maturities
Total stockholders equity (2,150) (355,878) 5,369,805
(deficit)
<F1>
(1) Excludes Specialized Health Products International, Inc.(formerly,
Russco, Inc.) which had no operations prior to the Acquisition on July
28, 1995, and is immaterial.
<F2>
(2) Net loss per common share is based on the weighted average number of
common shares outstanding. Stock options and warrants, and preferred
shares prior to conversion, are not included in the calculation because
this inclusion would be anti-dilutive and reduce the net loss per share
amount.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto. Wherever in this discussion the term "Company" is used, it
should be understood to refer to the Company and SHP, on a consolidated
basis, except where the context clearly indicates to the contrary. Prior to
the Acquisition wherein the Company acquired SHP (See note 1 to the
consolidated financial statements) the Company had no operations.
Overview
From its inception, the Company has incurred losses from operations. As of
December 31, 1995, the Company had cumulative net losses totaling $3,858,056.
To date, the Company's principal focus has been the design, development,
testing, and evaluation of its Safety Cradle(R) sharps containers, SafetyStripO,
ExtreSafe(TM) medical needle technology, intravenous flow gauge system,
blood collection needle, and other products, and the design and development
of its molds and production processes relating to its Safety Cradle(R) sharps
containers.
In 1994, the Company had limited sales of its sharps containers due, in
part, to the fact the molds used to produce the sharps containers had not
been completed and come on line. Certain of the Company's Safety Cradle(R)
sharps container molds were completed in the first half of 1995, and
additional Safety Cradle(R) sharps container molds were completed in the second
half of 1995. As molds were completed, the Company's sales increased from
$33,256 for 1994 to $447,844 for 1995. During the fourth quarter of 1995 the
Company had sales of $5,503. The decrease in sales was related to the
Company inability to use the molds during a good part of the fourth period of
1995 due to improvements that were being made to the molds. Said
improvements were completed in January 1996.
During the fourth quarter of 1995, the aggregate effect of year end
adjustments, which related to prior quarters, increased the net loss by
approximately $457,000. These adjustments were primarily the result of a
write off of operating assets and amounts capitalized as research and
development and adjustments to consulting and expense reimbursement.
The Company anticipates that commercial production of its SafetyStrip(TM)
lancet, will commence in July 1996. Provided the necessary FDA approvals are
obtained, of which there is no assurance, the Company anticipates commercial
production of the following products will commence as follows: ExtreSafe(TM)
catheter in October 1997, ExtreSafeO blood collection needle in December
1996 and the ExtreSafeO syringe in July 1997. The Company's other ExtreSafe(TM)
medical needle technology products, intravenous flow gauge and blood
collection needle are conceptual ideas in the research stage. No assurance
can be given, however, that the Company will be able to adhere to these time
frames or that such products will ever go to market.
Years Ended December 31, 1995 and December 31, 1994
The Company had sales of $447,844 for the year ended December 31, 1995, and
sales of $33,256 for the year ended December 31, 1994. The 1994 revenues
were derived largely from the sale of sharps containers that were produced on
a limited basis during 1994. Commercial manufacture and sale of additional
sizes and versions of the Company's sharps containers were introduced in
the third and fourth quarters of 1995. At present, the only product the
Company is selling is its Safety Cradle(R) sharps container products.
Moreover, during fiscal 1995 $418,509 or ninety-three percent of the
Company's sales were through Moore Medical Corp., a non-exclusive distributor
for the Safety Cradle(R) sharps container products.
Research and development expenses were $568,787 for the year ended December
31, 1995, compared with $290,950 for the year ended December 31, 1994. The
Company's efforts in the year ended December 31, 1995, were focused on
refining the design and molds for its Safety Cradle(R) sharps container
products, and upon the design and development of its SafetyStrip(TM) and
ExtreSafe(TM) medical needle technology, intravenous flow gauge system, and
blood collection needle. The Company's efforts in the year ended December
31, 1994, were focused on refining the design and molds for its Safety
Cradle(R) sharps container products.
General and administrative expenses were $2,368,873 for the year ended
December 31, 1995, compared to $620,022 for the year ended December 31, 1994.
The increased costs resulted largely from the following increases in
expenditures. First, selling and consulting costs increased from $4,563 for
the year ended December 31, 1994 to $360,694 for the year ended December 31,
1995. The increase in selling and consulting costs were primarily a result
of an increase in the expenditures made by the Company to market and sell its
Safety Cradle(R) sharps container products. Next, salaries and benefit
increased from $344,519 for the year ended December 31, 1994 to $791,434 for
the year ended December 31, 1995. The increase resulted primarily from the
hiring of additional product development, sales and marketing personnel to
support sales and commercialization of the Company's products as well as pay
increases made to certain of the Company's employees. Next, legal and
accounting fees increased from $259,674 for the year ended December 31, 1994
to $553,527 for the year ended December 31, 1995. The increase in costs was
primarily from accounting and legal expenses associated with the Acquisition,
the filing of an Form S-1 registration statement, increased financing
activities and expenses associated with litigation. Finally, travel and
entertainment costs increased from $113,623 for the year ended December 31,
1994 to $182,989 for the year ended December 31, 1995. The increase resulted
primarily from increased costs associated with financing, manufacturing,
selling, and marketing activities.
Net interest income was $119,570 for the year ended December 31, 1995,
compared with net interest expense of $7,563 for the year ended December 31,
1994. The interest income for year ended December 31, 1995, relates to
interest earned on funds derived from the sale of the Company's equity
securities which closed in August 1995 wherein the Company raised gross
proceeds of $8,602,500 (net proceeds of $7,519,060). Net interest expense
was $7,563 for the year ended December 31, 1994. The interest expense
relates to the accrued interest on certain notes payable and the interest on
the Company's line of credit.
Year Ended December 31, 1993
During this period the Company (not including SHP) had no operations and
its financial results were immaterial.
Liquidity and Capital Resources
The Company's need for funds has increased from period to period as it has
increased its research and development activities, expanded staff, and
commenced the purchase and construction of molds and production equipment.
To date the Company has financed its operations principally through
borrowings and private placements of equity securities and debt. Through
December 31, 1995 the Company had received net proceeds of approximately
$9,100,000 through financing activities. The bulk of the proceeds from the
Company's financing activity resulted from the sale of equity securities.
As of December 31, 1995, the Company's liabilities totaled $580,924. All of
these liabilities are current liabilities. The Company had working capital
at the year ended December 31, 1995 of $4,194,567 and the Company used net
cash in operating activities of $2,605,616.
The Company has 3,110,875 Series A Warrants and 1,290,375 Series B Warrants
outstanding which are exercisable for shares of Common Stock of the Company
at a price of $3.00 per share in the case of Series A Warrants and $2.00 per
share in the case of Series B Warrants, and expire on the earlier of (a) two
years from the date of effectiveness of a registration statement under the
Securities Act covering the issuance of the shares of Common Stock underlying
such Warrants upon issuance by the Company or for resale of such stock by the
holder, which period shall be extended day-for-day for any time that a
prospectus meeting the requirements of the Securities Act is not available,
or (b) the date specified in a notice of redemption from the Company (subject
to the prior right of the holder to exercise the Warrants for at least 20
days following the date of such notice) in the event that the closing price
of the Common Stock for any ten consecutive trading days preceding such
notice exceeds $6.00 per share and subject to the availability of a current
prospectus covering the underlying stock. Thus, the Company may accelerate
the expiration of the Warrants in the event that the average market price of
the Common Stock exceeds $6.00 per share, in which event the holders of the
Warrants would be permitted to exercise the Warrants during a period of not
less than 20 days following notice of such an event. The exercise of all the
Series A and Series B Warrants would result in a gross cash inflow to the
Company of $11,913,375. The Company presently intends to accelerate the
expiration of the Warrants when and if such conditions are met. All of the
Warrants are currently outstanding. There can be no assurance, however, that
any of theWarrants will be exercised.
Prior to the Acquisitions, SHP issued to a nonaffiliated shareholder a
warrant to purchase 45,000 shares of Common Stock at $1.67 per share. Said
warrant was issued by SHP in exchange for cash. This warrant expires in 1996
and became an outstanding obligation of the Company, rather than of SHP, on
July 28, 1995 (the date of the Acquisition).
On September 1, 1995, the Company adopted a Company's non-qualified stock
option plan ("NQSOP") wherein the Company is authorized to grant options to
purchase up to 1,284,998 shares of Common Stock of the Company.
Pursuant to the NQSOP, in September 1995, the Company granted Stock Options
to purchase 1,151,810 shares of Common Stock, and in November, the Company
issued Stock Options to purchase 20,000 shares of Common Stock. All of
these Stock Options are immediately exercisable. These options expire in 2000.
In addition to the options outstanding under the NQSOP, the Company also
has 108,000 options outstanding that were issued under the SHP NQSOP and that
became obligations of the Company pursuant to the terms of the Acquisition.
The SHP NQSOP options allows the holders thereof to purchase 108,000 shares
of the Company's common stock at $0.39 per share. The SHP NQSOP options
expire in 2004.
The Company has also given certain officers and directors of the Company
the opportunity to receive up to an aggregate of 2,000,000 shares of Common
Stock (the "Earn-Out Shares"). Any issuance of Earn-Out Shares would be
based upon the level of pre-tax consolidated net income, adjusted to exclude
any expense arising from the obligation to issue or the issuance of the Earn-
Out Shares and any income or expense associated with non-recurring or
extraordinary items as determined in accordance with generally accepted
accounting principles ("Adjusted PTNI").
The Company expects that the issuance of Earn-Out Shares will be deemed to
be the payment of compensation to the recipients and will result in a charge
to the earnings of the Company in the year or years the Earn-Out Shares are
earned, in an amount equal to the fair market value of the Earn-Out Shares.
This charge to earnings could have a substantial negative impact on the earnings
of the Company in the year or years in which the compensation expense is
recognized.
The effect of the charge to earnings associated with the issuance of
Earn-Out Shares could place the Company in a net loss position for the
relevant year, even though the Adjusted PTNI was at a level requiring the
issuance of Earn-Out Shares. Because Earn-Out Shares are issuable based on
the results of a single year, the Adjusted PTNI in a particular year could
require the issuance of Earn-Out Shares even thought he cumulative Adjusted
PTNI for the three years 1996, 1997 and 1998, or any combination of those
years, could reflect a lower amount of Adjusted PTNI that would not require
the Company to issue such Earn-Out Shares or even a loss at the Adjusted PTNI
line. There is no assurance that years subsequent to the year or years in
which Earn-Out Shares are issued will produce the same level of Adjusted PTNI or
will be profitable. The management of the Company may have the discretion to
accelerate or defer certain transactions that could shift revenue or expense
between years or otherwise affect the Adjusted PTNI in any year or years.
The Company has agreed to file a registration statement under the
Securities Act with respect to the Earn-Out Shares, when issued. The
issuance of the Earn-Out Shares, or the perception that the issuance of such
stock may occur, could adversely affect prevailing market prices for the
Common Stock.
The Company has entered into an agreement with a third party (Zerbec, Inc.)
to form a Joint Venture (the "Venture") to develop, make and distribute an
improved filmless digitized imaging system. The Venture is seeking funding
to provide an alpha test system in 1996, beta test systems in 1997 and
production deliveries in 1998. For a 50% interest in the Venture (before
dilution by financing investors), the Company is providing up to $360,000 to
support the operations of the Venture over a 12-month period of which
approximately $83,000 was paid and expensed in 1995. For the Venture to be
successful, the Company estimates that between $3,000,000 and $6,000,000 must be
raised. It is anticipated that at least one-third of the outstanding shares
of the Venture will be sold to fund development through initial production of
related filmless digitized imaging systems. No assurance can be given that the
system will find profitable acceptance in the marketplace. See "Business --
Products Under Development."
The Company's working capital and other capital requirements during the
next year or more will vary based upon a number of factors, including the
cost to complete development and bring the SafetyStrip(TM) and ExtreSafe(TM)
medical needle technology, intravenous flow gauge system, blood collection
needle and other products, to commercial viability, the cost and effort
needed to complete production of the Sharp-Trap(R) molds, the level of sales
and marketing for the Safety Cradle(R) sharps containers, and the resources
that are expended in SHP's lawsuit against Mold Threads, Inc. See "Legal
Proceedings" At present, the Company has committed to spend $103,805 during
fiscal 1996 on projects relating to the development and manufacture of its
products. The Company believes that the funds described above and funds
generated from the sale of its Safety Cradle(R) sharps containe products,
will be sufficient to support the Company's operations and planned capital
expenditures at least through fiscal 1996. The Company's failure either to
produce or sell sufficient quantities of Safety Cradle(R) sharps container
products could materially and adversely affect the Company's cash flows. In
addition, the Company's business plans may change or unforeseen events may
occur which require the Company to raise additional funds.
Inflation
The Company does not expect the impact of inflation on operations to be
significant.
Future Results
This report contains both historical facts and forward-looking statements.
Any forward-looking statements involves risks and uncertainties, including
but not limited to risk of product demand, market acceptance, economic
conditions, competitive products and pricing, difficulties in product
development, commercialization, and technology, and other risks. As a result,
the Company's actual future operations could differ significantly from those
discussed in the forward-looking statements.
Item 8. Financial Statements and Supplementary Data
See index to financial statements and financial statement schedules
included herein as Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On November 10, 1995 the Company's Board of Directors elected to
retain KPMG Peat Marwick, LLP ("KPMG") as its independent auditor.
Prior to that time Nielson, Grimmett & Company ("NGC") had acted as the
Company's independent auditor. The decision to change auditors was recommended
by the Company's Board of Directors, in part, because KPMG had acted as
SHP's auditor prior to the Acquisition.
The reports of NGC on the financial statements of the Company
for each of the two fiscal years in the period ended December 31, 1994,
did not contain any adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the Company's two most recent fiscal years and all subsequent
interim periods preceding such change in auditors, there were no
disagreements with NGC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements(s), if not resolved to the satisfaction of the former
accountant, would have caused it to make a reference to the subject
matter of the disagreements(s) in connection with its report; nor has NGC
ever presented a written report, or otherwise communicated in writing to
the Company or its Board of Directors the existence of any "disagreement"
or "reportable event" within the meaning of Item 304 of Regulation S-K.
The Company authorized NGC to respond fully to the inquiries of the
Company's successor accountant and NGC provided the Company with a
letter addressed to the SEC, as required by Item 304(a)(3) of Regulations
S-K, which letter has been filed with the SEC.
PART III
Item 10. Directors and Executive Officers of Registrant.
In connection with the Acquisition, the individual serving as the sole
director and officer of the Company at the effective date resigned on July
28, 1995. The persons serving as directors and officers of SHP immediately
prior to that date were elected to the same offices with of the Company and
retained their positions as directors and officers of SHP. In addition, Stanley
Hollander and J. Clark Robinson were subsequently appointed to fill vacancies
on the Company's Board of Directors. Mr. Hollander and Mr. Clarke then
resigned from the Board of Directors in March 1996 for personal reasons.
Set forth below is certain information concerning each of the directors and
executive officers of the Company as of March 15, 1996:
<TABLE>
<CAPTION>
With
SHP and
Name Age Position Company
Since
---- --- -------- -------
<S> <C> <C> <C>
David A. 52 President, Chief Executive 1993
Robinson (1) Officer and Director
Bradley C. 26 Vice President, Operations 1993
Robinson (1) and Investor Relations, and
Director
Dr. Gale H. 63 Vice President, Product 1994
Thorne Development and Director
J. Clark 53 Vice President, Chief 1995
Robinson Financial Officer, Secretary
and Director
Gary W. Farnes 53 Director 1995
(2)
Robert R. 65 Director 1994
Walker
_______________
<F1>
(1) Member of Executive Committee.
<F2>
(2) Member of Compensation Committee.
</TABLE>
David A. Robinson. Mr. Robinson is the President and Chief Executive
Officer of the Company. He has been a Director since November 1993. From
November 1992 to November 1993, Mr. Robinson was President of EPC Products,
Inc., a packaging company based in Bountiful, Utah. From 1981 to 1992, Mr.
Robinson was President of Royce Photo/Graphics Supply, Inc., a distributor of
photographic and graphic arts equipment and supplies and parts based in
Glendale, California. He holds a Masters degree in Business Administration
and a Masters degree in Management Science from the University of Southern
California. Mr. Robinson is the brother of J. Clark Robinson, Vice
President, Chief Financial Officer, Secretary and a Director of the Company, and
an uncle of Bradley C. Robinson, Vice President, Operations, and a Director
of the Company.
Bradley C. Robinson. Mr. Robinson is the Vice President, Operations and
Investor Relations, of the Company. He has been a Director since November
1993. From November 1992 to November 1993, Mr. Robinson was Vice President of
EPC Products, Inc., a packaging company based in Bountiful, Utah. From 1990
to 1992, Mr. Robinson was employed by Cargo Link, a Salt Lake City, Utah,
import-export broker. Mr. Robinson is the son of J. Clark Robinson, Vice
President, Chief Financial Officer, Secretary and a Director of the Company,
a nephew of David A. Robinson, President, Chief Executive Officer, and a
Director of the Company, and a son-in-law of Gary W. Farnes, a Director of th
Company.
Gale H. Thorne. Dr. Thorne is the Vice President, Product Development, for
the Company. He has been a Director since January 1995, and has held his
present position as Vice President, Product Development, since October 1994.
From 1993 to 1994, Dr. Thorne was a Vice President, Engineering, of Eneco,
Inc., a Salt Lake City, Utah, corporation engaged in the business of
developing cold-fusion products. During Dr. Thorne's tenure at Eneco, Inc.
the company was engaged primarily in the business of prosecuting patent
applications relating to the cold-fusion technology. From 1989 to 1993, Dr.
Thorne was employed as a patent consultant and patent agent with Foster &
Foster, a Salt Lake City intellectual property law firm. Dr. Thorne holds
eighteen patents and has published numerous technical publications. He has
been a technical consultant and a member of Board of the Small Business
Innovation Program of the State of Utah. Dr. Thorne manages all the patent
and product development work for the Company. He holds a Ph.D. in Biophysics
from the University of Utah.
J. Clark Robinson. Mr. Robinson became a Vice President, Chief Financial
Officer, Secretary and Director of the Company in September 1995. From 1974
to the present, Mr. Robinson has been General Manager of Lagoon Corporation,
which operates an amusement park in the Salt Lake City, Utah, area. At present,
Mr. Robinson spends approximately one-half of his time working for the
Company and one-half of his time working for Lagoon Corporation. Mr.
Robinson has also been President of the International Association of
Amusement Parks and Attractions, an international industry trade group. He
holds a Masters degree in Business Administration from the University of
Utah. Mr. Robinson is the brother of David A. Robinson, President, Chief
Executive Officer and a Director of the Company, and the father of Bradley C.
Robinson, Vice President, Operations, and a Director of the Company.
Gary W. Farnes. Mr. Farnes is a Director of the Company. He has been a
Director since 1995 and is currently the Senior Executive Vice President of
Holy Cross Health System, a multi-hospital health care system headquartered
in South Bend, Indiana. From 1977 to 1995, Mr. Farnes was employed by
Intermountain Health Care, a regional hospital company. At the time that Mr.
Farnes left Intermountain Health Care, he held the position of Vice
President, Hospital Division. He holds a Bachelors degree in Business and
Psychology from Brigham Young University and a Masters degree in Business
Administration from George Washington University. Mr. Farnes is the
father-in-law of Bradley C. Robinson, Vice President, Operations, of the
Company.
Robert R. Walker. Mr. Walker is a Director of the Company. Mr. Walker has
been a Director since March 1994. He is currently self-employed as a
consultant in the health care industry primarily in the area of start-up
medical device companies. From 1976 to 1992, Mr. Walker was employed by IHC
Affiliated Services Division of Intermountain Health Care, a regional hospital
company, from which he retired as President of IHC Affiliated Services. He
recently retired as the Chairman of the Board of AmeriNet, Inc., which is a
national group purchasing organization for hospitals, clinics, detox/drug
centers, emergency, nursing homes, private laboratories, psychiatric centers,
rehabilitation facilities, surgical centers and institutions such as schools and
prisons. Mr. Walker is a member of the American Hospital Association and the
Hospital Financial Management Association. He holds a Bachelor of Science
degree in Business Administration.
Mr. Hollander was nominated to serve as a Director of the Company in August
1995, pursuant to an agreement between the Company and Capital Growth, as
placement agent for certain securities of the Company. The agreement
provided that Mr. Hollander, or another person nominated by Capital Growth, be
elected for at least three one-year terms. Mr. Hollander resigned from the
Board of Directors for personal reasons in March 1996. In addition, Mr. John
T. Clark, who was a Directo of the Company since November 1993, also resigned
from the Board of Directors for personal reasons on March 5, 1996. The
Company's Board is currently reviewing independent persons to fill the two
vacancies existing on the Board. Other than as described above, there are
no family relationships among any of the executive officers or directors of
the Company.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve at the discretion of the Board. The Company's
Board of Directors is divided into three classes. Beginning with the annual
meeting of stockholders in 1996, one class of directors will be elected at
each annual meeting of stockholders for a three-year term. Each year a
different class of directors will be elected on a rotating basis. The terms
of Gary W. Farnes and Robert R. Walker will expire in 1996. The terms of
Gale H. Thorne and Brad C. Robinson will expire in 1997 and the term of David
A. Robinson and J. Clark Robinson will expire in 1998.
The Board of Directors has an Executive Committee and Compensation
Committee. The Executive Committee has the authority to act on various
matters requiring Board of Directors action. The Compensation Committee
makes decisions regarding salaries and other compensation. As part of its
responsibilities, the Compensation Committee administers the Company's "NQSOP".
Item 11. Executive Compensation.
Incorporated by reference to the Company's proxy statement which the
Company intends to file with the Securities and Exchange Commission
within 120 days after the close of its fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Company's proxy statement which the
Company intends to file with the Securities and Exchange Commission
within 120 days after the close of its fiscal year.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Company's proxy statement which the
Company intends to file with the Securities and Exchange Commission
within 120 days after the close of its fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
Listed on page F-1 of the Financial Statements.
(2) Financial Statement Schedules
Listed on page F-1 of the Financial Statements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the fourth
quarter ended December 31, 1995.
(c) Exhibits
Listed on page 27 hereof.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Specialized Health Products
International, Inc.
(Registrant)
Date: March 29, 1996 By /s/ David A. Robinson
-------------- -----------------------------
David A. Robinson
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David A. Robinson President, Chief Executive March 29,1996
- ----------------------- Officer and Director (Principal
David A. Robinson Executive Officer
/s/ Bradley C. Robinson Director and Vice President March 29,1996
- -------------------------
Bradley C. Robinson
/s/ J. Clark Robinson Director, Vice President, Chief March 29,1996
- ----------------------- Financial Officer and Secretary
J. Clark Robinson (Principal Financial and
Accounting Officer)
/s/ Gale H. Thorne Director and Vice President March 29,1996
- --------------------
Gale H. Thorne
/s/ Robert R. Walker Director March 29,1996
- ----------------------
Robert R. Walker
</TABLE>
<TABLE>
EXHIBIT INDEX
Exhibits.
<CAPTION>
Exhibit No. Description Page*
----------- ----------- -----
<S> <C> <C>
3(i).1 Restated Certificate of Incorporation of the Company 47
3(i).2 Articles of Incorporation of SHP 52
3(i).3 Articles of Amendment of SHP 58
3(i).4 Plan and Articles of Merger of Russco Resources, Inc. 63
into SHP (Incorporated by reference to Exhibit 3(i).1
to the Company's Current Report on Form 8-K dated
July 28, 1995)
3(ii).1 Bylaws of the Company 64
3(ii).2 Bylaws of SHP 84
4.1 Form of Series A Warrant 102
4.2 Form of Series B Warrant 117
10.1 Agreement and Plan of Reorganization dated as of 132
June 23, 1995, among the Company, Russco Resources,
Inc., Scott R. Jensen and Specialized Health Products,
Inc.(Incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K, dated July 28, 1995.
10.2 Placement Agreement between the Company, SHP and U.S. 132
Sachem Financial Consultants, L.P., dated June 23, 1995
10.3 Form of Employment Agreement with Executive Officers
10.4 Form of Indemnity Agreement with Executive Officers and 169
Directors
10.5 Form of Confidentiality Agreement 177
10.6 Joint Venture Agreement between SHP and Zerbec, Inc., 180
dated as of October 30, 1995
16.1 Letter re change in certifying accountant 213
21.1 Schedule of Subsidiaries 215
_______________
<F1>
* Refers to sequentially numbered copy.
</TABLE>
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1994, and 1995 F-3
Consolidated Statements of Operations for years ended December 31,
1993, 1994, and 1995 F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1993, 1994, and 1995 F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994, and 1995 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Specialized Health Products International, Inc.:
We have audited the accompanying consolidated balance sheets of Specialized
Health Products International, Inc. and subsidiary as of December 31, 1994
and 1995, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended and
for the period from November 19, 1993 (date of inception) to December 31, 1993.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Specialized Health Products International, Inc. and subsidiary as of December
31, 1994 and 1995, and the results of their operations and their cash flows
for the years then ended and for the period from November 19, 1993 (date of
inception) to December 31, 1993, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
February 2, 1996
<TABLE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Balance Sheets
December 31, 1994 and 1995
Assets 1994 1995
------ ---- ----
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ - 4,251,584
Trade Accounts receivable 4,471 350,718
Related party receivable (note 11) - 122,850
Inventories - 16,322
Prepaid expenses and other 5,436 34,017
------ --------
Total current assets
9,907 4,775,491
------ --------
Equipment and furnishings, net of accumulated depreciation 285,770 812,049
of $1,753 in 1994 and $8,196 in 1995 (note 3)
Other assets, net of accumulated amortization of $27,564 361,188 363,188
1994 and $90,314 in 1995 ------- -------
$656,865 5,950,728
======== =========
Liabilities and Stockholders' Equity (Deficit)
- -----------------------------------------------
Current liabilities:
Bank overdraft $ 10,675 -
Accounts payable 84,655 134,449
Accrued expenses 7,800 446,474
Due to stockholders (note 11) 194,500 -
Total current liabilities 297,630 580,923
Stockholder loans (note 4) 358,333 -
Due to stockholders - long-term (note 11) 100,000 -
Total liabilities 755,963 580,923
9% cumulative redeemable preference stock, $1.50
par value. Authorized 250,000 shares; 160,000 256,780 -
shares issued and outstanding in 1994 (liquidation
value $256,780) (note 8)
Stockholders' equity (deficit) (notes 6 and 7):
Preferred stock, $.389 par value in 1994 and
$.001 par value in 1995. Authorized 5,000,000
shares; 1,440,000 shares issued and outstanding in
1994 (liquidation value $560,000) and no shares
issued and outstanding as of December 31, 1995 560,000
Common stock, no par value in 1994 and $.02 par
value in 1995. Authorized 50,000,000 shares; issued and
oustanding 1,363,500 in 1994 and 8,566,653 shares in 1995 209,800 171,333
Common stock subscriptions receivable (note 6) (198,500) (259,500)
Additional paid-in capital - 9,316,028
Accumulated deficit (927,178) (3,858,056)
--------- -----------
Total stockholders' equity (deficit) (355,878) 5,369,805
--------- -----------
Commitments and contingencies (notes 2, 5, 7, 10, and 12)
$656,865 5,950,728
======== =========
</TABLE>
See accompanying notes to consolidated financial statements
<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Operations
<CAPTION>
For the period from November, 19, 1993 (date of inception) to December 31,
1993, and for the years ended December 31, 1994 and 1995
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Sales $ - 33,256 447,844
Cost of sales - 21,669 294,171
---- ------ -------
Gross profit - 11,587 153,673
Expenses:
Research and development - 290,950 568,787
Selling, general and administrative 3,450 620,022 2,368,873
Write off of operating assets - - 255,072
----- ------- ---------
Total expenses 3,450 910,972 3,192,732
----- ------- ---------
Operating loss (3,450) (899,385) (3,039,059)
Other Income (expense):
Interest income - 237 135,428
Interest expense - (7,800) (15,858)
------- ------- --------
Total other income (expense) - (7,563) 119,570
Net loss (3,450) (906,948) (2,919,489)
Dividends on preference stock - (16,780) (11,389)
-------- -------- --------
Net loss attributable to common $ (3,450) (923,728) (2,908,100)
stockholders ======== ========= ===========
Net loss per common share $ - (.75) (.68)
======== ========= ===========
Weighted average number of shares used
for net loss per share 1,170,000 1,224,074 4,269,131
computation ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
For the period from November, 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Net stock-
stock Additonal holders
Preferred Stock Common stock subscription Paid in Accumulated equity deficit
Shares Amount Shares Amount receivable capital deficit deficit
-------------- ------------- ------------ --------- ----------- --------------
Issuance of common stock
for cash at inception - - 1,170,000 1,300 - - - 1,300
Net Loss - - - - - - (3,450) (3,450)
-------------- -------------- ------------ --------- ------------ --------------
Balances at - $ - 1,170,000 $1,300 - - (3,450) (2,150)
December 31, 1993
Issuance of
preferred 1,440,000 560,000 - - - - - 560,000
stock for cash
Issuance of
common stock
for services - - 193,500 208,500 (198,500) - - 10,000
and stock
subscription
receivable
Unpaid - - - - - - (16,780) (16,780)
dividends on
preference
stock
Net loss - - - - - - (906,948) (906,948)
--------- ------- ------- ------- -------- ------ --------- ---------
Balances at 1,4400,000 560,000 1,363,500 209,800 (198,500) - (927,178) (355,878)
December 31,
1994
Issuance of
preferred 362,403 604,001 - - - - - 604,001
stock for cash
Cash received
for stock - - - - 190,000 - - 190,0
subscriptions
receivable
Services
provided for - - - - 8,500 - - 8,500
stock
subscriptions
receivable
Unpaid dividends
on preference - - - - - - (11,389) (11,389)
stock
Conversion of
debt for common - - 346,500 385,000 - - - 385,000
stock (note 4)
Issuance of
additional
common shares - - 90,000 180,000 - (180,000 - -
to stockholders
under
antidilution
provisions
Business (1,802,403) (1,164,001) 2,102,403(696,752) - 1,860,753 - -
combination
(noteE1)
Issuance of
common stock - - 4,256,250 85,125 - 7,193,935 - 7,279,606
for cash net of
expenses (note 7)
Conversion of
debt for common - - 50,000 1,000 - 99,000 - 100,000
stock (note 7)
Issuance of
common stock
for stock - - 70,000 1,400 (140,000) 138,600 - -
subscription
receivable
(note 7)
Cash received
for stock - - - - 90,000 - - 90,000
subscription
receivable
Exercise of
stock options
for common - - 288,000 5,760 (209,500) 203,740 - -
stock
subscription
receivable
Net loss - - - - - - (2,919,489) (2,919,489)
------------- ---------- ---------- -------- --------- ------------ ------------------ ---------------
Balances at - $ - 8,566,653 $171,333 (259,500) 9,316,028 (3,858,056) 5,369,805
December 31,
1995
============= ========== ========== ========= ======== ============ ================== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Statements of Cash Flows
For the period from November, 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
<TABLE>
1993 1994 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,450) (906,948) (2,919,489)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization - 29,317 74,542
Common stock issued for services - 10,000 8,500
Loss on sale of equipment - - 1,291
Write off of operating assets - - 255,072
Changes in operating assets and libilities
Increase in trade accounts receivable - (4,471) (346,247)
Increase in prepaid expenses and other (146) (5,290) (28,581)
assets
Decrease (increase) in inventories (6,104) 6,104 (16,322)
Increase in related party receivable - - (122,850)
Increase in accounts payable and accrued - 92,455 488,468
expenses ------- ------ ---------
Net cash used in operating activities (9,700) (778,833) (2,605,616)
------- --------- -----------
Cash flows from investing activities:
Proceeds from the sale of equipment - - 2,943
Capital expenditures - (287,523) (797,377)
Payments to acquire patents and (10,000) (278,752) (64,750)
technology -------- --------- ---------
Net cash used in investing activities (10,000) (566,275) (859,184)
Cash flows from financing activities:
Borrowings on due to stockholders - 194,500 -
Payments on due to stockholders - - (194,500)
Proceeds from issuance of stockholder 18,700 339,633 44,167
loans
Payments on stockholder loans - - (17,500)
Proceeds from issuance of common stock 1,300 - 7,279,060
Proceeds from issuance of preferred stock - 560,000 604,001
Proceeds from issuance of redeemable - 240,000 -
preference stock
Payments on redeemable preference stock and - - (268,169)
dividends
Proceeds (payments) on bank overdraft - 10,675 (10,675)
Proceeds from stock subscriptions - - 280,000
receivable ------ -------- ----------
Net cash provided by financing 20,000 1,344,808 7,716,384
activities ------ --------- ----------
Net increase (decrease) in cash 300 (300) 4,251,584
Cash at beginning of year - 300 -
------ --------- ----------
Cash at end of year $ 300 - 4,251,584
====== ========= ==========
</TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows (continued)
For the period from November, 19, 1993 (date of inception) to
December 31, 1993,
and for the years ended December 31, 1994 and 1995
<TABLE>
1993 1994 1995
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the year for interest $ - - 15,858
Supplemental Disclosures of Noncash
Investing and Financing Activities
- -----------------------------------
Dividends on redeemable preference stock $ - 16,780 11,389
Common stock issued for subscription - 198,500 349,500
receivable
Conversion of stockholder loans and due to - - 485,000
stockholders to common stock
Acquisition of purchased technology and
patents for stockholder payable - 100,000 -
</TABLE>
See accompanying notes to consolidated financial statements.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993,
and for the years ended December 31, 1994 and 1995
(1)Summary of Significant Accounting Policies
(a)Organization and Business Description
Specialized Health Products, Inc. (Specialized Health) was organized November
19, 1993, with a commercial objective to develop, manufacture, and market
safe, easy-to-use and cost-effective products for the health care industry.
Initial development has focused on products that limit or prevent the spread
of blood-borne diseases. The Company has several products currently in the
production or development stage. The sharps container is the only product
which is currently in the production stage. This device is designed to
provide means for disposing of sharps in order to reduce the potential for
accidental needle sticks. The other two major product lines are the lancet
and the needle withdrawal technology; both are in the development stage. The
lancet device is designed to provide a nonreusable,safer, and less painful way
of obtaining small blood samples from patients. The needle withdrawal
technology is designed to automatically retract needles directly from the
injection site while providing permanent and safe containment of the needle.
