AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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MILESTONE SCIENTIFIC INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-309811
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
220 South Orange Avenue
Livingston Corporate Park
Livingston, New Jersey 07039
(201) 535-2717
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)
-----------------------------
Leonard Osser
Milestone Scientific Inc.
220 South Orange Avenue
Livingston Corporate Park
Livingston, New Jersey 07039
(201) 535-2717
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Please send copies of all correspondence to:
Stephen A. Zelnick, Esq.
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022-2605
Telephone No. (212) 838-8040
Fax No. (212) 838-9190
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
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If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box |X|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
========================= ====================== =================== ========================== =======================
Title of Each Amount to be Proposed Proposed Amount of
Class of Securities Registered Maximum Maximum Registration Fee
to be Registered Offering Price Aggregate Offering Price
Per Share (1) (1)
- ------------------------- ---------------------- ------------------- -------------------------- -----------------------
Common Stock
$.001 par value 2,274,976 $4.9375 $11,232,694 $3,403.85
========================= ====================== =================== ========================== =======================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457. Pursuant to Rule 457(c), based upon the average
of the high and low sales prices of the Common Stock on the NASDAQ
SmallCap System on April 25, 1997 of $4.9375.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 30 1997
PROSPECTUS
2,274,976 Shares
MILESTONE SCIENTIFIC INC.
Common Stock, $.001 Par Value
----------------
This Prospectus relates to the public offering of shares (the "Shares") of
Common Stock (the "Common Stock") of Milestone Scientific Inc. (the "Company")
which may be offered by certain stockholders and warrant-holders (collectively
the "Selling Stockholders"). Certain of the Shares offered are issuable to
Selling Stockholders upon exercise of various warrants (collectively referred to
as "Warrants") to purchase Shares of the Company. Sales of the Shares may be
effected from time to time in transactions (which may include block
transactions) on the Nasdaq SmallCap Market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale or at negotiated prices. None of
the Selling Stockholders has entered into agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
Shares. The Selling Stockholders may effect such transactions by selling their
Shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Stockholders and/or
the purchasers of the Shares for whom such broker/dealers may act as agents or
to whom they sell as principals, or both (which compensation as to a particular
broker/dealer might be in excess of customary commissions). See "Plan of
Distribution."
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company; however, the Company will receive
the exercise price of any Warrants that are exercised. There is no assurance
that any Warrants will be exercised resulting in any proceeds to the Company.
---------------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
See "Risk Factors" at page 5.
---------------------------------
The Shares are traded over-the-counter and are quoted through the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") on the
SmallCap Market System under the symbol "WAND." On April 25, 1997 the last sales
price of the Shares on the NASDAQ SmallCap System was $5.125.
--------------------------------------
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, as amended (the "Securities Act"). The Selling Stockholders may agree to
indemnify any agent, dealer, or broker-dealer that participates in transactions
involving sales of the securities against certain liabilities, including
liabilities arising under the Securities Act.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 30, 1997.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus in connection with
the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by any other person. Neither the delivery of this prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date hereof. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy the shares to any person or by anyone in any jurisdiction in which such
offer or solicitation may not lawfully be made.
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AVAILABLE INFORMATION
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at its principal offices at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, Suite 1300, New York, New York 10048. Such
reports, proxy statements and other information may also be obtained from the
web site that the Commission maintains at http://www.sec.gov. Copies of these
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal offices in Washington, D.C., set
forth above.
The Company has filed a Registration Statement on Form S-3 (including all
amendments and supplements thereto, the "Registration Statement") with the
Commission under the Securities Act with respect to the Shares offered hereby.
This Prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits filed therewith, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of such documents are not necessarily complete and, in
each instance, reference is made to the Registration Statement or to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. Copies of the Registration Statement and the exhibits thereto
can be obtained upon payment of a fee prescribed by the Commission or may be
inspected free of charge at the public reference facilities and regional offices
referred to above.
REPORTS TO SECURITY HOLDERS
The Company intends to furnish to its stockholders annual reports
containing audited financial statements. In addition, the Company is required to
file periodic reports on Forms 8-K, 10-QSB and 10-KSB with the Commission and
make such reports available to its stockholders.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(1) Annual Report on Form 10-KSB, as amended (the "Form 10-KSB") for the
fiscal year ended December 31, 1996 filed pursuant to the Exchange
Act; and
(2) Current Report on Form 8-K, dated March 13, 1997 filed pursuant to the
Exchange Act.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated in this Prospectus by
reference and to be a part hereof from the date of the filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document incorporated
by reference in this Prospectus (other than exhibits unless such exhibits are
specifically incorporated by reference in such documents). Requests should be
directed to Milestone Scientific Inc., 220 South Orange Avenue, Livingston
Corporate Park, Livingston, New Jersey 07039, (201) 535-2717 Attention: Leonard
Osser, President.
THE COMPANY
The Company was organized in August 1989 under the laws of Delaware. Its
principal executive office is located at 220 South Orange Avenue, Livingston
Corporate Park, Livingston, New Jersey 07039, telephone number (201) 535-2717.
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RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk.
Prospective investors should carefully consider, among other things, the
following factors before a decision is made to purchase any Shares.
All references in this Registration Statement to the Company refer to
Milestone Scientific Inc. (formerly U.S. Opportunity Search, Inc.), its wholly
owned subsidiaries, Princeton PMC, Inc. ("Princeton PMC") and Sagacity I, Inc.,
doing business in the United States as the Wisdom Toothbrush Co. ("Wisdom"), and
its 69% owned subsidiary, Spintech, Inc. ("Spintech"), unless the context
otherwise indicates.
Limited Operating History; History of Losses; Accumulated Deficit. The
Company has operated only since November 1995, when it acquired a 65% interest
in Spintech. Since that date, revenues have been limited and were $3,473 for the
fiscal year ended December 31, 1995 and $302,388 for the fiscal year ended
December 31, 1996. The Company has sustained losses of $619,831 for the year
ended December 31, 1995 and $1,949,528 for the year ended December 31, 1996. The
Company had an accumulated deficit of $2,736,352 at December 31, 1996.
Limited Financial Resources; Need for Additional Financing. The Company's
capital requirements have been and will continue to be significant. The Company
did not operate profitably in 1996 and there can be no assurance that the
Company will be able to generate cash flows in the future which will be
sufficient to fund its operations. Assuming no change in the business operations
of the Company, it is expected that the $3,505,964 proceeds (after certain
offering expenses) from the private placement consummated on March 13, 1997 (the
"Private Placement") will be sufficient to meet its working capital requirements
until, at least, April 1998. However, no assurance can be given that the
Company's current working capital will be adequate for its planned operations or
that circumstances will not change and result in the need for additional working
capital. If additional financing is needed, the Company will be required to
borrow funds or, sell additional equity securities, or may be required to
curtail or reduce its activities. The Company has no current arrangements for
future additional financing. There can be no assurance that any sources of
additional financing will be available to the Company on acceptable terms, or at
all. To the extent that any future financing involves the sale of the Company's
equity securities, the ownership interest of the Company's then-stockholders
could be substantially diluted.
Highly Competitive Industry; Technological and Product Obsolescence. The
Company faces intense competition from many companies in the medical and dental
device industry, including well-established academic institutions, possessing
substantially greater financial, marketing, personnel, and other resources. Most
of the Company's competitors have established reputations, stemming from their
success in the development, sale, and service of their competing medical
products. Further, rapid technological change and extensive research and
development characterize the industry. Current or new competitors could, at any
time, introduce new or enhanced products with features that render the Company's
products less marketable, or even obsolete. Therefore, the Company must devote
substantial efforts and financial resources to enhance its existing products, to
bring its developmental products to market, and to develop new products for its
related markets. In order to compete successfully, the Company must establish an
effective distribution network. Several regulatory authorities must also approve
the Company's products before they may be marketed. There can be no assurance
that the Company will be able to compete successfully, that its competitors will
not develop technologies or products that render the Company's products less
marketable or obsolete, or that the
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Company will be able to successfully enhance its existing products, effectively
develop new products, or obtain required regulatory approval therefor.
Integration of Wisdom. Although the Company acquired Wisdom and its United
States distribution system for clinically oriented dental products and Wisdom is
an ongoing business with established revenues, there can be no assurance that
the Company will successfully integrate it into its current operations and
operate it profitably.
Future Revenue Growth Dependent on Proprietary Products. The Company
believes that its future growth in revenues will be dependent on its proprietary
products, The Sharps Disposal System ("SDS"), "SplatrFree(TM)" disposable prophy
angle and "The Wand(TM)", a computer controlled "painless" injection system. The
Company only has had limited sales of the SDS and the "SplatrFree(TM)" prophy
angle. The sale and use of the SDS unit and its precursor the TAPS unit and the
disposal of medical waste after processing by these units is subject to varying
degrees of federal, state, local and foreign regulation. Although the Company
has made sales of these units in the past, and believes that it will be able to
sell the SDS unit in the future, because of these regulations, no assurance can
be given that the SDS unit will be available for sale in a particular
jurisdiction or may be used by a purchaser, and no assurance can be given that
the Company will generate any significant revenues from this product in the
future. Further, there can be no assurance that the Company will be able to
successfully market these product lines, that demand exists at levels or prices
at which the Company can operate profitably, or that the products will meet user
expectations. The Company is still developing the commercial version of "The
Wand(TM)" and intends to launch this product at the Fall 1997 American Dental
Association Trade Show. No assurance can be given that "The Wand(TM)" will be
successfully marketed by the Company or accepted by the market place.
Uncertainty of Market Acceptance. Achieving market acceptance for the
Company's proprietary products will require substantial marketing efforts and
expense. As with any new technology, there is substantial risk that the
marketplace will not accept the potential benefits of such technology or be
willing to pay for any cost differential with the existing technologies. Market
acceptance of these current and proposed products will depend, in large part,
upon the ability of the Company to educate potential customers, including
third-party distributors, of the distinctive characteristics and benefits of its
products. There can be no assurance that current or proposed products will be
accepted by the end users or that any of the current or proposed products will
be able to compete effectively against current and alternative products.
Limited Distribution; Establishing Distribution Channels. The Company has
only a limited number of independent domestic sales representatives and did not
have a direct sales force until its acquisition of Wisdom in December 1996. Its
sales force remains limited. In December 1996, the Company began distribution of
the SDS and in February 1997 began distribution of its prophy angles through its
Wisdom subsidiary. In addition, while the Company has an exclusive distribution
agreement for the marketing of the SDS in Taiwan, it does not expect any
material sales pursuant thereto until that system is approved for sale in
Taiwan. The Company's future success is dependent upon its ability to establish
an effective sales organization for its proprietary products or to enter into
distribution arrangements with other entities selling to its target markets. No
assurances can be given that the Company will be able to hire and retain its own
sales force or enter into appropriate distribution arrangements.
Patent and Intellectual Property Protection. The Company holds U.S.
patents applicable to the SDS and "The Wand(TM)" and has made application for a
U.S. patent on the "SplatrFree(TM)" prophy
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angle. The Company relies on a combination of patent, trade secret, and
trademark laws and employee and third-party nondisclosure agreements to protect
its intellectual property rights. Despite the precautions taken by the Company
to protect its products, unauthorized parties may attempt to reverse engineer,
copy, or obtain and use its products and other information the Company regards
as proprietary. Litigation may be necessary to protect the Company's
intellectual property rights and could result in substantial cost to, and
diversion of effort by, the Company with no guarantee of success. The failure of
the Company to protect its proprietary information, and the expense of doing so,
could have a material adverse effect on the Company's operating results and
financial condition. Although the Company has received no claims of
infringement, it is possible that infringement of existing or future patents or
proprietary rights of others may occur. In the event that the Company's products
infringe patent or proprietary rights of others, the Company may be required to
modify its processes or to obtain a license. There can be no assurance that the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. The failure to do so would have a material adverse effect
on the Company.
Dependence on Manufacturers; Quality Control Problems. The SDS units and
"SplatrFree(TM)" prophy angles are manufactured by separate domestic contract
manufacturers, Arbutus Electronics, Inc. ("Arbutus") and Team Technologies, Inc.
("TTI"), respectively. The Company has no on-going agreement for the manufacture
of the SDS units, although it expects Arbutus to continue to manufacture such
units. In July 1995, the Company entered into an agreement with TTI for the
production of "SplatrFree(TM)" prophy angles, pursuant to which commercial
quantities were to be delivered commencing in late September. Quality control
problems experienced at TTI delayed delivery of commercial quantities of product
until February 1997 when the Company began to receive prophy angles for
distribution. Termination of the manufacturing relationship with Arbutus or TTI
could significantly and adversely affect the Company's ability to produce and
sell its SDS units and prophy angle, respectively. Though alternate sources of
supply exist and new manufacturing relationships could be established by the
Company for the SDS and prophy angle, the Company would need to recover its
existing tools and dies or have new tools and dies produced. Establishment of
new manufacturing relationships could involve significant expense and delay. Any
curtailment or interruptions of the supply of SDS units from Arbutus, or prophy
angles from TTI, whether or not as a result or termination of the relationship,
would adversely affect the Company. Additionally, the Company has not
established manufacturing relationships for "The Wand(TM)".
Product Liability. The Company is engaged in a business which could expose
it to possible claims for personal injury from the use of its dental and medical
products. The Company maintains liability insurance in the aggregate amount of
$2,000,000 with a per-occurrence limit of $1,000,000 which the Company believes
to be adequate. Although no claims have been made against the Company or any of
the customers using its products, there can be no assurance that such claims
will not arise in the future or that the insurance coverage will be sufficient
to pay such claims. A partially or completely uninsured claim, if successful and
of significant magnitude, could have a material adverse effect on the Company.
Reliance Upon Management. The Company is dependent upon the personal
efforts and abilities of Leonard Osser, its President, Chief Executive Officer
and Chief Financial Officer and Gregory Volok, Executive Vice President and
Chief Operating Officer. Messrs. Osser and Volok have entered into employment
agreements with the Company, as amended, expiring in March 2000 and October
2001, respectively, and each providing for non-competition periods at the
expiration of the terms. The Company has obtained key man life insurance in the
amounts of $3,000,000 and
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$1,000,000 on the lives of Messrs. Osser and Volok, respectively. While the
Company expects that such policies will issue in due course, no assurances can
be given that such policies will be obtained.
No Dividends. The Company has never paid a cash dividend on its Common
Stock. Payment of dividends on the Common Stock 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 Company
does not currently intend to declare any dividends on its Common Stock in the
foreseeable future.
Control by Certain Persons. The members of the Board of Directors own 46.6%
of the currently outstanding Common Stock. Accordingly, by reason of their
stockholdings, and their control of the means for soliciting stockholder votes,
the directors will be able to exercise control of the Company and, in all
likelihood, will be able to continue to elect all directors.
Limitation of Director Liability. The Company's Certificate of
Incorporation provides that a director of the Company will not be personally
liable to the Company or its stockholders for monetary damages for breach of the
fiduciary duty of care as a director, including breaches which constitute gross
negligence, subject to certain limitations imposed by the Delaware General
Corporation Law. Thus, under certain circumstances, neither the Company nor the
stockholders will be able to recover damages even if directors take actions
which harm the Company.
Government Regulation and FDA Clearance. The manufacture and sale of the
Company's "SplatrFree(TM)" prophy angles and "The Wand(TM)", are subject to
extensive regulation by the FDA pursuant to the Federal Food, Drug, and Cosmetic
Act ("FDC Act"), and by other federal, state and foreign authorities. Under the
FDC Act, these medical devices must receive FDA clearance before they can be
commercially marketed in the United States. Some products must undergo rigorous
pre-clinical and clinical testing and an extensive FDA approval process before
they can be marketed. These processes can take a number of years and require the
expenditure of substantial resources. The time required for completing such
testing and obtaining such approvals is uncertain, and FDA clearance may never
be obtained. Delays or rejections may be encountered based upon changes in FDA
policy during the period of product development and FDA regulatory review of
each submitted application. Similar delays may also be encountered in other
countries. While the "SplatrFree(TM)" prophy angle and "The Wand(TM)" have
received FDA marketing clearance there can be no assurance that all of the
Company's products under development will obtain the required regulatory
clearance on a timely basis, or at all. If regulatory clearance of a product is
granted, such clearance may entail limitations on the indicated uses for which
the product may be marketed. In addition, modifications may be made to the
Company's products to incorporate and enhance their functionality and
performance based upon new data and design review. There can be no assurance
that the FDA will not request additional information relating to product
improvements, that any such improvements would not require further regulatory
review thereby delaying the testing, approval and commercialization of the
Company's development products or that ultimately any such improvements will
receive FDA clearance. FDA regulations also require manufacturers of medical
devices to adhere to certain "Good Manufacturing Practices" ("GMP"), which
include testing, design, quality control and documentation procedures.
Compliance with applicable regulatory requirements is subject to continual
review and will be monitored through periodic inspections by the FDA. Later
discovery of previously unknown problems with a product, manufacturer, or
facility may result in restrictions on such product or manufacturer, including
fines, delays or suspensions of regulatory clearances, seizures or recalls of
products, operating restrictions and criminal prosecution and could have a
material adverse effect on the Company. See "Business - Government Regulation."
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Limitation of Tax Loss Carryforward Benefits. As of November 13, 1995, when
the Company acquired a controlling interest in Spintech, the amount of net
operating loss of Spintech available to be carried forward to offset future
taxable income for United States tax purposes ("NOLs") was approximately
$1,890,000. These NOLs expire on various dates through December 31, 2009. The
Company believes that its acquisition of a controlling interest in Spintech
resulted in an "ownership change," as defined in Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"). As a consequence, the Company
believes that Spintech's NOLs to offset United States taxable income are, in
addition to the carryforward limitations described above, subject to an annual
limitation equal to the fair market value of Spintech immediately before the
ownership change, multiplied by the "long-term tax-exempt rate" as defined in
Section 382 of the Code, or approximately $235,750 per year. The limitation on
the utilization of the NOLs could increase the federal income taxes payable by
the Company if Spintech operates profitably, as to which no assurance can be
given.
Restricted Securities; Possible Volatility of Market Price; Limited Public
Market Trading. The Common Stock is currently traded on The Nasdaq SmallCap
Market. From time to time the market prices of dental and medical product
companies have been affected by various factors, including adverse publicity.
There can be no assurance that the market price of the Common Stock will not be
volatile as a result of factors such as the Company's financial results,
possible adverse publicity resulting from any infractions of governmental
regulations and various other factors affecting dental and medical product
companies or the market generally. In recent years the stock market has
experienced wide price fluctuations not necessarily related to the operating
performance of such companies. Although the Common Stock has been listed on The
Nasdaq SmallCap Market since November 1995, there can be no assurance that a
regular trading market will be sustained. Further, in order to continue to trade
on The Nasdaq SmallCap Market, the Company must meet The Nasdaq SmallCap
Market's standards for continued listing. If, at any time, the Company's Common
Stock were delisted from The Nasdaq SmallCap Market, the Company's securities
would become subject to the "penny stock rules" applicable to non-Nasdaq
companies whose common stock trades at less than $5.00 per share or which have
tangible net worth of less than $5,000,000 ($2,000,000 if the Company has been
operating for three or more years). Such rules require, among other things, that
brokers who trade "penny stocks" to persons other than "established customers"
complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security,
including a risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade "penny stock" because of
the requirements of the penny stock rules and, as a result, the number of
broker-dealers willing to act as market makers in such securities is limited.
Effect of Outstanding Warrants and Options. The Company currently has
outstanding the following options and warrants: (i) Warrants to purchase an
aggregate of 150,000 Shares at $6.00 per share issued to the underwriter in the
Company's November 1995 public offering and two bridge lenders (the "1995
Warrants"); (ii) Warrants to purchase 250,000 Shares granted to GKN Securities
Corp. ("GKN") for services rendered to the Company (the "1996 Warrants"); (iii)
Warrants to purchase 852,262 Shares issued to investors in the Private
Placement (the "Private Placement Warrants"); (iv) an option (the "Purchase
Option") to purchase 85,226 units (each unit containing one Share and one
Warrant to purchase one Share (the "Units")) granted to GKN, as placement agent
(the "Placement Agent") in the Private Placement (defined below) and its
designees; and (v) incentive and non-qualified stock options issued to officers,
directors and consultants to purchase 355,000 shares of Common Stock at prices
ranging from $5.125 to $6.50 per share until March 2002. All of the foregoing
securities represent the right to acquire Common Stock of the Company during
various periods of time and at various prices. Holders
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of all the foregoing securities are given the opportunity to profit from a rise
in the market price of the Common Stock and are likely to exercise their
securities at a time when the Company would be able to obtain additional equity
capital on more favorable terms. Thus, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected since the
holders of outstanding options and warrants can be expected to exercise them at
a time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than the exercise terms provided
by such outstanding securities. The Company has not granted any registration
rights with respect to any shares of Common Stock or other securities that are
"restricted securities" or that underlie outstanding warrants or options, other
than the registration rights granted to investors in the Private Placement, to
the Placement Agent, to the holders of the 1996 Warrants and to the holders of
the 1995 Warrants.
USE OF PROCEEDS
All 2,274,976 Shares offered hereby are being registered for the account of
the Selling Stockholders. The Company will not receive any of the proceeds from
the sale of the Shares.
RECENT DEVELOPMENTS
Private Offering.
