SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-SB-2-A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN BIO MEDICA CORPORATION
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(Exact name of Small Business Issuer in its Charter)
File No. 0-28666
New York 141702188
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(State of Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
105 Simons Road, Ancramdale, New York 12503
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Address of Principal Executive Office) (Zip code)
518-329-4485
Issuer's Telephone Number
Securities to be registered under Section 12(b) of the Act:
Title of each Class Name of each Exchange on which
to be so Registered each Class is to be Registered
Securities to be registered pursuant to Section 12(g) of the Act:
Common Shares, $.01 par value per share
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(Title of class)
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(Title of class)
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PART I
Item 1. Description of Business
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Summary
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From its inception in 1986 until 1991, the Company, a New York corporation,
was involved in marketing educational books and software to schools and
municipal libraries and audiovisual educational packages to educational
institutions and to corporations throughout the United States. In 1991, the
Company reduced its concentration in this market because of heightened
competition, increasing costs of doing business and slow collections from
municipalities and commenced seeking new technologies in emerging medical
markets. The Company has continued one small segment of its original business,
that of selling audiovisual packages to libraries. The Company purchased certain
biomedical technologies from its Executive Vice-President and purchased and
rescinded the purchase of other technologies from another party who became and
then resigned as an officer and director of the Company. The Company has no
present intention of entering into transactions in the future with related
parties. (See "Certain Relationships and Related Transactions.")
Since its inception, the Company has an accumulated deficit of $2,676,889
(see Financial Statements - Balance Sheet). The Company's auditor, in his report
accompanying the financial statements, has characterized the Company as a
development stage company with little operating history subsequent to its
reorganization and commencement of development of biomedical technologies which
are, at present, its core business. This report could adversely affect the
market price of the Common Shares, the ability of the Company to raise capital,
the ability of the Company to conclude supply contracts for parts and inventory
and the ability of the Company to enter into contracts for the sale of its
workplace drug testing kits. Footnote No. 2 to the Financial Statements further
states that the Company's continuation as a going concern is dependent upon its
ability to obtain adequate financing or the develop profitable operations.
Management believes that the Company's accumulated deficit is the result of
discontinued operations, the development of its workplace drug test kits and the
development of other biomedical products. However, investors should be aware
that the Company has never been profitable during its ten year history and that
there is no assurance that the Company's biomedical operations will become
profitable.
The Company is currently in the business of acquiring, developing and
marketing biomedical technologies and products. The Company currently owns two
technologies for screening drugs of abuse - a workplace screening test and a
preliminary test for use by laboratories. The Company has begun to market its
workplace screening test and has produced and delivered several thousand units
of this test. The Company's workplace screening test is a one-step test kit that
allows a small urine sample to be tested for the presence or absence of drugs of
abuse. The competitively priced test is self-contained with no exposure of the
test administrator to the urine sample. In management's opinion, the Company's
drug test kit is easier to use than any competitive product and requires no
mixing of reagents In addition, hundreds of controlled tests conducted by
independent laboratories compared the Company's "Rapid Drug Screen Test" with
results produced by EMIT II and GCMS, two standard laboratory tests, with 100%
correlation of both positive and negative test results. As a result, management
believes that the Company's Rapid Drug Screen Test is as accurate as those
laboratory tests.
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The Company has installed equipment suitable for the mass production of the
workplace drug screening test and commenced pre-production using this machinery
during the last week in October, 1996. Production, in December, 1996, increased
to 5,000 units per week. Management predicts that a production rate of 20,000
units per week will be achieved commencing January, 1997.
The Company has secured several significant orders and many smaller orders
for its workplace screening test. The Company, as of November 30, 1996, had
shipped and invoiced $228,101 of workplace drug test kits. Domestic orders were
$675,510 and international orders $1,112,250. Each order has been accompanied by
estimates of yearly volume of orders from the same customer. If all the
estimates are ultimately embodied in purchase orders, of which there is no
assurance, the total revenues to be received for the twelve months commencing
December 1, 1996, considering only orders and estimates received prior to
December 1, 1996, would exceed $10,000,000.
The Company also owns a patented low cost method for producing Keratin
proteins. The uses for such proteins include hardening of finger nails and
carrying topical lotions and medicines through the skin. In addition, the
Company is developing a saliva test for alcohol consumption. Existing saliva
tests for alcohol consumption require exposure to the saliva sample and the
addition of reagents. The Company's test is self-contained, involves no
additional reagents and can be priced lower than existing competitive products.
The Company has no intention of developing or marketing its laboratory test, its
Keratin technology nor its saliva test for alcohol consumption until after its
workplace screening test has been in full production for at least three months.
The Company has fully developed and expects to commercialize its anti-dilutant
product which detects the presence of dilutants to the urine specimen, added
detergents or "urinade" (a product which supposedly is able to void drug tests).
The Company may develop or acquire additional drug testing or biomedical
technologies or products in the future. However, it has not yet located any
technologies which it desires to develop or acquire.
Background
----------
According to the "1996 AMA (American Management Association) Survey
Workplace Drug Testing and Drug Abuse Policies Summary of Key Findings," an
annual report on drug testing in the workplace, 81% of major United States firms
now test employees and/or job applicants for drug use, an increase of 277% since
1987 and an increase of 3% since 1995. The AMA attributed the increase to
several factors, including Department of Transportation and Department of
Defense regulations which, in conjunction with local and state legislation,
mandate testing in certain job categories, the Federal Drug-Free Workplace Act
of 1988, court decisions recognizing an employer's right to test both employees
and job applicants in the private sector for drugs of abuse; action by insurance
carriers to reduce accident liability and control health care costs; and
corporate requirements that vendors and contractors certify that their
workplaces are drug-free.
The AMA found that business category was the most important determinant in
drug testing. The percentages in each category which tests for drugs of abuse
are manufacturers (89%), transportation (100%), wholesalers and retailers (79%),
general service providers (77%), business service providers (60%) and financial
service providers (56%).
The survey states that the usual and recommended procedure for urine
samples calls for a retesting of positive samples by the gas-chromatography
method. It also states that 76% of firms that test utilize a medical review
officer ("MRO") who analyzes test findings, judges them against the test
subject's medical profile and renders a verdict to the employer which does not
see the test results but only the MROs report. The use of an MRO offers
significant protection to employees who may test positive due to the use of
prescription drugs or non-controlled substances which register as controlled
substances.
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The Substance Abuse and Mental Health Services Administration, Office of
Applied Studies of the United States Department of Health and Human Services,
Public Health Service, in its advance report number 18 released in August, 1996
entitled "Preliminary Estimates from the 1995 National Household Survey on Drug
Abuse," notes that 14.3% of unemployed adults, age 18 years and older, were
current illicit drug users in 1995 compared with 5.5 % of full-time employed
adults and that the rate of drug use decreased from 1994's 6.7%. 71% of all
current illicit drug users 18 years old and older (7.4 million adults) were
employed, including 5.5 million full-time workers and 1.9 million part-time
workers. Because of the high incidence of workplace drug use, the testing of
employees for the most "popular" drugs has become widespread. Positive tests
often result in discharge of or treatment for the employee. In addition, the
threat of testing, particularly random testing, has the prophylactic effect of
reducing workplace drug use.
The Company believes that the drug of abuse testing market is large and
growing and that the largest market opportunity for on-site drug screening
products is the private sector with an additional large public sector demand.
According to management, drug testing performed in an on-site facility using
technologies designed for on-site use can be just as accurate as testing
performed in a full-service lab. Drug screening tests are now performed in
markets which include: preemployment testing; random testing of employees; drug
rehabilitation programs; hospital laboratories; emergency rooms; private
security agencies; public transportation; law enforcement agencies; probation
and parole programs and Defense Department contractors.
Workplace Drug Test
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Design
------
The first product trademarked. "The Rapid Drug Screen," to be developed and
marketed by the Company is a workplace test of five drugs of abuse which can be
used in offices, factories, "halfway" houses, remote locations and in all
situations where an immediate result is required. The product consists of a
"NIDA 5 Card," a business card size card divided into five lengthwise strips, or
sections. The person being tested urinates into a test cup, puts on the lid, and
hands it to a supervisor or other person administering the test. The test
administrator inserts the card into a pre-punched slit in the cup cover without
the danger of spilling or of touching the urine inside. Thus, the administrator
is not exposed to the urine sample does her or she have to mix reagents. Within
three minutes, the results can be read on the insert through the side of the
cup. A line across of the top segment of any of the sections indicates the
sample is positive for one of the five specific drugs of abuse - PCP, marijuana,
cocaine, amphetamines and opiates - designated by NIDA ("National Institute on
Drug Abuse") in the "Drug-Free Workplace Act of 1989" as those to be tested for
in most federally regulated drug testing programs. If the results are positive,
the cup is sealed with provided materials and sent to a laboratory for
confirmation. No adverse action is taken by the test administrator unless
confirmation of a positive test is received from an independent laboratory.
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One of the problems which often occurs in the use of workplace drug testing
is fraud or evasion practiced by the person being tested. The two most prevalent
methods of avoiding adverse test results are (i) the substitution by the person
being tested of a hidden "clean" urine sample which he or she brings to the test
and (ii) the substitution of water or a colored liquid or the dilution of urine
with water. As a consequence, each of the Company's drug test strips contains
two additional sensors. The first is a temperature sensor which helps prevent
the substitution of another urine sample as the likelihood is that the
substituted sample could not retain proper temperature. The second is a chemical
strip incorporated in a horizontal band which changes color on both positive and
negative urine samples, if the sample is, indeed, urine. If this strip does not
change color, the test administrator is advised to retest.
The kit contains the following instructions: if only one horizontal band
changes color in any NIDA strip, the sample is positive for that drug and the
sample should be sent to a laboratory for confirmation. If both bands in any
NIDA strip change color, the sample has tested negative for that drug. If
neither band changes color, the sample is not urine or the test is void and the
employee or other person being tested must submit another urine sample for
retesting.
In addition, the Company has designed two additional drug tests, a two
panel card and an eight panel card. The Company began to ship the two panel test
in November, 1996, and intends to commence manufacturing the eight panel strip
in during the first quarter of 1997. The two panel strip, designed for juvenile
corrections centers and educational institutions, tests only for cocaine and
marijuana. The eight panel strip, designed to meet two competitive products,
Biosite and Drug Screen Systems, adds barbiturates, benzodiazepines and
methamphetamines. These additional tests will be combined in single unit with
the NIDA 5 card so that one sample can test for eight drugs of abuse
simultaneously.
Manufacture
-----------
After the successful completion of clinical trials in May, 1996, the
Company initially subcontracted the manufacture of components, including the
test strips, of The Rapid Drug Screen to several outside manufacturers. These
components were then assembled for the Company by Columbia Advocacy and Resource
Center ("COARC"), an FDA-approved contract manufacturer in nearby Mellenville,
New York. COARC is a federal and state licensed not-for-profit agency where
several hundred non-disabled employees work side by side with developmentally
disabled employees to manufacture a wide variety of products and services.
The Company found that the use of subcontractors to produce the test strips
was unsatisfactory from a pricing, delivery and quality control standpoint. The
Company has ordered, received and installed equipment in a dedicated "white"
room in the COARC facility which will allow the COARC to manufacture the test
strip component of the product as well as to undertake its assembly operations
on the Company's behalf. The white room dedicated to the workplace drug
screening test is temperature and humidity controlled and has an airborne
particulate filtering system. The Company owns the equipment which is being be
used by employees of COARC; other employees of COARC assemble, pack and ship the
units. COARC has established a stringent Quality Assurance/Quality Control
("QA/QC") Program to insure data reliability and product consistency. The
Company intends to continue to contract out the printing and manufacture of
specimen cup components. The Company has commenced production using the
equipment and anticipates that the equipment will be fully operational during
December, 1996. The equipment, as installed, is capable of producing up to
600,000 units per month utilizing two shifts five days a week.
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FDA Approval
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Though FDA approval is not required for most forms of workplace drug
testing, including The Rapid Drug Screen, it will be required for use in a
clinical setting which management anticipates may become a future marketplace
for the Company's drug testing products. Testing of one hundred samples was
completed in July, 1996 and showed 100% correlation to tests performed in a
recognized testing laboratory. An Federal Drug Administration ("FDA")"510K"
application was filed on July 15, 1996. Utility and application patents were
filed on March 11, 1996.
Marketing
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The Company has placed advertisements in trade journals and mounted direct
mail campaigns; and Company representatives have attended trade shows. Although
the Company initially believed that it would sell primarily through individual
representatives, it has changed its marketing program so that it sells primarily
to distributors which then resell to the various marketplaces. It has, however,
retained three of its initial twelve representatives. The Company has completed
the development of the instructional and support materials surrounding the test
kit. The Company is currently developing an educational curriculum to be
packaged with The Rapid Drug Screen as an option for corporate clients. The
package includes (i) educational materials such as an employee guide, brochures,
and posters for the workplace, (ii) a management guide, (iii) an "800" number
for supervisors/managers to call for guidance in various situations when an
employee is found positive for drugs of abuse, (iv) an "800" number for
employees for information on their rights and counseling opportunities, (v) test
kits, (vi) materials to help insure the urine samples are not contaminated,
(vii) plastic gloves, (viii) a secure container for positive samples,(ix) an
"800" number for pickup and delivery of positive samples to an associated
laboratory for confirmation and (x) a quarterly newsletter with updates for
management. The Company has garnered initial orders from distributors, municipal
bodies and corporate users as well as from penal facilities.
The Company has divided its marketplace into the following categories.
Corporate Workplace Drug Testing Programs
-----------------------------------------
The Company has developed a network of twelve distributors and
administrators of workplace drug testing programs to sell its Rapid Drug Screen
testing kit. Its largest initial order for this marketplace is from Zee
Services, Inc. a division of Mckesson Corp. Zee Services utilizes a network of
80 regional distributors which, in turn, employ 1,300 sales representatives each
with a well-stocked company van to sell to 350,000 small and medium sized
industrial clients a variety of products ranging from first aid kits to drug
testing kits. The initial order of 50,000 test kits is being produced. CannAmm,
Inc., a similar company operating in Canada, has likewise become a distributor.
Other customers in this category include Bally's Total Fitness, Business Medical
Services, Inc., Noble House International, Inc. ("Noble House") and Alcohol
Testing for the Workplace, Inc., (a firm which tests for a variety of drugs of
abuse). The Company has recently entered into a distribution agreement with
Accuracy Testing PLUS, Houston, Texas, which offers comprehensive workplace
programs, including testing, education and training.
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Corrections and Law Enforcement
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This market includes federal, state and county level correctional
facilities, pretrial agencies, probation and parole departments at the federal
and state levels and juvenile correction facilities. The Company has received
orders from several agencies such as the Broward County, Florida, Sheriff's
Department which has indicated potential orders of up to 200,000 units per year.
The United States Probation Department ordered 500 units for use in a comparison
test with other on-site products. The Company has exhibited at the American
Corrections Association summer trade show in Nashville in August, 1996 and will
exhibit at the January, 1997 winter show.
Rehabilitation Centers
----------------------
This market includes the people in treatment for substance abuse in general
hospitals, mental health centers and outpatient programs. The importance of this
market relates to the frequency of testing. For example, in many residence
programs, patients are tested each time they leave the facility and each time
they return. In outpatient programs, patients are generally tested on a weekly
basis. The Company has received orders from a chain of 60 rehabilitation centers
and is negotiating with others. The Company will be exhibiting at the Employee
Assistance Program convention in Chicago in 1997.
International Markets
---------------------
The Company has entered into a non-exclusive distribution agreement with
CanAmm, Inc., a Canadian distributor, an exclusive agreement with Nobel House
International, Inc., a U.S. distributor for Chile and is negotiating for
exclusive distribution for Pacific Rim countries with a Canadian-based
distributor. Nobel House International, Inc. has committed to a minimum of
250,000 two panel" tests for Chile (to test parochial high school students) and
is negotiating purchase agreement with relevant government agencies of other
South and Central America and Caribbean countries.
Clinical, Physicians and Hospitals
----------------------------------
The Company was approached and is negotiating an agreement to distribute
the Rapid Drug Screen under a joint label to the worldwide clinical market,
including physicians, hospitals and laboratories. Such distribution will require
FDA 510K approval of all the drug tests to be distributed.
Consumer and Over-the-Counter
-----------------------------
The Company's Rapid Drug Screen test is ideal for consumer use as it leads
to immediate and accurate results at a price less than half of available
consumer kits. The Company intends to pursue this market only after receiving
FDA 510K approval for all drugs to be tested in this market. It has been
approached by several store and pharmacy chains. The Company intends to market
through distributors or to sell directly to larger retain chains.
Additional Markets
------------------
As reported in the "New York Times," October 20, 1996, President Clinton
has called for drug testing of all teenagers by state motor vehicle departments
prior to granting driving licenses to them. In addition, certain low-income
housing funded by the Department of Housing and Urban Development are testing
residents as a condition for continued occupancy. Finally, many high school and
college sports programs are requiring random testing for drugs of abuse as a
condition of student participation.
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Competition
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Competition to the Company's workplace drug test comes from tests by Roche
Diagnostic Systems, Editek, Inc., Biosite Diagnostics, Drug Test Resources
International and Drug Screening Systems, Inc. In the Roche test, the tester
must invert the cup for ten seconds. Because the testing chemistry for those
tests is contained in the cup, a number of confirming laboratories will not
except samples in the cup for confirmatory analysis as the presence of the
testing chemicals could skew results. Editek's Easy Screen involves six steps,
including pipeting a drop of urine for each test, applying drops of enzyme
conjugates, applying drops of wash buffer and wiping and applying drops of
substrate before the test results can be read. Biosite's Triage product involves
pipeting drops of urine and reagents. The Drug Test Resources test involves
pipeting drops of urine. The Drug Screening Systems test involves pipeting drops
of urine and reagents. In addition, Psychemedics introduced a test which
requires the subject's lock of hair be sent its laboratory for evaluation, a
period of five to fifteen days. The test is several times as expensive as the
Company's. Its only advantage to the Company's test is that drug residues remain
in the hair longer than in urine so that an employer or parent can gain a
perspective of drug use over a longer period of time and the drug test cannot be
circumvented by a brief period of abstinence.
Principal Suppliers
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The Company's major suppliers are as follows: IVEK Corporation,
Springfield, VT, produces the equipment which is used in the manufacture of the
test strips; Kinematic Automation, Twin Harte, CA, produces the cutting
equipment for the test strip backing; Arpak Plastics, Inc., Plattsburgh, NY,
supplies specimen cups and covers; Monarch Plastics, Mount Laurel, NY, prints
the plastic test card. The Company has located additional sources of components
from which it could purchase if required. The Company subcontracts the
manufacturer of the test strips and the assembly, packaging and fulfillment to
COARC, Mellenville, NY, a medical device manufacturer registered with the
Federal Drug Administration. This registration requires that COARC submit to
periodic "audits" of its facilities to ensure compliance with FDA standards. The
COARC facility contains 70,000 square feet of manufacturing, office and assembly
space, including a white room specifically designated to the manufacture of the
Company's products which has airborne particulate removal equipment and is
humidity controlled. The Company has placed manufacturing equipment in COARC's
premises for use by COARC personnel.
The Company places purchase orders with COARC for specific quantities of
the test strips. It also pays COARC a per unit fee to assemble the test kits and
to pick, pack and ship the kits to the Company's designated customers. Although
the Company prefers COARC because it is located within twenty miles of its
premises, because of its quality of production, because of its ability to
respond quickly to orders and because of its experience in biomedical
production, the Company has located additional subcontractors which could, if
needed, perform substantially the same services as COARC at similar prices.
Patents and Trademarks
- ----------------------
The Company has applied for registration of the following trademarks:
"American Bio Medica" and "Rapid Drug Screen." The Company's trademark counsel,
Edmund Jaskiewicz, Esq., Executive Vice-President, has opined that there are no
similar marks and, as a consequence, the Company feels confident that such marks
will be registered. Stan Cipkowski, has assigned to the Company for no
consideration, his application for a utility and design patent in the United
States and Canada on the drug screen kit as an entity. Mr. Jaskiewicz, as patent
counsel, has opined that a search has revealed no competing patented products
However, there can no assurance that a patent will be granted or that it will
withstand challenge. The Company intends to apply for patents and trademarks in
the European Common Market and Japan.
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Government Regulations
-----------------------
The Company's business has benefited from Federal and state regulations
relating to drug free workplace, particularly the Drug Free Workplace Act of
1988. Clinical sales of the drug test kit must await final FDA approval of the
tests for two of the NIDA drugs of abuse. Approval is anticipated prior to the
end of the year.
Drugs of Abuse Preliminary Screen (ABM Prescreen)
-------------------------------------------------
The second of the Company's products is a preliminary drug screen which is
an easy to use, accurate and cost effective test paper for the drug testing
market. This test will, if the results are negative, eliminate the possibility
that the person tested has used any of twenty drugs. The laboratory technician
places a few drops of pretreated urine on a test paper and reads the results
visually within a few minutes. Over 90% of tests submitted to laboratories yield
negative results. Thus, the primary use for this product in laboratories is as a
means of inexpensively and quickly eliminating, through negative results, over
90% of the testing required. A patent application is in process. Pre-clinical
trials for the preliminary drug screen have been completed at two independent
laboratories contracted by the Company. Pre-clinical tests include laboratory
evaluation of product chemistry and observation of results of addict urine
samples tested with the product over a period of time. These tests were
conducted under the supervision of John Questal, principal of one of the
contract laboratories and a member of the Company's Scientific Advisory Board,
and were reviewed by Dr. Henry Wells, the Company's Vice-President-Product
Development. Based on the success of pre-clinical evaluations, independent
clinical tests prior to patent and FDA submission are currently taking place at
American Medical Laboratories, Chantilly, Virginia. By April, 1997, the Company
expects to introduce its ABM Prescreen to the market as an inexpensive
alternative to the products being offered by the current market leaders, Roche
Diagnostics and Biosite.
These two companies dominate the rapid drug screen market. Roche's On Trak
product has been available since 1988 with an end-user cost of $24.00. The
majority of its sales is for clinical uses. Biosite's Triage product was
introduced in 1993 and is now priced at $33.50. The majority of its estimated
$25 million in sales comes from emergency rooms. Though similar in concept and
implementation, the technologies are different and involve a multi-step
procedure to indicate positive or negative results for up to eight specific
drugs of abuse within ten minutes. Management believes the ABM Prescreen is
positioned ahead of these products as an inexpensive first step in which
positives can be separated from negatives in five minutes for less than $8.00
per test. The ABM test is not drug specific and will indicate positive or
negative for all known drugs of abuse and their derivatives. Similar to the
Roche and Biosite products, it involves several steps, including adding a
reagent to the urine specimen and a filtering process. Since it is not
self-contained like the Company's tests, it is less appealing for customers not
used to or not desirous of handling urine. The Company has conducted research
and development activities(and will continue such activities once full
production in its workplace drug test products is achieved) with an objective of
reducing the number of steps and time necessary to conduct a preliminary screen
test.
Alcohol/Saliva Test
- -------------------
The Company has developed a technology that will detect alcohol levels in
individuals through a quick, one step, on-site, saliva test that can be
calibrated to specific sensitivity levels. Though at an advanced stage of
development, additional laboratory work and clinical evaluations will need to be
funded and completed prior to any patent applications or commercialization.