Specialized Health's activities since inception have principally consisted of
obtaining financing, recruiting personnel, conducting research and
development, developing products, and identifying and contracting with
manufacturers. The Company conducts its operations primarily in the
Continental United States.
Specialized Health entered into a business combination in July 1995 with
Russco, Inc. (Russco) wherein Specialized Health became a wholly-owned
subsidiary of Russco and Russco's name was changed to Specialized Health
Products International, Inc. (the Company). Russco was organized in February
1986 as a public blind pool company to evaluate, structure, and complete a
merger with, or acquisition of, any privately held business seeking to obtain
the perceived advantages of being a publicly owned Company. Russco had no
significant operations and minimal capital with which to conduct its operations.
At the closing of the business combination, (a) the 300,000 shares of
Russco's common stock previously outstanding (as adjusted for a reverse stock
split) remained outstanding as common stock of the Company and (b) Russco
issued 3,602,403 shares of its common stock for all of the issued and
outstanding shares of Specialized Health's common stock and preferred stock.
The business combination has been treated for accounting purposes as a
"reverse merger" wherein Specialized Health has been shown as the acquiring
company even though Russco issued its common shares to acquire Specialized
Health because the stockholders of Specialized Health received the
significant majority of the outstanding common stock of the Company and
management of Specialized Health became the management of the Company.
Because Russco had limited operations, the business combination has been
accounted for as a purchase transaction with the net assets of Russco (which
were insignificant) being recorded at their fair value at the date of closing
and operating results of Russco prior to the business combination not being
included with the historical operating results of Specialized Health.
Contemporaneously with the business combination, Specialized Health engaged
in a private placement of securities wherein 4,376,250 shares of the Company's
common stock were issued, net of offering costs, for
consideration of $7,519,060, as more fully discussed in note 7.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(a)Organization and Business Description (continued)
-------------------------------------
The accompanying consolidated financial statements
subsequent to the business combination include the
accounts of the Company and its wholly-owned subsidiary
Specialized Health. All intercompany accounts and
transactions have been eliminated in consolidation.
Prior to the business combination Specialized Health had
no subsidiary.
(b)Cash and Cash Equivalents
-------------------------
Cash and cash equivalents are comprised of a checking and
money market account. The Company considers all
investments with original maturities of three months or
less to be cash equivalents.
(c)Inventories
-----------
Inventories which consist primarily of finished goods
are stated at the lower of cost or market. Cost is
determined using the first-in first-out method.
(d) Other Assets
------------
The Company has included in other assets at December
31, 1994 and 1995, the cost of purchased technology and
patents, and related patent costs amounting to $388,752
and $453,502, respectively, which is being amortized
using the straight-line method over seven years. These
assets include the following technologies: acquisitions
from third parties include a catheter closure patent;
lancet patent; the sharps container technology acquired
from Sharp-Trap, Inc.; and an Automatic Needle
Withdrawing and Securing System purchased from Gale H.
Thorne, a director and employee. Management evaluates
the recoverability of these costs on a periodic basis,
based on sales of the product related to the technology,
revenue trends, and projected cash flows based on
estimates of future sales.
(e)Equipment and Furnishings
-------------------------
Equipment and furnishings are stated at cost and consist
primarily of manufacturing molds and equipment, and
office furniture and fixtures. Depreciation is computed
using the straight-line method based on the estimated
useful lives of the related assets which is 5 years with
the exception of manufacturing equipment which is
depreciated on the straight-line method over 7 years or
the units-of-production method whichever is greater.
(f)Revenue Recognition
-------------------
Revenues are recognized upon shipment of products.
Sales recorded in the year ended December 31, 1994,
relate primarily to products received upon acquisition of
technology and patents.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(g)Research and Development Costs
------------------------------
Research and development costs are expensed as incurred.
(h)Income Taxes
------------
Income taxes are recorded using the asset and liability
method for all periods presented in accordance with the
provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. Deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets
and liabilities and their respective tax basis, and
operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(i)Net Loss Per Common Share
-------------------------
Net loss per common share is based on the weighted
average number of common shares outstanding. Stock
options, warrants, and preferred shares prior to
conversion are not included in the calculation because
their inclusion would be antidilutive and reduce the net
loss per share amount.
(j)Reclassification
----------------
Certain amounts in 1994 have been reclassified to conform
with 1995 classifications.
(k)Fair Value Disclosure
---------------------
At December 31, 1995, the book value of the CompanyOs
financial instruments approximates fair value.
(l)Use of Estimates
----------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that effect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(2)Investments
-----------
In October 1995, the Company entered into an agreement with a
third party to form a joint venture Quantum Imaging
Corporation (Venture) to develop an improved filmless X-Ray
system. For a fiftyEpercent interest in the Venture (before
dilution by financing investors), the Company is obligated to
pay to the Venture $15,000 a month, which is paid to the
other Venture partner to perform research and development on
the VentureOs behalf. Additionally, the Company is obligated
to pay the general and administrative expenses of the Venture
up to $15,000 per month. These obligations continue through
September of 1996, and are cancelable only upon 30 days
written notice and failure of the other Venture partner to
meet requirements as specified in the Venture agreement.
Unless this agreement is terminated, the Company is obligated
at December 31, 1995 for a minimum of $135,000 and up to an
additional $135,000 as general and administrative expenses
are incurred by the Venture. In managementOs opinion, for
the Venture to be successful, it must raise between
$3,000,000 and $6,000,000. The Company contributed total
capital of $83,624 to the joint venture during 1995, all of
which the Company expensed and the Venture used to fund
research and development and administrative expenses. Assets
and liabilities as of December 31, 1995 were immaterial.
(3)Equipment and Furnishings
-------------------------
Equipment and furnishings consist of the following:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Assembly and manufacturing equipment $ 750 33,605
Manufacturing molds 276,370 245,753
Office furnishings and fixtures 10,403 144,992
Construction-in-progress - 395,895
-------- -------
287,523 820,245
Less accumulated depreciation (1,753) (8,196)
$ 285,770 812,049
======== =======
</TABLE>
During 1995, operating assets comprised primarily of
manufacturing molds totaling $255,072 were written off. The
molds became obsolete due to design changes in the sharp
container technology.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(4)Stockholders' Loans
-------------------
During 1994 and 1995, prior to the business combination
certain existing stockholders made direct loans to
Specialized Health aggregating $385,000 and bearing interest
at ten percent under a bridge loan agreement. Subscriptions
under the bridge loan agreement were offered proportionately
to stockholders based on the number of shares held. The
subscribers to the bridge loan agreement were issued a total
of 346,500 warrants permitting them to acquire an equal
number of shares of common stock at $1.11 per share on or
before December 31, 1996. No value was ascribed to the
warrants. In connection with the business combination
discussed in note 1, the 346,500 warrants were exercised
through conversion of the outstanding loans.
(5)Leases
------
The Company leases office space, equipment, and vehicles
under noncancelable operating leases. Future minimum lease
payments under these leases are as follows:
<TABLE>
<CAPTION>
Fiscal year ending December 31:
<S> <C>
1996 $ 107,972
1997 93,132
1998 38,718
-------
$ 239,822
=======
</TABLE>
Rent expense was $1,881 for the period from November 19, 1993
(date of inception) to December 31, 1993, $52,051 in 1994,
and $67,091 in 1995.
(6)Stock Options
-------------
In 1995, the Company adopted a nonqualified stock option plan
whereby it has reserved 1,284,998 shares of its common stock
for issuance to officers, directors, and employees. At the
time of adoption, the Company granted options to acquire
1,171,810 shares of common stock at $2.00 per share of which
1,117,000 vested immediately, and 54,810 vest at various
times over the next three years. The options expire five
years from date of grant.
During 1994, the Board of Directors of Specialized Health
approved a nonqualified stock option plan for its officers,
directors, and employees and authorized 396,000 shares of
common stock for issuance upon the exercise of options
granted under this plan. The exercise price of the options
is equivalent to the estimated fair market value of the stock
as determined by the Board of Directors at the date of grant.
The number of shares, terms, and exercise period are
determined by the Board of Directors on an option-by-option
basis. During 1994, options to acquire 396,000 common shares
were granted at a price range of $.39 to $1.11 per share. No
options were exercised or lapsed during 1994. On
September 1, 1995, options to acquire 288,000 shares were
exercised from which the Company received $209,500 in a
common stock subscription receivable. All common stock
subscription receivables are due within one year. The
remaining 108,000 shares will become exercisable over the
next eighteen months, have an option price of $.39 per share,
and expire in 2004.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(7)Preferred and Common Stock
--------------------------
The Company has authorized 50,000,000 shares of common stock
with $.02 par value and 5,000,000 shares of preferred stock
with a par value of $.001 per share.
In connection with the business combination discussed in note
1, Specialized Health completed a 9 for 1 forward stock split
of both its common and preferred stock. The number of common
and preferred shares and per share amounts presented in the
accompanying consolidated financial statements have been
restated for the effect of this split. In addition, the
Company issued 90,000 shares of common stock to non-
affiliated shareholders existing at the time of the private
placement under antidilutive provisions.
Specialized Health and the Company engaged in a private
placement of securities in July 1995, wherein 860.25 units
were sold for $10,000 per unit for total consideration, net
of expenses of $7,519,060. This consideration was comprised
of $7,279,060 of cash, $100,000 of debt converted to common
stock, and a common stock subscription receivable of
$140,000. The private placement was completed
contemporaneously with the business combination. In the
private placement, the Company sold an aggregate of
$4,301,250 shares of the Company's $.02 par value common
stock and Series A warrants to purchase an aggregate of
2,580,750 shares of the Company's common stock at a price of
$3.00 per share, exercisable for a period of two years from
the date of effectiveness of a registration statement
covering the issuance of the shares of common stock
underlying the Series A warrants.
For services provided in connection with the private
placement of securities, the underwriter received a
commission of $860,251 in cash, 75,000 shares of common
stock, Series A warrants to purchase 530,125 shares of common
stock for $3.00 per share, and Series B warrants to purchase
1,290,375 shares of common stock for $2.00 per share. The
warrants expire on the earlier of (a) two years from the
effective date of a registration statement under the
Securities Act covering the issuance of the shares of common
stock underlying such warrants or (b) the date specified in a
notice of redemption from the Company in the event that the
closing price of the common stock for any ten consecutive
trading days preceding such notice exceeds $6.00 per share
and subject to the availability of a current prospectus
covering the underlying shares. The Company may redeem all
or a portion of the warrants, in each case at $.001 per
warrant upon at least 20 days prior written notice to the
warrant holders. The warrants may only be redeemed if a
current prospectus is available with respect to the issuance
of shares of common stock upon the exercise thereof. At
December 31, 1995 the Company has a common stock subscription
receivable amounting to $50,000 from the underwriter.
The underwriter had a continuing relationship with the
Company pursuant to which the underwriter was to provide
financial advisory and investment banking services to the
Company through July 1997. The Company was to pay the
underwriter $4,000 per month for such services.
Additionally, the underwriter had the right of first refusal
to undertake any financings of the Company during this
period. Subsequent to year end, the Company amended their
agreement with the underwriter canceling the monthly service
fees and the underwriters right of first refusal. The
Company signed a new agreement with PaineWebber to act as its
exclusive financial advisor and to assist in the development
of strategic alliances.
Also, during 1995 the Company issued a warrant to a
nonaffiliated stockholder of the Company to purchase 45,000
shares of common stock at $1.67 per share. This warrant
expires in 1996.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(7)Preferred and Common Stock (continued)
---------------------------------------
Each preferred and common share of Specialized Health was
converted into one common share of the Company in connection
with the business combination.
The Company has granted to a director and certain officers
the right to receive up to an aggregate of 2,000,000
additional shares of common stock based upon the level of pre-
tax consolidated net income (PTNI) for 1996, 1997, or 1998.
If PTNI equals of exceeds $1,500,000, $5,000,000, or
$8,000,000 in any of these years these individuals will
receive an aggregate of 350,000, 1,100,000, or 2,000,000
common shares, respectively, less shares previously received
but no more than an aggregate of 2,000,000 shares.
The Company expects that the issuance of such shares will be
deemed to be the payment of compensation to the recipients
and will result in a charge to the earnings of the Company in
the year or years the shares are earned, in an amount equal
to the fair market value of the shares. This charge to
earnings could have a substantial negative impact on the
earnings of the Company in the year or years in which the
compensation expense is recognized.
The effect of the charge to earnings associated with the
issuance of the shares could place the Company in a net loss
position for the relevant year, even though the PTNI was at a
level requiring the issuance of the shares. Because the
shares are issuable based on the results of a single year,
the PTNI in a particular year could require the issuance of
shares even though the cumulative PTNI for the three years
1996, 1997, and 1998, or any combination of those years,
could reflect a lower amount of PTNI that would not require
the Company to issue such shares or even a pre-tax net loss.
(8)Redeemable Preference Stock
---------------------------
Specialized Health had authorized 250,000 shares of
redeemable preference stock with a par value of $1.50 per
share, of which 160,000 shares were issued and outstanding at
December 31, 1994. Each redeemable preference share was
entitled to a cumulative annual dividend of nine percent of
the par value from the date of original issue. Dividends
were payable when and as declared by the Board of Directors.
The preference stock and related dividends were paid in cash
at the time of the business combination.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(9)Income Taxes
------------
There was no income tax expense in 1993, 1994, and 1995, due
to net operating losses. The difference between the expected
tax benefit and the actual tax benefit is primarily
attributable to the effect of start-up costs and net
operating losses being offset by an increase in the Company's
valuation allowance. The tax effects of temporary
differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at
December 31, 1994 and December 31, 1995, are presented below:
<TABLE>
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Organization costs $ 5,138 3,854
Start-up costs 1,030 720
Patent costs - 19,244
Net operating loss carryforwards 275,843 1,374,198
Accrued compensation 57,629 -
Accrued vacation - 19,894
------- --------
Total gross deferred tax assets 339,640 1,417,910
Less valuation allowance (339,579)(1,417,910)
--------- ----------
Net deferred tax assets 61 -
Deferred tax liability - equipment,
principally due to differences in 61 -
depreciation
---------- ----------
Total gross deferred tax liability 61 -
---------- ----------
Net deferred tax liability $ - -
========== ==========
</TABLE>
The net change in the total valuation allowance for the years
ended December 31, 1994 and 1995, was an increase of $338,292
and $1,078,331, respectively. Subsequently recognized tax
benefits relating to the valuation allowance for deferred tax
assets will be recognized as an income tax benefit to be
reported in the statement of operations.
At December 31, 1995, the Company had total tax net operating
losses of approximately $3,684,177, that can be carried
forward to reduce federal income taxes. If not utilized, the
tax loss carryforwards expire beginning in 2009.
Under the rules of the Tax Reform Act of 1986, the Company
has undergone a greater than 50Epercent change of ownership.
Consequently, a certain amount of the Company's net operating
loss carryforward available to offset future taxable income
in any one year may be limited. The maximum amount of
carryforwards available in a given year is limited to the
product of the Company's value on the date of ownership
change and the federal long-term tax-exempt rate, plus any
limited carryforwards not utilized in prior years.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(10)Commitments and Contingencies
-----------------------------
The Company is party to litigation and claims arising in the
normal course of business. Management, after consultation
with legal counsel, believes that such matters will not have
a material impact on the Company's financial position or
results of operations.
As a result of the acquisition of certain product rights and
related patents the Company is required to pay a specified
royalty on future sales of products related to these rights
and patents.
(11)Related Party Transactions
--------------------------
Related party receivables at December 31, 1995 represent
advances to certain related parties. During 1995 the Company
paid to an entity, owned in part by a shareholder of the
Company, $231,475 as reimbursement for expenses it expended
on behalf of the Company and as consulting fees.
Amounts due to stockholders in 1994 consisted of unpaid
consulting expenses of $154,500 and a $40,000 note payable.
The note payable was replaced subsequent to year-end with a
line of credit from a commercial bank in the amount of
$100,000 due November 1995 bearing interest at prime plus two
percent. Long-term amounts due to a stockholder related to
the acquisition of purchased technology, and are non-interest
bearing. These amounts were repaid in 1995, and as of
December 31, 1995 there were no remaining amounts due.
(12)Business and Credit Concentrations
----------------------------------
During 1995, the CompanyOs revenues were solely from the sale
of the sharps container of which $418,509 represented sales
to a single distributor. At December 31, 1995, the Company
had $348,266 of trade accounts receivable due from this
customer for which payment was received subsequent to year-
end.
The Company currently buys all of its sharp containers, the
CompanyOs only device in production, from one supplier.
Although there are a limited number of manufacturers who
could manufacture this device, management believes that other
suppliers could provide similar services on comparable terms.
A change in suppliers, however, could cause a delay in
manufacturing and a possible loss of sales.
Additionally, the Company has a limited direct sales force
and no third party agreements to distribute its products
which may result in limited sales of the CompanyOs products.
(13)Fourth Quarter Results
----------------------
During the fourth quarter, the aggregate effect of year end
adjustments, which related to prior quarters, increased the
net loss approximately $457,000.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995
(14)Accounting Standards Issued Not Yet Adopted
-------------------------------------------
In March of 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121
Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of (FASB 121). The Company
is required to adopt the provisions of this statement for
years beginning after December 15, 1995. This statement
requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The impact
of FASB 121 is not expected to have a material affect on the
Company.
In October of 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (FASB 123). The
Company is required to adopt the provisions of this statement
for years beginning after December 15, 1995. This statement
encourages all entities to adopt a fair value based method of
accounting for employee stock options or similar equity
instruments. However, it also allows an entity to continue
to measure compensation cost for those plans using the
intrinsic-value method of accounting prescribed by APB
opinion No. 25, Accounting for Stock Issued to Employees (APB
25). Entities electing to remain with the accounting in APB
25 must make pro forma disclosures of net income and earnings
per share as if the fair value based method of accounting
defined in this statement had been applied. It is currently
anticipated that the Company will continue to account for
employee stock options or similar equity instruments in
accordance with APB 25 and provide the disclosures required
by FASB 123.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
EXHIBITS
to
FORM 10-K REGISTRATION STATEMENT
Under the Securities Exchange Act of 1934
_______________
Specialized Health Products International, Inc.
Exhibits.
Exhibit No. Description Page*
---------- ----------- -----
3(i).1 Restated Certificate of Incorporation of the
Company
3(i).2 Articles of Incorporation of SHP
3(i).3 Articles of Amendment of SHP
3(i).4 Plan and Articles of Merger of Russco
Resources, Inc., into SHP (Incorporated
by reference to Exhibit 3(i).1 to the Company's
Current Report on Form 8-K dated July 28, 1995)
3(ii).1 Bylaws of the Company
3(ii).2 Bylaws of SHP
4.1 Form of Series A Warrant
4.2 Form of Series B Warrant
10.1 Agreement and Plan of Reorganization dated as
of June 23, 1995, among the Company, Russco
Resources, Inc., Scott R. Jensen and Specialized
Health Products, Inc.(Incorporated by reference
to Exhibit 2.1 of the Company's Current Report
on Form 8-K, dated July 28, 1995.
10.2 Placement Agreement between the Company, SHP
and U.S. Sachem Financial Consultants, L.P.,
dated June 23, 1995
10.3 Form of Employment Agreement with Executive
Officers
10.4 Form of Indemnity Agreement with Executive
Officers and Directors
10.5 Form of Confidentiality Agreement
10.6 Joint Venture Agreement between SHP and
Zerbec, Inc., dated as of October 30, 1995
16.1 Letter re change in certifying accountant
21.1 Schedule of Subsidiaries
27.1 Financial Date Schedule
_______________
* To be filed by amendment.
** Refers to sequentially numbered copy.
EXHIBIT 3(i).1
Restated Certificate of Incorporation of the Company
RESTATED CERTIFICATE OF INCORPORATION
Russco, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as
follows:
1. The name of the corporation is Russco, Inc. Russco,
Inc., was originally incorporated under the same name and
the original Certificate of Incorporation of the corporation
was filed with the Secretary of State of Delaware on
Nobember 27, 1990.
2. Pursuant to Section 242 and 245 of the General
Corporation Law of the State of Delaware, this Restated
Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of
Incorporation of this corporation.
3. This restated Certificate of Incorporation supersedes
the Original Certificate of Incorporation and all amendments
thereto and the Certificate of Incorporation is hereby
amended to read in its entirety as follows:
ARTICLE FIRST
Name: The name of this corporation is
Specialized Health Products International, Inc.
ARTICLE SECOND
Duration: This corporation shall exist
perpetually unless sooner dissolved by law.
ARTICLE THIRD
Purposes: The purpose for which this
corporation is organized is to engage in any
lawful act or activity for which corporations
may be organized under the Delaware General
Corporation Law.
ARTICLE FOURTH
Stock: The total number of authorized shares
of stock which this corporation shall be
authorized to issue is:
Fifty-Five Million (55,000,000) shares divided
into Fifty Million (50,000,000) Common shares
with a par value of Two Cents ($0.02) per share
and Five Million (5,000,000) Preferred shares
with a par value of One-tenth Cent ($0.001) per
share.
The Board of Directors is authorized, subject
to limitations prescribed by law and the
provisions of this Article, to provide for the
issuance of the shares of preferred stock in
series, and by filing a certificate pursuant to
the applicable law of the State of Delaware, to
establish from time to time the number of shares
to be included in each such series, and to fix
the designations, powers, preferences and rights
of the shares of each such series and the
qualifications, limitations or restrictions
thereof.
ARTICLE FIFTH
Pre-emptive Rights: The stockholders shall
have no pre-emptive rights to acquire additional
shares of the corporation.
ARTICLE SIXTH
Management of the Corporation's Affairs. The
business and affairs of the corporation shall be
managed under the direction of the Board of
Directors. The exact number of directors shall
be fixed from time to time by, or in the manner
provided in, the Bylaws of the corporation and
may be increased or decreased as therein
provided. Directors of the corporation need not
be elected by ballot unless required by the
Bylaws.
The directors shall be divided into three
classes. Each such class shall consist, as
nearly as may be possible, of one-third of the
total number of directors, and any remaining
directors shall be included within such group or
groups as the Board of Directors shall
designate. A class of directors shall be
elected for a one-year term, a class of direc
tors for a two-year term and a class of
directors for a three-year term. At each
succeeding annual meeting of stockholders,
successors to the class of directors whose term
expires at that annual meeting shall be elected
for a three-year term. If the number of
directors is changed, any increase or decrease
shall be apportioned among the classes so as to
maintain the number of directors in each class
as nearly equal an possible, but in no case
shall a decrease in the number of directors
shorten the term or any incumbent director. A
director may be removed from office for cause
only and, subject to such removal, death,
resignation, retirement or disqualification,
shall hold office until the annual meeting for
the year in which his term expires and until his
successor shall be elected and qualified. No
alteration, amendment or repeal of this Article
SIXTH or the Bylaws of the corporation shall be
effective to shorten the term of any director
holding office at the time of such alteration,
amendment or repeal, to permit any such director
to be removed without cause, or to increase the
number of directors in any class or in the
aggregate from that existing at the time of such
alteration, amendment or repeal, until the
expiration of the terms of office of all
directors then holding office, unless (1) in the
case of this Article SIXTH, such alteration,
amendment or repeal has been approved by the
affirmative vote of two-thirds of the shares of
stock of the corporation outstanding and
entitled to vote thereon, or (ii) in the case of
the Bylaws, such alteration amendment or repeal
has been approved by either the affirmative vote
of two-thirds the holders of all shares of stock
of the corporation outstanding and entitled to
vote thereon or by a vote of a majority of the
entire Board of Directors.
To the extent that any holders of any class
or series of stock other than Common Stock
issued by the corporation shall have the
separate right, voting as a class or series, to
elect directors, the directors elected by such
class or series shall be deemed to constitute an
additional class of directors and shall have a
term of office for one year or such other period
as may be designated by the provisions of such
class or series providing such separate voting
right to the holders of such class or series of
stock, and any such class of directors shall be
in addition to the classes designated above.
Any such directors so elected shall be subject
to removal in such manner as may be provided by
law.
ARTICLE SEVENTH
Action by Stockholders. Action shall be taken
by stockholders of the corporation only at
annual or special meetings of stockholders, and
stockholders may not act by written consent.
Special meetings of the stockholders of the
corporation for any purpose or purposes may be
called at any time by the Board of Directors,
the Chairman of the Board, the Chief Executive
Officer or the President of the corporation, but
such special meetings may not be called by any
other person or persons.
ARTICLE EIGHTH
Amendment: Except as otherwise provided in
this Certificate of Incorporation, the
provisions of this Certificate of Incorporation
may be amended by the affirmative vote of a
majority of the shares entitled to vote on each
such amendment.
ARTICLE NINTH
Limitation of Directors' Liability: To the
fullest extent permitted by the laws of the
State of Delaware now or hereafter in force, no
director of this corporation shall be personally
liable to the corporation or its stockholders
for monetary damages for breach of fiduciary
duty as a director. Any repeal or modification
of the foregoing provisions of this Article
NINTH shall not adversely affect any right or
protection hereunder of any person in respect of
any act or omission occurring prior to the time
of such repeal or modification. The provisions
of this Article NINTH 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 NINTH.
ARTICLE TENTH
REGISTERED AGENT: The registered office in the
State of Delaware is located at 1013 Centre
Road, in the City of Wilmington, County of New
Castle and its registered agent at such address
is Corporation Service Company.
IN WITNESS WHEREOF, the undersigned sign and execute this
Restated Certificate of Incorporation and certify to the
truth of the facts herein stated and that this Restated
Certificate of Incorporation was duly adopted in accordance
with the provisions of the Delaware General Corporation Law,
this 25th day of July, 1995.
RUSSCO, INC.
By _/s/ Scott R. Jensen___
Scott R. Jensen
President/Secretary
EXHIBIT 3(i).2
Articles of Incorporation of SHP
ARTICLES OF INCORPORATION
OF
SPECIALIZED HEALTH PROUDUCTS, INC.
The undersigned, natural persons eighteen (18) years of age
or older, acting under the Utah Revised Business Corporation Act,
hereby adopt the following Articles of Incorporation for such
corporation:
ARTICLE FIRST
Name: The name of this corporation is SPECIALIZED HEALTH
PRODUCTS, INC.
ARTICLE SECOND
Duration: This corporation shall exist perpetually unless
sooner dissolved by law.
ARTICLE THIRD
Purposes: The purpose or purposes for which this
corporation is organized are:
a. To engage in any lawful act or activity for which
corporations may be organized under the Utah Revised
Business Corporations Act.
b. To acquire by purchase, exchange, gift, bequest,
subscription or otherwise, and to hold, own, mortgage,
pledge, hypothecate, sell, assign, transfer, exchange
or otherwise dispose of or deal in or with its own
corporate securities or stock or other securities,
including without limitations, any shares of stock,
bonds, debentures, notes, mortgages, or other
obligations, and any certificates, receipts or other
instruments representing rights or interests therein or
any property or assets created or issued by any person,
firm, association, or corporation, or any government or
subdivisions, agencies or instrumentalities thereof; to
make payment therefor in any lawful manner or to issue
in exchange therefor its own securities or to purchase
its own shares; and to exercise as owner or holder of
any securities, any and all rights, powers and
privileges in respect thereof; to make payment therefor
in any lawful manner or to issue in exchange therefor
its own securities or to purchase its own shares; and
to exercise as owner or holder of any securities, any
and all rights, power and privileges in respect
thereof.
c. To become a partner (either general or limited or both)
and to enter into agreements of partnership with one or
more other persons or corporations for the purpose of
carrying on any business whatsoever which this corpora
tion may deem proper or convenient in connection with
any of the purposes herein set forth or otherwise, or
which may be calculated, directly or indirectly, to
promote the interests of this corporation or to enhance
the value of its property or business.
d. To do each and every thing necessary, suitable or
proper for the accomplishment of any of the purposes or
the attainment of any one or more of the subjects
herein enumerated, or which may at any time appear
conducive to or expedient for the protection or benefit
of this corporation, and to do said acts as fully and
to the same extent as natural persons might, or could
do, in any part of the world as principals, agents,
partners, trustees or otherwise, either alone or in
conjunction with any other person, association or
corporation.
e. The foregoing clauses shall be construed both as
purposes and powers and shall not be held to limit or
restrict in any manner the general powers of the
corporation, and the enjoyment and exercise thereof, as
conferred by the laws of the State of Utah; and it is
the intention that the purposes and powers specified in
each of the paragraphs of this Article Third shall be
regarded as independent purposes and powers.]
ARTICLE FOURTH
Stock: The total number of authorized shares of this
corporation shall be one hundred thousand (100,000) common voting
shares with no par value. All of the shares of this corporation
shall have the same rights and preferences. The shareholders of
said stock shall have unlimited voting rights and a right to the
net assets of the corporation upon dissolution.
Any unissued shares of this corporation may be used,
allotted and sold from time to time in such amounts and for such
consideration as may be lawfully determined by the board of
directors subject to the pre-emptive rights of the shareholders.
ARTICLE FIFTH
Pre-emptive Rights: The shareholders shall have pre-emptive
rights to acquire additional shares of the corporation.
ARTICLE SIXTH
Directors' Contracts: No contract or other transaction
between this corporation and one or more of its directors or any
other person, partnership, corporation, firm, association or
entity in which one or more of this corporation's directors are
directors or officers or are financially interested, shall be
either void or voidable because of such relationship or interest,
or because such director or directors are present at the meeting
of the board of directors, or a committee thereof which
authorizes, approves or ratifies such contract or transaction,
and each such director of this corporation is hereby released
from liability which might otherwise exist from such contract if:
(a) such relationship or interest is disclosed or known to the
board of directors or committee which authorizes, approves or
ratifies the contract or transaction and a majority of non-
interested directors, or all non-interested directors in the case
of a committee, vote to approve or ratify the contract or
transaction; (b) such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize,
approve or ratify such contract or transaction by vote or written
consent; or (c) the contract or transaction is fair and
reasonable to the corporation.
ARTICLE SEVENTH
Cumulative Voting: At each election of directors, every
shareholder entitled to vote at such election shall have the
right to accumulate their votes by giving one candidate as many
votes as the number of such directors to be elected multiplied by
the number of their shares, or by distributing such votes on the
same principle among any number of such candidates.
ARTICLE EIGHTH
Amendment: These Articles of Incorporation may be amended
by the affirmative vote of a majority of the shares entitled to
vote on each such amendment.
ARTICLE NINTH
Initial Registered Office and Agent: The street address of
this corporation's initial registered agent office is 420 West
1500 south, Bountiful, Utah 84010. The name of the initial
registered agent at such address is Brad C. Robinson.
ARTICLE TENTH
Directors: The maximum number of directors constituting the
initial board of directors of this corporation is seven. The
minimum number of directors constituting the board of directors
of this corporation is five.
ARTICLE ELEVENTH
Incorporators: The name and address of each Incorporator
is:
David A. Robinson
420 West 1500 South
Bountiful, Utah 84010
Brad C. Robinson
420 West 1500 South
Bountiful, Utah 84010
ARTICLE TWELFTH
Limitation of Directors' Liability: Pursuant to Section 16-
10a-841 of the Utah Code Annotated, as amended, the directors
shall have no personal liability for monetary damages for any
action or failure to take any action; provided, however, that
notwithstanding the foregoing, directors may be personally liable
for monetary damages for: (1) the amount of financial benefit
received by a director to which the director is not entitled; (2)
an intentional infliction of harm on the corporation or the
shareholders; (3) voting for an unlawful distribution as defined
by Section 16-10a-640 of the Utah Code, and laws amendatory
thereto; or (4) an intentional violation of criminal law.
ARTICLE THIRTEENTH
Indemnification: The corporation may indemnify an
individual against liability incurred in a proceeding where the
individual was made a party to a proceeding because the person is
or was a director or officer and if: (1) the individual's conduct
was in good faith; (2) the individual reasonably believed that
the conduct was in, or not opposed to, the corporation's best
interests; and (3) in the case of any criminal proceeding, the
individual had no reasonable cause to believe the individual's
conduct was unlawful.
The corporation will indemnify a director or officer who was
successful, on the merits or otherwise, in defense of any
proceeding, or in defense of any claim, issue, or matter in the
proceeding, to which the individual was a party because the
person is or was a director or officer of the corporation,
against reasonable expenses incurred by the individual in
connection with the proceeding or claim with respect to which the
individual has been successful.
The corporation may not indemnify a director or officer in
connection with: (1) a proceeding by or in the right of the
corporation in which the individual was adjudged liable to the
corporation; or (2) any other proceeding charging that the
individual derived an improper personal benefit, whether or not
involving action in the individual's official capacity, in which
proceeding the individual was adjudged liable on the basis that
the individual derived an improper personal benefit.
IN WITNESS WHEREOF, the undersigned, being the incorporators
of the Corporation, execute these Articles of Incorporation and
certify to the truth of the facts herein stated, this 17th day of
November, 1993.
/s/ David A. Robinson
_
David Robinson, Incorporator
/s/ Brad Robinson
_
Brad Robinson, Incorporator
The appointment of the undersigned as the initial registered
agent of the Corporation is hereby accepted.
/s/ Brad Robinson
_
Brad Robinson, Registered Agent
EXHIBIT 3(i).3
Articles of Amendment of SHP
ARTICLES OF AMENDMENT OF
SPECIALIZED HEALTH PRODUCTS, INC.
The undersigned, being the duly elected President of
Specialized Health Products, Inc., a Utah corporation (the
"Corporation"), pursuant to Section 16-10a-1001 et seq. of the
Utah Revised Business Corporation Act, executes the following
Articles of Amendment (the "Articles of Amendment") to the
Articles of Incorporation for the Corporation as filed with the
Division of Corporations and Commercial Code of Utah on the 19th
day of November, 1993 (the "Articles of Incorporation").
ARTICLE FIRST
Amendment: Without altering or amending any other provision
of the Articles of Incorporation, Article Forth of the Articles
of Incorporation is hereby amended to read in its entirety as
follows:
Stock: The total number of authorized shares of the
Corporation shall be 1,500,000, which shall be divided into three
classes designated as follows: 1,000,000 of Common Stock having
no par value; 250,000 shares of Preferred Stock having a par
value of $3.50 per share; and 250,000 shares of Preference Stock
having a par value of $1.50 per share. Any unissued shares of
the Corporation may be used, allotted and sold from time to time
in such amounts and for such consideration as may be lawfully
determined by the board of directors.