On March 13, 1997, the Company completed a private equity offering the (the
"Private Placement") to 76 accredited investors of 852,262 Units pursuant to an
Agency Agreement (the "Agency Agreement") with the Placement Agent. The per-Unit
offering price was $4.72, and each Unit consisted of one Share and one Warrant
to purchase one Share at an exercise price of $4.72 per Share until March 13,
2000. The Company received net proceeds of $3,505,964.
Each subscriber in the Private Placement has agreed not to sell any Shares
acquired in the Private Placement or upon exercise of the Private Placement
Warrants for a period ending on March 13, 1998 without the prior written consent
of the Placement Agent, which may be withheld for any reason in its sole
discretion.
The Company is unable to estimate the number of Warrants included herein
that may be exercised. The Company believes that the exercise of the Warrants
will be dependent primarily on the market price of a share of Common Stock at
the time of exercise and its relation to their exercise price. However, if all
the Warrants to purchase Shares included herein are exercised the Company will
issue: 852,262 Shares upon exercise of the Private Placement Warrants, 85,226
Shares upon exercise of the Purchase Option for the purchase of 85,226 Units,
85,226 Shares upon exercise of Warrants underlying the Purchase Option, 250,000
Shares upon exercise of the 1996 Warrants and 150,000 Shares upon exercise of
the 1995 Warrants and receive aggregate gross proceeds of $7,352,210. See
"Selling Stockholders."
Registration Rights.
Under the terms of the Agency Agreement and the subscription agreement with
each investor in the Private Placement, the Company has agreed to register the
re-offer and re-sale of the Shares included in the Units and the Shares
underlying the Warrants included in the Units, and certain other securities of
the Company described below, by filing the Registration Statement of which this
Prospectus is a part under the Securities Act with the Commission and the
securities laws of states
10
<PAGE>
reasonably selected by the Placement Agent. The Company will bear all the
expenses and pay all the fees incurred in connection with the preparation,
filing and modification or amendment of the Registration Statement.
Agency Agreement.
The Company paid the Placement Agent a commission of $402,250 (10% of the
offering price of the Units) and a non-accountable expense allowance of $120,675
(3% of the offering proceeds). The Company has issued to the Placement Agent and
its designees for $100.00 a five-year Purchase Option to purchase 85,226 Units.
The Purchase Option is exercisable at any time in whole or in part until March
13, 2002, at a price per Unit of $4.72. The Units underlying the Purchase
Option contain identical terms, conditions and rights as those Units sold in the
Private Placement. All Shares underlying the Purchase Option are being included
in the Registration Statement.
The Placement Agent has been granted a right of first refusal to underwrite
any public or private sale of debt or equity securities of the Company or any
subsidiary or successor of the Company until March 13, 1999. In addition,
pursuant to the Agency Agreement, all of the officers and directors of the
Company, and affiliates of such persons ("Insiders") have agreed that until
March 13, 1999, the Placement Agent has the right, in certain circumstances, to
purchase for its account or sell for the account of the Insiders, any securities
sold by such persons. The Agency Agreement provides that for a period of three
years from March 13, 1997, the Company will recommend and use its best efforts
to elect a designee of the Placement Agent as a member of its Board of
Directors. The Placement Agent has not exercised its right to designate such a
person. Such designee will receive no more or less compensation than is paid to
other non-management directors of the Company and such designee or
representative will be entitled to receive reimbursement for all reasonable
costs incurred in attending such meeting.
The Company has engaged the Placement Agent, on a non-exclusive basis, as its
agent for the solicitation of the exercise of the Private Placement Warrants. To
the extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission, the Company has agreed to pay the Placement Agent
for bona fide services rendered, a commission equal to 5% of the exercise price
for each Private Placement Warrant and each Warrant underlying the Purchase
Option exercised if the exercise was solicited by the Placement Agent. In
addition to soliciting, either orally or in writing, the exercise of the Private
Placement Warrants, such services may also include disseminating information,
either orally or in writing, to Private Placement Warrant holders about the
Company or the market for the Company's securities, and assisting in the
processing of the exercise of the Private Placement Warrants. No compensation
will be paid to the Placement Agent in connection with the exercise of the
Private Placement Warrants if the market price of the underlying Shares is lower
than the exercise price, the Private Placement Warrants are held in a
discretionary account, the Private Placement Warrants are exercised in an
unsolicited transaction, the Private Placement Warrant holder has not confirmed
in writing that the Placement Agent solicited such exercise or the arrangement
to pay the commission is not disclosed to Private Placement Warrant holders at
the time of exercise. In addition, unless granted an exemption by the Commission
from Regulation M, while it is soliciting exercise of the Private Placement
Warrants, the Placement Agent will be prohibited from engaging in any market
activities or solicited brokerage activities with regard to the Company's
securities unless the Placement Agent has waived its rights to receive a fee for
the exercise of the Private Placement Warrants.
11
<PAGE>
Change in Officers
On April 10, 1997, the Board of Directors of Spintech, Inc. ("Spintech"), a
subsidiary of Milestone Scientific Inc., terminated the employment of Dr. Ronald
Spinello as its Chairman and Director of Research. The action by the Board
follows the bringing by Milestone and Spintech of a declaratory judgment action
against Dr. Spinello filed in U.S. District Court for New Jersey. Milestone, as
principal shareholder of Spintech, also terminated Dr. Spinello and Glenn
Spinello as directors of Spintech.
Appointment of New Directors.
On March 20, 1997 the Company expanded the Board of Directors from six to
nine members and elected, effective as of April 2, 1997, the following directors
for terms expiring at the next Annual Meeting and the election and qualification
of their successors:
Paul Gregory has been a business and insurance consultant at Innovative
Programs Associates Inc. and Paul Gregory Associates since January 1995 and
January 1986, respectively, where he services, among other entities, foreign and
domestic insurance groups, law and accounting firms and international
corporations. From January 1992 to January 1993, Mr. Gregory served as an
appointed Advisor to the Commissioner of Insurance of the state of Louisiana
regarding liquidations, rehabilitations, insurance policy risk transfers and
reinsurance. Mr. Gregory is 62 years old.
Louis I. Margolis has been a General Partner of Pine Street Associates,
L.P., a private investment partnership that invests in other private limited
partnerships, since January, 1994. In January 1997, Mr. Margolis formed and is
the President and sole shareholder of Chapel Hill Capital Corp, a financial
services company. From 1991 through 1993 he was a Member of the Management
Committee of Nomura Securities International. From 1993 through 1995 he was
Chairman of Classic Capital Inc., a registered investment advisor. Mr. Margolis
has been a member of the Financial Products Advisory Committee of the Commodity
Futures Trading Commission since its formation in 1986, a Trustee of the Futures
Industry Institute since 1991 and a Trustee of Saint Barnabas Hospital in
Livingston, NJ since 1994. Mr. Margolis is 53 years old.
Leonard M. Schiller has been a partner in the law firm of Schiller, Klein &
McElroy, P.C. since 1977 and has practiced law in the State of Illinois for over
25 years. He is also President of The Dearborn Group, a residential property
management and real estate acquisition company. Mr. Schiller is 55 years old.
Mr. Schiller is also a member of the Board of Directors of AccuMed
International, Inc., a laboratory diagnostic company.
In accordance with the Company's policy, upon election to the Board of
Directors each of Messrs. Gregory, Margolis and Schiller was granted options to
purchase 20,000 Shares at a price of $5.125 per share (the fair market value on
the date of their election).
12
<PAGE>
SELLING STOCKHOLDERS
The 2,274,976 Shares offered hereby consist of the following (1) 852,262 Shares
issued in the Private Placement; (2) 852,262 Shares underlying the Private
Placement Warrants, (3) 85,226 Shares issuable by the Company upon the exercise
of the Purchase Option, (4) 85,226 Shares underlying the Warrants included in
the Purchase Option, (5) 250,000 Shares underlying the 1996 Warrants and (6)
150,000 Shares underlying 1995 Warrants. The following table sets forth certain
information as of April 29, 1997 and is adjusted to reflect the issuance of all
of the above Shares and the sale of all of the Shares offered hereby. Unless
otherwise indicated, the Selling Stockholders each possess sole voting and
investment power with respect to the Shares shown and none of the Selling
Stockholders has had a material relationship with the Company or any of its
predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
Percentage of
Number of Common Stock to be Common Stock
Shares Shares that Owned Owned After
Selling Stockholders Owned (1) May Be Sold After the Offering the Offering
-------------------- ----- ----------- ------------------ ------------
<S> <C> <C> <C> <C>
Ackerman, Richard 10,594 10,594 0 *
ALSA, INC. 21,188 21,188 0 *
Baim, Jerry 10,594 10,594 0 *
Berger, Daniel & Carolyn 21,188 21,188 0 *
JTWROS
Berland, Joseph 21,188 21,188 0 *
Betoff, Neil (5) 500(2) 500 0 *
Blum, Stanley H. 10,594 10,594 0 *
Buonocore, Richard(5) 2,500(2) 2,500 0 *
Coventry, Brian(5) 1,000(2) 1,000 0 *
Crocker, Thomas J. 10,594 10,594 0 *
Davidson, Jeffrey 10,594 10,594 0 *
de Kanter, Stephen A. & 10,594 10,594 0 *
Charlotte B.
JTWROS
Delaware Charter Guarantee & 10,594 10,594 0 *
Trust
The FBO David Allan Miller
IRA Rollover
Delaware Charter Guarantee & 10,594 10,594 0 *
Trust
Cust. Lewis M. Sugarman IRA
c/o Executive Synergies Inc.
Endelson, Kenneth M. 10,594 10,594 0 *
Etra, Steven 63,560 63,560 0 *
Etra, Jean 10,594 10,594 0 *
Etra, Richard, Steven, 21,188 21,188 0 *
Kenneth & Bernard
JTWROS
Falabrino, Michael L. 42,374 42,374 0 *
13
<PAGE>
Percentage of
Number of Common Stock to be Common Stock
Shares Shares that Owned Owned After
Selling Stockholders Owned (1) May Be Sold After the Offering the Offering
-------------------- ----- ----------- ------------------ ------------
Farber, David E. 15,890 15,890 0 *
Feldman, Charles 21,188 21,188 0 *
Fine, Derek & Debra 5,298 5,298 0 *
JTWROS
Fink, David H. 21,188 21,188 0 *
Fisher, Mark B. 21,188 21,188 0 *
Frazier, Russel K. & Marjorie 10,594 10,594 0 *
D.
JTWROS
Frazier, Susan 10,594 10,594 0 *
Furst, Henry F. 10,594 10,594 0 *
Giebel, Henry & Wilda 10,594 10,594 0 *
JTWROS
GKN Securities Corp.(3) 167,728(4) 167,728 0 *
Gladstone, Robert (5) 33,522(6) 33,522 0 *
Gladstone, Roger(5) 33,522(6) 33,522 0 *
Goldman, Jay(5) 117,612(7) 117,612 0 *
Goldstein, Nathan(5) 17,046(8) 17,046 0 *
Gottdiener, Ernest 21,188 21,188 0 *
Habberstad Jr., Howard 10,594 10,594 0 *
Haimovitch, Larry 12,712 12,712 0 *
Hazeltine, Nelson 4,238 4,238 0 *
Hudders, Andrew D. 4,476 4,476 0 *
Jacobs, Norman 10,594 10,594 0 *
Jacobs, Robert L. 21,188 21,188 0 *
Jansen, Raymond(5) 7,500(2) 7,500 0 *
Jelin, Sarah Jane 10,594 10,594 0 *
Kaufman, Richard C. & Lenart, 21,188 21,188 0 *
Elaine J.
JTWROS
Kobren, Steven 10,594 10,594 0 *
Kremins, Michael F. 4,238 4,238 0 *
Kumbatovic, Thomas J. 16,950 16,950 0 *
Landman, David I. 21,188 21,188 0 *
Lauchlan, Alex 10,594 10,594 0 *
Layton, Alan C. & Penny 10,594 10,594 0 *
JTWROS
Lazarus, Andrew(5) 1,000(2) 1,000 0 *
Lee, Daniel 42,374 42,374 0 *
Link, Richard & Leslie 10,594 10,594 0 *
JTWROS
Mancino, Thomas E. 10,594 10,594 0 *
Mannix, Kevin 21,188 21,188 0 *
14
<PAGE>
Percentage of
Number of Common Stock to be Common Stock
Shares Shares that Owned Owned After
Selling Stockholders Owned (1) May Be Sold After the Offering the Offering
-------------------- ----- ----------- ------------------ ------------
Mark Friedman DDS 81,188 21,188 60,000 1%*
M/P/P & Trust, Mark J. &
Denise J. Friedman Trustees
Maybaum, Scott 10,594 10,594 0 *
McIntyre, Alexandra 10,594 10,594 0 *
Meisles, Allen 31,780 31,780 0 *
Moore, Arden D. & Barbara A. 31,780 31,780 0 *
JTWROS
Morrison, Gerald N. 10,594 10,594 0 *
Nash, Ronald(9) 50,000(10) 50,000 0 *
Novic, Deborah(5) 5,000(2) 5,000 0 *
Nussbaum, David(5) 33,522(6) 33,522 0 *
Patterson Travis, Inc.(11) 50,000(10) 50,000 0 *
Pequot Scout Fund, LP 105,934 105,934 0 *
Reid, Thomas H. 4,238 4,238 0 *
Renna, Robert & Marie 42,374 42,374 0 *
JTWROS
Rosen, Andrew 10,594 10,594 0 *
Roth, Ronald H. 21,188 21,188 0 *
Saccomano, Thomas 10,594 10,594 0 *
Schiller, Leonard M. 43,094(12) 10,594 32,500 *
Schiller, Philip J. 10,594 10,594 0 *
Schiller, Lance M. & 21,188 21,188 0 *
Schwartz, Edward
Tenants in Common
Schwarz, Edward 6,356 6,356 0 *
Shockley, Edward J. 10,594 10,594 0 *
Siegel, Carl E. 10,594 10,594 0 *
Slotnick, Robert 10,594 10,594 0 *
Slucker, Rudy 63,560 63,560 0 *
Some, Steven E. & Richard M. 10,594 10,594 0 *
JTWROS
Spellman, Eric H. 42,374 42,374 0 *
Steiner, Alan B. 5,294 5,294 0 *
Stone, Joel A. 42,374 42,374 0 *
Supera, Michael 21,188 21,188 0 *
Thalheim, David 21,188 21,188 0 *
The Richard J. Rosenstock 21,188 21,188 0 *
Rev. Lvg Trust
DTD 03/05/96
Trokel, Michael 31,780 31,780 0 *
15
<PAGE>
Percentage of
Number of Common Stock to be Common Stock
Shares Shares that Owned Owned After
Selling Stockholders Owned (1) May Be Sold After the Offering the Offering
-------------------- ----- ----------- ------------------ ------------
Tullman, Philip & Nancy 10,594 10,594 0 *
JTWROS
Weiss, Ronald (9) 50,000(10) 50,000 0 *
Woodland Partners 42,374 42,374 0 *
Zelin, Leonard B. 84,746 84,746 0 *
The Aries Domestic Fund, L.P. 74,154 74,154 0 *
The Aries Trust 137,712 137,712 0 *
- -------------------------
</TABLE>
* Less than 1%
(1) Unless otherwise indicated by footnote, half of the Shares owned by each
Selling Stockholder are issuable upon exercise of Private Placement
Warrants at $4.72 per share.
(2) Consists of Shares issuable upon exercise of the 1996 Warrants (exercisable
at $6.50 per Warrant).
(3) Does not include any Shares held in the trading account of the Placement
Agent or by its executive officers.
(4) Consists of (i) 85,228 Shares issuable upon exercise of (A) 42,614 Purchase
Options for the purchase of Units consisting of one Share and one Warrant
(exercisable at $4.72 per-Unit) and (B) 42,614 Warrants (exercisable at
$4.72 per-Warrant) contained in the Units and (ii) 82,500 Shares issuable
upon exercise of 82,500 1996 Warrants (exercisable at $6.50 per-Warrant).
(5) Affiliate or associate of GKN. Excludes Shares held by GKN.
(6) Consists of (i) 8,522 Shares issuable upon exercise of (A) 4,261 Purchase
Options for the purchase of Units (exercisable at $4.72 per-Unit)
consisting of one Share and one Warrant and (B) 4,261 Warrants (exercisable
at $4.72 per-Warrant) contained in the Units and (ii) 25,000 Shares
issuable upon exercise of 25,000 1996 Warrants (exercisable at $6.50
per-Warrant).
(7) Consists of (i) 42,612 Shares issuable upon exercise of (A) 21,306 Purchase
Options for the purchase of Units (exercisable at $4.72 per-Unit)
consisting of one Share and one Warrant and (B) 21,306 Warrants
(exercisable at $4.72 per-Warrant) contained in the Units and (ii) 75,000
Shares issuable upon exercise of 75,000 1996 Warrants (exercisable at $6.50
per-Warrant).
(8) Consists of (i) 17,046 Shares issuable upon exercise of (A) 8,523 Purchase
Options for the purchase of Units (exercisable at $4.72 per-Unit)
consisting of one Share and one Warrant and (B) 8,523 Warrants (exercisable
at $4.72 per-Warrant) contained in the Units.
(9) Loaned $100,000 to the Company, which was repaid from the proceeds of the
November 1995 public offering. The 1995 Warrants were received as
additional consideration for this loan.
(10) Consists of Shares subject to the 1995 Warrants to purchase Shares at $6.00
per share.
(11) Patterson Travis, Inc. was the underwriter in the Company's November 1995
public offering.
(12) Includes 22,500 shares of Common Stock issuable upon currently exercisable
options to purchase shares of Common Stock at $5.125 per share.
16
<PAGE>
PLAN OF DISTRIBUTION
Sales of the Shares may be effected from time to time in transactions
(which may include block transactions) on the Nasdaq SmallCap Market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. None of the Selling Stockholders has entered into
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their Shares. The Selling Stockholders may
effect transactions by selling their Shares directly to purchasers or to or
through broker-dealers (including GKN), which may act as agents or principals.
Such broker-dealers may receive compensation in the form of discounts,
concessions, or commissions from the Selling Stockholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
sell as principal, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). The Selling Stockholders and any
broker-dealers that act in connection with the sale of the Shares might be
deemed to be "underwriters' within the meaning of Section 2(11) of the
Securities Act. The Selling Stockholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
securities against certain liabilities, including liabilities arising under the
Securities Act.
The Company has agreed to keep the Registration Statement, of which this
Prospectus is a part, effective until all the Shares are sold or can be sold
freely under an appropriate exemption from the securities laws of the United
States and the states, without limitation.
In order to comply with the applicable securities laws of certain states,
if any, the Shares will be offered or sold through registered or licensed
brokers or dealers in those states. In addition, in certain states the Shares
may not be offered or sold unless they have been registered or qualified for
sale in such states or an exemption from such registration or qualification
requirement is available and such offering or sale is in compliance therewith.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may not simultaneously engage in market
making activities with respect to such securities for a period beginning when
such person becomes a distribution participant and ending upon such person's
completion of participation in a distribution, including stabilization
activities in the Common Stock to effect syndicate covering transactions, to
impose penalty bids or to effect passive market making bids. In addition and
without limiting the foregoing, in connection with transactions in the Shares,
the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Rule 10b-5 and, insofar as the Selling Stockholders are distribution
participants, Regulation M and Rules 100, 101, 102, 103, 104 and 105 thereof.
All of the foregoing may affect the marketability of the Shares.
The Company will pay all of the expenses, including, but not limited to,
fees and expenses of compliance with state securities or "blue sky" laws,
incident to the registration of the Shares other than selling commissions. The
expenses payable by the Company are estimated to be $34,000.
17
<PAGE>
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
Limitation of Director Liability; Indemnification
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. By its terms and in
accordance with the Delaware General Corporation Law, however, this provision
does not eliminate or limit the liability of a director of the Company (i) for
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (relating to unlawful payments or dividends or
unlawful stock repurchases or redemptions), (iv) for any improper benefit or (v)
for breaches of a director's responsibilities under the Federal securities laws.
The Company' Certificate of Incorporation also provides that each director
or officer of the Corporation serving as a director or officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law, against all expense liability and
loss (including attorney's 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.
Section 203 of Delaware General Corporation Law
The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law enacted in 1988. In general,
the law prohibits a Delaware public corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interest stockholder,
unless it is approved in a prescribed manner. As a result of Section 203,
potential acquirors of the Company may be discouraged from attempting to effect
acquisition transactions with the Company thereby possibly depriving holders of
the Company's Securities of certain opportunities to sell or otherwise dispose
of such securities at above-market prices pursuant to such transactions.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New
York 10022. Members of the firm own in the aggregate 105,000 shares of Common
Stock of the Company and options to purchase 70,000 shares of Common Stock of
the Company, 20,000 of which are currently exercisable.
18
<PAGE>
EXPERTS
The financial statements of the Company for the year ended December 31,
1996 incorporated in this Prospectus by reference to the Form 10-KSB have been
so incorporated in reliance on the report of Grant Thornton LLP, independent
accountants, given on the authority of such firms as experts in accounting and
auditing.
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesperson or any other person has been
authorized to give any information or to make any
representation not contained in this Prospectus with
respect to the offering made hereby. This Prospectus
does not constitute an offer to sell or a solicitation of 2,274,976
an offer to buy any of the securities offered hereby to Shares of Common Stock
any person or by anyone in any jurisdiction in which such
offer or solicitation may not lawfully be made. Neither the
delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that
there has been no change in the information set forth
herein or in the business of the Company since the date
hereof.
----------------------
TABLE OF CONTENTS
Page
Available Information................................ 3 Milestone Scientific Inc.