These activities are not expected to commence prior to fiscal 1997. Law
enforcement and workplace testing would be the initial markets approached. The
Company is only aware of one, nonspecific to sensitivity levels, two step
product now available.
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KDMP (Keratin Derivative Modified Protein)
- ------------------------------------------ Keratin Derived Modified Protein
("KDMP") is a liquid keratin protein complex containing water soluble peptides
and is rich in cysteine. It can be used as an active ingredient in varying
concentrations in the formulations of quality skin, nail, and hair care
products. Pre-clinical trials have been completed and the Company intends to
license or sell the technology. Various patents relating to this technology have
been assigned to the Company by Edmund Jaskiewicz, Vice-President, as part of
the consideration for his receipt of common shares of the Company (see "Certain
Relationships and Related Transactions"). The Company is currently manufacturing
this product in small quantities for several companies who have requested
samples for evaluation. The Company does not intend to devote any substantial
economic or personnel resources to the development or marketing of this product
for at least twelve months. As a result, no revenue is expected to be derived
from this product until, at earliest, late 1997.
The Company's Plan of Operations
--------------------------------
For the next twelve months, the Company intends to continue the
establishment of network of distributors which service customers in non-clinical
workplace, correctional institution or drug rehabilitation areas, to market and
sell its drug testing kits, to manufacture and ship such kits and, once
manufacturing has reached the capacity needed to fulfill orders, to continue
research and development on its additional biomedical products.
As of November 30, 1996, the Company had entered into non-exclusive,
non-clinical market distribution agreements with a number of companies,
including national (such as Zee Services, Inc., a subsidiary of McKesson
Corporaton), regional (such as Accuracy Testing Plus, Houston, Texas and Excel
Laboratories, Huma, LA) and local distributors, (such as Western Pathology
Consultants, Scottsbluff, Nebraska, Business Medical Services, Columbus, Ohio
and Prima Healthcare Group, Springfield, Missouri). In addition, the Company, on
September, 6, 1996, entered into a non-exclusive distribution agreement for
Canada with Ammcan, Inc., Toronto, Ontario.
These agreements permit the distributors to sell the products of other
manufacturers and permit the Company to sell its test kits to other distributors
within and outside the territory of each distributor. The agreements are
cancelable by either the Company or the distributor upon 30-days' written
notice. Each of the Company's domestic distributors has submitted purchase
orders which the Company is in the process of fulfilling.
The Company intends to enter into distribution agreements on an
international basis as such distributors are identified. The Company has entered
into an agreement with Noble House, Miami, Florida for representation of the
Company in foreign countries, Noble House is negotiating sales on behalf of the
Company in Colombia, Argentina, Panama, Costa Rica and Caribbean countries as
well as in Puerto Rico. Noble House has secured a contract in Chile to sell, for
a two year period, a yearly minimum of 250,000 kits which test for two drugs of
abuse - Cocaine and Marijuana. The Company has entered discussions with several
suitable distributors in the Philippines, Mexico and Israel. However, no
agreements have been entered into and there is no assurance that any such
agreements will be executed or, if executed, that any sales will be generated
thereby.
The Company has retained three sales representatives, on a straight
commission basis, in Atlanta, Georgia, Fort Lauderdale, Florida and Denver,
Colorado. These representatives call on accounts, such as corporations and
correctional institutions directly.
The Company's present manufacturing equipment and personnel designated by
COARC is sufficient to produce 60,000 drug test kits each week, assuming two
shifts per day, five days a week. In the event the Company desires to increase
production, which it intends to do when volume reaches 60,000 units per week,
its estimated costs for additional equipment are $40,000 which it anticipates
will be covered from gross profits or from cash on hand.
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The Company has commenced an extensive direct mail campaign and
participation in trade shows such as the Employee Assistance Program held in
Chicago, in November, 1996 and the American Correctional Show in January, 1997
in Annapolis, Maryland. The Company has already produced and dispatched
materials for mailings and constructed trade show booths, attended trade shows
and committed to attend several annual and semiannual shows. It anticipates
funding its costs of transportation, lodging, entertainment and set up and other
miscellaneous expenses from cash on hand.
The Company has funded and will continue to fund its marketing, sales and
manufacturing activities from the proceeds of its recent sale of 150 Preferred
Shares, raising net proceeds of $1,405,000 (see Front Cover Page, "Certain
Relationships and Related Transactions" and "Description of Securities.")
The Company does not now nor does it intend to enter into any agreements
with affiliated parties for the purchase of technologies, the sale of product or
the purchase of inventory. (See "Certain Relationships and Related
Transactions.")
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
- -------------------------------------------------------------------------------
Development Stage Activities
----------------------------
Until 1991, the Company was involved in marketing educational books and
software and audio-visual educational packages to schools and municipal
libraries throughout the United States. In 1991, the Company reduced its
concentration on this market because of competition, increasing costs of doing
business and slow collections from municipalities and sought new technologies in
emerging markets. The Company has continued one small segment of its original
business, that of selling audio-visual packages to libraries.
The Company has been a development stage enterprise since its date of
business reformulation in September, 1992 when the Company entered the
bio-technology field through the acquisition of technologies of three companies.
Subsequently, the acquisition of two of these companies was rescinded. With the
technology gained through the acquisition of Protein Resources, Inc., the
development of proprietary drug testing technology, and the employment of
medical and marketing specialists in the field of drug testing, the Company has
developed products, field and market tested these products, applied for patents
and copyrights and has begun initial shipments of product.
These activities have been funded through the sale of convertible
debentures aggregating $1,407,000. As of April 30, 1996, all but $132,000 of the
convertible bonds had been converted to common shares at $.75 per share. The
Company has not as yet generated sufficient revenues during its limited
operating history to meet its ongoing operating expenses. The Company sold an
additional convertible debenture for $10,000 and received $132,000 through the
exercise of 100,000 "A" warrants at $1.00 and 32,000 "B" warrants at $1.00 per
share. As of September 30, 1996, the Company also sold 150 shares of convertible
preferred shares at $10,000 per share for an aggregate consideration of
$1,500,000. The Company is using proceeds from the sale of the preferred shares
to expand its marketing campaign and increase production of its workplace drug
testing kits.
11
<PAGE>
Results of Operations for the year ended April 30, 1996 as compared to the
year ended April 30, 1995.
--------------------------------------------------------------------------
The only revenues for fiscal 1996 were revenues from the audio-visual
segment of the Company's operations. The Company had no revenues as of April 30,
1996 from the Company's drug testing products. Revenues from the audio-visual
segment of the business were $137,891 for the year ended April 30, 1995 as
compared to $158,105 for the year ended April 30, 1996 representing an increase
of $20,214 or 14.7%. This increase is directly attributable to the increased
effectiveness of the Company's use of telemarketing to reach the Company's
defined market of schools and libraries as substantially all marketing is
audio-visual materials is through telemarketing. Costs of good sold for the year
ended April 30, 1995 were $45,204 as compared to $96,444 for the year ended
April 30, 1996 representing a cost of goods sold percentage of 32.8 % for the
year ended April 30, 1995 as compared to 61% for the year ended April 30, 1996.
The increase in costs is attributable to the product mix of the items sold
having a higher wholesale cost. Increases in the wholesale price of products
caused a reduction in gross profits of $31,026 from $92, 687 for the year ended
April 30, 1995 as compared to $61,661 for the year ended April 30, 1996.
General and administrative costs for the year ended April 30, 1996 were
$518,826, an increase of 300% over expenses of $129,719 for the year ended April
30, 1995. These increased costs are the result of increased labor costs for
office personnel and consulting expenses of $427,225. Research and development
expenses of $358,844 for the year ended April 30, 1996 increased by $178,432 or
99% over the amount expended of $135,412 for the year ended April 30, 1995. This
increase in expenses is the result of increasing amounts expended for
development, experimentation and improvement of test chemicals and laboratory
and field trial testing of the workplace drug testing delivery system and
research and development relating to the Company's other biomedical products.
Results of Operations for the six months ended October 31, 1996 as compared
to the six months ended October 31, 1995.
---------------------------------------------------------------------------
Revenues from the audio-visual segment of the Company's business were
$82,416 for the six months ended October 31, 1995 as compared to $17,123 for the
six months ended October 31, 1996 representing a decrease of $65,293 or 79.2%.
This decrease in book sales is directly attributable to the Company's
reorganization of its telemarketing activities. Costs of goods sold for the six
months ended October 31, 1995 were $26,373 as compared to $5,565 for the six
months ended October 31, 1996 representing a cost of goods sold percentage of
32.0 % for the six months ended October 31, 1995 as compared to 32.5% for the
six months ended October 31, 1996. Revenues from the initial sales of drug
testing kits were $31,464 for the six months ended October 31, 1996. Cost of
goods sold for the six months ended October 31, 1996 was $20,213 or 64.2%. This
high level of costs of materials is the result of initial shipments of drug
testing kits manufactured from small lots of materials and supplies. General and
administrative costs for the six months ended October 31, 1996 were $336,113, an
increase of 504% over expenses of $66,672 for the six months ended October 31,
1995. These increased costs were the result of increased labor costs for office
personnel and consulting expenses of $75,000. Research and development expenses
of $66,750 for the six months ended October 31, 1996 decreased by $31,651 or
32.2% less than the amount expended of $98,401 for the six months ended October
31, 1995. This decrease in expenses is the result of gradual completion of
research and development of the Company's drug testing delivery system,
experimentation and improvement of active ingredient test chemicals, laboratory
and field trial testing.
12
<PAGE>
Liquidity And Capital Resources As Of The End of Fiscal Year, April 30, 1996
----------------------------------------------------------------------------
The Company increased its cash balance to $437,532 and working capital to
$329,085 as of the end of fiscal 1996 is the result of the sale in the aggregate
of $1,407,000 convertible debentures over a three year period. The Company has
expended $535,186 to date for the research and development of its biomedical
products.
Management believes that the present cash balance will pay the initial cost
of entering the bio-technical business. This includes completing the design,
creating initial inventories and obtaining initial orders and sales of the
Company's biomedical products. Management believes that until profitable
operations are achieved, the Company must expend resources on research and
development, design and marketing, and, as a result, additional funds may be
required.
Liquidity And Capital Resources As Of The End Of Fiscal Period Ending
October 31, 1996.
- --------------------------------------------------------------------- The
Company had $188,479 cash in bank and $1,411,866 in treasury bills and
certificates of deposit invested for six months. Working capital was $1,671,774
as at October 31, 1996. These balances are the result of the sale and conversion
into Common Shares of convertible debentures in the aggregate principal amount
of $18,500 and receipt of $175,000 through the exercise of 143,000 "A" warrants
and 32,000 "B" warrants at $1.00 per share. As of October 31, 1996, the Company
also sold 150 shares of convertible preferred shares for an aggregate gross
proceeds of $1,500,000 and net proceeds of $1,405,000. The preferred shares are
convertible in the aggregate into Common Shares at the lesser of $6.07 per share
or 75% of the Market Price of the Common Shares. The Company has used part of
the net proceeds to fund the conclusion of its product development, build an
inventory of parts and reagent chemistry, purchase production machinery, mount
an extensive marketing campaign and increase production. The remainder of the
net proceeds has been invested in Treasury bills and certificates of deposit.
The Company has expended $631,936 to date for the research and development of
its biomedical products.
Management believes that the present cash balance will pay the ongoing cost
of entering the workplace drug testing business. Management believes that until
profitable operations are achieved, the Company must expend resources on
research and development (albeit on a decreasing basis), and the design and
marketing of its workplace drug test kits.
Item 3. Description of Property
- -------------------------------
The Company occupies 2,400 square feet consisting of office space and a
warehouse and shipping area at 102 Simons Road, Ancramdale, New York 12503 in a
free standing building pursuant to a month to month oral lease with an
unaffiliated party. Monthly rental is $400.
13
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
- ----------------------------------------------------------------------
(a) Securities Ownership of Certain Beneficial Owners.
---------------------------------------------------------
As of October 31, 1996, the following persons were known by American Bio
Medica to own of record or beneficially more than five (5%) of the voting
interests of the Company
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------- -------------------- --------
Common Shares Edmund Jaskiewicz 3,029,872 24.2%
1730 M Street, NW
Washington, DC 20036
Common Shares Stan Cipkowski 2,707,468 21.6%
102 Simons Road
Ancramdale, NY 12503
(b) Securities Ownership of Management.
-------------------------------------------
Edmund Jaskiewicz and Stan Cipkowski are officers and directors of the
Company. Their ownership of the Company's voting interests are stated above. In
addition, as of October 31, 1996, the following officers and/or directors of
American Bio Medica own the number of shares set forth after their names.
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------- -------------------- --------
Common Shares Jay Bendis 625,000 5.0%
71 Springcrest Drive
Akron, Ohio 44333
Common Shares Henry J. Wells, Ph.D. -0- 0%
9421 Book Row
Columbia, Maryland 21046
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- ---------------------------------------------------------------------
The following sets forth certain information concerning the directors and
executive officers of American Bio Medica. All directors hold office for a one
year term or until their successors are elected and have qualified. The officers
serve at the discretion of the board of directors.
Name Age Position Since
---- --- -------- -----
Stan Cipkowski 48 President, Treasurer
and a Director 1986
Edmund Jaskiewicz 74 Chairman of the Board of Directors,
Executive, Vice-President
and Secretary 1992
Jay Bendis 49 Vice-President-Marketing
and a Director 1995
Henry J. Wells 64 Vice-President-Product Development 1995
14
<PAGE>
Stan Cipkowski founded the precedessor of the Company in 1982 and has been
an officer and director of the Company since its incorporation in April 1986.
From 1982 to 1986, he was sole proprietor of American Micro Media, which was
acquired by the Company. In addition, from 1983 to 1987, Mr. Cipkowski was a
general partner of Florida Micro Media, a Fort Lauderdale-based marketer of
educational software and was a principal shareholder and Chief Financial Officer
of Southeast Communications Group, Inc., a publisher of direct response media.
In 1982, he became a consultant to Dialogue Systems, Inc., a New York-based
developer of training and communications materials, where he served as Vice
President of Sales and Marketing. From 1977 to 1982, he was employed by
Prentice-Hall Publishing Company, reaching the position of National Sales
Manager. Prior to 1977 he was employed as an accountant for the New Seabury
Corporation and as Mid-West Area Manager for the Howard Johnson Company.
Edmund Jaskiewicz is a lawyer-engineer. He has practiced international
patent and corporate law as a sole practitioner since 1963 and has served as
Chairman of the Board of Directors since 1992. From 1953 to 1963 Mr. Jaskiewicz
was associated with Toulmin and Toulmin, Esqs., Washington, D.C. From 1960 to
1962, he resided in Frankfurt, Germany managing that firm's local office. From
1952 to 1953 he was with the Patent Section of the Bureau of ordinance of the
Department of the Navy working on patent infringement and licensing matters.
From 1948 to 1952, he served as an attorney at General Electric where he
prosecuted patents in electrical and mechanical fields and developed manuals on
procedures. He received his JD. degree in 1952 from George Washington University
Law School and his BS. in Engineering from the University of Connecticut in
1947.
Jay Bendis has been an independent consultant to bio-medical companies
since 1990, specializing in commercializing new concept products in both
domestic and international markets. From 1990 to 1992, he served as
Vice-President of Sales and Marketing for Scientific Imaging Instruments where
he was a principal and Vice President of Sales and Marketing. From 1985 to 1990,
Mr. Bendis served as National Sales Manager of the XANAR Laser Corp., a division
of Johnson & Johnson, where he directed its national sales force and developed
its marketing strategy for integrating high power lasers into the hospital
market. From 1979 to 1984, he was the Eastern Area Sales and Marketing Manager
for the IVAC Corp., a division of Eli Lilly. Prior to 1979, Mr. Bendis held
sales management positions with Xerox Corporation and A.M. International. Mr.
Bendis earned his BA. in Marketing/Management from Kent State University and is
currently a member of the Edison BioTechnology Center Advisory Council for the
State of Ohio.
Henry Wells, Ph.D. has served since 1990 as a contract chemist with the
title of Vice-President-Science and Technology for New Horizons Diagnostics,
Inc. where he adapts immuno-chemical technologies for detection of infectious
diseases. From 1989 to 1990, he was director of production for Espro, Inc., a
producer of in-vivo pesticides. From 1985 to 1989, Dr. Wells was
Vice-President-Science and Technology for Keystone Diagnostics, Inc. From 1984
to 1985, he was Director of Research and Development for Hill-Wells Research
Corporation, a developer of diagnostics products. From 1981 to 1984, he was
Vice-President-Research and Development of Hematec Corporation. From 1979 to
1981, Dr. Wells was Director of Biochemistry for Helena Laboratories. From 1973
to 1979, he was Manager of Chemical Chemistry at Smith Kline Diagnostics. Dr.
Wells earned his Ph.D. in Biochemistry from the University of Pittsburgh, his
MA. from University of Pennsylvania and his BS. in Chemistry from the University
of Pittsburgh.
15
<PAGE>
Scientific Advisory Committee
- -----------------------------
John Questal has been, since 1977, a Chemist and President of Adhesive
Consultants, Inc., a technical organization servicing all facets of the pressure
sensitive adhesive industry, including adhesive formulation and evaluations, as
well as processing. At Adhesive Consultants, Inc., he has been involved in the
development of products resulting in over sixty U.S. patents applied for to the
benefit of clients. Mr. Questal was Director of Research for Chemtrol Adhesives,
Inc. from 1972-1977, President of Adhesive Consultants, Inc. from 1967-1972, and
Research Director for Morgan Adhesives, Inc., from 1959 to 1967. Prior to 1959
he was employed as a research chemist for The Norton Company and Battelle
Memorial Institute. Mr. Questal earned his BS. in Organic Chemistry from Kent
State in 1951 and his MS. in Polymer Science from the University of Akron in
1963.
Maryce Jacobs, Ph.D. is a consultant to the bio-medical industry. From 1988
to 1993, she was Vice-President of the American Institute for Cancer Research, a
nonprofit corporation that funds research and education programs on diet,
nutrition, and cancer. As a toxicologist from 1983-1988, Dr. Jacobs performed
technical analyses for the U.S. Environmental Protection Agency Office of
Pesticides, Office of Toxic Substances and Superfund, the U.S. Food and Drug
Administration, the U.S. Dept. of Agriculture, Forest Service, and the U.S. Army
Medical Research and Development Command. She was Director of the University of
Nebraska Testing Laboratory from 1977-1983, and Co-Chairperson of Biochemistry
and Assistant Professor of the M.D. Anderson Cancer Center at the University of
Texas from 1971-1977. Dr. Jacobs earned her Ph.D. from Stanford University in
1970.
Item 6. Executive Compensation
- ------------------------------
The following table sets forth certain information concerning the
compensation paid or accrued by the Company for services rendered during the
Company's fiscal year ended April 30, 1996 to the President of the Company and
to other Officers and Directors receiving greater than $100,000 in salary and
bonus.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Res- All
and Annual tricted Other
Principal Compen- Stock Options LTIP Compen-
Position Year Salary Bonus sation Awards SARs Payouts sation
($) ($) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
_______________________________________________________________________________
Stan 1996 44,000 -0- -0- -0- -0- -0- 3,000
Cipkowski,
President
</TABLE>
16
<PAGE>
Aggregated Options Granted and Exercised in Last Fiscal Year and
Fiscal Year End Option/SAR Values
The following table sets forth certain information concerning the number of
stock options held by the named Officers as of April 30, 1996.
<TABLE>
<CAPTION>
Number of Dollar value
Shares of unexercised
underlying (in-the-money)
unexercised options/
options/warrants warrants
on 04/30/96 on 4/30/96
of Options/ Non- Non-
Options Warrants Exercise Exer- Exer- Exer- Exer-
Name Title Granted Exercised Price cisable cisable cisable cisable
- --------- ------- ------- ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stan Pres./
Cipkowski Treas. -0- -0- -0- -0- -0- -0- -0-
Edmund Exec. VP/ -0- -0- -0- -0- -0- -0- -0-
Jaskiewicz Sec.
Jay Bendis VP. -0- -0- -0- -0- -0- -0- -0-
Henry J.
Wells, PhD. VP -0- -0- -0- -0- -0- -0- -0-
</TABLE>
Item 7. Certain Relationships and Related Transactions
- ------------------------------------------------------
The Company, a New York corporation, was formed in April 1986 to purchase a
sole proprietorship, American Micro Media, owned by Stan Cipkowski, its
President. It successfully completed a public offering in February, 1987.
Originally involved in the sale of educational software to schools, it expanded
to the sale of corporate training materials and library books. In 1991 and 1992,
the Company closed most of its existing business lines because of competition,
low margins and slow collections, but retained one book/audio cassette product
line.
17
<PAGE>
In September 1992, the Company acquired all the issued and outstanding
common stock of three companies ("Target Companies") two of which were owned by
Robert M. Friedenberg and two nonaffiliated parties and the third by Edmund
Jaskiewicz, Chairman of the Board in exchange for an aggregate of 15,099,700
Common Shares. The assets of the Target Companies were various biomedical
technologies. Dr. Friedenberg, former major stockholder of two of the Target
Companies, failed to deliver the claimed technologies to the Company and/or
misrepresented them and resigned as an officer and director of the Company. The
Common Shares which Dr. Friedenberg and the two nonaffiliated parties would have
received (aggregating 9,069,828 shares) were rescinded. In February, 1994,
Robert Friedenberg, as owner of the two Target Companies, through these
corporations, filed suit to have the agreement of exchange rescinded on the
grounds of breach of contract. In order to avoid the imposition of damages
against it, the Company filed a counterclaim in July, 1994, seeking enforcement
of that agreement. In November, 1995, after a trial, the court dismissed Dr.
Friedenberg's lawsuit and allowed the Company's counterclaim to proceed.
The assets of the third company, previously owned by Mr. Jaskiewicz,
included the KDMP technology which were assigned to the Company. Mr. Jaskiewicz
agreed, in February, 1996, to the cancellation of 3,000,000 of his 6,029,872
Common Shares because the major business of the Company became the development
and marketing of its drug test kit which was developed in-house, rather than the
KDMP for the assignment of which Mr. Jaskiewicz received much of his equity
interest in the Company. The Company has no intention of entering into
transactions in the future with related parties.
On November 3, 1995, Stan Cipkowski, President, Edmund Jaskiewicz,
Executive Vice-President and Jay Bendis, Vice-President entered into three-year
employment contracts with the Company. Mr. Cipkowski received a salary of
$36,000 per annum until April 30, 1996; and $60,000 per annum thereafter until
such time as the Company's gross revenues reach $500,000 at which point the
annual base salary will increase to $72,000. Messrs. Jaskiewicz and Bendis
received a salary of $24,000 per annum until April 30, 1996; and $48,000 per
annum thereafter until such time as the Company's gross revenues reach $500,000
at which point the annual base salary will increase to $60,000. In addition,
Messrs. Cipkowski, Jaskiewicz and Bendis will each receive a bonus equal to 2%
of the gross revenues of the Company after the attainment of gross revenues of
$1,000,000 per fiscal year until such annual revenues reach $3,000,000; 1.5% of
gross revenues between $3,000,000 and $5,000,000; and 1% on additional revenues.
