As Filed with the Securities and Exchange Commission on May 1, 2000
Registration No. ___________
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEDISYS TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Utah 3841 72-1216734
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
144 Napoleon Street, Baton Rouge, Louisiana, 70802
(225) 343-8024
(Address and telephone number of principal executive offices)
144 Napoleon Street, Baton Rouge, Louisiana, 70802
(Address of principal place of business or intended principal place of business)
Edward P. Sutherland
Medisys Technologies, Inc.
144 Napoleon Street
Baton Rouge, Louisiana, 70802
(225) 343-8024
(Name, address and telephone number of agent for service)
Copy to:
Leonard E. Neilson, Esq.
Leonard E. Neilson, P.C.
8160 South Highland Drive, Suite 209
Sandy, Utah 84093
Approximate date of proposed sale to the public: As promptly as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check he following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box:[ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Amount of
Title each class of Amount to Offering Aggregate Registra-
Securities be Price Per Offering tion
to be Registered Registered Share Price Fee(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issuable 3,000,000 $1.8125 $5,437,500 $1,435.50
upon conversion of 6% shares(3) per
Convertible Debenture share(2)(3)
========================================= ================== ================== ==================== =================
Common stock issuable 125,000 $2.00 per $250,000 $ 66.00
upon exercise of common shares share
stock purchase warrants
========================================= ================== ================== ==================== =================
Common stock issuable 7,125,000 $1.8125 $12,914,062 $3,409.50
under line of credit shares(4) per
share(2)
========================================= ================== ================== ==================== =================
Common stock issuable 1,125,000 $2.00 $2,250,000 $ 594.00
upon exercise of common shares per share
stock purchase warrants
by Treadstone Investments
Limited
========================================= ================== ================== ==================== =================
Common stock issuable 500,000 $ 2.00 $1,000,000 $ 264.00
upon exercise of common shares per share
stock purchase warrants
by Jesup & Lamont
Securities Corporation
========================================= ================== ================== ==================== =================
Common stock offered by 7,000,000 $1.8125(2) $12,687,500 $3,349.50
Dispomedic 2000 per share
========================================= ================== ================== ==================== =================
TOTAL FEE $9,118.50
</TABLE>
(1) The fee with respect to these shares and as required by Section 6(b) of
the Securities Act of 1933, as amended, (the "Securities Act"), has
been calculated pursuant to Rule 457(c) under the Securities Act and
based upon the last sale price per share of the Issuer's common stock
on a date within five (5) days prior to the date of filing this
Registration Statement, as reported by the OTC Bulletin Board.
(2) Estimated solely for purposes of calculating the registration fee and
base on the last sale price per share on April 24, 2000.
(3) Estimated 3,000,000 shares issuable upon conversion of $2,000,000
aggregate principal amount of 6% Convertible Secured Debentures at a
conversion price for each share equal to the lower of (a) 85% of the
market price of our common stock at the conversion date, or (b) $2.00
per share. The estimated amount allows for a possible decrease in the
market price.
(4) Estimated 7,125,000 shares issuable pursuant to our equity line of
credit agreement with Treadstone Investments Limited.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
PROSPECTUS
MEDISYS TECHNOLOGIES, INC.
18,875,000 Shares of Common Stock
This prospectus may be used only in connection with the following
resales of common stock of Medisys Technologies, Inc.:
o 3,000,000 shares may be offered and sold, from time to time,
by AMRO International, S.A., who will originally receive all
or a portion of these shares upon conversion of the $2,000,000
principal amount of our 6% Convertible Debentures due August
31, 2001 (the "Debentures") and our Convertible Debentures and
Warrants Purchase Agreement with AMRO, or as payment of
principal and accrued interest on theses debentures
o an additional 125,000 shares may be offered and sold, from
time to time, by AMRO, who will originally receive these
shares upon exercise of warrants
o 7,125,000 shares may be offered and sold, from time to time,
by Treadstone Investments Limited, who will originally receive
all or a portion of these shares pursuant to the exercise of
put options under our equity line of credit agreement with
Treadstone
o an additional 1,125,000 shares may be offered and sold, from
time to time, by Treadstone, who will originally receive these
shares upon exercise of warrants
o 500,000 shares may be issued by Jesup & Lamont Securities
corporation, who will originally receive these shares upon
exercise of warrants
o 7,000,000 may be offered and sold, from time to time, by
Dispomedic 2000, who originally received these shares pursuant
to our manufacturing agreement with Dispomedic on January 19,
2000
We refer to AMRO, Treadstone, Dispomedic, Jesup & Lamont and other
stockholders who may offer and sell shares of our common stock under this
prospectus as "Selling Stockholders."
Pursuant to our equity line of credit agreement with Treadstone,
beginning on the date the registration statement, of which this prospectus forms
a part, is declared effective by the SEC and for a period of eighteen months
thereafter, subject to certain conditions we may from time to time, in our sole
discretion, sell or "put" shares of our common stock to Treadstone. Thereafter,
Treadstone may resell these shares pursuant to this prospectus. Treadstone is an
"underwriter" within the meaning of the securities Act in connection with these
sales.
We will not receive any proceeds from the sale of shares by the Selling
Stockholders. However, we will receive the benefit of reducing our debt upon the
conversion of the convertible debentures and we will receive funds upon the
issuance of shares under the equity line of credit agreement
Our common stock currently trades on the OTC Bulletin Board under the
symbol "SCEP." The last reported selling price on April 24, 2000 was $1.8125.
Investing in our common stock involves risks which are described in the
"risk Factors" section beginning on page 8 of this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is May 1, 2000
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TABLE OF CONTENTS
Page
Prospectus Summary................................................... 3
Risk Factors......................................................... 8
Use of Proceeds......................................................14
Market Prices and Dividends..........................................15
Capitalization.......................................................16
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................16
Business.............................................................19
Management...........................................................36
Certain Transactions.................................................41
Description of Common Stock..........................................41
Shares Eligible for Future Sale......................................43
Plan of Distribution.................................................44
Selling Stockholders.................................................45
Legal Matters........................................................47
Experts..............................................................47
More Information.....................................................47
Consolidated Financial Statements....................................48
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You should rely only on the information contained in this prospectus.
We have not authorized any other person to provide you with different
information. This prospectus is no an offer to sell, nor is it seeking an offer
to buy, theses securities in any state where the offer or sale is not permitted.
The information in this prospectus is complete and accurate as of the date on
the front cover, but the information may have changed since that date.
All references in this prospectus to "we," "us" and "our" refer to
Medisys Technologies, Inc., unless indicated otherwise.
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus, but
does not contain all of the information that may be important to you. This
prospectus includes specific terms of this offering, information about our
business and financial data. We encourage you to read this prospectus in its
entirety, particularly the "Risk Factors" and financial statements and notes,
before making an investment decision.
WHAT WE DO
We are a diversified medical company which designs and develops medical
device products for use in the healthcare industry. Currently, we are
concentrating on commercializing the CoverTip(TM) Hypodermic Safety Syringe. We
are also developing other products intended to reduce the occurrence of
accidental needlesticks in the healthcare workplace. These products are similar
in appearance, use and size to standard non-safety devices commonly used and
offer a range of medical diagnostic and treatment applications. Our new products
are in various stages of development and include:
o PreSafTM, a safety syringe designed for use with pre-
filled medicines for syringes;
o SofDrawTM, a blood/fluid collection syringe designed to
protect the user from an accidental self-puncture with a
contaminated needle;
o AmnioSafTM, a safety syringe device designed to protect both
the physician and the fetus during amniocentesis.
o VacuSafTM, a device using CoverTipTM technology in combination
with an adapted passive energy source that covers and protects
the sharp of a blood collection needle while it is still in
the vein.
o BxDrawTM, a fine needle biopsy safety device, used during fine
needle fluid aspiration treatment.
o BX-T-DrawTM (OBTSN), an obdurated titanium safety needle
designed for use with MRI (Magnetic Resonance Imaging)
placement to take a tissue sample with a cutting needle.
o CoverStikTM, a device that permits safe collection of
capillary blood.
In addition to CoverTipTM and related safety products, we may also
decide to complete the design and development of other products summarized
below:
o SofCepsTM is an obstetrical tractor (birth assistance delivery
device) designed, in part, to replace traditional steel
obstetrical forceps and vacuum extractors used to assist child
birth. SofCepsTM is intended to offset the possible negative
obstetrical consequences related to assisted childbirth. Based
on our research and testing, we believe SofCepsTM can reduce
maternal/fetal injuries associated with the use of alternative
devices.
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o VetCepsTM Obstetrical Tractor is a veterinary application of
the SofCepsTM. VetCepsTM is patented for veterinary
application in bovine (cattle), ovine (sheep), and equine
(horse) obstetrics. We have had minimal sales of VetCepsTM.
o DisKlipTM is a latex free, disposable securement device
designed to provide an easier, more efficient means of
attaching medical tubing used in intravenous administration of
medication (IV) and other medical tubing and lines.
o Re-TyTM is a releasable, adjustable and reusable "cable tie"
developed originally to enhance the VetCepsTM device. We have
three designs; side release, top release and enscoping. We
have conducted only limited market sampling and testing of the
top-release version.
We also acquired a wholly owned subsidiary, Phillips Pharmatec Labs,
Inc., which manufactures nutriceutical health products of other companies on a
contract basis. Phillips presently operates at a loss, is believed to be
insolvent and we have initiated legal action against the founders of Phillips
seeking, among other things, recission of the acquisition.
In order to fund our current activities and to secure necessary
additional funding for the development of our current and planned products, we
have entered into various agreements. During the first quarter of 2000, we took
the following actions to provide current and future funding:
o On February 28, 2000, we entered into the Convertible
Debentures and Warrants Purchase Agreement providing for the
issuance of $2,000,000 face value 6% Convertible Debentures
due August 31, 2001.
o On February 28, 2000, we entered into an equity line of credit
agreement with Treadstone to provide private equity financing
for a period of up to eighteen months from the effective date
of the registration statement to which this prospectus
relates. As soon as practicable after the effectiveness of the
registration statement, most likely within two weeks, we plan
to draw down the maximum initial amount permitted under the
equity line. We expect to continue to effect subsequent
drawdowns of the applicable maximum amount available under the
equity line approximately every 30 days, or as we deem prudent
and necessary based upon our corporate needs.
Our principal executive and administrative offices are located at 144
Napoleon Street, Baton Rouge, Louisiana 70802, and our telephone number is (225)
343-8022.
--------------
OUR BUSINESS STRATEGY
Our current strategy is to commercialize the CoverTip(TM) and develop
other related safety products. We believe our safety medical devices can assist
healthcare employers in meeting safety standards, established by the
Occupational Safety and Health Administration (OSHA) and other state and federal
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<PAGE>
agencies, intended to help eliminate or minimize occupational exposure to
bloodborne pathogens. Each product incorporates patented proprietary technology
enabling the healthcare professional to use standard operating techniques.
Proper use of our products can provide fail-safe protection to the user both
during and after the medical procedure. As part of our strategy of maximizing
its investment in sharps safety device design and development, Medisys has
developed various products, sizes and adaptations for a range of medical
diagnostic and treatment applications.
Because of our concentration on safety products, we have de- emphasized
development of our obstetrical assist products and the medical device products.
We are continuing development on a limited basis, and will increase development
as funds are available or consider, if practical, divesting one or more of these
products.
--------------
SELLING STOCKHOLDERS
AMRO, Treadstone, Dispomedic and other Selling Stockholders may offer
and sell shares under this prospectus.
On February 28, 2000, we completed the offering to AMRO of $1,000,000
face value 6% Convertible Debentures Due August 31, 2001. An additional $500,000
will be completed within five days of the filing of the registration statement,
of which this prospectus is a part. A final $500,000 will be completed within
five days of the effectiveness of the registration statement. Debenture holders
have the option, at any time, until maturity, to convert the principal amount of
their Debenture, or any portion of the principal amount, into shares of our
common stock. The conversion price for each share shall be equal to the lower of
(a) 85% of the market price at the conversion date or (b) $2.00. AMRO also
received stock purchase warrants allowing them to purchase 125,000 shares of our
common stock at the exercise price of $2.00 per share. Jesup and Lamont received
similar options to purchase 75,000 shares.