Reports to Security Holders.......................... 3
Incorporation of Certain Documents
by Reference....................................... 4 ______________________
The Company.......................................... 4
Risk Factors......................................... 5 PROSPECTUS
Use of Proceeds......................................10 ______________________
Recent Developments..................................10
Selling Stockholders.................................13 April 30, 1997
Plan of Distribution.................................17
Certain Provisions of the Certificate
of Incorporation and By-Laws.......................18
Legal Matters........................................18
Experts..............................................19
</TABLE>
20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14.Other Expenses of Issuance and Distribution
Expenses in connection with the issuance and distribution of the securities
being registered hereunder other than underwriting commissions and expenses, are
estimated below. The Selling Stockholders will not pay any of these expenses.
SEC Registration Fee...........................................$ 3,403.85
NASD Fee.......................................................$ 1,623.26
Printing expenses..............................................$ 300.00*
Accounting fees and expenses...................................$ 3,000.00*
Legal fees and expenses........................................$ 25,000.00*
Miscellaneous expenses.........................................$ 672.89*
------------
Total....................................................$ 34,000.00*
============
* estimated
Item 15. Indemnification of Directors and Officers
Sections 145 of the Delaware General Corporation Law grants to the Company
the power to indemnify the officers and directors of the Company, under certain
circumstances and subject to certain conditions and limitations as stated
therein, against all expenses and liabilities incurred by or imposed upon them
as a result of suits brought against them as such officers and directors if they
act in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, have no reasonable cause to believe their conduct was
unlawful.
The Company's certificate of incorporation provides as follows:
"NINTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
TENTH: (a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to 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
<PAGE>
fullest extent authorized by the 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 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 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
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 of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
2
<PAGE>
(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 General Corporation Law."
Item 16. Exhibits
Exhibit No. Description
- ----------- -----------
4.1 Specimen Stock Certificate *
4.2 Form of Subscription Agreement.**
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP as to legality of
the securities being registered.**
23.1 Consent of Grant Thornton LLP**
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in
Exhibit 5.1)
24 Power of Attorney (included in signature page)
99.1 Form of Warrant Agreement dated as of March 13, 1997.**
99.2 Agency Agreement dated February 4, 1997.**
99.3 Form of Purchase Option granted to the Placement Agent and
Designees dated as of March 13, 1997.**
- -------------
* Incorporated by reference to the Company's registration statement on Form
SB-2 No. 33-92324.
** Filed herewith.
3
<PAGE>
Item 17. Undertakings
A. The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in New York, New York on
the 29th day of April 1997.
MILESTONE SCIENTIFIC INC.
By: /s/ Leonard Osser
-------------------------------------
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Leonard Osser, Stephen A. Zelnick, or either one
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all pre- or post-effective amendments to
this Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on April 29, 1997.
Signatures Title
- ---------- -----
/s/ Leonard Osser President, Chief Executive,
- -------------------------------- Chief Financial Officer and
Leonard Osser Director
/s/ Gregory Volok Director
- --------------------------------
Gregory Volok
/s/ Michael J. McGeehan Director
- --------------------------------
Michael J. McGeehan
- -------------------------------- Director
Giovanni Montoncello
- -------------------------------- Director
David Sultanik
/s/ Stephen A. Zelnick Director
- --------------------------------
Stephen A. Zelnick
/s/ Paul Gregory Director
- --------------------------------
Paul Gregory
/s/ Louis I. Margolis Director
- --------------------------------
Louis I. Margolis
/s/ Leonard M. Schiller Director
- --------------------------------
Leonard M. Schiller
6
SUBSCRIPTION AGREEMENT
FOR
MILESTONE SCIENTIFIC INC.
INSTRUCTIONS
IMPORTANT: PLEASE READ CAREFULLY BEFORE SIGNING
SIGNIFICANT REPRESENTATIONS ARE
CONTAINED HEREIN
1. FILL IN MISSING INFORMATION ON PAGES 1 AND 11.
2. COMPLETE AND SIGN BOTH COPIES OF THE SUBSCRIPTION AGREEMENT
SIGNATURE PAGES ON PAGE 11.
3. IF THE INVESTOR IS AN ENTITY, COMPLETE AND SIGN BOTH COPIES OF
THE CERTIFICATE OF SIGNATORY ON PAGE 11.
<PAGE>
Name of Subscriber _________________________
SUBSCRIPTION AGREEMENT
Milestone Scientific Inc.
44 Kean Road
Short Hills, NJ 07078
Ladies and Gentlemen:
I. Subscription. I (sometimes referred to herein as the "Investor") hereby
subscribe for and agree to purchase $_______________ of Units (as defined below)
of Milestone Scientific Inc. ("Company"), a Delaware corporation, on the terms
and conditions described herein and in the Confidential Investment Summary
("Investment Summary"), dated February 4, 1997 together with all supplements, if
any, relating to this offering. The minimum subscription is $100,000, but GKN
("GKN" or "Placement Agent") and the Company has the discretion to accept
subscriptions for less than the minimum. The per-Unit offering price will be 80%
of the average of the closing bid price of the Common Stock ("Unit Offering
Price"), as reported by The Nasdaq SmallCap Market, on the 20 consecutive
trading days ending three business days prior to the Closing (as defined below).
The number of Units I will purchase will be determined by dividing the amount of
my subscription by the Unit Offering Price. Fractional Units will not be issued;
instead, the Company will round up to the next nearest whole number of Units at
no additional cost to me. GKN Securities Corp. is acting as the exclusive
placement agent for this offering.
1. Description of Units. Each Unit consists of: (a) one share of the
Company's Common Stock, $.001 par value ("Common Stock"), and (b) one warrant,
each Warrant to entitle the holder thereof to purchase one share of Common Stock
during the three-year period commencing the Closing at an exercise price equal
to 150% of the Unit Offering Price (subject to adjustment)
2. Purchase.
(a) I hereby tender to the Company cash or a check made payable to the
order of "GKN Securities Corp. -- Milestone Special Account" in the amount
indicated above, two manually executed copies of this Subscription Agreement and
an executed copy of my Confidential Purchaser Questionnaire.
(b) This offering will continue until the earlier of the Closing (as
defined in Section 4 hereof) or February 28, 1997 unless such latter date is
extended, without notice to the Investor, by mutual consent of GKN and the
Company to a date not later than March 31, 1997 ("Termination Date"). Prior to
the earlier of the Closing or the Termination Date, my cash or check delivered
herewith will be held by GKN in a segregated, non-interest bearing bank account
subject to the terms and conditions herein. If subscriptions for at least
$2,000,000 of Units are not received and accepted by the Company by the
Termination Date, my payment will be
<PAGE>
returned to me without interest or deduction. In the event my subscription is
accepted and there is a Closing, my subscription proceeds shall be released to
the Company and the certificates representing the Common Stock and Warrants will
be promptly delivered to my account at GKN.
3. Acceptance or Rejection of Subscription.
(a) The Company and GKN have the right to reject this subscription for
the Units, in whole or in part for any reason and at any time prior to a
Closing, notwithstanding prior receipt by me of notice of acceptance of my
subscription.
(b) In the event of the rejection of this subscription, my
subscription payment will be promptly returned to me without interest or
deduction and this Subscription Agreement shall have no force or effect.
4. Closing. The closing of this offering shall occur as soon as practicable
after the sale by the Company of Units aggregating at least $2,000,000
("Closing") as determined jointly by the Company and GKN. The Units subscribed
for herein shall not be deemed issued to or owned by me until two copies of this
Subscription Agreement have been executed by me and countersigned by the Company
and a Closing with respect to such Units has occurred. After the Closing, the
certificates representing the Common Stock and the Warrants will be deposited in
my account with GKN.
5. Disclosure. Because this offering is limited to accredited investors as
defined in Section 2(15) of the Securities Act of 1933, as amended ("Securities
Act"), and Rule 501 promulgated thereunder, in reliance upon the exemption
contained in Sections 3(b) or 4(2) of the Securities Act and applicable state
securities laws, the Units are being sold without registration under the
Securities Act. I acknowledge receipt of the Investment Summary and all exhibits
listed therein and represent that I have carefully reviewed and understand the
Investment Summary and its exhibits. I have received all information and
materials regarding the Company that I have requested.
I fully understand that the Company has a limited financial and operating
history and that the Units are speculative investments which involve a high
degree of risk of loss of my entire investment. I fully understand the nature of
the risks involved in purchasing the Units and I am qualified by my knowledge
and experience to evaluate investments of this type. I have carefully considered
the potential risks relating to the Company and purchase of its Units and have,
in particular, reviewed each of the risks set forth in the Investment Summary.
Both my advisors and I have had the opportunity to ask questions of and receive
answers from representatives of the Company or persons acting on its behalf
concerning the Company and the terms and conditions of a proposed investment in
the Company and my advisors and I have also had the opportunity to obtain
additional information necessary to verify the accuracy of information furnished
about the Company. Accordingly, I have independently evaluated the risks of
purchasing the Units.
2
<PAGE>
6. Registration Rights; Lock-Up.
(a) The Units are being offered pursuant to the Investment Summary to
which this Subscription Agreement is annexed as Exhibit B. The Company agrees
with the Subscriber to register under a registration statement ("Registration
Statement") filed pursuant to the Securities Act and such state "Blue Sky" laws
of those states as are reasonably selected by GKN, the re-offer and re-sale of
the Common Stock included in the Units and the Common Stock underlying the
Warrants included in the Units and the Extra Warrants, as defined herein
(collectively, the "Registrable Securities"). The Company agrees to file the
Registration Statement on or before April 30, 1997. The Company agrees to use
its best efforts to have the Registration Statement declared effective by the
75th day after the initial filing of the Registration Statement ("Target Date").
If the Company shall either fail to file the Registration Statement as herein
provided or to use its best efforts to have the Registration Statement declared
effective by the Target Date, and the Registration Statement is not declared
effective by the Target Date, then on the Target Date and on each monthly
anniversary of the Target Date thereafter until the earlier of the effective
date of the Registration Statement ("Effective Date") or the twentieth monthly
anniversary of the Target Date, the Company shall issue to me (or my successor
or transferee), additional Warrants ("Extra Warrants") to purchase a number of
shares of Common Stock equal to 5% of the number of Units purchased by me under
this Subscription Agreement. The Extra Warrants shall have the same terms as the
Warrants included in the Units. The Company agrees that, to the extent that the
Company issues any Extra Warrants or is obliged to issue any Extra Warrants, it
shall include the Common Stock underlying such Extra Warrants in the
Registration Statement. The Company shall keep the Registration Statement
effective and current until all the securities registered thereunder are sold or
may be sold without any limitation under an appropriate exemption under the
Securities Act and the blue sky laws of the states selected by GKN. The
Registration Statement will also register for re-offer and re-sale the shares of
Common Stock underlying certain Unit options being issued to GKN or its
designees or their respective successors or transferees.
(b) The Company shall bear all the expenses and pay all the fees it
incurs in connection with the preparation, filing, modifying and amending of the
Registration Statement, providing reasonable numbers of the prospectus contained
therein to me and effecting the issuance and transfer of the Registrable
Securities on an expeditious basis. The Company shall also pay the fees (at
regular hourly rates, but no more than aggregate fees of $5,000) of one special
counsel to the holders of the Registrable Securities ("Special Counsel") in
connection with the registration of the Registrable Securities and the
preparation, filing, modifying and amending of the Registration Statement. GKN
has selected Graubard Mollen & Miller as Special Counsel and the Investor
acknowledges and agrees to this selection.
(c) The Company will indemnify and hold harmless each holder of the
Registrable Securities ("Holder"), the officers and directors of each Holder and
each person, if any, who controls such Holder within the meaning of the
Securities Act or Securities Exchange Act of 1934, as amended ("Exchange Act")
against any losses, claims, damages, or liabilities to which they may become
subject under the Securities Act, the Exchange Act or any state securities law
or regulation (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever incurred by the indemnified
3
<PAGE>
party in any action or proceeding between the indemnitor and indemnified party
or between the indemnified party and any third party or otherwise) to which any
of them may become subject under the Securities Act, the Exchange Act or any
other statute or common law or otherwise under the laws of foreign countries,
arising from such registration statement or based upon any untrue statement or
alleged untrue statement of a material fact contained in (i) any preliminary
prospectus, the registration statement or prospectus (as from time to time each
may be amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which it included
the Registrable Securities; or (iii) any application or other document or
written communication (collectively called "application") executed by the
Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Registrable Securities under the securities
laws thereof or filed with the Securities and Exchange Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such statement
or omission is made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the holders expressly for
use in any preliminary prospectus, such registration statement or prospectus, or
any amendment or supplement thereof, or in any application, as the case may be.
The Company agrees promptly to notify the holder of the Registrable Securities
of the commencement of any litigation or proceedings against the Company or any
of its officers, directors or controlling persons in connection with the issue
and sale or resale of the Registrable Securities or in connection with any such
registration statement or prospectus.
(d) I agree that the Units, the Common Stock and Warrants included in
the Units, and the shares of Common Stock underlying the Warrants and Extra
Warrants, may not be sold or otherwise transferred until twelve months after the
Closing (the "Holding Period"), unless GKN, in its sole discretion, agrees to
the sale of all or part of such securities at an earlier date. If I am a
resident of the State of Pennsylvania, I further agree that the Units subscribed
for herein and the underlying securities of the Units, if any, shall not be sold
for a period of twelve months from the date of purchase, except as permitted by
applicable securities laws of the State of Pennsylvania. The parties hereto
agree that GKN is intended to be a third-party beneficiary of this Subscription
Agreement and that no modification of the "lock-up" provisions contained in this
Section 6(b) may be made without the prior written agreement of GKN.
(e) The registration rights granted to the Investor inure to the
benefit of all the Investors' successors, heirs, pledgees, assignees,
transferees and purchasers of the Warrants or the Registrable Securities, as the
case may be.
7. Investor Representations and Warranties. I acknowledge, represent and
warrant to, and agree with, the Company and the Placement Agent as follows:
(a) I am aware that my investment involves a high degree of risk, and
I have read and fully understand the Investment Summary, including the section
entitled "Risk Factors," the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1996.
4
<PAGE>
(b) I acknowledge and am aware that there is no assurance as to the
future performance of the Company.
(c) I acknowledge that, notwithstanding the Company's commitment
herein, there can be no assurance that the Company will file any Registration
Statement for the securities I am purchasing, that such Registration Statement,
if filed, will be declared effective or, if declared effective, that the Company
will be able to keep it effective until I sell the securities registered
thereon.
(d) I am purchasing the Units for my own account for investment and
not with a view to or for sale in connection with the distribution of the Units,
nor with any present intention of selling or otherwise disposing of all or any
part of the Units. I understand that there may not be any market for the Units
or Warrants included in the Units. I agree that (1) the purchase of the Units is
a long-term investment, (2) I may have to bear the economic risk of investment
for an indefinite period of time because neither the Units, nor the Common
Stock, nor the Warrants nor the Extra Warrants (and the Common Stock underlying
the Warrants and the Extra Warrants) have been registered under the Securities
Act and, notwithstanding the Company's commitment herein, may not be registered
and, cannot be resold, pledged, assigned, or otherwise disposed of unless they
are subsequently registered under said Securities Act and under applicable
securities laws of certain states or an exemption from such registration is
available. I understand that the Company is under no obligation to register the
Units, Warrants or Extra Warrants and, except as set forth herein, the Company
is under no obligation to register the Common Stock underlying the Units or the
Common Stock underlying the Warrants or Extra Warrants on my behalf or to assist
me in complying with any exemption from such registration under the Securities
Act or any state securities laws. I hereby acknowledge and agree that I will not
sell, transfer, give, or otherwise dispose of, either publicly or privately, the
Units or any securities underlying the Units during the HoldingPeriod without
the prior written agreement of GKN. I hereby authorize the Company to place a
legend denoting the restrictions on the Common Stock, the Warrants and Extra
Warrants to be issued.
(e) I recognize that the Units, as an investment, involve a high
degree of risk including, but not limited to, the risk of economic losses from
operations of the Company and the total loss of my investment. I believe that
the investment in the Units is suitable for me based upon my investment
objectives and financial needs, and I have adequate means for providing for my
current financial needs and contingencies and have no need for liquidity with
respect to my investment in the Company.
(f) I have been given access to full and complete information
regarding the Company and have utilized such access to my satisfaction for the
purpose of obtaining information in addition to, or verifying information
included in, the Investment Summary and exhibits thereto, and I have either met
with or been given reasonable opportunity to meet with officers of the Company
for the purpose of asking questions of, and receiving answers from, such
officers concerning the terms and conditions of the offering of the Units and
the business and operations of the Company and to obtain any additional
information, to the extent reasonably available.
5
<PAGE>
(g) I have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in
the Units and have obtained, in my judgment, sufficient information from the
Company to evaluate the merits and risks of an investment in the Company. I have
not utilized any person as my purchaser representative as defined in Regulation
D promulgated by the Securities and Exchange Commission pursuant to the
Securities Act in connection with evaluating such merits and risks.
(h) I have relied solely upon my own investigation in making a
decision to invest in the Company.
(i) I have received no representation or warranty from the Company or
the Placement Agent or any of their respective officers, directors, employees or
agents in respect of my investment in the Company and I have received no
information (written or otherwise) from them relating to the Company or its
business other than as set forth in the Investment Summary. I am not
participating in the offer as a result of or subsequent to: (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television, radio or the
internet or (ii) any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
(j) I have had full opportunity to ask questions and to receive
satisfactory answers concerning the offering and other matters pertaining to my
investment and all such questions have been answered to my full satisfaction. In
addition, as required by Section 517.061(11)(a)(3), Florida Statutes and by Rule
3-500.05(a) thereunder, if I am a Florida resident I may have, at the offices of
the Company, at any reasonable hour, after reasonable notice, access to the
materials set forth in the Rule which the Company can obtain without
unreasonable effort or expense.
(k) I have been provided an opportunity to obtain any additional
information concerning the offering and the Company and all other information to
the extent the Company possesses such information or can acquire it without
unreasonable effort or expense.
(l) I am an "accredited investor" as defined in Section 2(15) of the
Act and in Rule 501 promulgated thereunder.
(m) I understand that (i) the Units and the underlying securities have
not been registered under the Securities Act, or the securities laws of certain
states in reliance on specific exemptions from registration, (ii) no securities
administrator of any state or the federal government has recommended or endorsed
this offering or made any finding or determination relating to the fairness of
an investment in the Company, and (iii) the Company is relying on my
representations and agreements for the purpose of determining whether this
transaction meets the requirements of the exemptions afforded by the Securities
Act and certain state securities laws.
(n) I have been urged to seek independent advice from my professional
advisors relating to the suitability of an investment in the Company in view of
my overall financial needs and with respect to the legal and tax implications of
such investment.
6
<PAGE>
(o) If the Investor is a corporation, company, trust, employee benefit
plan, individual retirement account, Keogh Plan, or other tax-exempt entity, it
is authorized and qualified to become an Investor in the Company and the person
signing this Subscription Agreement on behalf of such entity has been duly
authorized by such entity to do so.
(p) I hereby acknowledge and am aware that except for any rescission
rights that may be provided under applicable laws, I am not entitled to cancel,
terminate or revoke this subscription, and any agreements made in connection
herewith shall survive my death or disability.
(q) I agree that prior to registration of the Registrable Securities,
I will not sell the Common Stock of the Company "short" on any securities market
on which the Common Stock is traded.
8. Indemnification. I hereby agree to indemnify and hold harmless the
Company and GKN, as Placement Agent, their respective officers, directors,
shareholders, employees, agents, and attorneys against any and all losses,
claims, demands, liabilities, and expenses (including reasonable legal or other
expenses, including reasonable attorneys' fees and other expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever
incurred by the indemnified party in any action or proceeding between the
indemnitor and indemnitor and indemnified party or between the indemnified party
and any third party or otherwise) incurred by each such person in connection
with defending or investigating any such claims or liabilities, whether or not
resulting in any liability to such person, to which any such indemnified party
may become subject under the Securities Act, under any other statute, at common
law or otherwise, insofar as such losses, claims, demands, liabilities and
expenses (a) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact made by me and contained in this
Subscription Agreement or my Purchaser Questionnaire, or (b) arise out of or are
based upon any breach by me of any representation, warranty, or agreement made
by me contained herein. GKN is a third-party beneficiary of this Section and
this Section may not be modified or amended without the prior written agreement
of GKN.
9. Severability; Remedies. In the event any parts of this Subscription
Agreement are found to be void, the remaining provisions of this Subscription
Agreement shall nevertheless be binding with the same effect as though the void
parts were deleted. The parties hereto do not intend that the issuance of any
Extra Warrants to be liquidated damages, and the parties hereto shall have the
right to seek damages and other remedies at law or equity for the breach of the
respective obligations of the other under this Subscription Agreement without
limitation.
10. Choice of Law and Jurisdiction. This Subscription Agreement will be
deemed to have been made and delivered in New York City and will be governed as
to validity, interpretation, construction, effect and in all other respects by
the internal laws of the State of New York. The Company and the Investor each
hereby (i) agrees that any legal suit, action or proceeding arising out of or
relating to this Subscription Agreement shall be instituted exclusively in New
York State Supreme Court, County of New York, or in the United States District
Court for the Southern District of New York, (ii) waives any objection to the
venue of any such suit, action or proceeding and the right to assert that such
forum is not a convenient forum for such
7
<PAGE>
suit, action or proceeding, and (iii) irrevocably consents to the jurisdiction
of the New York State Supreme Court, County of New York, and the United States
District Court for the Southern District of New York in any such suit, action or
proceeding and the Company further agrees to accept and acknowledge service or
any and all process which may be served in any such suit, action or proceeding
in New York State Supreme Court, County of New York or in the United States
District Court for the Southern District of New York and agrees that service of
process upon it mailed by certified mail to its address shall be deemed in every
respect effective service of process upon it in any suit, action or proceeding.