Voting Rights and Limitations: Except as otherwise required
by statute, all voting rights of the Corporation shall be vested
in and exercised exclusively by the holders of the Common and
Preferred Stock, as a single voting group, with each share of
Common Stock being entitled to one vote and each share of
Preferred Stock being entitled to one vote. The holders of the
Preference Stock shall not be entitled to vote upon the election
of directors or upon any other matters affecting the management
or affairs of the Corporation, except: (1) such matters as to
which they shall at the time be indefeasibly vested by statute
with such right to vote, (2) upon the failure of the Corporation
to pay the required dividend (discussed infra), or (3) upon the
failure of the Corporation to redeem the Preference Stock prior
to the Redemption Date (defined infra). If the holders of the
Preference Shares are entitled to vote each Preference Share
shall be entitled to one vote, and the classes of stock shall
vote as a single voting group.
Preferences and Relative Rights of Shares: The holders of
the Preference Stock shall be entitled to receive, out of any
funds of the Corporation at the time legally available for the
declaration of dividends, dividends at the rate of 9% per annum
of the par value of such Preference Stock, payable in cash
annually, or at such intervals as the board of directors may from
time to time determine, when and as declared by the board of
directors. Dividends on the Preference Stock shall accrue from
the date of issuance of such shares and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be
payable before any dividends shall be declared or paid upon or
set apart from the other classes of outstanding stock and shall
be cumulative, such that if in any year or years dividends upon
the outstanding Preference Stock at the rate of 9% per annum of
the par value thereof shall not have been paid thereon or
declared or set apart therefor in full, the amount of the
deficiency shall be fully paid or declared and set apart for
payment (but without interest) before any distribution, whether
by way of dividend or otherwise, shall be declared or paid upon,
or set apart for, the other classes of stock.
In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the holders of the
Preference Stock and Preferred Stock shall be entitled to receive
out of the net assets of the Corporation (whether such assets are
capital or surplus of any nature) an amount equal to the par
value of such Preference Stock and Preferred Stock (the "Par
Value Payment"). If the assets thus distributed among the
holders of the Preference Stock and Preferred Stock shall be
insufficient to permit the payment of the full preferential
amounts to all holders of the Preference Stock and Preferred
Stock, then the entire assets of the Corporation available for
distribution shall be distributed ratably among the Preference
and Preferred Shareholders.
If upon any such liquidation, dissolution, or winding up of
the Corporation there are assets remaining after the Par Value
Payment, the Preference Shareholders shall receive an additional
amount equal to the dividends unpaid and accumulated thereon as
provided in this Article to the date of such distribution,
whether or not earned or declared (the "Dividend Payment"),
before any additional amounts or assets are distributed to the
shareholders.
If upon any such liquidation, dissolution, or winding up of
the Corporation there are assets remaining in the Corporation
after the Par Value Payment and Dividend Payment, then the
holders of any shares of any class of stock shall receive,
ratably, all of the remaining assets of the Corporation.
A consolidation or merger of the Corporation with or into
another Corporation or Corporations shall not be deemed to be a
liquidation, dissolution, or winding up of the Corporation for
purposes of this Article.
Redemption Rights: The Corporation, no later than December
31, 1995 (the "Redemption Date"), applicable law permitting,
shall redeem the issued and outstanding shares of Preference
Stock by paying in cash therefor, an amount equal to the par
value of such shares to be redeemed plus an additional amount
equal to the dividends unpaid and accumulated thereon as provided
in this Article to the date fixed for redemption, whether or not
earned or declared and no more. In case of the redemption of
only a part of the issued and outstanding shares of Preference
Stock prior to the Redemption Date, the Corporation shall
designate by lot, in such manner as the board of directors may
determine, the shares to be redeemed, or shall effect such
redemption pro rata. Unless such partial redemption is pro rata,
less than all of the Preference Stock at any time outstanding may
not be redeemed until (1) all outstanding shares have been paid
for all past dividend periods, and (2) full dividends for the
then current dividend period on all Preference Stock (other than
shares to be redeemed) shall have been paid or declared and the
full amount thereof set apart for payment.
Public Offering: If the Corporation makes a public offering
of stock, or becomes a publicly quoted company, the Preferred
Stock will convert into Common Stock, each share of outstanding
Preferred Stock being converted into one share of Common Stock.
ARTICLE SECOND
Amendment: Without altering or amending any other provision
of the Articles of Incorporation, Article Fifth of the Articles
of Incorporation is hereby amended to read in its entirety as
follows:
Pre-emptive Rights: The shareholders shall have no pre-
emptive rights to acquire additional shares of the Corporation.
ARTICLE THIRD
Amendment: Without altering or amending any other provision
of the Articles of Incorporation, Article Tenth of the Articles
of Incorporation is hereby amended to read in its entirety as
follows:
Directors: The maximum number of directors constituting the
board of directors of the Corporation is eight. The minimum
number of directors constituting the board of directors of the
Corporation is three.
ARTICLE FOURTH
Date of the Adoption of the Amendment: The Articles of
Amendment were adopted by a majority of the shareholders of the
Corporation in conformity with the procedures of the Utah Revised
Business Corporation Act by written consent of the shareholders
dated April 8, 1994.
ARTICLE FIFTH
Vote: Three shares of capital stock of the Corporation were
issued and outstanding as of the date of adoption of the Articles
of Amendment. All shares of capital stock were entitled to vote
as a single class on the Adoption of the Articles of Amendment.
The Articles of Amendment were approved and adopted by the
shareholders of the Corporation by written consent as follows:
For Against
3 shares 0 shares
In WITNESS WHEREOF, the undersigned executes these Articles
of Amendment and certifies to the truth of the facts herein
stated this 8th day of April, 1994.
/s/ David A. Robinson _
David A. Robinson, President
EXHIBIT 3(i).4
Plan and Articles of Merger of Russco Resources, Inc., into SHP
(Incorporated by reference to Exhibit 3(i).1 to the Company's
Current Report on Form 8-K
dated July 28, 1995)
EXHIBIT 3(ii).1
Bylaws of the Company
BY-LAWS
OF
RUSSCO, INC.
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in
the State of Delaware shall be at 1013 Centre Road, Wilmington,
Delaware 19805-1297.
The registered agent in charge thereof shall be CSC
Networks.
Section 2. The corporation may also have offices at such
other places as the Board of Directors may from time to time
appoint or the business of the corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the
registered office of the corporation in this state or at such
place, either within or without this state, as may be selected
from time to time by the Board of Directors.
Section 2. ANNUAL MEETINGS: The annual meeting of the
stockholders shall be held on such date as is determined by the
Board of Directors for the purpose of electing directors and
for the transaction of such other business as may properly be
brought before the meeting.
Section 3. ELECTION OF DIRECTORS: Elections of the
directors of the corporation shall be by written ballot.
Section 4. SPECIAL MEETINGS: Special meetings of the
stockholders may be called at any time by the President, or the
Board of Directors, or stockholders entitled to cast at least one-
fifth of the votes which all stockholders are entitled to cast at
the particular meeting. At any time, upon written request of any
person or persons who have duly called a special meeting, it
shall be the duty of the Secretary to fix the date of the
meeting, to be held not more than sixty days after receipt of the
request, and to give due notice thereof. If the Secretary shall
neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be
confined to the objects stated in the call and matters germane
thereto, unless all stockholders entitled to vote are present and
consent.
Written notice of a special meeting of stockholders stating
the time and place and object thereof, shall be given to each
stockholder entitled to vote thereat at least ten days before
such meeting, unless a greater period of notice is required by
statute in a particular case.
Section 5. QUORUM: A majority of the outstanding shares of
the corporation entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders.
If less than a majority of the outstanding shares entitled to
vote is represented at a meeting, a vote of one-third of the
shares so represented may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized
meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
Section 6. PROXIES: Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize
another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that
it is irrevocable and if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A
proxy may be made irrevocable regardless of whether the interest
with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. All proxies shall be
filed with the Secretary of the meeting before being voted upon.
Section 7. NOTICE OF MEETINGS: Whenever stockholders are
required or permitted to take any action at a meeting, a written
notice of the meeting shall be given which shall state the place,
date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, written notice of any
meeting shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to
vote at such meeting.
Section 8. CONSENT IN LIEU OF MEETINGS: Any action
required to be taken at any annual or special meeting of
stockholders of a corporation, or any action which may be taken
at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Section 9. LIST OF STOCKHOLDERS: The officer who has
charge of the stock ledger of the corporation shall prepare and
make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the
name of each stockholder. No share of stock upon which any
installment is due and unpaid shall be voted at any meeting. The
list shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours,
for a period of at least ten days prior to the meeting, either at
a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation
shall be managed by its Board of Directors, no less than one in
number or such other minimum number as is required by law.
The directors need not be residents of this state or stockholders
in the corporation. They shall be elected by the stockholders of
the corporation or in the case of a vacancy by remaining
directors, and each director shall be elected for the term of one
year, and until his successor shall be elected and shall qualify
or until his earlier resignation or removal.
Section 2. REGULAR MEETINGS: Regular meetings of the Board
shall be held without notice other than this by-law immediately
after, and at the same place as, the annual meeting of
stockholders. The directors may provide, by resolution, the time
and place for the holding of additional regular meetings without
other notice than such resolution.
Section 3. SPECIAL MEETINGS: Special Meetings of the Board
may be called by the President or any director upon two day
notice. The person or persons authorized to call special
meetings of the directors may fix the place for holding any
special meeting of the directors called by them.
Section 4. QUORUM: A majority of the total number of
directors shall constitute a quorum for the transaction of
business.
Section 5. CONSENT IN LIEU OF MEETING: Any action required
or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board or committee, as the case may
be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
The Board of Directors may hold its meetings, and have an office
or offices, outside of this state.
Section 6. CONFERENCE TELEPHONE: One or more directors may
participate in a meeting of the Board, of a committee of the
Board or of the stockholders, by means of conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other; participation
in this manner shall constitute presence in person at such
meeting.
Section 7. COMPENSATION: Directors as such, shall not
receive any stated salary for their services, but by resolution
of the Board, a fixed sum and expenses of attendance, if any, may
be allowed for attendance at each regular or special meeting of
the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation
in any other capacity and receiving compensation therefor.
Section 8. REMOVAL: Any director or the entire Board of
Directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election
of directors, except that when cumulative voting is permitted, if
less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would
be sufficient to elect him if then cumulatively voted at an
election of the entire Board of Directors, or, if there be
classes of directors, at an election of the class of directors of
which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall
be chosen by the directors and shall be a President, Secretary
and Treasurer. The Board of Directors may also choose a
Chairman, one or more Vice Presidents and such other officers as
it shall deem necessary. Any number of offices may be held by
the same person.
Section 2. SALARIES: Salaries of all officers and agents
of the corporation shall be fixed by the Board of Directors.
Section 3. TERM OF OFFICE: The officers of the corporation
shall hold office for one year and until their successors are
chosen and have qualified. Any officer or agent elected or
appointed by the Board may be removed by the Board of Directors
whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. PRESIDENT: The President shall be the chief
executive officer of the corporation; he shall preside at all
meetings of the stockholders and directors; he shall have general
and active management of the business of the corporation, shall
see that all orders and resolutions of the Board are carried into
effect, subject, however, to the right of the directors to
delegate any specific powers, except such as may be by statute
exclusively conferred on the President, to any other officer or
officers of the corporation. He shall execute bonds, mortgages
and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees,
and shall have the general power and duties of supervision and
management usually vested in the office of President of a
corporation.
Section 5. SECRETARY: The Secretary shall attend all
sessions of the Board and all meetings of the stockholders and
act as clerk thereof, and record all the votes of the corporation
and the minutes of all its transactions in a book to be kept for
that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to
be given, notice of all meetings of the stockholders and of the
Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or President, and under
whose supervision he shall be. He shall keep in safe custody the
corporate seal of the corporation, and when authorized by the
Board, affix the same to any instrument requiring it.
Section 6. TREASURER: The Treasurer shall have custody of
the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books
belonging to the corporation, and shall keep the moneys of the
corporation in a separate account to the credit of the
corporation. He shall disburse the funds of the corporation as
may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the President and directors,
at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and
of the financial condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise, shall be
filled by the Board of Directors. Vacancies and newly created
directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or
resignation or other cause, the corporation should have no
directors in office, then any officer or any stockholder or an
executor, administrator, trustee or guardian of a stockholder, or
other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of these By-Laws.
Section 2. RESIGNATIONS EFFECTIVE AT FUTURE DATE: When one
or more directors shall resign from the Board, effective at a
future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by
attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual
hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its
other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably
related to such person's interest as a stockholder. In every
instance where an attorney or other agent shall be the person who
seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the
corporation at its registered office in this state or at its
principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall
be numbered and registered in the share ledger and transfer books
of the corporation as they are issued. They shall bear the
corporate seal and shall be signed by the
Section 2. TRANSFERS: Transfers of shares shall be made on
the books of the corporation upon surrender of the certificates
therefor, endorsed by the person named in the certificate or by
attorney, lawfully constituted in writing. No transfer shall be
made which is inconsistent with law.
Section 3. LOST CERTIFICATE: The corporation may issue a
new certificate of stock in the place of any certificate
theretofore signed by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative to
give the corporation a bond sufficient to indemnify it against
any claim that may be made against it on account of the alleged
loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 4. RECORD DATE: In order that the corporation may
determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If
no record date is fixed:
(a) The record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the
meeting is held.
(b) The record date for determining stockholders
entitled to express consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors
is necessary, shall be the day on which the first written consent
is expressed.
(c) The record date for determining stockholders for
any other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto.
(d) A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the adjourned
meeting.
Section 5. DIVIDENDS: The Board of Directors may declare
and pay dividends upon the outstanding shares of the corporation,
from time to time and to such extent as they deem advisable, in
the manner and upon the terms and conditions provided by statute
and the Certificate of Incorporation.
Section 6. RESERVES: Before payment of any dividend there
may be set aside out of the net profits of the corporation such
sum or sums as the directors, f rom time to time, in their
absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or f or such other
purpose as the directors shall think conducive to the interests
of the corporation, and the directors may abolish any such
reserve in the manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. CHECKS: All checks or demands for money and
notes of the corporation shall be signed by such officer or
officers as the Board of Directors may from time to time
designate.
Section 2. FISCAL YEAR: The fiscal year shall begin on the
first day of January.
Section 3. NOTICE: Whenever written notice is required to
be given to any person, it may be given to such person, either
personally or by sending a copy thereof through the mail, or by
telegram, charges prepaid, to his address appearing on the books
of the corporation, or supplied by him to the corporation for the
purpose of notice. If the notice is sent by mail or by
telegraph, it shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or with
a telegraph office for transmission to such person. Such notice
shall specify the place, day and hour of the meeting and, in the
case of a special meeting of stockholders, the general nature of
the business to be transacted.
Section 4. WAIVER OF NOTICE: Whenever any written notice
is required by statute, or by the Certificate or the By-Laws of
this corporation a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the
giving of such notice. Except in the case of a special meeting
of stockholders, neither the business to be transacted at nor the
purpose of the meeting need be specified in the waiver of notice
of such meeting. Attendance of a person either in person or by
proxy, at any meeting shall constitute a waiver of notice of such
meeting, except where a person attends a meeting for the express
purpose of objecting to the transaction of any business because
the meeting was not lawfully called or convened.
Section 5. DISALLOWED COMPENSATION: Any payments made to
an officer or employee of the corporation such as a salary,
commission, bonus, interest, rent, travel or entertainment
expense incurred by him, which shall be disallowed in whole or in
part as a deductible expense by the Internal Revenue Service,
shall be reimbursed by such officer or employee to the
corporation to the full extent of such disallowance. It shall be
the duty of the directors, as a Board, to enforce payment of each
such amount disallowed. In lieu of payment by the officer or
employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future
compensation payments until the amount owed to the corporation
has been recovered.
Section 6. RESIGNATIONS: Any director or other officer may
resign at any time, such resignation to be in writing and to take
effect from the time of its receipt by the corporation, unless
some time be fixed in the resignation and then from that date.
The acceptance of a resignation shall not be required to make it
effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and the Board of Directors shall
present at each annual meeting a full and complete statement of
the business and affairs of the corporation for the preceding
year. Such statement shall be prepared and presented in whatever
manner the Board of Directors shall deem advisable and need not
be verified by a Certified Public Accountant.
ARTICLE XI - INDEMNIFICATION AND INSURANCE:
Section 1. (a) RIGHT TO INDEMNIFICATION. Each person who
was or is made a party or is threatened to be made a party or is
involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a
"proceeding") , by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a
director or officer, of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such
amendment) , against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding
(or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to indemnification
conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition: provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred
by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including,
without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Section
or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT:
If a claim under paragraph (a) of this Section is not paid
in full by the Corporation within thirty days after a written
claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant
has not met the standards of conduct which make it permissible
under the Delaware General Corporation law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that
the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard or conduct.
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs (a) and 8 (b) of this section, the corporation
shall, to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as the same may
be amended and supplemented, indemnify any and all persons whom
it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive
of any other rights to which those indemnified may be entitled
under any By-law, agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has
ceased to be director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such
a person.
(d) INSURANCE:
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or
loss under the Del General Corporation Law.
ARTICLE XII - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the
vote of directors.
/s/ Scott R. Jensen
_
Scott R. Jensen, President and
Secretary
December 19, 1990
EXHIBIT 3(ii).2
Bylaws of SHP
BYLAWS
OF
SPECIALIZED HEALTH PRODUCTS, INC.
TABLE OF CONTENTS
Page
I. OFFICES
Section 1.01. Principal Office 1
Section 1.02. Other Offices 1
II. MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings 1
Section 2.02. Annual Meetings 1
Section 2.03. Special Meetings 2
Section 2.04. Adjourned Meetings and Notice Thereof 2
Section 2.05. Voting 3
Section 2.06. Quorum 3
Section 2.07. Consent of Absentees 3
Section 2.08. Action Without Meeting 4
Section 2.09. Proxies 4
Section 2.10. Meetings by Telecommunication 4
III. DIRECTORS
Section 3.01. Powers 4
Section 3.02. Number and Qualification of Directors 5
Section 3.03. Election and Term of Office 5
Section 3.04. Vacancies 6
Section 3.05. Place of Meeting 6
Section 3.06. Organization Meeting 6
Section 3.07. Other Regular Meetings 6
Section 3.08. Special Meetings 6
Section 3.09. Notice of Adjournment 7
Section 3.10. Waiver of Notice 7
Section 3.11. Quorum 7
Section 3.12. Adjournment 8
Section 3.13. Fees and Compensation 8
Section 3.14. Action Without Meeting 8
Section 3.15. Meeting by Telecommunication 8
Section 3.16. Loans to Directors 8
IV. OFFICERS
Section 4.01. Officers 9
Section 4.02. Election 9
Section 4.03. Subordinate Officers, Etc. 9
Section 4.04. Removal and Resignation 9
Section 4.05. Vacancies 9
Section 4.06. Chairperson of the Board 10
Section 4.07. President 10
Section 4.08. Vice-President 10
Section 4.09. Secretary 10
V. MISCELLANEOUS
Section 5.01. Record Date and Closing Stock Books 11
Section 5.02. Inspection of Corporate Records 11
Section 5.03. Checks, Drafts, Etc. 12
Section 5.04. Contract, Etc., How Executed 12
Section 5.05. Certificate of Stock 12
Section 5.06. Representation of Shares of Other
Corporations 12
Section 5.07. Loans and Encumbrances 13
VI. AMENDMENTS
Section 6.01. Power of Shareholders 13
Section 6.02. Power of Directors 13
BYLAWS
OF
SPECIALIZED HEALTH PRODUCTS, INC.
ARTICLE I
OFFICES
Section 1.01. Principal Office. The principal office for the
transaction of the business of the corporation shall be located
in Bountiful, County of Davis, Utah. The board of directors is
hereby granted full power and authority to change, from time to
time, said principal office from one location to another in said
county.
Section 1.02. Other Offices. Branch or subordinate offices
may at any time be established by the board of directors at any
place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings. All meetings of shareholders
shall be held either at the principal office of the corporation
or at any other place within or without the State of Utah which
may be designated either by the board of directors pursuant to
authority hereinafter granted to said Board, or by the written
consent of all shareholders entitled to vote thereat, given
either before or after the meeting and filed with the secretary
of the corporation.
Section 2.02. Annual Meetings. The annual meetings of
shareholders shall be held on the third Wednesday of April of
each year at 12:00 o'clock p.m., except as otherwise may be
annually determined by the board of directors, provided, however,
that should said day fall upon a legal holiday, then any such
annual meeting shall be held on the next succeeding business day.
At such meetings directors shall be elected, reports of the
affairs of the corporation shall be considered, and any other
business may be transacted which is within the powers of the
shareholders.
Written notice of each annual meeting shall be given to each
shareholder entitled to vote, either personally or by mail or
other means of written communication, charges prepaid, addressed
to such shareholder at shareholder's address appearing on the
books of the corporation or given by shareholder to the
corporation for the purpose of notice. Notice is excused and
need not be given to any shareholder to whom: (1) a notice of
two consecutive annual meetings, and all notices of meetings or
the taking of actions by written consent without a meeting during
the period between the two consecutive annual meetings, have been
mailed to the shareholder's address as shown on the records of
the corporation, and have been returned undeliverable; or (2) at
least two payments, if sent by first class mail, of dividends or
interest on securities during a twelve month period, have been
mailed, addressed to the shareholder at the address of the
shareholder on the corporate records, and have been returned as
undeliverable. If a shareholder to whom notice is excused
delivers to the corporation a written notice setting forth the
shareholder's current address, or if another address for the
shareholder is otherwise made known to the corporation, the
requirement that notice be given to the shareholder is
reinstated. All such notices shall be sent to each shareholder
entitled thereto not less than ten (10) nor more than sixty (60)
days before each annual meeting, and shall specify the place, the
day and the hour of such meeting, and shall state such other
matters, if any, as may be expressly required by statute.
Section 2.03. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes whatsoever, may be
called at any time by the president, the vice-president, the
board of directors, or if the holders of shares representing at
least ten percent of all the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting
make a written demand for the meeting to the corporation's
secretary. Except in special cases where other express provision
is made by statute, notice of such special meetings shall be
given in the same manner as for annual meetings of shareholders.
Notices of any special meeting shall specify, in addition to the
place, day and hour of such meeting, a description of the purpose
or purposes of the meeting.
Section 2.04. Adjourned Meetings and Notice Thereof. Any
shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of a
majority of the shares represented at the meeting, the holders of
which are either present in person or represented by proxy
thereat, but in the absence of a quorum no other business may be
transacted at such meeting.
If an annual or special shareholders meeting is adjourned to
a different date, time, or place, notice need not be given if the
new date, time, or place is announced at the meeting before
adjournment. However, notice must be given in the manner
provided in Section 2.02 of these Bylaws if the adjournment is
for more than 30 days or a new record date for the adjourned
meeting is or must be fixed.
Section 2.05. Voting. Unless a record date for voting
purposes be fixed as provided in Section 5.01 of these Bylaws
then, but subject to the provisions of Section 16-10a-707 of the
Utah Code, only persons in whose names shares entitled to vote
standing on the stock records of the corporation on the day
thirty (30) days prior to any meeting of shareholders shall be
entitled to vote at such meeting. Such vote may be viva voce or
by ballot; provided, however, that all elections for directors
must be by ballot upon demand made by a shareholder at any
election and before the voting begins. Each outstanding share
entitled to vote shall be entitled to one vote upon each matter
submitted to a vote at a meeting of shareholders, unless
otherwise specifically required by law or the Articles of
Incorporation or the Bylaws of this corporation, and if a quorum
exists at the meeting, action on any matter, other than election
of directors, is approved if the votes cast in favor of the
matter exceed votes cast against the matter.
Every shareholder entitled to vote at any election for
directors shall have the right to cumulate such shareholder's
votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of
votes to which such shareholder's shares are entitled, or to
distribute such shareholder's votes on the same principle among
as many candidates as shareholder shall think fit. The
candidates receiving the highest number of votes, up to the
number of directors to be elected, shall be elected.
[Note: There will be no cumulative voting unless the
Articles so provide.]
Section 2.06. Quorum. The presence in person or by proxy of
persons entitled to vote a majority of the voting shares at any
meeting shall constitute a quorum for the transaction of
business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 2.07. Consent of Absentees. The transactions of any
meeting of shareholders, either annual or special, however called
and noticed, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the
meeting, each of the shareholders entitled to vote, not present
in person or by proxy, signs a written waiver of notice, or a
consent to the holding of such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes
of the meeting.
Section 2.08. Action Without Meeting. Any action which under
any provision of the Utah Revised Business Corporation Act may be
taken at a meeting of the shareholders, may be taken without a
meeting if authorized by a writing filed with the secretary of
the corporation signed by the number of shareholders that would
be necessary to authorize or to take action at such a meeting.
However, directors cannot be elected in an action without a
meeting unless shareholder consent for such a meeting is
unanimous.
Section 2.09. Proxies. A shareholder may vote in person or by
proxy. A proxy may be appointed by: (1) signing an appointment
form either personally or by the shareholder's attorney-in-fact;
or (2) transmitting a written statement of appointment to the
proxy, the proxy's agent, or to the corporation, provided the
transmission contains written evidence that shows the shareholder
authorized the transmission of the appointment.
Section 2.10. Meetings by Telecommunication. Any annual or
special meeting of the shareholders may be conducted through the
use of any means of communication that allows persons participat
ing in the meeting to hear one another.
ARTICLE III
DIRECTORS
Section 3.01. Powers. Subject to limitation of the Articles
of Incorporation, of the Bylaws, and of the Utah Revised Business
Corporation Act as to action which shall be authorized or
approved by the shareholders, and subject to the duties of
directors as prescribed by the Bylaws, all corporate powers shall
be exercised by or under the authority of, and the business and
affairs of the corporation shall be managed under the direction
of the board of directors. Without prejudice to such general
powers, but subject to the same limitations, it is hereby
expressly declared that the directors shall have the following
powers, to wit:
(a) To select and remove all the other officers, agents and
employees of the corporation, prescribe such powers and duties
for them as may not be inconsistent with law, or with the
Articles of Incorporation or the Bylaws, fix their compensation,
and require from them security for faithful service.
(b) To conduct, manage and control the affairs and business
of the corporation, and to make such rules and regulations
therefor not inconsistent with law, or with the Articles of
Incorporation or the Bylaws, as they may deem best.
(c) To change from time to time the principal office for
the transaction of the business of the corporation from one
location to another within the same county as provided in Section
1.01 hereof; to fix and locate from time to time one or more
subsidiary offices of the corporation within or without the State
of Utah as provided in Section 1.02 hereof; to designate any
place within or without the State of Utah for the holding of any
shareholders' meeting or meetings and to adopt, make and use a
corporate seal, and to prescribe the forms of certificates of
stock, and to alter the form of such seal and of such certifi
cates from time to time, as in their judgment they may deem best,
provided such seal and such certificates shall at all times
comply with the provisions of law.
(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms as may be lawful,
in consideration of money paid, labor done or services actually
rendered, debts or securities cancelled, or tangible or
intangible property actually received, or in the case of shares
issued as a dividend, against amounts transferred from surplus to
stated capital.
(e) To borrow money and incur indebtedness for the purposes
of the corporation, and to cause to be executed and delivered
therefor, in the corporation name, promissory notes, bonds,
debentures, deeds of trust, mortgages, pledges, hypothecations or
other evidence of debt and securities therefor.
(f) To appoint an executive committee and other committees,
and to delegate to the executive committee any of the powers and
authority of the board in the management of the business and
affairs of the corporation, except the power to declare dividends
and to adopt, amend or repeal bylaws. The executive committee
shall be composed of two or more directors.
Section 3.02. Number and Qualification of Directors. The
authorized maximum number of directors of the corporation shall
be seven and the minimum number of directors of the corporation
shall be five until changed by amendment of the Articles of
Incorporation duly adopted by the shareholders or by a Bylaw
amending this Section 3.02.
[Note: The number of directors can be a range of
numbers. Before shares are issued there need be only
one director. After shares are issued the number of
directors must be at least equal to the lesser of three
directors or the number of shareholders.]
Section 3.03. Election and Term of Office. The directors
shall be elected at each annual meeting of shareholders, but if
any such annual meeting is not held, or the directors are not
elected thereat, the directors may be elected at any special
meeting of shareholders held for that purpose. All directors
shall hold office until their respective successors are elected.
Section 3.04. Vacancies. Vacancies in the board of directors
may be filled by a majority of the remaining directors, though
less than a quorum, by a sole remaining director, or by the
shareholders, and each director so elected shall hold office
until the director's successor is elected at an annual or a
special meeting of the shareholders.
A vacancy or vacancies in the board of directors shall be
deemed to exist in case of the death, resignation or removal of
any director, or if the authorized number of directors be
increased, or if the shareholders fail at any annual or special
meeting of shareholders at which any director or directors are
elected to elect the full authorized number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors. If
the board of directors accepts the resignation of a director
tendered to take effect at a future time, the board or the
shareholders shall have power to elect a successor to take office
when the resignation is to become effective.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of
the director's term of office.
Section 3.05. Place of Meeting. Meetings of the board of
directors shall be held at any place within or without the State
of Utah which has been designated from time to time by resolution
of the Board or by written consent of all members of the Board.
In the absence of such designation, meetings shall be held at the
principal office of the corporation.
Section 3.06. Organization Meeting. Immediately following
each annual meeting of shareholders, the board of directors shall
hold a regular meeting for the purpose of organization, election
of officers, and the transaction of other business. Notice of
such meeting is hereby dispensed with.
Section 3.07. Other Regular Meetings. Other regular meetings
of the board of directors are hereby dispensed with and all
business conducted by the board of directors shall be conducted
at special meetings.
Section 3.08. Special Meetings. Special meetings of the board
of directors for any purpose or purposes shall be called at any
time by the president or, if he is absent or unable or refuses to
act, by any vice-president or by any two directors.
Notice of the time and place of special meetings may be
accomplished by any of the following methods: (a) written notice
delivered personally to each director; (b) written notice sent to
each director by mail or by other form of written communication,
charges prepaid, addressed to director at director's address as
it is shown upon the records of the corporation, or if it is not
so shown on such records or is not readily ascertainable at the
place in which the meetings of directors are regularly held; or
(c) verbal notice by telephone or in-person communication. In
case notice is mailed or telegraphed, it shall be deposited in
the United States mail or delivered to the telegraph company in
the place in which the principal office of the corporation is
located at least forty-eight (48) hours prior to the time of the
holding of the meeting. In the case of written or verbal notice
delivered personally or by telephone as above provided, it shall
be so delivered or communicated at least twenty-four (24) hours
prior to the time of the holding of the meeting. Such mailing,
telegraphing, communicating or delivering as above provided shall
be due, legal and personal notice to such director.
Section 3.09. Notice of Adjournment. Notice of the time and
place of holding an adjourned meeting need not be given to absent
directors if the time and place be fixed at the meeting
adjourned.
Section 3.10. Waiver of Notice. A director's attendance at or
participation in a meeting waives any required notice to the
director of the meeting unless the director at the beginning of
the meeting, or promptly upon the director's arrival, objects to
holding the meeting or transacting business at the meeting
because of lack of notice or defective notice, and does not
thereafter vote for or assent to action taken at the meeting.
The transactions of any meeting of the board of directors,
however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice,
if a quorum be present, and if, either before or after the
meeting, each of the directors not present signs a written waiver
of notice, or a consent to holding such meeting, or an approval
of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 3.11. Quorum. A majority of the authorized number of
directors shall be necessary to constitute a quorum for the
transaction of business, except to adjourn as hereinafter pro
vided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the board of directors,
unless a greater number be required by law or by the Articles of
Incorporation.
Section 3.12. Adjournment. A quorum of the directors may
adjourn any directors' meeting to meet again at a stated day and
hour; provided, however, that in the absence of a quorum, a
majority of the directors present at any directors' meeting,
either regular or special, may adjourn from time to time until
the time fixed for the next regular or special meeting of the
board.
Section 3.13. Fees and Compensation. Directors shall not
receive any stated salary for their services as directors, but,
by resolution of the board, a fixed fee, with or without expenses
of attendance, may be allowed for attendance at each meeting.
Nothing herein contained shall be construed to preclude any direc
tor from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise, and receiving compensa
tion therefor.
Section 3.14. Action Without Meeting. Any action required or
permitted to be taken by the board of directors under any
provision of the Utah Revised Business Corporation Act and under
these Bylaws may be taken without a meeting if all of the
directors of the corporation shall individually or collectively
consent in writing to such action. Such written consent or
consents shall be filed with the Minutes of the proceedings of
the board of directors. Such action by written consent shall
have the same force and effect as the unanimous vote of such
directors.
Section 3.15. Meeting by Telecommunication. Members of the
board of directors, or any committee designated by the board of
directors, may participate in a meeting of the Board or committee
by any means of communication by which all persons participating
in the meeting can hear each other during the meeting, and
participation in a meeting under this Section shall constitute
presence in person at the meeting.
Section 3.16. Loans to Directors. The corporation shall not
make loans to a director or directors unless the transaction is:
(1) approved by the majority of non-interested directors after
the required disclosure has been made; (2) approved by the
majority of shareholders where a quorum is present and after the
required disclosure has been made; or (3) the terms of the loan,
at the time of commitment, are fair and reasonable to the
corporation.
ARTICLE IV
OFFICERS
Section 4.01. Officers. The officers of the corporation shall
be a president, vice-president and a secretary. The corporation
may also have, at the discretion of the board of directors, a
chairperson of the board, one or more vice-presidents, one or
more assistant secretaries, one or more assistant treasurers, and
such other officers as may be appointed in accordance with the
provisions of Section 4.03. Any person may hold any or all
offices.
Section 4.02. Election. The officers of the corporation,
except such officers as may be appointed in accordance with the
provisions of Section 4.03 or Section 4.05, shall be chosen
annually by the board of directors, and each shall hold office
until the officer shall die, resign or be removed or otherwise
disqualified to serve, or officer's successor shall be elected
and qualified.
Section 4.03. Subordinate Officers, Etc. The board of
directors may appoint such other officers as the business of the
corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are
provided in the Bylaws or as the board of directors may from time
to time determine.
Section 4.04. Removal and Resignation. Any officer may be
removed, either with or without cause, by a majority of the direc
tors at the time in office, at any regular or special meeting of
the board, or, except in case of an officer chosen by the board
of directors, by an officer upon whom such power of removal may
be conferred by the board of directors.
Any officer may resign at any time by giving written notice to
the board of directors or to the president, or to the secretary
of the corporation. Any such resignation shall take effect at
the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section 4.05. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause
shall be filled in the manner prescribed in the Bylaws for
regular appointments to such office.