On February 28, 2000, we entered into an equity line of credit
agreement with Treadstone to provide private financing for a period of up to
eighteen months from the effective date of the registration statement to which
this prospectus relates. Treadstone also received stock purchase warrants
allowing them to purchase 1,125,000 shares of our common stock at the exercise
price of $2.00 per share. Jesup and Lamont received similar options to purchase
425,000 shares.
As a provision of Debenture and line of credit agreement, we agreed to
file a registration statement with the SEC for the purpose of registering the
shares of common stock (i) into which the Debentures are convertible, (ii)
underlying the warrants, and (iii) which will be issued pursuant to the credit
line.
This prospectus also relates to 7,000,000 shares held by Dispomedic.
These shares were issued by us pursuant to a manufacturing agreement with
Dispomedic on January 19, 2000.
CONVERTIBLE DEBENTURES
This prospectus relates to shares of our common stock issuable to the
Selling Stockholders upon the conversion of $2,000,000 principal amount of 6%
Convertible Debentures. The following table sets forth the total amount of
shares issuable from conversion if all Debentures are converted at various
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prices of our common stock, based upon the formula for conversion and without
taking into consideration interest and penalty. You should note that there is no
minimum price at which Debentures can be converted. Accordingly, if the price of
our stock declines, we will be obligated to issue more shares upon conversion of
Debentures. See "Description of Securities - Convertible Debentures and Stock
Purchase Warrants."
Conversion Number
Current Price(1) Price(2) of Shares
------------- ----- ---------
$1.00 $ .85 2,352,941
$1.50 $1.275 1,568,627
$2.00 $1.70 1,176,471
$2.50 $2.00(3) 1,000,000
------------
(1) Assumed current market price of common stock at time of
conversion.
(2) Based on 85% of current market price.
(3) Maximum offering price.
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<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities offered by the
Selling Stockholders .......................... 18,875,000 shares of our common
stock
Offering Price................................. Determined at the time of sale by
the Selling Stockholders
Common Stock Outstanding
Before Offering:............................. 59,063,995 shares(1)
Common Stock Outstanding
After Offering:.............................. 70,938,995 shares(2)
OTC Bulletin Board Symbol Common Stock: "SCEP"
Use of Proceeds................................ We will not receive any proceeds from
sales by the Selling Stockholders.
Risk Factors................................... The common stock offered involve a
high degree of risk and immediate
substantial dilution and should not be
purchased if you cannot afford the
loss of your entire investment.
Before purchasing any securities
offered, you should review carefully
and consider all information contained
in this prospectus, particularly the
items set forth under "Risk Factors."
</TABLE>
(1) Includes 7,000,000 shares of common stock presently issued and
outstanding and owned by Dispomedic, but does not include:
o 3,000,000 shares of common stock issuable upon conversion of
the 6% Convertible Debentures due August 31, 2001;
o 200,000 shares of common stock issuable upon exercise of
warrants issued as part of the Debentures on February 28,
2000;
o 7,125,000 shares of common stock issuable upon exercise of put
options under the equity line of credit agreement with
Treadstone; and
o 1,550,000 shares of common stock issuable upon exercise of
warrants issued as part of the equity line of credit agreement
on February 28, 2000.
(2) Assumes Debentures are converted into 3,000,000 shares of common stock,
7,125,000 shares are issued under the equity line of credit agreement,
and all warrants are exercised.
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RISK FACTORS
A purchase of our common stock is speculative and involves a high
degree of risk. You should consider carefully the following risks, together with
all other information included in this prospectus, before you decide to buy our
common stock. Please keep these risks in mind when reading this prospectus,
including any forward-looking statements appearing in this prospectus. If any of
the following risks actually occurs, our business, financial condition or
results of operations would likely suffer materially. As a result, the trading
price of our common stock may decline and you could lose all or part of the
money you paid to buy our common stock.
Risks Relating to Our Business
Our extremely limited operating history makes it difficult to evaluate
our business and prospects
We commenced operations in 1992 and only recently began to market and
sell our products. Most of our revenues have been derived from our subsidiary,
Phillips Pharmatec Labs, Inc., acquired in December 1999. However, we have
instituted legal action against the founders of Phillips seeking, among other
things, recission of the acquisition. Accordingly, you have limited information
about with which to evaluate our business, strategies and performance and an
investment in our common stock.
We have a history of losses and anticipate future losses
We have accumulated net operating losses of approximately $9.7 million
through December 31, 1999 and expect to incur net losses in the future. We had a
net loss of approximately $1.7 million for the fiscal year ended December 31,
1999 and approximately $1.3 million for the year ended December 31, 1998. We
anticipate continuing to incur significant research and development, sales and
marketing and general and administrative expenses and, as a result, we will need
to generate higher revenues to achieve and sustain profitability. We cannot be
certain we will realize sufficient revenues to achieve profitability.
If our products are not accepted by the market, our revenues
will decline
Most of our products are in the development stage and we have only
recently introduced our first products to the market. Market acceptance of our
products is critical to our future success. Factors that may affect the market
acceptance of our products include:
o market acceptance of safety syringe and related product
technology;
o the features, performance, and cost of using our products;
o availability of competing products and technologies;
o the success and development of our marketing and distribution
channels;
o the quality of our customer service and support of our
products; and
o development of improved and new products to keep pace with
competitors.
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<PAGE>
Failure of our existing or future products to achieve and maintain
meaningful levels of market acceptance would materially adversely affect our
business, financial condition and results of operations.
Our operating results are likely to fluctuate significantly and cause
our stock price to be volatile which could cause the value of your investment in
our company to decline
Our quarterly or annual operating results are likely to fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. If our operating results do not meet the expectations of
securities analysts, the trading price of our common stock could significantly
decline which may cause the value of your investment in our company to decline.
Some of the factors that could affect our quarterly or annual operating results
or impact the market price of our common stock include:
o our ability to develop, manufacture, market and support our
products and product enhancements;
o the timing and amount of, or cancellation or rescheduling of,
orders for our products, particularly large orders from key
customers;
o our ability to retain key management, sales and marketing and
engineering personnel;
o announcements, new product introductions and price reductions
in products offered by our competitors;
o our ability to obtain sufficient supplies of sole or limited
source components for our products;
o a decrease in the average selling prices of our products;
o changes in costs of components which we include in our
products; and
o the mix of products that we sell and the mix of distribution
channels through which they are sold.
Due to these and other factors, quarterly or annual revenues, expenses
and results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance.
Because we currently depend on a single family of products, any decline
in demand for those products may harm our operating results
We presently expect to derive substantially all of our revenues from
our healthcare safety products, primarily the CoverTipTM device in the near
future. The market may not continue to demand our current products, and we may
not be successful in marketing any new or enhanced products. Any reduction in
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the demand for our current products or our failure to successfully develop or
market and introduced new or enhanced products could materially adversely affect
our business, financial condition and results of operations.
If we lose key personnel, we may be unable to successfully operate our
business
We depend on the continued contributions of our executive officers and
other technical personnel to work effectively as a team, to execute our business
strategy and to manage our personnel. The loss of key personnel or their failure
to work effectively could have a material adverse effect on our business,
financial condition and results of operations.
If we are unable to attract and retain additional qualified personnel,
our future business may suffer
Our business strategy will require us to attract and retain additional
qualified technical and marketing personnel. We may experience difficulty in
recruiting qualified personnel, which is an intensely competitive and time
consuming process. We may not be able to attract and retain the necessary
personnel to accomplish our business objectives as our business develops and
grows. Accordingly, we may experience constraints that will adversely affect our
ability to satisfy future customer demand in a timely fashion or to support our
customers and operations. This could cause an adverse effect on our business,
financial condition and results of operations.
Our limited ability to protect our intellectual property may prevent us
from retaining our competitive advantage
Our future success and our ability to compete are dependent, in part,
upon our proprietary technology. Taken as a whole, we believe our intellectual
property rights are significant and any failure to adequately protect our
proprietary rights could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and decreased revenues.
In addition, the laws of many foreign countries do not protect our intellectual
property to the same extent as the laws of the United States. Also, it may be
possible for unauthorized third parties to copy or reverse engineer aspects of
our products, develop similar technology independently or otherwise obtain and
use information that we regard as proprietary. Furthermore, policing the
unauthorized use of our products is difficult. Litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets or patents that we may obtain, or to determine the validity and scope of
the proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on our
future operating results.
Intellectual property claims against us can be costly and restrict our
business
The healthcare products industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. As the number of entrants in our market increases and the
functionality of our products is enhanced and overlaps with the products of
other companies, we may become subject to claims of infringement or
misappropriation of the intellectual property rights of others. Any claims
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asserting that our products infringe or may infringe proprietary rights of third
parties, if determined adversely to us, could have a material adverse effect on
our business, financial condition or results of operations. Any claims, with or
without merit, could be time-consuming, result in costly litigation, divert the
efforts of our technical and management personnel, cause product shipment delays
or require us to enter into royalty or licensing agreements, any of which could
have a material adverse effect upon our operating results. Legal action claiming
patent infringement may be commenced against us. We cannot assure you that we
would prevail in such litigation given the complex technical issues and inherent
uncertainties in patent litigation. In the event a claim against us was
successful, and we could not obtain a license to the relevant technology on
acceptable terms or license a substitute technology or redesign to avoid
infringement, this could have a material adverse effect on our business,
financial condition and results of operations.
Additional required capital may not be available
To date, we have financed our operations through cash from the sale of
our stock, debt instruments and by borrowing money. If we do not generate enough
cash from operations to finance our business in the future, we will need to
raise additional funds through public or private financing. Selling additional
stock could dilute the equity interests of our stockholders. If we borrow more
money, we will have to pay interest and may also have to agree to restrictions
that limit our operating flexibility. We may not be able to obtain funds needed
to finance our operations at all or may be able to obtain them only on
unattractive terms.
Competition could render our services uncompetitive
The market for our products is highly competitive and rapidly changing.
We believe we face such competition on a local, regional and international
basis. The new products we are developing will bring us into further competition
with various companies. Additional competitors may also enter the market and
competition may intensify. Although we believe our products are better than
those offered by our competitors, they may be able to narrow or eliminate the
differences.
We are engaged in litigation with Phillips Pharmatec Labs which could
result in divesting Phillips
On March 16, 2000, we filed a lawsuit against the founders and
principals of Phillips. Our suit alleges, among other things, various securities
law violations by the defendants and related claims in connection with our
acquisition of Phillips in December 1998. Among the remedies we are seeking is
recission of the acquisition. We also anticipate that the defendants may file
various retaliatory claims against us. As a result of this action, we may incur
significant legal costs and related expenses. Because it is early in the legal
process, we are unable to assess the probable outcome or the possible effect on
our business, particularly if we ultimately sell Phillips. Phillips accounted
for almost all of our revenues in 1999 and will represent a significant portion
of our year 2000 revenues. If we no longer have revenues from Phillips, we will
have to rely solely on revenues from our existing products, which have generated
only minimal revenues in the past.
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Risks relating to ownership of our common stock
The price of our common stock after this offering may be lower than the
price you pay
Although our stock is currently traded on the OTC Bulletin Board, there
is no assurance that an active market will continue. If you purchase shares of
our common stock in this offering, you will pay a price established by the
current market place. The price of our common stock that will prevail in the
market after this offering may be higher or lower than the price you pay.
Purchasers of the shares offered hereby will suffer immediate and
substantial dilution in the value of your investment
You will incur immediate and substantial dilution in the net tangible
book value of common stock based on the current market price of $1.8125, and
assuming all of the Debentures and warrants are converted to common stock and
the equity line of credit is fulfilled. There are no limits on the maximum
number of shares that may be issued on conversion of the Debentures. The lower
the stock price at the time of conversion, the more shares the Debenture holders
will receive which will increase dilution. Also, to the extent that Debenture
and warrant holders convert their securities and then sell the underlying shares
into the market, the price of our shares may decrease due to the additional
shares in the market.
We do not intend to pay dividends
To date, we have never declared or paid any cash dividends on shares of
our common stock. We currently intend to retain our future earnings for growth
and development of our business and, therefore, we do not anticipate paying any
dividends in the foreseeable future. See "Dividend Policy".