11. Counterparts. This Subscription Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Subscription Agreement may be by actual or facsimile signature.
12. Benefit. This Subscription Agreement shall be binding upon and inure to
the benefit of the parties hereto (and GKN to the extent it is a third-party
beneficiary hereof) and their respective heirs, executors, personal
representatives, successors and assigns. GKN shall be deemed to be a third-party
beneficiary with respect to any sections hereof which so state or which
otherwise indicate that GKN would be entitled to rely on the representations,
warranties or covenants made by me therein.
13. Notices and Addresses. All notices, offers, acceptance and any other
acts under this Subscription Agreement (except payment) shall be in writing, and
shall be sufficiently given if delivered to the addressees in person, by Federal
Express or similar courier delivery by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
Investor: At the address designated on the signature page of this
Subscription Agreement.
The Company: Milestone Scientific Inc.
44 Kean Road
Short Hills, NJ 07078
Attention: Mr. Len Osser
Fax: (201) 379-5411
In either case,
with a copy to: Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attention: David Alan Miller, Esq. Fax:
(212) 682-2320
or to such other address as any of them, by notice to the others may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive
8
<PAGE>
evidence of successful facsimile deliver. Time shall be counted to, or from, as
the case may be, the delivery in person or by mailing.
14. Oral Evidence. This Subscription Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior oral and written agreements between the parties hereto with
respect to the subject matter hereof. This Subscription Agreement may not be
changed, waived, discharged, or terminated orally but, rather, only by a
statement in writing signed by the party or parties against which enforcement or
the change, waiver, discharge or termination is sought.
15. Section Headings. Section headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part, any of the terms or
provisions of this Subscription Agreement.
16. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained herein shall survive the
delivery of, and the payment for, the Units.
17. Acceptance of Subscription. The Company may accept this Subscription
Agreement at any time for all or any portion of the Units subscribed for by
executing a copy hereof as provided and notifying me within a reasonable time
thereafter.
RESIDENTS OF ALL STATES: THE UNITS OFFERED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE UNITS ARE SUBJECT TO RESTRICTION ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE UNITS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF
THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR
THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL INVESTMENT SUMMARY. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FOR CONNECTICUT RESIDENTS: THE UNITS OFFERED HAVE NOT BEEN REGISTERED UNDER
SECTION 36-485 OF THE CONNECTICUT UNIFORM SECURITIES ACT AND ARE OFFERED AND
SOLD PURSUANT TO AN EXEMPTION RELATING TO TRANSACTIONS NOT INVOLVING A PUBLIC
OFFERING PURSUANT TO SECTION 36490(b)(9)(A) THEREOF. THE UNITS CANNOT BE RESOLD
OR TRANSFERRED UNLESS THEY ARE REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
9
<PAGE>
FOR FLORIDA RESIDENTS: PURSUANT TO THE FLORIDA SECURITIES ACT, WHEN SALES
ARE MADE TO FIVE OR MORE PERSONS IN THE STATE OF FLORIDA, EACH PERSON WHO
ACCEPTS THIS OFFER TO PURCHASE UNITS HAS THE RIGHT TO VOID HIS ACCEPTANCE
WITHOUT INCURRING ANY LIABILITY TO THE SELLER OR ANY OTHER PERSON WITHIN THREE
(3) DAYS AFTER THE DELIVERY OF HIS SUBSCRIPTION AGREEMENT AND THE PAYMENT OF THE
PURCHASE PRICE, IN WHICH CASE ALL FUNDS SHALL BE REFUNDED WITHOUT INTEREST OR
DEDUCTION. TO ACCOMPLISH THIS WITHDRAWAL, IT IS SUFFICIENT TO SEND A LETTER OR
TELEGRAM TO THE SECRETARY AT THE OFFICES OF THE COMPANY INDICATING HIS INTENTION
TO WITHDRAW WITHIN SUCH THREE DAY PERIOD.
FOR PENNSYLVANIA RESIDENTS: EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR
THE SECURITIES BEING OFFERED HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A
PERIOD OF TWELVE MONTHS AFTER THE DATE OF PURCHASE. EACH PERSON WHO ACCEPTS AN
OFFER TO PURCHASE UNITS EXEMPTED FROM REGISTRATION BY SECTION 203(d), (f), (p)
OR (r) OF THE PENNSYLVANIA SECURITIES ACT DIRECTLY FROM AN ISSUER OR AFFILIATE
OF AN ISSUER SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING
ANY LIABILITY TO THE SELLER, UNDERWRITER (IF ANY) OR ANY OTHER PERSON WITHIN TWO
BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN BINDING
CONTRACT OF PURCHASE OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO
WRITTEN BINDING CONTRACT OR PURCHASE, WITHIN TWO BUSINESS DAYS AFTER HE MAKES
THE INITIAL PAYMENT FOR THE UNITS BEING OFFERED. TO ACCOMPLISH THIS WITHDRAWAL,
IT IS SUFFICIENT TO SEND A LETTER OR TELEGRAM TO THE SECRETARY AT THE OFFICES OF
THE COMPANY INDICATING HIS INTENTION TO WITHDRAW WITHIN SUCH TWO DAY PERIOD.
FOR ARIZONA, MICHIGAN AND TEXAS RESIDENTS: THESE UNITS ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED TO RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
10
<PAGE>
Manner in Which Title is to be Held. (check one)
____ Individual Ownership
____ Community Property
____ Joint Tenant with Right of Survivorship (both parties must sign)
____ Partnership
____ Tenants in common
____ Corporation
____ Trust
____ Other (please indicate)
INDIVIDUAL INVESTORS ENTITY INVESTORS
_______________________________________ ___________________________________
Signature (Individual) Name of Entity, if any
By:________________________________
*Signature
______________________________________ Its________________________________
Signature (all record holders should sign) Title
_______________________________________ ___________________________________
Name(s) Typed or Printed Name Typed or Printed
Address to Which Correspondence Address to Which Correspondence
Should be Directed Should be Directed
_______________________________________ ___________________________________
_______________________________________ ___________________________________
_______________________________________ ___________________________________
City, State and Zip Code City, State and Zip Code
_______________________________________ ___________________________________
Social Security Number Tax Identification
* If Units are being subscribed for by any entity, the Certificate of
Signatory on the next page must also be completed.
The foregoing subscription is accepted and the Company hereby agrees to be bound
by its terms.
MILESTONE SCIENTIFIC INC.
Dated: _________________________,1997 By:_________________________________
11
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Units are being subscribed for by an entity)
I, _________________________________, the ________________________________
(name of signatory) (title)
of ________________________________________________________("Entity"), a
(name of entity)
___________________________________________________________.
(type of entity)
hereby certify that the above entity is duly empowered and authorized to
purchase the Units and that I am duly empowered and authorized by the entity to
execute the Subscription Agreement on its behalf.
IN WITNESS WHEREOF, I have executed this Certificate this ____ day of
_________, 1997.
------------------------------
(Signature)
12
EXHIBIT 5.1
MORSE, ZELNICK, ROSE & LANDER
A LIMITED LIABILITY PARTNERSHIP
450 PARK AVENUE
NEW YORK, NEW YORK 10022-2605
212 838 1177
FAX 212 838 9190
April 29, 1997
Milestone Scientific Inc.
220 South Orange Avenue
Livingston Corporate Park
Livingston, New Jersey 07039
Re: Registration Statement on Form S-3
--------------------------------------
Dear Sirs:
We have acted as counsel to Milestone Scientific Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), to register the sale by certain selling stockholders of 2,274,976
shares of Common Stock, par value $.001 per share (the "Common Stock"), of the
Company.
In this regard, we have reviewed the Certificate of Incorporation of the
Company, as amended, resolutions adopted by the Company's Board of Directors,
the Registration Statement, and such other records, documents, statutes and
decisions as we have deemed relevant in rendering this opinion. Based upon the
foregoing we are of the opinion that:
Each share of Common Stock included in the Registration Statement has been
duly authorized for issuance and is now, or when issued upon exercise and
pursuant to the terms of the instruments which they underlie will be, validly
issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5A to the
Registration Statement. In giving this opinion, we do not hereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the SEC thereunder.
Very truly yours,
/s/ Morse, Zelnick, Rose & Lander, LLP
--------------------------------------
Morse, Zelnick, Rose & Lander, LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our reports dated February 5, 1997, except for Notes J and P as
to which the dates are February 26, and February 20, 1997, accompanying the
consolidated financial statements of Milestone Scientific Inc. and subsidiaries
appearing in the Annual Report on Form 10-KSB for the year ended December 31,
1996 which are incorporated by reference in the Registration Statement. We
consent to the incorporation by reference in the Registration Statement of the
aforementioned reports and to the use of our name as it appears under the
caption "Experts."
/s/ Grant Thornton LLP
-----------------------
New York, NY
April 30, 1997
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT
THERETO UNDER THE ACT AND COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW,
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. THE COMPANY'S SUBSCRIPTION
AGREEMENT WITH THE HOLDER CONTAINS ADDITIONAL PROVISIONS RESTRICTING THE
TRANSFER OF THIS WARRANT AND THE WARRANT SHARES AND THIS WARRANT AND SUCH
SUBSCRIPTION AGREEMENT SET FORTH THE COMPANY'S OBLIGATIONS TO REGISTER THE
RESALE OF THE WARRANT SHARES. A COPY OF SUCH SUBSCRIPTION AGREEMENT IS AVAILABLE
FOR INSPECTION AT THE COMPANY'S OFFICE.
For the Purchase of
_______ shares of
No. W-___ Common Stock
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
MILESTONE SCIENTIFIC INC.
(A Delaware corporation)
Milestone Scientific Inc., a Delaware corporation (the "Company"), hereby
certifies that for value received, ____________________________________________,
(Name)
____________________________________________________________________________ ,
(Address)
or his, her or its registered assigns ("Registered Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company, at any time
or from time to time during the period commencing on March 13, 1997, and ending
on March 13, 2000, _____________ shares of Common Stock, $.001 par value, of the
Company ("Common Stock"), at a purchase price equal to $4.72 per share. The
number of shares of Common Stock purchasable upon exercise of this Warrant, and
the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant Shares"
and the "Purchase Price," respectively.
<PAGE>
Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or in
part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by such Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise.
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
1(c) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase right
represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of, and delivered to, the Registered
Holder, or, subject to the terms and conditions hereof, to such other individual
or entity as such Holder (upon payment by such Holder of any applicable transfer
taxes) may direct:
(i) a certificate or certificates for the number of full shares of
Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof, and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, stating on the face or faces thereof the
number of shares currently stated on the face of this Warrant minus the number
of such shares purchased by the Registered Holder upon such exercise as provided
in subsection 1(a) above.
I. Adjustments.
(a) Split, Subdivision or Combination of Shares. If the outstanding shares
of the Company's Common Stock at any time while this Warrant remains outstanding
and unexpired shall be subdivided or split into a
2
<PAGE>
greater number of shares, or a dividend in Common Stock shall be paid in respect
of Common Stock, the Purchase Price in effect immediately prior to such
subdivision or at the record date of such dividend shall, simultaneously with
the effectiveness of such subdivision or split or immediately after the record
date of such dividend (as the case may be), shall be proportionately decreased.
If the outstanding shares of Common Stock shall be combined or reverse-split
into a smaller number of shares, the Purchase Price in effect immediately prior
to such combination or reverse split shall, simultaneously with the
effectiveness of such combination or reverse split, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of shares of Warrant Shares purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(b) Reclassification Reorganization, Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or combination as provided for in subsection 2(a) above), or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such reorganization, reclassification, consolidation, merger,
sale or liquidating distribution, lawful provision shall be made so that the
Registered Holder of this Warrant shall have the right thereafter to receive
upon the exercise hereof, the kind and amount of shares of stock or other
securities or property which such Registered Holder would have been entitled to
receive if, immediately prior to any such reorganization, reclassification,
consolidation, merger, sale or liquidating distribution, as the case may be,
such Registered Holder had held the number of shares of Common Stock which were
then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests thereafter of the Registered Holder of
this Warrant such that the provisions set forth in this Section 2 (including
provisions with respect to the Purchase Price) shall thereafter be applicable,
as nearly as is reasonably practicable, in relation to any shares of stock or
other securities or property thereafter deliverable upon the exercise of this
Warrant.
3
<PAGE>
(c) Price Adjustment. No adjustment in the per share exercise price shall
be required unless such adjustment would require an increase or decrease in the
Purchase Price of at least $0.01; provided, however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 2 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(d) Price Reduction. Notwithstanding any other provision set forth in this
Warrant, at any time and from time to time during the period that this Warrant
is exercisable, the Company in it sole discretion may reduce the Purchase Price
or extend the period during which this Warrant is exercisable.
(e) No Impairment. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such actions as may be necessary or appropriate in order to
protect against impairment of the rights of the Registered Holder of this
Warrant to adjustments in the Purchase Price.
(f) Notice of Adjustment. Upon any adjustment of the Purchase Price or
extension of the Warrant exercise period, the Company shall forthwith give
written notice thereto to the Registered Holder of this Warrant describing the
event requiring the adjustment, stating the adjusted Purchase Price and the
adjusted number of shares purchasable upon the exercise hereof resulting from
such event, and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
II. Fractional Shares. The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares, but shall make an adjustment
thereof in cash on the basis of the last sale price of the Warrant Shares on the
over-the-counter market as reported by Nasdaq or on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if neither is applicable, then on the basis of the then fair
market value of the Warrant Shares as shall be reasonably determined by the
Board of Directors of the Company.
III. Limitation on Sales. Each holder of this Warrant acknowledges that this
Warrant and the Warrant Shares, as of the date of original issuance of this
Warrant, have not been registered under the Securities
4
<PAGE>
Act of 1933, as amended ("Act"), and agrees not to sell, pledge, distribute,
offer for sale, transfer or otherwise dispose of this Warrant or any Warrant
Shares issued upon its exercise in the absence of (a) an effective registration
statement under the Act as to this Warrant or such Warrant Shares or (b) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. The Warrant Shares issued upon exercise thereof
shall be imprinted with a legend in substantially the following form:
"THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SAID ACT OR APPLICABLE
STATE SECURITIES LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
IV. Certain Dividends. If the Company pays a dividend or makes a distribution
on the Common Stock ("Dividend"), other than a stock dividend payable in shares
of Common Stock, then the Company will pay or distribute to the Registered
Holder of this Warrant, upon the exercise hereof, in addition to the Warrant
Shares purchased upon such exercise, the Dividend which would have been paid to
such Registered Holder if it had been the owner of record of such Warrant Shares
immediately prior to the date on which a record is taken for such Dividend or,
if no record is taken, the date as of which the record holders of Common Stock
entitled to such Dividend are determined.
V. Registration Rights of Warrant Holder; Extra Warrants.
(a) Registration; Extra Warrants. The Company shall file a Registration
Statement under the Act ("Registration Statement") with the Securities and
Exchange Commission and in such states as shall be reasonably specified by GKN
Securities Corp. ("Placement Agent") registering for reoffer and resale the
Warrant Shares. The Company agrees to file the Registration Statement on or
before April 30, 1997. The Company agrees to use its best efforts to have the
Registration Statement declared effective by the 75th day after the initial
filing of the Registration Statement ("Target Date"). If the Company shall
either fail to file the Registration Statement or to use its best efforts to
have the Registration Statement declared effective by the Target Date, and the
Registration Statement is not declared effective by the Target Date, then on the
5
<PAGE>
Target Date and on each monthly anniversary of the Target Date thereafter until
the earlier of the effective date of the Registration Statement ("Effective
Date") or the twentieth monthly anniversary of the Target Date, the Company
shall issue to the Registered Holder (or successor or permitted transferee)
additional Warrants ("Extra Warrants") to purchase a number of shares of Common
Stock equal to 5% of the number of Warrant Shares underlying this Warrant. The
Extra Warrants shall have the same terms, rights and conditions as this Warrant.
The Company agrees that to the extent that the Company issues any Extra Warrants
or is obliged to issue any Extra Warrants, it shall include the Common Stock
underlying such Extra Warrants in the Registration Statement. The Company shall
keep the Registration Statement effective and current until all the securities
thereunder are sold or may be sold freely under an appropriate exemption under
the Act and the blue sky laws of the states selected by the Placement Agreement.
The Registration Statement will also register for re-offer and re-sale the
shares of Common Stock underlying certain unit purchase options issued to the
Placement Agent and its designees or their respective successors or transferees.
(b) The Company shall bear all the expenses and pay all the fees it incurs
in connection with the preparation, filing, modifying and amending of the
Registration Statement, providing reasonable numbers of the prospectus contained
therein to the Registered Holder and effecting the issuance and transfer of the
Warrant Shares on an expeditious basis. The Company shall also pay the fees (at
regular hourly rates, but no more than aggregate fees of $5,000) and expenses of
one special counsel to all the Registered Holders ("Special Counsel") in
connection with the registration of the Warrant Shares and the preparation,
filing, modifying and amending of the Registration Statement. The Placement
Agent has selected Graubard Mollen & Miller as Special Counsel and the
Registered Holder acknowledges and agrees to this selection.
(c) Indemnification. The Company shall indemnify the Registered Holder(s)
of the Warrant Shares to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Registered Holders within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all reasonable attorneys' fees and other
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever incurred by the indemnified party in any action or
proceeding between the indemnitor and indemnified party or between the
indemnified party and any third party or otherwise) to which any of them may
become subject under the Act, the Exchange Act or any other statute or at common
law or otherwise under the laws of foreign countries, arising from such
registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any preliminary prospectus, the
6
<PAGE>
Registration Statement or prospectus (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Warrant Shares;
or (iii) any application or other document or written communication
(collectively called "application") executed by the Company or based upon
written information furnished by the Company in any jurisdiction in order to
qualify the Warrant Shares under the securities laws thereof or filed with the
Commission, any state securities commission or agency, Nasdaq or any securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, unless
such statement or omission is made in reliance upon, and in conformity with,
written information furnished to the Company with respect to the Registered
Holders expressly for use in any preliminary prospectus, the Registration
Statement or prospectus, or any amendment or supplement thereof, or in any
application, as the case may be. The Company agrees promptly to notify the
Registered Holders of the commencement of any litigation or proceedings against
the Company or any of its officers, directors or controlling persons in
connection with the issue and sale or resale of the Warrant Shares or in
connection with the Registration Statement or prospectus.
VI. Notices of Record Date. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
7
<PAGE>
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice, provided
that the failure to mail such notice shall not affect the legality or validity
of any such action.
VII. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such shares of Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
shall apply for listing, and obtain such listing, for the Warrant Shares on The
Nasdaq Stock Market and each exchange on which the Common Stock is listed, at
the earliest time that such listing may be obtained in accordance with the rules
and regulations of The Nasdaq Stock Market and the exchange and maintain such
listing until the seventh anniversary of the date of original issuance of this
Warrant.
VIII. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant and
(in the case of loss, theft or destruction) upon delivery of an indemnity
agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
IX. Transfers, etc.
(a) The Company will maintain a register containing the names and addresses
of the Registered Holders of this Warrant. Any Registered Holder may change its,
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Registered Holder of this Warrant as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
8
<PAGE>
X. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
XI. Successors. The rights and obligations of the parties to this Warrant will
inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors, assigns, pledgees, transferees and purchasers.
Without limiting the foregoing, the registration rights set forth in this
Warrant shall inure to the benefit of the Registered Holder and all the
Registered Holder's successors, heirs, pledgees, assignees, transferees and
purchasers of this Warrant and the Warrant Shares.
XII. Change or Waiver. Any term of this Warrant may be changed or waived only
by an instrument in writing signed by the party against which enforcement of the
change or waiver is sought.
XIII. Headings. The headings in this Warrant are for purposes of reference only
and shall not limit or otherwise affect the meaning of any provision of this
Warrant.
XIV. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
XV. Jurisdiction and Venue. The Company (i) agrees that any legal suit, action
or proceeding arising out of or relating to this Warrant shall be instituted
exclusively in New York State Supreme Court, County of New York or in the United
States District Court for the Southern District of New York, (ii) waives any
objection to the venue of any such suit, action or proceeding and the right to
assert that such forum is not a convenient forum for such suit, action or
proceeding, and (iii) irrevocably consents to the jurisdiction of the New York
State Supreme Court, County of New York, and the United States District Court
for the Southern District of New York in any such suit, action or proceeding,
and the Company further agrees to accept and acknowledge service or any and all
process which may be served in any such suit, action or proceeding in New York
State Supreme Court, County of New York or in the United States District Court
for the Southern District of New York and agrees that service of process upon it
mailed by certified mail to its address shall be deemed in every respect
effective service of process upon it in any suit, action or proceeding.
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XVI. Mailing of Notices, etc. All notices and other communications under this
Warrant (except payment) shall be in writing and shall be sufficiently given if
delivered to the addressees in person, by Federal Express or similar receipt
delivery, by facsimile delivery or, if mailed, postage prepaid, by certified
mail, return receipt requested, as follows:
Registered Holder: To his or her address on page 1 of this Warrant.
The Company: Milestone Scientific Inc.
44 Kean Road
Short Hills, New Jersey 07078
Attention: Len Osser, President
Fax: (201) 379-3171
In either case,
with a copy to: Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attention: David Alan Miller, Esq.
Fax: (212) 682-2320
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or by mailing.