Section 4.06. Chairperson of the Board. The chairperson of
the board, if there shall be such an officer, shall, if present,
preside at all meetings of the board of directors, and exercise
and perform such other powers and duties as may be from time to
time assigned to the chairperson by the board of directors or
prescribed by the Bylaws.
Section 4.07. President. Subject to such supervisory powers,
if any, as may be given by the board of directors to the chairman
of the board, if there be such an officer, the president shall be
the chief executive officer of the corporation and shall, subject
to the control of the board of directors, have general
supervision, direction and control of the business and officers
of the corporation. The president shall preside at all meetings
of the shareholders and in the absence of the chairman of the
board, or if there be none, at all meetings of the board of
directors. The president shall be ex officio a member of all the
standing committees, including the executive committee, if any,
and shall have the general powers and duties of management
usually vested in the office of the president of a corporation,
and shall have such other powers and duties as may be prescribed
by the board of directors or the Bylaws. Specifically, the
president shall have full corporate power and authority to
negotiate and enter into an agreement to purchase intellectual
property from Sharp-Trap, Inc., a Michigan corporation, and/or
Rick Sawaya, M.D.
Section 4.08. Vice-President. In the absence or disability of
the president, the vice-presidents in order of their rank as
fixed by the board of directors, or if not ranked, the vice-
president designated by the board of directors, shall perform all
the duties of the president, and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the
president. The vice-presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the board of directors or the Bylaws.
Specifically, the vice-president shall have full corporate power
and authority to negotiate and enter into an agreement to
purchase intellectual property from Sharp-Trap, Inc., a Michigan
corporation, and/or Rick Sawaya, M.D.
Section 4.09. Secretary. The secretary shall keep, or cause
to be kept, a book of minutes at the principal office or such
other place as the board of directors may order, of all meetings
of directors and shareholders, with the time and place of
holding, whether regular or special, and if special, how
authorized, the notice thereof given, the names of those present
at directors' meetings, the number of shares present or repre
sented at shareholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
office or at the office of the corporation's transfer agent, a
share register, or a duplicate share register, showing the names
of the shareholders and their addresses, the number and classes
of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
of the meetings of the shareholders and of the board of directors
required by the Bylaws or by law to be given (provided, however,
that in the event of the absence or disability of the secretary,
such notice may be given by any other officer of the
corporation), and the secretary shall keep the seal of the
corporation in safe custody, and shall have such other powers and
perform such other duties as may be prescribed by the board of
directors or the Bylaws.
ARTICLE V
MISCELLANEOUS
Section 5.01. Record Date and Closing Stock Books. The board
of directors may fix a time in the future as a record date for
the determination of the shareholders entitled to notice of and
to vote at any meeting of shareholders or entitled to receive any
dividend or distribution, or any allotment of rights, or to
exercise rights in respect to any change, conversion or exchange
of shares. The record date so fixed shall be no more than fifty
(50) days prior to the date of the meeting or event for the pur
poses of which it is fixed. When a record date is so fixed, only
shareholders of record of that date are entitled to notice of and
to vote at the meeting or to receive the dividend, distribution,
or allotment of rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the
record date.
The board of directors may close the books of the corporation
against transfers of shares during the whole or any part of a
period not more than fifty (50) days prior to the date of a
shareholders' meeting, the date when the right to any dividend,
distribution, or allotment of rights vest, or the effective date
of any change, conversion or exchange of shares.
[Note: The record date is set by the board and can be
more than 50 days.]
Section 5.02. Inspection of Corporate Records. The share
register or duplicate share register, the books of account, the
bylaws, and minutes of proceedings of the shareholders and the
board of directors and of executive committees of directors shall
be open to inspection upon at least five days written notice by
any shareholder or the holder of a voting trust certificate, at
any reasonable time, and for a purpose reasonably related to the
shareholder's interests as a shareholder, or as the holder of
such voting trust certificate, and shall be exhibited at any time
when required by the demand at any shareholders' meeting of ten
percent (10%) of the shares represented at the meeting. Such
inspection may be made in person or by agent or attorney, and
shall include the right to make extracts. Demand of inspection
other than at a shareholders' meeting shall be made in writing
upon the president, secretary, assistant secretary or general
manager of the corporation.
Section 5.03. Checks, Drafts, Etc. All checks, drafts or
other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corpora
tion, shall be signed or endorsed by the treasurer and/or by such
person or persons and in such manner as, from time to time, shall
be determined by resolution of the board of directors.
Section 5.04. Contract, Etc., How Executed. The board of
directors, except as otherwise provided in the Bylaws, may
authorize any officer or officers, agent or agents, to enter into
any contract or execute any instrument in the name of and on
behalf of the corporation, and such authority may be general or
confined to specific instances; and unless so authorized by the
board of directors, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or
engagement or to pledge its credit to render it liable for any
purpose or to any amount.
Section 5.05. Certificate of Stock. A certificate or
certificates for shares of the capital stock of the corporation
shall be issued to each shareholder when any such shares are
fully paid up. All such certificates shall be signed by the
president or a vice-president and the secretary or an assistant
secretary, or be authenticated by facsimiles of the signatures of
the president and secretary, or by a facsimile of the signature
of the president and the written signatures of the secretary or
an assistant secretary. Every certificate authenticated by a
facsimile of a signature must be countersigned by a transfer
agent or transfer clerk, and be registered by an incorporated
bank or trust company, either domestic or foreign, as registrar
of transfers, before issuance.
Certificates for shares may be issued prior to full payments
under such restrictions and for such purposes as the board of
directors or the Bylaws may provide; provided, however, that any
such certificate so issued prior to full payment shall state the
amount remaining unpaid and the terms of payment thereof.
Section 5.06. Representation of Shares of Other Corporations.
The president or any vice-president and the secretary or
assistant secretary of this corporation are authorized to vote,
represent and exercise on behalf of this corporation all rights
incident to any and all shares of any other corporation or
corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on
behalf of this corporation any and all shares held by this corpo
ration in any other corporation or corporations may be exercised
either by such officers in person or by any person authorized so
to do by proxy or power of attorney duly executed by said
officers.
Section 5.07. Loans and Encumbrances. No loan or advance
shall be contracted on behalf of the corporation, and no property
of the corporation shall be mortgaged, pledged, hypothecated,
transferred or conveyed as security for the payment of any loan,
advance, indebtedness or liability, unless and except as author
ized by the board of directors. Any such authorization may be
general or confined to specific instances.
ARTICLE VI
AMENDMENTS
Section 6.01. Power of Shareholders. New Bylaws may be
adopted or these Bylaws may be amended or repealed by the vote of
shareholders entitled to exercise a majority of the voting power
of the corporation or by the written assent of such shareholders,
except as otherwise provided by law or by the Articles of
Incorporation.
Section 6.02. Power of Directors. Subject to the right of
shareholders as provided in Section 6.01 to adopt, amend or
repeal Bylaws, Bylaws other than a Bylaw or amendment thereof
changing the authorized number of directors may be adopted,
amended or repealed by the board of directors.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of
Specialized Health Products, Inc., a Utah corporation; and
2. That the foregoing Bylaws, comprising thirteen (13) pages,
constitute the original Bylaws of said corporation as duly
adopted at the Organizational Meeting of the incorporators, duly
held on November 19, 1993.
/s/
_
Secretary
EXHIBIT 4.1
Form of Series A Warrant
SERIES "A" WARRANTS
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK
ISSUABLE UPON EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED
OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD ONLY IF
REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Incorporated Under the Laws of the State of Delaware
No. A - Series A Common Stock
Purchase Warrants
CERTIFICATE FOR SERIES "A" COMMON STOCK
PURCHASE WARRANTS
1. Warrant. This Warrant Certificate certifies that
, or
registered assigns (the "Registered Holder"), is the registered
owner of the above indicated number of Warrants expiring on the
Expiration Date, as hereinafter defined. One (1) Warrant
entitles the Registered Holder to purchase one (1) share of the
common stock, $.02 par value (a "Share"), of Specialized Health
Products International, Inc., a Delaware corporation (the
"Company"), from the Company at a purchase price of Three Dollars
and no/100 ($3.00) (the "Exercise Price") at any time during the
Exercise Period, as hereinafter defined, upon surrender of this
Warrant Certificate with the exercise form hereon duly completed
and executed and accompanied by payment of the Exercise Price at
the principal office of the Company.
Upon due presentment for transfer or exchange of this Warrant
Certificate at the principal office of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing
in the aggregate a like number of Warrants shall be issued in
exchange for this Warrant Certificate, subject to the limitations
provided herein, upon payment of any tax or governmental charge
imposed in connection with such transfer. Subject to the terms
hereof, the Company shall deliver Warrant Certificates in
required whole number denominations to Registered Holders in
connection with any transfer or exchange permitted hereunder.
2. Restrictive Legend. Each Warrant Certificate and each
certificate representing Shares issued upon exercise of a
Warrant, unless such Shares are then registered under the
Securities Act of 1933, as amended (the "Act"), shall bear a
legend in substantially the following form:
"THE [SECURITIES] REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED
AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN
EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS
APPLICABLE."
3. Exercise. Subject to the terms hereof, the Warrants,
evidenced by this Warrant Certificate, may be exercised at the
Exercise Price in whole or in part at any time during the period
(the "Exercise Period") commencing on the date hereof and
terminating at the close of business on that day (the "Expiration
Date") which is the second anniversary of the date on which a
registration statement filed pursuant to the Act and covering the
Shares to be issued upon exercise of this Warrant is declared
effective, provided that the Exercise Period shall be extended
and the Expiration Date delayed by one business day for each
business day subsequent to such effectiveness on which a
prospectus meeting the prospectus delivery requirements of the
Act and covering the issuance of such Shares to and, if
appropriate, the resale of such Shares by the Registered Holder
hereof or the successors in interest to such Registered Holder is
not available. The Exercise Period may also be extended by the
Company's Board of Directors.
A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date (the "Exercise Date")
of the surrender to the Company at its principal offices of this
Warrant Certificate with the exercise form attached hereto
executed by the Registered Holder and accompanied by payment to
the Company, in cash, wire transfer, or by official bank or
certified check, of an amount equal to the aggregate Exercise
Price, in lawful money of the United States of America.
The person entitled to receive the Shares issuable upon
exercise of a Warrant or Warrants ("Warrant Shares") shall be
treated for all purposes as the holder of such Warrant Shares as
of the close of business on the Exercise Date. The Company shall
not be obligated to issue any fractional share interests in
Warrant Shares issuable or deliverable on the exercise of any
Warrant or scrip or cash with respect thereto, and such right to
a fractional share shall be of no value whatsoever. If more than
one Warrant shall be exercised at one time by the same Registered
Holder, the number of full Shares which shall be issuable on
exercise thereof shall be computed on the basis of the aggregate
number of full shares issuable on such exercise.
Promptly, and in any event within ten business days after the
Exercise Date, the Company shall cause to be issued and delivered
to the person or persons entitled to receive the same, a
certificate or certificates for the number of Warrant Shares
deliverable on such exercise.
The Company may deem and treat the Registered Holder of the
Warrants at any time as the absolute owner thereof for all
purposes, and the Company shall not be affected by any notice to
the contrary. The Warrants shall not entitle the Registered
Holder thereof to any of the rights of shareholders or to any
dividend declared on the Shares unless the Registered Holder
shall have exercised the Warrants and thereby purchased the
Warrant Shares prior to the record date for the determination of
holders of Shares entitled to such dividend or other right.
4. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available
from its authorized Common Stock such number of shares as shall
then be issuable on the exercise of outstanding Warrants. The
Company covenants that all Warrant Shares which shall be so
issuable shall be duly and validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof.
The Registered Holder shall pay all documentary, stamp or
similar taxes and other government charges that may be imposed
with respect to the issuance, transfer or delivery of any Warrant
Shares on exercise of the Warrants. In the event the Warrant
Shares are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate, no such delivery
shall be made unless the person requesting the same has paid the
amount of any such taxes or charges incident thereto.
5. Registration of Transfer. The Warrant Certificates may be
transferred in whole or in part, provided any such transfer
complies with all applicable federal and state securities laws
and, if requested by the Company, the Registered Holder delivers
to the Company an opinion of counsel to that effect, in form and
substance reasonably acceptable to the Company. Warrant
Certificates to be transferred shall be surrendered to the
Company at its principal office. The Company shall execute,
issue and deliver in exchange therefor the Warrant Certificate or
Certificates which the Registered Holder making the transfer
shall be entitled to receive.
The Company shall keep transfer books at its principal office
or at the office of its warrant agent which shall register
Warrant Certificates and the transfer thereof. On due
presentment of any Warrant Certificate for registration of
transfer at such office, the Company shall execute, issue and
deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate
number of Warrants. All Warrant Certificates presented for
registration of transfer or exercise shall be duly endorsed or be
accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company. The Company may require
payment of a sum sufficient to cover any tax or other government
charge that may be imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for
exercise, or for exchange in case of mutilated Warrant
Certificates, shall be promptly canceled by the Company and
thereafter retained by the Company until the Expiration Date.
Prior to due presentment for registration of transfer thereof,
the Company may treat the Registered Holder of any Warrant
Certificate as the absolute owner thereof (notwithstanding any
notations of ownership or writing thereon made by anyone other
than the Company), and the Company shall not be affected by any
notice to the contrary.
6. Loss or Mutilation. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft,
destruction or mutilation of this Warrant Certificate, the
Company shall execute and deliver, in lieu thereof, a new Warrant
Certificate representing an equal aggregate number of Warrants.
In the case of loss, theft or destruction of any Warrant
Certificate, the individual requesting issuance of a new Warrant
Certificate shall be required to indemnify the Company in an
amount satisfactory to the Company. In the event a Warrant
Certificate is mutilated, such Certificate shall be surrendered
and canceled by the Company prior to delivery of a new Warrant
Certificate. Applicants for a new Warrant Certificate shall also
comply with such other regulations and pay such other reasonable
charges as the Company may prescribe.
7. Call Option. So long as the closing bid price or last trade
in the principal market in which, or on the principal exchange on
which, the Shares trade exceeds Six Dollars ($6.00) for the ten
(10) consecutive trading days preceding but not including the
date of such call, the Company shall have the right and option,
upon no less than twenty (20) trading days' written notice to the
Registered Holder, to call, and thereafter to redeem and acquire
all of the Warrants remaining outstanding and unexercised at the
date fixed for such redemption in such notice (the "Redemption
Date"), which Redemption Date shall be at least 20 trading days
after the date of such notice, for an amount equal to One-Tenth
of One Cent ($.001) per Warrant; provided, however, that the
Registered Holder shall have the right during the period between
the date of such notice and the Redemption Date to exercise the
Warrants in accordance with the provisions of Section 3 hereof
and provided further that a prospectus meeting the prospectus
delivery requirements of the Act and covering the issuance of
such Shares to and, if appropriate, the resale of such Shares by
the Registered Holder hereof or the successors in interest to
such Registered Holder is available during the entire period
between such notice and the Redemption Date. Said notice of
redemption shall require the Registered Holder to surrender to
the Company, on the Redemption Date, at the principal executive
offices of the Company, his certificate or certificates
representing the Warrants to be redeemed. Notwithstanding the
fact that any Warrants called for redemption have not been
surrendered for redemption and cancellation on the Redemption
Date, after the Redemption Date such Warrants shall be deemed to
be expired and all rights of the Registered Holder of such
unsurrendered Warrants shall cease and terminate, other than the
right to receive the redemption price of $.001 per Warrant for
such Warrants, without interest.
In connection with any call hereunder, the Company shall have
no obligation to call any other stock purchase warrant or
warrants, whether or not having similar terms, and no call made
pursuant to any other stock purchase warrant shall obligate the
Company to exercise its right and option to make a call
hereunder.
8. Adjustment of Shares. The number and kind of securities
issuable upon exercise of a Warrant shall be subject to
adjustment from time to time upon the happening of certain
events, as follows:
(a) Stock Splits, Stock Combinations and Certain Stock
Dividends. If the Company shall at any time subdivide or
combine its outstanding Shares, or declare a dividend in
Shares or other securities of the Company convertible into
or exchangeable for Shares, a Warrant shall, after such
subdivision or combination or after the record date for such
dividend, be exercisable for that number of Shares and other
securities of the Company that the Registered Holder would
have owned immediately after such event with respect to the
Shares and other securities for which a Warrant may have
been exercised immediately before such event had the Warrant
been exercised immediately before such event. Any
adjustment under this Section 8 (a) shall become effective
at the close of business on the date the subdivision,
combination or dividend becomes effective.
(b) Adjustment for Reorganization, Consolidation, Merger.
In case of any reorganization of the Company (or any other
corporation the stock or other securities of which are at
the time receivable upon exercise of a Warrant) or in case
the Company (or any such other corporation) shall merge into
or with or consolidate with another corporation or convey
all or substantially all of its assets to another
corporation or enter into a business combination of any form
as a result of which the Shares or other securities
receivable upon exercise of a Warrant are converted into
other stock or securities of the same or another
corporation, then and in each such case, the Registered
Holder of a Warrant, upon exercise of the purchase right at
any time after the consummation of such reorganization,
consolidation, merger, conveyance or combination, shall be
entitled to receive, in lieu of the Shares or other
securities to which such Registered Holder would have been
entitled had he exercised the purchase right immediately
prior thereto, such stock and securities which such
Registered Holder would have owned immediately after such
event with respect to the Shares and other securities for
which a Warrant may have been exercised immediately before
such event had the Warrant been exercised immediately prior
to such event.
In each case of an adjustment in the Shares or other securities
receivable upon the exercise of a Warrant, the Company shall
promptly notify the Registered Holder of such adjustment. Such
notice shall set forth the facts upon which such adjustment is
based.
9. Reduction in Exercise Price at Company's Option. The
Company's Board of Directors may, at its sole discretion, reduce
the Exercise Price of the Warrants in effect at any time either
for the life of the Warrants or any shorter period of time
determined by the Company's Board of Directors. The Company
shall promptly notify the Registered Holders of any such
reduction in the Exercise Price.
10. Registration Rights.
(a) Certain Definitions. As used in this Section 10, the
following definitions shall apply:
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
"Holder" means any holder of a Warrant or outstanding
Registerable Securities.
"Registerable Securities" means the Warrant Shares issued or
issuable upon the exercise of a Warrant, provided, however, that
Registerable Securities shall not include any Shares and other
securities which have previously been registered and sold to the
public.
"Registration Expenses" means all expenses incurred by the
Company in complying with Section 10(b) including, without
limitation, all registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any
special audits incident to or required in connection with any
such registration. Registration Expenses shall not include
selling commissions, discounts or other compensation paid to
underwriters or other agents or brokers to effect the sale.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective
amendments filed in connection therewith), and the declaration of
the effectiveness of such registration statement.
(b) Registration. The Company shall:
(i) Following the original issuance of the Warrants
represented by this Warrant Certificate at such time as the
Company first prepares and files with the Commission a
registration statement on an appropriate form that would
permit inclusion of the Registrable Securities in such
registration statement or a pre-effective amendment to such
a registration statement, include the Registrable Securities
among the securities being registered pursuant to such
registration statement. The Company shall diligently
prosecute such registration statement to effectiveness.
Such registration statement shall cover both the issuance of
Warrant Shares upon exercise of this Warrant and, to the
extent appropriate, the resale of such Warrant Shares by the
Holder. The Company will promptly notify the Holder
regarding (i) the filing of such registration statement and
all amendments thereto, (ii) the effectiveness of such
registration statement and any post-effective amendments
thereto, (iii) the occurrence of any event or condition that
causes the prospectus that is part of such registration
statement no longer to comply with the requirements of the
Act, and (iv) any request by the Commission for any
amendment or supplement to such registration statement or
any prospectus relating thereto;
(ii) Prepare and file with the Commission such amendments
and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement effective and current
and to comply with the provisions of the Act with respect to
the issuance, sale or resale of the Registerable Securities,
including such amendments and supplements as may be
necessary to reflect the intended method of disposition of
the Holder, but for no longer than one hundred eighty (180)
days subsequent to the Expiration Date or the Redemption
Date;
(iii) Furnish to each Holder such number of copies of a
prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other
documents as such Holder may reasonably request in order to
facilitate the public sale or other disposition of the
Registerable Securities by such Holder;
(iv) Use its best efforts to register or qualify the
Registrable Securities under such securities or blue sky
laws of any state as a Holder may reasonably request, and do
any and all other acts which may be reasonably necessary or
advisable to enable such Holder to dispose of Registrable
Securities in such jurisdictions;
(v) Use its best efforts to comply with all applicable
rules and regulations of the Commission, including without
limitation the rules and regulations relating to the
periodic reporting requirements under the Securities
Exchange Act of 1934, as amended; and
(vi) Make available for inspection by the Holder or by
any underwriter, attorney, accountant or other agent acting
for such Holder in connection with the disposition of
Registrable Securities, in each case upon receipt of an
appropriate confidentiality agreement, all corporate
records, documents and properties as may be reasonably
requested.
(c) Expenses of Registration. All Registration Expenses
incurred in connection with the registration, qualification or
compliance pursuant to Section 10(b) hereof shall be borne by the
Company.
(d) Indemnification. In the event any of the Registerable
Securities are included in a registration statement under this
Section 10:
(i) The Company will indemnify each Holder, each of its
officers and directors and partners and each person
controlling such Holder within the meaning of Section 15 of
the Act, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of
the Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, or
other document, or any amendment or supplement thereto,
incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading, or any violation by the Company of any rule or
regulation promulgated under the Act applicable to the
Company in connection with any such registration,
qualification or compliance, and the Company will reimburse
the Holder, each of its officers and directors and partners
and each person controlling such Holder, each such
underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information
furnished to the Company by such Holder or underwriter for
use therein.
(ii) In order to include Registerable Securities in a
registration statement under this Section 10, a Holder will
be required to indemnify the Company, each of its directors
and officers, its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities
covered by such registration statement, each person who
controls the Company or such underwriter within the meaning
of Section 15 of the Act, and each other selling
shareholder, each of its officers and directors and partners
and each person controlling such selling shareholder within
the meaning of Section 15 of the Act, against all claims,
losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading and will reimburse the Company, such holders,
such directors, officers, counsel, accountants, persons,
underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with
written information furnished to the Company by the Holder
for use therein.
(iii) Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the
party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (which approval
shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such Indemnified
Party's expense. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment
or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(iv) If the indemnification provided for in this Section
is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any
loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying
the Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party with respect to such
loss, liability, claim, damage or expense in the proportion
that is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection
with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other
relevant equitable considerations. The relative fault of
the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the
omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified
Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such
statement or omission.
(e) Information by Holder. Each Holder of Registerable
Securities included in any registration shall furnish to the
Company such information regarding such Holder, such securities
and the distribution proposed by such Holder as the Company may
request in writing.
11. Notices. All notices, demands, elections, or requests
(however characterized or described) required or authorized
hereunder shall be deemed given sufficiently if in writing and
sent by registered or certified mail, return receipt requested
and postage prepaid, or by facsimile or telegram to the Company,
at its principal executive office, and of the Registered Holder,
at the address of such holder as set forth on the books
maintained by the Company.
12. General Provisions. This Warrant Certificate shall be
construed and enforced in accordance with, and governed by, the
laws of the State of Delaware. Except as otherwise expressly
stated herein, time is of the essence in performing hereunder.
The headings of this Warrant Certificate are for convenience in
reference only and shall not limit or otherwise affect the
meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed as of the day of
, 199 .
SPECIALIZED HEALTH PRODUCTS
INTERNATIONAL, INC
By /s/ J. Clark Robinson By /s/ David A. Robinson
_ _
Secretary President
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
The following abbreviations, when used in the inscription on
the face of this instrument, shall be construed as though they
were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
_
JR TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act _____
(State)
Additional abbreviations may also be used though not in the above
list.
FORM OF ASSIGNMENT
(To be Executed by the Registered Holder if He or She
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED ___________________________ hereby sells,
assigns and transfers unto _____________________________
_____________________ (_______) Warrants, evidenced by the within
Warrant Certificate, and does hereby irrevocably constitute and
appoint _____________________ __________________ Attorney to
transfer the said Warrants evidenced by the within Warrant
Certificates on the books of the Company, with full power of
substitution.
Dated:____________________ _____________________________
Signature
Notice: The above signature must correspond with the name as
written upon the face of the Warrant Certificate in
every particular, without alteration or enlargement or
any change whatsoever.
Signature Guaranteed: __________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM
OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK
EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE,
OR MIDWEST STOCK EXCHANGE.
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if he Desires to Exercise
Warrants Evidenced by the Warrant Certificate)
To Specialized Health Products International, Inc.
The undersigned hereby irrevocably elects to exercise _______
____________________ (______)Warrants, evidenced by the within
Warrant Certificate for, and to purchase thereunder,
_____________ _______________ (______) full shares of Common
Stock issuable upon exercise of said Warrants and delivery of
$_________ and any applicable taxes.
The undersigned requests that certificates for such shares be
issued in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________ ________________________________
(Please print name and address
_________________________________________________________________
_________________________________________________________________
If said number of Warrants shall not be all the Warrants
evidenced by the within Warrant Certificate, the undersigned
requests that a new Warrant Certificate evidencing the Warrants
not so exercised by issued in the name of and delivered to:
_________________________________________________________________
(Please print name and address)
_________________________________________________________________
_________________________________________________________________
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
Dated:_____________________
Signature:__________________________
NOTICE: The above signature must correspond with the name as
written upon the face of the within Warrant Certificate
in every particular, without alteration or enlargement
or any change whatsoever, or if signed by any other
person the Form of Assignment hereon must be duly
executed and if the certificate representing the shares
or any Warrant Certificate representing Warrants not
exercised is to be registered in a name other than that
in which the within Warrant Certificate is registered,
the signature of the holder hereof must be guaranteed.
Signature Guaranteed:
___________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM
OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK
EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE,
OR MIDWEST STOCK EXCHANGE.
EXHIBIT 4.2
Form of Series B Warrant
SERIES "B" WARRANTS
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK
ISSUABLE UPON EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED
OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD ONLY IF
REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Incorporated Under the Laws of the State of Delaware
No. B - Series B Common
Stock
Purchase Warrants
CERTIFICATE FOR SERIES "B" COMMON STOCK
PURCHASE WARRANTS
1. Warrant. This Warrant Certificate certifies that
, or registered assigns (the "Registered Holder"), is the
registered owner of the above indicated number of Warrants
expiring on the Expiration Date, as hereinafter defined. One (1)
Warrant entitles the Registered Holder to purchase one (1) share
of the common stock, $.02 par value (a "Share"), of Specialized
Health Products International, Inc., a Delaware corporation (the
"Company"), from the Company at a purchase price of Two Dollars
and no/100 ($2.00) (the "Exercise Price") at any time during the
Exercise Period, as hereinafter defined, upon surrender of this
Warrant Certificate with the exercise form hereon duly completed
and executed and accompanied by payment of the Exercise Price at
the principal office of the Company.
Upon due presentment for transfer or exchange of this Warrant
Certificate at the principal office of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing
in the aggregate a like number of Warrants shall be issued in
exchange for this Warrant Certificate, subject to the limitations
provided herein, upon payment of any tax or governmental charge
imposed in connection with such transfer. Subject to the terms
hereof, the Company shall deliver Warrant Certificates in
required whole number denominations to Registered Holders in
connection with any transfer or exchange permitted hereunder.
2. Restrictive Legend. Each Warrant Certificate and each
certificate representing Shares issued upon exercise of a
Warrant, unless such Shares are then registered under the
Securities Act of 1933, as amended (the "Act"), shall bear a
legend in substantially the following form:
"THE [SECURITIES] REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED
AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN
EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS
APPLICABLE."
3. Exercise. Subject to the terms hereof, the Warrants,
evidenced by this Warrant Certificate, may be exercised at the
Exercise Price in whole or in part at any time during the period
(the "Exercise Period") commencing on the date hereof and
terminating at the close of business on that day (the "Expiration
Date") which is the second anniversary of the date on which a
registration statement filed pursuant to the Act and covering the
Shares to be issued upon exercise of this Warrant is declared
effective, provided that the Exercise Period shall be extended
and the Expiration Date delayed by one business day for each
business day subsequent to such effectiveness on which a
prospectus meeting the prospectus delivery requirements of the
Act and covering the issuance of such Shares to and, if
appropriate, the resale of such Shares by the Registered Holder
hereof or the successors in interest to such Registered Holder is
not available. The Exercise Period may also be extended by the
Company's Board of Directors.
A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date (the "Exercise Date")
of the surrender to the Company at its principal offices of this
Warrant Certificate with the exercise form attached hereto
executed by the Registered Holder and accompanied by payment to
the Company, in cash, wire transfer, or by official bank or
certified check, of an amount equal to the aggregate Exercise
Price, in lawful money of the United States of America.
The person entitled to receive the Shares issuable upon
exercise of a Warrant or Warrants ("Warrant Shares") shall be
treated for all purposes as the holder of such Warrant Shares as
of the close of business on the Exercise Date. The Company shall
not be obligated to issue any fractional share interests in
Warrant Shares issuable or deliverable on the exercise of any
Warrant or scrip or cash with respect thereto, and such right to
a fractional share shall be of no value whatsoever. If more than
one Warrant shall be exercised at one time by the same Registered
Holder, the number of full Shares which shall be issuable on
exercise thereof shall be computed on the basis of the aggregate
number of full shares issuable on such exercise.
Promptly, and in any event within ten business days after the
Exercise Date, the Company shall cause to be issued and delivered
to the person or persons entitled to receive the same, a
certificate or certificates for the number of Warrant Shares
deliverable on such exercise.
The Company may deem and treat the Registered Holder of the
Warrants at any time as the absolute owner thereof for all
purposes, and the Company shall not be affected by any notice to
the contrary. The Warrants shall not entitle the Registered
Holder thereof to any of the rights of shareholders or to any
dividend declared on the Shares unless the Registered Holder
shall have exercised the Warrants and thereby purchased the
Warrant Shares prior to the record date for the determination of
holders of Shares entitled to such dividend or other right.
4. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available
from its authorized Common Stock such number of shares as shall
then be issuable on the exercise of outstanding Warrants. The
Company covenants that all Warrant Shares which shall be so
issuable shall be duly and validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof.
The Registered Holder shall pay all documentary, stamp or
similar taxes and other government charges that may be imposed
with respect to the issuance, transfer or delivery of any Warrant
Shares on exercise of the Warrants. In the event the Warrant
Shares are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate, no such delivery
shall be made unless the person requesting the same has paid the
amount of any such taxes or charges incident thereto.
5. Registration of Transfer. The Warrant Certificates may be
transferred in whole or in part, provided any such transfer
complies with all applicable federal and state securities laws
and, if requested by the Company, the Registered Holder delivers
to the Company an opinion of counsel to that effect, in form and
substance reasonably acceptable to the Company. Warrant
Certificates to be transferred shall be surrendered to the
Company at its principal office. The Company shall execute,
issue and deliver in exchange therefor the Warrant Certificate or
Certificates which the Registered Holder making the transfer
shall be entitled to receive.
The Company shall keep transfer books at its principal office
or at the office of its warrant agent which shall register
Warrant Certificates and the transfer thereof. On due
presentment of any Warrant Certificate for registration of
transfer at such office, the Company shall execute, issue and
deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate
number of Warrants. All Warrant Certificates presented for
registration of transfer or exercise shall be duly endorsed or be
accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company. The Company may require
payment of a sum sufficient to cover any tax or other government
charge that may be imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for
exercise, or for exchange in case of mutilated Warrant
Certificates, shall be promptly canceled by the Company and
thereafter retained by the Company until the Expiration Date.
Prior to due presentment for registration of transfer thereof,
the Company may treat the Registered Holder of any Warrant
Certificate as the absolute owner thereof (notwithstanding any
notations of ownership or writing thereon made by anyone other
than the Company), and the Company shall not be affected by any
notice to the contrary.
6. Loss or Mutilation. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft,
destruction or mutilation of this Warrant Certificate, the
Company shall execute and deliver, in lieu thereof, a new Warrant
Certificate representing an equal aggregate number of Warrants.
In the case of loss, theft or destruction of any Warrant
Certificate, the individual requesting issuance of a new Warrant
Certificate shall be required to indemnify the Company in an
amount satisfactory to the Company. In the event a Warrant
Certificate is mutilated, such Certificate shall be surrendered
and canceled by the Company prior to delivery of a new Warrant
Certificate. Applicants for a new Warrant Certificate shall also
comply with such other regulations and pay such other reasonable
charges as the Company may prescribe.
7. Call Option. So long as the closing bid price or last trade
in the principal market in which, or on the principal exchange on
which, the Shares trade exceeds Six Dollars ($6.00) for the ten
(10) consecutive trading days preceding but not including the
date of such call, the Company shall have the right and option,
upon no less than twenty (20) trading days' written notice to the
Registered Holder, to call, and thereafter to redeem and acquire
all of the Warrants remaining outstanding and unexercised at the
date fixed for such redemption in such notice (the "Redemption
Date"), which Redemption Date shall be at least 20 trading days
after the date of such notice, for an amount equal to One-Tenth
of One Cent ($.001) per Warrant; provided, however, that the
Registered Holder shall have the right during the period between
the date of such notice and the Redemption Date to exercise the
Warrants in accordance with the provisions of Section 3 hereof
and provided further that a prospectus meeting the prospectus
delivery requirements of the Act and covering the issuance of
such Shares to and, if appropriate, the resale of such Shares by
the Registered Holder hereof or the successors in interest to
such Registered Holder is available during the entire period
between such notice and the Redemption Date. Said notice of
redemption shall require the Registered Holder to surrender to
the Company, on the Redemption Date, at the principal executive
offices of the Company, his certificate or certificates
representing the Warrants to be redeemed. Notwithstanding the
fact that any Warrants called for redemption have not been
surrendered for redemption and cancellation on the Redemption
Date, after the Redemption Date such Warrants shall be deemed to
be expired and all rights of the Registered Holder of such
unsurrendered Warrants shall cease and terminate, other than the
right to receive the redemption price of $.001 per Warrant for
such Warrants, without interest.
In connection with any call hereunder, the Company shall have
no obligation to call any other stock purchase warrant or
warrants, whether or not having similar terms, and no call made
pursuant to any other stock purchase warrant shall obligate the
Company to exercise its right and option to make a call
hereunder.