Our executive officers, directors and principal stockholders own a
significant percentage of our company and will be able to exercise significant
influence over our company, which could have a material and adverse effect on
the market price of our common stock
After this offering and assuming all of the shares of common stock to
which this prospectus relates are issued, our executive officers, directors and
principal stockholders and their affiliates will together control approximately
47.6% of our outstanding common stock. As a result, these stockholders, if they
act together, will be able to control all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions, and will continue to have significant influence over our
affairs. This concentration of ownership may have the effect of delaying,
preventing or deterring a change in control, could deprive our stockholders of
an opportunity to receive a premium for their common stock as part of a sale and
might affect the market price of our common stock.
The market price of our common stock may drop significantly when the
restrictions on resale by our existing securityholders lapse
Following this offering, we will have approximately 70,938,995 shares
of common stock outstanding, premised on conversion of all the Debentures and
issuance of shares under the equity line at the current price level.
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Approximately 48,665,995 shares, or 69%, of our outstanding common stock will be
subject to restrictions on resale under United States securities laws. As these
restrictions on resale end, the market price of our common stock could drop
significantly if holders of these shares sell them or are perceived by the
market as intending to sell them. These sales also may make it difficult for us
to sell equity securities in the future at a time and price that we deem
appropriate. See "Shares Eligible for Future Sale."
Possible "Penny Stock" Regulation
Trading of our common stock on the OTC Bulletin Board may be subject to
certain provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule. A penny stock
is generally defined to be any equity security that has a market price less than
$5.00 per share, subject to certain exceptions. If our stock is deemed to be a
penny stock, trading in our stock will be subject to additional sales practice
requirements on broker-dealers. These may require a broker dealer to:
o make a special suitability determination for purchasers
of penny stocks;
o receive the purchaser's written consent to the
transaction prior to the purchase; and
o deliver to a prospective purchaser of a penny stock, prior to
the first transaction, a risk disclosure document relating to
the penny stock market.
Consequently, penny stock rules may restrict the ability of
broker-dealers to trade and/or maintain a market in our common stock. Also, many
prospective investors may not want to get involved with the additional
administrative requirements which have a material adverse effect on the trading
of our shares.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING-STATEMENTS
This prospectus, including the sections entitled "Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance and
involve known and unknown risks and uncertainties. These factors may cause our
company's or our industry's actual results, levels of activity, performance or
achievements to be materially different from those expressed or implied by the
forward-looking statements. These risks and other factors include those listed
under "Risk Factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will"
"should," "expects," "intends," "plans," anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or the negative of these terms or other
comparable terminology.
These statements are only predictions. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
Selling Stockholders. Upon conversion of the Debentures, we will benefit from
the cessation of indebtedness represented by the Debentures in the principal
amount of $2,000,000 and interest on the Debentures that is accruing at the rate
of 6% per annum.
We will receive proceeds from shares of common stock to be issued
pursuant to the line of credit and upon exercise of warrants. If all of the
warrants are exercised we would receive $3,500,000, and if the equity line of
credit is fulfilled, based upon the current market price of our common stock, we
would realize proceeds of approximately $10,400,000. We have estimated offering
expenses at $102,000. In that event, we expect to use substantially all of the
net proceeds for general corporate purposes, including working capital, research
and development and expansion of sales and marketing activities. The amounts we
actually expend for such working capital and other purposes may vary
significantly and will depend on a number of factors including, but not limited
to, the actual net proceeds received, the amount of our future revenues and
other factors described under "Risk Factors." Accordingly, our management will
retain broad discretion in the allocation of the net proceeds of this offering.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. We have no
current plans, agreements or commitments with respect to any such transaction,
and we are not currently engaged in any negotiations with respect to any such
transaction. Pending such uses, the net proceeds of this offering will be
invested in short-term, interest-bearing, investment grade securities or
guaranteed obligations of the U.S. government.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common Stock has traded in the over-the-counter market and
quotations published on the OTC Bulletin Board under the symbol "SCEP" since
1992. The following table sets forth the high and low bid prices of our common
stock for periods indicated as reported by the National Quotation Bureau, Inc.
On April 24, 2000, the last reported sales price of our common stock on the OTC
Bulletin Board was $1.8125 per share
High Low
---- ---
1998
First Quarter .94 .31
Second Quarter .88 .28
Third Quarter .47 .15
Fourth Quarter .38 .16
1999
First Quarter .50 .13
Second Quarter .38 .17
Third Quarter .31 .15
Fourth Quarter .78 .12
2000
First Quarter (1) 3.50 .52
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(1) Through April 24, 2000.
We have never declared or paid any cash dividends on our common stock.
We currently intend to retain all of our earnings, if any, for use in our
business and do not anticipate paying any cash dividends on our common stock in
the foreseeable future.
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Instead, we intend to retain and invest any earnings in our business.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1999 on an actual basis. You should read this table together with the
Consolidated Financial Statements and accompanying Notes that we include later
in this prospectus.
December 31, 1999
-----------------
Cash..................................................$ 290,269
============
Long-term debt........................................ 304,490
Stockholders' equity (deficit)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
47,055,644 shares issued and
outstanding..................................... 23,527
Additional paid-in capital............................ 10,743,768
Stock subscriptions receivable (Note 5)............... (1,075,000)
Accumulated deficit................................... (9,735,830)
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Total Stockholders' Equity (Deficit) ............ (43,535)
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Total capitalization.............................$ 2,105,780
============
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this prospectus.
Overview
We are a diversified medical company that designs and develops medical
safety devices and other products for use in the healthcare industry. We
currently have 19 patent applications pending for our medical devices in both
the U.S. and overseas. Our primary focus presently is commercializing the
CoverTip(TM) Hypodermic Safety Syringe. Our wholly owned subsidiary, Phillips
Pharmatec Labs, is a contract manufacturer of over-the-counter complementary
health care products. Phillips produces vitamins, mineral supplements herbal
therapy and diet aids for customers under private labels.
Since 1992, we have concentrated on the research and development of
various medical safety devices. We began marketing our initial products in 1997,
but revenues have been only nominal. We have incurred operating losses and net
losses for each year since our formation in 1992. For the years ended December
31, 1998 and 1999, we experienced net cash outflow for operating and investment
activities. At December 31, 1999, we had an accumulated deficit of $9,735,830.
We intend to substantially increase our operating and capital
expenditures in an effort to complete development of and market our various
medical safety products. We expect to continue to incur material operating
losses, net losses and net operating cash outflows during this development
period. Our losses and net operating cash outflows are expected to continue and
increase until we have successfully marketed one or more of our products.
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We acquired Phillips in December 1998 expecting it would provide us
with the internal capability of assembling our own proprietary products and
other medical devices. We also anticipated that Phillips would generate revenue
from its complementary healthcare product lines and its customers base. However,
Phillips presently operates at a loss and is believed to be insolvent.
We have instituted legal action against the founders of Phillips. In
that lawsuit, we allege various securities law violations and related claims in
connection with our acquisition of Phillips. In addition to damages and other
relief, we are seeking recission of the acquisition. See "Business - Legal
Proceedings." Accordingly, we cannot predict the future of the legal proceedings
and whether Phillips will remain a subsidiary.
Results of Operations
Comparison of 1999 and 1998
Revenues. Our revenues in 1998 were $26,846 and increased to $2,716,819
in 1999. This increase in revenues is due almost exclusively to the acquisition
of Phillips and the inclusion of its revenues in 1999. Because of the pending
litigation and uncertainty of our future relationship with Phillips, we cannot
anticipate their revenues in the future.
Gross margin. Our gross margin increased from $21,450 in 1998 to
$698,975 in 1999. This increase in gross margin is also attributed to the
acquisition of Phillips. Because of the uncertainty associated with Phillips, we
cannot predict the future trend in gross margin.
Product research and development expenses. Our expenditures on product
research and development were $382,318 in 1998 and decreased to $230,075 in
1999. This 43% decline in 1999 was due to less funding being available until
late in 1999. Our development funds were focused and allocated primarily to
CoverTipTM and other safety products. Because of the infusion of cash in late
1999 and early 2000, we anticipate a significant increase in 2000 for product
research and development.
Depreciation and amortization. Our depreciation and amortization
expense was $14,322 in 1998 and increased 522% to $89,069 in 1998. Nearly all of
the increase in 1999 is attributed to the acquisition of Phillips and expenses
related to its plant and equipment.
Selling, general and administrative. Our selling, general and
administrative expenses were $564,543 in 1998 and increased 171% in to
$1,616,553 in 1999. Approximately 84% of this increase in attributed to the
acquisition of Phillip. Excluding Phillips, our selling, general and
administrative expenses increased approximately 27% in 1999 due to an increase
in the number of directors and an increase in outside contractor commitments. As
we develop our products and commence marketing new products in 2000, we expect
these expenses to increase accordingly.
Interest expense. Our interest expense increased from $312,213 in 1998
to $341,503 in 1999. This 9% increase in 1999 is due primarily to debt services
related to Phillips. As we continue to borrow funds to finance our product
development, we expect interest expense to increase modestly.
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Net loss. Our net loss in 1998 totaled $1,252,501 and increased to
$1,687,621 in 1999. Most of our net loss in 1999 is attributed to our continued
development of our products and related expenses, and only nominal revenues
realized. Phillips contributed $362,656 to our net loss in 1999.
Net operating loss carryforward. As of December 31, 1999, we have
accumulated approximately $9,735,830 of net operating loss carryforwards. This
amount may be offset against taxable income and income taxes in future years.
The loss carryforwards expire in the year 2019. We have not reported any tax
benefit in our financial statements for 1999 because we believe the carryforward
may expire unused.
Liquidity and Capital Resources
We have financed our operations primarily with proceeds from stock
issuances and borrowings. As of December 31, 1999, we had cash of $290,269 and
negative working capital of $860,981.
Net cash provided by our financing activities in 1999 and 1998 was
$599,417 and $310,347, respectively. This cash primarily resulted from the sale
of common stock and proceeds from debentures. In February, 2000, we realized
$1,000,000 from the issuance of Debentures, to which this prospectus relates. We
will also receive another $1,000,000 from Debentures. We anticipate that these
funds will help finance our operations for the remainder of fiscal 2000.
Additionally, we have the equity line of credit to draw upon for funds as
required.
Net cash used by our operating activities in 1999 and 1998 was $244,534
and $231,691, respectively. This is attributed primarily to our net loss in both
1999 and 1998. These results were partially offset by the issuance of common
stock for services and interest in 1999 of $703,343, and in 1998 of $577,159.
Net cash used from investing activities in 1999 and 1998 was $140,097
and $5,351 respectively. The 1999 results are primarily attributed to the
purchase of fixed assets and increase in our patent costs.
We are currently technically in default on one note payable to an
individual totaling $12,500. This note holder has not demanded repayment and we
continue to accrue interest on that outstanding note.
At December 31, 1999, we had total assets of $2,105,780 and
stockholders' deficit of $43,535. In comparison, at December 31, 1998, we had
total assets of $1,624,726 and total stockholders' deficit of $83,392. The 30%
increase in total assets and increase in stockholders' deficit in 1999 is
primarily due to the acquisition of Phillips.
We believe that the net proceeds from the sale of the Debentures in
February 2000, together with our existing cash and other funding commitments,
will be sufficient to fund our operating losses, capital expenditures and
working capital requirements through 2000. We anticipate that in the future we
may seek additional equity or debt capital through private sources and/or a
public securities offering. However, there can be no assurance that we will
successfully secure new funding or complete any such offering. Other that the
Debentures and our line of credit agreement, we do not have other definitive
agreements for new financing.
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In November 1999, we signed a subscription agreement and arranged other
private funding from a group of physicians and other private investors to
provide up to $1.5 million of operating capital. By March 2000, we completed a
total of up to $14 million in additional potential financing commitments.
Initial proceeds are being used primarily to begin the production and commercial
launch of the CoverTipTM. Additional funds, as realized will be used for the
further development of CoverTipTM, PreSafTM, SofDrawTM and other general
corporate business.
We anticipate that we will increase development and marketing of our
products as funding is realized. We also believe that because of the ongoing
litigation concerning Phillips, we cannot accurately predict the impact that
Phillips will have on our 2000 operations.