XVII. Warrant Solicitation and Warrant Solicitation Fee. The Company has engaged
the Placement Agent, on a non-exclusive basis, as its agent for the solicitation
of the exercise of this Warrant (including any Extra Warrants). The Company, at
its cost, will (i) assist the Placement Agent with respect to such solicitation,
if requested by the Placement Agent and (ii) provide the Placement Agent, and
direct the Company's transfer and warrant agents to deliver to the Placement
Agent, lists of the record, and to the extent known, beneficial owners of the
Warrants. The Company shall instruct the transfer and warrant agents to
cooperate with the Placement Agent in every respect in connection with the
Placement Agent's solicitation activities, including, but not limited to,
providing to the Placement Agent, at the Company's cost, a list of record and
beneficial holders of the Warrants and providing disclosure documents, where
necessary, to the holders of the Warrants at the time of exercise of the
Warrants.
In each instance in which this Warrant is exercised, the Company shall
promptly give written notice of such exercise to the Placement Agent. If, upon
the exercise of this Warrant, (i) the market price of the Company's
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Common Stock is greater than the Purchase Price, (ii) disclosure of compensation
arrangements was made at the time of offering and of exercise (as required by
applicable law, rule or regulation), (iii) the exercise of this Warrant was
solicited by the Placement Agent, (iv) this Warrant was not held in a
discretionary account, and (v) the solicitation of the exercise of this Warrant
was not in violation of Rule 10b-6 (as such rule or any successor rule may be in
effect as of such time of exercise) promulgated under the Securities Exchange
Act of 1934, as amended, then the Company shall, upon exercise of this Warrant,
pay from the proceeds received upon exercise of this Warrant a fee of 5% of the
Purchase Price to the Placement Agent, provided that the Placement Agent
delivers to the Company a certificate that the conditions set forth in the
preceding clauses (iii), (iv) and (v) have been satisfied. The Placement Agent
may, at any time during business hours, examine the records of the Company,
including its ledger of original Warrant certificates returned to the Company
upon exercise of the Warrants.
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The Placement Agent is intended to be a third party beneficiary of this
Section 18 and, as such, this section may not be amended, modified or deleted
without the express written consent of the Placement Agent.
MILESTONE SCIENTIFIC INC.
By:
Name: Len Osser
Title: President
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EXHIBIT I
NOTICE OF EXERCISE
TO: Milestone Scientific Inc.
44 Kean Road
Short Hills, New Jersey 07078
I. The undersigned hereby elects to purchase ________ shares of the Common
Stock of Milestone Scientific Inc., pursuant to terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full,
together with all applicable transfer taxes, if any.
I. Please issue a certificate or certificates representing said shares of the
Common Stock in the name of the undersigned or in such other name as is
specified below:
I. The undersigned represents that it will sell the shares of Common Stock
pursuant to an effective Registration Statement under the Securities Act of
1933, as amended, or an exemption from registration thereunder.
I. I acknowledge that this exercise of the Warrant represented by this Notice
of Exercise was solicited by GKN Securities Corp.
The exercise of this Warrant represented by this Notice of Exercise was not
solicited by GKN Securities Corp.
(Name)
(Address)
(Taxpayer Identification Number)
[print name of Registered Holder]
By:
Title:
Date:
MILESTONE SCIENTIFIC INC.
AGENCY AGREEMENT
February 4, 1997
GKN Securities Corp.
61 Broadway
New York, New York 10006
Gentlemen:
Milestone Scientific Inc., a Delaware corporation ("Company"), proposes to
offer for sale in a private placement ("Offering"), units ("Units") aggregating
a minimum of $2,000,000 and a maximum of $4,000,000 of gross proceeds to the
Company. Each Unit consists of one share of common stock, $.001 par value
("Common Stock"), and one Common Stock Purchase Warrant ("Warrant"). The
per-Unit offering price ("Offering Price") will be 80% of the average of the
closing bid price of the Common Stock on the twenty consecutive business days
ending three business days prior to the closing of the Offering. Each Warrant
will entitle the holder thereof to purchase one share of Common Stock during the
three year period commencing on the closing of the Offering, at an exercise
price equal to 150% of the per-Unit Offering Price. The Warrant will be issued
in the form of Exhibit A ("Warrant Agreement") to the Offering Documents (as
hereinafter defined). No fractional Units will be issued; instead, the Company
will round up to the nearest whole number of Units, at no additional cost to the
investor. The Units will be offered on a "best efforts, $2,000,000 minimum,
$4,000,000 maximum" basis, in accordance with Section 4(2) and/or 3(b) of the
Securities Act of 1933, as amended ("Securities Act"), and Rules 501-506 of
Regulation D ("Reg D") promulgated thereunder, only to "accredited investors,"
as defined in Reg D. The minimum subscription amount will be $100,000, but
subscriptions for amounts less than $100,000 may be accepted at the discretion
of the Placement Agent (as defined hereinafter) and the Company.
The Units, Common Stock and Warrants have the terms and conditions
reflected in the Company's Confidential Investment Summary dated February 4,
1997 to be delivered to each purchaser of Units ("Investment Summary"). The
Investment Summary, together with all
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exhibits thereto, including, but not limited to, the form of Common Stock
Purchase Warrant, form of Subscription Agreement to be executed by each
purchaser and the Company, the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995 and the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1996, will be referred to herein as the
"Offering Documents." GKN Securities Corp. is sometimes referred to herein as
"GKN" or the "Placement Agent." As used herein, the term "Warrants" include the
"Extra Warrants" as defined herein.
I. Appointment of Placement Agent; The Offering Period.
1.1 Appointment of Placement Agent. You are hereby appointed exclusive
Placement Agent of the Company during the offering period herein specified
("Offering Period") for the purpose of assisting the Company in placing the
Units with purchasers who are qualified accredited investors ("Subscribers").
You hereby accept such agency and agree to assist the Company in placing Units
with the Subscribers. Your agency hereunder is not terminable by the Company
except upon termination of the Offering or breach by you of your material
obligations hereunder.
1.2 Offering Period. The Offering Period shall commence on the day the
Offering Documents are first made available to you by the Company and shall
continue until February 28, 1997; provided, however, that the Offering Period
may be extended for an additional period not to exceed thirty-one (31) days by
the mutual decision of the Company and the Placement Agent, without notice to
any Subscriber. If, at any time during the Offering Period, subscriptions for
not less than $2,000,000 and not more than $4,000,000 have been received and
accepted by the Company (and funds in payment therefor have cleared the banking
system), then, upon the mutual consent of the Company and the Placement Agent, a
closing shall take place with respect to such accepted subscriptions
("Closing"). If subscriptions for at least $2,000,000 are not received and
accepted (and funds in payment therefor cleared) prior to the end of the
Offering Period (including any extension thereof), the Offering will be
terminated and all funds received from Subscribers will be returned, without
interest and without any deduction. The day that the Offering Period terminates
is hereinafter referred to as the "Termination Date."
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<PAGE>
1.3 Offering Documents. The Company will provide the Placement Agent with a
sufficient number of copies of the Offering Documents for delivery to potential
Subscribers and such other information, documents and instruments which the
Placement Agent may reasonably request in order to comply with the rules,
regulations and judicial and administrative interpretations respecting
compliance with applicable state and federal statutes related to the Offering.
1.4 Segregation of Funds. Each subscriber for Units shall tender to the
Placement Agent a check payable to "GKN Securities Corp. -- Milestone Special
Account" in the amount of the investment subscribed for, which funds shall be
held by the Placement Agent in a segregated non-interest bearing bank account in
accordance with Rules 10b-9 and 15c2-4 promulgated under the Securities Exchange
Act of 1934 ("Exchange Act"), as set forth in the Offering Documents.
1.5 No Firm Commitment. The Company understands and acknowledges that the
undertaking by the Placement Agent pursuant to this Agreement is not a "firm
commitment" offering, and the Placement Agent is not obligated in any way to
purchase or sell the Units offered hereby.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
2.1 Due Incorporation and Qualification. The Company has been duly
incorporated, is validly existing and is in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation for the
transaction of business and is in good standing in each jurisdiction in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to so qualify would not
have a material adverse effect on the business of the Company and the
Subsidiaries taken as a whole. The Company has all requisite corporate power and
authority necessary to own or hold its properties and conduct its business as
described in the Offering Documents.
2.2Authorized Capital. The Company is authorized to issue 10,000,000 shares
of Common Stock, of which 4,633,350 shares are currently issued and outstanding.
All of the issued and outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and non-assessable. None of the
holders of such outstanding shares of Common
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Stock is subject to personal liability solely by reason of being such a holder.
The offers and sales of such outstanding shares of Common Stock were at all
relevant times either registered under the Securities Act and the applicable
state securities or Blue Sky laws or exempt from such registration. The Company
has reserved for issuance a sufficient number of shares of Common Stock to be
issued to the Subscribers and upon the exercise of the Warrants and Extra
Warrants (as hereinafter defined) as set forth in the Warrant Agreement
(collectively, "Warrant Shares") and to be issued pursuant to the Placement
Agent Options (as herein defined) and the Warrants underlying the Placement
Agent Options.
2.3 No Preemptive Rights; Options; Registration Rights. Except as set forth
on Schedule 2.3, there are no preemptive or other rights to subscribe for or
purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock or other securities of the Company, under the Certificate of
Incorporation or By-Laws of the Company or under any agreement or other
outstanding instrument to which the Company is a party or by which it is bound.
Except as set forth on Schedule 2.3, the Company does not have outstanding any
option, warrant, convertible security, or other right permitting or requiring it
to issue, or otherwise to purchase or convert any obligation into, shares of
Common Stock or other securities of the Company and the Company has not agreed
to issue or sell any shares of Common Stock or other securities of the Company.
Except as set forth on Schedule 2.3, no holder of any of the Company's
securities has any rights, "demand," piggyback" or otherwise, to have such
securities registered or to demand the filing of a registration statement.
2.4 Financial Statements. The financial statements of the Company included
in the Offering Documents ("Financials") fairly present the financial position
and results of operations of the Company at the dates thereof and for the
periods covered thereby, subject, in the case of interim periods, to year-end
adjustments and normal recurring accruals. The Company has no material
liabilities or obligations, contingent, direct, indirect or otherwise except (i)
as set forth in the latest balance sheet included in the Financials (the date of
such Financials being referred to as the "Balance Sheet Date"), (ii) those
incurred in the ordinary course of business since the Balance Sheet Date and
(iii) as set forth on Schedule 2.4. Schedule 2.4 also sets forth all outstanding
amounts due to any officers, directors or shareholders of the Company, or to any
of their respective affiliates, including, but not limited to, accrued salaries,
loans, etc.
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<PAGE>
2.5 No Material Adverse Changes. Except as otherwise stated in the Offering
Documents, since the Balance Sheet Date, there has not been any change in the
condition, financial or otherwise, of the Company which could materially
adversely affect its ability to conduct its operations as described in the
Offering Documents.
2.6 Subsidiaries. Except for the Subsidiaries set forth in Schedule 2.6,
the Company has no subsidiaries and has no interest in, shares of capital stock
of or right to acquire an interest in or shares of capital stock of any other
corporation, limited liability company, partnership or other entity. The Company
owns the outstanding capital stock of the Subsidiaries as set forth in Schedule
2.6 free and clear of all liens, charges and encumbrances of any kind
whatsoever, and there are no outstanding rights to acquire, or directly or
indirectly control the vote or transfer of, any of the capital stock of the
Subsidiaries.
2.7 Taxes. The Company has filed all federal tax returns and all state and
municipal and local tax returns (whether relating to income, sales, franchise,
withholding, real or personal property or other types of taxes) required to be
filed under the laws of the United States and applicable states, and has paid in
full all taxes which have become due pursuant to such returns or claimed to be
due by any taxing authority or otherwise due and owing; provided, however, that
the Company has not paid any tax, assessment, charge, levy or license fee that
it is contesting in good faith and by proper proceedings and adequate reserves
for the accrual of same are maintained if required by generally accepted
accounting principles. Each of the tax returns heretofore filed by the Company
correctly and accurately reflects the amount of its tax liability thereunder.
The Company has withheld, collected and paid all levies, assessments, license
fees and taxes to the extent required. As used herein, "tax" or "taxes" include
all taxes, charges, fees, levies or other assessments imposed by any Federal,
state, local, or foreign taxing authority, including, without limitation,
income, premium, recapture, credit, excise, property, sales, use, occupation,
service, service use, leasing, leasing use, value added, transfer, payroll,
employment, license, stamp, franchise or similar taxes (including any interest
earned thereon or penalties or additions attributable thereto).
2.8 Finder's Fees; Other Underwriters. The Company is not obligated to pay
a finder's fee to anyone in connection with the introduction of the Company to
the Placement Agent or the consummation of the Offering contemplated hereunder.
The Company has not paid or issued any
5
<PAGE>
monies, securities or other compensation to any member of the National
Association of Securities Dealers, Inc. ("NASD") or to any associate or
affiliate of such a member or to any other person in consideration for such
person raising funds for the Company or providing consulting services to the
Company during the previous 12 months, except payments made to the Placement
Agent. The Company does not owe any monies or other obligations to any NASD
member, associate or affiliate.
2.9 No Pending Actions. Except as set forth in the Offering Documents,
there are no actions, suits, proceedings, claims or hearings of any kind or
nature existing or pending (or, to the best knowledge of the Company,
threatened) or, to the best knowledge of the Company, any investigations or
inquiries, before or by any court, or other governmental authority, tribunal or
instrumentality (or, to the Company's best knowledge, any state of facts which
would give rise thereto), pending or threatened against the Company, or
involving the properties of the Company, which might result in any material
adverse change in the business, properties, financial position or results of
operations of the Company, or which might adversely affect the transactions or
other acts contemplated by this Agreement or the validity or enforceability of
this Agreement.
2.10 Private Offering Exemption; Offering Documents. The Offering Documents
conform in all material respects with the requirements of Section 4(2) and/or
3(b) of the Securities Act and Rules 501-506 of Reg D and with the requirements
of all other applicable rules and regulations of the Securities and Exchange
Commission ("Commission") currently in effect relating to "private offerings."
The Offering Documents contain all material statements which are required to be
stated therein in accordance with such requirements and do not contain any
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, in the light of
the circumstances under which they were made, not misleading. The Warrants and
Placement Agent Options conform to the descriptions thereof contained in the
Offering Documents. When any exhibit to the Investment Summary that was required
to be filed with the Commission, was filed with the Commission pursuant to the
Exchange Act or the Regulations promulgated thereunder or other applicable law,
such exhibit complied in all material respects with the applicable provisions of
the Exchange Act and the Regulations promulgated thereunder or other applicable
law and did not contain an untrue statement of a material fact or omit 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
6
<PAGE>
misleading. Assuming that (i) a proper Form D is filed in accordance with Rule
503 of Reg D, (ii) the offer and the sale of the Units by the Placement Agent
was made in compliance with Rule 502(c) of Reg D and/or Section 4(2) of the
Securities Act, and (iii) the representations of the Subscribers in the
Subscription Agreements signed by them are true and correct (which facts will
not be independently verified by the Company) the sale of Units in the Offering
is exempt from registration under the Securities Act and is in compliance with
Reg D.
2.11 Due Authorization; Consents. The Company has full right, power and
authority to enter into this Agreement and the Warrants, the Subscription
Agreements and the Placement Agent Options to be entered into between the
Company and the Subscribers and the Placement Agent, as the case may be,
(collectively the "Offering Agreements") and to perform all of its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
Offering Agreements has been duly authorized by all necessary corporate action
and no further corporate action or approval is or will be required for their
respective execution, delivery and performance. This Agreement constitutes, and
the Offering Agreements upon execution and delivery will constitute, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms (except (i) as the enforceability thereof may be limited by
bankruptcy or other laws now or hereafter in effect relating to or affecting
creditors' rights generally, (ii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought, and (iii) that the enforceability of the
indemnification and contribution provisions of the respective agreements may be
limited by the federal and state securities laws and public policy), and no
consent, approval, authorization, order of, or filing with, any court or
governmental authority or any other third party is required to consummate the
transactions contemplated by this Agreement or the Offering Documents, except
that the offer and sale of the Units in certain jurisdictions may be subject to
the provisions of the securities or Blue Sky laws of such jurisdictions and
final action may have to be taken with respect to the listing of the Common
Stock underlying the Units, the Warrant Shares and the Common Stock underlying
the Placement Agent Options and the Warrants underlying the Placement Agent
Options.
2.12 Non-Contravention. The Company's execution and delivery of this
Agreement and the Offering Agreements and the incurrence of the obligations
herein and therein set forth, and the consummation of the transactions
contemplated herein and therein will not (i) conflict with, or
7
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constitute a breach of, or a default under, the Certificate of Incorporation or
By-Laws of the Company, or any contract, lease or other agreement or instrument
to which the Company is a party or in which the Company has a beneficial
interest or by which the Company is bound; (ii) violate any existing applicable
law, rule or regulation, or any judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business (collectively, "Laws"), except where such
violation(s) would not have a material adverse effect, singly or in the
aggregate, on the Company; or (iii) have any material adverse effect on any
permit, certification, registration, approval, consent, license or franchise
(collectively, "Permits") necessary for the Company to own or lease and operate
any of its properties or to conduct its business.
2.13 Shares and Warrants. The shares of Common Stock included in the Units,
the Warrant Shares and the shares of Common Stock underlying the Placement Agent
Options and the Warrants issuable thereunder have been duly and validly
authorized and, when issued and delivered in accordance with the terms of the
Subscription Agreements, the Warrants and Placement Agent Options, as the case
may be, will be duly and validly issued, fully paid and non-assessable. The
holders of the shares of Common Stock included in the Units and Warrant Shares
and the shares of Common Stock underlying the Placement Agent Options and the
Warrants issuable thereunder will not be subject to personal liability by reason
of being such holders and will not be subject to the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. All corporate action required to be taken for the authorization,
issuance and sale of the Common Stock, included in the Units, the Warrant Shares
and the shares of Common Stock underlying the Placement Agent Options and the
Warrants issuable thereunder have been duly and validly taken.
2.14 No Right to Purchase. The issuance of the Units in the Offering and
the Placement Agent Options and the Common Stock upon exercise of the Warrants,
the Placement Agent Options and the Warrants issuable thereunder will not give
any holder of any of the Company's outstanding shares of Common Stock, options,
warrants or other convertible securities or rights to purchase securities of the
Company (i) the right to purchase any additional shares of Common Stock or any
other securities of the Company, or (ii) the right to purchase any securities at
a reduced price.
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2.15 No Regulatory Problems. The Company (i) has not filed a registration
statement which is the subject of any pending proceeding or examination under
Section 8 of the Securities Act, and is not and has not been the subject of any
refusal order or stop order thereunder; (ii) is not subject to any pending
proceeding under Rule 258 of the Securities Act or any similar rule adopted
under Section 3(b) of the Securities Act, or to an order entered thereunder;
(iii) has not been convicted of any felony or misdemeanor in connection with the
purchase or sale of any security or involving the making of any false filing
with the Commission; (iv) is not subject to any order, judgment, or decree of
any court of competent jurisdiction temporarily or preliminarily restraining or
enjoining, or subject to any order, judgment, or decree of any court of
competent jurisdiction permanently restraining or enjoining, the Company from
engaging in or continuing any conduct or practice in connection with the
purchase or sale of any security or involving the making of any false filing
with the Commission; and (v) is not subject to a United States Postal Service
false representation order entered under Section 3005 of Title 39, United States
Code or a temporary restraining order or preliminary injunction entered under
Section 3007 of Title 39, United States Code, with respect to conduct alleged to
have violated Section 3005 of Title 39, United States Code. None of the
Company's directors, officers, or beneficial owners of 10 percent or more of any
class of its equity securities (i) has been convicted of any felony or
misdemeanor in connection with the purchase or sale of any security, involving
the making of a false filing with the Commission, or arising out of the conduct
of the business of an underwriter, broker, dealer, municipal securities dealer,
or investment advisor; (ii) is subject to any order, judgment or decree of any
court of competent jurisdiction temporarily or preliminarily enjoining or
restraining, or is subject to any order, judgment or decree of any court of
competent jurisdiction permanently enjoining or restraining, such person from
engaging in or continuing any conduct or practice in connection with the
purchase or sale of any security, or involving the making of a false filing with
the Commission, or arising out of the conduct of the business of an underwriter,
broker, dealer, municipal securities dealer, or investment adviser; (iii) is
subject to an order of the Commission entered pursuant to Section 15(b), 15B(a)
or 15B(c) of the Exchange Act, or is subject to an order of the Commission
entered pursuant to Section 203(e) or (f) of the Investment Advisers Act of
1940; (iv) is suspended or expelled from membership in, or suspended or barred
from association with a member of, an exchange registered as a national
securities exchange pursuant to Section 6 of the Exchange Act, an association
registered as a national securities association under Section 15A of the
Exchange Act, or a Canadian securities exchange or association for any act or
omission to act constituting conduct inconsistent with just and equitable
principles of trade; or (v) is
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subject to a United States Postal Service false representation order entered
under Section 3005 of Title 39, United States Code, or is subject to a
restraining order or preliminary injunction entered under Section 3007 of Title
39, United States Code, with respect to conduct alleged to have violated Section
3005 of Title 39, United States Code.
2.16 No Defaults. The Company is not in default in the performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, deed of trust, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the properties or assets of the Company
is subject, except defaults which (singly or in the aggregate) would not have a
material adverse effect on the Company. The Company is not in violation of any
term or provision of its Certificate of Incorporation or By-Laws.