8. Adjustment of Shares. The number and kind of securities
issuable upon exercise of a Warrant shall be subject to
adjustment from time to time upon the happening of certain
events, as follows:
(a) Stock Splits, Stock Combinations and Certain Stock
Dividends. If the Company shall at any time subdivide or
combine its outstanding Shares, or declare a dividend in
Shares or other securities of the Company convertible into
or exchangeable for Shares, a Warrant shall, after such
subdivision or combination or after the record date for such
dividend, be exercisable for that number of Shares and other
securities of the Company that the Registered Holder would
have owned immediately after such event with respect to the
Shares and other securities for which a Warrant may have
been exercised immediately before such event had the Warrant
been exercised immediately before such event. Any
adjustment under this Section 8 (a) shall become effective
at the close of business on the date the subdivision,
combination or dividend becomes effective.
(b) Adjustment for Reorganization, Consolidation, Merger.
In case of any reorganization of the Company (or any other
corporation the stock or other securities of which are at
the time receivable upon exercise of a Warrant) or in case
the Company (or any such other corporation) shall merge into
or with or consolidate with another corporation or convey
all or substantially all of its assets to another
corporation or enter into a business combination of any form
as a result of which the Shares or other securities
receivable upon exercise of a Warrant are converted into
other stock or securities of the same or another
corporation, then and in each such case, the Registered
Holder of a Warrant, upon exercise of the purchase right at
any time after the consummation of such reorganization,
consolidation, merger, conveyance or combination, shall be
entitled to receive, in lieu of the Shares or other
securities to which such Registered Holder would have been
entitled had he exercised the purchase right immediately
prior thereto, such stock and securities which such
Registered Holder would have owned immediately after such
event with respect to the Shares and other securities for
which a Warrant may have been exercised immediately before
such event had the Warrant been exercised immediately prior
to such event.
In each case of an adjustment in the Shares or other securities
receivable upon the exercise of a Warrant, the Company shall
promptly notify the Registered Holder of such adjustment. Such
notice shall set forth the facts upon which such adjustment is
based.
9. Reduction in Exercise Price at Company's Option. The
Company's Board of Directors may, at its sole discretion, reduce
the Exercise Price of the Warrants in effect at any time either
for the life of the Warrants or any shorter period of time
determined by the Company's Board of Directors. The Company
shall promptly notify the Registered Holders of any such
reduction in the Exercise Price.
10. Registration Rights.
(a) Certain Definitions. As used in this Section 10, the
following definitions shall apply:
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
"Holder" means any holder of a Warrant or outstanding
Registerable Securities.
"Registerable Securities" means the Warrant Shares issued or
issuable upon the exercise of a Warrant, provided, however, that
Registerable Securities shall not include any Shares and other
securities which have previously been registered and sold to the
public.
"Registration Expenses" means all expenses incurred by the
Company in complying with Section 10(b) including, without
limitation, all registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any
special audits incident to or required in connection with any
such registration. Registration Expenses shall not include
selling commissions, discounts or other compensation paid to
underwriters or other agents or brokers to effect the sale.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective
amendments filed in connection therewith), and the declaration of
the effectiveness of such registration statement.
(b) Registration. The Company shall:
(i) Following the original issuance of the Warrants
represented by this Warrant Certificate at such time as the
Company first prepares and files with the Commission a
registration statement on an appropriate form that would
permit inclusion of the Registrable Securities in such
registration statement or a pre-effective amendment to such
a registration statement, include the Registrable Securities
among the securities being registered pursuant to such
registration statement. The Company shall diligently
prosecute such registration statement to effectiveness.
Such registration statement shall cover both the issuance of
Warrant Shares upon exercise of this Warrant and, to the
extent appropriate, the resale of such Warrant Shares by the
Holder. The Company will promptly notify the Holder
regarding (i) the filing of such registration statement and
all amendments thereto, (ii) the effectiveness of such
registration statement and any post-effective amendments
thereto, (iii) the occurrence of any event or condition that
causes the prospectus that is part of such registration
statement no longer to comply with the requirements of the
Act, and (iv) any request by the Commission for any
amendment or supplement to such registration statement or
any prospectus relating thereto;
(ii) Prepare and file with the Commission such amendments
and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement effective and current
and to comply with the provisions of the Act with respect to
the issuance, sale or resale of the Registerable Securities,
including such amendments and supplements as may be
necessary to reflect the intended method of disposition of
the Holder, but for no longer than one hundred eighty (180)
days subsequent to the Expiration Date or the Redemption
Date;
(iii) Furnish to each Holder such number of copies of a
prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other
documents as such Holder may reasonably request in order to
facilitate the public sale or other disposition of the
Registerable Securities by such Holder;
(iv) Use its best efforts to register or qualify the
Registrable Securities under such securities or blue sky
laws of any state as a Holder may reasonably request, and do
any and all other acts which may be reasonably necessary or
advisable to enable such Holder to dispose of Registrable
Securities in such jurisdictions;
(v) Use its best efforts to comply with all applicable
rules and regulations of the Commission, including without
limitation the rules and regulations relating to the
periodic reporting requirements under the Securities
Exchange Act of 1934, as amended; and
(vi) Make available for inspection by the Holder or by
any underwriter, attorney, accountant or other agent acting
for such Holder in connection with the disposition of
Registrable Securities, in each case upon receipt of an
appropriate confidentiality agreement, all corporate
records, documents and properties as may be reasonably
requested.
(c) Expenses of Registration. All Registration Expenses
incurred in connection with the registration, qualification or
compliance pursuant to Section 10(b) hereof shall be borne by the
Company.
(d) Indemnification. In the event any of the Registerable
Securities are included in a registration statement under this
Section 10:
(i) The Company will indemnify each Holder, each of its
officers and directors and partners and each person
controlling such Holder within the meaning of Section 15 of
the Act, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of
the Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, or
other document, or any amendment or supplement thereto,
incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading, or any violation by the Company of any rule or
regulation promulgated under the Act applicable to the
Company in connection with any such registration,
qualification or compliance, and the Company will reimburse
the Holder, each of its officers and directors and partners
and each person controlling such Holder, each such
underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information
furnished to the Company by such Holder or underwriter for
use therein.
(ii) In order to include Registerable Securities in a
registration statement under this Section 10, a Holder will
be required to indemnify the Company, each of its directors
and officers, its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities
covered by such registration statement, each person who
controls the Company or such underwriter within the meaning
of Section 15 of the Act, and each other selling
shareholder, each of its officers and directors and partners
and each person controlling such selling shareholder within
the meaning of Section 15 of the Act, against all claims,
losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading and will reimburse the Company, such holders,
such directors, officers, counsel, accountants, persons,
underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with
written information furnished to the Company by the Holder
for use therein.
(iii) Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the
party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (which approval
shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such Indemnified
Party's expense. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment
or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(iv) If the indemnification provided for in this Section
is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any
loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying
the Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party with respect to such
loss, liability, claim, damage or expense in the proportion
that is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection
with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other
relevant equitable considerations. The relative fault of
the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the
omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified
Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such
statement or omission.
(e) Information by Holder. Each Holder of Registerable
Securities included in any registration shall furnish to the
Company such information regarding such Holder, such securities
and the distribution proposed by such Holder as the Company may
request in writing.
11. Notices. All notices, demands, elections, or requests
(however characterized or described) required or authorized
hereunder shall be deemed given sufficiently if in writing and
sent by registered or certified mail, return receipt requested
and postage prepaid, or by facsimile or telegram to the Company,
at its principal executive office, and of the Registered Holder,
at the address of such holder as set forth on the books
maintained by the Company.
12. General Provisions. This Warrant Certificate shall be
construed and enforced in accordance with, and governed by, the
laws of the State of Delaware. Except as otherwise expressly
stated herein, time is of the essence in performing hereunder.
The headings of this Warrant Certificate are for convenience in
reference only and shall not limit or otherwise affect the
meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed as of the day of
, 199 .
SPECIALIZED
HEALTH PRODUCTS INTERNATIONAL,
INC.
____________________
____________________
By: J. Clark Robinson, David A. Robinson,
President
Secretary
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
The following abbreviations, when used in the inscription on
the face of this instrument, shall be construed as though they
were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
JR TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act _____
(State)
Additional abbreviations may also be used though not in the above
list.
FORM OF ASSIGNMENT
(To be Executed by the Registered Holder if He or She
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED ___________________________ hereby sells,
assigns and transfers unto _____________________________
_____________________ (_______) Warrants, evidenced by the within
Warrant Certificate, and does hereby irrevocably constitute and
appoint _____________________ __________________ Attorney to
transfer the said Warrants evidenced by the within Warrant
Certificates on the books of the Company, with full power of
substitution.
Dated:____________________ _____________________________
Signature
Notice: The above signature must correspond with the name as
written upon the face of the Warrant Certificate in
every particular, without alteration or enlargement or
any change whatsoever.
Signature Guaranteed: __________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM
OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK
EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE,
OR MIDWEST STOCK EXCHANGE.
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if he Desires to Exercise
Warrants Evidenced by the Warrant Certificate)
To Specialized Health Products International, Inc.
The undersigned hereby irrevocably elects to exercise _______
____________________ (______)Warrants, evidenced by the within
Warrant Certificate for, and to purchase thereunder,
_____________ _______________ (______) full shares of Common
Stock issuable upon exercise of said Warrants and delivery of
$_________ and any applicable taxes.
The undersigned requests that certificates for such shares be
issued in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________ ________________________________
(Please print name and address
_________________________________________________________________
__
_________________________________________________________________
__
If said number of Warrants shall not be all the Warrants
evidenced by the within Warrant Certificate, the undersigned
requests that a new Warrant Certificate evidencing the Warrants
not so exercised by issued in the name of and delivered to:
_________________________________________________________________
_
(Please print name and address)
_________________________________________________________________
_
_________________________________________________________________
_
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
Dated: _____________________
Signature:__________________________
NOTICE: The above signature must correspond with the name as
written upon the face of the within Warrant Certificate
in every particular, without alteration or enlargement
or any change whatsoever, or if signed by any other
person the Form of Assignment hereon must be duly
executed and if the certificate representing the shares
or any Warrant Certificate representing Warrants not
exercised is to be registered in a name other than that
in which the within Warrant Certificate is registered,
the signature of the holder hereof must be guaranteed.
Signature Guaranteed:
___________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM
OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK
EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE,
OR MIDWEST STOCK EXCHANGE.
EXHIBIT 10.1
Agreement and Plan of Reorganization dated as of June 23, 1995,
among the Company, Russco Resources, Inc., Scott R. Jensen and
Specialized Health Products, Inc.
(Incorporated by reference to Exhibit 2.1 of the Company's
current Report of Form 8-K, dated July 28, 1995)
EXHIBIT 10.2
Placement Agreement between the Company, SHP and U.S. Sachem
Financial
Consultants, L.P.
1
SPECIALIZED HEALTH PRODUCTS, INC.
RUSSCO, INC.
650 UNITS
Each Consisting Of
5,000 Shares of Common Stock
and
3,000 Common Stock Purchase Warrants
PLACEMENT AGREEMENT
June 23, 1995
2
SPECIALIZED HEALTH PRODUCTS, INC.
RUSSCO, INC.
PLACEMENT AGREEMENT
650 Units
Each Consisting of
5,000 Shares of Common Stock
and
3,000 Common Stock Purchase Warrants
This Placement Agreement is made and entered into effective
as of the 23rd day of June, 1995 by and among Specialized
Health Products, Inc., a Utah corporation (the "Company"),
Russco, Inc., a Delaware corporation ("Russco"), and U.S.
Sachem Financial Consultants, L.P., a Connecticut limited
partnership ("Sachem"), as follows:
1. Authorization and Issuance of Securities. The
Company has authorized the issuance and sale of up to
4,075,000 shares of the Company's Common Stock ("Company
Common Stock"), Series A Warrants to purchase up to 2,900,000
shares of Company Common Stock at an exercise price of $3.00
per share (the "Company A Warrants"), and Series B Warrants to
purchase up to 1,200,000 shares of Company Common Stock at an
exercise price of $2.00 per share (the "Company B Warrants"
and, collectively with Company Common Stock and Company A
Warrants, the "Company Securities"), as contemplated by this
Agreement. The Company A Warrants shall be substantially as
described in the Offering Memorandum (as hereinafter defined),
and the Company B Warrants shall be substantially identical to
the Company A Warrants except for the exercise price. The
Company has also authorized the issuance and sale of up to
4,100,000 shares of Company Common Stock upon exercise of the
Company A Warrants and Company B Warrants.
Russco has authorized the issuance and sale of up to
2,750,000 shares of Russco's Common Stock ("Russco Common
Stock"), Series A Warrants to purchase up to 1,925,000 shares
of Russco Common Stock at an exercise price of $3.00 per share
(the "Russco A Warrants") and Series B Warrants to purchase up
to 825,000 shares of Russco Common Stock at an exercise price
of $2.00 per share (the "Russco B Warrants" and, collectively
with Russco Common Stock and Russco A Warrants, the "Russco
Securities"). The Russco A Warrants and Russco B Warrants
shall be substantially identical to the Company A Warrants and
Company B Warrants, respectively. (The Company Common Stock
and Russco Common Stock are sometimes hereinafter referred to
collectively as the "Common Stock"; the Company A Warrants and
Russco A Warrants are sometimes hereinafter referred to
collectively as the "A Warrants"; the Company B Warrants and
the Russco B Warrants are sometimes hereinafter referred to
collectively as the "B Warrants"; the A Warrants and the B
Warrants are sometimes hereinafter referred to as the
"Warrants"; and the Common Stock and the Warrants are
sometimes hereinafter referred to collectively as the
"Securities".)
The Company and Russco propose to issue and sell to
purchasers designated by Sachem (collectively, the
"Purchasers") an aggregate of up to 3,250,000 shares of Common
Stock and 1,950,000 A Warrants in Units (the "Units")
consisting of 5,000 shares of Company Common Stock and 3,000 A
Warrants each. The Securities will be offered and sold to the
Purchasers, each of whom shall be an "accredited investor", as
that term in defined in Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act"). In addition,
the Company and Russco are prepared to issue and sell to
Purchasers up to an aggregate additional 150 Units in the
event of an oversubscription for the Units to be offered (the
"Overallotment Units"), which Overallotment Units shall be
issued and sold upon the written request of Sachem and the
concurrence of the Company and Russco, which concurrence shall
not be unreasonably withheld.
The Company has prepared a Private Placement Memorandum,
dated June 23, 1995 (the "Offering Memorandum"), relating to
the Company, Russco and the Securities. Contemporaneously
with the initial issuance and sale of Securities hereunder,
the Company proposes to merge with a wholly-owned subsidiary
of, or otherwise enter into a business combination with Russco
(the "Merger") pursuant to that certain Agreement and Plan of
Reorganization (the "Plan") of even date herewith by and among
the Company, Russco and a subsidiary of Russco. Immediately
prior to the Merger, Russco shall have outstanding no more
than 300,000 shares of its Common Stock, and those shares
shall be the only equity securities of Russco then issued and
outstanding or which Russco is obligated under any conditions
to issue other than pursuant to the Plan or this Agreement.
In connection with the Merger, each of the outstanding equity
securities of the Company will be converted into the same
number of substantially similar equity securities of Russco,
and Russco will change its name to Specialized Health Products
International, Inc. or some other name approved by the
Company. Prior to the Merger, all Securities to be issued and
sold hereunder will be issued and sold by the Company, and
after the Merger, all Securities to be issued and sold
hereunder shall be issued and sold by Russco.
2. Agreements to Sell and Purchase; Delivery and
Payment; Placement Agency and Fees. On the basis of the
representations and warranties contained in this Placement
Agreement (this "Agreement"), and subject to its terms and
conditions, the Company and Russco agree to issue and sell
Securities to Purchasers at a price (the "Purchase Price") of
Ten Thousand Dollars per Unit.
The initial delivery of and payment for Securities shall
be made at such place as shall be reasonably proposed by
Sachem, at 10:00 a.m. on the third business day following the
date on which Sachem notifies the Company that Purchasers are
ready to purchase at least 250 Units pursuant hereto but not
later than October 21 1995, unless that date is extended by
the Company for a period not to exceed sixty days (the "First
Closing Date"). The time and date of the First Closing Date
may be varied by mutual agreement between Sachem and the
Company. The Company shall have no obligation to issue and
sell any of the Securities unless it shall have Purchasers for
at least two hundred fifty (250) Units. Included among the
Units considered to constitute said minimum of 250 Units and
to have been sold hereunder on the First Closing Date shall be
up to forty-five (45) Units (the "Early Units") issued and
sold by the Company prior to the First Closing Date, including
any Units sold prior to the date of this Agreement.
If fewer than 650 Units are issued and sold by the Company
to Purchasers on the First Closing Date, Russco shall, in the
place of the Company, continue the offering of the Securities
until 650 Units are issued and sold hereunder but not later
than October 21, 1995, unless that date is extended by Russco
for a period not to exceed sixty (60) days. Following the
First Closing Date, Russco shall be substituted for the
Company hereunder, and all acts to be performed by the Company
shall be performed by Russco with the same force and effect as
if performed by the Company. In the event Russco so continues
the offering, delivery of and payment for the Securities to be
issued and sold hereunder subsequent to the First Closing Date
shall be made at the place of the closing held on the First
Closing Date on the third business day following the date or
dates on which Sachem notifies Russco that Purchasers are
ready to purchase additional Units being offered hereunder
(the "Additional Closing Date" or "Additional Closing Dates"
and, collectively with the First Closing Date, the "Closing
Dates"). Any Additional Closing Date may be varied by mutual
agreement between Sachem and Russco.
At least two business days before each of the First
Closing Date and each Additional Closing Date, Sachem shall
provide to the Company or Russco, as the issuer may be, the
names and addresses of the Purchasers and the amount of the
Securities to be purchased by each Purchaser at such closing,
respectively.
The Company or Russco shall deliver the Securities
purchased by each Purchaser to or for the account of such
Purchaser on the First Closing Date and each Additional
Closing Date, respectively, with transfer taxes thereon, if
any, duly paid by the Company or Russco, against payment of
the Purchase Price therefor.
Sachem shall act as the exclusive placement agent for the
Company and Russco in connection with the issuance and sale of
the Securities. In connection therewith, Sachem shall use its
best efforts to identify and introduce to the Company and
Russco accredited investors who are ready, willing and able to
purchase the Securities.
On the First Closing Date and each Additional Closing Date,
the Company or Russco, as the case may be, shall (i) pay to
Sachem in cash an amount equal to eight percent (8%) of the
aggregate Purchase Price received on such date by the Company
or Russco from the Purchasers of the Securities (including on
the First Closing Date the amount received from the purchasers
of the Early Units) and (ii) shall issue and deliver to Sachem
or to Sachem's designee or designees, as specified by Sachem
in writing at least two business days before each such Closing
Date, (a) five hundred (500) A Warrants and (b) one thousand
five hundred (1,500) B Warrants.
On the First Closing Date, the Company shall also issue and
deliver to Sachem 75,000 shares of Company Common Stock and
100,000 Company A Warrants.
3. Agreements of the Company. The Company agrees with
Sachem, and Russco agrees to assume and perform the
obligations of the Company subsequent to the Merger, as
follows:
(a) To provide Sachem with as many copies of the
Offering Memorandum as it may reasonably request; to make
no amendment or supplement to the Offering Memorandum
except as permitted herein; to provide Sachem with as
many copies of any such amendment or supplement as it may
reasonably request; to advise Sachem promptly if it
receives notice of the issuance by any regulatory
authority having jurisdiction over the Company, Russco,
the Purchasers or the transactions contemplated hereby of
any stop order or order preventing or suspending the use
of the Offering Memorandum, of the suspension of any
qualification of the Securities for offering or sale in
any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by any
regulatory authority for the amending or supplementing of
the Offering Memorandum or for additional information;
and, in the event of the issuance of any stop order or of
any order preventing or suspending the use of the
Offering Memorandum or suspending any such qualification,
or exemption from qualification, to use promptly its best
efforts to obtain the withdrawal of such stop order or
order.
(b) To advise Sachem promptly, in writing, of the
happening of any event or the existence of any state of
facts of which it becomes aware, prior to completion of
the issuance and sale of the Securities contemplated,
that makes any statement of a material fact made in the
Offering Memorandum untrue or that requires the making of
any additions to or changes in the Offering Memorandum in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(c) If any event shall occur prior to completion of
the issuance and sale of the Securities contemplated
hereby or any state of facts shall exist as a result of
which, in the opinion of Sachem, the Company or Russco,
it becomes necessary to amend or supplement the Offering
Memorandum in order to make the statements therein, in
the light of the circumstances when the Offering
Memorandum is delivered, not misleading, or if it is
necessary to amend or supplement the Offering Memorandum
to comply with any law, to forthwith prepare an
appropriate amendment or supplement to the Offering
Memorandum so that the statements in the Offering
Memorandum as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be
misleading, or so that the Offering Memorandum will
comply with applicable law.
(d) Not to make any amendment or supplement to the
Offering Memorandum, of which Sachem shall not previously
have been advised or to which Sachem shall, after being
so advised, reasonably object in writing.
(e) During the three years after the date of this
Agreement, to furnish without charge to Sachem, as soon
as generally available, a copy of each report of the
Company or Russco, notice or other communication that the
Company or Russco shall mail or otherwise make available
to holders of Company Common Stock or shall file with the
Securities and Exchange Commission (the "Commission").
(f) Whether or not the transactions contemplated by
this Agreement are consummated, to pay all costs,
expenses and fees incident to or in connection with:
(i) the preparation, reproduction, and distribution of
the Offering Memorandum (including, without limitation,
financial statements and exhibits) and all amendments and
supplements thereto; (ii) the preparation, reproduction,
issuance and delivery of this Agreement, the Common
Stock, the Warrants, any "blue sky" memoranda and all
other agreements, memoranda, correspondence and other
documents prepared and delivered in connection herewith;
and (iii) the reasonable legal fees and expenses of
Sachem's counsel in connection with this Agreement, the
issuance and delivery of the Securities and all other
matters contemplated hereby or associated therewith,
which payment obligation shall not exceed $30,000 for
fees (billed at hourly rates not to exceed $300 per hour)
and $5,000 for expenses. The Company and Russco shall
also be responsible, in such manner as they may determine
between themselves, for all costs, expenses and fees
incident to or in connection with (a) the performance by
the Company and Russco of their respective other
obligations under this Agreement, and (b) the services of
counsel and accountants for the Company and Russco, and
(c) travel costs and expenses of the Company and Russco.
On the First Closing Date and each Additional Closing
Date, the Company or Russco, as the case may be, shall
pay to Sachem in cash an amount equal to two percent (2%)
of the aggregate Purchase Price received on such date by
the Company or Russco from the Purchasers for the
Securities (including on the First Closing Date amounts
received with respect to the Early Units) as a
nonaccountable expense allowance for Sachem. The Company
has previously paid $15,000 to Sachem as a non-refundable
advance against such expense allowance, and it shall be
credited against the nonaccountable expense allowance
payable to Sachem on the First Closing Date.
(g) To apply the net proceeds from the sale of the
Securities substantially in accordance with the
description set forth in the Offering Memorandum under
the caption "Use of Proceeds."
(h) To use commercially reasonable efforts to do and
perform all things required or necessary to be done and
performed by the Company and Russco, respectively, under
this Agreement and under the Plan to permit consummation
of the transactions contemplated by this Agreement and
the Plan.
(i) Not to sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as
defined in the Act) that would be integrated with the
sale of the Securities in a manner that would require the
registration of the Securities under the Act in
connection with the sale to the Purchasers.
4. Representations and Warranties of the Company and
Russco. The Company, with respect to matters relating to the
Company, and Russco, with respect to matters relating to
Russco, severally and not jointly represent and warrant to
Sachem that:
(a) The Offering Memorandum, including any
amendments and supplements thereto, does not and will not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided that no representation or warranty is made as to
information relating to Sachem contained in or omitted
from the Offering Memorandum in reliance upon and in
conformity with written information furnished to the
Company by Sachem specifically for inclusion therein.
(b) This Agreement has been duly authorized and
validly executed and delivered by the Company and Russco.
(c) The authorized, issued and outstanding Common
Stock and other securities of the Company and of Russco
conform in all material respects to the descriptions
thereof in the Offering Memorandum. The shares of
outstanding Common Stock of the Company and Russco have
been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive or similar
rights.
(d) The Securities to be issued by the Company and
Russco pursuant hereto have been duly authorized and,
when issued and delivered for consideration in accordance
with the terms of this Agreement, will be validly issued
and outstanding, fully paid and nonassessable, and free
from preemptive or similar rights. The Common Stock and
Warrants conform in all material respects to the
descriptions thereof contained in the Offering
Memorandum.
(e) Neither the Company nor Russco has any
subsidiaries, except that Russco will form a subsidiary
to participate in the Merger which subsidiary will be
inactive prior to the Merger.
(f) All tax returns required to be filed by the
Company and by Russco in all jurisdictions have been so
filed. All taxes, including withholding taxes, penalties
and interest, assessments, fees and other charges due or
claimed to be due from such entities or that are due and
payable have been paid, other than those being contested
in good faith and for which adequate reserves have been
provided or those currently payable without penalty or
interest. The Company and Russco do not know of any
material proposed additional tax assessment against the
Company or Russco.
(g) The Company and Russco have been duly
incorporated and are validly existing as corporations in
good standing under the laws of the States of Utah and
Delaware, respectively. The Company and Russco each has
the corporate power and authority necessary to own, lease
and operate its properties and to conduct business as
currently conducted and as described in the Offering
Memorandum. The Company and Russco each has the
corporate power and authority necessary to enter into and
perform its obligations under this Agreement and to
issue, sell and deliver the Securities to be issued, sold
and delivered by it pursuant hereto. The Company and
Russco are duly registered or qualified as foreign
corporations to conduct their respective businesses, and
are in good standing, in each jurisdiction where such
qualification is required and in which the failure to be
so qualified could have a material adverse effect on the
Company or Russco. The Company and Russco are in
compliance with all local, state and federal laws,
ordinances and regulations (including environmental laws)
applicable to their properties (whether owned or leased)
and their businesses, with the exception of violations of
such laws, ordinances and regulations which would not
individually or in the aggregate have a material adverse
effect on the Company or Russco.
(h) Except as set forth in the Offering Memorandum,
the Company has good and marketable title, free and clear
of all liens, charges and encumbrances except such as
would not, in the aggregate, have a material adverse
effect on the Company to all of the properties and assets
described in the Offering Memorandum as owned by the
Company. The properties of the Company are in good
repair (reasonable wear and tear excepted), are insured
in accordance with the industry practice and are suitable
for their uses. The real property referred to in the
Offering Memorandum as held under lease by the Company is
held by it under a valid and enforceable lease, except
(A) as limited by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights
and remedies of creditors and (B) as limited by the
effect of general principles of equity, including the
possible unavailability of specific performance or the
enforceability of waivers of certain rights or defenses,
whether enforcement is considered in a proceeding in
equity or at law, and the discretion of the court before
which any proceeding therefor may be brought (items (A)
and (B) are sometimes collectively referred to hereafter
as the "Exceptions"), and no defaults are existing under
such lease which defaults would, singly or in the
aggregate, have a material adverse effect on the Company.
(i) There is no action, suit or proceeding before
or by any court, arbitrator or governmental agency, body
or official, domestic or foreign, which has been served
on the Company or Russco and is now pending or which, to
the knowledge of the Company or Russco, is threatened
against or affects the Company or Russco or the assets of
the Company or Russco which is not disclosed in the
Offering Memorandum. No Federal or state statute, rule,
regulation or order has been enacted, adopted or issued
by any such governmental agency or, to the knowledge of
the Company, has been proposed by any such governmental
body that is not disclosed in the Offering Memorandum and
could reasonably be expected to have a material adverse
effect on the Company or Russco, the issuance of the
Securities or the consummation of any of the transactions
contemplated by this Agreement. There are not pending
any governmental proceedings to which the Company or
Russco is a party or to which any of their property is
subject, except as set forth in the Offering Memorandum.
No injunction, restraining order or order of any nature
by a federal or state court of competent jurisdiction has
been issued and remains in effect that would prevent the
issuance of the Securities.
(j) The Company and Russco possess such
certificates, authorities, licenses or permits issued by
the appropriate local, state, federal or foreign
regulatory agencies or bodies as are material to, or
legally required for, the operation of their respective
businesses, except for those certificates, authorities,
licenses or permits which if not possessed by the Company
and Russco would not singly, or in the aggregate, have a
material adverse effect on the Company or Russco.
Neither the Company nor Russco has received any notice of
proceedings relating to, or has reason to believe that
any governmental body or agency is considering, limiting,
suspending, modifying or revoking, any such certificate,
authority, license or permit which, singly or in the
aggregate, if the subject of an unfavorable opinion,
ruling or finding, would have a material adverse effect
on the Company or Russco. Any descriptions in the
Offering Memorandum of local, state, federal or foreign
statutes, laws, ordinances and regulations governing the
Company and Russco in their respective businesses,
including any proposed amendments or additions to any
such statues, laws, ordinances or regulations, are
accurate and fairly present the information shown.
(k) Neither the Company nor Russco is in violation
of its charter or bylaws or is in default in any respect
in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or other
evidence of indebtedness or in any indenture, mortgage,
deed of trust or other material agreement or instrument
to which the Company or Russco is a party or to which
either of them or their respective properties or assets
is subject, except such violations or defaults which,
singly or in the aggregate, would not have a material
adverse effect on the Company or Russco. To the
knowledge of the Company and Russco, there exists no
condition that, with notice, the passage of time or
otherwise, would constitute a material default under any
such document, instrument or agreement.
(l) The execution, delivery and performance of, and
the consummation of the transactions contemplated by,
this Agreement will not conflict with or constitute a
breach of any of the terms or provisions of, or
constitute a default (with notice, the passage of time or
otherwise) under, or result in the imposition of a lien
or encumbrance on any properties of the Company or Russco
or an acceleration of the maturity of any indebtedness
under (i) the charter or bylaws of the Company or Russco,
(ii) any bond, debenture, note or other evidence of
indebtedness or any indenture, mortgage, deed of trust or
other material agreement or instrument to which the
Company or Russco is a party or to which either of them
or their respective properties or assets are subject or
(iii) any law, regulation or order of any court or
governmental agency or authority applicable to the
Company or Russco or any of their respective properties
or assets.
(m) No consent, approval, authorization, license or
other order of any regulatory body, administrative
agency, or other governmental body having jurisdiction
over the Company or Russco or any of their respective
properties or assets is legally required for the valid
issuance and sale of the Securities and the consummation
of the transactions contemplated by this Agreement, other
than such approvals and authorizations as have been
obtained. No consents or waivers from any person are
required to consummate the transactions contemplated by
this Agreement, other than such consents and waivers as
have been obtained.
(n) The accountants who have certified the
financial statements of the Company and the financial
statements of Russco included or referred to in the
Offering Memorandum are independent accountants with
respect to the Company and Russco, respectively, within
the meaning of the Act.
(o) The historical financial statements of the
Company and the related notes and schedules included in
the Offering Memorandum present fairly the financial
position of the Company as of the dates indicated and the
results of its operations and the changes in financial
position for the periods therein specified. The
historical financial statements of Russco and the related
notes and schedules included in the Offering Memorandum
present fairly the financial position of Russco as of the
dates indicated and the results of their operations and
the changes in financial position for the periods therein
specified. All such financial statements (including the
related notes and schedules) have been prepared in
accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods
specified, subject in the case of interim statements to
normal year-end audit adjustments.
(p) Subsequent to the dates as of which information
is given in the Offering Memorandum, except as disclosed
therein: (i) neither the Company nor Russco has incurred
any liabilities or obligations, direct or contingent, or
entered into any transactions, not in the ordinary course
of business, that are material, individually or in the
aggregate, to the business of the Company or Russco,
except for short term borrowings in amounts not exceeding
$220,000 in the aggregate; (ii) there has not been any
material decrease in the capital stock of the Company or
Russco or any increase in long-term indebtedness or any
material increase in short-term indebtedness of the
Company or Russco not described above or any payment of
or declaration to pay any dividends or any other
distribution with respect to the capital stock of the
Company or Russco and (iii) there has not been any
material adverse change in the condition (financial or
other), business, properties, net worth or results of
operations of the Company or Russco.
(q) Neither the Company nor Russco is involved in
any material labor dispute nor, to the knowledge of the
Company and Russco, is any such dispute threatened.
(r) Neither the Company nor Russco has incurred any
casualty losses, whether insured or uninsured, that are
material, individually or in the aggregate, to the
business of the Company or Russco.
(s) Except as contemplated by this Agreement or
disclosed in the Offering Memorandum, no person or entity
is entitled, through contract or otherwise, directly or
indirectly to acquire any shares of the capital stock of
the Company or Russco from the Company or Russco.
(t) The Company and Russco each maintains a system
of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed
in accordance with management's general or specific
authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements
in conformity with generally accepted accounting
principles and to maintain accountability for assets and
(iii) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and
appropriate action is taken with respect to any
differences.
(u) Except as contemplated herein or disclosed in
the Offering Memorandum, there are no contracts,
agreements or understandings between either the Company
or Russco and any other person that would give rise to a
valid claim against the Company, Russco, Sachem or the
Purchasers for a brokerage commission, finder's fee or
like payment in respect of the transactions contemplated
herein.
(v) Neither the Company nor Russco is an
"investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(w) The offer and sale of the Securities pursuant
hereto are exempt from the registration requirements of
the Act. No form of general solicitation or general
advertising was used by the Company or any of its
representatives (other than Sachem, as to whom the
Company and Russco make no representation) in connection
with the offer and sale of the Securities, including, but
not limited to, articles, notices or other communications
published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general
solicitation or general advertising.
5. Indemnification
(a) The Company (as the "Indemnifying Party")
agrees to indemnify and hold harmless Sachem and each
person that controls Sachem within the meaning of
Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
and the respective agents, employees, attorneys, officers
and directors of each of the foregoing (individually, an
"Indemnified Party" and collectively, the "Indemnified
Parties") from and against any and all losses, claims,
damages, judgments, liabilities and expenses (including
the reasonable fees and expenses of counsel and other
expenses in connection with investigating, defending,
preparing to defend or testify with respect to or
settling any such action or claim) as they are incurred
arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to
the Company contained in the Offering Memorandum or
arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the
Company required to be stated therein or necessary to
make the statements therein not misleading or otherwise
arising out of or based upon the transactions
contemplated hereby, except the Indemnifying Party shall
not be liable to an Indemnified Party under the indemnity
agreement in this Section 5(a) with respect to any such
loss, claim, damage, judgment, liability or expense to
the extent either (i) it results from or is attributable
to the misconduct or negligence of Sachem or (ii) the
business combination of the Company and Russco does not
occur on or about the First Closing Date and it results
from an untrue statement, omission or alleged untrue
statement or omission described in Section 5(b).