Mr. Bendis was issued 500,000 Common Shares in consideration of past services of
which 100,000 shares vested immediately, 100,000 shares after the Company
achieves aggregate revenues of $1,000,000; 100,000 after the Company achieves
aggregate revenues of $2,000,000; 100,000 shares after the Company achieves
aggregate revenues of $3,000,000; and 100,000 shares after the Company achieves
aggregate revenues of $4,000,000. Any shares which have not vested by April
30, 1998, will be cancelled.
In June, 1996, the Company adopted its 1996 Nonstatutory Stock Option Plan
(the "1996 Plan"). Options to purchase 2,000,000 Shares are included in the 1996
Plan of which 1,500,000 were issued on June 28, 1996 as follows: Stan Cipkowski,
550,000 options; Edmund Jaskiewicz, 250,000 options; Jay Bendis, 300,000
options; Henry Wells, 150,000 options; Joel Pensley, Esq. (a partner in Pensley
& Fugler) 160,000 options, Michael Roy Fugler, Esq. (a partner in Pensley &
Fugler) 40,000 options and two non-management employees, 25,000 options each.
Each option entitles the holder to purchase one Common Share for $3.00 until
June 27, 1999.
18
<PAGE>
In September, 1996, the Company sold 150 8% Cumulative Convertible
Preferred Shares, Series A (the "Preferred Shares") for an aggregate of
$1,500,000. Each Preferred Share is convertible pursuant to the following
formula: $10,000 (the purchase price of each Preferred Share) divided by the
lesser of $6.07 (which was the "Market Price" on the closing date of the sale of
the Preferred Shares) or 75% of the Market Price. ("Market Price" is the average
closing price of the Common Shares for the five days prior to the date of
purchase or conversion, as the case may be, of the Preferred Shares.) The
Company is obligated to register with the Securities and Exchange Commission
(the "Commission") the Common Shares underlying Conversion of the Preferred
Shares.
The Company does not now nor does it intend to enter into any agreements
with affiliated parties for the purchase of technologies, the sale of product or
the purchase of inventory. (See "Business.")
Item 8. Description of Securities
- ---------------------------------
The authorized capital stock of the Company consists of 30,000,000 Common
Shares $.01 par value and 5,000,000 Preferred Shares.
Common Shares.
- --------------
10,814,561 Common Shares were issued as of April 30, 1996. Stockholders (i)
have general ratable rights to dividends from funds legally available therefor,
when, as and if declared by the Company's Board of Directors; (ii) are entitled
to share ratably in all assets of American Bio Medica available for distribution
to shareholders upon liquidation, dissolution or winding up of its affairs;
(iii) do not have preemptive, subscription or conversion rights, nor are there
any redemption or sinking fund provisions applicable thereto; and (iv) are
entitled to one vote per Share on all matters on which shareholders may vote at
all shareholder meetings. All Common Shares now outstanding are fully paid and
nonassessable and all Common Shares to be sold will be fully paid and
nonassessable when issued.
Stockholders do not have cumulative voting rights. Thus, the holders of
more than 50% of such outstanding Common Shares, voting for the election of
Directors, can elect all of the Directors to be elected, if they so choose, and
in such event, the holders of the remaining Common Shares will not be able to
elect any of the Company's Directors.
Preferred Shares
- ----------------
The Board of Directors of the Company has the authority, without further
action by the holders of the outstanding Shares of Common Shares, to issue
Shares of Preferred Stock from time to time in one or more classes or series, to
fix the number of Shares constituting any class or series and the stated value
thereof, if different from the par value, and to fix the terms of any such
series or class, including dividend rights, dividend rates, conversion or
exchange rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price and the liquidation preference of
such class or series.
19
<PAGE>
In September, 1996, the Company sold 150 8% Cumulative Convertible
Preferred Shares, Series A. Each Preferred Share is convertible pursuant to the
following formula: $10,000 (the purchase price of each Preferred Share) divided
by the lesser of $6.07 (which was the "Market Price" on the closing date of the
sale of the Preferred Shares) or 75% of the Market Price. ("Market Price" is the
average closing price of the Common Shares for the five days prior to the date
of purchase or conversion, as the case may be, of the Preferred Shares. The
Company intends to file a registration statement relating to the underlying
Common Shares and to secure effectiveness of such registration statement.
Stock Options and Warrants
- --------------------------
The Company has adopted the 1996 Nonstatutory Stock Option Plan. 2,000,000
Shares of Common Stock were reserved under the 1996 Plan. The 1996 Plan is
administered by the Board of Directors.
Stock options under the 1996 Plan may be granted to employees, officers,
directors, consultants of the Company or any other parties who have made a
significant contribution to the business and success of the Company. The
exercise price under the Plan may be more, equal to or less than the then
current market price of the Common Shares as deemed to be appropriate.
The Company has issued 1,631,000 options pursuant to the 1996 Plan. All
options are exercisable for a period of three years at $3.00 per share. (See
"Certain Relationships and Related Transactions" and Financial Statements -
Footnotes.) No options issued under the 1996 Plan have been exercised.
The Company has issued 500,000 "A" Options which are exercisable at $1.00
through March 14, 1999 and 500,000 "B" Options, which are exercisable at $2.00
through March 14, 1999. Until a registration statement relating to the Common
Shares underlying the Options is effective, certificates representing the shares
into which the Options are exercised will bear a legend restricting transfer in
the absence of an effective registration with the Commission or an exemption
therefrom. The Company has no present intention of filing a registration
statement relating to the underlying shares.
The Company has issued 24,712 Common Share purchase warrants. The Warrants
are exercisable at $6.07 per share for a period of two years from the date of an
effective registration statement relating to the underlying Common Shares. The
Company intends to file a registration statement relating to the underlying
Common Shares and to secure effectiveness of such registration statement. The
Company and the warrantholder have agreed to lower the exercise price of the
Warrants to $3.00.
20
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Transactions
- ---------------------------------------------------------------------------
The Common Shares are traded on the NASD Electronic Bulletin Board under
the symbol "ABMC." The table on the following page sets forth the range of high
and low sales prices for the Common Shares on the NASD Bulletin Board for each
quarter for the fiscal years 1995 and 1996 and the first and second quarters of
fiscal 1997. There are approximately 1,730 holders of Common Shares. As of
October 31, 1996, there were outstanding 12,565,227 Common Shares and 150
Preferred Shares each of which is convertible into Common Shares at $10,000
divided by lesser of $6.07 or 75% of the average closing price for the five
trading days preceeding conversion. There is one holder of the Preferred Shares
which do not trade.
High Low
---- ----
Fiscal Year Ending April 30, 1997
---------------------------------
First Quarter 6.00 2.00
Second Quarter 7.38 4.31
Fiscal Year Year Ended April 30, 1996
-------------------------------------
Fourth Quarter 2.00 0.75
Third Quarter 1.00 0.63
Second Quarter 0.62 0.38
First Quarter 0.38 0.13
Fiscal Year Ended April 30, 1995
--------------------------------
Fourth Quarter 0.13 0.06
Third Quarter 0.13 0.06
Second Quarter 0.09 0.06
First Quarter 0.19 0.03
Item 2. Legal Proceedings
- -------------------------
In February, 1994, Robert Friedenberg, as owner of the two medical
technology companies, MDI and Gendex, acquired by the Company, in the name of
these corporations, filed suit to have the Agreement of Exchange rescinded on
the grounds of breach of contract. In order to avoid the imposition of damages
against it, the Company filed a cross claim, in July, 1994, against Dr.
Friedenberg, seeking enforcement of the Agreement of Exchange. In November,
1995, after a trial, the court dismissed Dr. Friedenberg's lawsuit and allowed
the Company's cross claim to proceed to trial. A pretrial hearing was held in
December, 1996 which set a trial date of April 28, 1997. In September, 1996, Dr.
Friedenberg died. The implications of his death vis-a-vis the lawsuit cannot be
assessed at this time.
In June, 1995, the Company filed a lawsuit against Jackson Morris, Dr.
Friedenberg's counsel, for the breach of attorney-client relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr. Friedenberg and in the preparation of the Share Exchange Agreement. The
Company's lawsuit demands damages in the amount of $1,000,000. The court has set
a trial date of September 14, 1998.
No other legal proceedings are pending to which the Company or any of its
property is subject, nor to the knowledge of the Company are any other legal
proceedings threatened.
21
<PAGE>
Item 3. Changes in and Disagreement With Accountants
- ----------------------------------------------------
None.
Item 4. Recent Sales of Unregistered Securities
- -----------------------------------------------
Beginning February 16, 1993, and ending as of July 31, 1996, the Company
offered and sold under Rule 504 ("Rule 504") of Regulation D ("Regulation D") to
the Securities Act of 1933, as amended, (the "Securities Act") 12% convertible
subordinated debentures ("Debentures"). Each Debenture was in the a face amount
of multiples of $5,000 with interest at 12% per annum payable quarterly. Holders
were given the opportunity to convert the principal amount of their Debentures
in whole or in part, into Common Shares, at the rate of $.75 per share. The
Company sold an aggregate of $1,417,000 in principal amount of Debentures as of
July 31, 1996 to 62 people all of which were converted into a total of
1,889,333 Common Shares.
The sales of the Debentures qualified under Rule 504 in that the Company
was a non-reporting company under the Securities Exchange Act of 1934 (the
"Securities Exchange Act") and at the time of each purchase of a Debenture, for
the preceding twelve-month period, the Company had raised under paragraph 3(b)
to Regulation D less than $1,000,000.
In November, 1995, the Company issued 100,000 Common Shares to Joel
Pensley, pursuant to Rule 504 for $10,000 of legal services. The sales of the
Common Shares qualified under Rule 504 to the Securities Act in that the Company
was a non-reporting company under the Securities Exchange Act and at the time of
the, for the preceding twelve-month period, the Company had raised less than
$1,000,000 under paragraph 3(b) to Regulation D.
The Company sold, between January 2, 1996 and March 15, 1996, pursuant to
Rule 504, 25,000 Units at $1.00 per Unit. Each Unit consisted of one Common
Share, 20 common share "A" purchase warrants exercisable for six months at $.50
and two "B" common share purchase warrants exercisable at $1.00. As of July 31,
1996, Unit holders had exercised all 250,000 "A" Warrants into 250,000 Common
Shares for an aggregate of $125,000 and all 25,000 "B" Warrants for an aggregate
of $25,000.
As of April 30, 1996, the Company had issued 489,181 Common Shares under
Regulation D in consideration for past services to five individuals in the
amount of $60,975 or an average consideration of $.125 per share.
As of April 30, 1996, the Company issued to OTC Communications 100,000
Common Shares under Rule 504 as consideration for corporate public relations
services rendered per contract at a value of $.65 per share.
As of April 30, 1996, the Company issued to Riverside Consulting Group,
Inc. 25,000 Common shares under Rule 504 in consideration for financial
consulting services of $12,500 at $.50 per share.
As of April 30, 1996, the Company approved the issuance to OTC
Communications 500,000 Common Shares under Regulation D as consideration for
corporate public relations services rendered per contract and 50,000 Common
Shares for expenses at a value of $.325 per share.
As of July 31, 1996, the Company issued an aggregate of 100,000 Common
Shares to two individuals under Rule 504 at $.50 per share for an aggregate of
$50,000 in consideration for financial consulting services.
22
<PAGE>
All sales of Common Shares or the exercise of the Warrants pursuant to Rule
504 qualified under that rule in that the Company was a non-reporting company
under the Securities Exchange Act and at the time of each purchase of a Common
Share or exercise of a Warrant, for the preceding twelve-month period, the
Company had raised less than $1,000,000 under paragraph 3(b) to Regulation D.
In September, 1996, the Company sold 150 8% Cumulative Convertible
Preferred Shares, Series A (the "Preferred Shares") under Regulation D for an
aggregate of $1,500,000 less commissions of 6% or $90,000. Each Preferred Share
is convertible pursuant to the following formula: $10,000 (the purchase price of
each Preferred Share) divided by the lesser of $6.07 (which was the "Market
Price" on the closing date of the sale of the Preferred Shares) or 75% of the
Market Price - the average closing price of the Common Shares for the five days
prior to the date of purchase or conversion, as the case may be, of the
Preferred Shares.) The holder(s) of the Preferred Shares may convert a maximum
of one-half of the Preferred Shares on or after 60 days of the purchase of the
Preferred Shares and all the Preferred Shares on or after 90 days from the date
of purchase.
In September, 1996, the Registrant issued 24,712 Warrants as part of the
compensation to the placement agent which introduced the Company to the purchase
of the Preferred Shares. Each warrant is exercisable into one Common Share at
$6.07 for a period of two years commencing the effective date of a registration
statement relating to the underlying Common Shares.
In March, 1996, the Registrant issued to OTC Communications 500,000 OTC "A"
Options exercisable until March 14, 1999 at $1.00 per share and 500,000 OTC "B"
Options exercisable until March 14, 1999 at $2.00 per share. These warrants and
the shares underlying them are restricted.
In June, 1996, the Company adopted its 1996 Nonstatutory Stock Option Plan
(the "1996 Plan") under which a maximum of 2,000,000 Nonstatutory Options may be
issued. 1,500,000 Nonstatutory Options were issued on June 28, 1996 as follows:
Stan Cipkowski, President, 550,000 options; Edmund Jaskiewicz, Executive
Vice-President, 250,000 options; Jay Bendis, Vice-President-Marketing, 300,000
options; Henry Wells, Director, 150,000 options; Joel Pensley, Esq. 160,000
options, Michael Roy Fugler, Esq. 40,000 options and two non-management
employees, 25,000 options each. Each Nonstatutory Option entitles the holder to
purchase one Common Share for $3.00 until June 27, 1999. The Common Shares
underlying the Nonstatutory Options have not been registered under the
Securities Act.
23
<PAGE>
Item 5. Indemnification of Directors and Officers
- -------------------------------------------------
The personal liability of the directors of the Corporation is eliminated to
the fullest extent permitted by the provisions of paragraph (b) of Section 402
of the Business Corporation Law, as the same may be amended and supplemented.
Section 402(b) of the Business Corporation Law of New York reads:
"The certificate of incorporation may set forth a provision eliminating or
limiting the personal liability of directors to the corporation or its
shareholders for damages for any breach of duty in such capacity, provided that
no such provision shall eliminate or limit:
(1) the liability of any director if a judgment or other final adjudication
adverse to him establishes that his acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled or that his acts violated section 719, or
(2) the liability of any director for any act or omission prior to the
adoption of a provision authorized by this paragraph."
The New York Business Corporation Law provides for the indemnification of
the Company's officers, directors and corporate employees and agents under
certain circumstances as follows:
Sections 721 through 726 read as follows:
"721 NONEXCLUSIVITY OF STATUTORY PROVISIONS FOR INDEMNIFICATION OF
DIRECTORS AND OFFICERS.
The indemnification and advancement of expenses granted pursuant to, or
provided by, this article shall not be deemed exclusive of any other rights to
which a director or officer seeking indemnification or advancement of expenses
may be entitled, whether contained in the certificate of incorporation or the
by-laws or, when authorized by such certificate of incorporation or by-laws, (i)
a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled. Nothing contained in this article shall affect any rights
to indemnification to which corporate personnel other than directors and
officers may be entitled by contract or otherwise under law.
24
<PAGE>
722 AUTHORIZATION FOR INDEMNIFICATION OF DIRECTORS AND OFFlCERS.
(a) A corporation may indemnify any person, made, or threatened to be made,
a party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made,
a party to an action by or in the right of the corporation to procure a judgment
in its favor by mason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is or was seeing at the request of
the corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys/lees, actually and necessarily incurred
by him in connection with the defense or settlement of such action, or in
connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim issue or matter as to which such
person shall have been adjudged to be liable to the corporation. unless and only
to the extent that the court on which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
25
<PAGE>
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
723 PAYMENT OF INDEMNIFICATION OTHER THAN BY COURT AWARD.
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in section 722 shall be entitled to indemnification as authorized in such
section.
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director or officer
has met the standard of conduct set forth in section 722 or established pursuant
to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs;
(A) By the board upon the opinion in writing of independent legal counsel
that indemnification is proper in the circumstances because the applicable
standard of conduct set forth in such sections has been met by such director or
officer, or
(B) By the shareholders upon a finding that the director or officer has met
the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or proceeding
may be paid by the corporation in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount as, and to the extent, required by
paragraph (a) of section 725.
724 INDEMNIFICATION OF DIRECTORS AND OFFICERS BY A COURT.
(a) Notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary resolution of the board or of the
shareholders in the specific case under section 723 (Payment of indemnification
other than by court award), indemnification shall be awarded by a court to the
extent authorized under section 722 (Authorization for indemnification of
directors and officers) and paragraph (a) of section 723. Application therefore
may be made, in every case, either
(1) In the civil action or proceeding in which the expenses were incurred
or the amounts were paid, or
(2) to the supreme court in a separate proceeding, in which case the
application shall set forth the disposition of any previous application made to
any court for the same or similar relief and also reasonable cause for the
failure to make application for such relief in the action or proceeding in which
the expenses were incurred or other amounts were paid
26
<PAGE>
(b) the application shall be made in such manner and form as may be
required by the applicable rules of court or, in the absence thereof, by
direction of a court to which it is made. Such application shall be upon notice
to the corporation. The court may also direct that notice by given at the
expense of the corporation to the shareholder and such other person as it may
designate in such manner as it may require.
(c) Where indemnification is sought by judicial action, the court may allow
a person such reasonable expenses, including attorneys' fees, during the
pendency of the litigation as are necessary in connection with his defense
therein, if the court shall find that the defendant has by his pleadings or
during the course of the litigation raised genuine issues of fact or law.
725 OTHER PROVISIONS AFFECTING INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) All expenses incurred in defending a civil or criminal action or
proceeding which are advanced by the corporation under paragraph (c) of section
723 (Payment of indemnification other than by court award) or allowed by a court
under paragraph (c) of section 724 (Indemnification of directors and officers by
a court) shall be repaid in case the person receiving such advancement or
allowance is ultimately found, under the procedure set forth in this article,
not to be entitled to indemnification or, where indemnification is granted, to
the extent the expenses so advanced by the corporation or allowed by the court
exceed the indemnification to which he is entitled.
(b) No indemnification, advancement or allowance shall be made under this
article in any circumstance where it appears:
(1) That the indemnification would be inconsistent with the law of the
jurisdiction of incorporation of a foreign corporation which prohibits or
otherwise limits such indemnification
(2) That the indemnification would be inconsistent with a provision of the
certificate of incorporation, a by-law, a resolution of the board or of the
shareholders, an agreement or other proper corporate action, in effect at the
time of the accrual of the alleged cause of action asserted in the threatened or
pending action or proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(3) If there has been a settlement approved by the court, that the
indemnification would be inconsistent with any condition with respect to
indemnification expressly imposed by the court in approving the settlement.
(c) If any expenses or other amounts are paid by way of indemnification,
otherwise than by court order or action by the shareholders, the corporation
shall, not later than the next annual meeting of shareholders unless such
meeting is held within three months from the date of such payment, and in any
event, within fifteen months from the date of such payment, mail to its
shareholders of record at the time entitled to vote for the election of
directors a statement specifying the persons paid, the amounts paid, and the
nature and status at the time of such payment of the litigation or threatened
litigation.
(d) If any action with respect to indemnification of directors and officers
is taken by way of amendment of the by-laws, resolution of directors, or by
agreement, then the corporation shall, not later than the next annual meeting of
shareholders, unless such meeting is held within three months from the date of
such action, and, in any event, within fifteen months from the date of such
action, mail to its shareholders of record at the time entitled to vote for the
election of directors a statement specifying the action taken.
(e) Any notification required to be made pursuant to the foregoing
paragraph (c) or (d) of this section by any domestic mutual insurer shall be
satisfied by compliance with the corresponding provisions of section one
thousand two hundred sixteen of the insurance law.
27
<PAGE>
726 INSURANCE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS.
a) Subject to paragraph (b), a corporation shall have power to purchase and
maintain insurance:
(1) To indemnify the corporation for any obligation which it incurs as a
result of the indemnification of directors and officers under the provisions of
this article, and
(2) To indemnify directors and officers in instances in which they may be
indemnified by the corporation under the provisions of this article, and
(3) To indemnify directors and officers in instances in which they may not
otherwise be indemnified by the corporation under the provisions of this article
provided the contract of insurance covering such directors and officers
provides, in a manner acceptable to the superintendent of insurance, for a
retention amount and for co-insurance.
(b) No insurance under paragraph (a) may provide for any payment, other
than cost of defense, to or on behalf of any director or officer:
(1) if a judgment or other final adjudication adverse to the insured
director or officer establishes that his acts of active and deliberate
dishonesty were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled, or
(2) in relation to any risk the insurance of which is prohibited under the
insurance law of this state.
(c) Insurance under any or all subparagraphs of paragraph (a) may be
included in a single contract or supplement thereto. Retrospective rated
contracts are prohibited.
(d) The corporation shall, within the time and to the persons provided in
paragraph (c) of section 725 (Other provisions affecting indemnification of
directors or officers), mail a statement in respect of any insurance it has
purchased or renewed under this section, specifying the insurance carrier, date
of the contract, cost of the insurance, corporate positions insured, and a
statement explaining all sums, not previously reported in a statement to
shareholders, paid under any indemnification insurance contract.
(e) This section is the public policy of this state to spread the risk of
corporate management, notwithstanding any other general or special law of this
state or of any other jurisdiction including the federal government."
28
<PAGE>
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(201) 790-8775
To The Board of Directors and Shareholders
of American Bio Medica Corporation
I have audited the accompanying balance sheet of American Bio Medica
Corporation ( a development stage company) as of April 30, 1995 and 1996 and the
related statements of operations, cash flows and shareholders' equity for the
years ended April 30, 1995 and 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Bio Medica
Corporation ( a development stage company) as of April 30, 1995 and 1996 and the
results of its operations, shareholders equity and cash flows for the years
ended April 30, 1995 and 1996 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
American Bio Medica Corporation (a development stage company) will continue as a
going concern. As more fully described in Note 2, the Company has incurred
operating losses since inception and requires additional capital to continue
operations. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans as to these matters are
described in Note 2. The financial statements do not include any adjustments to
reflect the possible effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
possible inability of American Bio Medica Corporation (a development stage
company) to continue as a going concern.