2.17 Conduct of Business; Compliance with Law. The Company has all
requisite corporate power and authority, and has all necessary Permits, to own
or lease its properties and conduct its business as described in the Offering
Documents. The Company has been operating its business in compliance with all
such Permits. The disclosures in the Offering Documents concerning the effects
of federal, state and local regulation on the Company's business as currently
contemplated are correct in all material respects and do not omit to state a
material fact. The Company is in compliance with all Laws except where
noncompliance, singly or in the aggregate, would not have a material adverse
effect on the Company.
2.18 Title to Property; Insurance. The Company has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever. The Company has adequately
insured its properties against loss or damage by fire or other casualty and
maintains, in adequate amounts.
2.19 Intangibles. The Company owns or possesses the requisite licenses or
rights to use all trademarks, service marks, service names, trade names, patents
and patent applications, copyrights and other rights (collectively,
"Intangibles") used by the Company in its business or
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relating to products or services sold by the Company, and all such Intangibles
are listed on Schedule 2.19. The Company's Intangibles which have been
registered in the United States Patent and Trademark Office have been fully
maintained and are in full force and effect. There is no claim or action by any
person pertaining to, or proceeding pending or, to the Company's knowledge,
threatened and the Company has not received any notice of conflict with, the
asserted rights of others which challenges the exclusive right of the Company
with respect to any Intangibles used in the conduct of the Company's business
except as described in the Offering Documents. The Intangibles and the Company's
current products, services and processes do not infringe on any intangibles held
by any third party. To the best of the Company's knowledge, no others have
infringed upon the Intangibles of the Company.
2.20 Management Team. The background and other information concerning the
officers and directors of the Company previously furnished to the Placement
Agent and each of such person's responses to the Directors' and Officers'
Questionnaires are true and accurate in all material respects.
2.21 Material Contracts. Schedule 2.21 hereto contains a true and complete
list of all contracts, agreements, instruments, leases, licenses, arrangements
or undertakings of any nature, written or oral, of the Company ("Contracts")
which involve future payments, performance or services, development of products,
or delivery of goods or materials to or by the Company of an aggregate amount or
value in excess of $10,000 or which otherwise is material to the business or
prospects of the Company (collectively, the "Material Agreements"). The Company
has furnished the Placement Agent with true, correct and complete copies (or
where oral, written descriptions) of all Material Agreements, including all
exhibits, schedules, amendments, supplements, modifications and waivers thereto.
Except as set forth on Schedule 2.21, each of the Material Agreements is in full
force and effect, the Company has performed in all material respects all of its
obligations thereunder and is not in default thereunder, and no party to a
Material Agreement has made a claim to the effect that the Company has failed to
perform any obligations thereunder. To the knowledge of the Company, there is no
plan, intention, or indication of any contracting party to a Material Agreement
to cause termination, cancellation or modification of such Material Agreement or
to reduce or otherwise change its activity thereunder so as to adversely affect
in any material respect the benefits derived or expected to be derived therefrom
by the Company. The Company is not a party to, or bound by, any warranty
agreement with
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respect to products sold or any contract, agreement, commitment or restriction
which obligates the Company to perform services or to produce products
unprofitably. The aggregate amount of all liabilities of the Company under
Contracts which are not Material Agreements is not greater than $50,000.
2.22 Exchange Act Reports. The Company is subject to the reporting
requirements of the Securities and Exchange Act and has filed all reports and
statements required thereunder or the rules and regulations promulgated by the
Securities and Exchange Commission pursuant to that act, and each report and
statement was true and complete in all material respects when filed.
2.23 Subsidiaries. The representations and warranties made by the Company
in this Agreement shall also apply and be true with respect to each wholly and
partially owned subsidiary, individually and taken as a whole with the Company
and all subsidiaries, as if each representation and warranty contained herein
made specific referenced to the subsidiary each time the term "Company" was
used.
3. Representations and Warranties of the Placement Agent. The Placement Agent
represents and warrants as follows:
3.1 Due Incorporation. The Placement Agent is duly incorporated and validly
existing and in good standing under the laws of its state of incorporation and
is duly qualified as a foreign corporation for the transaction of business and
is in good standing in each jurisdiction where the failure to be so qualified
would not have a materially adverse effect on the business of the Placement
Agent.
3.2 Broker/Dealer Registration. The Placement Agent is registered as a
broker-dealer under Section 15 of the Exchange Act.
3.3 Good Standing. The Placement Agent is a member in good standing of the
NASD.
3.4 Sale In Certain Jurisdictions. Sales of Units by the Placement Agent
will be made only in such jurisdictions in which (i) the Placement Agent is a
registered broker-dealer or where
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an applicable exemption from such registration exists and (ii) the Offering and
sale of Units is registered under, or is exempt from, applicable registration
requirements.
3.5 Compliance with Laws. Offers and sales of Units by the Placement Agent
will be made in compliance with the provisions of Rule 502(c) of Reg D and/or
Section 4(2) of the Securities Act, and the Placement Agent will furnish to each
investor a copy of the Offering Documents prior to accepting any payments for
Units.
4. Closing.
4.1 Closing. At any time prior to the Termination Date and after the
receipt (and clearance) of subscriptions for not less than $2,000,000 and not
more than $4,000,000 of the Units which are accepted by the Company and the
clearance of the funds representing the sale of such Units, upon the mutual
consent of the Company and the Placement Agent that there should be a Closing, a
Closing shall take place at the offices of Graubard Mollen & Miller ("GM&M"),
600 Third Avenue, New York, New York. At the Closing, payment for the Units
issued and sold by the Company (by certified check payable to the order of, or
by wire transfer to, the Company), less the amount deductible by the Placement
Agent pursuant to Section 4.4 hereof, shall be made against delivery of
certificates representing the shares of Common Stock and the Warrants included
in the Units.
4.2 Deliveries at Closing. At the Closing, and as a condition to such
Closing, the Company shall deliver or cause to be delivered to the Placement
Agent:
4.2.1 Opinions of Counsel. The opinion of Morse, Zelnick, Rose &
Lander, dated as of the date of the Closing, to the effect that:
(i) The Company and each of the Subsidiaries has been duly
organized and is validly existing as a corporation or other entity and is in
good standing under the laws of its state of organization and is duly qualified
and in good standing in each jurisdiction in which it owns or leases any real
property or the character of its operations requires such qualification, except
where the failure to so qualify would not have a material adverse effect on the
business of the Company and the Subsidiaries taken as a whole.
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(ii) Based on a review of the Certificate of Incorporation of the
Company, and its corporate minute book and stock records, the Company is
authorized to issue 10,000,000 shares of Common Stock, of which 4,633,350 shares
are currently issued and outstanding. All issued and outstanding securities of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders; and none of such securities was issued in violation of the statutory
preemptive rights of any holders of any security of the Company or, to the
knowledge of such counsel, similar contractual rights granted by the Company.
The options and warrants to purchase shares of Common Stock outstanding
immediately before the Closing constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms. The offers and sales of
Common Stock and options and warrants to purchase shares of Common Stock
outstanding immediately before the Closing were at all relevant times either
registered under the Securities Act and the applicable state securities laws or
Blue Sky Laws or are exempt from the registration requirements thereof.
(iii) The Company and each of the Subsidiaries has all requisite
corporate power or other authority, and has all necessary Permits of and from
all governmental or regulatory officials and bodies to own or lease its
properties and conduct its business as described in the Investment Summary, and,
to the knowledge of such counsel, is and has been doing business in compliance
with all Permits, except where the failure to obtain or comply with any Permit
would not have a material adverse effect on the Company or any Subsidiary.
(iv) Except as set forth on Schedule 2.3 to this Agreement, there
are no statutory preemptive or other rights to subscribe for or purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock of the
Company, or any such right or restriction under the Certificate of Incorporation
or By-Laws of the Company or, to the best of such counsel's knowledge, under any
agreement or other outstanding instrument to which the Company is a party or by
which it is bound. To the best of such counsel's knowledge, except as set forth
in Schedule 2.3, (A) no holders of any securities of the Company or of any
options, warrants or securities of the Company exercisable for or convertible or
exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Securities Act
or to include any such securities in a registration statement to be filed by the
Company; and (B) the issuance of the Units in the Offering and the issuance of
the Warrant
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Shares upon the exercise of the Warrants, the issuance of the Placement Agent
Options or the issuance of the Common Stock or Warrants included therein or the
Common Stock issuable upon exercise of such Warrants will not give any holder of
any of the Company's outstanding options, warrants or other convertible
securities or rights to purchase shares of the Company's Common Stock, the right
to purchase any additional shares of Common Stock and/or the right to purchase
shares at a reduced price.
(v) In the course of the preparation of the Offering Documents,
such counsel has participated in discussions with officers of the Company.
Nothing has come to such counsel's attention which has caused such counsel to
believe that the Offering Documents contain any 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, in light of the circumstances under which they
were made, not misleading (except that such counsel need not express any opinion
as to the Financial Statements and other financial or statistical data contained
in the Offering Documents). The statements in the Offering Documents have been
reviewed by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects. No statute or regulation or legal or
governmental proceeding required to be described in the Offering Documents is
not described as required, nor are any contracts or documents of a character
required to be described in the Offering Documents not so described or filed as
required. Assuming that (a) a proper Form D is filed in accordance with Rule 503
of Reg D, (b) the offer and the sale of the Units by the Placement Agent was
made in compliance with Rule 502(c) of Reg D and (c) the representations of the
Subscribers in the Subscription Agreements signed by them are true and correct
(which facts have not been independently verified by counsel), the sale of the
Units is exempt from registration under the Securities Act and is in compliance
with Reg D.
(vi) The certificates representing the Common Stock, the Warrants
and the Placement Agent Options are in proper legal form. The Common Stock,
Warrants and Placement Agent Options conform in all respects to the descriptions
thereof contained in the Investment Summary.
(vii) The Company has all corporate power and authority to engage
in and consummate the Offering and to execute and deliver the Offering
Agreements and to carry out the
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provisions and conditions thereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consents,
approvals, authorizations or orders of, and no filing with, any court or
governmental agency or body (other than such as may be required under applicable
Blue Sky laws and the requirements for listing the Common Stock issuable in the
Offering and upon exercise of the Warrants, Placement Agent Options and the
Warrants underlying the Placement Agent Options) is required for the valid
authorization, issuance, sale and delivery of the Common Stock and Warrants, the
Placement Agent Options or the Common Stock issuable upon exercise of the
Warrants, Placement Agent Options or Warrants underlying the Placement Agent
Options, and the consummation of the transactions and agreements contemplated by
the Offering Documents and the Offering Agreements.
(viii) The Common Stock and Warrants included in the Units have
been duly authorized and validly issued and the Common Stock included in the
Units is, and Warrant Shares when issued and paid for will be, validly issued,
fully paid and non-assessable, and the holders thereof are not and will not be
subject to personal liability by reason of being such holders. The Placement
Agent Options have been duly authorized and validly issued, and the Common Stock
and Warrants issuable upon exercise of the Placement Agent Options and the
Common Stock issuable upon exercise of the Warrants, when issued and paid for,
will be validly issued, fully paid and non-assessable, and the holders thereof
will not be subject to personal liability by reason of being such holders. All
corporate action required to be taken for the authorization, issuance and sale
of the Units, Common Stock, Warrants and Warrant Shares and Placement Agent
Options has been duly and validly taken. This Agreement, the Subscription
Agreements and the other Offering Documents and Offering Agreements have been
duly and validly authorized, executed and delivered by the Company, will
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except (a) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of any
indemnification and contribution provisions may be limited under the federal and
state securities laws and public policy, and (c) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
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(ix) The execution, delivery and performance by the Company of
the Offering Documents and the Offering Agreements, the issuance and sale of the
Common Stock, Warrants, Warrant Shares and Placement Agent Options, the
consummation of the transactions contemplated hereby and thereby and the
compliance by the Company with the terms and provisions hereof and thereof, do
not and will not, with or without the giving of notice or the lapse of time, or
both, (A) conflict with, or result in a breach of any of the terms or provisions
of, or constitute a default under, or result in the creation or modification of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company pursuant to the terms of, any material mortgage, deed of
trust, note, indenture, loan, contract, commitment or other material agreement
or instrument to which the Company is a party or by which the Company or any of
its properties or assets may be bound, (B) result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the Company,
(C) violate any Law, except where such violation would not have a material
adverse effect upon the Company, or (D) have a material effect on any Permit.
(x) To the best of such counsel's knowledge, no default exists in
the due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, deed of trust, note, loan or
credit agreement, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company or a Subsidiary is a party or by which the Company or a
Subsidiary may be bound or to which any of its properties or assets is subject,
except such defaults which, singly or in the aggregate, would not have a
material adverse effect on the Company or any Subsidiary. Neither the Company
nor any Subsidiary is in violation of any term or provisions of its Certificate
of Incorporation or By-Laws. To the best of such counsel's knowledge, neither
the Company nor any Subsidiary is in violation of any Law, except where such
violation would not have a material adverse effect on the Company or any
Subsidiary, provided that this opinion does not extend to the matters covered by
the opinions of Gottlieb, Rackman & Reisman, PC and Farkas & Manelli, P.L.L.C.
dated the date hereof and addressed to you, copies of which are annexed hereto
and to matters of state, local and foreign law applicable to the sale and use of
the TAPS and SDS units and the disposal of medical waste that has been processed
using a TAPS or SDS unit.
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(xi) To the best of such counsel's knowledge, the Company and
each Subsidiary owns or possesses, free and clear of all liens or encumbrances
and rights thereto or therein by third parties, the requisite licenses or other
rights to use all intangibles and other rights necessary to conduct its business
(including, without limitation, any such licenses or rights described in the
Investment Summary as being licensed to or owned or possessed by the Company or
a Subsidiary) and, to the best of such counsel's knowledge, there is no claim or
action by any person pertaining to, or proceeding, pending or threatened which
challenges the exclusive rights of the Company or a Subsidiary with respect to
any intangibles used in the conduct of its business (including without
limitation any such licenses or rights described in the Investment Summary as
being owned or possessed by the Company or a Subsidiary).
(xii) To the best of such counsel's knowledge, except as
described in the Investment Summary, there are no claims, actions, suits,
hearings, investigations, inquiries or proceedings of any kind or nature, before
or by any court, governmental authority, tribunal or instrumentality, domestic
or foreign, pending or threatened against or affecting the Company or a
Subsidiary or involving the properties of the Company or a Subsidiary which may
result in any material adverse change in the business, properties or financial
condition of the Company or a Subsidiary, or which may adversely affect the
transactions or other acts contemplated by this Agreement or the validity or
enforceability of this Agreement.
4.2.2 Opinion of Patent Counsel. The opinion of Gottlieb, Rackman &
Reisman, P.C. ("Patent Counsel"), dated as of the date of the Closing, to the
effect that (A) the United States patents listed on Schedule 2.19 (1) are owned
by the Company, and (2) are duly issued by the United States Patent and
Trademark Office, and have been fully maintained and are in full force and
effect, (B) to the best of Patent Counsel's knowledge, there is no claim or
action by any person pertaining to or proceeding pending or threatened
concerning, and there is no notice of conflict with, the asserted rights of
others which challenges the exclusive right of the Company with respect to the
United States patents listed on Schedule 2.19, (C) to the best of Patent
Counsel's knowledge, the Company's patents listed on Schedule 2.19 do not
conflict with, and the Company's products, services and processes do not
infringe any proprietary rights held by any third party and no others have
infringed on the Company's patents listed on Schedule 2.19, it being understood
that no searches or market investigations have been undertaken by the Company or
on its behalf to uncover any such patents or products, processes or services,
and
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(D) Patent Counsel has reviewed the Sections entitled "Risk Factors - Patent
and Intellectual Property Protection" and "Business - Patents and Intellectual
Rights" in the Offering Documents and (1) nothing has come to Patent Counsel's
attention which has caused such counsel to believe that those Sections of the
Offering Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (2) insofar as they refer to statements of law, descriptions
of statutes, licenses, rules or regulations or legal conclusions, such
statements are correct in all material respects, it being understood that Patent
Counsel is not passing on the accuracy or completeness of any reference in the
Offering Documents to foreign patents, laws, rules or regulations.
4.2.3 Opinion of Regulatory Counsel. The opinion of Farkas & Manelli,
P.L.L.C. ("Regulatory Counsel"), dated as of the date of the Closing, to the
effect that (A) the statements in the Offering Documents under the Sections
entitled "Risk Factors - Government Regulation and FDA Approval," "Business -
Products" and "Business - Government Regulation," insofar as they refer to or
describe federal statues, laws, rules, regulations, requirements or procedures
concerning or relating to the business or operation of the Company or its
products, services or use of its products or services enforced in whole or in
part by the United States Food and Drug Administration ("FDA"), United States
Environmental Protection Agency ("EPA") or other federal authorities regulating
medical devices or medical waste ("Laws and Procedures"), accurately and fairly
present the information given, (B) that the Sections entitled "Risk Factors -
Government Regulation and FDA Approval," "Business Products" and "Business -
Government Regulation," do not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading, (C) to the best of Regulatory Counsel's knowledge, there is no
pending or, threatened legal or governmental proceeding pertaining to or arising
out of the Laws and Procedures to which the Company is a party which could
materially adversely affect the business, operations, property or financial
conditions of the Company, and (D) nothing has come to the attention of
Regulatory Counsel indicating that the Company is not conducting its business as
described in the Investment Summary in compliance with the Laws and Procedures.
4.2.4 A certificate of the Company, signed by two executive officers
thereof, stating (a) that the representations and warranties contained in
Section 2 hereof are true and
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accurate at the Closing as applied to the Company with the same effect as though
expressly made at the Closing, and (b) that the Company has complied with all
covenants and agreements required to be complied with as of the Closing.
4.2.5 Subscription Agreements signed by the Company and each of the
Subscribers.
4.2.6 The certificates representing the Common Stock and the Warrants
included in the Units.
4.2.7 Consents of any parties required to consummate this Offering and the
transactions contemplated thereby.
4.2.8 Lock-Up Agreements and Right of First Refusal Agreements, as
contemplated by paragraphs (f) and (i) of the Letter of Intent, signed by the
Company's officers, directors (which agreements are also effective against any
family member or affiliate of any of the foregoing persons).
4.2.9 Employment Agreements between the Company and Messrs. Len Osser and
Greg Volok that are reasonably acceptable to the Placement Agent with expiration
dates no earlier than December 31, 1999 and a non-competition provision
extending two-years after termination of employment for Mr. Osser and 18 months
after termination of employment for Mr. Volok; and evidence of key-man insurance
on each of Messrs. Osser and Volok in the amount of $1,000,000.
4.2.10 Copy of letters to DTC and the Company's transfer agent requesting
that the Placement Agent be provided copies of the Company's daily stock
transfer sheet and lists of the beneficial and record holders of the Company's
securities, at the Company's sole cost and expense.
4.2.11 Copy of acceptance for listing of additional shares for the Common
Stock to be issued at the Closing from The Nasdaq Stock Market.
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4.2.12 Release by LenRon Realty, Inc. of lease obligations of Spintech in
respect of all property leased by Spintech from LenRon Realty, Inc.
4.2.13 Such other closing documents as shall be reasonably requested by the
Placement Agent or GM&M.
4.3 Conditions. The obligations of the Placement Agent under this Agreement
shall be subject to the following conditions:
(i) All representations and warranties of the Company set forth in
this Agreement are true and accurate as of the date of the Closing; and
(ii) The Company has complied with all covenants and agreements
required to be complied with as of the date of the Closing.
4.4 Placement Agent's Fees and Expenses. At the Closing, the Company shall
pay to the Placement Agent a commission equal to 10% of the aggregate purchase
price of the Units sold in the Offering. In order to reimburse the Placement
Agent for its expenses incurred in connection with the Offering, at the Closing,
the Company also shall pay to the Placement Agent a non-accountable expense
allowance equal to 3% of the aggregate purchase price of the Units (less $20,000
paid on account) sold in the Offering. On or before the Closing, the Company
shall pay the fees and disbursements of GM&M referred to in Section 5.3 below in
connection with the qualification of the Units under the securities or Blue Sky
laws of the states which the Placement Agent shall designate and the other
expenses of the offering that are referred to in Section 5.3 below. All the
foregoing amounts are payable directly to the parties who are owed same by
deduction from the aggregate purchase price of the Units sold.
4.5 Placement Agent Options. At the Closing, the Company shall issue to the
Placement Agent and its designees, five-year options ("Placement Agent Options")
to purchase a number of Units equal to 10% of the Units sold in the Offering,
exercisable at a purchase price equal to the per-Unit Offering Price, at any
time until the fifth anniversary of the Closing. The Units purchasable under the
Placement Agent Options will be identical to the Units sold to the Subscribers.
The Placement Agent Option will contain registration rights with respect to the
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shares underlying the Placement Agent Options and Warrants issuable upon
exercise of the Placement Agent Options identical to the registration rights
granted to the Subscribers in the Offering.
5. Covenants. The Company covenants and agrees that:
5.1 Amendments to Offering Documents. Until the Offering has been completed
or terminated, if there shall occur any event relating to or affecting, among
other things, the Company or any affiliate, or the proposed operations of the
Company as described in the Offering Documents, as a result of which it is
necessary, in the reasonable opinion of GM&M or counsel for the Company, to
amend or supplement the Offering Documents in order that the Offering Documents
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, the Company shall
immediately prepare and furnish to the Placement Agent a reasonable number of
copies of an appropriate amendment of or supplement to the Offering Documents,
in form and substance satisfactory to GM&M.
5.2 Use of Proceeds. The net proceeds of the Offering will not be used to
repay any indebtedness for borrowed funds or any indebtedness to officers,
directors or affiliates of the Company.