In our opinion, inflation has not had a material effect on our
operations.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 130,
Reporting Comprehensive Income and SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 130 establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. It requires that all items required to be recognized under current
accounting standards as components of comprehensive income, be reported in a
financial statement with the same prominence as other financial statements. SFAS
No. 131 establishes standards as to how public companies report financial
information about operating segments in annual financial statements. It requires
reporting of selected information about operating segments in interim financial
statements issued to the public and establishes standards for disclosure
regarding products and services, geographic areas and major customers.
Implementation of the new standards did not have a material effect on our
financial statements.
SFAS No 132. Employers' Disclosures about Pensions and Other
Postretirement Benefits," standardizes disclosure requirements for pensions and
other postretirement benefits. It requires additional information on changes in
the benefit obligations and fair values of plan assets that will facilitate
financial analysis. Adoption of this statement did not have a material impact on
the our financial statements.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities requires companies to record derivatives as assets or liabilities,
measured at fair market value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. We believe the
adoption of this statement will have no material impact on our financial
statements.
BUSINESS
In 1992, we acquired Medisys Technologies, Inc., a private Louisiana
corporation created initially to develop the SofCepsTM Birth Assistance Safety
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Device concept. Since 1992, we have become a diversified medical company that
designs and develops medical device products for use in the healthcare industry.
We presently have several medical safety devices in various stages of
development. Our current emphasis is on the commercialization of the CoverTipTM
Hypodermic Safety Syringe.
In December 1998, we acquired 100% of the outstanding capital stock of
Phillips Pharmatec Labs, Inc., a contract manufacturer of over-the-counter
complementary health care products. Phillips operates as an independent company
that manufactures nutriceutical health products of other companies on a contract
basis. In addition to Phillips' ability to produce vitamins, mineral
supplements, herbal therapy and diet aids under private labels, we believed that
the acquisition would provide the internal capability of assembling our own
proprietary products and other medical devices. Phillips is incurring
substantial losses and is believed to be insolvent. We are presently involved in
litigation with the founders of Phillips to rescind the acquisition and,
therefore, its future as a subsidiary is uncertain.
Industry Overview
We believe the demand for existing and newly developed healthcare
products continues to be strong, with an emphasis on containment of healthcare
cost. Our strategy is to design and develop medical device products that address
concerns of cost and safety. We further believe that medical device safety
features, commanding a reasonable cost differential from standard, non-safety
devices, will ultimately lower the cost of health care, enhance patient care and
healthcare worker safety.
Currently, we are emphasizing the development of the CoverTipTM and
other related products that are intended to reduce the occurrence of accidental
needlesticks in the healthcare workplace. We believe that our safety medical
devices can assist healthcare employers in meeting new safety standards
established by the Occupational Safety and Health Administration (OSHA) and
legislation in various states.
We anticipates a growing market due to the conversion to advanced
safety protection devices that protect healthcare workers against the potential
danger from accidental needlesticks. The transfer of infectious diseases from
accidental needlesticks result in enormous economic and social costs. The
possibility of accidental infection from AIDS (HIV), Hepatitis and other
communicable diseases is a critical issue for healthcare workers, medical
professionals, and healthcare institutions. There are over over 4 million
healthcare workers in the United States alone.
Among the many applications for needles in the medical setting are the
injection of drugs (hypodermic syringes) and the drawing of blood and other
bodily fluids (blood collection needles). Recent studies estimate that as many
as 800,000 accidental needlestick occur each year in the United States. The rate
of accidental needlesticks reported by the Centers for Disease Control (CDC) was
one occurrence for every 250 injections made. We believe that this number is
much higher because many incidents are not reported. The potential for
transmission of the Hepatitis C (HCV), Hepatitis B (HBV) and the HIV (AIDS)
viruses can occur from just one needlestick. The potential cost of a single
contaminated needlestick injury is estimated between $250 and $2,302 just for
evaluation and testing.
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Although the incidence of AIDS contracted through accidental
needlesticks is low, the occurrence of Hepatitis and other infectious diseases
compounds the problem and cumulatively results in high cost, liability,
long-term care and productivity losses. For both Hepatitis B virus and HIV
infections, the primary source of exposure is, according to the CDC, a
contaminated dirty needlestick.
On September 30, 1998, California enacted legislation that made it the
first state in the nation to require the use of safety needles to protect health
care workers from hazardous needlesticks. California created a model for a
national standard now endorsed by federal guidelines. Tennessee, Maryland and
Texas enacted legislation in 1999, followed by New Jersey, Minnesota and West
Virginia in January 2000. Twenty-four other states and the District of Columbia
have introduced, or are drafting, safety needle legislation.
Federal mandates for the use of sharps blunting systems for syringes
were established in November 1999. OSHA revised its 1991 bloodborne pathogens
compliance directive to help minimize the serious health risks faced by workers
exposed to blood and other potentially infectious materials, including HIV and
the Hepatitis B and C viruses. The new directive emphasizes the importance of an
annual review of an employer's bloodborne pathogens program and the use of safer
medical devices to help reduce needlesticks and other sharps injuries. In
response to the OSHA directive, the American Hospital Association (AHA) issued
an advisory statement urging its members to comply with state regulations. The
CDC also issued an alert recommending the use of devices with safety features,
which are an integral part of the device design, operate passively without
requiring user activation, cannot be deactivated, and remain protective through
the disposal procedure. We believe that national attention on the compelling
need to adopt safety medical devices will focus increased attention on our
products. We further believe that the use of safety needle products is likely to
increase significantly over the next several years.
The Safety Needle Syringe Market
The August 1998 Theta Report #850 on disposable medical supplies
estimates that 6.6 billion syringes were sold in the United States in 1997.
Theta forecasts that the U.S. market will grow at an annual rate of between 6.8%
and 7.3% through 2001, with total syringe sales reaching 8.7 billion units.
Historically, the needle market has been price competitive with little
differentiation between products. New regulatory requirements, economic
pressures to avoid product liability suits, negative publicity and pressure from
healthcare worker organizations and medical safety advocates are strong
motivators to the healthcare industry to adopt a relatively low-cost,
easy-to-use safety syringe. In addition to price, needle suppliers are now
competing for market share based on operating and safety features. The Theta
report suggests that in 2001, while having a 75% market share, safety syringes
will command more than a 66% selling price premium over non-safety syringes.
Theta predicts a 15% yearly U.S. growth rate in safety blood collection devices.
The target markets for these devices include: (1) hospitals of all types (6,300
in the U.S.); (2) private practitioners (600,000 plus in the U.S.); (3) home
healthcare providers; (4) clinics; (5) nursing homes; and (6) EMT units. The
global market has been estimated to be twice the size of the U.S. market.
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Until recent state legislation and more exacting regulatory directives
compelled the healthcare industry to consider the safety aspects of medical
devices, the industry was reluctant to convert from standard syringes to safety
syringes because of the added costs and difficult technique changes necessary to
use the cumbersome devices now on the market. Safety devices currently in the
marketplace are more complicated to use than standard devices. Typically, the
operator must use a new methodology, either during or after the injection
process. Sleeve syringes are awkward to use, provide inadequate protection and
are susceptible to reuse by intravenous drug users. Retractable syringes
incorporate retraction technology that requires some change in operating
technique in order to retract the needle permanently into the barrel. Some
products require two-handed application techniques, which actually present
accidental needlestick opportunities.
While unit cost is important, overall cost-in-use is critical for
adoption of safety devices. Not only do safety syringes on the market cost more
to produce than standard syringes, the in-service cost to train healthcare
practitioners to use safety syringes places an added burden on the conversion
rate. In all cases, current devices force upon the operator a significant change
of habit. Activation studies indicate that, despite the potential danger of
standard syringes, healthcare workers find it difficult to change long-held
habits, especially in a fast-paced healthcare setting. One study found that 25%
of the needle injuries since 1993, when the devices began being used by
students, came from safety needle devices. The extensive, round-the-clock
in-service training required to overcome the difficult technique changes
necessary to use many of these cumbersome devices must be factored in.
Despite the inadequacies of safety devices currently available, we
believes that the proliferation of interest and effort to convert to safety
needle products, legal requirements, as well as the tremendous support from the
healthcare worker community will accelerate conversion to safety syringes. As
the safety syringe market begins to demonstrate some differentiation, we believe
that CoverTipTM has advantages to products currently in the marketplace and to
those about to be introduced. The primary advantage of our safety syringe is its
close similarity in use to a standard syringe. The passive, one-handed
activation of CoverTipTM offers superior benefits to other available safety
syringes. We cannot forecast prices of its products, but we believes that its
safety devices have superior cost benefits and that its production costs will
fall below devices with more complicated retractable and sleeve safety
technologies and design.
Diagnostic Sharps Safety
Blood collection needles are used to obtain a sufficient volume of
blood for diagnostic procedures. We recognize that diagnostic sharps
applications are a critical area of medical device safety. These medical
diagnostic products offer the potential for increased margins due to their high
cost of procedure, unique presence in the market, and market specialization.
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Based on our research, we believe that this market segment is largely
unexplored and under-penetrated by safety device solutions. We further believe
that there is less competition and fewer economic barriers to entry than those
apparent in the hypodermic field. These products address a somewhat different
customer base than the hypodermic end-user. Radiologists, surgeons and other
physicians and specialized technicians are the primary end-users of diagnostic
sharps instruments. The specialized and professional aspects of these devices
will offer high-margin opportunity to the marketplace.
Obstetrical Devices
The market for obstetrical products, both in the United States and
worldwide, is substantial. Although declining birthrates are a factor for
consideration in western countries, we anticipate a stable growing United States
market in the foreseeable future. We believe that the rapidly expanding
population growth of third world and Pacific rim countries represents a
marketing opportunity for assisted delivery devices and obstetrical products in
general.
The standard assistance device in use today is stainless steel
obstetrical forceps. They were developed in the latter part of the 16th Century.
Actual traction is exerted slightly below or underneath the mandible and is
point concentrated. Slippage of the forceps is almost invited because of natural
lubrication, refusal of the fetal skull to conform to existing forceps design,
and a myriad of variables which exist from one fetal skull/pelvic relationship
to another. Virtually every forceps assisted delivery involves risk of injury to
the mother and the baby.
Stainless steel forceps apply a concentrated gripping force on the
fetal head which can result in a series of injuries from minor "forceps marks"
to skull fractures with massive brain damage, central nervous system damage and
fetal death. The manipulation of the steel forceps in the birth canal often
causes maternal injuries ranging from spiral lacerations of the pelvic floor to
severe lacerations to the cervix. In both instances, these injuries result in
significantly increased healthcare costs associated with post-delivery
complications and increased inpatient days. Such injuries are exhaustively dealt
with in the medical literature and the obstetrical community would most likely
welcome a device that promises a significant reduction in maternal and fetal
morbidity.
The primary device for birth assistance today, and the only other
significant attempt to introduce a new product into this forceps arena, has been
the vacuum extractor system. The vacuum unit was patented in the late fifties,
and in spite of numerous attempts toward refinement, Management believes that
the approach still remains plagued with disadvantages. The system grips the
upper half of the fetal skull with a suction device and traction is then
applied. Use of the system frequently results in hematoma over the fetal skull
as well as rebound trauma caused by the device popping off the fetal skull. Once
in place, the device precludes manual rotation of the skull. Rotation is
frequently required to ease passage through the pelvis. Many obstetricians have
experienced difficulties because they resort to twisting on the extractor to
accomplish rotation. This can result in serious fetal injury. For these and
other reasons, the vacuum system is not the instrument of choice for many
obstetricians who continue the use of traditional forceps.
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Our Products
Medical Safety Devices
Our primary focus is the development of sharps safety devices that
provide protection to the healthcare professional both during and after medical
procedures. Accordingly, we are developing various products, sizes and
adaptations for a range of medical diagnostic and treatment applications. Our
lead product is the CoverTipTM Hypodermic Safety Syringe.
CoverTipTM Hypodermic Safety Syringe
The CoverTipTM addresses each of the major issues associated with
current safety syringes while providing benefits over standard intramuscular
(IM) syringes. We believe that the CoverTipTM is superior to safety syringes
because of its conformity to unique, but simple, design criteria for safety,
ease of use and cost.