Thomas P. Monahan, CPA
July 15, 1996
Paterson, New Jersey
F-1
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
BALANCE SHEET
<TABLE>
<CAPTION>
April 30, April 30, October 31,
1995 1996 1996
________ _________ ________
Assets
<S> <C> <C> <C>
Current assets
Cash $82,833 $437,532 $188,479
Investment-short term 1,411,866
Accounts receivable 72,579 34,500 48,214
Inventory 27,551 22,301 51,042
Prepaid expenses 15,089
_______ _______ _______
Total current assets 198,052 494,333 1,699,601
Capital assets - net 24,575 20,575 78,073
Other assets
License rights 183,670 110,070 92,070
Patent costs 21,000 21,000 22,595
Total other assets 204,670 131,070 114,665
_______ ________ ________
Total assets $427,297 $645,978 $1,892,339
======== ======== ==========
F-2
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
BALANCE SHEET
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and
accrued expenses $64,076 $33,248 $27,827
Notes payable 89,258
Convertible debenture payable 500,000 132,000
_______ _______ ______
Total current liabilities 653,334 165,248 27,827
_______ _______ ______
Long term liabilities
Convertible debenture payable 214,000
Note payable 126,500 126,500
_______ _______
Total long term liabilities 340,500 126,500
Capital stock
Capital stock-authorized
30,000,000 common shares,
par value $.01 each, at
April 30, 1995 and 1996 and
October 31, 1996, the shares
outstanding were 8,350,378,
12,089,561 and 12,565,227
respectively. 83,503 120,895 125,651
Preferred stock-authorized
5,000,000 preferred shares,
par value $.01 each at
October 31, 1996, the
number of shares outstanding
was 150. 1
Additional paid in capital 755,173 2,635,006 4,415,749
Deficit accumulated during
development stage (1,405,213) (2,401,671) (2,676,889)
___________ ___________ ___________
Total stockholders' equity (566,537) 354,230 1,864,512
___________ ___________ ___________
Total liabilities and
stockholders' equity $427,297 $645,978 $1,892,339
======== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the six For the six Inception
For the For the months ended months ended, April 10,
year ended year ended October 31, October 31 1986 to
April 30, April 30, 1995 1996 October 31,
1995 1996 (unaudited) (unaudited) 1996
---- ---- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Income $137,891 $158,105 $82,416 $48,587 $5,389,882
Less cost of
goods sold 45,204 96,444 26,373 25,778 3,149,900
------- ------ ------ ------ ---------
Gross profit 92,687 61,661 56,043 22,809 2,239,982
Operations:
General and
administrative 129,719 518,826 66,672 336,113 3,757,056
Depreciation and
amortization 75,600 77,600 37,800 23,000 312,664
Research and
development 135,412 358,844 98,401 66,750 631,936
------- ------- ------ ------
- --------
Total expense 340,731 955,270 202,873 425,863 4,701,656
Loss before
other income (248,044) (893,609) (146,830) (403,054) (2,461,674)
Other income
and expenses
Retirement of
debt (Note 9) 126,500 126,500
Interest income 10,145 356 1,200 1,336 15,356
Interest expense (67,429) (103,205) (47,566) (357,071)
------ ------- ------ ------ -------
Total other income(57,284) (102,849) (46,366) 127,836
(215,215)
and expenses
------- --------- -------- --------- ----------
Net Profit (Loss) $(305,328) $(996,458) $(193,196) $(275,218) $(2,676,889)
from operations
========= ========= ========== ==========
===========
Net income (loss)
per share $(0.02) $(0.08) $(0.02) $(0.02) $(0.21)
========= ========= ========== ========== ===========
Number of shares
outstanding 12,565,227 12,565,227 12,565,227 12,565,227 12,565,227
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
For the For the six months six months Inception
year year ended ended April 10,
ended ended October October 1986) to
April 30, April 30, 31, 1995 1996 October
1995 1996 (unaudited) (unaudited) 31, 1996
---- ---- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net profit (loss) $(305,328) $(996,458) $(193,196) $(275,218) $(2,676,889)
Amortization
and depreciation 75,600 77,600 37,800 23,000 312,664
Consulting fees 306,250 50,000 356,250
Compensation
agreement 125,000 125,000
Retirement of debt
(Note 9) 126,500 (126,500)
Adjustments to
reconcile net
income to net cash
Accounts receivable (55,234) 38,079 3,722 (13,714) (48,214)
Inventory (19,420) 5,250 2,923 (28,741) (51,042)
Prepaid expenses (40,683) 15,089 7,391
Accounts payable (36,151) (30,828) 5,489 (5,421) 27,827
-------- -------- ----- ------- ------
TOTAL CASH FLOWS
FROM OPERATIONS (381,216) (460,018) (135,871) (123,594) (2,080,904)
CASH FLOWS
FROM FINANCING
ACTIVITIES
Convertible
debenture 446,278 693,000 180,500 (132,000) 1,407,000
Notes payable (89,289) 126,500
Sale of stock 150,000 1,481,903 2,209,819
Issuance of
stock for services 61,006 99,253
------- ------- ------- --------- ---------
TOTAL CASH FLOWS
FROM FINANCING 446,278 814,717 180,500 1,349,903 3,842,572
ACTIVITIES
CASH FLOWS
FROM INVESTING
ACTIVITIES
Patent costs (2,000) (2,000)
Investments
short term (1,411,866) (1,411,866)
Capital assets (61,496) (159,323)
-------- ---------
TOTAL CASH FLOWS
FROM INVESTING (1,475,362) (1,573,189)
ACTIVITIES
NET INCREASE
(DECREASE) IN CASH 65,062 354,699 44,629 (249,053) 188,479
CASH BALANCE
BEGINNING OF PERIOD 147,895 82,833 82,833 437,532 -0-
------- ------ ------ ------- -------
CASH BALANCE
END OF PERIOD $82,833 $437,532 $38,204 $188,479 $188,479
======= ======== ======= ======== ========
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during
Common Common Preferred paid-in Development
Date Stock Stock Stock capital Stage Total
---- ----- ----- ----- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
4-10-1986(1) 1,600,000 $16,000 $11,727 $27,727
4-11-1986(1) 200,000 2,000 2,000
4-30-1986 Net Loss $(612) (612)
-------- ----- ------ ------ -------
4-30-1986 1,800,000 18,000 11,727 (612) 29,115
7-9-1986(2) 200,000 2,000 42,888 44,888
4-30-1987(3) 360,935 3,609 357,326 360,935
4-30-1987(4) 74,854 74,854
4-30-1987 Net Loss (45,981) (45,981)
-------- ------ ------- ------- -------
4-30-1987 2,360,935 23,609 337,087 (45,369) 406,065
4-30-1988(5) 67,056 67,056
4-30-1988 Net loss (417,760) (417,760)
-------- ------ ------ --------- --------
4-30-1988 2,360,935 23,609 404,143 (372,391) 55,361
4-30-1989 25,000 250 6,000 6,250
4-30-1989 Net loss (51,677) (51,677)
4-30-1989(5) 19,520 19,520
--------- ------ ------- ------- -------
4-30-1989 2,385,935 23,859 429,663 (424,068) 29,454
4-30-1990 Net loss (13,352) (13,352)
--------- -------- ------- -------- -------
4-30-1990 2,385,935 23,859 429,663 (437,420) 16,102
4-30-1991(9) 742,000 7,420 193,229 200,649
4-30-1991 Net loss (419,654) (419,654)
-------- ----- ------- -------- --------
4-30-1991 3,127,935 31,279 622,892 (857,074) 202,903
4-30-1992(6) 474,800 4,748 4,748
4-30-1992 Net loss (51,194) (51,194)
-------- ------ ------- --------- --------
4-30-1992 3,602,735 36,027 622,892 (908,268) 249,349
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during
Common Common Preferred paid-in Development
Date Stock Stock Stock capital Stage Total
---- ----- ----- ----- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
4-30-1992 3,602,735 36,027 622,892 (908,268) 249,349
4-30-1993(12) 1,717,771 17,177 11,833 29,010
4-30-1993(7) 6,029,872 60,299 90,448 150,747
4-30-1993 Net profit (42,374) (42,374)
---------- ------- ------- -------- -------
4-30-1993 11,350,378 $113,503 $725,173 (950,642) $111,966
4-30-1994 Net loss (149,243) (149,243)
-------- ------- ------- -------- ---------
4-30-1994 11,350,378 113,503 725,173 (1,099,885) 261,209
10-18-1995(8 (3,000,000) (30,000) (30,000)
4-30-1995 (305,328)
(305,328)
---------- ------- ------- --------- --------
4-30-1995 8,350,378 83,503 755,173 (1,405,213) 566,537
11-3-1995 500,000 5,000 120,000 125,000
4-30-1996(10) 1,700,002 17,000 1,258,000 1,275,000
4-30-1996(11) 25,000 250 24,750 25,000
4-30-1996(12) 250,000 2,500 122,500 125,000
4-30-1996(13) 489,181 4,892 56,083 60,975
4-30-1996(14) 125,000 1,250 61,250 62,500
4-30-1996(15) 100,000 1,000 64,000 65,000
4-30-1996(16) 550,000 5,500 173,250 178,750
4-30-1996 Net loss (996,458) (996,458)
-------- ------- --------- --------- ---------
4-30-1996 12,089,561 $120,895 $2,635,006 (2,401,671) $354,230
Unaudited
6-4-1996 11,333 113 8,387 8,500
6-4-1996 25,000 250 24,750 25,000
7-31-1996(10) 176,000 1,760 130,240 132,000
7-31-1996(10) 13,333 133 9,867 10,000
7-31-1996(14) 100,000 1,000 49,000 50,000
7-31-1996(17) 32,000 320 31,680 32,000
7-31-1996(18) 100,000 1,000 99,000 100,000
9-9-1996(17) 18,000 180 17,820 18,000
9-23-1996(19) $1 1,409,999 1,410,000
10-31-1996 Net loss (275,218) (275,218)
-------- ------- -- --------- --------- ---------
10-31-1996 12,565,227 $125,651 $1 $4,415,749$(2,676,889)$1,864,512
========== ======== == ======= ========== =========
</TABLE>
F-7
<PAGE>
(1) Issuance of Common Shares for initial capital contribution
(2) Sale of Common Shares through private placement at $.25 per share
(3) Sale of Common Shares through Unit offering at $1.00 per Unit plus
one warrant
(4) Write off of related offering expense
(5) Forgiveness of salary
(6) Sale of Common Shares at $.001 par value for cash
(7) Common Shares issued pursuant to acquisition
(8) Return of Common Shares by Edmund Jaskiewicz
(9) Issuance of Common Shares to Jay Bender pursuant to employment
contract at $.25 per share.
(10) Common Shares issued for conversion of debt
(11) Common Shares issued pursuant to sale of 25,000 Units
(12) Common Shares issued for Warrant conversion at $.50
(13) Common Shares issued in consideration for services under Regulation D
at $.125 per share
(14) Common Shares issued pursuant to Rule 504 at $.50 per share
(15) Common Shares issued under Rule 504 at $.65 per share
(16) Common Shares issued pursuant Regulation D at $.325 per share
(17) Common Shares issued upon exercise of "B" Warrants
(18) Common Shares issued upon exercise of "A" Warrants
(19) Shares of preferred stock for $1,500,000 less $90,000 in offering
expense
See accompanying notes to financial statements.
F-8
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
Note 1 - Organization of Company and Issuance of Common Shares
a. Creation of the Company
--------------------------
American Bio Medica Corporation (the "Company") was formed under the laws
of the State of New York on April 10, 1986 under the name, American Micro Media,
Inc. The authorized capital was 200 Common Shares without par value. On May 20,
1986, the Company amended its certificate of incorporation to increase the
number of authorized common shares to 20,000,000 shares of $.01 par value per
share. On September 12, 1986, the Company amended its certificate of
incorporation to remove preemptive rights. On September 28, 1992, the Company
amended its certificate of incorporation to increase the aggregate number of
authorized common shares to 30,000,000 shares of $.01 par value per share
("Common Shares") and to change its name to American Bio Medica Corporation.
b. Description of the Company
-----------------------------
From inception until 1991, the Company was involved in marketing
educational books and software to schools and municipal libraries and
audio-visual educational packages to corporations throughout the United States.
In 1991, the Company reduced its concentration on this market because of
competition, increasing costs of doing business and slow collections from
municipalities and sought new technologies in emerging medical markets. The
Company has, however, continued to sell audio-visual packages to libraries.
The Company is currently in the business of acquiring, developing and
marketing biomedical technologies and products. The Company currently owns two
technologies for screening drugs of abuse, a workplace screening test and a
preliminary test for use by laboratories. The Company also owns a patented low
cost method for producing Keratin proteins. The uses for Keratin proteins
include hardening of nails and carrying topical lotions and medicines through
the skin.
c. Issuance of Common Shares
----------------------------
In fiscal 1995, the Company rescinded the right to have an aggregate of
9,044,808 Common Shares issued to Robert Friedenberg, Richard Davidson and
Jackson Morris, certain sellers of capital stock of companies which claimed to
own certain biomedical technologies, on the grounds of breach of contract. In
addition, 3,000,000 of the 6,029,872 Common Shares owned by Edmund Jaskiewicz,
Chairman of the Board, Executive Vice-President, Secretary and a Director, were
voluntarily returned by him to the Company for cancellation.
On November 3, 1995, the Company entered into a three year employment
agreement with Jay Bendis, Vice-President-Marketing. Pursuant to this agreement,
the Company is obligated to issue 500,000 Common Shares. 400,000 of such shares
are subject to vesting provisions.
As of April 30, 1995 and 1996, the Company had borrowed an aggregate of
$714,000 and $1,407,000, respectively, on a convertible debenture basis, the
principal amount of each debentures convertible at the option of the holder into
Common Shares at $.75 per share. As of April 30, 1996, $1,275,000 principal
amount of convertible debentures had been converted into an aggregate of
1,700,002 Common Shares. As of April 30, 1996, the principal amount of
convertible debentures which had not yet been converted into Common Shares was
$132,000.
F-9
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
As of April 30, 1996, the Company sold, through a private placement, 25,000
Units consisting of 25,000 Common Shares, 500,000 "A" Warrants and 50,000 "B"
Warrants for an aggregate consideration of $25,000.
As of April 30, 1996, Unit holders exercised 250,000 "A" Warrants into
250,000 Common Shares at an exercise price of $.50, for an aggregate of
$125,000.
As of April 30, 1996, the Company issued 489,181 Common Shares in
consideration for past services to five individuals in the amount of $60,975 or
an average consideration of $.125 per share.
As of April 30, 1996, the Company issued to OTC Communications 100,000
Common Shares under Rule 504 ("Rule 504") to the Securities Act of 1933, as
amended, (the "Securities Act") as consideration for financial consulting
services rendered per contract at a value of $.65 per share.
As of April 30, 1996, the Company issued to Riverside Consulting Group,
Inc. 25,000 Common Shares under Rule 504 in consideration for financial
consulting services of $12,500 at $.50 per share.
As of April 30, 1996, the Company issued 100,000 Common Shares to two
persons at $.50 per share in consideration for financial consulting services.
As of April 30, 1996, the Company approved the issuance to OTC
Communications 500,000 Common Shares under Regulation D as consideration for
financial consulting services rendered per contract and 50,000 Common Shares for
expenses at a value of $178,750 or $.325 per share.
As of July 31, 1996, holders had converted the balance of the convertible
debentures in the aggregate principal amount of $132,000 into 176,000 Common
Shares at $.75 per share.
As of July 31, 1996, the Company sold an additional convertible debenture
in the amount of $10,000 which was converted into 13,333 Common Shares at $.75
per share.
As of July 31, 1996, the Company sold 100,000 Common Shares at $1.00
through the exercise of 100,000 "A" Warrants.
As of July 31, 1996, the Company sold 32,000 Common Shares at $1.00 per
share through the exercise of 32,000 "B" Warrants.
As of September 30, 1996, the Company sold 18,000 Common Shares at $1.00
per share through the exercise of 18,000 "B" Warrants.
Note 2 - Summary of Significant Accounting Policies
a. Basis of Financial Statement Presentation
--------------------------------------------
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred net losses of
$2,676,889 for period from inception (April 10, 1986) to October 31, 1996 and
$275,218 for the six month period ended October 31, 1996. These factors indicate
that the Company's continuation as a going concern is dependent upon its ability
to obtain adequate financing. As of October 31, 1996, $1,407,000 of debt was
converted into Common Shares at $.75 per share.
The Company has not yet generated sufficient revenues during its limited
operating history to meet its ongoing expenses. The Company sold additional
debentures in the principal amount of $18,500 and received $175,000 through
warrant exercise at $1.00 each and sold 150 convertible preferred shares at
$10,000 each for an aggregate consideration of $1,500,000 and net proceeds of
$1,405,000 with this increase in working capital, the Company expects to finance
the marketing, sales and manufacturing of its workplace drug test kits.
F-10
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
The Company will require substantial funds to finance its business
activities on an ongoing basis and will have a continuing long-term need to
obtain additional financing. The Company's future capital requirements will
depend on numerous factors including, but not limited to, continued progress
developing its source of inventory of parts supply, initiating marketing
penetration and signing hospitals and medical centers to maintenance contracts.
The Company plans to engage in such ongoing financing efforts on a continuing
basis.
The financial statements presented consist of the balance sheets dated
April 30, 1995 and 1996 the unaudited balance sheet as at October 31, 1996 and
the related statements of operations, retained earnings and cash flows for the
years ended April 30, 1995 and 1996 and the unaudited statements of operations,
retained earnings and cash flows for the six months ended October 31, 1995 and
1996 and the period from inception April 10, 1986 to October 31, 1996.
b. Earnings per Share
---------------------
Earnings per share have been computed on the basis of total number of
Common Shares outstanding as of October 31, 1996. On that date, 12,565,227
Common Shares were outstanding.
c. Revenue Recognition
----------------------
Revenue is recognized when merchandise is shipped or services are rendered.
d. Organization Expense
-----------------------
The cost of organizing the Company was charged to operations on a straight
line basis over a five year period.
e. Cash and Cash Equivalents
----------------------------
Cash and cash equivalents consist of all cash balances and highly liquid
investments with a maturity of three months or less. Excess cash balances are
primarily invested in U.S. treasury bills with lesser amounts invested in high
quality commercial paper and time deposits.
f. Research and Development Expenses
------------------------------------
Research and development costs are charged to operations when incurred.
g. Patents and License Agreements
---------------------------------
Certain costs incurred to acquire exclusive licenses of patentable
technology are capitalized and amortized over a five year period or the term of
the license, whichever is shorter. The portion of these amounts determined to be
attributable to patents is amortized over their remaining lives and the
remainder is amortized over the estimated period of benefit but not more than 40
years.
F-11
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
h. Unaudited Financial Information
----------------------------------
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of October
31, 1996 and the results of its operations and its cash flows for the six months
ended October 31, 1995 and 1996. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Commission. The results of operations for the
periods presented are not necessarily indicative of the results to be expected
for the full year.
Note 3 - Inventory
Inventory has been recorded at the lower of cost or market under the
first-in-first-out method. Inventory components were as follows:
April 30, 1995 April 30, 1996 October 31, 1996
______________ ______________ _____________
Finished Goods $27,551 $22,301 $51,042
Note 4 - Related Party Transactions
a. Issuance of Shares
---------------------
In September 1992, the Company entered into a share exchange agreement (the
"Share Exchange Agreement") by which it acquired all the issued and outstanding
common stock of three companies ("Target Companies") two of which were owned by
Robert M. Friedenberg, Richard Davidson and Jackson Morris and the third by
Edmund Jaskiewicz, the sole assets of which corporations were various biomedical
technologies, in exchange for an aggregate of 15,074,680 Common Shares. Dr.
Friedenberg became a director of the Company. As president of two of the Target
Companies, he failed, on behalf of the companies of which he was president, to
turn over the claimed technologies and/or misrepresented them and resigned as an
officer and director of the Company. The right to receive Common Shares by Dr.
Friedenberg and Messrs. Davidson and Morris (aggregating 9,044,808 shares) were
rescinded by the Company and the right of the Company to have capital stock of
two of the Target Companies issued to it were likewise rescinded. The 6,029,872
Common Shares due Mr. Jaskiewicz were duly issued to him. However, he rescinded,
in October, 1995, without consideration, 3,000,000 of his Common Shares the
actual cancellation of the certificates representing such shares was effected in
February, 1996.
b. Nonstatutory Option Plan
---------------------------
In June, 1996, the Company adopted its 1996 Nonstatutory Stock Option Plan
(the "1996 Plan"). Options to purchase 2,000,000 Shares are included in the 1996
Plan of which 1,500,000 were issued on June 28, 1996 as follows: Stan Cipkowski,
President, 550,000 options; Edmund Jaskiewicz, Executive Vice-President, 250,000
options; Jay Bendis, Vice-President-Marketing 300,000 options; Henry Wells,
Vice-President-Product Development, 150,000 options; Joel Pensley, Esq. 160,000
options, Michael Roy Fugler, Esq. 40,000 options (partners in Pensley & Fugler,
special securities counsel) and two non-management employees, 25,000 options
each.
F-12
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
c. Employment Agreement with Jay Bendis
---------------------------------------
On November 3, 1995, the Company entered into a three year employment
agreement with Jay Bendis, Vice-President-Marketing and Sales. Under this
agreement, Mr. Bendis received an annual salary of $24,000 per year until April
30, 1996 and presently receives $48,000 per year. When the Company generates an
aggregate of $500,000 gross revenues from the sale of biomedical products, Mr.
Bendis' salary will be increased to $60,000 per year. In addition to his salary,
Mr. Bendis will receive a bonus equal to 2% of the gross revenues of the Company
above $1,000,000 per fiscal year until such annual revenues reach $3,000,000,
1.5% of gross revenues between $3,000,000 and $5,000,000 per year and 1%
thereafter.
In addition, in consideration of past services valued at $125,000 or $.25
per share, Mr. Bendis received the right to receive 500,000 Common Shares.
Certificates representing 400,000 Common Shares are being held by the Company
and shall not vest until the happening of the following events:
100,000 shares upon the Company's achieving $1,000,00 in gross revenues
from sales of biomedical products;
100,000 shares upon the Company's achieving $2,000,00 in gross revenues
from sales of biomedical products;
100,000 shares upon the Company's achieving $3,000,00 in gross revenues
from sales of biomedical products; and
100,000 shares upon the Company's achieving $4,000,00 in gross revenues
from sales of biomedical products.
Certificates representing shares which have not vested on or before April
30, 1998 (or the end of the next succeeding fiscal year in the event the Company
changes its fiscal year) will be returned to the Company's stock transfer agent
for cancellation. No bonuses will be paid or shares vest subsequent to any
election by Mr. Bendis to terminate his employment agreement or subsequent to
his discharge for cause from employment by the Company. Mr. Bendis also is
entitled to receive health insurance, to participate in stock option or similar
plans or other benefits offered generally to management employees and to have
out-of-pocket expenses reimbursed.
d. Employment Agreement with Edmund Jaskiewicz
----------------------------------------------
On November 3, 1995, the Company entered into a three year employment
agreement with Edmund Jaskiewicz, Executive Vice-President. Under this
agreement, Mr. Jaskiewicz received an annual salary of $24,000 per year until
April 30, 1996 and presently receives $48,000 per year. When the Company
generates an aggregate of $500,000 gross revenues from the sale of biomedical
products, Mr. Jaskiewicz's salary will be increased to $60,000 per year. In
addition to his salary, Mr. Jaskiewicz will receive a bonus equal to 2% of the
gross revenues of the Company above $1,000,000 per fiscal year until such annual
revenues reach $3,000,000, 1.5% of gross revenues between $3,000,000 and
$5,000,000 per year and 1% thereafter. No bonuses will be paid or shares vest
subsequent to any election by Edmund Jaskiewicz to terminate his employment
agreement or subsequent to his discharge for cause from employment by the
Company. Mr. Jaskiewicz also is entitled to receive health insurance, to
participate in stock option or similar plans or other benefits offered generally
to management employees and to have out-of-pocket expenses reimbursed.