5.3 Expenses of Offering. The Company shall be responsible for, and shall
pay, all fees, disbursements and expenses incurred in connection with the
Offering, including, but not limited to, the Company's legal and accounting fees
and disbursements, the costs of preparing, printing, mailing, delivering and,
where necessary, filing the Offering Documents, including all amendments and
supplements thereto, this Agreement, the Subscription Agreement, Warrants and
Placement Agent Options and related documents, all in quantities as the
Placement Agent may reasonably require; preparation of transaction "bibles" in
such quantities as the Placement Agent may reasonably request; the costs of "due
diligence meetings" held by the Company; preparation and printing of stock and
warrant certificates; and the fees and disbursements of GM&M in connection with
blue sky matters (which fees (excluding disbursements) shall be approximately
$20,000), plus "blue sky" filing fees to be paid in the various states (as such
fees become due) and transfer taxes and transfer and warrant agent fees. The
Company shall pay International
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Business Research (U.S.A.), Inc. ("IBR") the sum of $7,500 in respect of the
investigative due diligence search conducted by IBR on its behalf (which amount
shall be deducted from the non-accountants expense account provided in Section
4.4 hereof).
5.4 Further Assurances. The Company will take such actions as may be
reasonably required or desirable to carry out the provisions of this Agreement
and the transactions contemplated hereby. The Company further agrees to take
promptly, or cause to be taken, all actions and to do promptly, or cause to be
done, all other things necessary, proper or advisable to prepare the
registration statement necessary to file with the Commission in connection with
the proposed initial public offering and have such registration statement
declared effective by the Commission.
5.5 Capitalization. The Company will not change its current capitalization
or issue any shares of capital stock or any options, warrants or other
securities convertible into or exchangeable for shares of Common Stock, other
than as contemplated in the Letter of Intent, without the consent of the
Placement Agent prior to the earlier of the effectiveness or abandonment of the
proposed initial public offering.
5.6 Restriction on Sales of Securities. The Company will not permit or
cause a private or public sale or private or public offering of any of its
securities (in any manner, including pursuant to Rule 144 under the Securities
Act) owned or to be owned of record, or beneficially owned by any of the
Company's officers or directors, or by any family member or affiliate of any of
the foregoing persons (collectively, "Insiders") for a period commencing on the
Closing and terminating on November 3, 1997 without obtaining the prior written
approval of the Placement Agent (and, if required by applicable state blue sky
laws, the securities commissions in any such states). The Company agrees to
cause each Insider to execute a separate agreement with the Placement Agent to
the above effect and deliver such agreement to the Placement Agent at the
Initial Closing. Such agreement shall also provide that during the two-year
period following the Closing, the Placement Agent shall have the right to
purchase for its account or to sell for the account of the Insiders any
securities sold by the Insiders on the open market, including sales pursuant to
Rule 144 under the Securities Act and each Insider will agree to consult with
the Placement Agent with regard to any such sales and will offer the Placement
Agent the exclusive opportunity to purchase or sell such securities on terms at
least as favorable to the Insiders as they can secure elsewhere; provided that
if the Placement Agent fails to accept any such proposal
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from an Insider within one business day after receipt of a notice containing
such proposal, then the Placement Agent shall have no claim or right with
respect to any such sales contained in any such notice unless such proposal is
modified in any material respect in which event the Insiders shall adopt the
same procedure as with respect to the original proposal.
5.7 Key-Person Insurance. Prior to the Closing, the Company shall purchase
key-person life insurance naming the Company as a beneficiary on the lives of
Len Osser and Gregory Volok in the amount of at least $1,000,000.
5.8 Review of Compensation. During the period of three years after the
Closing, the Company will establish a compensation committee, of which the
majority are independent directors, and this committee must approve all
compensation and other employment arrangements of the officers, directors and
affiliates of the Company and its Subsidiaries.
5.9 Right of First Refusal. The Company hereby grants to the Placement
Agent a right of first refusal to underwrite or place any public or private sale
of debt or equity securities ("Future Offering") of the Company or any
subsidiary or successor of the Company, for which the Company engages a
placement or selling agent or underwriter, during the two-year period following
the Closing. If the Placement Agent fails to accept in writing any proposal for
such Future Offering within 30 days after receipt of a written notice from the
Company containing such proposal, then the Placement Agent shall have no claim
or right with respect to such Future Offering, except as set forth below. If,
thereafter, the terms of the Future Offering are modified in any material
respect, the Company shall adopt the same procedure as with respect to the
original proposal. Notwithstanding the foregoing, if the Placement Agent elects
not to exercise this right of first refusal with respect to any Future Offering
which is an underwritten public offering, then the Company shall, at the
Placement Agent's request, arrange for (i) the Placement Agent to be afforded
the opportunity to participate in the underwriting syndicate for such Future
Offering at a level immediately below the managing underwriter(s) or at such
other level below the managing underwriter(s) as the Placement Agent shall
select; and (ii) the Placement Agent, in its sole discretion, to be afforded the
opportunity to purchase, as a member of the selling group for such Future
Offering, the largest allocation provided to any member of the selling group.
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5.10 Designee to the Board of Directors. For a period of three (3) years
from the Effective Date, the Placement Agent shall have the right to designate a
person to serve on the Company's Board of Directors, such person to be subject
to the Company's approval, which shall not be unreasonably withheld. The Company
will appoint such designee to the Board promptly after the Placement Agent
designates such person and shall recommend and use its best efforts to have such
designee elected at each annual or other meeting held after such appointment
during the three-year period, at which directors of the Company are to be
elected. Such designee shall receive no more or less compensation than is paid
to other non-management directors of the Company. To the extent permitted by
law, the Company will agree to indemnify the Placement Agent and its designee
for the actions of such designee as a director of the Company. In the event the
Company maintains a liability insurance policy affording coverage for the acts
of its officers and directors, it will, if possible, include each of the
Placement Agent and its designee as an insured under such policy. The Company
agrees to give the Placement Agent written notice of each such meeting of the
board of directors and to provide the Placement Agent with an agenda and minutes
of the meeting no later than it gives such notice and provides such items to the
other directors.
5.11 Accuracy of Representations and Warranties. The Company hereby agrees
that prior to the Termination Date it will not enter into any transaction or
take any action, and will use its best efforts to prevent the occurrence of any
event, which could result in any of its representations, warranties or covenants
contained in this Agreement or any of the Offering Documents not to be true and
correct, or not to be performed as contemplated, at and as of the time
immediately after the occurrence of such transaction or event.
5.12 Warrant Solicitation and Warrant Solicitation Fee.
5.12.1 The Company hereby engages the Placement Agent, on a
non-exclusive basis, as its agent for the solicitation of the exercise of the
Warrants (including Extra Warrants). The Company, at its cost, will (i) assist
the Placement Agent with respect to such solicitation, if requested by the
Placement Agent and (ii) provide the Placement Agent, and direct the Company's
transfer and warrant agents to deliver to the Placement Agent, lists of the
record, and to the extent known, beneficial owners of the Warrants. The Company
shall instruct the transfer and warrant agents to cooperate with the Placement
Agent in every respect in connection with the Placement
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Agent's solicitation activities, including, but not limited to, providing to the
Placement Agent, at the Company's cost, a list of record and beneficial holders
of the Warrant and providing disclosure documents, where necessary, to holders
of the Warrants at the time of exercise of the Warrants.
5.12.2 In each instance in which a Warrant is exercised, the Company
shall promptly give written notice of such exercise to the Placement Agent. If,
upon the exercise of any Warrant, (i) the market price of the Company's Common
Stock is greater than the Warrant exercise price, (ii) disclosure of
compensation arrangements was made at the time of offering and of exercise (as
required by applicable law, rule or regulation), (iii) the exercise of the
Warrant was solicited by the Placement Agent, (iv) the Warrant was not held in a
discretionary account, and (v) the solicitation of the exercise of the Warrant
was not in violation of Rule 10b-6 (as such rule or any successor rule may be in
effect as of such time of exercise) promulgated under the Exchange Act, then the
Company shall, upon exercise of the Warrant, pay from the proceeds received upon
exercise of the Warrant a fee of 5% of the Warrant exercise price to the
Placement Agent, provided that the Placement Agent delivers to the Company a
certificate that the conditions set forth in the preceding clauses (iii), (iv)
and (v) have been satisfied. The Placement Agent may, at any time during
business hours, examine the records of the Company, including its ledger of
original Warrant certificates returned to the Company upon exercise of Warrants.
5.13 Listing of Securities. The Company shall apply for listing, and obtain
such listing, for the shares of Common Stock issuable upon exercise of the
Warrants, the Placement Agent Options and the Warrants underlying the Placement
Agent Options on The Nasdaq Stock Market and each exchange on which the Common
Stock is listed, at the earliest time that such listing may be obtained in
accordance with the rules and regulations of The Nasdaq Stock Market and the
exchange and maintain such listing until the seventh anniversary of the date of
Closing.
6. Registration Rights; Subscriber Lockup.
6.1 Registration Rights. As additional consideration for this Agreement and
the transactions contemplated hereby, the Company agrees with the Placement
Agent and will agree with each Subscriber, as the case may be, to register for
resale under a Registration Statement ("Registration Statement") pursuant to the
Securities Act and the Blue Sky or state securities laws of states reasonably
selected by the Placement Agent, the Common Stock comprising the Units
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and the Common Stock underlying the Warrants, the Placement Agent Option and the
Warrants underlying the Placement Agent Option ("Registrable Securities"). The
Company agrees that the Registration Statement will be filed on or before April
30, 1997. The Company agrees to use its best efforts to have the Registration
Statement declared effective by the 75th day after the filing of the
Registration Statement (" Target Date"). If the Company shall either fail to so
file the Registration Statement or to use it best efforts to have the
Registration Statement declared effective by the Target Date, and the
Registration Statement is not declared effective by the Target Date, then on the
Target Date and on each monthly anniversary of the Target Date thereafter until
the earlier of the effective date of the Registration Statement ("Effective
Date") or the twentieth monthly anniversary of the Target Date, the Company
shall issue to each Subscriber (or his successor or transferee), Warrants
("Extra Warrants") to purchase a number of shares of Common Stock equal to 5% of
the number of Units purchased by the Subscriber (or his successor or transferee)
in the Offering. The Extra Warrants shall have the same terms as the Warrants
included in the Units. To the extent that the Company issues any Extra Warrants
or is obligated to issue any Extra Warrants, the Common Stock underlying such
Extra Warrants will be included in the Registration Statement. The Company shall
keep the Registration Statement effective and current until all the securities
registered thereunder are sold ir can be sold freely under an appropriate
exemption from the securities laws of the United States and the states, without
limitation. The Company shall bear all the expenses and pay all the fees it
incurs in connection with the preparation, filing and modification or amendment
of the Registration Statement, including the fees (at regular hourly rates, but
no more than $5,000 and expenses) of one special counsel for the Subscribers,
which shall be GM&M. The Company agrees with the Placement Agent and the
Subscribers that it will provide copies of the Registration Statement (including
each amendment and supplement) to GM&M at least 10 days prior to its planned
filing date with the Commission, and consult with GM&M concerning the timing of
filings and issues and comments from regulatory authorities relating to the
Registration Statement. The registration rights granted in respect of the
Registrable Securities shall inure to the benefit of each pledgee, assignee,
transferee or purchaser of the Registrable Securities and each successor and
heir of the Subscribers, Placement Agent and the holders of the Placement Agent
Options.
6.2 Lockup by Subscribers. Notwithstanding the foregoing, each Subscription
Agreement will provide that each Subscriber will not sell any of the securities
of the Company
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purchased in the Offering or any of the Warrant Shares for a period of one year
after the Closing, without the prior written consent of the Placement Agent.
7. Indemnification and Contribution.
7.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless the Placement Agent and each person, if any, who controls the
Placement Agent within the meaning of the Securities Act and/or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
the Placement Agent or such controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (vi)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Offering Documents, or (B) in any blue sky application or other
document executed by the Company specifically for blue sky purposes or based
upon any other written information furnished by the Company or on its behalf to
any state or other jurisdiction in order to qualify any or all of the Units
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), (vii) any breach by the
Company of any of its representations, warranties or covenants contained herein
or in any of the Offering Agreements, or (viii) the omission or alleged omission
by the Company to state in the Offering Documents or in any Blue Sky Application
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and will reimburse the Placement Agent and each such controlling
person for any legal or other expenses reasonably incurred by the Placement
Agent or such controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action, whether arising out of an
action between the Placement Agent and the Company or the Placement Agent and a
third party; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon (i) an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information regarding the Placement Agent which is furnished to the Company by
the Placement Agent specifically for inclusion in the Offering Documents or any
such Blue Sky Application or (ii) any breach by the Placement Agent of the
representations, warranties or covenants contained herein (collectively, (i) and
(ii) above are referred to as the "Non-Indemnity Events").
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7.2 Indemnification by the Placement Agent. The Placement Agent agrees to
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act and/or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
the Company or such controlling person may become subject, under the Securities
Act or otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any Non-Indemnity
Event; and will reimburse the Company and each such controlling person for any
legal or other expenses reasonably incurred by the Company or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action provided that such loss, claim, damage or liability
is found ultimately to arise out of or be based upon any Non-Indemnity Event.
7.3 Procedure. Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 7, notify in writing the indemnifying party of the
commencement thereof; and the omission so to notify the indemnifying party will
relieve the indemnifying party from any liability under this Section 7 as to the
particular item for which indemnification is then being sought, but not from any
other liability which it may have to any indemnified party. In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with any other
indemnifying party, similarly notified, to assume the defense thereof, with
counsel who shall be to the reasonable satisfaction of such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
7.4 Contribution. If the indemnification provided for in this Section 7 is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
or payable by such indemnified party, as a result of such losses,
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<PAGE>
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Placement Agent, on the other hand, from the Offering, 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, on
the one hand, and of the Placement Agent, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative benefits received by the Company, on the one hand, and the
Placement Agent, on the other hand, shall be deemed to be in the same proportion
as the total proceeds from the Offering (net of sales commissions and the
non-accountable expense allowance, but before deducting other expenses) received
by the Company bear to the commissions and non-accountable expense allowance
received by the Placement Agent. The relative fault of the Company, on the one
hand, and the Placement Agent, on the other hand, will be determined with
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company, and its relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
7.5 Equitable Considerations. The Company and the Placement Agent agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to in the
immediately preceding paragraph.
7.6 Attorneys' Fees. The amount payable by a party under this Section 7 as
a result of the losses, claims, damages, liabilities or expenses referred to
above will be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
8. Termination by Placement Agent. The Placement Agent shall have the right to
terminate this Agreement at any time prior to the Closing, (i) information comes
to the Placement Agent's attention relating to the Company, its management or
its position in the industry which would preclude a successful offering in the
Placement Agent's opinion; (ii) a material adverse change not yet reported by
the Company in its public filings has occurred in the financial condition,
30
<PAGE>
business or prospects of the Company (it is acknowledged by the Placement Agent
that continued losses by the Company of approximately the same magnitude as
previously reported shall not be deemed to be material adverse changes); or
(iii) the Company has breached any of its material representations, warranties
or obligations hereunder, or continually failed to expeditiously proceed with
the Offering. If the Placement Agent elects not to proceed with the Offering as
a result of any of the conditions enumerated in clauses (ii) through (iii)
above, and the Company consummates a private or public equity or debt financing
(excluding bank financing) within 12 months of such election, or if the Company
elects not to proceed with the Offering for any reason, then the Company shall
reimburse the Placement Agent in full for its reasonable out-of-pocket expenses
(including, without limitation its legal fees and disbursements), against which
any amount paid under the Letter of Intent, dated December 13, 1996 ("Letter of
Intent") to the Placement Agent shall be applied as a credit. In the event the
Placement Agent elects not to proceed with the Offering as a result of the
conditions enumerated in clause (i) above, the Placement Agent shall be entitled
to retain the amount paid under the Letter of Intent, but the Company shall not
be liable to the Placement Agent for any other expenses of the Placement Agent.
The provisions of Sections 7 and 8 of this Agreement shall survive the
termination of this Agreement for any reason.
9. Notices. Any notice hereunder shall be in writing and shall be effective when
delivered in person or by facsimile transmission, or mailed by certified mail,
postage prepaid, return receipt requested, to the appropriate party or parties,
at the following addresses: if to the Placement Agent, to GKN Securities Corp.,
61 Broadway, 12th Fl., New York, New York 10006, Attention: Deborah S. Novick,
Senior Vice President, Investment Banking (Fax No. 212-509-5186); with a copy to
Graubard Mollen & Miller, 600 Third Avenue, New York, New York 10016, Attention:
David Alan Miller, Esq. (Fax No. 212/818-8881); if to the Company, to Milestone
Scientific Inc., 44 Kean Road, Short Hills, New Jersey 07078, Attention: Mr. Len
Osser, President (Fax No. 201/379-5411); with a copy to Morse, Zelnick, Rose &
Lander, 450 Park Avenue, New York, New York 10022, Attention: Mr. Stephen
Zelnick (Fax No. 212/838-9190); or, in each case, to such other address as the
parties may hereinafter designated by like notice.
10. Parties. This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Neither party may
assign this Agreement or its obligations hereunder without the prior written
consent of the other party. This Agreement is intended to be, and is, for the
sole and exclusive benefit of the parties hereto and the persons
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<PAGE>
described in Section 7.1 and 7.2 hereof and their respective successors and
assigns, and for the benefit of no other person, and no other person will have
any legal or equitable right, remedy or claim under, or in respect of this
Agreement.
11. Amendment and/or Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
12. Further Assurances. Each party to this Agreement will perform any and all
acts and execute any and all documents as may be necessary and proper under the
circumstances in order to accomplish the intents and purposes of this Agreement
and to carry out its provisions.
13. Validity. In case any term of this Agreement will be held invalid, illegal
or unenforceable, in whole or in part, the validity of any of the other terms of
this Agreement will not in any way be affected thereby.
14. Waiver of Breach. The failure of any party hereto to insist upon strict
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred in any one or more instances, will
not be construed to be a waiver or relinquishment of any such option or right,
or of any other covenants or agreements, and the same will be and remain in full
force and effect.
15. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof, respectively, and there are no representations, inducements, promises
or agreements, oral or otherwise, not embodied in this Agreement. Any and all
prior discussions, negotiations, commitments and understanding relating to the
subject matter of these agreements are superseded by them.
16. Counterparts. This Agreement may be executed in counterparts and each of
such counterparts will for all purposes be deemed to be an original, and such
counterparts will together constitute one and the same instrument.
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17. Law. This Agreement will be deemed to have been made and delivered in New
York City and will be governed as to validity, interpretation, construction,
effect and in all other respects by the internal law of the State of New York.
The Company (iv) agrees that any legal suit, action or proceeding arising out of
or relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (v) waives any objection to the venue of any
such suit, action or proceeding, and the right to assert that such forum is an
inconvenient forum, and (vi) irrevocably consents to the jurisdiction of the New
York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon it mailed by certified mail to its address shall be deemed in every
respect effective service of process upon it in any such suit, action or
proceeding.
18. Representations, Warranties and Covenants to Survive Delivery. The
respective representations, indemnities, agreements, covenants, warranties and
other statements of the Company and the Placement Agent shall survive execution
of this Agreement and delivery of the Units and/or the termination of this
Agreement prior thereto.
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If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
MILESTONE SCIENTIFIC INC.
By: /s/Len Osser
---------------------
Len Osser, President
AGREED:
GKN SECURITIES CORP.
By: /s/Deborah S. Novick
------------------------
Deborah S. Novick
Senior Vice President
34
THE SECURITIES EVIDENCED BY THIS INSTRUMENT, AS OF THE DATE OF ORIGINAL ISSUANCE
HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE OR JURISDICTION, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
NOT EXERCISABLE PRIOR TO MARCH 13, 1997. VOID AFTER 5:00 P.M. EASTERN TIME,
MARCH 13, 2002.
PURCHASE OPTION
For _________ Units
of
Milestone Scientific Inc.
(A Delaware Corporation)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of one hundred dollars duly paid by
or on behalf of [Holder] ("Holder"), as registered owner of this Purchase
Option, to Milestone Scientific Inc. ("Company"), Holder is entitled, at any
time or from time to time at or after March 13, 1997 ("Commencement Date"), and
at or before 5:00 p.m., Eastern Time, March 13, 2002 ("Expiration Date"), but
not thereafter, to subscribe for, purchase and receive, in whole or in part, up
to _________ Units of the Company ("Units"). Each Unit consists of one (1) share
of Common Stock of the Company, $.001 par value ("Common Stock") and one Common
Stock Purchase Warrant ("Warrant"). Each Warrant is to purchase one share of
Common Stock for a period of five years from the closing date ("Closing Date")
of the sale of Units in a private placement ("Private Placement") through GKN
Securities Corp. ("GKN") as placement agent, as described in the Agency
Agreement between the Company and GKN dated as of February 4, 1997. Each Unit
and Warrant is the same as the Units and Warrants sold in the Private Placement.
The Units, shares of Common Stock and Warrants issuable hereunder are sometimes
collectively referred to herein as the "Securities." If the Expiration Date is a
day on which banking institutions are authorized by law to close, then this
Purchase Option may be exercised on the next succeeding day which is not such a
day in accordance with the terms herein. This Purchase Option is initially
exercisable at $4.72 per Unit purchased; provided, however, that upon the
occurrence of any of the events specified in Section 6 hereof, the rights
granted by this Purchase Option, including the exercise price for the Units and
the number of shares of Common Stock and Warrants to be received upon such
exercise, shall be adjusted as therein specified. The term "Exercise Price"
shall mean the initial exercise price or the adjusted exercise price,
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depending on the context. This Purchase Option is one of a number of such
options issued by the Company to GKN and its designees ("Purchase Options").