(b) Russco (as the "Indemnifying Party") agrees to
indemnify and hold harmless Sachem and each person that
controls Sachem within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act and the respective
agents, employees, attorneys, officers and directors of
each of the foregoing (individually, an "Indemnified
Party" and collectively, the "Indemnified Parties") from
and against any and all losses, claims, damages,
judgments, liabilities and expenses (including the
reasonable fees and expenses of counsel and other
expenses in connection with investigating, defending,
preparing to defend or testify with respect to or
settling any such action or claim) as they are incurred
arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to
Russco contained in the Offering Memorandum or arising
out of or based upon any omission or alleged omission to
state therein a material fact relating to Russco required
to be stated therein or necessary to make the statements
therein not misleading, except the Indemnifying Party
shall not be liable to an Indemnified Party under the
indemnity agreement in this Section 5(b) with respect to
any such loss, claim, damage, judgment, liability or
expense to the extent it results from or is attributable
to the misconduct or negligence of Sachem.
(c) Sachem (as the "Indemnifying Party") agrees to
indemnify and hold harmless the Company and Russco and
each person that controls the Company or Russco within
the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and the respective agents, employees,
attorneys, officers and directors of each of the
foregoing (individually, an "Indemnified Party" and
collectively, the "Indemnified Parties") from and against
any and all losses, claims, damages, judgments,
liabilities and expenses (including the reasonable fees
and expenses of counsel and other expenses in connection
with investigating, defending, preparing to defend or
testify with respect to or settling any such action or
claim) as they are incurred to the extent they arise out
of or are based upon the misconduct or negligence of
Sachem.
(d) If any action or proceeding (including any
governmental or regulatory investigation or proceeding)
shall be brought or asserted against or shall relate to
any Indemnified Party with respect to which indemnity may
be sought against the Indemnifying Party pursuant to this
Section 5, such Indemnified Party shall promptly notify
the Indemnifying Party in writing and the Indemnifying
Party shall have the right to assume the defense thereof,
including the employment of counsel reasonably
satisfactory to such Indemnified Party and payment of all
fees and expenses; provided that the omission so to
notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability that it may have to
any Indemnified Party (except to the extent that the
Indemnifying Party is actually prejudiced or otherwise
forfeits substantive rights or defenses by reason of such
failure). An Indemnified Party shall have the right to
employ separate counsel in any such action or proceeding
and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the employment of such
counsel has been specifically authorized in writing by
the Indemnifying Party, which authorization shall not be
unreasonably withheld, (ii) the Indemnifying Party has
failed promptly to assume the defense and employ counsel
reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and such
Indemnified Party shall have been advised in writing by
counsel that there may be one or more legal defenses
available to it that are different from or additional to
those available to the Indemnifying Party (in which case
the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of such Indemnified
Party). It is understood that the Indemnifying Party
shall not, in connection with any one such action or
separate but substantially similar or related actions in
the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for such
Indemnified Parties, which firm shall be designated in
writing by Sachem, and that all such fees and expenses
shall be reimbursed as they are incurred. The
Indemnifying Party shall not be liable for any settlement
of any such action effected without the written consent
of the Indemnifying Party, but if settled with the
written consent of the Indemnifying Party, or if there is
a final judgment with respect thereto, the Indemnifying
Party agrees to indemnify and hold harmless each
Indemnified Party from and against any loss or liability
by reason of such settlement or judgment. The
Indemnifying Party shall not, without the prior written
consent of each Indemnified Party affected thereby,
effect any settlement of any pending or threatened
proceeding in which such Indemnified Party has sought
indemnity hereunder, unless such settlement includes an
unconditional release of such Indemnified Party from all
liability arising out of such action, claim, litigation
or proceeding.
(e) If the indemnification provided for in Section
5 is unavailable to any party entitled to indemnification
pursuant to Section 5(a), (b) or (c), then each
indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such
losses, claims, damages, judgments, liabilities and
expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company,
Russco and Sachem from the offering of the Securities or
(ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative
fault of the Company, Russco and Sachem in connection
with the statements or omissions which resulted in such
losses, claims, damages, judgments, liabilities or
expenses, as well as any other relevant equitable
considerations. The relative benefits received by the
Company and Russco on the one hand and Sachem on the
other hand shall be deemed to be in the same proportion
as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the
total compensation received by Sachem. The relative
fault of the Company and Russco on the one hand and
Sachem on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged
omission to state a material fact relates to information
supplied by the Company or Russco on the one hand or by
Sachem on the other and the parties' relative intent,
knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(f) The Company and Sachem agree that it would not
be just and equitable if contribution pursuant to
Section 5(e) were determined by pro rata allocation or by
any other method of allocation that does not take account
of the equitable considerations referred to in Section
5(e). The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities
or expenses referred to in Section 5(e) shall be deemed
to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or
defending any such action or claim. No person found
guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
(g) The indemnity and contribution agreements
contained in this Section 5 are in addition to any
liability that any indemnifying party may otherwise have
to any indemnified party, including inter alia those
arising under a letter agreement between the Company and
Sachem dated June 2, 1995, as amended.
6. Conditions of the Purchasers' Obligations. The
obligations of the Purchasers to purchase the Securities and
the Company and Russco to issue and sell the Securities under
this Agreement on a Closing Date are subject to the
satisfaction of the each of following conditions as of each
such Closing Date:
(a) All of the representations and warranties of
the Company and Russco contained in this Agreement shall
be true and correct on such Closing Date with the same
force and effect as if made on and as of such Closing
Date. The Company and Russco shall, in all material
respects, have performed or complied with the agreements
and satisfied all conditions on their respective parts to
be performed, complied with or satisfied at or prior to
such Closing Date.
(b) On such Closing Date, no stop order or other
similar decree preventing the use of the Offering
Memorandum or any amendment or supplement thereto, or any
order asserting that the transactions contemplated by
this Agreement are subject to the registration
requirements of the Act shall have been issued and remain
in effect and no proceedings for that purpose shall have
been commenced or shall be pending or, to the knowledge
of the Company, be contemplated. No stop order
suspending the sale of the Securities in any jurisdiction
shall have been issued and remain in effect, and no
proceeding for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Company,
shall be contemplated.
(c) No action shall have been taken and no statute,
rule, regulation or order shall have been enacted,
adopted or issued by any governmental agency and remain
in effect as of such Closing Date that would prevent the
issuance of the Securities. No injunction, restraining
order or order of any nature by a federal or state court
of competent jurisdiction shall have been issued and
remain in effect as of such Closing Date that would
prevent the issuance of the Securities.
(d) On such Closing Date, no action, suit or
proceeding shall be pending against or affecting or, to
the knowledge of the Company, threatened against, the
Company or Russco before any court, arbitrator or
governmental body, agency or official that would
interfere with or adversely affect the issuance of the
Securities or consummation of the transactions
contemplated by the Plan or would, except as disclosed in
the Offering Memorandum, individually or in the
aggregate, have a material adverse effect on the Company
or Russco or in any manner draw into question the
validity of this Agreement, the Plan or the Securities.
(e) Since the date of the latest balance sheet
included in the Offering Memorandum for the Company and
Russco, respectively, and except as disclosed therein,
(i) neither the Company nor Russco shall have incurred
any liabilities or obligations, direct or contingent
(other than short term borrowings in an aggregate amount
not to exceed $220,000), or entered into any
transactions, not in the ordinary course of business,
that are material, individually or in the aggregate, to
the business of the Company or Russco, (ii) there shall
not have been any material change in the capital stock or
debt of the Company or Russco from that set forth or
contemplated in the Offering Memorandum, other than an
increase in the authorized number of shares of capital
stock of the Company and (iii) there shall not have been
any material adverse change, or any development involving
a prospective material adverse change, in the condition
(financial or other), business, properties, net worth or
results of operations of the Company or Russco.
(f) The transactions contemplated by the Plan shall
have been consummated substantially as contemplated in
said Plan and as described in the Offering Memorandum.
(g) On the Closing Date, Sachem shall have received
(i) a certificate dated such Closing Date, signed by an
executive officer of the Company, confirming the matters
set forth in Section 6(a)-(f) above insofar as they
relate to the Company and the issuance of the Securities
by the Company and (ii) a certificate dated such Closing
Date, signed by an executive officer of Russco,
confirming the matters set forth in Section 6(a)-(f)
above insofar as they relate to Russco and the issuance
of Securities by Russco.
(h) On the Closing Date, Sachem shall have received
an opinion (satisfactory to Sachem and its counsel),
dated as of the Closing Date, of Blackburn & Stoll, LC,
counsel for the Company and after the First Closing Date
counsel for Russco, to the effect that:
(i)The Company (and on any Additional Closing Date
Russco) has been duly incorporated and is validly
existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full
corporate power and corporate authority to own,
lease and operate its properties and to conduct its
business as now conducted and as proposed to be
conducted as described in the Offering Memorandum.
(ii)The Company (and on any Additional Closing
Date Russco) is duly qualified or licensed to
conduct business and is in good standing in each
jurisdiction in which it owns or leases property or
conducts business, except where the failure so to
qualify or be licensed would not have a material
adverse effect on the business or financial
condition of such corporation.
(iii)The Company's (and on each Additional Closing
Date Russco's) authorized equity capitalization is
as set forth in the Offering Memorandum, with such
changes specified in the opinion that are acceptable
to Sachem; the outstanding shares of capital stock
of such corporation have been duly and validly
authorized and issued, are fully paid and
nonassessable, and the holders of outstanding shares
of capital stock of such corporation are not
entitled to preemptive or other rights to subscribe
for such capital stock; to the knowledge of such
counsel, except as otherwise set forth in the
Offering Memorandum, there are no outstanding
subscriptions, warrants, options, calls or
commitments of any character related to or entitling
any person to purchase or otherwise acquire any
shares of such corporation's capital stock or any
securities convertible into or exercisable for the
purchase of such capital stock or any commitments of
any character relating to or entitling any person to
purchase or otherwise acquire any such obligations
or securities; and on each Additional Closing Date,
all of the outstanding shares of capital stock of
the Company are owned by Russco, and, to the
knowledge of such counsel, no other person has any
rights to acquire any shares of the Company's common
stock.
(iv)Except as set forth in the Offering
Memorandum, to the knowledge of such counsel, there
is no pending or threatened action, suit or
proceeding before any Federal, state or foreign
court or governmental agency, authority or body or
any arbitrator against or involving the Company (and
on each Additional Closing Date Russco) which, if
adversely determined, individually or in the
aggregate with all such other actions, suits and
proceedings, would have a material adverse effect on
the business or financial condition of such
corporation.
(v)Except as set forth in the Offering Memorandum,
no consent, approval, authorization or order of, or
registration or filing with, any Federal, state or
foreign court or governmental agency or body is
required in connection with the execution, delivery
and performance by the Company (and on each
Additional Closing Date Russco) of this Agreement or
the Plan.
(vi)To the knowledge of such counsel, the Company
(and on each Additional Closing Date Russco) is not
involved in any material labor dispute nor is any
such dispute threatened.
(vii)The Company (and on each Additional Closing
Date Russco) is not in violation of its Articles of
Incorporation or bylaws or, to the knowledge of such
counsel and except as set forth in the Offering
Memorandum, is in default (including any condition
that, with notice, the passage of time or otherwise,
would constitute a default) in the performance of
any obligation, agreement or condition contained in
any bond, debenture, note or any other evidence of
indebtedness or in any indenture, mortgage, deed of
trust or other material agreement or instrument of
such corporation, where such default would have a
material adverse effect on the business or financial
condition of such corporation; except as set forth
in the Offering Memorandum, the execution, delivery
and performance of this Agreement and the
Securities, the fulfillment of the terms therein set
forth and the consummation of the transactions
therein contemplated, including the offer, issuance,
and sale of the Securities, will not violate, or
conflict with or result in a breach of any of the
terms or provisions of, or constitute a default
(including any condition that, with notice, the
passage of time or otherwise, would constitute a
default) under (A) the Articles of Incorporation or
by-laws of such corporation, (B) the terms of any
indenture, mortgage, deed of trust or other material
agreement or instrument known to such counsel,
including without limitation any of the documents
referred to above in this subparagraph (vii) and to
which such corporation is a party or to which it or
its properties or assets is subject, or (C) any
decree or order known to such counsel to be
applicable to such corporation of any court,
regulatory body, administrative agency, governmental
body or arbitrator having jurisdiction over such
corporation or any law or regulation applicable to
such corporation which defaults, in the cases of
clauses (B) and (C), would individually or in the
aggregate have a material adverse effect on the
business or financial condition of such corporation.
(viii)To the best knowledge of such counsel, based
solely on consultation with the Company's
consultants, the statements in the Offering
Memorandum under the captions "Risk Factors-
Government Regulation" and "Business-Patents and
Proprietary Rights", insofar as such statements
constitute a summary of the documents and laws
referred to therein, fairly present in all material
respects the information described therein with
respect to such documents and laws.
(i) On the Initial Closing Date, Sachem shall have
received an opinion (satisfactory to Sachem and its counsel),
dated as of the Closing Date, of Thomas G. Kimble &
Associates, counsel for Russco, to the effect that:
(i)Russco has been duly incorporated and is
validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation,
with full corporate power and corporate authority to
own, lease and operate properties and to conduct
business as now conducted and as proposed to be
conducted after consummation of the transactions
contemplated by the Plan as described in the
Offering Memorandum.
(ii)Russco's authorized equity capitalization is
as set forth in the Offering Memorandum; the
outstanding shares of capital stock of Russco,
including the shares issued on the Initial Closing
Date, have been duly and validly authorized and
issued, are fully paid and nonassessable, and the
holders of outstanding shares of capital stock of
Russco are not entitled to preemptive or other
rights to subscribe for such capital stock; to the
knowledge of such counsel, except as otherwise set
forth in the Offering Memorandum, there are no
outstanding subscriptions, warrants, options, calls
or commitments of any character related to or
entitling any person to purchase or otherwise
acquire any shares of Russco's capital stock or any
securities convertible into or exercisable for the
purchase of such capital stock or any commitments of
any character relating to or entitling any person to
purchase or otherwise acquire any such obligations
or securities;
(iii)To the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding
before any Federal, state or foreign court or
governmental agency, authority or body or any
arbitrator against or involving Russco which, if
adversely determined, individually or in the
aggregate with all such other actions, suits and
proceedings, would have a material adverse effect on
the business or financial condition of Russco.
(iv)Russco is not in violation of its Articles of
Incorporation or bylaws or, to the knowledge of such
counsel and except as set forth in the Offering
Memorandum, is not in default (including any
condition that, with notice, the passage of time or
otherwise, would constitute a default) in the
performance of any obligation, agreement or
condition contained in any material agreement or
instrument of Russco, where such default would have
a material adverse effect on the business or
financial condition of Russco; except as set forth
in the Offering Memorandum, the execution, delivery
and performance of this Agreement and the
Securities, the fulfillment of the terms therein set
forth and the consummation of the transactions
therein contemplated, including the offer, issuance,
and sale of the Securities, will not violate, or
conflict with or result in a breach of any of the
terms or provisions of, or constitute a default
(including any condition that, with notice, the
passage of time or otherwise, would constitute a
default) under (A) the Articles of Incorporation or
by-laws of the Russco, (B) the terms of any material
agreement or instrument known to such counsel to
which Russco is a party or to which it or its
properties or assets is subject, or (C) any decree
or order known to such counsel to be applicable to
Russco of any court, regulatory body, administrative
agency, governmental body or arbitrator having
jurisdiction over Russco or any law or regulation
applicable to Russco which defaults, in the cases of
clauses (B) and (C), would individually or in the
aggregate have a material adverse effect on the
business or financial condition of Russco.
(v)Russco has full corporate power and authority
(A) to execute, deliver and perform its obligations
under this Agreement and the Plan and (B) to offer,
issue and sell the Securities to be offered, issued
and sold by Russco. This Agreement and such
Securities have been duly authorized, executed and
delivered by Russco; this Agreement constitutes a
legal, valid and binding obligation of Russco,
enforceable against Russco in accordance with its
terms, except as set forth in the Offering
Memorandum, and subject to the Exceptions, as to
which such counsel need not express any opinion.
In their opinions referred to in subsections (h) and (i)
above, such counsel shall state that, although with the
concurrence of Sachem they have assumed no obligation of
inquiry and have not verified and are not passing upon and do
not assume responsibility for the accuracy, completeness or
fairness of the statements contained in the Offering
Memorandum, no facts have come to such counsel's attention
which have caused such counsel to believe that, at the time
the Offering Memorandum was distributed, the Offering
Memorandum contained any untrue statement of material fact or
omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading, or, as of the date of such opinion, the Offering
Memorandum contained any untrue statement of a material fact
or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein
not misleading (except, in each case, for the financial
statements, together with the related schedules and notes, and
other financial and statistical data contained in or omitted
from the Offering Memorandum, as to which such counsel need
not express any opinion).
In rendering such opinions, such counsel may rely (A) as
to matters involving the application of laws of states other
than the states in which they are licensed to practice and of
foreign countries, to the extent deemed appropriate by such
counsel and indicated in such opinion, upon the opinions of
other counsel of good standing in such jurisdictions, whom
they believe to be reliable and who are reasonably
satisfactory to counsel for Sachem and (B) as to matters of
fact to the extent they deem proper, on certificates of
responsible officers of the corporations involved and public
officials.
All opinions, certificates, letters and other documents
required by this Section 6 to be delivered to Sachem will be
in compliance with the provisions hereof only if they are
reasonably satisfactory in form and substance to Sachem and
its counsel. The Company and Russco will furnish to Sachem,
without charge, such conformed copies of such opinions,
certificates, letters and other documents as Sachem shall
reasonably request.
7. Termination.
This Agreement may be terminated at any time prior to the
Initial Closing Date by written notice from Sachem to the
Company and Russco if any of the following has occurred:
(i) after the respective dates as of which information is
given in the Offering Memorandum, any material adverse change
or development involving a prospective material adverse change
in or affecting the business, affairs, condition (financial or
otherwise) or prospects of the Company or Russco, whether or
not arising in the ordinary course of business, that would, in
Sachem's reasonable judgment, make the offering, sale or the
delivery of the Securities impracticable; (ii) any outbreak or
escalation of hostilities or other national or international
calamity or crises if the effect of such outbreak, escalation,
calamity or crises would, in Sachem's reasonable judgment,
make the offering, sale or delivery of the Securities
impracticable; (iii) any decrease in NASDAQ Composite Index
measured from the date hereof which exceeds ten percent (10%)
in the aggregate; (iv) any suspension of trading in securities
generally on the New York Stock Exchange or the NASDAQ Stock
Market or limitation on prices for securities generally on any
such exchange or market; or (v) any declaration of a banking
moratorium by federal or New York authorities.
8. Miscellaneous. Notices given pursuant to any
provision of this Agreement shall be addressed as follows:
(i) if to the Russco, to:
Russco, Inc.
2525 East 3300 South - Suite 2
Salt Lake City, Utah 84111
Attention: Scott R. Jensen, President
with a copy to:
Thomas G. Kimble, Esq.
311 South State Street - Suite 440
Salt Lake City, Utah 84111
(ii) if to the Company, to:
Specialized Health Products, Inc.
655 East Medical Drive
Bountiful, Utah 84010
Attention: David A. Robinson, President
with a copy to:
Eric L. Robinson, Esq.
Blackburn & Stoll, LC
77 West 200 South - Suite 400
Salt Lake City, Utah 84101-1609
(iii) if to Sachem, to:
U.S. Sachem Financial Consultants, L.P.
11601 Wilshire Boulevard - Suite 500
Los Angeles, California 90025
Attention: Stanley Hollander
with a copy to:
Alan D. Jacobson, Esq.
2029 Century Park East - Suite 2600
Los Angeles, California 90067
or in any case to such other address as the person to be
notified may have requested in writing.
The indemnity and contribution agreements and the
representations, warranties and other statements of the
Company, Russco and Sachem set forth or made pursuant to this
Agreement (i) shall remain operative and in full force and
effect regardless of (a) any termination of this Agreement,
(b) any investigation, or statement as to the results thereof,
made by or on behalf of Sachem, the Company, Russco, or any
Indemnified Party and (c) delivery of the Securities and
payment of consideration therefor and (ii) shall be binding
upon and inure to the benefit of the successors, assigns,
heirs and personal representatives of Sachem, each Indemnified
Party, the Company and Russco.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the
Company, Russco, Sachem, any controlling persons and other
Indemnified Parties referred to herein, and their respective
successors and assigns, all as and to the extent provided in this
Agreement, and no other persons shall acquire or have any right
under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Securities
merely because of such purchase. The Purchasers, however, shall
be third party beneficiaries of the provisions of Sections 3, 4
and 6 hereof.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD
TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
This Agreement may be signed in various counterparts, which
together shall constitute one and the same instrument.
In Witness Whereof, the undersigned have executed this
Placement Agreement effective as of the 23rd day of June, 1995.
Specialized Health Products,
Inc.
By: /s/ David A. Robinson
President
Russco, Inc.
By: /s/ Scott R. Jensen
President
U.S. Sachem Financial Consultants, L.P.
By: Sachem Financial Consultants, Ltd.
General Partner
By: /s/ Stanley Hollander
Title: President
EXHIBIT 10.3
Form of Employment Agreement with Executive Officers
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is made and entered
into this ___ day of _____________, 19___, by and between
SPECIALIZED HEALTH PRODUCTS, INC., a Utah corporation
("Corporation"), and ____________________ ("Employee").
WHEREAS, Corporation and Employee desire that the term of
this Agreement begin on _________________ ("Effective Date").
WHEREAS, Corporation desires to employ Employee as its
______________ and Employee is willing to accept such employment
by Corporation, on the terms and subject to the conditions set
forth in this Agreement.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. Duties. During the term of this Agreement,
Employee agrees to be employed by and to serve Corporation as its
_______________, and Corporation agrees to employ and retain
Employee in such capacities. Employee shall devote a substantial
portion of his business time, energy, and skill to the affairs of
the Corporation as Employee shall report to the Corporation's
Board of Directors and at all times during the term of this
Agreement shall have powers and duties at least commensurate with
his position as _________________.
Section 2. Term of Employment.
2.1 Definitions. For the purposes of this Agreement the
following terms shall have the following meanings:
2.1.1 "Termination For Cause" shall mean termination
by Corporation of Employee's employment by Corporation by reason
of Employee's willful dishonesty towards, fraud upon, or
deliberate injury or attempted injury to, Corporation or by
reason of Employee's willful material breach of this Agreement
which has resulted in material injury to Corporation.
2.1.2 "Termination Other Than For Cause" shall mean
termination by Corporation of Employee's employment by
Corporation (other than in a Termination for Cause) and shall
include constructive termination of Employee's employment by
reason of material breach of this Agreement by Corporation, such
constructive termination to be effective upon notice from
Employee to Corporation of such constructive termination.
2.1.3 "Voluntary Termination" shall mean termination
by Employee of Employee's employment by Corporation other than
(i) Termination Other Than For Cause, and (ii) termination by
reason of Employee's death or disability as described in
Sections 2.5 and 2.6.
2.2 Initial Term. The term of employment of Employee by
Corporation shall be for a period of _____________ years
beginning with Effective Date ("Initial Term"), unless terminated
earlier pursuant to this Section. At any time prior to the
expiration of the Initial Term, Corporation and Employee may by
mutual written agreement extend Employee's employment under the
terms of this Agreement for such additional periods as they may
agree.
2.3 Termination For Cause. Termination For Cause may be
effected by Corporation at any time during the term of this
Agreement and shall be effected by written notification to
Employee. Upon Termination For Cause, Employee shall promptly be
paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan, profit
sharing plan and stock option plan benefits which will be paid in
accordance with the applicable plan), any benefits under any
plans of the Corporation in which Employee is a participant to
the full extent of Employee's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by
Employee in connection with his duties hereunder, all to the date
of termination, but Employee shall not be paid any other
compensation or reimbursement of any kind, including without
limitation, severance compensation.
2.4 Termination Other Than For Cause. Notwithstanding
anything else in this Agreement, Corporation may effect a
Termination Other Than For Cause at any time upon giving written
notice to Employee of such termination. Upon any Termination
Other Than For Cause, Employee shall promptly be paid all accrued
salary, bonus compensation to the extent earned, vested deferred
compensation (other than pension plan, profit sharing plan and
stock option plan benefits which will be paid in accordance with
the applicable plan), any benefits under any plans of the
Corporation in which Employee is a participant to the full extent
of Employee's rights under such plans (other than pension plan,
profit sharing plan and stock option plan benefits which will be
paid in accordance with the applicable plan), accrued vacation
pay and any appropriate business expenses incurred by Employee in
connection with his duties hereunder, all to the date of
termination, with the exception of salary and medical benefits
which shall continue through the expiration of this Agreement.
2.5 Termination by Reason of Disability. If, during the
term of this Agreement, Employee, in the reasonable judgment of
the Board of Directors of Corporation, has failed to perform his
duties under this Agreement on account of illness or physical or
mental incapacity, and such illness or incapacity continues for a
period of more than twelve (12) consecutive months, Corporation
shall have the right to terminate Employee's employment hereunder
by written notification to Employee and payment to Employee of
all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan, profit
sharing plan and stock option plan benefits which will be paid in
accordance with the applicable plan), any benefits under any
plans of the Corporation in which Employee is a participant to
the full extent of Employee's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by
Employee in connection with his duties hereunder, all to the date
of termination, with the exception of salary and medical benefits
which shall continue through the expiration of this Agreement.
2.6 Death. In the event of Employee's death during the
term of this Agreement, Employee's employment shall be deemed to
have terminated as of the last day of the month during which his
death occurs and Corporation shall promptly pay to his estate or
such beneficiaries as Employee may from time to time designate
all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan, profit
sharing plan and stock option plan benefits which will be paid in
accordance with the applicable plan), any benefits under any
plans of the Corporation in which Employee is a participant to
the full extent of Employee's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by
Employee in connection with his duties hereunder, all to the date
of termination, but Employee's estate shall not be paid any other
compensation or reimbursement of any kind, including without
limitation, severance compensation.
2.7 Voluntary Termination. In the event of a Voluntary
Termination, Corporation shall promptly pay all accrued salary,
bonus compensation to the extent earned, vested deferred
compensation (other than pension plan, profit sharing plan and
stock option plan benefits which will be paid in accordance with
the applicable plan), any benefits under any plans of the
Corporation in which Employee is a participant to the full extent
of Employee's rights under such plans, accrued vacation pay and
any appropriate business expenses incurred by Employee in
connection with his duties hereunder, all to the date of
termination, but no other compensation or reimbursement of any
kind.
2.8 Notice of Termination. Corporation may effect a
termination of this Agreement pursuant to the provisions of this
Section upon giving thirty (30) days' written notice to Employee
of such termination. Employee may effect a termination of this
Agreement pursuant to the provisions of this Section upon giving
thirty (30) days' written notice to Corporation of such
termination.
Section 3. Salary, Benefits and Bonus Compensation.
3.1 Base Salary. As payment for the services to be
rendered by Employee as provided in Section 1 and subject to the
terms and conditions of Section 2, Corporation agrees to pay to
Employee a "Base Salary" for the twelve (12) calendar months
beginning the Effective Date at the rate of $__________ per annum
payable in no fewer than 12 equal monthly installments of $_____.
Employee's Base Salary shall be reviewed annually by the
Compensation Committee of the Board of Directors ("Compensation
Committee"), and the Base Salary for each year (or portion
thereof) shall be determined by the Compensation Committee which
shall authorize an increase in Employee's Base Salary for such
year in an amount which, at a minimum, shall be equal to the
cumulative cost-of-living as determined by the Corporation's
board of directors.
3.2 Bonuses. Employee shall be eligible to receive a
discretionary bonus for each year (or portion thereof) during the
term of this Agreement and any extensions thereof, with the
actual amount of any such bonus to be determined in the sole
discretion of the Board of Directors based upon its evaluation of
Employee's performance during such year. All such bonuses shall
be reviewed annually by the Compensation Committee.
3.3 Additional Benefits. During the term of this
Agreement, Employee shall be entitled to the following fringe
benefits:
3.3.1 Employee Benefits. Employee shall be eligible
to participate in such of Corporation's benefits and deferred
compensation plans as are now generally available or later made
generally available to executive officers of the Corporation.
For purposes of establishing the length of service under any
benefit plans or programs of Corporation.
3.3.2 Vacation. Employee shall be entitled to ___
(__) weeks of vacation during each year during the term of this
Agreement and any extensions thereof, prorated for partial years.
Vacation time may be accrued.
3.3.3 Life Insurance. For the term of this Agreement
and any extensions thereof, Corporation shall at its expense
procure and keep in effect term life insurance on the life of
Employee payable to Corporation in the aggregate amount of
$_______ and payable to the employee's spouse in the amount of
$_________.
3.3.4 Automobile Allowance. For the term of this
agreement and any extensions thereof the corporation shall
provide officer with an automobile allowance.
3.3.5 Reimbursement for Expenses. During the term of
this Agreement, Corporation shall reimburse Employee for
reasonable and properly documented out-of-pocket business and/or
entertainment expenses incurred by Employee in connection with
his duties under this Agreement.
Section 4. Payment Obligations. Corporation's obligation to pay
Employee the compensation and to make the arrangements provided
herein shall be unconditional, and Employee shall have no
obligation whatsoever to mitigate damages hereunder.
Section 5. Confidentiality. Employee agrees that all
confidential and proprietary information relating to the business
of Corporation shall be kept and treated as confidential both
during and after the term of this Agreement, except as may be
permitted in writing by Corporation's Board of Directors or as
such information is within the public domain or comes within the
public domain without any breach of this Agreement.
Section 6. Withholdings. All compensation and benefits to
Employee hereunder shall be reduced by all federal, state, local
and other withholdings and similar taxes and payments required by
applicable law.
Section 7. Indemnification. In addition to any rights to
indemnification to which Employee is entitled to under the
Corporation's Articles of Incorporation and Bylaws, Corporation
shall indemnify Employee at all times during and after the term
of this Agreement to the maximum extent permitted under Utah
Revised Business Corporation Act or any successor provision
thereof and any other applicable state law, and shall pay
Employee's expenses in defending any civil or criminal action,
suit, or proceeding in advance of the final disposition of such
action, suit or proceeding, to the maximum extent permitted under
such applicable state laws.
Section 8. Notices. Any notices permitted or required under
this Agreement shall be deemed given upon the date of personal
delivery or forty-eight (48) hours after deposit in the United
States mail, postage fully prepaid, return receipt requested,
addressed to the Corporation at:
655 E. Medical Drive
Bountiful, Utah 84010
addressed to the Employee at:
2453 S. Wood Hollow Way
Bountiful, Utah 84010
or at any other address as any party may, from time to time,
designate by notice given in compliance with this Section.
Section 9. Law Governing. This Agreement shall be governed by
and construed in accordance with the laws of the State of Utah.
Section 10. Titles and Captions. All section titles or captions
contained in this Agreement are for convenience only and shall
not be deemed part of the context nor effect the interpretation
of this Agreement.
Section 11. Entire Agreement. This Agreement contains the entire
understanding between and among the parties and supersedes any
prior understandings and agreements among them respecting the
subject matter of this Agreement.
Section 12. Agreement Binding. This Agreement shall be binding
upon the heirs, executors, administrators, successors and assigns
of the parties hereto.
Section 13. Attorney Fees. In the event an arbitration, suit or
action is brought by any party under this Agreement to enforce
any of its terms, or in any appeal therefrom, it is agreed that
the prevailing party shall be entitled to reasonable attorneys
fees to be fixed by the arbitrator, trial court, and/or appellate
court.
Section 14. Computation of Time. In computing any period of time
pursuant to this Agreement, the day of the act, event or default
from which the designated period of time begins to run shall be
included, unless it is a Saturday, Sunday, or a legal holiday, in
which event the period shall begin to run on the next day which
is not a Saturday, Sunday, or legal holiday, in which event the
period shall run until the end of the next day thereafter which
is not a Saturday, Sunday, or legal holiday.
Section 15. Pronouns and Plurals. All pronouns and any
variations thereof shall be deemed to refer to the masculine,
feminine, neuter, singular, or plural as the identity of the
person or persons may require.
Section 16. Presumption. This Agreement or any section thereof
shall not be construed against any party due to the fact that
said Agreement or any section thereof was drafted by said party.
Section 17. Further Action. The parties hereto shall execute and
deliver all documents, provide all information and take or
forbear from all such action as may be necessary or appropriate
to achieve the purposes of the Agreement.
Section 18. Parties in Interest. Nothing herein shall be
construed to be to the benefit of any third party, nor is it
intended that any provision shall be for the benefit of any third
party.
Section 19. Savings Clause. If any provision of this Agreement,
or the application of such provision to any person or
circumstance, shall be held invalid, the remainder of this
Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid,
shall not be affected thereby.
IN WITNESS WHEREOF, the undersigned have caused this
Agreement to be duly executed.
SPECIALIZED HEALTH PRODUCTS, EMPLOYEE:
INC:
By:____________________________
_______________________________
Its:
EXHIBIT 10.4
Form of Indemnity Agreement with Executive Officers and Directors
INDEMNITY AGREEMENT
This Indemnity Agreement (the "Agreement") is made as of
_______________, 1995, by and between Specialized Health Products
International, Inc., a Delaware corporation (the "Company"), and
person whose signature appears at the end of this Agreement (the
"Indemnitee"), an officer and/or director of the Company.
RECITALS
A. The Indemnitee is currently serving as an officer and/or
director of the Company and in such capacity renders valuable
services to the Company.
B. Both the Company and the Indemnitee recognize the
substantial risk of litigation against officers and directors of
corporations, and the Indemnitee has indicated that he or she
does not regard the indemnification available under the Company's
Bylaws as adequate to protect against legal risks associated with
service to the Company and may be unwilling to continue in office
in the absence of greater protection and indemnification.
C. The Board of Directors of the Company has determined that it
is in the best interests of the Company and its stockholders to
induce the Indemnitee to continue to serve as an officer and/or
director and retain the benefits of his or her experience and
skill by entering into this Agreement to provide protection from
potential liabilities which might arise by reason of the fact
that he or she is an officer and/or director of the Company
beyond the protection afforded by Delaware law and the Company's
Bylaws.