F-13
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
e. Employment Agreement with Stan Cipkowski
-------------------------------------------
On November 3, 1995, the Company entered into a three year employment
agreement with Stan Cipkowski, President. Under this agreement, Mr. Cipkowski
received an annual salary of $36,000 per year until April 30, 1996 and presently
receives $60,000 per year. When the Company generates an aggregate of $500,000
gross revenues from the sale of biomedical products, Mr. Cipkowski's salary will
be increased to $72,000 per year. In addition to his salary, Mr. Cipkowski will
receive a bonus equal to 2% of the gross revenues of the Company above
$1,000,000 per fiscal year until such annual revenues reach $3,000,000, 1.5% of
gross revenues between $3,000,000 and $5,000,000 per year and 1% thereafter. No
bonuses will be paid or shares vest subsequent to any election by Mr. Cipkowski
to terminate his employment agreement or subsequent to his discharge for cause
from employment by the Company. Mr. Cipkowski also is entitled to receive health
insurance, to participate in stock option or similar plans or other benefits
offered generally to management employees and to have out-of-pocket expenses
reimbursed.
Note 5 - Acquisition of Medical Technology
On September 3, 1992, the Company entered into the Share Exchange Agreement
with Dr. Friedenberg, Richard Davidson, Jackson Morris and Edmund M. Jaskiewicz
for the acquisition of the outstanding capital stock of Medical Diagnostics,
Inc. ("MDI") (wholly owned by Dr. Friedenberg, Gendex, Inc. ("Gendex, Inc.")
(wholly owned by Dr. Morris) and Protein Resources Corporation ("Protein
Resources") (wholly owned by Mr. Jaskiewicz), corporations owned by these
parties. Pursuant to the Share Exchange Agreement, the Company agreed to
exchange Common Shares or all of the issued and outstanding capital stock of
these companies as follows:
Robert Friedenberg 6,029,872 shares
Richard Davidson 1,130,601 shares
Edmund Jaskiewicz 6,029,872 shares
Jackson Morris 1,884,335 shares
Total 15,074,680 shares
Dr. Friedenberg and Mr. Jaskiewicz had, simultaneously with the
transaction, transferred their right to receive some Common Shares to Messrs.
Davidson and Morris.
The transactions relating to MDI and Gendex were rescinded by the Company
on the grounds of failure of consideration and breach of contract.
The acquisition of Protein Resources has been accounted for as an
acquisition using the purchase method. The basis of the consideration was the
exchange of 6,029,873 Common Shares for which no registration with the
Commission has or is intended to be filed, representing the historic cost
incurred by Dr. Jaskiewicz of $150,747. The Company agreed to value the common
used for the acquisition at one half the closing bid price at the date of the
agreement (or one/half of the closing bid price of $.05 per share or $.025 per
share) in consideration of receiving unregistered Common Shares and the risk of
the holding period before such shares could be publicly sold. This amount was
allocated to patent costs in the amount of $60,000 and license rights in the
amount of $90,747. Accordingly, the accompanying financial statements include
the results of operations of the consolidated operations from the date of
acquisition, September 3, 1992 to present.
F-14
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
In February, 1994, Robert Friedenberg, as owner of the two medical
technology companies, MDI and Gendex, acquired by the Company, in the name of
these corporations, filed suit to have the Agreement of Exchange rescinded on
the grounds of breach of contract. In order to avoid the imposition of damages
against it, the Company filed cross claim, in July, 1994, against Dr.
Friedenberg, seeking enforcement of the Agreement of Exchange. In November,
1995, after a trial, the court dismissed Dr. Friedenberg's lawsuit and allowed
the Company's cross claim to proceed to trial. The Company never issued
certificates representing its Common Shares to Dr. Friedenberg, or Messrs.
Davidson or Morris pursuant to the Share Exchange Agreement due to its breach
and rescinded the acquisition of the outstanding capital stock of MDI and
Gendex.
Note 6 - 12% Convertible Subordinated Debentures
Beginning February, 1993, the Company offered and sold under Rule 504 12%
convertible subordinated debentures. Interest on each debenture was due and was
paid quarterly. The principal amounts of the debentures were convertible, in
whole or in part, into Common Shares, at the rate of $.75 per share. The Company
sold an aggregate of $714,000 of debentures as of April 30, 1995 and $1,407,000
as of April 30, 1996. As of April 30, 1996, $1,275,000 of convertible debentures
had been converted into 1,700,002. As of April 30, 1996, the balance due by the
Company to the holders of convertible debentures who had not elected to
converted to Common Shares was $132,000.
As of April 30, 1996, the Company has reserved sufficient authorized but
unissued Common Shares for conversion of the Debentures which shares, upon
issuance and delivery, would be duly and validly issued, fully paid and
nonassessable.
As of July 31, 1996, holders had converted the balance of the convertible
debentures in the amount of $132,000 into 176,000 Common Shares at $.75 per
share.
As of July 31, 1996, the Company sold an additional convertible debenture
in the amount of $10,000 which was converted into 13,333 Common Shares $.75 per
share.
Note 7 - Preferred Shares
The Company amended its certificate of incorporation authorizing the
issuance of 5,000,000 preferred shares, $.01 par value each. The board of
directors of the Company has the authority, without further action by the
holders of the outstanding Common Shares, to issue preferred shares from time to
time in one or more classes or series, to fix the number of shares constituting
any class or series and the stated value thereof, if different from the par
value, and to fix the terms of any such series or class, including dividend
rights, dividend rates, conversion or exchange rights, voting rights, rights
and terms of redemption (including sinking fund provisions), the redemption
price and the liquidation preference of such class or series.
The Company sold 150 8% Cumulative Convertible Series A Preferred Shares
for an aggregate of $1,500,000 ($10,000 per share) less commissions of $90,000
and $5,000 in offering expenses for a net consideration of $1,405,000. Each
Preferred Share is convertible into Common Shares pursuant to the following
formula: $10,000 divided by the lesser of $6.07 or 75% of the average of the
daily closing bid prices for the five consecutive trading days ending on the
trading day prior to the day on which preferred shares are converted to Common
Shares. All accrued but unpaid dividends are payable in cash. The Company has
agreed to register the Common Shares underlying the preferred shares within 180
days of the date of purchase, September 23, 1996.
F-15
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
The Company has reserved a maximum of 600,000 Common Shares for the
conversion of Preferred Shares.
The Company has issued 24,712 Common Share purchase warrants. The Warrants
are exercisable at $3.00 per share for a period of two years from the date of an
effective registration statement relating to the underlying Common Shares.
Note 8 - Income Taxes
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of April 30, 1996 and October 31, 1996,
the Company had no material current tax liability, deferred tax assets, or
liabilities to impact on the Company's financial position because the deferred
tax asset related to the Company's net operating loss carry forward and was
fully offset by a valuation allowance.
At October 31, 1996, the Company has a net operating loss carry forward for
income tax purposes of $2,676,889. This carry forward is available to offset
future taxable income, if any, and expires in the year 2010. The Company's
utilization of this carry forward against future taxable income may become
subject to an annual limitation in the event that there is a cumulative change
in ownership of the Company of more than 50%.
The components of the net deferred tax asset as of October 31, 1996 are as
follows:
Deferred tax asset:
Net operating loss carry forward $ 910,029
Valuation allowance $(910,029)
Net deferred tax asset $ -0-
==========
The Company recognized no income tax benefit from the loss generated in the
year ended April 30, 1996 and for the six months ended October 31, 1996. SFAS
No. 109 requires that a valuation allowance be provided if it is more likely
than not that some portion or all of a deferred tax asset will not be realized.
The Company's ability to realize benefit of its deferred tax asset will depend
on the generation of future taxable income. Because the Company has yet to
recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Note 9 - Commitments and Contingencies
a. Private Placement of Securities
----------------------------------
The Company offered, pursuant to Rule 504 of the Securities Act, 50,000
Units at $1.00 per Unit. Each Unit consisted of one Common Share, 20 common
share "A" purchase warrants exercisable for six months at $.50 and two common
share "B" purchase warrants exercisable at $1.00. The "B" Warrants were
exercisable for a period of three months, subject to extension by the Company,
beginning six months from January 2, 1996.
F-16
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
As of April 30, 1996, the Company had closed that offering with the sale of
25,000 Units consisting of 25,000 Common Shares, 500,000 "A" Warrants and 50,000
"B" Warrants for an aggregate consideration of $25,000. As of April 30, 1996,
Unit holders had exercised 250,000 "A" Warrants into 250,000 Common Shares for
an aggregate of $125,000. As of April 30, 1996, the Company had reserved 300,000
Common Shares underlying the unexercised Unit Warrants.
As of April 30, 1996, the Company issued to OTC Communications 100,000
Common Shares under Rule 504 as consideration for financial consulting services
rendered per contract at valued at $178,750 or $.65 per share.
As of April 30, 1996, the Company issued to Riverside Consulting Group,
Inc. 25,000 Common Shares under 504 in consideration of financial consulting
services of $12,500 at $.50 per share.
As of July 31, 1996, the Company sold 100,000 Common Shares at $1.00
through the exercise of 100,000 "A" Warrants.
As of July 31, 1996, the Company sold 32,000 Common Shares at $1.00 per
share through the exercise of 32,000 "B" Warrants.
As of September 30, 1996, the Company sold 18,000 Common Shares at $1.00
per share through the exercise of 18,000 "B" Warrants.
b. 12% Convertible Subordinated Debentures
------------------------------------------
The Company is obligated to convert the outstanding Debentures at the
option of the holders into Common Shares at a ratio one share for each $.75
principal amount of each Debenture so converted. At April 30, 1996, the Company
had reserved 176,000 Common Shares for conversion of the aggregate principal
amount of $132,000 of the Debentures which had not been converted as of April
30, 1996.
As of July 31, 1996, holders had converted the balance of the convertible
debentures in the amount of $132,000 into 176,000 Common Shares at $.75 per
share.
As of July 31, 1996, the Company sold an additional convertible debenture
in the amount of $10,000 and was converted into 13,333 Common Shares at $.75 per
share.
c. Lawsuits
-----------
1. In February, 1994, Robert Friedenberg, as owner of the two medical
technology companies, MDI and Gendex, acquired by the Company, in the name of
these corporations, filed suit to have the Agreement of Exchange rescinded on
the grounds of breach of contract. In order to avoid the imposition of damages
against it, the Company filed a cross claim, in July, 1994, against Dr.
Friedenberg, seeking enforcement of the Agreement of Exchange. In November,
1995, after a trial, the court dismissed Dr. Friedenberg's lawsuit and allowed
the Company's cross claim to proceed to trial. A pretrial hearing was held in
December, 1996 which set a trial date of April 28, 1997. In September, 1996, Dr.
Friedenberg died. The implications of his death vis-a-vis the lawsuit cannot be
assessed at this time.
2. In June, 1995, the Company filed a lawsuit against Mr. Morris, Dr.
Friedenberg's counsel, for the breach of attorney-client relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr. Friedenberg and in the preparation of the Share Exchange Agreement. The
Company's lawsuit demands damages in the amount of $1,000,000. The court has set
a trial date of September 14, 1998.
F-17
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
d. Public Relations Agreement
-----------------------------
In February, 1996, the Company entered into an agreement with OTC
Communications ("OTC") for financial public relations and communications
services to the Company and to serve when requested as the Company's liaison and
spokesman to the financial and investment community. In March, 1996, the Company
granted to OTC the right to receive 100,000 Common Shares at a value of $.65 per
share for a total consideration of $65,000 in lieu of initial payment, monthly
retainers or expense reimbursement, including communications and mailing for a
period of one year. The Company granted OTC the right to receive an additional
550,000 Common Shares for the second and third years under Regulation D for a
consideration of $.325 representing 1/2 the market price of the Common Shares at
the date of the Contract, March 14, 1996 of which 50,000 shares are allocated to
expense reimbursement and 500,000 shares allocated to public relations
consulting. The Company agreed to value the 550,000 shares at 1/2 market price
in consideration of OTC receiving unregistered Common Shares and the risk of the
holding period until they may be sold publicly. Certificates representing the
100,000 Common Shares were issued in July, 1996. As of October 31, 1996,
certificates representing the 550,000 Common Shares had been authorized but not
issued. The Company has also issued to OTC 500,000 "A" Options which are
exercisable at $1.00 through March 14, 1999 and 500,000 "B" Options, which are
exercisable at $2.00 through March 14, 1999. Until a registration statement
relating to the Common Shares underlying the Options is effective, certificates
representing the shares into which the Options are exercised will bear a legend
restricting transfer in the absence of an effective registration with the
Commission or an exemption therefrom.
e. Nonstatutory Option Plan
---------------------------
The Company has adopted the Fiscal 1996 Nonstatutory Stock Option Plan (the
"Plan"). 2,000,000 Common Shares were reserved under the Plan. The Plan is
administered by the Board of Directors.
Stock options under the Plan may be granted to employees, officers,
directors, consultants of the Company or any other parties who have made a
significant contribution to the business and success of the Company. The
exercise price under the Plan may be more, equal to or less than the then
current market price of the Common Shares as deemed to be appropriate.
As of October 31, 1996, the Company has issued 1,500,000 options pursuant
to the 1996 Nonstatutory Option Plan. All options are exercisable for a period
of three years at $3.00 per share. The company has reserved 1,500,000 Common
Shares for the exercise of these options.
f. Leased Office Space
----------------------
The Company leases 2,200 square feet of office and warehouse space from an
unrelated party on a month to month basis at $400 per month.
Note 10 - Secured Loan
On March 9, 1990, the Company entered into an security agreement with a
finance company (the "Finance Company"), to borrow money secured by the
Company's receivables evidenced by invoices. At the time, the Company was
engaged in selling educational books to municipal school districts and public
libraries throughout the United States. The Finance Company agreed to lend an
amount equal to 60% of the net value of all the Company's accounts receivable.
Accounts receivable funding ceased as of July 31, 1990.
F-18
<PAGE>
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION TO APRIL 30, 1996
The Company instituted a lawsuit against the Finance Company on November
26, 1990 for damages due to its failure lend to the 60% credit limit based on
its calculations and for forgiveness of the loan based on the Factor's charging,
based on its own billings, at an interest rate in excess of the rate of 25% per
annum as prescribed in the sections dealing with usury in New York Penal State
Law. Although company counsel had opined that the Company would prevail in the
action and that all indebtedness incurred in the principal amount $126,500 plus
interest and fees would be voided by reason of the Finance Company's violation
of the usury provisions of the Penal Law, by agreement between the Company and
the Factor, the lawsuit was withdrawn without prejudice as the Company, at that
time, lacked the resources for protracted litigation. In April, 1996, the
obligation, if any, to the Finance Company became barred by New York State's
six-year statute of limitations. The Board of Directors of the Company has
elected to write-off the obligation.
Note 11 - Business and Credit Concentrations
The amount reported in the financial statements for cash represents fair
market value. Because the difference between cost and the lower of cost or
market is immaterial, no adjustment has been recognized and investments are
recorded at cost.
Note 12 - Development Stage Company
The Company is considered to be a development stage company with little
operating history subsequent to its reorganization and its commencement of
development of its newly acquired biomedical technologies which are, at present,
its core business. The Company was, as of October 31, 1996, dependent upon the
use of the net proceeds from the sale of the Units and the exercise of the Unit
Warrants to develop and market these technologies and bringing them to market.
Since its reorganization, the Company's activities have been limited to the sale
of Common Shares in connection with its organization, the acquisition of
patented technology, the preparation of a marketing plan and limited production,
test marketing of its products also setting up machinery for mass production,
designing first products, including chemistry, packaging and graphics.
Note 13 - Registration statements
On July 23, 1996, the Company filed a registration statement on Form 10-SB
pursuant to the Securities Exchange Act of 1934. That registration statement
became effective on September 21, 1996 and, as a result, the Company is subject
to the informational requirements of said act and files reports, proxy
statements, and other information with the Securities and Exchange Commission.
The Company is involved in the preparation of offering documents relating
to a registration statement on Form SB-2 the purpose of which is to register
600,000 Common Shares underlying the conversion of the Preferred Shares and
24,712 underlying the exercise of the Warrants.
Note 14 - Subsequent Events
In November, 1996, the Company amended the Warrants by reducing the
exercise price from $6.07 per share to $3.00 per share.
In November, 1996, the Company issued 131,000 Nonstatutory Options
exercisable at $3.00 for a period of three years.
F-19
<PAGE>
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN BIO MEDICA CORPORATION
(Registrant)
Date: December 20, 1996 By: s/Stan Cipkowski
-----------------
Stan Cipkowski,
President and Principal
Executive Officer and
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities on the date(s).
s/Stan Cipkowski
- ----------------- Director December 20, 1996
Stan Cipkowski
- ----------------- Director
Edmund Jaskiewicz
S/Jay Bendis
- ----------------- Director December 20, 1996
Jay Bendis
29
<PAGE>
Exhibits
Exhibit List
3.1 Certificate of Incorporation*
3.2 First Amendment to Certificate of Incorporation*
3.3 Second Amendment to Certificate of Incorporation*
3.4 Third Amendment to Certificate of Incorporation*
3.5 Bylaws*
3.6 Fourth Amendment to Certificate of Incorporation
4.1 Specimen Common Share Certificate*
4.2 Specimen "B" Warrant Certificate*
4.3 Terms of 8% Cumulative Convertible Preferred Stock, Series A
4.4 Private Securities Subscription Agreement
4.5 Registration Rights Agreement
4.6 Fiscal 1996 Nonstatutory Option Plan**
5.1 Opinion of Pensley & Fugler*
5.2 Revised Opinion of Pensley & Fugler
10.1 Contract with OTC Communications*
10.2 Employment Contract with Stan Cipkowski
10.3 Employment Contract with Edmund Jaskiewicz
10.4 Employment Contract with Jay Bendis
23.1 Consent of Thomas P. Monahan, CPA*
23.2 Consent of Pensley & Fugler*
23.3 Consent of Thomas P. Monahan, CPA to First Amendment*
23.6 Consent of Thomas P. Monahan, CPA to Second Amendment
27 Financial Data Schedule
*Previously submitted
**Submitted with Proxy for Special Meeting of Shareholders to be held on
December 23, 1996
30
Exhibit 3.6
Fourth Amendment to Certificate of Incorporation
<PAGE>
CERTIFICATE OF AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION
OF
AMERICAN BIO MEDICA
Under Section 805 of the Business Corporation Law
of the State of New York
_________________________
It is hereby certified that:
FIRST: The name of the Corporation is American Bio Medica Corporation.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State of New York on April 10, 1986 under the name, American
Micro Media, Inc.
THIRD: The amendments to the Corporation's Certificate of Incorporation
effected by this Certificate of Amendment are as follows:
The Corporation's Certificate of Incorporation presently authorized the
issuance of 30,000,000 shares of which all are common shares, par value $.01 per
share. The amendment would add 5,000,000 shares of new preferred stock, par
value $.01 per share. As a result, the number of authorized shares will be
35,000,000 shares, par value $.01 per share, of which 30,000,000 shares will be
common shares, par value $.01 per share, and 5,000,000 shares will be preferred
shares, par value $.01 per share.
FOURTH: To accomplish the foregoing amendment, the full text of Article
"FOURTH" of the Corporation's Certificate of Incorporation is hereby amended to
read as follows:
FOURTH: The aggregate number of shares which the Corporation shall have the
authority to issue is 35,000,000 shares, par value $.01 per share of which
30,000,000 are common shares, $.01 par value per share and 5,000,000 are
preferred shares, $.01 par value per share. The Board of Directors may divide
the preferred shares into one or more series and issued such preferred shares
from time to time with such preferences, privileges, limitations and relative
rights as it may determine.
FIFTH: The foregoing amendments to the Corporation's Certificate of
Incorporation were authorized by vote of the Corporation's Board of Director,
followed by the vote of the holders of a majority of all of the outstanding
shares entitled to vote on said amendment.
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained herein have been examined by use and are true and correct.
Dated: Ancramdale, New York
September 20, 1996
s/Stan Cipkowski
-----------------
Stan Cipkowski, President
s/Edmund Jaskiewicz
--------------------
Edmund Jaskiewicz, Secretary
Exhibit 4.3
Terms of 8% Cumulative Convertible Preferred Stock, Series A
<PAGE>
TERMS OF 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
AMERICAN BIO MEDICA CORPORATION (the "Corporation")
1. Designation and Amount. There is hereby established a series of
Preferred Stock to be designated as the "8% Cumulative Convertible Preferred
Stock, Series A" (the "Series A Convertible Preferred Stock") and the number of
shares which shall constitute such series shall be fifteen (15) shares, with a
stated value (the "Stated Value") of U.S. $10,000 per share.
2. Dividends.
(a) General. The holders of the Series A Convertible Preferred Stock shall
be entitled to receive cumulative preferential stock dividends in an amount
equal to a rate of return of 8% of the Stated Value per annum from the date of
issuance (with appropriate proration for any partial dividend period). Such
cumulative dividends shall be payable in Common Stock such number of shares of
Common Stock being determined in accordance with the formula set forth in
Section 4 herein upon conversion of the Series A Convertible Preferred Stock in
an amount equal to the accumulated dividend attributable to such then being
converted,
(b) Dividends Cumulative. Dividends on the Series A Convertible Preferred
Stock shall accrue and be cumulative from the date of issuance, whether or not
earned and whether or not in any dividend period there shall be surplus or net
profits of the Corporation legally available for the payment of such dividends.
(c) Equality of Shares. No dividend shall be declared or set apart for any
shares of the Series A Convertible Preferred Stock for any period unless at the
same time a like proportionate dividend for the same period shall be declared or
set apart for all shares of the Series A Convertible Preferred Stock then
outstanding and entitled to receive such dividend.
(d) Restrictions with Respect to Junior Shares. So long as any shares of
the Series A Convertible Preferred Stock shall remain outstanding, no dividend
shall be declared or paid or set apart for payment on the Common Stock or any
other class of stock ranking junior to the Series A Convertible Preferred Stock
in either payment of dividends or liquidation (all such junior classes of stock
including, without limitation, the Common Stock, hereinafter referred to
collectively as the "Junior Stock") unless full dividends (including interest on
any accumulations of dividends) on all outstanding shares of Series A
Convertible Preferred Stock shall have been paid in full for all past dividend
periods and the dividends on all outstanding shares of Series A Convertible
Preferred Stock for the then current dividend period shall have been paid or
declared and sufficient funds set apart for payment thereof.