We further believe that the CoverTipTM virtually eliminates the
opportunity for an accidental needlestick. First, the CoverTipTM employs a
design that provides protection from the sharp needle tip prior to withdrawal
from the patient's skin, protecting the healthcare worker during the drug
delivery process, as well as during the disposal of the used syringe. This
eliminates any contaminated needle exposure to the healthcare worker and offers
an advantage over other safety syringes that require extraction from the
patient's skin prior to implementation of various needle tip protection methods.
Single usage of the syringe is achieved by the locking of the protective sheath.
Secondly, the device is easy to use with little or no additional
training for the healthcare worker. In contrast to other safety syringes, the
CoverTipTM is identical to conventional syringes, employing standard syringe
usage technique. Further, the CoverTipTM requires no costly instruction, medical
in-service training, or habit changes for the healthcare professional. The
safety feature is passive and automatic with no additional active steps required
of the operator. One-handed usage increases safety. CoverTipTM is used just as
any standard syringe with insertion of the needle into the patient's skin and
depression of the syringe plunger to inject the medicine. As the syringe plunger
is depressed, it automatically engages a micro-thin safety sleeve that slides
down to cover the tip of the needle after penetration of the skin and subsequent
insertion of the medicinal fluid. The needle blunting occurs prior to removal
from the patient's skin, offering added protection to the healthcare worker.
Third, the device is more reliable because it relies entirely on
positive mechanical action rather than on buttons, releases, springs, vacuums,
or other such complicated additional steps. Finally, the design is economically
acceptable, holding down production costs to a reasonable level as compared to
both safety devices and current standard products. It is anticipated that the
CoverTipTM safety syringe will maintain reasonable margins for medical devices
as it reduces prices as substantial market penetration and high volume
production are achieved.
On May 15, 1998, we received FDA 510(k) clearance to market CoverTipTM.
We are presently pursuing specialty applications for CoverTipTM and have begun a
pre-market campaign in preparation for the customary market
introduction/evaluation of the product.
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PreSafTM Lever Fulcrum Hypodermic Syringe
PreSafTM is an intramuscular injection safety syringe designed
primarily for prefilled syringe application. PreSafTM allows medication to be
injected into the patient directly from a pre- filled vial. The pre-filled vial
containing fluid medication is an existing component used by many pharmaceutical
manufacturers. These applications typically include flu shots, pneumonia shots,
AIDS serums, and other epidemic treatment or prevention therapies. Like
CovertipTM, PreSafTM provides automatic passive protection before withdrawal
from the patient. We have receives a U.S. patent on this product idea. Concept
design is essentially complete. Prototypes and clinical development should begin
by the fourth quarter of 2000. This device will be marketed as an OEM product
and sold to pharmaceutical distribution producers of prefilled syringes.
Diagnostic Sharps Safety
Blood collection needles are used to obtain a sufficient volume of
blood for diagnostic procedures. We recognize that diagnostic sharps
applications are a critical area of medical device safety. These medical
diagnostic products offer the potential for premium margins due to their high
cost of procedure, unique presence in the market, and market specialization.
We have developed, or are developing, a variety of devices with
commercial potential. These devices work with standard blood collection needle
accessories and are similar in appearance, size, and performance to conventional
devices. The primary difference is the safety feature activated by the
proprietary safety needle mechanism. Some of these devices are ready to enter
the final phases of commercialization.
SofDrawTM
SofDrawTM is a blood/fluid collection syringe designed to protect the
clinician from an accidental self-puncture with a contaminated needle during the
collection of blood or bodily fluids and through the transfer of fluids into
vials for transport and study. Current procedures use standard syringes, usually
15cc or larger, as the operator either draws blood or aspirates fluid. Fluid
aspiration is typically performed by physicians or other highly specialized
technicians. In either case, the skin of the patient is punctured and, after
collection, the contaminated needle is withdrawn with the sharp exposed.
Transferring the fluid into vials involves multiple opportunities for accidental
self-puncture. Importantly, intramuscular safety syringes, cannot be used
because the safety mechanisms rely, at least in part, on forward movement of the
syringe plunger/piston assembly which would risk a potentially fatal air
embolism. This procedure requires its own distinctive safety product since
removing fluid from the body relies on rearward movement of the syringe
plunger/piston assembly.
The U.S. patent has been issued, all filings are current and initial
design development is complete through prototyping. A 510(k) application for
marketing of the device should be filed with the FDA when the working design is
finalized in the year 2000. Given the shared technology between this device and
the CoverTipTM syringe, we anticipate a fast track clearance for marketing by
the FDA, although this cannot be assured. A Continuation in Part (CIP)
application to cover features allowing large volume drainage without syringe
barrel change is in process.
We intend to market this specialized product directly to both OEM blood
and fluid collection tray assemblers and specialty markets, such as physicians
and phlebotomists. Orthopedists will be a specific target customer group for the
use of SofDrawTM during the drainage of knee and shoulder joints.
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AmnioSafTM
This safety syringe device is designed to protect both the physician
and the fetus during amniocentesis. Protection of the fetus is provided through
reduction of the risks of eye, thorax, cord, or placental puncture. Patent,
development, and regulatory status are similar to SofDrawTM. AmnioSafTM will be
marketed to obstetricians and gynecologists (OB/GYN) and will complement the
Women's Health aspects of the Medisys Medical Safety Product portfolio.
VacuSafTM
This device, using CoverTipTM technology in combination with an adapted
passive energy source, covers and protects the sharp of a blood collection
needle while it is still in the vein. The safety mechanism is activated and
locked with the first use of a vacuum specimen tube. The sharp is rendered safe
prior to withdrawal. The device provides protection to the user and waste
handlers and produces the added benefit of protecting the vein lumens during the
collection procedure. Version "Select" permits selection of needle gauge for use
with a single adaptive shroud, while version "Fixed" is a pre-assembled unit,
and safety mechanism, fixed to the shroud. Final design concept is essentially
complete and working models have been fabricated. We have obtained a clear
patent search and the U.S. patent application is in progress and is anticipated
to be ready for filing in the second quarter of 2000, although this cannot be
assured.
BxDrawTM Fine Needle Biopsy Safety Device
We were granted a U.S. patent for the BxDrawTM in November 1999.
BxDrawTM addresses the safety needs of diagnostic surgeons, such as orthopedic
and general thoracic surgeons, radiologists, and other healthcare professionals,
who may become exposed to bloodborne pathogens during fine needle fluid
aspiration treatment. We believe that BxDrawTM is the first safety device in
this product category. It is a physician specific device. The device provides
user protection and reduces risks of carcinogen cell "needle tracking". It also
doubles as a post procedure safe carrier for transport to pathology. Development
and regulatory status are similar to SofDrawTM.
BX-T-DrawTM OBTSN (Obdurated Titanium Safety Needle)
The BX-T-DrawTM is designed for use with MRI (Magnetic Resonance
Imaging) placement to take a tissue sample with a cutting needle. Concept design
is complete and we have obtained a clear patent search. We will file a U.S.
Patent application when final design alternatives are complete. This is
anticipated in approximately the third quarter of 2000. As with the BX, the
BX-T- DrawTM device will be specialty marketed to Radiologists, Oncologists,
general surgeons and other diagnosticians.
CoverStikTM
The CoverStikTM permits safe collection of capillary blood. A small
cutting blade is passively and automatically retracted into a protective housing
concurrent with skin puncture. Applications include checks for glucose levels,
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clotting, and blood gases. As a system, CoverStikTM protects the user and
eliminates reusable carriers, which contaminate easily and are known sources of
pathogen transfer, particularly hepatitis. Conceptual design work is complete.
We have obtained a clear patent search and will file a patent application as
soon as final design alternatives are complete.
Obstetrical Device Market
Although we are presently concentrating on the development and
marketing of the CoverTipTM and related products, we intend to pursue completion
of the design and development of the SofCepsTM and AmnioSafTM Ob/Gyn safety
devices as financial resources become available. However, there can be no
assurance that another company will not complete development of a similar
product and file for patents before us.
SofCepsTM
Our primary women's health device is an obstetrical tractor birth
assistance delivery device known as SofCepsTM. SofCepsTM was designed, in part,
to replace traditional steel obstetrical forceps and vacuum extractors used to
assist child birth. SofCepsTM is intended to offset the possible negative
obstetrical consequences of epidural anesthesia. In many instances, anesthesia
may slow or interrupt fetal descent through the birth canal and diminish the
ability to produce voluntary and involuntary contractions during delivery.
SofCepsTM is a disposable, soft and thin double-walled multi-fiber braided axial
gripping cylinder, which is placed over the fetal skull with a simple
application system. It is designed to uniformly distribute assisting traction
forces about the circumference and longitudinal surface areas of the fetal
skull.
SofCepsTM is designed to replace traditional steel obstetrical forceps
and vacuum extractors. We believe that maternal/fetal injuries associated with
the use of these devices will be reduced with the adoption of this new approach.
Maternal injuries caused by forceps range from spiral lacerations to severe
lacerations of the cervix resulting in increased in-patient time, major surgical
repair, incontinence, sexual disorders, protracted discomfort, death, and
substantial increases in health care costs. Infant injuries due to the use of
forceps include minor "forceps marks", fractures of the fetal skull, central
nervous system (CNS) deficit (cerebral palsy), severe mental retardation,
blindness, deafness, and death. Injuries may also include slowed development of
motor skills and learning disability.
The vacuum extractor was developed as an alternative to traditional
steel obstetrical forceps, but after over thirty years of use it still presents
clinical problems. The operative feature of the device is a suction cup that is
applied over the crown portion of the fetal skull where traction forces are
concentrated. Improper traction can result in the device "popping" off the fetal
skull with secondary rebound trauma being transmitted to the intracranial area.
Hematomas over the skull have been noted due to the use of the vacuum extractor.
Use of both forceps and vacuum extractors require a high degree of skill and
training.
The need for safe, reliable birth assistance creates a base need for
replacement of current devices. Potential customers for the SofCepsTM product
include obstetricians, managed care organizations, hospitals and patients
(consumers). The simple technology that SofCepsTM employs will be of particular
appeal in third world countries and should offer strong market opportunities.
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Clinical testing of SofCepsTM was conducted between October 1993 and
the first quarter of 1998. During the first year of testing, it was determined
that SofCepsTM presented little, if any, risk of maternal injury. In April of
1995 a term stillborn was successfully delivered with the device. During this
procedure, application over the fetal head was accomplished and we concluded the
device was clinically effective in assisting completion of the delivery.
Remaining design improvements are necessary to offer obstetricians an easy and
safe application system. The long-term plan is to secure adequate research and
development capital and complete the final commercial design of SofCepsTM.
Other Products
VetCepsTM Obstetrical Tractor
VetCepsTM is a veterinary application of the SofCepsTM obstetrical
tractor. We enjoys patent protection for veterinary application in bovine
(cattle), ovine (sheep), and equine (horse) obstetrics within its original
patents. This product has been sold commercially in eight foreign countries and
the United States. Because we are presently emphasizing the development of our
sharp's safety devices, VetCepsTM is a candidate for joint venture or
divestiture.
DisKlipTM
DisKlipTM is a latex free securement device used in connection with the
management of standard intravenous administration of medication (IV) and other
medical tubing and lines. DisKlipTM is a simple and inexpensive disposable
(single-use) securement device designed to afford the medical provider with an
easier, more efficient means to attach and manage medical tubing.
We believe that DisKlipTM requires little or no personnel training and
will result in savings in nursing time. Additional designs were constructed to
accommodate various locations of the body such as: MultiKlip, for management of
multiple tubing/lines; KidKlip, a pediatric version; and The Freedom IV device,
a retractable IV line management device. We have suspended market sampling and
testing while we concentrate on other products. DisKlipTM is also a candidate
for joint venture or divestiture.
Re-TyTM
Re-TyTM is a releasable, adjustable and reusable "cable tie" product
group that was developed originally to enhance the VetCepsTM device. We have
three designs: side release, top release and enscoping; all of which are
intended for out license to industrial users.