AGREEMENT
In consideration of the continued services of the Indemnitee
and as an inducement to the Indemnitee to continue to serve as an
officer and/or director, the Company and the Indemnitee do hereby
agree as follows:
Definitions. As used in this Agreement:
(a) The term "Company' shall include Specialized Health
Products International, Inc., a Delaware corporation and any
wholly-owned subsidiary.
(b) The term "Expenses" includes, without limitation,
attorneys' fees, disbursements and retainers, accounting and
witness fees, travel and deposition costs, any interest,
assessment or other charges, any federal, state, local or foreign
taxes imposed as a result of the actual or deemed receipt of any
payments under this Agreement, any other expense, liability or
loss, any amounts paid or to be paid in settlement by or on
behalf of Indemnitee, and any expenses of establishing a right to
indemnification (pursuant to this Agreement or otherwise), paid
or incurred in connection with investigating, defending, being a
witness in, or participating in, or preparing for any of the
foregoing in, any Proceeding relating to an Indemnifiable Event,
including reasonable compensation for time spent by the
Indemnitee in connection with the investigation, defense or
appeal of a Proceeding or of an action for indemnification for
which he or she is not otherwise compensated by the Company or
any third party. The Indemnitee shall be deemed to be
compensated by the Company or a third party for time spent in
connection with the investigation, defense or appeal of a
Proceeding or an action for Indemnification if, among other
things, he or she is a salaried employee of the Company or such
third party and his or her salary is not reduced In proportion to
the time spent in connection with the Proceeding or action for
Indemnification. The term "Expenses" does not include the amount
of judgments, fines, penalties or ERISA excise taxes actually
levied against the Indemnitee.
(c) The term "Indemnifiable Event" shall include any event
or occurrence that takes place either prior to or after the
execution of this Agreement, related to the service of Indemnitee
as an officer and/or director of the Company, or his or her
service at the request of the Company as a director, officer,
employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee
benefit plan, trust, or other enterprise. or related to anything
done or not done by Indemnitee in any such capacity, whether or
not the basis of a Proceeding arising in whole or in part from
such Indemnifiable Event is alleged action in an official
capacity as a director, officer, employee, or agent or in any
other capacity while serving as a director, officer, employee, or
agent of the Company or at the request of the Company, as
described above, and whether or not he or she is serving in such
capacity at the time any liability or Expenses are incurred for
which indemnification or reimbursement is to be provided under
this Agreement.
(d) The term "Proceeding" shall include (i) any threatened,
pending or completed action, suit or proceeding, whether brought
in the name of the Company or otherwise and whether of a civil,
criminal, administrative, investigative or other nature; and (ii)
any inquiry, hearing or investigation, whether or not conducted
by the Company, that Indemnitee in good faith believes might lead
to the institution of any such action. suit or proceeding.
2. Agreement to Serve. The Indemnitee agrees to continue to
serve as an officer and/or director of the Company at the will of
the Company for so long as Indemnitee is duly elected or
appointed or until such time as Indemnitee tenders a resignation
in writing; provided, however, that nothing in this Agreement
shall be construed as providing the Indemnitee any right to
continued employment.
3. Indemnification in Third Party Actions. In connection with
any Proceeding arising in whole or in part from an Indemnifiable
Event (other than a Proceeding by or in the name of the Company
to procure a judgment in its favor), the Company shall indemnify
the Indemnitee against all Expenses and all judgments, fines,
penalties and ERISA excise taxes actually and reasonably incurred
by the Indemnitee in connection with such Proceeding, to the
fullest extent permitted by Delaware law. The Company shall also
cooperate fully with Indemnitee and render such assistance as
Indemnitee may reasonably require in the defense of any
Proceeding in which Indemnitee was or is a party or is threatened
to be made a party, and shall make available to Indemnitee and
his or her counsel all information and documents reasonably
available to it which relate to the subject of any such
Proceeding.
4. Indemnification in Proceedings by or in the Name of the
Company. In any Proceeding by or in the name of the Company to
procure a judgment in its favor arising in whole or in part from
an Indemnifiable Event, the Company shall indemnify the
Indemnitee against all Expenses actually and reasonably incurred
by Indemnitee in connection with such Proceeding, to the fullest
extent permitted by Delaware law.
5. Conclusive Presumption Regarding Standard of Conduct. The
Indemnitee shall be conclusively presumed to have met the
relevant standards of conduct as defined by Delaware law for
indemnification pursuant to this Agreement, unless a
determination is made that the Indemnitee has not met such
standards by (i) the Board of Directors of the Company by a
majority vote of a quorum thereof consisting of directors who
were not parties to such Proceeding, (ii) the stockholders of the
Company by majority vote, or (iii) in a written opinion by
independent legal counsel, selection of whom has been approved by
the Indemnitee in writing.
6. Indemnification of Expenses of Successful Party.
Notwithstanding any other provisions of this Agreement, to the
extent that the Indemnitee has been successful in defense of any
Proceeding or in defense of any claim, issue or matter therein,
on the merits or otherwise, including the dismissal of a
Proceeding without prejudice. the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith to the
fullest extent permitted by Delaware law.
7. Advances of Expenses. The Expenses incurred by the
Indemnitee in any Proceeding shall be paid promptly by the
Company in advance of the final disposition of the Proceeding at
the written request of the Indemnitee to the fullest extent
permitted by Delaware law; provided that if Delaware law in
effect at the time so requires, the Indemnitee shall undertake in
writing to repay such amount to the extent that it is ultimately
determined that the Indemnitee is not entitled to
indemnification.
8. Partial Indemnification. If the Indemnitee is entitled
under any provision of this Agreement to indemnification by the
Company for some or a portion of the Expenses, judgments, fines,
penalties or ERISA excise taxes actually and reasonably incurred
by Indemnitee in the investigation, defense, appeal or settlement
of any Proceeding but not, however. for the total amount thereof,
the Company shall nevertheless indemnify the Indemnitee for the
portion of such Expenses, judgments, fines, penalties or ERISA
excise taxes to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to
Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of
the commencement of any Proceeding, the Indemnitee will, If a
claim in respect thereof is to be made against the Company under
this Agreement, notify the Company of the commencement thereof.
(b) If a claim under this Agreement is not paid by the
Company within 30 days of receipt of written notice, the right to
indemnification as provided by this Agreement shall be
enforceable by the Indemnitee in any court of competent
jurisdiction. it shall be a defense to any such action (other
than an action brought to enforce a claim for Expenses incurred
in defending any Proceeding in advance of its final disposition
where the required undertaking, if any is required, has been
tendered to the Company) that the Indemnitee has failed to meet a
standard of conduct which makes it permissible under Delaware law
for the Company to indemnity the Indemnitee for the amount
claimed. The burden of proving by clear and convincing evidence
that indemnification or advances are not appropriate shall be on
the Company. Neither the failure of the directors or
stockholders of the Company or independent legal counsel to have
made a determination prior to the commencement of such action
that indemnification or advances are proper in the circumstances
because the Indemnitee has met the applicable standard of
conduct, nor an actual determination by the directors or
stockholders of the Company or independent legal counsel that the
Indemnitee has not met such applicable standard of conduct, shall
be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct.
(c) The Indemnitee's Expenses incurred in connection with
any Proceeding concerning Indemnitee's right to indemnification
or advances in whole or in part pursuant to this Agreement shall
also be indemnified by the Company regardless of the outcome of
such Proceeding, unless a court of competent jurisdiction
determines that each of the material assertions made by the
Indemnitee in such Proceeding was not made in good faith or was
frivolous.
(d) With respect to any Proceeding for which
indemnification is requested, the Company will be entitled to
participate therein at its own expense and, except as otherwise
provided below, to the extent that it may wish, the Company may
assume the defense thereof, with counsel satisfactory to the
Indemnitee. After notice from the Company to the Indemnitee of
its election to assume the defense of a Proceeding, the Company
will not be liable to the Indemnitee under this Agreement for any
legal or other expenses subsequently incurred by the Indemnitee
in connection with the defense thereof, other than reasonable
costs of investigation or as otherwise provided below. The
Indemnitee shall cooperate fully with the Company and render such
assistance as the Company may reasonably require in the Company's
participation in any such Proceeding and shall make available to
the Company and its counsel all information and documents
reasonably available to Indemnitee which relate to the subject of
such Proceeding. The Company shall not be liable to indemnify
the Indemnitee under this Agreement with regard to any judicial
award if the Company was not given a reasonable and timely
opportunity, at its expense. to participate in the defense of
such action; the Company's liability hereunder shall not be
excused if participation in the Proceeding by the Company was
barred. The Company shall not settle any Proceeding in any
manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's prior written consent. The
Indemnitee shall have the right to employ counsel in any
Proceeding, but the fees and expenses of such counsel incurred
after notice from the Company of its assumption of the defense
thereof shall be at the expense of the Indemnitee, unless (i) the
employment of counsel by the Indemnitee has been authorized by
the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and
the Indemnitee in the conduct of the defense of a Proceeding, or
(iii) the Company shall not in fact have employed counsel to
assume the defense of a Proceeding, in each of which cases the
fees and expenses of the Indemnitee's counsel shall be at the
expense of the Company. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of
the Company or as to which the Indemnitee has made the conclusion
that there may be a conflict of interest between the Company and
the Indemnitee.
10. Limitations on Indemnification. No payments pursuant to
this Agreement shall be made by the Company:
(a) To indemnify or advance Expenses to the Indemnitee with
respect to Proceedings initiated or brought voluntarily by the
Indemnitee and not by way of defense, except with respect to
Proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other Statute or law
or otherwise as required under Delaware law, but such
Indemnification or advancement of Expenses may be provided by the
Company in specific cases if a majority of the Board of Directors
finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses,
judgments, fines, penalties or ERISA excise taxes for which the
Indemnitee is indemnified by the Company otherwise than pursuant
to this Agreement;
(c) To indemnify the Indemnitee under this Agreement for
any amounts paid in settlement of any Proceeding effected without
the Company's written consent; however, the Company will not
unreasonably withhold its consent to any proposed settlement;
(d) To indemnify the Indemnitee for any Expenses,
judgments, fines, penalties or ERISA excise taxes for which
payment is actually made to the Indemnitee under a valid and
collectible insurance policy, except in respect of any excess
beyond the amount of payment under such insurance;
(e) To indemnify the Indemnitee for any Expenses,
judgments, fines or penalties sustained in any Proceeding for an
accounting of profits made from the purchase or sale by
Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of
1934, the rules and regulations promulgated thereunder and
amendments thereto or similar provisions of any federal, state or
local statutory law;
(f) To indemnify the Indemnitee against any Expenses,
judgments, fines, penalties or ERISA excise taxes based upon or
attributable to the Indemnitee having been finally adjudged to
have gained any personal profit or advantage to which he or she
was not legally entitled;
(g) To indemnify the Indemnitee for any Expenses.
judgments, fines, penalties or ERISA excise taxes resulting from
Indemnitee's conduct which is finally adjudged to have been
willful misconduct, knowingly fraudulent. deliberately dishonest
or in violation of Indemnitee's duty of loyalty to the Company;
or
(h) If a court of competent jurisdiction shall finally
determine that any indemnification hereunder is unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long
as the Indemnitee shall continue to serve as an officer and/or
director of the Company and thereafter so long as the Indemnitee
shall be subject to any possible Proceeding, the Company, subject
to subsection (c), shall promptly obtain and maintain in full
force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and
reputable insurers.
(b) In all D&O Insurance policies, the Indemnitee shall be
named as an insured in such a manner as to provide the Indemnitee
the same rights and benefits as are accorded to the most
favorably insured of the Company's officers or directors.
(c) Notwithstanding the foregoing, the Company shall have
no obligation to obtain or maintain D&O Insurance if the Company
determines in good faith that such insurance is not reasonably
available. The premium costs for such insurance are
disproportionate to the amount of coverage provided, or the
coverage provided by such insurance is so limited by exclusions
that it provides an insufficient benefit.
12. Indemnification Hereunder Not Exclusive. The
indemnification provided by this Agreement shall not be deemed to
limit or preclude any other rights to which the Indemnitee may be
entitled under the Certificate of Incorporation, the Bylaws, any
agreement, any vote of stockholders or disinterested directors,
Delaware law, or otherwise, both as to action In Indemnitee's
official capacity and as to action in another capacity on behalf
of the Company while holding such office.
13. Successors and Assigns. This Agreement shall be binding
upon, and shall inure to the benefit of, the Indemnitee and
Indemnitee's heirs, personal representatives and assigns, and the
Company and its successors and assigns.
14. Separability. Each provision of this Agreement is a
separate and distinct agreement and Independent of the others, so
that if any provision hereof shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability
shall not affect the validity or enforceability of the other
provisions hereof. To the extent required. any provision of this
Agreement may be modified by a court of competent jurisdiction to
preserve Its validity and to provide the Indemnitee with the
broadest possible indemnification permitted under Delaware law.
15. Savings Clause. If this Agreement or any portion thereof
be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify
Indemnitee as to Expenses, judgments, fines, penalties or ERISA
excise taxes with respect to any Proceeding to the full extent
permitted by any applicable portion of this Agreement that shall
not have been invalidated or by any applicable provision of the
law of Delaware or the law of any other jurisdiction.
16. Interpretation; Governing Law. This Agreement shall be
construed as a whole and in accordance with its fair meaning.
Headings are for convenience only and shall not be used in
construing meaning. This Agreement shall be governed and
interpreted In accordance with the laws of the State of Delaware.
17. Amendments. No amendment, waiver, modification,
termination or cancellation of this Agreement shall be effective
unless in writing signed by the party against whom enforcement is
sought. The Indemnification rights afforded to the Indemnitee
hereby are contract rights and may not be diminished, eliminated
or otherwise affected by amendments to the Company's Certificate
of Incorporation, Bylaws or agreements including D&O Insurance
policies.
18. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the
same agreement and shall become effective when one or more
counterparts have been signed by each party and delivered to the
other.
19. Notices. Any notice required to be given under this
Agreement shall be directed to the Company at 655 East Medical
Drive, Bountiful, Utah 84010 and to Indemnitee at the address
specified below or to such other address as either shall
designate in writing.
20. Subject Matter. The intended purpose of this Agreement is
to provide for Indemnification, and this Agreement is not
intended to affect any other aspect of any relationship between
the Indemnitee and the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
SPECIALIZED HEALTH PRODUCTS INDEMNITEE
INTERNATIONAL, INC.
By._____________________________ ________________________________
_________ _________
Its
________________________________ ________________________________
______ _________
Street Address
________________________________
_________
City, State, Zip Code
EXHIBIT 10.5
Form of Confidentiality Agreement
CONFIDENTIALITY AGREEMENT
This Agreement ("Agreement") is entered into this date by and
between SPECIALIZED HEALTH PRODUCTS, INC., a Utah corporation
("Corporation"), and the party named at the end of this Agreement
("Consultant/Employee").
WHEREAS, the Corporation is engaged in the business of research,
development and manufacturing of health care products ; and
WHEREAS, the Corporation desires to retain the services of the
Consultant/Employee as an independent consultant or as an
employee, as the case may be.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
1. Confidential/Proprietary Information. The
Consultant/Employee agrees that he or she will not disclose and
will hold in confidence any and all proprietary information, and
other matters owned by the Corporation brought to the
Consultant/Employee's attention (collectively the "Information")
by Corporation during the course of this Agreement, whether in
written or oral form. Without the prior written consent of the
Corporation, the Consultant/Employee agrees not to use the
Information for any purpose other than the performance of the
services performed for Corporation. However, the
Consultant/Employee shall not be so restricted where (i) the
Information is now or becomes public through no fault of the
Consultant/Employee, or (ii) the Consultant/Employee already had
the Information in his/her possession from his/her own work prior
to the date of this Agreement, or (iii) the Consultant/Employee
received the Information from a third party on a non-confidential
basis and not derived from Corporation, or (iv) the
Consultant/Employee receives permission in writing from the
Corporation to disclose the Information. Upon termination of
this Agreement, the Consultant/Employee agrees to promptly return
to the Corporation all of the Information, in whatever form, that
the Consultant/Employee may then have in his/her possession or
control.
2. Remedies. The parties acknowledge that any disclosure of
the Information will cause irreparable harm to the Corporation.
As a consequence, the parties agree that if the
Consultant/Employee fails to abide by the terms of this
Agreement, the Corporation will be entitled to specific
performance, including immediate issuance of a temporary
restraining order or preliminary injunction enforcing this
Agreement, and to judgment for damages caused by such breach, and
to any other remedies provided by applicable law.
3. Notices. All notices and other communications required or
permitted under this Agreement shall be validly given, made, or
served if in writing and delivered personally or sent by
registered mail, to the Consultant/Employee at the following
address.
_______________________________
_______________________________
_______________________________
All notices and other communications required or permitted
under this Agreement shall be validly given, made, or served
if in writing and delivered personally or sent by registered
mail, addressed to the Corporation at:
655 East Medical Drive
Bountiful, Utah 84010
Attn: Chief Executive Officer
or at any other address as any party may, from time to time,
designate by notice given in compliance with this section.
4. Attorney Fees. In the event of any litigation between the
parties to declare or enforce any provision of this Agreement,
the prevailing party or parties shall be entitled to recover from
the losing party or parties, in addition to any other recovery
and costs, reasonable attorney fees incurred in such litigation,
in both the trial and in all appellate courts.
5. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah.
6. Entire Agreement. This Agreement contains the entire
understanding between and among the parties and supersedes any
prior understandings and agreements among them respecting the
subject matter of this Agreement; provided, however, that if the
Consultant/Employee is also a party to a separate written
employment agreement with the Corporation which contains
restrictions on the disclosure of confidential or proprietary
Information, then the provisions of such employment agreement
shall take precedence over the provisions of this Agreement.
7. Agreement Binding. This Agreement shall be binding upon the
heirs, executors, administrators, successors and assigns of the
parties hereto.
8. Further Action. The parties hereto shall execute and
deliver all documents, provide all information and take or
forbear from all such action as may be necessary or appropriate
to achieve the purposes of the Agreement.
9. Counterparts. This Agreement may be executed in several
counterparts and all so executed shall constitute one Agreement,
binding on all the parties hereto even though all the parties are
not signatories to the original or the same counterpart.
10. Parties in Interest. Nothing herein shall be construed to
be to the benefit of any third party, nor is it intended that any
provision shall be for the benefit of any third party.
11. Presumption. This Agreement or any section thereof shall
not be construed against any party due to the fact that said
Agreement or any section thereof was drafted by said party.
12. Savings Clause. If any provision of this Agreement, or
the application of such provision to any person or circumstance,
shall be held invalid, the remainder of this Agreement, or the
application of such provision to persons or circumstances other
than those as to which it is held invalid, shall not be affected
thereby.
Date: _____________________________
SPECIALIZED HEALTH PRODUCTS, CONSULTANT/EMPLOYEE
INC., a Utah corporation
By_____________________________ _______________________________
_________ _________
Its Name
_______________________________ _______________________________
_______ ____
EXHIBIT 10.6
Joint Venture Agreement
JOINT VENTURE AGREEMENT
This Joint Venture Agreement (the "Agreement") is made as of
this 30th day of October, 1995, by and between Specialized
Health Products, Inc., a Utah corporation ("SHP"), Zerbec, Inc.,
a Texas corporation ("Zerbec").
RECITALS
A. WHEREAS the Venturers reached an earlier agreement
memorialized in a Letter of Intent, dated January 7, 1995, which
is attached hereto as Appendix A. In those areas where there are
differences between this Agreement and the Letter of Intent, this
Agreement takes precedence.
B. WHEREAS SHP and Zerbec (collectively the "Venturers")
shall cause a corporation to be formed under the laws of the
State of Utah ("NewCo");
C. WHEREAS Zerbec has skills, proprietary technologies and
know-how in diagnostic imaging areas, which can be used to
develop novel and cost-competitive products and processes using
solid state filmless X-Ray and other photon based detector
technologies;
D. WHEREAS SHP has skills and know-how in diagnostic
imaging, instrumentation development and manufacturing, funding
acquisition, and regulatory experience;
and
E. WHEREAS the Venturers desire to create a joint venture
to timely develop, manufacture, distribute and market products
and technologies using solid state X-Ray or other photon-based
detector technologies.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and in
consideration of the mutual promises set forth herein and
intending to be legally bound, the parties hereto do hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Affiliate. The term "Affiliate" means a Person who
directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with the
Person specified.
1.2 Assigned Technology. The term "Assigned Technology,"
as used herein shall mean the following listed patents, patent
applications, patents to be issued pursuant thereto, and all
divisions, continuations, continuations-in-part, reissues,
reexamines, substitutes, and extensions thereof, as well as all
related subject matter and improvements and modifications
thereto, the basis for which is found therein:
COUNTRY PATENT NUMBER STATUS
U.S.A. 4,763,002 Expires 2005
U.S.A. 4,446,365 Expires 2001
U.S.A. 4,539,591 Expires 2002
U.S.A. 4,085,324 Expired 1995
Canada 1,156,772 Expires 2000
Canada 1,159,507 Expires 2000
Canada 1,162,332 Expires 2001
1.3 Improvement or Improvements. The term "Improvement" or
"Improvements" as used herein, shall mean any modification of a
device, method, or product described in the Assigned Technology
provided that such a modification would infringe one or more
claims of the issued patents listed under section 1.2. Also,
the term "Improvement" or "Improvements" shall include
subsequent derivative improvements which are based upon
Improvements or Technical Information received from or developed
by NewCo or a Venturer including any expansion, enhancement,
revision, modification, or any other form of development in which
Improvements or modifications of the Improvements or Technical
Information are recast, transformed, improved or adapted, except
those things that are in the public domain.
1.4 Person. The term "Person" as used herein shall mean an
individual, a partnership, a joint venture, a corporation, a
trust, an estate, an unincorporated organization or a government
or any department or agency thereof.
1.5 Technical Information. The term "Technical Information"
as used herein shall mean all general and specific knowledge,
experience and information, including without limitation all
inventions, trade secrets, know-how and Improvements thereof and
all patent and proprietary rights now owned or possessed by
either Venturer or hereafter developed or acquired by or on
behalf of NewCo or the Venturers, relating to the development,
design, manufacture, assembly, operation, marketing, servicing or
testing of the Assigned Technology and/or Improvements (including
without limitation all continuations, continuations-in-part,
divisions and reissues of patents), all apparatus, prototypes,
equipment and parts embodying any of the above and all documents
and copies thereof constituting, describing or relating to the
above, including memoranda, descriptions, specifications,
drawings, schematics, software, notebooks, parts lists, patents
and patent applications invention records and disclosures.
ARTICLE II
ORGANIZATION AND MANAGEMENT
OF NEWCO
2.1 Corporate Formation. The Venturers shall form and
organize NewCo, a joint venture in the form of a corporation
which joint venture shall be incorporated in the State of Utah
under the Utah Revised Business Corporation Act.
2.2 Organizational Documents. The Articles of
Incorporation shall be reviewed by both Venturers before
finalization and shall be in a form reasonably acceptable to the
Ventures. The Bylaws and other organizational documents of NewCo
shall be established under the direction of NewCo's board of
directors (the "Board"). It is hereby agreed that the
organization of NewCo will be in accordance with the guidelines
provided in Appendix B.
2.3 Changes in Board Organization. Until persons who are
not the nominees of the Venturers are appointed to the Board, the
Venturers agree that:
(i) Each Venturer shall vote its shares so that each
Venturer maintains Board representation equal to the other
Venturer;
(ii) At its discretion, each Venturer shall vote
its shares so that each Venturer may remove and replace one or
more of its appointees from the Board.
(iii) Each Venturer agrees to be present in person
or by proxy at each annual meeting of shareholders of NewCo and
at each special meeting of shareholders called for the purpose of
removal of any Board member or for the purpose of filling any
vacancy or any newly created directorships in the Board of NewCo
and will cause all stock of NewCo owned by it to be counted for
quorum purposes at such meeting.
2.4 Objectives of NewCo. SHP and Zerbec will concentrate
their respective expertise and resources to create wealth for
NewCo and its shareholders. It is the intention of SHP and
Zerbec to achieve marketability for their interests in NewCo at
the earliest opportunity and before December 31, 1997. Such
marketability may be achieved by means of a public stock listing,
a sale or a merger of NewCo.
2.5 Business of NewCo. The purpose or purposes for which
NewCo will be organized is to timely develop, manufacture,
distribute and market products and technologies using the
Assigned Technology and Improvements. In furtherance of said
business, NewCo shall have and may exercise all the powers now or
hereafter conferred by the laws of the State of Utah on
corporations formed under the laws of this state, and shall do
any and all things related or incidental to its business as fully
as natural persons might or could do under the laws of said
state.
2.6 Purposes Limited. The business of NewCo shall be
limited to those activities and purposes specified in Section
2.5.
2.7 Title to Property. All property, whether real or
personal, tangible or intangible, owned by NewCo shall be owned
by NewCo as an entity and, insofar as permitted by applicable
law, no Venturer shall have any ownership interest in such
property in its individual name or right and each Venturer's
interest in NewCo shall be personal property for all purposes.
2.8 Statutory Compliance. NewCo shall exist under and be
governed by the applicable laws of the State of Utah. The
Venturers shall make all filings and disclosures required by, and
shall otherwise comply with, all such laws.
2.9 Duty of Care. The organizational documents of NewCo
shall provide that the Board shall not be liable to NewCo or its
shareholders to the maximum extent allowed by Utah law and that
the members of the Board shall be indemnified for liability
resulting from serving on the Board to the maximum extent allowed
by Utah law.
2.10 Management Decisions. NewCo will be a separate
company. All management decisions relating to the business of
NewCo shall be made by NewCo under the direction of the Board.
The Venturers will contract with NewCo to provide the Venturers
with compensation for services provided to NewCo after its
formation as provided herein. Compensation for services provided
by the Venturers to NewCo shall be paid at commercially
reasonable rates. The Venturers shall absorb their own costs
incurred in connection herewith prior to the formation of NewCo.
2.11 Liability of Venturers: Indemnification. The bylaws
of NewCo shall indemnify each Venturer for any act performed by
it within the scope of the authority conferred upon it by this
Agreement; provided, however, that such indemnity shall be
payable only if such Venturer (a) acted in good faith and in a
manner it reasonably believed to be in, or not opposed to, the
best interests of NewCo, and (b) had no reasonable grounds to
believe that its conduct was negligent, unlawful or constituted
willful misconduct, and provided further that no indemnification
may be made in respect of any claim, issue or matter as to which
any Venturer shall have been adjudged to be liable for negligence
or misconduct in the performance of its duty to NewCo unless, and
only to the extent that, the court in which such action or suit
is brought determines that in view of all the circumstances of
the case, despite the adjudication of liability for negligence or
misconduct, such Venturer is fairly and reasonably entitled to
indemnity for those expenses which the court deems proper. Any
such indemnification shall be paid from, and only to the extent
of, NewCo assets, and no Venturer shall have any personal
liability on account thereof.
2.12 Debt. NewCo shall not create, incur, assume, or suffer
to exist any obligation for borrowed money other than current
accounts payable and similar current liabilities incurred in the
ordinary course of business until completion of the first level
of the Second Phase Financing (defined below). In no event,
however, shall such debt exceed $10,000 until completion of the
first level of the Second Phase Financing.
ARTICLE III
ASSIGNMENT AND FUNDING
3.1 Assigned Technology. Within 45 days after the
formation of NewCo, Zerbec shall assign to NewCo Zerbec's entire
right, title and interest in the above identified Assigned
Technology and Improvements and any related logos, trademarks or
copyrights. Once the Assigned Technology has been assigned to
NewCo it cannot be reassigned to another entity without unanimous
consent of all parties hereto.
3.2 SHP Funding to NewCo for Services to be Provided by
Zerbec. SHP hereby agrees to provide NewCo with $15,000 per
month for up to a consecutive twelve month period beginning the
month during which this Agreement is executed for use by NewCo to
pay Zerbec for services to be provided by Zerbec.
3.3 SHP Termination of Funding to NewCo for Services to be
Provided by Zerbec. SHP may terminate the funding referenced in
Section 3.2 if, in the judgment of SHP, Zerbec fails to provide
reasonable support for acquisition of Second Phase Financing as
evidenced by failure to meet the milestone objectives set forth
in Appendix D. A written notice of such termination shall be
given to Zerbec at least thirty (30) days before termination of
the funding reference in Section 3.2. Said funding will
continue, however, if the cause of the termination notice is
reconciled within said thirty (30) day period.
3.4 SHP Funding to NewCo for Internal Operations. SHP
hereby agrees to provide NewCo with up to $15,000 per month for
up to a consecutive twelve month period beginning the month
during which NewCo is incorporated in order to fund NewCo's
internal operations. The funding referenced in this Section 3.4
and in Section 3.2 are hereinafter referred to as the "Interim
Funding."
3.5 Second Phase Financing. SHP shall use reasonable
efforts to assist NewCo in locating and securing funding of not
less than $3,000,000 with a target of $6,000,000 (the "Second
Phase Financing"). The first level of Second Phase Financing is
a minimum of $3,000,000. The second level of Second Phase
Financing is an additional $3,000,000.
(i) The first level of Second Phase Financing is to be
raised within 12 months of the signing of this Agreement as
stated in the milestones of Appendix C.
(ii) At the successful securing of at least the first
level of the Second Phase Financing, SHP will terminate the
Interim Funding.
(iii) At the successful securing of the second
level of the Second Phase Financing, NewCo will repay SHP an
amount equal to the total amount of Interim Funding paid by SHP
to NewCo.
3.6 Failure to Meet First Level of Second Phase Financing.
If the first level of the Second Phase Financing is not met
within 12 months from the date hereof, then Zerbec shall have the
right to acquire two thirds of SHP's NewCo stock for $1.00 upon
thirty (30) days written notice to SHP.
ARTICLE IV
THE VENTURERS
4.1 Services to be Provided by SHP Before the First Level
of the Second Phase Financing. SHP shall provide the following
services to NewCo at NewCo's expense before the first level of
the Second Financing is secured.
4.1.1 Selection of Full Time Employee. Mr. Jim
Yardley or some other person selected by SHP shall become a full
time employee of NewCo and will be responsible to coordinate the
operations and business of NewCo. Said employee's salary shall
be paid by SHP until the formation of NewCo. Thereafter, NewCo
will pay said salary.
4.1.2 Facilities. SHP shall make available to
NewCo reasonable facilities from which NewCo may conduct its
business, including utilities, office furniture, telephone
service, office supplies and equipment. Such facilities shall be
located in Bountiful, Utah, or such other location(s) as SHP
shall determine.
4.1.3 Patent Procurement. SHP shall provide NewCo
with reasonable assistance in filing and prosecuting all current
and new patent applications relating to the Assigned Technology.
4.1.4 Human Resources. SHP shall provide NewCo:
with reasonable assistance in the following areas: accounting,
human resources, payroll, employee fringe benefits and other
services as related to the support of Mr. Jim Yardley or some
other person selected by SHP under constraints of a budget
approved by SHP.
4.1.5 Business Plan. SHP shall provide NewCo with
assistance, to the degree reasonably requested by NewCo, in the
preparation of a detailed five (5) year business plan. The
business plan shall include projections on costs to commercialize
the Assigned Technology, a marketing plan and projected financial
statements. Such plan shall indicate the resources required to
achieve commercialization of the Assigned Technology.
4.2 Services to be Provided by Zerbec Before the First
Level of the Second Phase Financing. Zerbec shall provide the
following services to NewCo before the first level of the Second
Phase Financing is secured.
4.2.1 Small Plate Demonstration System. Zerbec
shall develop a small plate selenium detector demonstration unit
for NewCo that can be used to validate the technology. This
demonstration system will be capable of a resolution of at least
10 1p/mm with the goal of 20 1p/mm.
4.2.2 Patent Procurement. Zerbec shall provide
reasonable assistance to NewCo in filing and prosecuting of all
current and new patent applications relating to the Assigned
Technology and Improvements.
4.2.3 Presentations. Zerbec shall provide
reasonable technical support in making presentations to
prospective investors, including demonstration of the new
demonstration unit and/or the original experimental development
system.
4.2.4 Introductions. Zerbec shall provide business
contact with appropriate hospital, clinic, and research resources
which will facilitate obtaining information in order to
strategically help NewCo.
4.2.5 Facilities. Beginning on the date hereof,
Zerbec shall make available to NewCo reasonable research
facilities for the development of the small plate demonstration
unit, including utilities, computers, and communications
equipment and connections. Such facilities shall be in such
location(s) as Zerbec shall determine.
4.2.6 Research. Zerbec shall research potential
sources of amorphous selenium, low noise amplifiers, scanning
systems and other technologies that will be beneficial for the
updating/upgrading of the Assigned Technology.
4.2.7 Business Plan. Zerbec shall provide NewCo
with assistance, to the degree reasonably requested by NewCo, in
the preparation of a detailed five (5) year business plan. The
business plan shall include projections on costs to commercialize
the Assigned Technology, a marketing plan and projected financial
statements. Said plan shall indicate the resources required to
achieve commercialization of the Assigned Technology.
4.3 Services to be Provided by SHP After the First Level of
the Second Phase Financing. SHP shall provide the following
services to NewCo after the first level of the Second Phase
Financing is secured.
4.3.1 NewCo Technical Employees. SHP shall
provide, under the direction of Dr. Gale H. Thorne, resources to
aid NewCo in assembling a group of seasoned imaging system
development engineers. Dr. Gale H. Thorne will be made available
to serve on the Board and will provide professional services
reasonably requested by the Board.
4.3.2 Facilities and Services. SHP will contract
with NewCo to provide, at NewCo's expense, reasonable facilities
and services to NewCo until NewCo is reasonably able to provide
these facilities and services for itself. Such facilities
include offices from which NewCo may conduct its business,
including utilities, office furniture, telephone service, office
supplies and equipment. Such services include patent
procurement, accounting, human resources, payroll, employee
fringe benefits, and other related services and issues.
4.3.3 Contact Network. SHP will use its expertise
to help NewCo establish a contact network used initially to
provide system development inputs, a set of alpha test sites and
beta test sites.
4.4 Services to be Provided by Zerbec After First Level of
the Second Phase Financing. Zerbec shall provide the following
services to NewCo after the first level of the Second Phase
Financing is secured.
4.4.1 Patent Procurement. Zerbec shall provide
reasonable assistance to NewCo in filing and prosecuting all
current and new patent applications relating to the Assigned
Technology and Improvements. NewCo shall bear all expenses
relating to such patent procurement.
4.4.2 Introductions. Zerbec shall provide business
contact with appropriate hospital, clinic, and research resources
which will facilitate obtaining information in order to
strategically help NewCo.