2. Exercise.
2.1. Exercise Form. In order to exercise this Purchase Option, the exercise form
attached hereto must be duly executed and completed and delivered to the
Company, together with this Purchase Option and payment of the Exercise Price
for the Securities being purchased by wire transfer, certified check or official
bank check. If the subscription rights represented hereby are not exercised at
or before 5:00 p.m., Eastern time, on the Expiration Date this Purchase Option
shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
2.2. Legend. Each certificate for the securities purchased under this Purchase
Option shall bear a legend as follows unless such Securities have been
registered under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Securities Act") or applicable state law. The securities may
not be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the
Securities Act, or pursuant to an exemption from registration
under the Securities Act and applicable state law."
2.3. Cashless Exercise.
2.3.1. Determination of Amount. In lieu of the payment of the Exercise Price in
the manner required by Section 2.1, the Holder shall have the right (but not the
obligation) to pay the Exercise Price for the Units being purchased with this
Purchase Option upon exercise by the surrender to the Company of any exercisable
but unexercised portion of this Purchase Option having a "Value" (as defined
below), at the close of trading on the last trading day immediately preceding
the exercise of this Purchase Option, equal to the Exercise Price multiplied by
the number of Units being purchased upon exercise ("Cashless Exercise Right").
The sum of (a) the number of Units being purchased upon exercise of the
non-surrendered portion of this Purchase Option pursuant to this Cashless
Exercise Right and (b) the number of Units underlying the portion of this
Purchase Option being surrendered, shall not in any event be greater than the
total number of Units purchasable upon the complete exercise of this Purchase
Option if the Exercise Price were paid in cash. The "Value" of the portion of
the Purchase Option being surrendered shall equal the remainder derived by
subtracting (a) the Exercise Price multiplied by the number of Units underlying
the portion of this Purchase Option being surrendered from (b) the "Market
Price" (as defined below) of the Units multiplied by the number of Units
underlying the portion of this Purchase Option being surrendered. As used
herein, the term "Market Price" at any date shall be deemed to be the remainder
derived by subtracting (a) the exercise price of a Warrant from (b) two times
the last reported sale price of a share of Common Stock on such date (provided,
however, that in no event shall the "Market Price" be less than the last
reported sale price of a share of Common Stock on such date), or, in case no
such reported sale takes place on such date, the average of the last reported
sale prices for the immediately preceding three trading days, in either case as
officially reported by the
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<PAGE>
principal securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or if any such exchange on which the Common Stock
is listed is not its principal trading market, the last reported sale price as
furnished by the National Association of Securities Dealers ("NASD") through the
Nasdaq National Market or SmallCap Market, or, if applicable, the OTC Bulletin
Board, or if the Common Stock is not listed or admitted to trading on the Nasdaq
National Market or SmallCap Market or OTC Bulletin Board or similar
organization, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
2.3.2. Mechanics of Cashless Exercise. The Cashless Exercise Right may be
exercised by the Holder on any business day on or after the Commencement Date
and not later than the Expiration Date by delivering to the Company the Purchase
Option with a duly executed exercise form attached hereto with the cashless
exercise section completed.
3. Transfer.
3.1. General Restrictions. The registered Holder of this Purchase Option, by
its acceptance hereof, agrees that it will not sell, transfer or assign or
hypothecate this Purchase Option, other than in compliance with or exemptions
from applicable securities laws. In order to make any permitted assignment, the
Holder must deliver to the Company the assignment form attached hereto duly
executed and completed, together with this Purchase Option and payment of all
transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Purchase Option on the books of the Company and shall
execute and deliver a new Purchase Option or Purchase Options of like tenor to
the appropriate assignee(s) expressly evidencing the right to purchase the
aggregate number of Units purchasable hereunder or such portion of such number
as shall be contemplated by any such assignment.
3.2. Restrictions Imposed by the Act. This Purchase Option and the Securities
underlying this Purchase Option shall not be transferred unless and until (i)
the Company has received the opinion of counsel reasonably acceptable to the
Company that this Purchase Option or the Securities, as the case may be, may be
transferred pursuant to an exemption from registration under the Act and
applicable state law, the availability of which is established to the reasonable
satisfaction of the Company, or (ii) a registration statement relating to such
Purchase Option or Securities, as the case may be, has been filed by the Company
and declared effective by the Securities and Exchange Commission ("Commission").
4. New Purchase Options to be Issued.
4.1. Partial Exercise or Transfer. Subject to the restrictions in Section 3
hereof, this Purchase Option may be exercised or assigned in whole or in part.
In the event of the exercise or assignment hereof in part only, the Company
shall cause to be delivered to the Holder without charge a new Purchase Option
of like tenor in the name of the Holder evidencing the right to purchase the
aggregate number of Units as to which this Purchase Option has not been
exercised or assigned.
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<PAGE>
4.2. Lost Certificate. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Purchase Option and of
reasonably satisfactory indemnification, the Company shall execute and deliver a
new Purchase Option of like tenor and date. Any such new Purchase Option
executed and delivered as a result of such loss, theft, mutilation or
destruction shall constitute a substitute contractual obligation on the part of
the Company.
5. Registration Rights.
5.1. Registration Requirement.
5.1.1. Obligation to Register. The Company agrees to file on or before April
30, 1997, a registration statement ("Registration Statement") under the
Securities Act with the Commission, registering for resale the Common Stock
issuable upon exercise of this Purchase Option, the Common Stock issuable upon
exercise of the Warrants issuable upon exercise of this Purchase Option, and the
Common Stock underlying any Extra Warrants which may be issued pursuant to
Section 5.1.2 below and the Common Stock and Common Stock issuable upon exercise
of Warrants included in the Units sold to investors in the Private Placement,
and use its best efforts to have the Registration Statement declared effective
by the 75th day after the initial filing of the Registration Statement ("Target
Date").
5.1.2. Issuance of Additional Warrants. The Company agrees that if the
Registration Statement is not filed on or before April 30, 1997, or if the
Company fails to use its best efforts to have the Registration Statement
declared effective by the Commission by the Target Date and the Registration
Statement is not declared effective by the Target Date, then on the Target Date
and on each monthly anniversary of the Target Date thereafter until the earlier
of the effective date of the Registration Statement or the twentieth monthly
anniversary of the Target Date, it will issue to the Holders of the Purchase
Options Warrants ("Extra Warrants") to purchase a number of shares of Common
Stock, equal to 5% of the number of Units underlying the Purchase Options issued
on the Closing Date, such Extra Warrants to have the same terms as the Warrants
underlying this Purchase Option.
5.1.3. Terms. The Company shall bear all fees and expenses it incurs in
connection with the preparation, filing, modifying and amending the Registration
Statement, providing reasonable numbers of the prospectus contained therein to
the Holders and effecting the issuance and transfer of the securities referred
to under Section 5.1.1 hereof ("Registrable Securities") under Section 5.1.1,
5.2 and 5.3 hereof, but the Holders shall pay any and all underwriting
commissions and the expenses of any legal counsel selected by the Holders to
represent them in connection with the sale of the Registrable Securities.
Notwithstanding the foregoing, the Company agrees to pay the fees incurred by
the Holders (with the holders of the other securities sold in the Offering) of
one special counsel, up to a maximum of $5,000, and expenses of such counsel in
connection with the preparation and filing of the Registration Statement. The
Company agrees to qualify or register the Registrable Securities in such states
as are reasonably requested by the Holder(s); provided, however, that in no
event shall the Company be required to register the Registrable Securities in a
state in which such registration would cause (i) the Company to be obligated to
register or license to do business in such state, or (ii) the principal
stockholders of the Company to
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be obligated to escrow their shares of capital stock of the Company. The Company
shall cause any Registration Statement filed pursuant to this Section 5 to
remain effective and current until the Registrable Securities may be sold
without any limitation under the Securities Act by the Holders thereof.
5.2. Demand Registration. If at any time during the Demand Period (as
defined below) a registration statement covering the Registrable Securities is
not current and effective, then upon written demand ("Initial Demand Notice") of
the Holder(s) of at least 51% of the Purchase Options and/or the underlying
Units ("Majority Holders"), the Company agrees to register on one occasion, all
or any portion of the Registrable Securities requested by the Majority Holders
in the Initial Demand Notice. On such occasion, the Company will file a
Registration Statement covering the Registrable Securities within sixty days
after receipt of the Initial Demand Notice and use its best efforts to have such
registration statement declared effective promptly thereafter. Should this
registration or the effectiveness thereof be delayed by the Company, the
exercisability of the Purchase Options shall be extended for a period of time
equal to the delay in registering the Registrable Securities. Moreover, if the
Company fails to comply with the provisions of this Section 5.2., the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), be liable for any and all incidental, special and consequential
damages sustained by the Holder(s). The demand for registration may be made at
any time during the five year period beginning the Closing Date ("Demand
Period"). The Company covenants and agrees to give written notice of its receipt
of any Initial Demand Notice by any Holder(s) to all other registered Holders of
the Purchase Options and/or the Registrable Securities within ten days from the
date of the receipt of any such Initial Demand Notice. The Company shall not
permit the inclusion of any securities other than the Registrable Securities to
be included in any registration statement filed pursuant to this Section 5.2
hereof without the prior written consent of the Majority Holders of the
Securities.
5.3. "Piggy-Back" Registration. If at any time during the seven year period
commencing the Closing Date, a registration statement covering the Registrable
Securities is not current and effective, then, in addition to the demand right
of registration, the Holders of the Purchase Options shall have the right to
include the Registrable Securities as part of any other registration of
securities filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8).
In the event of such a proposed registration, the Company shall furnish the then
Holders of outstanding Registrable Securities with not less than twenty days
written notice prior to the proposed date of filing of such registration
statement. Such notice to the Holders shall continue to be given for each
registration statement filed by the Company until such time as all of the
Registrable Securities have been sold by the Holder. The holders of the
Registrable Securities shall exercise the "piggy-back" rights provided for
herein by giving written notice, within ten days of the receipt of the Company's
notice of its intention to file a registration statement.
5.4. General Terms.
5.4.1. Indemnification. The Company shall indemnify the Holder(s) of the
Securities to be sold pursuant to any registration statement hereunder and each
person, if any, who controls such Holders within the meaning of Section 15 of
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the Securities Act and/or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever incurred by the indemnified party in any action or proceeding between
the indemnitor and indemnified party or between the indemnified party and any
third party or otherwise) to which any of them may become subject under the
Securities Act, the Exchange Act or any other statute or at common law or
otherwise under the laws of foreign countries, arising from such registration
statement or based upon any untrue statement or alleged untrue statement of a
material fact contained in (i) any preliminary prospectus, the registration
statement or prospectus (as from time to time each may be amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Registrable
Securities; or (iii) any application or other document or written communication
(collectively called "application") executed by the Company or based upon
written information furnished by the Company in any jurisdiction in order to
qualify the Registrable Securities under the securities laws thereof or filed
with the Commission, any state securities commission or agency, Nasdaq or any
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, unless
such statement or omission is made in reliance upon, and in conformity with,
written information furnished to the Company with respect to the Holders
expressly for use in a preliminary prospectus, registration statement or
prospectus, or amendment or supplement thereof, or in any application, as the
case may be. The Company agrees promptly to notify the Holder of the
commencement of any litigation or proceedings against the Company or any of its
officers, directors or controlling persons in connection with the issue and sale
or resale of the Registrable Securities or in connection with the registration
statement or prospectus.
5.4.2. Exercise of Warrants. Nothing contained in this Purchase Option shall
be construed as requiring the Holder(s) to exercise their Purchase Options or
Warrants prior to or after the initial filing of any registration statement or
the effectiveness thereof.
6. Adjustments.
6.1. Adjustments to Exercise Price and Number of Securities. The Exercise
Price and the number of shares of Common Stock and Warrants issuable upon
exercise of this Purchase Option shall be subject to adjustment from time to
time as hereinafter set forth:
6.1.1. Stock Dividends - Split-Ups. If after the date hereof, and subject to
the provisions of Section 6.2 below, the number of outstanding shares of Common
Stock is increased by a stock dividend payable in shares of Common Stock or by a
split-up of shares of Common Stock or other similar event, then, on the
effective date of such stock dividend or split-up, the number of shares of
Common Stock issuable on exercise of each Purchase Option shall be increased in
proportion to such increase in outstanding shares.
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6.1.2. Aggregation of Shares. If after the date hereof, and subject to the
provisions of Section 6.2, the number of outstanding shares of Common Stock is
decreased by a consolidation, combination or reclassification of shares of
Common Stock or other similar event, then, upon the effective date of such
consolidation, combination or reclassification, the number of shares of Common
Stock issuable on exercise of each Purchase Option shall be decreased in
proportion to such decrease in outstanding shares.
6.1.3. Adjustments in Number of Warrants. The number of shares of Common Stock
purchasable upon exercise of the Warrants issuable upon exercise of this
Purchase Option shall be adjusted (as will the exercise price of such Warrants)
in accordance with the terms of the Warrants, as if such Warrants were
outstanding on the date hereof.
6.1.4. Adjustments in Exercise Price. Whenever the number of shares of Common
Stock purchasable upon the exercise of this Purchase Option is adjusted, as
provided in this Section 6.1, the Exercise Price shall be adjusted (to the
nearest cent) by multiplying such Exercise Price immediately prior to such
adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
6.1.5. Replacement of Securities Upon Reorganization, etc. If after the date
hereof any capital reorganization or reclassification of the Common Stock of the
Company, or consolidation or merger of the Company with another corporation, or
the sale of all or substantially all of its assets to another corporation or
other similar event shall be effected, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and fair
provision shall be made whereby the Holders shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Purchase Option and in lieu of the Securities immediately theretofore
purchasable and receivable upon the exercise of this Purchase Option, such
shares of stock, securities, or assets as may be issued or payable with respect
to or in exchange for the number of Securities immediately theretofore
purchasable and receivable upon the exercise of this Purchase Option, had such
reorganization, reclassification, consolidation, merger or sale not taken place.
In such event, appropriate provision shall be made with respect to the rights
and interests of the Holders so that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of securities purchasable upon the exercise of this Purchase Option) shall
thereafter be applicable, as nearly as may be in relation to any share of stock,
securities, or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such reorganization, reclassification,
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
transaction shall assume by written instrument executed and delivered to the
Holders the obligation to deliver such shares of stock, securities or assets.
6.2. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of Common Stock or Warrants upon
the exercise or transfer of the Purchase Option, nor shall it be required to
issue scrip or pay cash in lieu of any fractional interests, it being the intent
of the parties that all
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fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of Warrants, shares of Common Stock or other securities,
properties or rights at no additional cost to the Holder.
7. Reservation and Listing. The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon exercise of the Purchase Options, Units, Warrants or Extra
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants
and agrees that, upon exercise of the Purchase Options and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid and
non-assessable and not subject to preemptive rights of any stockholder. The
Company further covenants and agrees that upon exercise of the Warrants
underlying the Units included in this Purchase Option and upon exercise of the
Extra Warrants and payment of the respective exercise prices therefor, all
shares of Common Stock and other securities issuable upon such exercises shall
be duly and validly issued, fully paid and non-assessable and not subject to
preemptive rights of any stockholder. As long as the Purchase Options shall be
outstanding, the Company shall use its best efforts to cause the Common Stock
issuable upon exercise of the Purchase Options, Warrants and Extra Warrants to
be listed (subject to official notice of issuance) on all securities exchanges
(or, if applicable on Nasdaq) on which the Common Stock is then listed and/or
quoted for a period of seven years from the Closing Date.
8. Certain Notice Requirements.
8.1. Holder's Right to Receive Notice. Nothing herein shall be construed as
conferring upon the Holders the right to vote or consent or to receive notice as
a stockholder for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Purchase Options and their exercise, any of the
events described in Section 8.2 shall occur, then, in one or more of said
events, the Company shall give written notice of such event at least fifteen
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to such
dividend, distribution, conversion or exchange of securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation, winding
up, consolidation, merger, reorganization or sale. Such notice shall specify
such record date or the date of the closing of the transfer books, as the case
may be.
8.2. Events Requiring Notice. The Company shall be required to give the notice
described in this Section 8 upon one or more of the following events: (i) if the
Company shall take a record of the holders of its shares of Common Stock for the
purpose of entitling them to receive a dividend or distribution, or (ii) the
Company shall offer to all the holders of its Common Stock any additional shares
of capital stock of the Company or securities convertible into or exchangeable
for shares of capital stock of the Company, or any option, right or warrant to
subscribe therefor, or (iii) a dissolution, liquidation, winding up,
consolidation, merger or reorganization of the Company or a sale of all or
substantially all of its property, assets and business shall be proposed.
8.3. Notice of Change in Exercise Price. The Company shall, promptly after an
event requiring a change in the Exercise Price pursuant to Section 6.1 hereof,
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send notice to the Holders of such event and change ("Price Notice"). The Price
Notice shall describe the event causing the change and the method of calculating
same and shall be certified as being true and accurate by the Company's
President and Chief Financial Officer.
8.4. Transmittal of Notices. All notices, requests, consents and other
communications under this Purchase Option shall be in writing and shall be
deemed to have been duly made on the date of delivery if delivered personally or
sent by overnight courier, with acknowledgment of receipt to the party to which
notice is given, or on the fifth day after mailing if mailed to the party to
whom notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of the Purchase Option, to the address of such Holder as shown
on the books of the Company, or (ii) if to the Company, to its principal
executive office.
9. Miscellaneous.
9.1. Amendments. The Company and GKN may from time to time supplement or amend
this Purchase Option without the approval of any of the Holders in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provisions herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and GKN may deem necessary or desirable. All other modifications or
amendments shall require the written consent of the party against whom
enforcement of the modification or amendment is sought.
9.2. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Purchase Option.
9.3. Entire Agreement. This Purchase Option constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof, and supersedes
all prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
9.4. Binding Effect. This Purchase Option shall inure solely to the benefit of
and shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Purchase Option or any provisions herein
contained. Without limiting the foregoing, the registration rights set forth in
this Purchase Option shall inure to the benefit of the Holders and all the
Holder's successors, heirs, pledgees, assignees, transferees and purchasers of
this Purchase Option or the Registrable Securities.
9.5. Governing Law; Submission to Jurisdiction. This Purchase Option shall be
governed by and construed and enforced in accordance with the laws of the State
of New York, without giving effect to conflict of laws. The Company hereby
agrees that any action, proceeding or claim against it arising out of, or
relating in any way to this Purchase Option shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and irrevocably
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submits to such jurisdiction, which jurisdiction shall be exclusive. The Company
hereby waives any objection to such exclusive jurisdiction and that such courts
represent an inconvenient forum. Any process or summons to be served upon the
Company may be served by transmitting a copy thereof by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 8 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the Company in any action, proceeding or claim.
The Company agrees that the prevailing party(ies) in any such action shall be
entitled to recover from the other party(ies) all of its reasonable attorneys'
fees and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
9.6. Waiver, Etc. The failure of the Company or the Holder to at any time
enforce any of the provisions of this Purchase Option shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option shall be effective unless set
forth in a written instrument executed by the party or parties against whom or
which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or non-fulfillment. The issuance
of any Extra Warrants is not intended to be liquidated damages, and the Holder
has the right to seek damages or other remedies at law or equity for the breach
by the Company of any of its obligations under this Purchase Option without
limitation.
9.7. Execution in Counterparts. This Purchase Option may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.
9.8. Exchange Agreement. As a condition of the Holder's receipt and acceptance
of this Purchase Option, Holder agrees that, at any time prior to the complete
exercise of this Purchase Option by Holder, if the Company and GKN enter into an
agreement ("Exchange Agreement") pursuant to which they agree that all
outstanding Purchase Options issued in connection with the Private Placement
will be exchanged for securities or cash or a combination of both, then Holder
shall agree to such exchange and become a party to the Exchange Agreement.
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IN WITNESS WHEREOF, the Company has caused this Purchase Option to be
signed by its duly authorized officer as of March 13, 1997.
MILESTONE SCIENTIFIC INC.
By: /s/Len Osser
----------------
Name: Len Osser
Title: President
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Form to be used to exercise Purchase Option:
Milestone Scientific Inc.
44 Kean Road
Short Hills, New Jersey 07078
Date:_________________, 19__
The undersigned hereby elects irrevocably to exercise the within Purchase
Option and to purchase ____ Units of Milestone Scientific Inc. and hereby makes
payment of $____________ (at the rate of $_________ per Unit) in payment of the
Exercise Price pursuant thereto. Please issue the Common Stock and Warrants
comprising the Units as to which this Purchase Option is exercised in accordance
with the instructions given below.
or
The undersigned hereby elects irrevocably to exercise the within Purchase
Option and to purchase _________ Units of Milestone Scientific Inc. by surrender
of the unexercised portion of the within Purchase Option (with a "Value" of
$__________ based on a "Market Price" of $___________). Please issue the Common
Stock and Warrants comprising the Units in accordance with the instructions
given below.
Signature
Signature Guaranteed
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Purchase Option in every particular without
alteration or enlargement or any change whatsoever and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
Please issue securities as follows: Name:
Address:
I.D.#:
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Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within
Purchase Option):
FOR VALUE RECEIVED, ____________________________________ does hereby sell,
assign and transfer unto ______________________________ the right to purchase
___________________________ Units of Milestone Scientific Inc. ("Company")
evidenced by the within Purchase Option and does hereby authorize the Company to
transfer such right on the books of the Company.
Dated: _______________, 19___
Signature
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Purchase Option in every particular without
alteration or enlargement or any change whatsoever.
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