Limited market sampling and testing of the top-release version was
conducted to determine the viability of the product in the marketplace prior to
manufacture and packaging. Because of the shift in our primary focus, we believe
Re-TyTM may be a candidate for joint venture or divestiture.
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Manufacturing
CoverTipTM
As we realize adequate funds from our financing commitments, we intend
to commence production and commercial launch of CoverTipTM. We also anticipate
using funds to complete the regulatory approval process and prototype production
of PreSafTM and SofDrawTM.
We believe that the manufacturing of our products should be outsourced
through experienced syringe contract manufacturers. This, we further believe,
will provide sufficient product supply for successful commercialization of our
safety medical devices.
On January 19, 2000, we entered into a multi-phase, proprietary
agreement with Dispomedic 2000, a syringe manufacturer based in Dimona, Israel,
for the production of CoverTipTM. We believe that Dispomedic has rapid response
and large-volume capabilities that will provide the capacity necessary for us to
expand into the safety syringe marketplace. Under the general terms of the
agreement, Dispomedic has been granted an initial committed contract to begin
manufacturing the CoverTipTM.
Dispomedic also holds incentive-based options to acquire shares of our
common stock in return for achieving 12-month production targets for up to one
billion of our CoverTipTM safety syringes. Under the agreement, we initially
provided a $500,000 cash payment to Dispomedic and we were granted an option to
purchase an interest in the company. We subsequently elected not to exercise
that option. As a further term of the agreement, Dispomedic will form a
marketing company, owned in part by us, for marketing and sales outside North
America.
As the first stage of the multi-phase agreement, Dispomedic accepted a
purchase order from us to manufacture a pilot quantity of syringes, valued at $3
million, for direct sales. This previously announced order, marked as prepaid,
represents the first capital investment by Dispomedic and a significant asset
for us. The order allows us to achieve a pilot commercial presence in the
marketplace. Delivery of the first shipment is anticipated during the second
quarter of 2000.
Due to the large capital investment required to manufacture multiple
quantities of the CoverTipTM product, a later phase of the CoverTipTM market
introduction campaign may involve additional third-party, big-company partners.
We may explore joint venture arrangements that can address the manufacturing and
marketing requirements effectively enough to gain significant market share for
the medical device product category.
Marketing
Our present multi-phase marketing strategy for CoverTipTM is to pursue
syringe customers in states that have safety syringe legislation in place. Many
healthcare institutions are tied into buying groups, group purchasing
organizations (GPO's), which contract with major suppliers. Large GPO's have
traditionally awarded exclusive contracts to their biggest suppliers, but they
are responding to mounting pressures for conversion to safety syringes by
signing less exclusionary contracts. Managed care organizations and insurers
assume the burden of liability both for treatment and damages associated with
accidental needlesticks. Recent GPO contracts contain provisions permitting the
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GPO to evaluate safety devices and enter into additional contracts with
suppliers who have break-through technologies. We believe that its safety
devices will qualify for GPO evaluation procedures, although this cannot be
assured.
In addition, we intend to target non-GPO hospital and specialty
customers, a potentially sizable niche market. Minimal market acceptance of
CoverTipTM and its companion patented safety needle devices in niche markets
will position us to acquire a competitive presence and brand recognition as the
larger institutional market converts to safety products. As the superiority of
the CoverTipTM device is validated in niche markets, we will concurrently
implement the GPO test markets necessary for an upgrade to CoverTipTM in the
high-volume hospital market. This approach allows us to prepare some mass-market
sales while generating early revenue in the niche markets.
We plan to market our medical safety device products in the U.S. both
through traditional and innovative independent distribution channels and
directly to end-users. These will include Internet and direct marketing. We will
augment our marketing program with consulting marketing specialists and the
engagement of a medical device marketing agency. Sales of CoverTipTM will be
directed by sales specialists, who will be hired to complement the efforts of
sales brokers. Products will be shipped both directly and by medical
distribution companies. Specialty sales and distribution personnel will be
engaged to market to clinics, physicians, outpatient and treatment centers.
Competition
We face competition from many companies with significantly greater
financial resources, well established brand names and large customer bases. We
believe that the advent of required safety device legislation will enhance
comparisons of the various safety devices available by the end users. For the
near term our principal product will be the CoverTipTM we will be competing with
several major manufacturers such as Becton Dickenson Kendall and Tyco.
We believe that the principal competitive factors in our market
include:
o comparative price and general customer acceptance of increased
cost of safety devices;
o actual usage experience of various devices and acceptability
of users, primarily nurses; and
o production capability of various manufacturers and the
industry at large.
PHILLIPS PHARMATEC LABS, INC.
As a contract manufacturer of over-the-counter complementary health
care products, Phillips produces vitamins, mineral supplements herbal therapy
and diet aids. These products are produced for customers under private labels
and are packaged and shipped from our location in Largo, Florida. As a separate
and independently managed company, Phillips is in the business of contract
manufacturing.
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Phillips was acquired with the expectation that it would provide us
with the internal capability of assembling its own proprietary products and
other medical devices. This anticipation was unfulfilled. Currently, Phillips'
business is unprofitable and is deemed to be insolvent.
Backlog
We presently do not have a backlog for any of our products and do not
foresee a backlog in the immediate future.
Patents and Trade Secrets
We own 19 U.S. patents and one foreign patent protecting the SofCepsTM,
CoverTipTM, SofDrawTM, Multi-DrawTM, VetCepsTM, DisKlipTM, and Re-TyTM devices.
These consist of U.S. Patent numbers 5122148, 5217467, 5318573, 5460611,
5496283, 5573539, 5593413, 5632750, 5681290,5687455 (two device patents),
5720727, 5785662, 5836054, 5846228,5910146, 5964735, and 5993418. We also own
one letters patent protecting the SofCepsTM device (no. 669116) from Australia.
Eleven of the issued patents are being prosecuted internationally. Additionally,
we have pending a mix of seven original and/or CIP applications.
We have filed six U.S. trademark applications preserving its right to
use the trademarks "SofCepsTM", "VetCepsTM", the "Medisys(R)" logo, "DisKlipTM",
"SofDermTM", and "CoverTipTM". As we proceed with the commercialization of these
and other products, we will file U.S. and foreign trademark applications to
protect selected product names.
We intend to obtain copyright protection on our product packaging,
instruction sheets, and such other materials that we believe are significant to
warrant procurement of copyrights.
Government Regulation
Generally, all medical devices are subject to FDA regulation under the
Medical Device Amendments of the Federal Food, Drug and Cosmetic Act. Devices
are classified into one of three categories; Class I, Class II or Class III,
depending on their intended use and upon the degree of regulation necessary to
provide reasonable assurance of their safety and effectiveness. The class into
which any specific device is placed determines the requirements that must be met
before a manufacturer may distribute the device in interstate commerce. Section
510(K) of the Medical Device Amendments provides for a pre-market notification
requirement. Manufacturers intending to market a new or significantly modified
device must submit to the FDA a pre-market notification. This notification must
establish substantial equivalence in terms of safety and effectiveness, to a
device already on the market in the United States prior to 1976, or to a device
marketed after that date that has been determined to be substantially
equivalent. The notification must be submitted at least 90 days prior to
introducing the device into interstate commerce, or otherwise holding or
offering the device for commercial distribution. No prototype is required,
however, additional data from testing may be requested.
Within 90 days of receipt of the pre-market notification, the Center
for Devices and Radiological Health ("CDRH") determines whether the device is
"equivalent". If the device is deemed equivalent, it can be marketed. If the
CDRH determines that a device is not equivalent, the manufacturer may resubmit
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the 510(k) notification with new data, file a reclassification petition, or
submit a pre-market approval application ("PMA"). A PMA is required instead of
the Section 510(k) process only if the device is held to be a Class III device.
Class III devices are those represented to be life-sustaining or
life-supporting, are implanted in the body, or present potential unreasonable
risk of illness or injury. Class III devices are subject to a more rigorous FDA
approval process that generally required the completion of three major steps.
The first step involves the granting by the FDA of an Investigational Device
Exemption ("IDE"), which permits the proposed product to be used in controlled
human clinical trials. Upon completion of a sufficient number of clinical cases
to determine the safety and effectiveness of the proposed device for specific
indication, a PMA is then prepared and submitted to the FDA for review. This
extensive submission includes design, manufacturing, quality control and
clinical data to substantiate the proposed device's compliance with FDA
manufacturing regulations as well as to support its medical effectiveness. Upon
acceptance by the FDA of the PMA, the third major step, a public review if the
data by an advisory panel of the FDA, industry and medical professionals takes
place. Prior to receiving final approval, a company is inspected by the FDA to
verify that its manufacturing procedures meet all requirements of the FDA
regulations.
We believe that all of our primary safety products are "substantially
equivalent" to devices already marketed and are therefore exempt from PMA.
However, the fact that the SofCepsTM device involves the birthing of babies, our
approach has been and remains determined to follow a protocol consistent with
all FDA guidelines and to complete all good manufacturing practices prior to
marketing the product.
Prior to Phase I testing of SofCepsTM, we applied to the FDA for a
510(K) exemption from Pre Market Approval (PMA) for marketing the SofCepsTM
device. The reviewed our application and testing protocol. Based on Phase I
data, we were allowed to continue its fetal demised clinical testing. Because of
our change of strategic focus, we have suspended all FDA pursuits with regard to
SofCepsTM.
The CoverTipTM safety device received 510(K) FDA clearance on May 15,
1998. This allows us to market the CoverTipTM device in the U.S. and provides a
basis for approvals in other international markets. The approval of the
CoverTipTM device should enhance our ability to gain clearance for its other
complementary safety devices.
Other than the FDA, we do not believe that there are any existing or
probable governmental regulations that would adversely affect us or our
business.
Product Liability and Liability Insurance
We may be exposed to potential product liability claims by users of its
products. Presently, only the VetCepsTM product is in commerce, therefore, we
believe there is no immediate exposure to product claims other than from
VetCepsTM. We currently maintain general business liability insurance limited to
$1,000,000 coverage per occurrence and in the aggregate. We have initiated the
underwriting process for products liability insurance for the CoverTipTM safety
syringe.
All materials used in our disposable products are standard medical
materials compatible with present methods of hospital disposal in accordance
with accepted practices and applicable laws.
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Employees
As of February 1, 2000, we had 40 employees including those persons
employed by Phillips. This includes part-time and full- time employees,
managerial staff and executive officers. We anticipate adding management and
employees in strategic areas, especially marketing, as we draw closer to the
point of commercializing our various products.
In addition to our employees, we use the services of certain
consultants on a contract basis. These consultants include, among others, a
patent attorney, accountant and bookkeeper, an FDA consultant; development and
manufacturing consultant, public relations / investor relations consultants, and
marketing and sales consultants.
Legal Proceedings
On March 16, 2000, we filed a Complaint against Brett Phillips, Elbert
Carl Anderson, William H. Morris, Marilyn Morris and Barbara Larkins in the
United States District Court in and for the Middle District of Louisiana,
alleging various securities law violations and related claims in connection with
the 1998 acquisition by us from the defendants of Phillips Pharmatec Labs, Inc.
We are seeking recission of the acquisition, damages and other relief. We
anticipate that these defendants may file various retaliatory claims. We believe
that the suit filed is in the best interests of the shareholders and that it
should not interfere with our focus and business.
Phillips is also a party to various legal proceedings. These primarily
involve commercial claims and one action involves a former employee. We cannot
predict the outcome of these lawsuits, legal proceedings and claims with
certainty. Nevertheless, we believe that the outcome of all of these
proceedings, even if determined adversely, would not have a material adverse
effect on our business or financial condition.
Convertible Debenture Financing
On February 28, 2000, we completed the offering to AMRO of $1,000,000
face value 6% Convertible Debentures Due August 31, 2001. An additional $500,000
will be completed upon the filing of the registration statement, of which this
prospectus is a part. A final $500,000 will be completed upon effectiveness of
the registration statement. Debenture holders have the option, at any time,
until maturity, to convert the principal amount of their Debenture, or any
portion of the principal amount into shares of our common stock. The conversion
price for each share shall be equal to the lower of (a) 85% of the market price
at the conversion date or (b) $2.00. We will recognize additional interest
expense of $300,000 due to the 15% discount to market price. Because there is no
minimum price for conversion, if our stock price declines we must issue more
shares upon conversion.