4.4.3 Research Team. Zerbec shall assemble and
manage a research team that will oversee early proprietary
property specifications and development of the Assigned
Technology.
4.4.4 X-Ray Cassette System. Zerbec will contract
with NewCo to provide support in the development of the selenium
plate technology so that within one year after the Second Phase
Financing has been secured, NewCo may be able to build an alpha
test Mammography Imaging Instrument system as specified in
Appendix E. These services will be provided at a cost of not
more than $800,000 to NewCo. This system will be capable of
capturing, processing and displaying an X-Ray image using a
cassette that is 24mm X 30 mm. The cost will cover:
(i) Resources. Time and materials for the principal
inventor, four associate inventors, administrator, three research
assistants, three consultants and an administrative assistant;
(ii) Facilities. Office and laboratory facilities,
furniture and equipment, office supplies, utilities,
communications and computer equipment, research equipment and
supplies; and
(iii) Other. Accounting, employee fringe benefits and
travel expenses.
Zerbec will also contract with NewCo to provide research support
to enable NewCo to build an alpha test system for X-Ray, as
specified in Appendix F, which will be completed within 6 months
after completion of the alpha test Mammography Imaging
Instrument. The cost for this system has not been determined.
4.4.5 Ongoing Research & Development. Zerbec will
continue to support NewCo in selenium plate technology and the
related Improvements. SHP anticipates that when the second level
of the Second Phase Financing is secured, R&D development funding
to Zerbec as requested by NewCo, may be in the amounts suggested
below:
Year 2 up to $600,000
Year 3 up to $400,000
Year 4 up to $400,000
Year 5 up to $400,000
The intent of said funding is to utilize the expert
resources available to Zerbec. SHP anticipates that this funding
may continue indefinitely, but it depends upon Zerbec's ability
to perform such services. It is Zerbec's intent to provide such
research and development services to NewCo, and Zerbec
anticipates that the specific objectives and deliverables of each
year's funding will be determined through collaborations between
Zerbec and NewCo and will be based, in part, on the strategic
intent and plans of NewCo.
4.5 Restrictions on Transfer. No Venturer may, without the
consent of the other Venturer, sell, convey, transfer, assign,
mortgage, pledge, hypothecate, encumber or otherwise dispose in
any way all or any portion of its interest in NewCo for two years
after completion of the Second Phase Financing.
4.6 Liability of Ventures; Indemnification. No Venturer
shall be liable, responsible or accountable in damages or
otherwise to NewCo or the other Venturer for any act or omission
performed or omitted by it in good faith on behalf of NewCo and
in a manner reasonably believed by it to be within the interests
of NewCo if it shall not have been guilty of negligence or
willful misconduct with respect to such acts or omissions.
4.7 No Further Contributions. The Venturers shall not be
required to contribute additional capital, loan any funds or
provide services to NewCo, except as expressly set forth herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Zerbec's Representations and Warranties. As of the
date hereof, each of the statements in this Section 5.1 shall be
a true, accurate and a full disclosure of all facts relevant to
the matters contained therein, and such warranties and
representations shall survive the execution of this Agreement.
Zerbec hereby represents and warrants to SHP as follows:
5.1.1 Organization. That Zerbec is duly organized
under the laws of the State of Texas and has the requisite power
and authority to enter into and carry out the terms of this
Agreement.
5.1.2 Consents. The required approvals, consents
and other required corporate action have been obtained/taken by
Zerbec in connection with the execution and performance of the
transactions contemplated herein. No further approval of any
board, court, or other body is necessary in order to permit
Zerbec to consummate this Agreement.
5.1.3 Authority. The person(s) negotiating this
Agreement on behalf of Zerbec have full power and authority to do
so.
5.1.4 Ownership. Zerbec agrees that the assignment
referenced in Section 3.1, will provide NewCo, with ownership of
the entire right, title and interest in and to the Assigned
Technology and Improvements free and clear of all liens and
encumbrances, except for royalties due from Zerbec to M.D.
Anderson and/or the University of Texas (hereinafter individually
and collectively "MD Anderson"), such royalties to be fully met
by compensation provided to M.D. Anderson as follows:
(i) NewCo shall pay to Zerbec for subsequent payment to MD
Anderson an amount not to exceed10% of all profits that Zerbec
receives from NewCo after such profits accruing to Zerbec exceed
$50,000; or
(ii) M.D. Anderson shall be awarded 5% ownership of NewCo in
lieu of all royalties and other financial commitments related to
the Assigned Technology;
5.1.5 Intellectual Property Rights. To the best of
Zerbec's knowledge the Assigned Technology does not violate any
intellectual property right, including but not limited to,
patent, copyright, trademark, trade dress, trade name, trade
secret, right to privacy or right of publicity, or contain
libelous matter, and NewCo's proposed use of the Assigned
Technology will not violate any intellectual property right, as
well as any statute, ordinance or governmental rule or regulation
of the United States or Canada.
5.1.6 Patent Procurement. The Assigned Technology
was not fraudulently procured from the U.S. Patent Office, and
Zerbec has no knowledge of any circumstances which would render
the patents references herein invalid.
5.1.7 Registration Documentation. Zerbec has or
will within forty-five (45) days from the date hereof, provide
NewCo with all existing registration documentation in its
possession relating to all of its intellectual property rights in
the Assigned Technology.
5.1.8 Lawsuits. There is no lawsuit, proceeding or
claim pending or, to the best of Zerbec's knowledge, asserted or
unasserted claims relating to the Assigned Technology,
Improvements or Technical Information.
5.1.9 Contracts. There are no contracts or
obligations relating to the Assigned Technology, Improvements
and/or Technical Information or to which Zerbec is a party that
would interfere with the execution or performance of the
transaction contemplated herein.
5.1.10 Other Agreements. The transaction
contemplated herein does not violate or shall not violate any
contract, document, understanding, agreement or instrument to
which Zerbec is a party or by which Zerbec may be bound, or any
contract, document, understanding, agreement or instrument
affecting the Assigned Technology, Improvements or Technical
Information.
5.1.11 Adverse Change. No representation, warranty
or covenant of Zerbec in this Agreement contains or will contain
any untrue statement of material fact or omit to state material
facts necessary to make the statements or facts contained herein
not misleading. Zerbec shall inform SHP and NewCo of any
material adverse change in the foregoing representations and
warranties occurring at any time after the execution hereof.
5.2 SHP's Representations and Warranties. As of the date
hereof, each of the statements in this Section 5.2 shall be a
true, accurate and a full disclosure of all facts relevant to the
matters contained therein, and such warranties and
representations shall survive the execution of this Agreement.
SHP hereby represents and warrants to NewCo and Zerbec as
follows:
5.2.1 Organization. That SHP is duly organized
under the laws of the State of Utah and has the requisite power
and authority to enter into and carry out the terms of this
Agreement.
5.2.2 Consents. The required approvals, consents
and other required corporate action have been obtained/taken by
SHP in connection with the execution and performance of the
transactions contemplated herein. No further approval of any
Board, court, or other body is necessary in order to permit SHP
to consummate this Agreement.
5.2.3 Authority. The person(s) negotiating the
transaction contemplated herein have full power and authority to
act on behalf of SHP.
5.2.4 Contracts. SHP is not a party to any
contracts or obligations which would interfere with the execution
or performance of the transaction contemplated herein.
5.2.5 Adverse Change. No representation, warranty
or covenant of SHP in this Agreement contains or will contain any
untrue statement of material fact or omit to state material facts
necessary to make the statements or facts contained herein not
misleading. SHP shall inform Zerbec and NewCo of any material
adverse change in the foregoing representations and warranties
occurring at any time after the execution hereof.
ARTICLE VI
CONFIDENTIALITY; COMPETITION
6.1 Confidentiality. Except as otherwise provided for
herein, each of the Venturers (including their Affiliates) agree
to retain in strict confidence any proprietary confidential
information and trade secrets of NewCo, whether disclosed prior
to or after the date hereof, and not to use or disclose to third
parties, and to use its best efforts to cause its employees,
agents and consultants not to use or disclose to third parties,
such proprietary confidential information and trade secrets to or
for any third party without the prior approval in writing of a
duly authorized officer or directorof NewCo; unless it can be
established by the disclosing party that such information:
(i) was at the time of disclosure a part of the public
knowledge or literature and readily accessible to such third
party;
(ii) was at the time of disclosure already known by the
receiving party otherwise then under an obligation of
confidentiality; or
(iii) was required by law to be disclosed.
6.2 Competition. No Venturer nor any Affiliates of the
Venturers (either individually, collectively or with others)
shall, without the prior written consent of the other Venturer
and NewCo, conduct or invest in any business which competes with
NewCo's business. If the Venturer obtains the written consent of
the other Venturer and NewCo to conduct or invest in a business
which competes with NewCo, no Venturer who competes with NewCo
will enter into any contract with NewCo that has the effect of
restricting, controlling, or reducing the competition between
NewCo and the competing Venturer.
6.3 Ownership of Technical Information. The Venturers agree
to assign to NewCo upon its formation and thereafter any and all
of their right, title and interest in and to any and all
Technical Information made, generated or conceived by it before
and/or during the period of NewCo's corporate existence, and the
Ventures agree to disclose all such Technical Information to
NewCo in writing.
ARTICLE VII
MISCELLANEOUS
7.1 No Liabilities Assumed. Unless and except as expressly
set forth herein, none of the parties hereto assume any
liability, nor bear any responsibility or liability for the
payment of any debts, obligations, liabilities or claims of NewCo
or any other party hereto.
7.2 Assignments. This Agreement shall not be assignable by
any party hereto, nor shall the performance of any of the duties
hereunder be delegable by any party hereto, without the written
consent of all the other parties hereto. This Agreement shall
not be assignable by operation of law.
7.3 Assistance. Each of the parties covenants and agrees
that it will assist NewCo in the sale, distribution and marketing
of the Assigned Technology, and will provide its expertise in
this regard when reasonably requested by NewCo.
7.4 Duty to Inform. Each Venturer shall keep the other
Venturer and NewCo informed of its activities to raise capital,
develop, distribute, market or otherwise assist NewCo.
7.5 Interim Use of Patent and Technical Information. From
the date of execution of this Agreement and continuing until the
termination of the Agreement, neither Zerbec nor SHP shall
market, advertise for sale, transfer, sell, hypothecate, mortgage
or otherwise deal with the Assigned Technology in a manner that
is inconsistent with the terms of this Agreement.
7.6 Notices. Any such notice required or permitted to be
given by one party to the other may be given by personal service,
telegram, or mailing. If any notice is sent by certified mail or
deposited into the custody of Federal Express, United Parcel
Service or another overnight courier service, for overnight
delivery, postage prepaid and addressed to such party at the
address hereinafter specified, such notice shall be effective
upon its deposit into the custody of such couriers. All other
notices shall be effective upon receipt. The addresses of the
parties for all purposes under this Agreement shall be:
SHP:
Dr. Gale H. Thorne
Specialized Health Products International, Inc.
655 East Medical Drive
Bountiful, Utah 84010
With copies to:
Eric L. Robinson
Blackburn & Stoll, LC
77 West 200 South, Suite 400
Salt Lake City, Utah 84101
Zerbec:
Charles D. Becker
Zerbec, Inc.
8415 Datapoint
San Antonio, Texas 78229
With copies to:
Alfonso Zermeno
6334 Community
Houston, Texas 77005
Either party may change the address at which it desires to
receive notice upon written notice of such change to the other
party.
7.7 Attorneys' Fees. In the event a party hereto brings
suit to enforce or interpret this Agreement or for damages on
account of the breach of a covenant, representation or warranty
contained herein, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and costs incurred in any
such action, in addition to other relief to which the prevailing
party is entitled.
7.8 Severability. Whenever possible, each provision of
this Agreement and every related document shall be interpreted in
such manner as to be valid under applicable law; but, if any
provision of any of the foregoing shall be invalid or prohibited
under applicable law, such provision shall be ineffective to the
extent of such invalidity or prohibition without invalidating the
remainder of such provision or the remaining provisions of this
document.
7.9 Governing Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Utah.
7.10 Counterparts. This Agreement may be signed in one or
more counterparts, any one of which shall be deemed to be an
original. The signature in counterpart on a facsimile
transmission copy of this Agreement shall be valid and binding.
7.11 Further Actions. Each of the parties to this Agreement
shall promptly execute and deliver such documents and take such
action as may be reasonably requested by another party to this
Agreement in order to carry out the intentions and purposes of
this Agreement.
7.12 Non-Waiver. The failure of any party to enforce any of
the provisions of this Agreement or any rights with respect
thereto or to exercise any election provided for therein, shall
in no way be considered a waiver of such provisions, rights, or
elections or in any way to affect the validity of this Agreement.
No term or provisions hereof shall be deemed waived and no breach
excused, unless such waiver or consent shall be in writing and
signed by the party claimed to have waived or consented. The
failure by a party hereto to enforce any of said provisions,
rights, or elections shall not preclude or prejudice that party
from later enforcing or exercising the same or in any other
provisions, rights, or elections which it may have under this
Agreement. Any consent by any party to, or waiver of, a breach
by the other, whether express or implied, shall not constitute a
consent or waiver of, or excuse for any other, different or
subsequent breach. All remedies herein conferred upon any party
shall be cumulative and no one shall be exclusive of any other
remedy conferred herein by law of equity.
7.13 No Third Party Beneficiary. It is the intention of the
parties hereto that no Person shall be deemed to be a third party
beneficiary of this Agreement.
7.14 Entire Agreement. This Agreement constitutes the
entire agreement of the parties.
7.15 Transfers. This Agreement shall be binding not only
upon the parties hereto, but also upon, without limitation
thereof, their successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
ZERBEC, INC.: SPECIALIZED HEALTH PRODUCTS,
INC.:
By /s/ Charles D.
Becker_______________ By /s/ David A. Robinson
Charles D. Becker ______________
Its president David A. Robinson
Its president
SUMMARY OF APPENDICES
APPENDIX "A" - Letter of Intent
"B" - Organizational Guidelines
"C" - Milestones for SHP
"D" - Milestones for Zerbec
"E" - Alpha Test Mammography Imaging Instrument
"F" - Alpha Test 14" x 17" Cassette Imaging
Instrument
Appendix A
Letter of Intent
Dated: January 7, 1995
January 7, 1994
Mr. Charles Becker
President
ZERBEC, INC.
8415 Datapoint Drive, Suite 1000
San Antonio, Texas 78229
Re: Letter of Intent
Dear Charles:
With reference to recent discussions we hereby confirm our
intent to join with ZERBEC, INC. ("ZERBEC") in a joint venture to
develop, manufacture, distribute and market products protected by
the intellectual property assigned to ZERBEC by Alfonso Zermeno,
Ph.D. who received assignment from the University of Texas System
(the "Patents") in accordance with the following basic terms and
conditions:
1. Corporate Formation. SPECIALIZED HEALTH PRODUCTS, INC.
("SHP") and ZERBEC shall cause a joint venture to be formed under
the laws of the State of Utah (the "Joint Venture").
2. Objective of the Joint Venture. The principal activities of
the Joint Venture will be to timely develop, manufacture,
distribute and market products protected by the Patents (the
"Technology"). The Joint Venture may itself enter into
arrangements with third parties for the efficient performance of
any of these activities.
3. Objective(s) of the Joint Venturers SHP and ZERBEC will
concentrate their respective expertise and resources to create
wealth for the Joint Venture and the Joint Venturers. It is the
intention of SHP and ZERBEC to achieve marketability for their
interests in the Joint Venture at the earliest opportunity and
before 31st December, 1997. Such marketability may be achieved by
means of a public stock listing, a sale or merger of the Joint
Venture.
4. Initial Organization.
a. Assistance by SHP.
i. Business Plan. SHP shall be responsible for the
preparation of a detailed five (5) year business plan.
ZERBEC shall be fully involved in the preparation of the
said plan and shall provide to SHP its knowledge and
expertise. The business plan shall include projections on
costs to commercialize the Technology, a marketing plan and
projected financial statements. Such plan shall indicate
the resources required to achieve commercialization of the
Technology. The preparation of such plan shall commence
immediately following the execution of this Letter of
Intent.
ii. Funding. SHP shall use its best efforts to assist
the Joint Venture in locating and securing a third party
funding source that will provide the financial resources
required to commercialize the Technology which shall in any
event be not less than SIX MILLION DOLLARS ($6,000,000). It
is the intention that in return for such funding the funding
party shall receive not more than a one third equity
interest in the Joint Venture upon terms and conditions to
be negotiated or upon such other terms as may be agreed to
by the management of the Joint Venture (the "Funding"). In
the absence of securing a third party funding source the
Funding may be provided by SHP or ZERBEC.
iii. Development Group. SHP shall provide resources
to the Joint Venture to enable it to assemble a group of
seasoned imaging system development engineers. Such efforts
shall be spearheaded by Dr. Gale H. Thorne (subject to the
approval of the Joint Venture).
iv. Contact Network. SHP will use its expertise to
help the Joint Venture establish a contact network used
initially to provide system development inputs, a set of
alpha test sites and beta test sites.
v. Patent Procurement. SHP shall use its expertise
to assist the Joint Venture in filing and prosecuting
patents relating to the Technology.
vi. Management. SHP shall provide resources to the
Joint Venture to enable it to locate development and fiscal
management. SHP may provide personnel for such positions.
b. Assistance by ZERBEC.
i. Patents. ZERBEC shall grant an exclusive, world-
wide license (the License) for the Joint Venture to make,
use and sell the Patents including, but not limited to, all
extensions of the original intellectual property owned by
ZERBEC. Any intellectual property developed after the
formation of the Joint Venture will be owned by the Joint
Venture.
ii. Technical Information. ZERBEC shall license and
deliver to the Joint Venture all published and unpublished
research and development information, unpatented inventions,
know-how, trade secrets and technical data in the possession
of ZERBEC, under the conditions of 4.b.i (above), which are
needed to fully exploit the Technology (the "Technical
Information").
iii. Research Team. ZERBEC shall assist the Joint
Venture in developing a research team that will oversee
critical early proprietary property specifications and
development of the initial products of the Joint Venture.
iv. R&D Objectives. ZERBEC shall assist the Joint
Venture in establishing R&D objectives for the research team
members.
v. Operating Budgets. ZERBEC shall assist the Joint
Venture in developing agreements (including all rights to
intellectual property) and operating budgets for the
research team.
vi. Business Plan. ZERBEC shall provide it knowledge
and expertise in the preparation of the business plan as
provided in Section 4.a.i.
5. Organization of the Joint Venture.
a. Ownership. Initially both SHP and ZERBEC shall have
equal (fifty percent) ownership interests (the Initial Interests)
in the Joint Venture. Upon allocation of an ownership interest
to the funding party in accordance with Section 4.a.ii., the
Initial Interests of SHP and ZERBEC shall be reduced equally.
b. Election of Board. The initial board of directors
shall be elected by cumulative voting and shall consist of five
(5) directors. ZERBEC and SHP shall each have the right to
appoint two (2) directors and it is intended that the funding
party shall have the right to appoint one (1) director.
c. Research Team. All initial research will be contracted
to ZERBEC at reasonable costs to the Joint Venture. As found
necessary, later research may be performed by the Joint Venture,
assisted by ZERBEC.
d. Other Teams. The Joint Venture will have development,
manufacturing, quality control, financial management, sales and
marketing teams. SHP shall provide resources on an arm's length
basis at reasonable costs to the Joint Venture to enable such
teams to operate.
e. Budgets. The Joint Venture will develop budgets and
budgetary control systems for the financial management and
control of its operations. No budgets will be set up nor funds
expended, for purposes outside of the development, manufacture
and operations associated with products relating to the Patent
without the prior approval of SHP and ZERBEC.
f. Reversion of the Intellectual Property. The Agreement
(defined below) shall provide, upon terms to be negotiated by the
parties, that the all rights to and in the intellectual property
ZERBEC assignees or transfers to the Joint Venture shall revert
to ZERBEC in the event that the Joint Venture terminates through
lack of funding and is unable to pursue its objectives.
g. Incentive Plans. The Joint Venture shall introduce
incentive ownership plans to provide incentives to key personnel
and organizations, inside and outside the Joint Venture, who make
contributions to the Joint Venture.
6. Formal Agreements.
a. Joint Venture Agreement. It is understood that this
Letter of Intent, after execution by the parties, is intended to
be binding. It represents the general conditions to which the
parties have agreed, and will be the basis of a more
comprehensive agreement(s) to follow (the "Agreement"). Both
parties shall use their best efforts to negotiate and execute
these documents in a timely manner.
b. Protection of Minority Interests. The organizational
document and/or other agreements shall provide for protection of
minority interests in the following ways:
i. The Joint Venture will distribute net cash from
operations not required for future operations or reserves.
ii. There shall be restrictions on the ability of
management or related parties to take non arms-length
payments for services.
iii. No joint venturer or group of joint venturers may
sell an aggregate interest in the Joint Venture exceeding
10% of the Joint Venture, without providing all joint
venturers with an opportunity to participate in such sale.
iv. All joint venturers shall be able to sell their
interests to a third party after having first offered such
interest to fellow interest owners on no less favorable
terms.
v. Subject to Section 4.a.ii., the Joint Venture shall
not sell a share in the Joint Venture to third parties
without first offering such share to existing Joint
Venturers.
c. Compensation. SHP and ZERBEC shall enter into
arrangements with the Joint Venture for compensation for services
provided to the Joint Venture after its formation. It is
understood that no compensation shall be paid for such services
in the event that the Funding is not obtained. Each Party to the
Joint Venture shall absorb its own costs incurred prior to
formation of the Joint Venture.
7. ZERBEC's Representations and Warranties. ZERBEC shall
furnish SHP and the Joint Venture with representations and
warranties, including, but not limited to, the following:
a. Organization. That ZERBEC has been duly organized
under the laws of the State of Texas.
b. Consents. The required approvals or consents have been
obtained by ZERBEC in connection with the execution and
performance of the transactions contemplated herein. ZERBEC will
provide a complete disclosure regarding ongoing relationship with
MD Anderson and the original inventors.
c. Authority. The person(s) negotiating the transaction
contemplated herein have full power and authority to act on
behalf of ZERBEC.
d. Ownership. The entire right title and interest in and
to the Patents and Technical Information are owned by ZERBEC free
and clear of all liens and encumbrances except for (1) the right
of the University of Texas to use the Patents, Technical
Information and/or Technology in its own facilities, and (2) the
obligation of ZERBEC to pay the University of Texas a 10% of any
combined royalties and other net income exceeding $50,000 that
ZERBEC receives from commercialization of the Technology.
e. Lawsuits. There is no lawsuit, proceeding or claim
pending or, to the best of ZERBEC's knowledge, asserted or
unasserted claims relating to the Patent and/or Technical
Information.
f. Contracts. There are no contracts or obligations
relating to the Patent or Technical Information which would
interfere with the execution or performance of the transaction
contemplated herein.
g. Other Agreements. The transaction contemplated herein
does not violate or shall not violate any contract, document,
understanding, agreement or instrument to which ZERBEC is a party
or by which ZERBEC may be bound, or any contract, document,
understanding, agreement or instrument affecting the Patent or
Technical Information.
h. Adverse Change. ZERBEC shall inform SHP and the Joint
Venture of any material adverse change in the foregoing
representations and warranties occurring at any time after the
execution hereof.
8. SHP's Representations and Warranties. SHP shall furnish
ZERBEC and the Joint Venture with representations and warranties,
including, but not limited to, the following:
a. Organization. That SHP has been duly organized under
the laws of the State of Utah.
b. Consents. The required approvals or consents have been
obtained by SHP in connection with the execution and performance
of the transactions contemplated herein.
c. Authority. The person(s) negotiating the transaction
contemplated herein have full power and authority to act on
behalf of SHP.
d. Contracts. There are no contracts or obligations which
would interfere with the execution or performance of the
transaction contemplated herein.
e. Adverse Change. SHP shall inform ZERBEC and the Joint
Venture of any material adverse change in the foregoing
representations and warranties occurring at any time after the
execution hereof.
9. Breach of Misrepresentation or Warranty. If either party
hereto breaches a representation or warranty then the other party
shall have the right to terminate this Letter of Intent and all
obligations hereunder shall cease.
10. No Liabilities Assumed. Except as otherwise provided in
Section 11., the Joint Venture will not assume, nor bear any
responsibility or liability for the payment of any debts,
obligations, liabilities or claims related to the Technology
which accrue, arise out of or in connection with any ownership of
the Technology prior to the licensing of the Technology to the
Joint Venture.
11. University of Texas Obligation. SHP has been provided with
certain documents revealing an obligation on the part of ZERBEC
to pay certain sums to the University of Texas in connection with
the commercialization of the Technology. The parties hereto
agree that any such obligations will be assumed by the Joint
Venture.
12. Confidentiality. The parties acknowledge and agree that
their relationship with the Joint Venture, including their
officers, directors and/or employees, will necessarily involve
their access to certain trade secrets and confidential
information pertaining to the business of the Joint Venture.
Accordingly, each of the parties agrees that during the term of
this Letter of Intent and the Agreement and at all times
thereafter it will not disclose, and will use its best efforts to
prevent any of its employees from disclosing, to any unauthorized
third party any of the trade secrets or confidential information
pertaining to the business of the Joint Venture.
13. Duty to Inform. Each Joint Venturer shall keep the other
Joint Venturer and the Joint Venture informed of its activities
to develop, distribute, market or otherwise assist the Joint
Venture.
14. Termination. In the event that the Joint Venture has not
secured the Funding either party hereto may, at its option,
terminate the Agreement by giving the other party and the Joint
Venture not less than sixty (60) days written notice, to expire
not earlier than June 30, 1995. The Agreement shall not
terminate, however, if the Funding is secured prior to the
expiration of said sixty (60) day period. In the event the
Agreement is terminated, the License shall also be terminated.
15. Interim Use of Patent and Technical Information. From the
date of execution of this Letter of Intent and continuing until
the termination of the Agreement, neither ZERBEC or SHP shall
market, advertise for sale, transfer, sell, hypothecate, mortgage
or otherwise deal with the Patent or Technical Information in a
manner that is inconsistent with the terms of this Letter of
Intent.
16. Assignments. This Letter of Intent shall not be assignable
by any party hereto, nor shall the performance of any of the
duties hereunder be delegable by any party hereto, without the
written consent of all the other parties. This Agreement shall
not be assignable by operation of law.
17. Assignment of Patents and Technical Information. Upon
receipt by the Joint Venture of the funding referred to in
Section 4.a.ii. and the execution of an agreement with the
University of Texas clarifying its rights arising out of its
assignment of the Patents, then, at the option of the Joint
Venture, all of ZERBEC's right, title and interest in the Patents
and Technical Information will be assigned to the joint Venture
in substitution for the License.
18. Assistance. Each of the parties covenants and agrees that
upon execution of an Agreement, and so long as it is a Joint
Venturer, it will assist the Joint Venture in the sale,
distribution and marketing of the Technology, and will assist
provide its expertise in this regard when reasonably requested by
the Joint Venturer. Payment for services provided to the Joint
Venture that are provided by nonemployees of the Joint Venture
will be paid at commercially reasonable rates.
19. Attorneys' Fees. In the event either party brings suit to
enforce or interpret this Letter of Intent or for damages on
account of the breach of a covenant, representation or warranty
contained herein, the prevailing party shall be entitled to
recover from the other party its reasonable attorneys' fees and
costs incurred in any such action, in addition to other relief to
which the prevailing party is entitled.
20. Severability. Whenever possible, each provision of this
Letter of Intent and every related document shall be interpreted
in such manner as to be valid under applicable law; but, if any
provision of any of the foregoing shall be invalid or prohibited
under applicable law, such provision shall be ineffective to the
extent of such invalidity or prohibition without invalidating the
remainder of such provision or the remaining provisions of this
document.
21. Governing Law. This Letter of Intent shall be construed and
interpreted in accordance with the laws of the State of Utah.
22. Counterparts. This Letter of Intent may be signed in one or
more counterparts, any one of which shall be deemed to be an
original.
Very truly yours,
SPECIALIZED HEALTH PRODUCTS, INC.:
By /s/ David A.
Robinson____________
David A. Robinson
Its president
Dated: January 7, 1994.
The foregoing Letter of Intent is hereby accepted in
accordance with the terms and conditions contained therein.
Dated this10th day of January, 1994.
ZERBEC, INC.:
By /s/ Charles
Becker_________________ Charles Becker
Its president
Appendix B
Guidelines for the Organization of NewCo
1. Name. The name of the corporation shall be such name
as the Venturers shall reasonably agree upon. All business of
NewCo shall be conducted solely in such name.
2. Place of Business. The initial principal office of
NewCo shall be located in Utah.
3. Capital Structure. NewCo shall have 1,000,000 shares of
authorized capital stock, of which, 90,000 shares shall be
initially distributed as described hereafter. Upon the
completion of the organization of NewCo, the Ventures shall
receive capital stock of NewCo in the following amounts and
proportions:
Venturer Initial Ownership Percentage
SHP 45,000 50%
Zerbec 45,000 50%
In addition, 5,000 shares of capital stock shall be reserved
for MD Anderson, to be issued at the direction of Zerbec upon
completion of Zerbec's negotiations with MD Anderson concerning
its rights in and to the Assigned Technology. In addition, it is
the intention of the Venturers that the Board issue the remaining
5,000 shares of capital stock in a manner that will incentivize
key employees of NewCo.
4. Issuance of Additional Shares. Issuance of shares beyond
the initial shares as described in Section 3. above shall be at
the discretion of the Board.
5. Board of Directors. The Board shall initially consist of an
equal number of nominees from both Zerbec and SHP, and shall
consist of not less than four members
(i) A shareholders' meeting shall be held annually and
the directors shall be elected through cumulative voting; and
(ii) The Board may be expanded to a number as allowed
by the bylaws of NewCo by a majority vote of the Board.
6. Protection of Minority Interests. Minority interests
will be protected by:
(i) NewCo will declare distributions to shareholders,
on a pro rata basis, net cash from operations not required for
future operations or reserves.
(ii) There shall be restrictions on the ability of
management or related parties to take non arms-length payments
for services which restrictions shall be determined by the Board.
(iii) The Venturers shall enter into a restrictive
ownership agreement in a form reasonably acceptable to both
Venturers whereby neither Venturer may sell, assign, transfer,
mortgage, pledge, encumber or grant a security interest in any or
all its interest in NewCo without first offering to sell such
interest to the other Venturer upon the same terms and
conditions.
(iv) The NewCo shareholders shall have preemptive
rights to acquire additional shares of NewCo.
Appendix C
Milestones for NewCo
All dates represent time periods following date of this Agreement
Last Acceptable
Milestone Milestone Date Milestone Date
1. Form NewCo 1 Month 2 Months
2. First Version of 1 Month 2 Months
Business Plan
3. First Contact with 2 Months 3 Months
Financial Group
4. First Demonstration Unit 6 Months 8 Months
Presentation
5. Financing Source 7 Months 10 Months
Selection
6. New Patent Application 7 Months 10 Months
Filing
7.. Complete at Least 9 Months 12 Months
First Level of Second
Phase Financing
Appendix D
Milestones for ZERBEC
All dates represent time periods following date of this Agreement
Last Acceptable
Milestone Milestone Date Milestone Date
1. New MD Anderson 2 Months 5 Months
Agreement
2. Demonstration Unit (10 4 Months 7 Months
lp/mm)
3. New Patent Application 6 Months 8 Months
Disclosure
4. Develop Method for 8 Months 11 Months
Large Scanner (24mm x
30 mm Plate)
Appendix E
Alpha Test Mammography Imaging Instrument Preliminary
Specifications
The preliminary specifications for the alpha test Mammography
Imaging Selenium Plate X-Ray detector instrument contains the
general requirements for the system. More specific requirements
will be determined as part of a product specification which will
be developed through customer interviews, specifications for
competitive systems, and technological advancements.
Product Description
The product will comprise a selenium plate cassette, cassette
reader system, and a display monitor. The selenium plate
cassette will be inserted into the X-Ray system in place of the
film cassette. After exposure to the radiation, the cassette
will be removed and placed into the cassette reader system. The
image on the selenium plate will be converted to an electrical
signal, digitized, interpreted by the reader system, and
displayed on the monitor. The digital image can be stored on CD-
ROM and transferred over communications networks.
Product Specifications
Cassette Size The size of the cassette will be such that
the resultant image will be 24mm x 30mm.
Image Resolution The image spacial resolution will be 10
lp/mm.
Processing Time The image processing time from when the
cassette is inserted in the reader to when the
image is displayed will be less than one minute.
Appendix F
Alpha Test 14" X 17" Cassette Imaging Instrument Preliminary
Specifications
The preliminary specifications for the alpha test Selenium Plate
X-Ray detector instrument contains the general requirements for
the system. More specific requirements will be determined as
part of a product specification which will be developed through
customer interviews, specifications for competitive systems, and
technological advancements..
Product Description
The product will comprise a selenium plate cassette, cassette
reader system, and a display monitor. The selenium plate
cassette will be inserted into the X-Ray system in place of the
film cassette. After exposure to the radiation, the cassette is
removed and placed into the cassette reader system. The image on
the selenium plate will be converted to an electrical signal,
digitized, interpreted by the reader system and displayed on the
monitor. The digital image can be stored on CD-ROM and
transferred over communications networks.
Product Specifications
Cassette Size The size of the cassette will be such that
the resultant image will be 14" X 17".
Image Resolution The image spacial resolution will be 2 lp/mm.
Processing Time The image processing time from when the
cassette is inserted in the reader to when the
image is displayed will be less than one minute.
EXHIBIT 16.1
Letter re change in certifying accountant
Nielsen, Grimmett & Company
Certified Public Accountants
175 East 400 South
Suite 600 Member American Institute of
Salt Lake City, Utah 84111 Certified Public Accountants
Telephone (801) 364-4600 SEC Practice Section
Fax (801) 364-2466
November 22, 1995
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
We were previously the principal accountants for Specialized
Health Products International, Inc. ("SHPI"), formerly Russco,
Inc. On November 10, 1995, we were dismissed as the principal
accountants of SHPI. We have read SHPI's statements included
under Item 5 of its Form 10-Q for the quarterly period ended
September 30, 1995, and we agree with such statements.
Very truly yours,
/s/ Nielsen, Grimmett & Company
Nielsen, Grimmett & Company
EXHIBIT 21.1
Schedule of Subsidiaries
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
LIST OF SUBSIDIARIES OF THE REGISTRANT
1. Specialized Health Products, Inc. (incorporated in Utah).
2. Quantum Imaging Corporation (incorporated in Utah), a
subsidiary of Specialized Health Products, Inc.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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