1
<PAGE>
3. Liquidation Preference. (a) General. The Series A Convertible Preferred
Stock shall be preferred over the Common Stock and any other class or series of
Junior Stock. In the event of any liquidation or dissolution or winding up of
the Corporation, the holders of the Series A Convertible Preferred Stock shall
be entitled to receive, after payment or provision for payment of the debts and
other liabilities of the Corporation, out of the assets of the Corporation
available for distribution to its shareholders, all accumulated and unpaid
dividends before any distribution of the assets shall be made to the holders of
the Common Stock or any other class or series of Junior Stock. After payment of
accumulated dividends on the Series A Convertible Preferred Stock shall have
been made in full as provided in the preceding sentence, but not prior thereto,
the Preferred Stock, the Common Stock and any other series or class of Junior
Stock shall, subject to the respective terms and provisions, if any, applying
thereto, be entitled to receive any and all assets remaining to be paid or
distributed, with the Series A Convertible Preferred Stock sharing therein in an
amount per share of Series A Convertible Preferred Stock equal to the amount to
be distributed on each share of Common Stock multiplied by a fraction the
numerator of which is the Stated Value of such share of Series A Convertible
Preferred Stock and the denominator of which is the then current Conversion
Price (as defined below). (b) Distributions Pro Rata. If upon any liquidation or
dissolution or winding up of the Corporation the amounts payable on or with
respect to the Series A Convertible Preferred Stock together with the amounts
payable on or with respect to all classes or series of stock ranking on a parity
with the Series A Convertible Preferred Stock as to distribution of assets are
not paid in full, the holders of shares of Series A Convertible Preferred Stock
together with all classes or series of stock ranking on a parity with the Series
A Convertible Preferred Stock as to distribution of assets shall share pro rata
in any distribution of assets in respect of the shares held by them upon such
distribution in proportion to the amounts that would have been distributable to
each such class or series if all amounts payable on or with respect to the
Series A Convertible Preferred Stock and any other class or series of stock that
so ranks on a parity with the Series A Convertible Preferred Stock had been paid
in full. (c) Merger or Consolidation. Neither the merger or consolidation of the
Corporation with another corporation nor the sale or lease of all or
substantially all of the assets of the Corporation shall be deemed to be a
liquidation or dissolution or winding up of the Corporation. (d) Notice
Required. Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, stating the payment
date and the place where the distributable amount shall be payable and stating
the anticipated amount of any such distributable amount, shall be given by mail,
postage prepaid, not less than thirty (30) days prior to the payment date stated
therein, to the holders of record of the Series A Convertible Preferred Stock at
their respective addresses as the same shall then appear on the books of the
Corporation.
2
<PAGE>
4. Conversion.
(a) General. Shares of Series A Convertible Preferred Stock may be
converted at the option of the holder thereof, or otherwise as provided below,
into fully paid and nonassessable shares of Common Stock of the Corporation at a
price (the "Conversion Price") equal to the lesser of: (i) the Market Price (as
defined below) per share of Common Stock on the Closing date, and (ii) twenty
five percent (25%) off the Market Price per share of Common Stock on the date of
conversion, together with all accrued but unpaid dividends thereon. Such option
may be exercised by any holder on or after sixty (60) days after the Closing
with respect to a maximum, in the aggregate, of one-half (1/2) of the shares of
Series A Convertible Preferred Stock acquired by such holder and on or after
ninety (90) days after the Closing with respect to the remaining shares of
Series A Convertible Preferred Stock acquired by such holder. For purposes of
this subparagraph (a) the Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing bid prices for the five
(5) consecutive trading days ending on the trading day prior to the day in
question. "Closing price" on any day when used with respect to the Common Stock
means the reported closing bid price therefor as reported by Bloomberg, L.P., or
if not so reported the average of the closing bid and asked prices as furnished
by any member of the National Association of Securities Dealers, Inc. selected
from time to time by the Buyer for that purpose.
(b) Adjustments. The Conversion Price and the kind and amounts of
securities and property for which the shares of Series A Convertible Preferred
Stock may be converted shall be subject to adjustment from time to time as
follows:
(i) If, at any time after the issuance of the Series A Convertible
Preferred Stock, the Corporation shall (A) declare or pay a dividend, or make a
distribution, to all holders of its Common Stock in shares of Common Stock, (B)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (C) combine its outstanding shares of Common Stock into a smaller number
of shares, or (D) issue by reclassification of its shares of Common Stock (other
than a subdivision or combination thereof or a change in par value) any
securities, the Conversion Price in effect immediately prior to such action
shall be adjusted so that the holder of any share of Series A Convertible
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the kind and number of shares of Common Stock of the Corporation and/or
other securities which he would have owned or been entitled to receive
immediately following such action had such share of Series A Convertible
Preferred Stock been converted immediately prior thereto. Any adjustment made
pursuant to this Paragraph (b)(i) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(ii) If, at any time after the date of issuance of the Series A Convertible
Preferred Stock, the Corporation shall distribute to all or substantially all
holders of its Common Stock either (A) evidences of indebtedness or assets
(excluding cash dividends or distributions) or (B) any other securities of the
Corporation or any rights, warrants or options to subscribe for, purchase or
otherwise acquire securities of the Corporation in a transaction not covered by
Paragraph (b)(i) above (any of which are referred to herein as "Other
Securities"), then and in any such case the Corporation shall either distribute
such Other Securities to the holders of the Series A Convertible Preferred Stock
or reserve for the benefit of the holders of the Series A Convertible Preferred
Stock such amount of such Other Securities as the holders of all Series A
Convertible Preferred Stock then outstanding would have owned or been entitled
to receive immediately following such action had the shares of Series A
Convertible Preferred Stock been converted into shares of Common Stock
immediately prior thereto. In addition, the Corporation shall either distribute
to, or reserve for the benefit of, the holders of the Series A Convertible
Preferred Stock any principal, interest, dividends or other property payable
with respect to such Other Securities as and when such interest, dividends or
other property is distributed to the holders of Common Stock. If such a reserve
is made, as and when each such share of Series A Convertible Preferred Stock is
converted, the holder of such share shall be entitled to receive from the
Corporation his share of such Other Securities together with the principal,
interest, dividends or other property payable with respect thereto.
3
<PAGE>
(iii) All calculations under this Section 4 shall be made to the nearest
one-tenth of a cent or to the nearest one thousandth of a share, as the case may
be. No adjustment shall be required unless such adjustment would result in an
increase or decrease of at least one percent (1%) of the Conversion Price;
provided, however, that any adjustments which by reason of this subparagraph
(iii) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
(iv) Whenever the Conversion Price is adjusted or Other Securities are
reserved as herein provided, the Corporation shall mail or cause to be mailed a
copy of a statement, verified by its independent certified public accountants,
setting forth the required adjustments or the nature and amount of Other
Securities, as the case may be, to each person who is a registered holder of
Series A Convertible Preferred Stock at such person's last address as the same
appears on the books of the Corporation. Each adjustment shall remain in effect
until a subsequent adjustment is required hereunder. Failure to give or receive
such notice or any defect therein shall not affect the legality or validity of
any action taken. Following any adjustment to the Conversion Price, the holders
of the Series A Convertible Preferred Stock shall be entitled, by themselves or
through attorneys or accountants retained by them, to inspect the books and
records of the Corporation in order to verify such adjustment. Such inspection
shall be at the expense of the holders of the Series A Convertible Preferred
Stock requesting such inspection unless such inspection reveals an error in the
adjustment equal to 5% or more of the lower applicable Conversion Price, in
which case the Corporation shall promptly reimburse the holders for all expenses
incurred in connection therewith.
(v) If at any time, as a result of an adjustment made pursuant to Paragraph
(ii) above, the holders of Series A Convertible Preferred Stock shall become
entitled to receive upon conversion any Other Securities, thereafter the number
of such Other Securities receivable upon conversion of the Series A Convertible
Preferred Stock and the price of the Other Securities shall be subject to
adjustment from time to time and in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to Series A Convertible Preferred
Stock contained in Paragraphs (i) and (ii), above.
4
<PAGE>
(c) Merger or Consolidation. In case of a merger or consolidation of the
Corporation with or into another corporation, or the sale or transfer of all, or
substantially all, of the property or assets of the Corporation, the holders of
shares of Series A Convertible Preferred Stock shall thereafter have the right
to convert each of such shares into the kind and amount of shares of stock or
other securities and property (including cash) receivable (the "Consideration")
upon such merger, consolidation or sale by a holder of the number of shares of
Common Stock (whether whole or fractional) into which such shares of Series A
Convertible Preferred Stock might have been converted immediately prior to such
merger, consolidation or sale (all of which Consideration shall be reserved and
become payable upon conversion in the same manner as for Other Securities
pursuant to Paragraph (b)(ii) above and shall be adjusted as provided in
Paragraph (b) above), and shall have no other conversion rights under these
provisions and, in addition, the Corporation shall reserve, on a current basis
as and when distributed, for payment upon conversion, in the same manner as
required for Other Securities pursuant to Paragraph (b)(ii) above, any interest,
dividends, other stock, securities or property distributable with respect to the
Consideration, the same as if such shares of Series A Convertible Preferred
Stock had been converted immediately prior to such merger, consolidation, or
sale of assets; and effective provision shall be made in the charter of the
resulting or surviving corporation or otherwise, so that the provisions set
forth herein for the adjustment of the conversion terms of the Series A
Convertible Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any of the Consideration deliverable upon conversion of
Series A Convertible Preferred Stock remaining outstanding or other convertible
preferred stock received in place thereof. Any such resulting or surviving
corporation shall expressly assume the obligation to deliver the Consideration,
upon the exercise of the conversion right, (and, to that end, shall reserve
sufficient Consideration to issue, distribute and/or pay the holders of the
Series A Convertible Preferred Stock as if all such stock were converted) as
holders of Series A Convertible Preferred Stock remaining outstanding, or other
convertible preferred stock received by such holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make provision for
protection of conversion rights as above provided.
(d) Notices. If, at any time while shares of Series A Convertible Preferred
Stock are outstanding, the Corporation shall (i) declare a dividend (or any
other distribution) on its Common Stock, other than in cash, or (ii) reclassify
its Common Stock (other than through a subdivision or combination thereof or a
change in par value) or become a party to any consolidation or merger or sale or
transfer of all or substantially all of the assets of the Corporation, for which
approval of the holders of its stock is required, then the Corporation shall
cause to be mailed to registered holders of Series A Convertible Preferred
Stock, at their last addresses as they shall appear on the books of the
Corporation, at least thirty (30) days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend or distribution, or, if a record is not
to be taken, the date as of which holders of Common Stock of record to be
entitled to such dividend or distribution are to be determined, or (y) the date
on which any such reclassification, consolidation, merger, sale or transfer is
expected to become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their Common
Stock for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, sale or transfer. Failure to give or
receive the notice required by this Paragraph (d) or any defect therein shall
not affect the legality or validity of any such dividend, distribution,
reclassification, consolidation, merger, sale, transfer or other action.
5
<PAGE>
(e) Exercise of Conversion Rights. The holder of any shares of Series A
Convertible Preferred Stock may exercise his option to convert such shares into
shares of Common Stock only by surrendering for such purpose to the Corporation
the certificates representing the shares to be converted, accompanied or
preceded by written notice (which may be transmitted by telecopier) that such
holder elects to convert such shares in accordance with the provisions of this
Section 5. Said notice shall also state the name or names (with addresses) in
which the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued. Each certificate or certificates
surrendered for conversion shall, unless the shares issuable on conversion are
to be issued in the same name as that in which such certificate or certificates
are registered, be accompanied by instruments of transfer, in form reasonably
satisfactory to the Corporation, duly executed by the holder or his duly
authorized attorney. Each conversion shall be deemed to have been effected on
the date on which such notice shall have been received by the Corporation as
aforesaid (the "Conversion Date"), provided that the certificates to which such
notice relates are received by the Corporation no later than the third business
day following the date of receipt of such notice, and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become on said
date the holder or holders of record of the shares represented thereby
notwithstanding that the transfer books of the Corporation may then be closed or
that certificates representing such shares of Common Stock shall not then be
actually delivered to such person. As promptly as practicable on or after the
Conversion Date, but within three (3) days thereafter, the Corporation shall
issue and deliver to the person or persons entitled to receive the same a
certificate or certificates representing the number of shares of Common Stock
issuable upon such conversion and shall pay or cause the payment of such Other
Securities or Consideration or other property as may be payable upon conversion
pursuant to Paragraphs (b) (iii) or (c) of this Section (4).
(f) Fractional Shares. No fractional shares of Common Stock shall be issued
in connection with the conversion of shares of Series A Convertible Preferred
Stock into Common Stock. Instead of any fractional share of Common Stock which
would otherwise be issuable on conversion, the Corporation shall pay a cash
adjustment with respect to such fractional share computed on the basis of the
then current fair market value of the Common Stock, as determined in good faith
by the Corporation's Board of Directors.
(g) Tax on Conversion. The issuance of stock certificates on conversions of
shares of Series A Convertible Preferred Stock shall be made without charge to
converting shareholders for any tax in respect of the issuance thereof except
any tax on the income or gain derived by the converting shareholders as a result
of the issuance thereof. The Corporation shall not, however, be required to pay
any tax which may be payable in respect of any registration of transfer involved
in the issue and delivery of stock in any name other than that of the holder of
the shares of Series A Convertible Preferred Stock converted, and the
Corporation shall not be required to so issue or deliver any stock certificate
unless and until the person or persons requesting the registration of transfer
shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
(h) Securities Reserved. The Corporation shall at all times reserve and
keep available out of its authorized Common Stock (and any Other Securities or
Consideration or property) the full number of shares of Common Stock (and any
Other Securities or Consideration or property) deliverable upon the conversion
of all outstanding shares of Series A Convertible Preferred Stock. The
Corporation shall not enter into any agreement or take any action which would
impair or restrict its legal authority to issue such shares of Common Stock,
Other Securities or Consideration or property upon conversion or to defeat in
any way the right of the holders of the Series A Convertible Preferred Stock to
receive such consideration upon conversion. In addition, whenever the
Corporation is required to reserve any interest, dividends or other property
payable upon conversion of the Series A Convertible Preferred Stock, the
Corporation shall, as to cash, deposit such amounts in one or more separate
accounts for the sole benefit of the holders of the Series A Convertible
Preferred Stock upon conversion and, as to other property, physically segregate
or otherwise set such property aside in such a manner as to protect the rights
of the holders of the Series A Convertible Preferred Stock to the receipt of
such property upon conversion.
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(i) Effect of Conversion. All shares of Series A Convertible Preferred
Stock which shall have been converted into shares of Common Stock shall assume
the status of authorized but unissued shares of Preferred Stock undesignated as
to series.
5. Voting Rights.
No holder of Series A Convertible Preferred Stock shall be entitled to vote
on any matter submitted to the shareholders of the Corporation for their vote,
waiver, release or other action, except as may be otherwise expressly required
by law.
6. Amendment.
Notwithstanding the provisions of Section 5 above, so long as any share of
Series A Convertible Preferred Stock is outstanding, the Articles of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Convertible Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority of the outstanding shares of
Series A Convertible Preferred Stock, voting separately as a class.
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Exhibit 4.4
Private Securities Subscription Agreement
<PAGE>
PRIVATE SECURITIES SUBSCRIPTION AGREEMENT
American Bio Medica Corporation
THIS PRIVATE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter the
"Agreement") has been executed by the undersigned on September 17, 1996 in
connection with the sale pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"), of certain shares of 8% Cumulative
Convertible Preferred Stock, Series A ("Preferred Shares"), convertible into
shares of common stock (hereinafter the "Common Shares" and, collectively with
the Preferred Shares, the ("Shares") of American Bio Medica Corporation, 102
Simons Road, Ancramdale, New York 12503, a corporation organized under the laws
of New York (hereinafter the "Seller") to Midland Walwyn Capital Inc., located
at 181 Bay Street, Toronto, Canada, (hereinafter the "Buyer"). Seller and Buyer
(hereinafter collectively the "parties") each hereby represents, warrants and
agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Seller and Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule
506 under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission under the Securities Act; and
(ii) Buyer hereby subscribes for fifteen (15) Preferred Shares, at a
purchase price of Ten Thousand Dollars ($10,000) U.S. per share, said Preferred
Shares convertible into Common Shares in accordance with the terms set forth in
the Certificate of Designation attached as Exhibit 1 to this Agreement, for an
aggregate purchase price of $1,500,000 payable in United States Dollars at the
Closing, as defined in Paragraph 4 hereof.
(iii) No later than five (5) days after the Closing, Seller shall: (i)
register as a reporting company with the Securities and Exchange Commission
("SEC") pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and (ii) file within twenty days (20) after the
closing a Registration Statement (the "Registration Statement") with the SEC to
register the resale of the Common Shares by Buyer and shall cause the
Registration Statement to become effective within one hundred twenty (120) days
thereafter.
(iv) Buyer shall pay the purchase price by delivering same day funds in
United States Dollars to an escrow agent or as otherwise agreed between the
parties, to be delivered to the order of Seller upon delivery of the Shares.
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2. BUYER'S REPRESENTATIONS AND AGREEMENTS
Buyer represents, warrants and agrees as follows:
(i) Buyer understands that the Shares have not been registered under the
Securities Act, or any other applicable securities law, and, accordingly, none
of the Shares may be offered, sold, transferred, pledged, hypothecated or
otherwise disposed of unless registered pursuant to, or in a transaction exempt
from registration under, the Securities Act and any other applicable securities
law;
(ii) Buyer is an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3), or (7) of Regulation D (an "Accredited Investor") that is
acquiring the Shares either for its own account or as a fiduciary or agent for
one or more institutional accounts as to which it exercises sole discretion,
each of which is an Accredited Investor. Buyer has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of an investment in the Shares. Buyer has had a reasonable opportunity
to ask questions of and receive answers from Seller concerning Seller and the
offering of the Shares. Buyer is not subscribing for the Shares as a result of
or pursuant to any advertisement, article, notice, or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio. Buyer is aware that it (or such institutional account) may
be required to bear the economic risk of an investment in the Shares for an
indefinite period, and it (or such institutional account ) is able to bear such
risk for an indefinite period;
(A) Buyer is not a U.S. Person ("U.S. Person") as that term is defined in
Rule 902(o) of Regulation S including, without limitation, if a business
organization, such as a corporation or partnership, (1) it is organized under
the laws of a jurisdiction other than the United States and (2) if organized by
a U.S. Person principally for the purpose of investing in securities not
registered under the Securities Act, it was organized or incorporated and is
owned by Accredited Investors who are not natural persons, estates or trusts;
(B) The Preferred Shares were not offered to Buyer in the United States and
at the time of execution of this Subscription Agreement and the time of any
offer to Buyer to purchase the Preferred Shares hereunder, Buyer was physically
outside the United States;
(C) Buyer is purchasing the Preferred Shares for its own account and not on
behalf of or for the benefit of any U.S. Person and the sale and resale of the
Preferred Shares have not been prearranged with any U.S. Person or buyer in the
Untied States;
(D) Buyer agrees, and to the knowledge of Buyer, without any independent
investigation, each distributor, if any, participating in the offering of the
Preferred Shares, has agreed, that all offers and sales of the Preferred Shares
prior to the expiration of a period commencing on the date of the Closing and
ending forty (40) days thereafter (the "Restricted Period") shall not be made to
U.S. Persons or for the account or benefit of U.S. Persons and shall otherwise
be made in compliance with the provisions of Regulation S;
(E) Buyer is not an underwriter, dealer or other person who participates
pursuant to a contractual arrangement in the distribution of the securities
offered or sold in reliance on Regulation S.
(F) To the knowledge of Buyer, without any independent investigation,
neither the Seller nor any distributor participating in the offering, nor any of
their respective employees or agents, has conducted any "directed selling
efforts" in the United States, as such term is defined in Rule 902 of Regulation
S;
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<PAGE>
(iii) Buyer is acquiring the Shares for its own account or for one or more
institutional accounts as described in Paragraph 2(ii) hereof, in each case for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution thereof (subject to any requirement of law that the
disposition of its property or the property of such institutional account or
accounts remain within its or their control). Buyer agrees, prior to
registration of the Common Shares pursuant to the Registration Statement, on its
own behalf and on behalf of any such institutional account for which it is
acquiring the Shares to offer, sell or otherwise transfer any Shares only to
Accredited Investors (subject to any requirement of law that the disposition of
its property or the property of such institutional account or accounts remain
within its or their control) in conformity with the Securities Act and any other
applicable securities law and with the restrictions on transfer set forth on the
certificate(s) evidencing the Shares. Buyer acknowledges that, prior to
registration of the Common Shares, each certificate evidencing the Preferred
Shares shall bear a legend substantially to the effect of the foregoing
paragraphs 2(i) and 2(ii) and this paragraph 2(iii). Such legend shall be in
substantially the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE CORPORATION SET FORTH IN A PRIVATE
SECURITIES SUBSCRIPTION AGREEMENT BETWEEN THE CORPORATION AND MIDLAND WEYLAND
CAPITAL LTD. DATED SEPTEMBER 17, 1996. A COPY OF THE PORTION OF THE AFORESAID
SUBSCRIPTION AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE
CORPORATION'S EXECUTIVE OFFICES."
Following registration, Buyer agrees not to sell any Shares except in
accordance with: (a) the Registration Statement, in which case Buyer agrees to
comply with the requirement of delivering a current prospectus, (b) Rule 144
under the Securities Act, in which case Buyer agrees to comply with such rule,
or (c) Regulation S under the Securities Act, in which case Buyer agrees to
comply with such rule. Buyer agrees that it will not utilize Regulation S unless
Seller breaches its obligations to have a registration statement relating to the
Shares underlying the Preferred Shares declared and maintained effective.
(iv) Each certificate representing Common Shares issued after registration
pursuant to the Registration Statement shall bear no legend.
(v) Buyer acknowledges that Seller or any transfer agent of Seller shall
register the transfer or exchange of any of the Shares upon receipt of the
certificate(s) evidencing such Shares with the transfer notice set forth thereon
appropriately completed and, in the event of a transfer or exchange prior to
registration, upon receipt in writing from the transferor and the transferee or
the recipient of such Shares in such transfer or exchange (as the case may be)
of a certificate setting forth the representations in Paragraph 2 hereof;
(vi) If Buyer is acquiring any Shares as fiduciary or agent for one or more
institutional accounts, Buyer represents that it has sole investment discretion
with respect to each such account and that it has full power to make the
foregoing acknowledgments, representations and agreements on behalf of each such
institutional account;
(vii) Buyer acknowledges that Seller and others will rely upon the truth
and accuracy of the foregoing acknowledgments, representations and agreements
and further agrees that if, prior to the Closing, any of such acknowledgments,
representations and agreements made by Buyer are no longer accurate, Buyer will
promptly notify Seller;
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(viii) Buyer has received all information necessary to make an informed
business decision with respect to an investment in the Shares, including but not
limited to Seller's latest Form 10-K, all Forms 10-Q and 8-K filed thereafter,
and Proxy Statement for its latest fiscal year, and the use of proceeds and
investment considerations, prepared by Seller, which are attached hereto as
Exhibit 3;
(ix) This Agreement has been duly authorized, validly executed, and
delivered on behalf of Buyer and is a valid and binding agreement enforceable in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally; and
(x) Buyer has not engaged and agrees not to engage in any short sales of
the Corporation's common stock prior to the date the Preferred Shares become
convertible, except to the extent that any such short sale is fully covered by
shares of common stock of the Corporation other than the Common Shares to be
acquired upon conversion of the Preferred Shares purchased pursuant to this
Agreement.