As a provision of the Debentures, we also issued to AMRO stock purchase
warrants to acquire 125,000 shares of our common stock at the exercise price of
$2.00 per share. The warrants expire on February 23, 2003. The warrants contain
provisions to protect against dilution by adjustment of the exercise price and
the number of shares issuable under them upon the occurrence of certain events.
These events include a merger, consolidation, disposition of assets, stock split
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or reverse stock split, stock dividend or recapitalization. The exercise of the
warrants is payable either in cash or by cashless exercise. In that event, the
number of shares issuable pursuant to the warrant having a market value (as
determined using the then-current market price of the common stock) at the time
of exercise equal to the aggregate exercise price, are canceled as payment of
the exercise price. We also issued Jesup & Lamont warrants to purchase 75,000
shares of common stock under the same terms as those issued to AMRO.
The Debenture was not registered under the Securities Act and,
therefore, the Debentures, warrants and underlying shares of common stock are
deemed "restricted securities." As a provision of the Debenture, we agreed to
file a registration statement with the SEC for the purpose of registering the
shares of common stock into which the Debentures are convertible and underlying
the warrants. We are further obligated to register sufficient shares to
accommodate conversion at a reduced market price from current levels.
Accordingly, we must register at least 200% of the shares issuable upon
conversion of the Debentures base upon the conversion price in effect on the day
prior to the filing date.
This prospectus, which is part of our registration statement, relates
to the offer of these shares of common stock by the Selling Stockholders into
the public market. All expenses associated with the sale of shares of common
stock by the Selling Stockholders will be paid by the Selling Stockholders.
Upon conversion of the Debentures into common stock and shares issued
upon exercise of warrants, and registration and resale of such common stock,
Selling Stockholders' shares will be free of the restrictions, other than
restrictions under the Securities Act with respect to persons who may be deemed
to be affiliates of ours.
Line of Credit
On February 28, 2000, we entered into an equity line of credit
agreement with Treadstone to provide private equity financing for a period of up
to eighteen months from the effective date of the registration statement to
which this prospectus relates. Under the terms of the line of credit agreement,
we may, from time to time, in our sole discretion, exercise the option to sell
(put) shares of our common stock to Treadstone at a price per share equal to 85%
of the average market price during the valuation period related to a particular
put. The valuation period is the period of twenty-one days beginning fifteen
trading days before the trading date on which a put notice is delivered to us,
and ending five trading days after such date.
Treadstone, at its sole discretion, may purchase up to an additional
50% of the maximum put amount during any individual put period by giving notice
to us. The maximum put amount means, as to any individual put date, 4.5% of the
weighted average price of our common stock for the three month period prior to
the put date, multiplied by the total trading volume for that three month
period. There is a mandatory twenty days between put dates, the time when we can
put shares to Treadstone, unless waived by Treadstone.
As a provision of the line of credit agreement, we issued to Treadstone
stock purchase warrants to acquire 1,125,000 shares of our common stock at the
exercise price of $2.00 per share. The warrants expire on February 25, 2003. We
also issued to Jesup & Lamont warrants to acquire 425,000 shares of our common
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stock at the exercise price of $2.00 per share. All of the warrants contain
provisions to protect against dilution and for cashless exercise identical to
the warrants issued in conjunction with the Debentures.
The equity line of credit agreement provides that we must register for
resale the common stock issuable under the line of credit and exercise of
warrants. Under the agreement, we are required to register 8,250,000 shares to
accommodate the line of credit shares, warrant shares, and any additional shares
that may be issued if Treadstone exercises certain options.
Registration enables Treadstone to resell its common stock from time to
time in the market or in privately-negotiated transactions. We will prepare and
file amendments and supplements to the registration statement as may be
necessary in order to keep the registration statement effective as long as
Treadstone holds shares of our stock or until such shares can be sold pursuant
to an appropriate exemption from registration. We have agreed to bear certain
expenses (other than broker discounts and commissions, if any), including
Treadstone's legal fees not to exceed $15,000 plus $1,500 per closing of a put.
As soon as practicable after the effectiveness of the registration
statement, most likely within two weeks, we plan to draw down the maximum
initial amount permitted under the equity line. Based on our three-month average
price of $1.7337 per share and our three-month trading volume of 9,529,608
shares as of April 24, 2000, we would be entitled to drawdown approximately
$826,074 in connection with our first drawdown. We expect to continue to effect
subsequent drawdowns of the applicable maximum amount available under the equity
approximately every 30 days, or as we deem prudent and necessary based upon our
corporate needs.
Our ability to put shares of our common stock to Treadstone is subject
to certain conditions and limitations, including, but not limited to the
following:
o the registrations statement, of which this prospectus is a
part, must have previously become effective and shall remain
effective on the date of each put;
o our representations and warranties to Treadstone set forth in
the equity line of credit agreement must be true and correct
in all material respects as of the date of each put;
o no statute, rule, regulation, executive order, decree, ruling
or injunction shall be in effect that prohibits, nor any
action, suit or proceeding shall be in progress, pending or
threatened that seeks to enjoin or prohibit, the transactions
contemplated under the equity line of credit agreement, or
otherwise has a material adverse effect on our business,
operations, properties or financial condition;
o at the time of a put, there shall have been no material
adverse change in our business, operations, properties,
prospects or financial condition, except as disclosed in our
reports filed with the SEC pursuant to the Exchange Act; and
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o our common stock shall not have been delisted from its
principal market (currently the OTC Bulletin Board) nor
suspended from trading.
We cannot assure you that we will satisfy all conditions required under
the equity line agreement with Treadstone, or that we will be able to sell any
shares to Treadstone thereunder.
Both AMRO and Treadstone(or any other underwriter) have the right to
review this prospectus, the registration statement, and our records and
properties to obtain information about us and the accuracy of this registration
statement and prospectus. AMRO and Treadstone have the opportunity to comment on
the registration statement and prospectus, but Treadstone is not entitled to
reject a put by us based on their review. AMRO and Treadstone may be entitled to
indemnification by us for any lawsuits based on language in this prospectus with
which they do not agree.
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, their ages and positions held as
of April 24, 2000, are as follows:
Name Age Position
- ---- --- --------
Edward P. Sutherland.................. 53 Chairman, Chief Executive
Officer, Treasurer and Director
Kerry M. Frey......................... 54 President, Chief Operating
Officer and Director
Brett Phillips........................ 39 Director (President of Phillips
Pharmatec)
William David Kiesel.................. 55 Director
Dr. Robert L. diBenedetto............. 70 Medical Director and Director
Gary E. Alexander..................... 55 Director
Dr. Timothy Andrus.................... 50 Director
Carl Anderson......................... 59 Director
Bill Morris........................... 52 Director
Dr. Charles Potter.................... 51 Director
Currently we have ten members on our board of directors. Each of these
directors will hold office until the next annual meeting of our stockholders.
Each director holds office until that director's successor is elected and
qualified. The Board has nominated the following six incumbent directors for
re-election in May 2000: Messrs. Sutherland, Frey, Kiesel, diBenedetto, Andrus
and Potter.
Mr. Edward P. Sutherland has served as a director and Chairman of the
board of directors since 1992. In addition, he served as President from 1992 to
1998. Mr. Sutherland was a co-founder of our company in 1992. Mr. Sutherland was
in private law practice from 1974 until he co-founded our company in 1992. Mr.
Sutherland received a Bachelor of Arts Degree from Louisiana State University in
1968 and a Juris Doctor Degree from Louisiana State University in 1974 and is
currently admitted to practice law in New York and in Louisiana.
Kerry M. Frey has served as a director since 1994 and has been our
President and Chief Operating Officer since 1998. Prior to joining our company,
Mr. Frey was associated with Johnson and Johnson for 21 years. Mr. Frey received
a Bachelor of Arts Degree from Southeastern Louisiana University in 1969.
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Gary Alexander was a co-founder of our company in 1992 and the
principle inventor of most of our patented proprietary products. Mr. Alexander
invented and developed our SofCepsTM and CoverTipTM products among others. Mr.
Alexander was engaged in private law practice from 1976-1991, specializing in
medical liability matters, with emphasis on obstetrics. Mr. Alexander received
his Juris Doctor Degree in Law from Louisiana State University in 1976. Mr.
Alexander has decided to retire as a director and remain as a consultant.
Dr. Robert L. diBenedetto was a co-founder of our company in 1992 and
has since been a director. He received his Doctorate of Medicine in 1952 from
the Louisiana State University Medical School. Dr. diBenedetto has been engaged
in the private practice of Obstetrics and Gynecology from 1959 to the present.
He is also affiliated with Our Lady of the Lake Hospital, Baton Rouge General
Hospital and Earl K. Long Hospital.
William David Kiesel was a co-founder of our company in 1992 and has
since been a director. During the past 25 years he has been actively engaged in
advising numerous start-up businesses. His services include that of structuring
research and development programs, financial planning, management, marketing and
sales of new products. Mr. Kiesel presently serves as the business manager of
his own patent law firm.
Dr. Timothy Andrus became a director of our Company in November 1996.
He received his Doctorate of Medicine from the Louisiana State University
Medical School in New Orleans in 1975 and completed his residency in Obstetrics
and Gynecology there in 1979. He is Board Certified in Obstetrics and Gynecology
and has been in private practice for 16 years in Baton Rouge La. Dr. Andrus
currently serves on the Board of Directors and is C.E.O. of Woman's Hospital.
Dr. Andrus also received an MBA from Louisiana State University in Baton Rouge.
Dr. Charles Potter was appointed as an interim Director in the fall of
1999. He received his training at Michigan State University in Lansing, Michigan
and at Washington University School of Medicine in St. Louis, Missouri. He is
Board-certified in Otolaryngology and is in private practice in Springfield,
Illinois.
Brett Phillips became a director in 1999 and serves as President of our
subsidiary, Phillips. Mr. Phillips co-founded Phillips Pharmatec in 1994. Prior
to founding Phillips he was associated with Energy Factors since 1986, a
manufacturer, distributer, and marketer of pharmaceuticals under private label
brands. Mr. Phillips earned degrees in History and Business Administration from
the University of Tampa in 1984.
Dr. William H. Morris was a co-founder of Phillips in 1994 and has
served as a director of our company since 1999. He also serves as pharmaceutical
advisor to Phillips. Previously, Dr. Morris was a pharmacist and supervisor
before opening his own pharmacy in 1976. Dr. Morris earned a degree in Pharmacy
from Mercer University in 1971. Subsequently, he studied Pharmacology and
Metabolism at the University of Georgia graduate school.
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Carl Anderson co-founded Phillips in 1994 and has served as a director
of our company since 1999. Prior to 1994, Mr. Anderson was employed for several
years by U.S. Phosphoric Products Corporation as a plant supervisor. Mr.
Anderson resigned his position in 1968 and became active in various business
ventures including retail and wholesale distribution and manufacture of
pharmaceuticals and nutritional supplements. Mr. Anderson earned a degree in
Chemistry from North Carolina State University.
Committees of the Board of Directors
Our compensation committee was appointed in 1999 and consists of Dr.
Andrus, David Kiesel and Mr. Anderson. The compensation committee reviews and
evaluates the salaries and incentive compensation of our management and key
employees. All decisions of the compensation committee are currently subject to
the review and approval of our board of directors.
Our audit committee presently consists of Dr. Potter, Dr. diBenedetto
and Mr. Kiesel. It is responsible for reviewing the scope of annual audits,
considering specific problems and questions that arise during the course of
audits, monitoring the adequacy of accounting and audit controls, and such other
functions as the board of directors may from time to time delegate to it. Our
audit committee must report to the board of directors when asked to do so.
Our executive committee consists of Messrs. Sutherland, Frey and Kiesel
and is authorized to exercise the powers of the board during intervals between
board meetings. A nominating committee consisting of Dr. Potter, Mr. Frey and
Dr. Andrus, reviews the qualifications of potential candidates for the board,
evaluates the performance of incumbent directors and recommends to the board
nominees for election to the board at the annual meeting of stockholders.