3. SELLER'S REPRESENTATIONS AND AGREEMENTS
Seller represents, warrants and agrees as follows:
(i) Seller has not conducted any general solicitation or general
advertising (as defined in Regulation D) with respect to any of its securities;
(ii) The Shares when issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable, free and clear of any
liens, encumbrances, charges, or adverse claims of any nature whatsoever, and
will not subject the holders thereof to personal liability by reason of being
such holders. There are no preemptive rights of any shareholder of Seller with
respect to the Shares;
(iii) This Agreement has been duly authorized, validly executed and
delivered on behalf of Seller and is a valid and binding agreement in accordance
with its terms, subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights generally;
(iv) The execution and delivery of this Agreement and the consummation of
the issuance of the Shares and the transactions contemplated by this Agreement
do not and will not conflict with or result in a breach by Seller of any of the
terms or provisions of, or constitute a default under, the Certificates of
Incorporation or By-laws of Seller, or any indenture, mortgage, deed of trust or
other material agreement or instrument to which Seller is a party or by which it
or any of its properties or assets are bound, or any existing applicable decree,
judgment or order of any court, federal or state regulatory body, administrative
agency or other governmental body having jurisdiction over Seller or any of its
properties or assets;
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<PAGE>
(v) No authorization, approval or consent of or filing with any federal,
state or local governmental body of the United States is legally required for
the issuance and sale of the Shares as contemplated by this Agreement, except
that Seller will file any necessary Form D, Certificate of Designation and/or
any necessary state blue sky filings;
(vi) The information provided by or on behalf of Seller to Buyer and
referred to in Section 2(viii) of this Agreement does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which, and at the time at which, they were made, not misleading. Since [December
31, 1995], there has been no material adverse development in the business,
properties, operations, financial condition or results of operations of Seller,
except as disclosed in the documents referred to in Section 2(vii) hereof.
Seller's common stock trades on the Nasdaq Market;
(vii) Seller will issue one or more certificates representing the Preferred
Shares in the name of Buyer in such denominations to be specified by Buyer prior
to closing. The Preferred Shares will bear the restrictive legend specified in
Section 2(iii) of this Agreement. Seller further warrants that no instructions
other than these instructions and stop transfer instructions to give effect to
Section 2(i) hereof will be given to the transfer agent and also warrants that
the Shares shall otherwise be transferable on the books and records of Seller as
and to the extent provided in this Agreement, subject to compliance with Federal
and State securities laws. Nothing in this Section shall affect in any way
Buyer's obligations and agreement to comply with all applicable securities laws
upon resale of the Shares;
(viii) Seller shall not issue any press release or file any Form 8-K with
the SEC in connection with this Agreement or the securities being sold pursuant
hereto unless and until Buyer has reviewed and approved any such document for
such use; Seller will promptly inform Buyer of any material change in the
Company's business or business practices; and
(ix) Subject to the terms of the Registration Rights Agreement attached
hereto as Annex I, Seller agrees to file the Registration Statement with the SEC
within twenty (20) days after the Closing and shall cause the Registration
Statement to be declared effective within one hundred twenty (120) days
thereafter. If the Company fails to cause the Registration Statement to be
declared effective within such period, the Company will pay a cash penalty of 2%
of the amount raised for each 30 day period thereafter prorated for any period
less than 30 days. In the event the Registration Statement is not declared
effective within 180 days, Buyer can obtain freely tradable common stock through
Regulation S to the Securities Act of 1933.
(x) Seller agrees that it will not without prior approval of Buyer sell in
any nonpublic transaction, any equity security or security convertible into an
equity security for a period of 120 days after the date upon which the
registration statement is declared effective.
4. CLOSING. Preferred Share certificates shall be delivered to Buyer and
the funds therefor shall be delivered to Seller on September 17, 1996 (the
"Closing") or at such time to be mutually agreed.
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<PAGE>
5. CONDITIONS TO CLOSING
(i) Buyer understands that Seller's obligation to sell the Preferred Shares
is conditioned upon Company's existence and status as a Company which has filed
a Form 10SB with the Securities and Exchange Commission which will become
effective on September 21, 1996 and pursuant thereto, the Company will become a
fully reporting company, and compliance with section (12) of the Securities
Exchange Act as well as delivery into escrow or otherwise as agreed between
Buyer and Seller by Buyer of the amount set forth in Paragraph 1 hereof.
(ii) Seller understands that Buyer's obligation to purchase and pay for the
Preferred Shares is conditioned upon delivery of certificate(s) representing
Preferred Shares as described in Paragraph 1(ii) hereto and provision of an
opinion of counsel, in customary form, confirming the matters set out in Section
3(ii), (iii), (iv) and (v) above, and 5(i).
(iii) Seller understands that Buyer's obligation to purchase and pay for
the Preferred Shares is conditioned upon Seller and Buyer entering into a
Registration Rights Agreement substantially in the form of Annex I hereto.
6. GOVERNING LAW; INTERPRETATION. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without giving
effect to rules governing the conflict of laws. Facsimile signatures of this
agreement shall be binding on all parties hereto.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
MIDLAND WALWYN CAPITAL, INC.
By: s/Gregory W. Murphy
-------------------
Gregory W. Murphy,
Senior Vice-President
AMERICAN BIOMEDICA CORPORATION
By: s/Stan Cipkowski
-----------------
Stan Cipkowski,
President
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<PAGE>
Exhibit 4.5
Registration Rights Agreement
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 17, 1996 (this
"Agreement"), is made by and among American Bio Medica Corporation, a New York
corporation (the "Corporation"), and the person named on the signature page
hereto (the "Initial Investor").
WITNESSETH:
WHEREAS, in connection with the Private Securities Subscription Agreement,
dated as of September 17, 1996, between the Initial Investor and the Corporation
(the "Subscription Agreement"), the Corporation has agreed, upon the terms and
subject to the conditions of the Subscription Agreement, to issue and sell to
the Initial Investor shares of Series A Convertible Preferred Stock (the
"Preferred Shares"), convertible into shares (the "Shares") of Common Stock,
$.0l par value (the "Common Stock"); and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Corporation has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Shares;
NOW, THEREFORE, in consideration of the premises set forth above and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Corporation and
the Initial Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "Investor" means the Initial Investor and any transferee or assignee
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
(ii) "register," "registered," and registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act on such appropriate registration form
promulgated by the Commission as shall be selected by the Corporation, and, when
requested by the Initial Investor or any Investor pursuant to Section 2(b)
hereof, shall (A) be reasonably acceptable to the holders of a majority of the
Registrable Securities to which such registration relates, and (B) shall permit
the disposition of Registrable Securities in accordance with the intended method
or methods specified in the Investor's request for such registration, and the
declaration or ordering of effectiveness of such Registration Statement by the
United States Securities and Exchange Commission ("SEC").
(iii) "Registrable Securities" means those shares issuable, or issued, upon
conversion of the Preferred Shares issued and sold to the Initial Investor
including any shares issued or issuable as dividends in respect thereof.
(iv) "Registration Statement" means a registration statement under the
Securities Act registering securities of the Corporation.
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(b) As used in this Agreement, the term Investor includes (i) each Investor
(as defined above) and (ii) each person who is a permitted transferee or
assignee of the Registrable Securities pursuant to Section 9 of this Agreement.
(c) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreement.
2. Registration.
(a) Piggy-Back Registrations. If at any time the Corporation shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Corporation
shall send to each Investor who is entitled to registration rights under this
Section 2(a) written notice of such determination and, if within twenty (20)
days after receipt of such notice, such Investor shall so request in writing,
the Corporation shall include in such Registration Statement all or any part of
the Registrable Securities such Investor requests to be registered, except that
if, in connection with any underwritten public offering for the account of the
Corporation the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, such limitation is
necessary to effect an orderly public distribution, then the Corporation shall
be obligated to include in such Registration Statement only such limited
portion, if any, of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder. Any exclusion of Registrable
Securities shall be made pro rata among the Investors seeking to include
Registrable Securities, in proportion to the number of Registrable Securities
sought to be included by such Investors; provided, however, that the Corporation
shall not exclude any Registrable Securities unless the Corporation has first
excluded all outstanding securities the holders of which are not entitled by
right to inclusion of securities in such Registration Statement; and provided
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement to the extent such pro rata allotment is permitted under
the Corporation's currently existing agreements with such holders of the
Corporation's securities.
No right to registration of Registrable Securities under this Section 2(a)
shall be construed to limit any registration required under Section 2(b) hereof.
The obligations of the Corporation under this Section 2(a) may be waived by
Investors holding a majority in interest of the Registrable Securities and shall
expire at the earlier of (i) the Corporation having afforded the opportunity for
the Investors to exercise registration rights under this Section 2(a) for two
registrations; provided, however, that any Investor who shall have had any
Registrable Securities excluded from any Registration Statement in accordance
with this Section 2(a) shall be entitled to include in an additional
Registration Statement filed by the Corporation the Registrable Securities so
excluded or (ii) when all of the Registrable Securities held by any Investor may
be sold by such Investor under Rule 144 under the Securities Act ("Rule 144")
within any three-month period.
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(b) Demand Registration. Within twenty-one (21) days after the closing
under the Subscription Agreement, the Corporation shall prepare and file a
Registration Statement covering such Registrable Securities with the SEC as
expeditiously as possible.
(c) If any offering pursuant to a Registration Statement pursuant to
Section 2(b) hereof involves (at the Corporation's election) an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Corporation. The Investors who
hold the Registrable Securities to be included in such underwriting shall pay
all underwriting discounts and commissions and other fees and expenses of such
investment banker or bankers and manager or managers so selected in accordance
with this Section 2(c) (other than fees and expenses relating to registration of
Registrable Securities under federal or state securities laws which are payable
by the Corporation pursuant to Section 5 hereof) with respect to their
Registrable Securities and the fees and expenses of such legal counsel selected
by the Investors.
(d) Payments by the Corporation. It shall be the corporation's obligation
that such registration statement be declared effective within one hundred twenty
(120) days after the closing pursuant to the subscription agreement. If this
date is not met, and Investor shall have performed its obligations as set forth
in this Agreement with respect to such registration, then the Corporation will
make payments to each holder of Registrable Securities (each, a "Holder") in
such amounts and at such times as shall be determined pursuant to this Section
2(d). The amount to be paid by the Corporation to the Holders shall be
determined as of each Computation Date, and such amount shall be equal to two
percent (2%) of the aggregate subscription price paid by the Initial Investor
for the Shares pursuant to the Subscription Agreement for each month (the
"Periodic Amount"); provided, however, that if any Computation Date is less than
30 days subsequent to another Computation Date, then the Periodic Amount payable
on the later Computation Date shall be prorated. The Periodic Amount shall be
divided among all the Holders in the same proportion as each Holder's
Registrable Securities bears to the total of the outstanding Registrable
Securities. The Periodic Amount shall be paid by the Corporation within five (5)
business days after each Computation Date and shall be payable in cash.
"Computation Date" means the date which is one hundred twenty (120) days
after the closing with respect to the Subscription Agreement under Section 2(b)
and, if the Registration Statement required to be filed by the Corporation
pursuant to Section 2(b) has not theretofore been declared effective by the SEC,
each date which is 30 days after a Computation Date and, if the Registration
Statement required to be filed by the Corporation pursuant to Section 2(b) is
not declared effective by the SEC within 90 days, or 120 days in the event of an
S-1 or an underwritten offering, after the exercise of demand registration
rights under Section 2(b), the date on which such Registration Statement is
declared effective.
3. Obligations of the Corporation. In connection with the registration of
the Registrable Securities, the Corporation shall:
(a) prepare promptly and file with the SEC promptly (but in any event in
accordance with Section 2) a Registration Statement or Statements with respect
to all Registrable Securities to be included therein, and thereafter use its
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best efforts to cause the Registration Statement to become effective as soon as
reasonably possible after such filing. The Corporation shall keep the
Registration Statement effective at all times until such date as is two years
after the date such Registration Statement is first ordered effective by the
SEC. In any case, the Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) filed by the Corporation
shall 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 light of the circumstances in which they were made, not misleading;
provided, however, that, subject to the conditions set forth in Section 4(a)
below, each Investor may notify the Corporation in writing that it wishes to
exclude all or a portion of its Registrable Securities from such Registration
Statement.
(b) prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times until such date as is two
years after the date such Registration Statement is first ordered effective by
the SEC, and, during such period, comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities of the
Corporation covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) furnish to each Investor whose Registrable Securities are included in
the Registration Statement, such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements, (iii) take such other actions as may
be necessary to maintain such registrations and qualifications in effect at all
times until such date as is the earlier of three years after the date such
Registration Statement is first ordered effective by the SEC or is three years
after the Initial Investor acquired the Shares and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Corporation shall not be
required in connection therewith or as a condition thereto to (I) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Corporation or (V) make any change in its charter or by-laws,
which in each case the Board of Directors of the Corporation determines to be
contrary to the best interests of the Corporation and its stockholders;
(e) in the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters for the
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offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering;
(f) as promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold pursuant to such
registration of the happening of any event of which the Corporation has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits 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 use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold pursuant to such
registration (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the SEC of any stop order or other suspension
of effectiveness of the Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling stockholders'
counsel by the Investors who hold a majority in interest of the Registrable
Securities being sold pursuant to such registration to review the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC, and shall not file any document in a form to
which such counsel reasonably objects;
(i) make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a twelve-month period beginning not later
than the first day of the Corporation's fiscal quarter next following the date
of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest of the
Registrable Securities being sold pursuant to such registration, furnish on the
date that Registrable Securities are delivered to an underwriter for sale in
connection with the Registration Statement (i) a letter, dated such date, from
the Corporation's independent certified public accountants in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters;
and (ii) an opinion, dated such date, from counsel representing the Corporation
for purposes of such Registration Statement, in form and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters and Investors;
(k) make available for inspection by any Investor whose Registrable
Securities are being sold pursuant to such registration, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Corporation (collectively,
the "Records"), as shall be reasonably necessary to enable each Inspector to
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<PAGE>
exercise its due diligence responsibility, and cause the Corporation's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Investor and each Inspector shall hold in confidence and shall not make any
disclosure (except to an Investor) of any Record or other information which the
Corporation determines in good faith to be confidential, and of which
determination the Investors or Inspectors, respectively, are so notified, unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction or (iii) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Corporation shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the
Corporation) with the Corporation with respect thereto, substantially in the
form of this Section 3(k).
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Corporation and
allow the Corporation, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Corporation shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Corporation
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Corporation agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts either to secure designation of all the
Registrable Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System ("NASDAQ")
"SmallCap" or "National Market System Security" within the meaning of Rule
11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the quotation of the Registrable Securities on the NASDAQ
National Market System or, if, despite the Corporation's best efforts to satisfy
the preceding clause, the Corporation is unsuccessful in satisfying the
preceding clause to secure listing on a national securities exchange or NASDAQ
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least three market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(m) provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
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(n) cooperate with the Investors who hold Registrable Securities being sold
and the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be sold pursuant to the denominations or
amounts as the case may be, and registered in such names as the managing
underwriter or underwriters, if any, or the Investors may reasonably request;
and, within five business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Corporation shall
deliver, and shall cause legal counsel selected by the Corporation to deliver,
to the transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) instructions to the transfer agent to issue new stock certificates
without a legend and an opinion of such counsel that the shares have been
registered; and
(o) take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Corporation
to take any action pursuant to this Agreement with respect to each Investor that
such Investor shall furnish to the Corporation such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of the Registrable Securities and shall
execute such documents in connection with such registration as the Corporation
may reasonably request. At least five (5) days prior to the first anticipated
filing date of the Registration Statement, the Corporation shall notify each
Investor of the information the Corporation requires from each such Investor
(the "Requested Information") if such Investor elects to have any of such
Investor's Registrable Securities included in the Registration Statement. If
within three (3) business days prior to the filing date the Corporation has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Corporation may file the Registration Statement without
including the Registrable Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Corporation as reasonably requested by
the Corporation in connection with the preparation and filing of the
Registration Statement hereunder, unless, in connection with the preparation and
filing of the Registration Statement, such Investor has notified the Corporation
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and to take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Corporation in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement;
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<PAGE>
(d) Each Investor agrees that, upon receipt of any notice from the
Corporation of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of the
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if
so directed by the Corporation, such Investor shall deliver to the Corporation
(at the expense of the Corporation) or destroy (and deliver to the Corporation a
certification of destruction) all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice; and
(e) No Investor may participate in any underwritten registration hereunder
unless such Investor (i) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements approved by the Investors
entitled hereunder to approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and other fees and expenses of investment bankers and
any manager or managers of such underwriting and legal expenses of the
underwriter applicable with respect to its Registrable Securities, in each case
to the extent not payable by the Corporation pursuant to the terms of this
Agreement.
5. Expenses of Registration. All expenses (other than underwriting
discounts and commissions and other fees and expenses of investment bankers and
other than brokerage commissions) incurred in connection with registrations,
filings or qualifications pursuant to Section 3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting fees
and the fees and disbursements of counsel for the Corporation, shall be borne by
the Corporation; provided, however, that the Investors shall bear the fees and
out-of-pocket expenses of the one legal counsel selected by the Investors
pursuant to Section 3(h) hereof.
6. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Corporation will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act, any underwriter (as defined in the Securities Act) for the
Investors, the directors, if any, of such underwriter and the officers, if any,
of such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively "Claims") to which any of them
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
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<PAGE>
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Corporation files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading or (iii) any violation or
alleged violation by the Corporation of the Securities Act, the Exchange Act or
any state securities law or any rule or regulation (the matters in the foregoing
clauses (i) through (iv) being, collectively, "Violations").
Subject to the restrictions set forth in Section 6(d) with respect to the
number of legal counsel, the Corporation shall reimburse the Investors and each
such underwriter or controlling person, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) (I) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Corporation by any Indemnified
Person or underwriter for such Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Corporation pursuant to Section 3(c) hereof; (II) with respect
to any preliminary prospectus shall not inure to the benefit of any such person
from whom the person asserting any such Claim purchased the Registrable
Securities that are the subject thereof (or to the benefit of any person
controlling such person) if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected in the prospectus, as then
amended or supplemented, if such prospectus was timely made available by the
Corporation pursuant to Section 3(c) hereof, and (III) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Corporation, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Persons
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 6(a), the Corporation,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Corporation within the meaning
of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Corporation by such Investor expressly for use in
connection with such Registration Statement; and such Investor will promptly
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
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written consent of such Investor, which consent shall not be unreasonably
withheld; provided further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim as does not exceed the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and hall survive the transfer of the Registrable Securities by
the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
(c) The Corporation shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and his indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and other party represented by such counsel in such
proceeding. The Corporation shall pay for only one separate legal counsel for
the Investors; such legal counsel shall be selected by the Investors holding a
majority in interest of the Registrable Securities. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification provided for herein is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
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shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Corporation to the public without registration, until such time as the Investors
have sold all the Registrable Securities pursuant to a Registration Statement or
Rule 144, the Corporation agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Corporation under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Corporation
that it has complied with the reporting requirements of Rule 144, the Securities
Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly
report of the Corporation and such other reports and documents so filed by the
Corporation and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of the Registration Rights. The rights to have the
Corporation register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to transferees or assignees of all or
any portion of such securities only if: (a) the Corporation is, within a
reasonable time after such transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or assignee and (ii) the
securities with respect to which such registration rights are being transferred
or assigned, (b) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws, and (c) at or before
the time the Corporation received the written notice contemplated by clause (a)
of this sentence the transferee or assignee agrees in writing with the
Corporation to be bound by all of the provisions contained herein.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Corporation and Investors who hold a majority in interest
of the Registrable Securities. Any amendment or waiver effected in accordance
with this Section 10 shall be binding upon each Investor and the Corporation.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Corporation receives conflicting instructions, notices or elections from two
or more persons or entities with respect to the same Registrable Securities, the
Corporation shall act upon the basis of instructions, notice or election
received from the registered owner of such Registrable Securities.
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(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered or when
sent by registered mail, return receipt requested, addressed (i) if to the
Corporation, at American Bio Medica Corporation, 102 Simons Road, Ancramdale,
New York 12503, Attention: Stan Cipkowski, (ii) if to the Initial Investor, at
the address set forth under its name in the Subscription Agreement and (iii) if
to any other Investor, at such address as such Investor shall have provided in
writing to the Corporation, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt, and when so sent by
certified mail, four business days after deposit with the United States Postal
Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of New York applicable to the agreements
made and to be performed entirely within such state. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in the Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
AMERICAN BIO MEDICA CORPORATION
By: s/Stan Cipkowski
----------------
Stan Cipkowski,
President
MIDLAND WALWYN CAPITAL INC.
By: s/Gregory W. Murphy
-------------------
Gregory W. Murphy
Senior Vice-President
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Exhibit 5.2
Revised Opinion of Pensley & Fugler
<PAGE>
PENSLEY & FUGLER
Counselors at Law
November 12, 1996
American Bio Medica, Inc.
105 Simons Road,
Ancramdale, New York
Re: Registration Statement on Form 10-SB
Gentlemen:
We refer to the registration statement on Form 10-SB (the "Registration
Statement") of American Bio Medica Corporation, a New corporation (the
"Company"), which was delivered for filing to the Securities and Exchange
Commission by hand delivery on July 19, 1996, relating to registration of
10,814,561 common shares, $.01 par value each, ("Common Shares") issued pursuant
to Regulation D to the Securities Act of 1933, as amended.
We have reviewed such documents and records as we have deemed necessary to
enable us to express an informed opinion on the matters covered thereby and we
are of the opinion that:
(i) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of New York; and
(ii) The Common Shares which have been issued have been duly authorized and
are validly issued, fully paid and nonassessable.
Very truly yours,
Pensley & Fugler
By: s/Joel Pensley
--------------
Joel Pensley
2067 Broadway
New York, New York 10023
Phone: 212-595-4955 Fax: 212-595-4966
Exhibit 10.2
Employment Contract with Stan Cipkowski
<PAGE>
EMPLOYMENT AGREEMENT
This agreement (the "Agreement") made and entered into this 3rd day of
November, 1995 by and between American Bio Medica, a New York corporation with
its office located at 102 Simons Road, Ancramdale, New York 12503 ("Employer")
and Stan Cipkowski, an individual residing at 668 Breezy Hill Road, Hillsdale,
New York 12529 ("Employee") (Employer and Employee are sometimes collectively
referred to as the "Parties")
WHEREAS, Employer is engaged in the business of research and development,
design, manufacture and marketing of drug testing kits and other biomedical
products; and
WHEREAS, Employee has acted as President of Employer for a period in excess
of ten years without an employment contract; and
WHEREAS, both Employer and Employee are desirous of entering into an
employment agreement whereby Employee would devote his time and Employer would
compensate him as an employee.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the Parties agree as follows:
1. Employment and Duties: Employer hereby employs Employee as President and
Chief Operating Officer.
2. Performance: Employee will devote substantially his full working time
and efforts as an employee of Employer. "Full working time," in this context,
shall mean at least an average of 35 hours per week.
3. Term: The Agreement shall remain in effect for a period of three years.
4. Compensation: Employee shall be paid a Base Annual Salary of $36,000 per
annum until April 30, 1996 and $60,000 thereafter. Base Annual Salary shall be
increased to $72,000 upon the Company's generation of aggregate gross revenues
from the sale of biomedical products of $500,000.
Employee will be paid a bonus equal to 2% of the gross revenues of Employer
after the attainment of gross revenues of $1,000,000 per fiscal year until such
annual revenues reach $3,000,000; 1.5% on gross revenues between $3,000,000 and
$5,000,000; and 1% thereafter.
No bonuses will be paid subsequent to the Employee's election to terminate
the Agreement or Employer's discharge of Employee for cause. In the event of
Termination due to death of Employee or inability due to illness of Employee to
render services under the Agreement to Employer, no bonuses shall be paid.
5. Employee Benefits: Employee shall be entitled to be covered by any
employee health insurance policy, dental plan, pension plan, stock option or
similar plans or other employee benefit(s) offered generally to management
employees of Employer. Employee shall not be obligated to contribute any money
to be covered under said plans except in the event the Company enacts a
contributory pension plan for other employees. Employee shall be entitled to
three weeks paid vacation at times to be mutually agreed upon between Employer
and Employee.
1
<PAGE>
6. Expenses: In addition to the compensation provided Employee under the
Agreement, Employer shall reimburse Employee for any and all authorized expenses
which he shall incur directly relating to his functions as an employee.
Reimbursable expenses shall include, but are not limited to, travel (except to
and from the office) and entertainment and purchase of supplies. Reimbursement
of expenses shall not be deemed as compensation to Employee.
7. Recommendations for Operations: Employee shall provide Employer all
information regarding Employer's business of which Employee has knowledge.
Employee shall make all suggestions and recommendations that will be of mutual
benefit to Employer and Employee.
8. Confidentiality: Employee recognizes that Employer has and will have
information relating to inventions, equipment and machinery, products, prices,
apparatus, costs, discounts, future plans, business affairs, process
information, trade secrets, technical information, customer lists, product
design, copyrights, patents and other vital information (collectively, the
"Information") which are valuable, special and unique assets of Employer.
Employee agrees that Employee will not at any time or in any manner, either
directly or indirectly, divulge, disclose, or communicate any Information to any
third party without the prior written consent of Employer. Employee will protect
the Information and treat it as strictly confidential. A violation by Employee
of this paragraph shall be a material violation of the Agreement and will
justify immediate Termination and legal and/or equitable relief.
9. Unauthorized Disclosure of Information. If it appears that Employee has
disclosed (or has threatened to disclose) Information in violation of the
Agreement, Employer shall be entitled to an injunction to restrain Employee from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. Employer shall not be prohibited by this provision from pursuing
other remedies, including a claim for losses and damages.
10. Confidentiality After Termination of Employment. The confidentiality
provisions of the Agreement shall remain in full force and effect for a two year
period after Termination. During such two year period, neither Party shall make
or permit the making of any public announcement or statement of any kind that
Employee was formerly employed by or connected with Employer except as may be
required by the Securities Act of 1933, the Securities Exchange Act of 1934 or
any relevant state securities laws.
11. Development of New Products/Technologies. All products or technologies
developed during the term of the Agreement shall become the property of
Employer. Employee shall transfer to Employer all ideas, prototypes, drawings,
descriptions, patents, copyrights, trademarks or other intellectual property to
Employer. Employer has the right to accept or reject any such assets; in the
event of rejection, all ownership rights will revert to Employee.
12. Non-Compete. Recognizing that the various items of Information are
special and unique assets of the company, Employee covenants that for a period
of two years following Termination, whether Termination is voluntary or
involuntary, Employee may not directly or indirectly engage in a business
competitive with Employer. Employee may not, directly or indirectly, contact
(including, but not limited to employees of Employer), solicit, hire, sell to,
purchase from, obtain financing from or recommend the contacting, selling to,
purchasing from or financing from any person, institution, entity or company
2
<PAGE>
with which Employer has dealt during the one year period preceding the date of
the Agreement. The term "directly or indirectly engaging in any competitive
business" includes, but is not limited to, (i) engaging in a business as owner,
partner, or agent, (ii) becoming an employee of any third party engaged in such
business, (iii) becoming interested directly or indirectly in any such business,
or (iv) soliciting any customer of Employer for the benefit of a third party
engaged in such business.
13. Employee's Inability to Contract for Employer. Employee shall not have
the right to make any contracts or commitments for or on behalf of Employer
without first obtaining the express written consent of board of directors of
Employer or a relevant committee of the board of directors for the specific
contract or commitment or class of contract or commitment.
14. Termination: The Agreement shall terminate upon the happening of any of
the following events:
(a) Death of Employee;
(b) Discontinuance of the business of Employer for a period of sixty (60)
days;
(c) Resignation of Employee;
(d) Unwillingness or inability caused by illness or otherwise to fulfill
the duties and obligations of his employment for a continuous period of 60 days
or an aggregate of 90 days in any yearly period;
(e) Cause, including but not limited to violation of paragraph 11; and
(f) Intention and notice to terminate pursuant to paragraph 3.
15. Severability. If any term of the Agreement shall, to any extent, be
determined through arbitration or by court of competent jurisdiction to be
invalid or unenforceable, the remainder of the Agreement shall not be effected
thereby and each other term of the Agreement shall be valid and enforceable to
the fullest extent permitted by law.
16. Arbitration. Any controversy arising from or related to the Agreement
shall be determined by arbitration in New York City in accordance with the rules
of the American Arbitration Association and any such determination or award may
be enforced by any court having jurisdiction thereof.
17. Complete Agreement. The Agreement constitutes the entire agreement
between the Parties regarding the subject matter herein and supersedes any other
previous and/or collateral agreements or resolutions of the board of directors
pertaining thereto. The Agreement may not be modified or amended other than by a
written instrument duly executed by or on behalf of the parties hereto.
18. Governing Law. The Agreement shall be interpreted and construed under
the internal laws of the State of New York.
3
<PAGE>
IN WITNESS WHEREOF, the Parties have executed the Agreement as of the date
first written above.
AMERICAN BIO MEDICA CORPORATION
By: s/Edmund Jaskiewicz
-------------------
Edmund Jaskiewicz,
its Executive Vice-President
s/Stan Cipkowski
-----------------
Stan Cipkowski
4
Exhibit 10.3
Employment Contract with Edmund Jaskiewicz
<PAGE>
EMPLOYMENT AGREEMENT
This agreement (the "Agreement") made and entered into this 3rd day of
November, 1995 by and between American Bio Medica, a New York corporation with
its office located at 102 Simons Road, Ancramdale, New York 12503 ("Employer")
and Edmund Jaskiewicz, an individual residing at 14301 Thorpe Lane, Upper
Marlboro, Maryland ("Employee") (Employer and Employee are sometimes
collectively referred to as the "Parties")
WHEREAS, Employer is engaged in the business of research and development,
design, manufacture and marketing of drug testing kits and other biomedical
products; and
WHEREAS, Employee is an accomplished business and patent counsel; and
WHEREAS, both Employer and Employee are desirous of entering into an
employment agreement whereby Employee would devote his time and Employer would
compensate him as an employee.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the Parties agree as follows:
1. Employment and Duties: Employer hereby employs Employee as Executive
Vice-President-General Counsel.
2. Performance: Employee will devote substantially his full working time
and efforts as an employee of Employer. "Full working time," in this context,
shall mean at least an average of 35 hours per week.
3. Term: The Agreement shall remain in effect for a period of three years.
4. Compensation: Employee shall be paid a Base Annual Salary of $24,000 per
annum until April 30, 1996 and $48,000 thereafter. Base Annual Salary shall be
increased to $60,000 upon the Company's generation of aggregate gross revenues
from the sale of biomedical products of $500,000.
Employee will be paid a bonus equal to 2% of the gross revenues of Employer
after the attainment of gross revenues of $1,000,000 per fiscal year until such
annual revenues reach $3,000,000; 1.5% on gross revenues between $3,000,000 and
$5,000,000; and 1% thereafter.
No bonuses will be paid subsequent to the Employee's election to terminate
the Agreement or Employer's discharge of Employee for cause. In the event of
Termination due to death of Employee or inability due to illness of Employee to
render services under the Agreement to Employer, no bonuses shall be paid.
5. Employee Benefits: Employee shall be entitled to be covered by any
employee health insurance policy, dental plan, pension plan, stock option or
similar plans or other employee benefit(s) offered generally to management
employees of Employer. Employee shall not be obligated to contribute any money
to be covered under said plans except in the event the Company enacts a
contributory pension plan for other employees. Employee shall be entitled to
three weeks paid vacation at times to be mutually agreed upon between Employer
and Employee.
1
<PAGE>
6. Expenses: In addition to the compensation provided Employee under the
Agreement, Employer shall reimburse Employee for any and all authorized expenses
which he shall incur directly relating to his functions as an employee.
Reimbursable expenses shall include, but are not limited to, travel (except to
and from the office) and entertainment and purchase of supplies. Reimbursement
of expenses shall not be deemed as compensation to Employee.
7. Recommendations for Operations: Employee shall provide Employer all
information regarding Employer's business of which Employee has knowledge.
Employee shall make all suggestions and recommendations that will be of mutual
benefit to Employer and Employee.
8. Confidentiality: Employee recognizes that Employer has and will have
information relating to inventions, equipment and machinery, products, prices,
apparatus, costs, discounts, future plans, business affairs, process
information, trade secrets, technical information, customer lists, product
design, copyrights, patents and other vital information (collectively, the
"Information") which are valuable, special and unique assets of Employer.
Employee agrees that Employee will not at any time or in any manner, either
directly or indirectly, divulge, disclose, or communicate any Information to any
third party without the prior written consent of Employer. Employee will protect
the Information and treat it as strictly confidential. A violation by Employee
of this paragraph shall be a material violation of the Agreement and will
justify immediate Termination and legal and/or equitable relief.
9. Unauthorized Disclosure of Information. If it appears that Employee has
disclosed (or has threatened to disclose) Information in violation of the
Agreement, Employer shall be entitled to an injunction to restrain Employee from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. Employer shall not be prohibited by this provision from pursuing
other remedies, including a claim for losses and damages.
10. Confidentiality After Termination of Employment. The confidentiality
provisions of the Agreement shall remain in full force and effect for a two year
period after Termination. During such two year period, neither Party shall make
or permit the making of any public announcement or statement of any kind that
Employee was formerly employed by or connected with Employer except as may be
required by the Securities Act of 1933, the Securities Exchange Act of 1934 or
any relevant state securities laws.
11. Development of New Products/Technologies. All products or technologies
developed during the term of the Agreement shall become the property of
Employer. Employee shall transfer to Employer all ideas, prototypes, drawings,
descriptions, patents, copyrights, trademarks or other intellectual property to
Employer. Employer has the right to accept or reject any such assets; in the
event of rejection, all ownership rights will revert to Employee.
12. Non-Compete. Recognizing that the various items of Information are
special and unique assets of the company, Employee covenants that for a period
of two years following Termination, whether Termination is voluntary or
involuntary, Employee may not directly or indirectly engage in a business
competitive with Employer. Employee may not, directly or indirectly, contact
(including, but not limited to employees of Employer), solicit, hire, sell to,
2
<PAGE>
purchase from, obtain financing from or recommend the contacting, selling to,
purchasing from or financing from any person, institution, entity or company
with which Employer has dealt during the one year period preceding the date of
the Agreement. The term "directly or indirectly engaging in any competitive
business" includes, but is not limited to, (i) engaging in a business as owner,
partner, or agent, (ii) becoming an employee of any third party engaged in such
business, (iii) becoming interested directly or indirectly in any such business,
or (iv) soliciting any customer of Employer for the benefit of a third party
engaged in such business.
13. Employee's Inability to Contract for Employer. Employee shall not have
the right to make any contracts or commitments for or on behalf of Employer
without first obtaining the express written consent of board of directors of
Employer or a relevant committee of the board of directors for the specific
contract or commitment or class of contract or commitment.
14. Termination: The Agreement shall terminate upon the happening of any of
the following events:
(a) Death of Employee;
(b) Discontinuance of the business of Employer for a period of sixty (60)
days;
(c) Resignation of Employee;
(d) Unwillingness or inability caused by illness or otherwise to fulfill
the duties and obligations of his employment for a continuous period of 60 days
or an aggregate of 90 days in any yearly period;
(e) Cause, including but not limited to violation of paragraph 11; and
(f) Intention and notice to terminate pursuant to paragraph 3.
15. Severability. If any term of the Agreement shall, to any extent, be
determined through arbitration or by court of competent jurisdiction to be
invalid or unenforceable, the remainder of the Agreement shall not be effected
thereby and each other term of the Agreement shall be valid and enforceable to
the fullest extent permitted by law.
16. Arbitration. Any controversy arising from or related to the Agreement
shall be determined by arbitration in New York City in accordance with the rules
of the American Arbitration Association and any such determination or award may
be enforced by any court having jurisdiction thereof.
17. Complete Agreement. The Agreement constitutes the entire agreement
between the Parties regarding the subject matter herein and supersedes any other
previous and/or collateral agreements or resolutions of the board of directors
pertaining thereto. The Agreement may not be modified or amended other than by a
written instrument duly executed by or on behalf of the parties hereto.
18. Governing Law. The Agreement shall be interpreted and construed under
the internal laws of the State of New York.
3
<PAGE>
IN WITNESS WHEREOF, the Parties have executed the Agreement as of the date
first written above.
AMERICAN BIO MEDICA CORPORATION
By: s/Stan Cipkowski
-----------------
Stan Cipkowski,
its President
s/Edmund Jaskiewicz
-------------------
Edmund Jaskiewicz
4
Exhibit 10.4
Employment Contract with Jay Bendis
<PAGE>
EMPLOYMENT AGREEMENT
This agreement (the "Agreement") made and entered into this 3rd day of
November, 1995 by and between American Bio Medica, a New York corporation with
its office located at 102 Simons Road, Ancramdale, New York 12503 ("Employer")
and Jay Bendis, an individual residing at 71 Springcrest Drive, Akron, Ohio
44333 ("Employee") (Employer and Employee are sometimes collectively referred to
as the "Parties")
WHEREAS, Employer is engaged in the business of research and development,
design, manufacture and marketing of drug testing kits and other biomedical
products; and
WHEREAS, Employee is accomplished in the business of marketing biomedical
products; and
WHEREAS, both Employer and Employee are desirous of entering into an
employment agreement whereby Employee would devote his time and Employer would
compensate him as an employee.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the Parties agree as follows:
1. Employment and Duties: Employer hereby employs Employee as
Vice-President-Marketing and Sales with operating responsibility for marketing
Employer's biomedical products, including pricing, customer relationships,
advertising, developing marketing strategies, supervision and attendance at
trade shows and related activities.
2. Performance: Employee will devote substantially his full working time
and efforts as an employee of Employer. "Full working time," in this context,
shall mean at least an average of 35 hours per week.
3. Term: The Agreement shall remain in effect for a period of three years.
4. Compensation: Employee shall be paid a Base Annual Salary of $24,000 per
annum until April 30, 1996 and $48,000 thereafter. Base Annual Salary shall be
increased to $60,000 upon the Company's generation of aggregate gross revenues
from the sale of biomedical products of $500,000.
Employee will be paid a bonus equal to 2% of the gross revenues of Employer
after the attainment of gross revenues of $1,000,000 per fiscal year until such
annual revenues reach $3,000,000; 1.5% on gross revenues between $3,000,000 and
$5,000,000; and 1% thereafter.
In addition, Employee shall receive, as of the date of the Agreement,
500,000 shares of Employer's common stock ("Shares"). Certificates representing
Shares shall be held by Employer and shall not vest to Employee until the
happening of the following events:
100,000 Shares upon execution of the Agreement;
100,000 Shares upon Employer achieving $1,000,000 in gross revenues from
sales of biomedical products;
1
<PAGE>
100,000 Shares upon Employer achieving $2,000,000 in gross revenues from
sales of biomedical products;
100,000 Shares upon Employer achieving $3,000,000 in gross revenues from
sales of biomedical products; and
100,000 Shares upon Employer achieving $4,000,000 in gross revenues from
sales of biomedical products.
Certificates representing Shares which have not vested on or before April
30, 1998 (or the end of the next succeeding fiscal year in the event Employer
changes its fiscal year) will be returned to Employer's stock transfer agent for
cancellation.
No bonuses will be paid nor will Shares vest subsequent to the Employee's
election to terminate the Agreement or Employer's discharge of Employee for
cause. In the event of Termination due to death of Employee or inability due to
illness of Employee to render services under the Agreement to Employer, no
bonuses shall be paid; but Shares shall vest pursuant to the formula set forth
in this paragraph. Certificates representing Shares for which vesting has been
terminated will be returned to Employer's stock transfer agent for cancellation.
5. Employee Benefits: Employee shall be entitled to be covered by any
employee health insurance policy, dental plan, pension plan, stock option or
similar plans or other employee benefit(s) offered generally to management
employees of Employer. Employee shall not be obligated to contribute any money
to be covered under said plans except in the event the Company enacts a
contributory pension plan for other employees. Employee shall be entitled to
three weeks paid vacation at times to be mutually agreed upon between Employer
and Employee.
6. Expenses: In addition to the compensation provided Employee under the
Agreement, Employer shall reimburse Employee for any and all authorized expenses
which he shall incur directly relating to his functions as an employee.
Reimbursable expenses shall include, but are not limited to, travel (except to
and from the office) and entertainment and purchase of supplies. Reimbursement
of expenses shall not be deemed as compensation to Employee.
7. Recommendations for Operations: Employee shall provide Employer all
information regarding Employer's business of which Employee has knowledge.
Employee shall make all suggestions and recommendations that will be of mutual
benefit to Employer and Employee.
8. Confidentiality: Employee recognizes that Employer has and will have
information relating to inventions, equipment and machinery, products, prices,
apparatus, costs, discounts, future plans, business affairs, process
information, trade secrets, technical information, customer lists, product
design, copyrights, patents and other vital information (collectively, the
"Information") which are valuable, special and unique assets of Employer.
Employee agrees that Employee will not at any time or in any manner, either
directly or indirectly, divulge, disclose, or communicate any Information to any
third party without the prior written consent of Employer. Employee will protect
the Information and treat it as strictly confidential. A violation by Employee
of this paragraph shall be a material violation of the Agreement and will
justify immediate Termination and legal and/or equitable relief.
2
<PAGE>
9. Unauthorized Disclosure of Information. If it appears that Employee has
disclosed (or has threatened to disclose) Information in violation of the
Agreement, Employer shall be entitled to an injunction to restrain Employee from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. Employer shall not be prohibited by this provision from pursuing
other remedies, including a claim for losses and damages.
10. Confidentiality After Termination of Employment. The confidentiality
provisions of the Agreement shall remain in full force and effect for a two year
period after Termination. During such two year period, neither Party shall make
or permit the making of any public announcement or statement of any kind that
Employee was formerly employed by or connected with Employer except as may be
required by the Securities Act of 1933, the Securities Exchange Act of 1934 or
any relevant state securities laws.
11. Development of New Products/Technologies. All products or technologies
developed during the term of the Agreement shall become the property of
Employer. Employee shall transfer to Employer all ideas, prototypes, drawings,
descriptions, patents, copyrights, trademarks or other intellectual property to
Employer. Employer has the right to accept or reject any such assets; in the
event of rejection, all ownership rights will revert to Employee.
12. Non-Compete. Recognizing that the various items of Information are
special and unique assets of the company, Employee covenants that for a period
of two years following Termination, whether Termination is voluntary or
involuntary, Employee may not directly or indirectly engage in a business
competitive with Employer. Employee may not, directly or indirectly, contact
(including, but not limited to employees of Employer), solicit, hire, sell to,
purchase from, obtain financing from or recommend the contacting, selling to,
purchasing from or financing from any person, institution, entity or company
with which Employer has dealt during the one year period preceding the date of
the Agreement. The term "directly or indirectly engaging in any competitive
business" includes, but is not limited to, (i) engaging in a business as owner,
partner, or agent, (ii) becoming an employee of any third party engaged in such
business, (iii) becoming interested directly or indirectly in any such business,
or (iv) soliciting any customer of Employer for the benefit of a third party
engaged in such business.
13. Employee's Inability to Contract for Employer. Employee shall not have
the right to make any contracts or commitments for or on behalf of Employer
without first obtaining the express written consent of board of directors of
Employer or a relevant committee of the board of directors for the specific
contract or commitment or class of contract or commitment.
14. Termination: The Agreement shall terminate upon the happening of any of
the following events:
(a) Death of Employee;
(b) Discontinuance of the business of Employer for a period of sixty (60)
days;
3
<PAGE>
(c) Resignation of Employee;
(d) Unwillingness or inability caused by illness or otherwise to fulfill
the duties and obligations of his employment for a continuous period of 60 days
or an aggregate of 90 days in any yearly period;
(e) Cause, including but not limited to violation of paragraph 11; and
(f) Intention and notice to terminate pursuant to paragraph 3.
15. Severability. If any term of the Agreement shall, to any extent, be
determined through arbitration or by court of competent jurisdiction to be
invalid or unenforceable, the remainder of the Agreement shall not be effected
thereby and each other term of the Agreement shall be valid and enforceable to
the fullest extent permitted by law.
16. Arbitration. Any controversy arising from or related to the Agreement
shall be determined by arbitration in New York City in accordance with the rules
of the American Arbitration Association and any such determination or award may
be enforced by any court having jurisdiction thereof.
17. Complete Agreement. The Agreement constitutes the entire agreement
between the Parties regarding the subject matter herein and supersedes any other
previous and/or collateral agreements or resolutions of the board of directors
pertaining thereto. The Agreement may not be modified or amended other than by a
written instrument duly executed by or on behalf of the parties hereto.
18. Governing Law. The Agreement shall be interpreted and construed under
the internal laws of the State of New York.
IN WITNESS WHEREOF, the Parties have executed the Agreement as of the date
first written above.
AMERICAN BIO MEDICA CORPORATION
By: s/Stan Cipkowski
-----------------
Stan Cipkowski, its President
s/Jay Bendis
------------------
Jay Bendis
4
Exhibit 23.6
Consent of Thomas P. Monahan, CPA to Second Amendment
<PAGE>
CONSENT
I, Thomas P. Monahan, CPA, hereby consent to the use of my report relating
to the audited financial statements for the period from inception to April 30,
1996 in a registration statement on the Second Amendment to Form 10-SB of
American Bio Medica, Inc. (a developmen stage company) to be filed with the
Securities and Exchange Commission.
Dated: December 20, 1996
s/Thomas P. Monahan
-----------------------
Thomas P. Monahan, CPA
Exhibit 23.4
Consent of Thomas P. Monahan, CPA to Second Amendment
<PAGE>
CONSENT
I, Thomas P. Monahan, CPA, hereby consent to the use of my report relating
to the audited financial statements for the period from inception to April 30,
1996 in a registration statement on the Second Amendment to Form 10-SB of
American Bio Medica, Inc. (a development stage company) to be filed with the
Securities and Exchange Commission.
Dated: December 15, 1996
s/Thomas P. Monahan
-------------------------
Thomas P. Monahan, CPA
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data schedule consists of the unaudited balance sheet of the
Company as of October 31, 1996 and the related unaudited statements of
operations, cash flows and stockholders' equity for the period from inception
(April 10, 1986) to October 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> APR-10-1986
<PERIOD-END> OCT-31-1996
<CASH> 188,479
<SECURITIES> 1,411,866
<RECEIVABLES> 48,214
<ALLOWANCES> 0
<INVENTORY> 51,042
<CURRENT-ASSETS> 1,699,601
<PP&E> 125,625
<DEPRECIATION> 47,552
<TOTAL-ASSETS> 1,892,339
<CURRENT-LIABILITIES> 27,829
<BONDS> 0
0
1
<COMMON> 125,651
<OTHER-SE> 1,738,860
<TOTAL-LIABILITY-AND-EQUITY> 1,892,339
<SALES> 5,389,882
<TOTAL-REVENUES> 5,389,882
<CGS> 3,149,900
<TOTAL-COSTS> 4,701,656
<OTHER-EXPENSES> 215,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 357,071
<INCOME-PRETAX> (2,676,889)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,676,889)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,676,889)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.20)
</TABLE>