Director Compensation
We currently do not provide cash compensation, other than reimbursement
of expenses, to any member of our board of directors. However, we do compensate
directors with shares of our common stock as follows:
o each member of the board of directors is receives $800 in
stock per meeting attended in person;
o the Chairman of the board receives $1,000 in stock per month
and $1,800 in stock per meeting;
o the Secretary receives $600 in stock per month and $1,600 in
stock per meeting; and
o each committee chairperson is paid an additional $300 in stock
and committee members receive $200 in stock per meeting.
Issuance of the shares is based on the closing bid price of the our
shares on the last day of the month following the meeting. Out of town directors
are reimbursed for reasonable travel expenses. Board compensation policies are
reviewed annually at the annual meeting of the board.
Executive Compensation
The following table sets forth the cash compensation paid by us to our
chief executive and chief operating officer for the past three fiscal years.
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Summary Compensation Table
Name and Other
Principal Annual All Other
Position Year Salary(1) Bonus Compensation Compensation
- -------- ---- --------- ----- ------------ -----------
Edward P. Sutherland 1997 56,621 -0- -0- 17,930
C.E.O. 1998 -0- -0- -0- -0-
1999 46,154 -0- -0- -0-
Kerry M. Frey, 1997 52,750 -0- -0- 19,644
President and 1998 -0- -0- -0- -0-
C.O.O. 1999 46,154 -0- -0- -0-
- ------------------------
(1) As of December 31, 1999 we have accrued salaries. Prior to
fiscal 1999, these accruals were compromised and deferred into
the future for the issuance of shares of our common stock or
for interest bearing notes.
Employment Agreements
We have entered into employment agreements with Edward P. Sutherland
and Kerry Frey, each providing for an annual base salary of $150,000. The
agreements call for annual increases for each of the next two years. This base
salary has remained constant for the last three years. However, we have been
unable to pay that salary in full and no cash salary was paid in 1998. Messrs.
Sutherland and Frey have agreed to defer all or part of their cash compensation
by accepting shares of our common stock or interest- bearing promissory notes as
a compromise to wage claims. The note portion of the deferral was satisfied in
early 2000. The contracts also provide for expense and medical reimbursement and
other incentive based bonus compensation.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth beneficial ownership of our common stock
as of March 31, 2000, by (1) each person known by us to own beneficially more
than 5% of the our common stock; (2) each director who owns shares of our common
stock; and (3) all directors and executive officers as a group.
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned(1) Ownership
- ---------------- --------------------- ---------
Gary E. Alexander * 2,263,805(2) 3.7%
144 Napoleon Street
Baton Rouge, LA 70802
Carl Anderson * 6,642,322(3) 0.9%
19235 US Hwy 41 N.
Lutz, FL 33549
Brett Phillips * 5,435,987(4) 8.9%
8767 115th Avenue N.
Largo, FL 33773
Robert L. diBenedetto * 711,464(5) 1.1%
781 Colonial Drive
Baton Rouge, La 70806
William David Kiesel * 2,733,508(6) 4.6%
2355 Drusilla Lane
Baton Rouge, LA 70809
Edward P. Sutherland * 2,161,418(7) 3.6%
144 Napoleon Street
Baton Rouge, LA 70802
Kerry Frey * 2,009,917(8) 3.4%
144 Napoleon Street
Baton Rouge, LA 70802
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Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned(1) Ownership
- ---------------- --------------------- ---------
Marilyn Morris 7,395,320(9) 12.1%
2804 Smitter Road
Tampa, FL 33618
Timothy Andrus * 880,705(10) 1.5%
144 Napoleon Street
Baton Rouge, LA 70802
Charles Potter* 6,249,978(11) 10.3%
1025 South 7th Street
Springfield, IL 62703
Dispomedic 2000(12) 7,000,000 11.9%
1291 Mettler Road
Huntington Valley,
PA 19006
Directors and officers 36,484,424(13) 53.0%
as a group (9 persons)
* Director
** Unless otherwise indicated in the footnotes below, we believe that each
person above has sole voting power over the shares indicated above.
(1) Share amounts for individuals are as of April 4, 2000, at which time
there was 59,063,995 shares of common stock outstanding. These figures
figure do not take into consideration stock purchase warrants owned by
certain officers, directors and shareholders, entitling the holders to
purchase an aggregate of 9,739,242 shares of common stock and which are
currently exercisable. Therefore, for purposes of the table above, as
of the date hereof, 68,803,237 shares of common stock are deemed to be
issued and outstanding in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, as amended. Percentage ownership is calculated
separately for each person on the basis of the actual number of
outstanding shares as of April 4, 2000 and assumes the exercise of
stock purchase warrants held by such person (but not by anyone else)
exercisable within sixty days.
(2) Includes 226,800 shares which may be acquired by Mr. Alexander pursuant
to the exercise of stock purchase warrants exercisable within sixty
days at the average exercise price of $1.41 per share.
(3) Includes 1,839,878 shares which may be acquired by Mr. Anderson
pursuant to the exercise of stock purchase warrants exercisable within
sixty days at the average exercise price of $1.54 per share.
(4) Includes 2,075,272 shares which may be acquired by Mr. Phillips
pursuant to the exercise of stock purchase warrants exercisable within
sixty days at the average exercise price of $1.54 per share.
(5) Includes 276,000 shares which may be acquired by Dr. diBenedetto
pursuant to the exercise of stock purchase warrants exercisable within
sixty days at the average exercise price of $3.08 per share.
(6) Includes 946,166 shares which may be acquired by Mr. Kiesel pursuant to
the exercise of stock purchase warrants exercisable within sixty days
at the average exercise price of $2.77 per share, of which 300,000
warrants are held in the name of Roy, Kiesel & Tucker, 20,000 warrants
are held in the name of Nu Vue Corp. and shares are held by Mr. Kiesel
for his two sons in trust.
(7) Includes 225,940 shares held in the name of Diana B. Sutherland, wife
of Edward P. Sutherland, 50,000 shares held by Diana B. Sutherland,
trustee for James Sutherland, minor son of Mr. Sutherland, and 259,000
shares which may be acquired by Mr. Sutherland pursuant to the exercise
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of stock purchase warrants exercisable within sixty days at the average
exercise price of $1.05 per share.
(8) Includes 147,400 shares which may be acquired by Mr. Frey pursuant to
the exercise of stock purchase warrants exercisable within sixty days
at the average exercise price of $1.00 per share.
(9) Ms. Morris is the wife of Bill Morris, one of our directors. Includes
2,073,272 shares which may be acquired by Ms. Morris pursuant to the
exercise of stock purchase warrants exercisable within sixty days at
the average exercise price of $1.54 per share. We have been advised
that Ms. Morris has sole voting power over the shares indicated above
and control over the warrants.
(10) Includes 211,149 shares which may be acquired by Dr. Andrus pursuant to
the exercise of stock purchase warrants exercisable within sixty days
at the average exercise price of $ 50 per share.
(11) Includes 5,555,555 shares of stock held in escrow by us, which shares
are released pro rata as the promissory note for which they were issued
is paid down. Also includes 1,684,305 warrants exercisable within sixty
days at the average exercise price of $.50 per share.
(12) Dispomedic 2000 is a subsidiary of Sun Group, LLC.
(13) Includes 9,739,342 shares which may be acquired by our officers and
directors pursuant to the exercise of stock purchase warrants
exercisable within sixty days at exercise prices ranging from $.0375 to
$4.25 per share.
CERTAIN TRANSACTIONS
During the last two fiscal years, some of our executive officers or
directors have engaged in the following transactions with us.
We have used the services of the law firm Roy, Kiesel & Tucker for
patent work. William David Kiesel is a partner of Roy, Kiesel & Tucker and is
our corporate secretary and one of our directors. Mr. Kiesel and other attorneys
at his firm bill us for their time and we reimburse Roy, Kiesel & Tucker for
expenses incurred on our behalf.
DESCRIPTION OF COMMON STOCK
Common Stock
We are authorized to issue 100,000,000 shares of common stock. As of
April 4, 2000, there were 59,063,995 shares of common stock outstanding and held
of record by 547 stockholders.
All of our shares of common stock have equal rights and privileges with
respect to voting, liquidation and dividend rights. Each share of common stock
entitles the holder thereof to (1) one non-cumulative vote for each share held
of record on all matters submitted to a vote of the stockholders; (2) to
participate equally and to receive any and all such dividends as may be declared
by the board of directors; and (3) to participate pro rata in any distribution
of assets available for distribution upon our liquidation. Our stockholders have
no preemptive rights to acquire additional shares of common stock or any other
securities. All outstanding shares of common stock are, and the shares offered
in this prospectus will be upon issuance and sale, fully paid and
non-assessable.
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Registration Rights
Under the terms of the Debentures and the equity line of credit
agreement, AMRO, Treadstone and Jesup & Lamont have registration rights for
their shares of common stock derived from those agreements. Additionally, we
granted limited registration rights to Dispomedic in connection with our
manufacturing agreement with them. Accordingly, this prospectus and the
registration statement to which it relates, includes the shares of common stock
of AMRO, Treadstone and Jesup & Lamont derived from their respective agreements,
and the 7,000,000 shares of Dispomedic.
Indemnification Matters
As permitted by the provisions of Utah law, we have the power to
indemnify an individual made a party to a proceeding because they are or were a
director of our company, against liability incurred in the proceeding, provided
such individual acted in good faith and in a manner reasonably believed to be
in, or not opposed to, our best interest and, in a criminal proceeding, they had
no reasonable cause to believe their conduct was unlawful. Indemnification under
this provision is limited to reasonable expenses incurred in connection with the
proceeding. We must indemnify a director or officer who is successful, on the
merits of otherwise, in the defense of any proceeding or in defense of any
claim, issue, or matter in the proceeding, to which they are a party to because
they are or were a director or officer of our company, against reasonable
expenses incurred by them in connection with the proceeding or claim with
respect to which they have been successful. Our Articles of Incorporation
empower the board of directors to indemnify our officers, directors, agents, or
employees against any loss or damage sustained when acting in good faith in the
performance of their corporate duties.
We may pay for or reimburse reasonable expenses incurred by a director,
officer employee, fiduciary or agent of ours who is a party to a proceeding in
advance of final disposition of the proceeding provided the individual furnishes
us with a written affirmation that their conduct was in good faith and in a
manner reasonably believed to be in, or not opposed to, our best interest, and
undertake to repay the advance if it is ultimately determined that they did not
meet such standard of conduct.
Also pursuant to Utah law, a corporation may set forth in its articles
of incorporation, by-laws or by resolution, a provision eliminating or limiting
in certain circumstances, liability of a director to the corporation or its
shareholders for monetary damages for any action taken or any failure to take
action as a director. This provision does not eliminate or limit the liability
of a director (i) for the amount of a financial benefit received by a director
to which they are not entitled; (ii) an intentional infliction of harm on the
corporation or its shareholders; (iii) for liability for a violation relating to
the distributions made in violation of Utah law; and (iv) an intentional
violation of criminal law. To date, we have not adopted such a provision in our
Articles of Incorporation, By-Laws, or by resolution. A corporation may not
eliminate or limit the liability of a director for any act or omission occurring
prior to the date when such provision becomes effective. Utah law also permits a
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees, fiduciaries or agents. We do maintain directors'
and officers' insurance against certain liabilities.
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Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us as
described above, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable. At present, there is no pending material litigation
or proceeding involving any director, officer, employee or agent of ours in
which indemnification will be required or permitted.
Amendment of Articles of Incorporation
Except as otherwise provided in our articles of incorporation, any
amendment to our certificate of incorporation must first be approved by a
majority of the board of directors and thereafter, approved by a majority of the
total votes eligible to be cast by holders of our voting stock with respect to
such amendment.
By-Law Provisions
Our By-Laws provide that a special meeting of stockholders may be
called by the board of directors or by holders of a majority of our outstanding
shares. Further, only those matters included in the notice of the special
meeting may be considered or acted upon at that special meeting, unless
otherwise provided by law. In addition, our By-Laws include advance notice and
informational requirements and time limitations on any director nomination or
any new proposal which a stock holder wishes to make at an annual meeting of
stockholders.
Transfer Agent
The transfer agent for our common stock is Interstate Transfer Company,
6084 South 900 East, Suite 101, Salt Lake City, Utah 84121, and its telephone
number is (801) 288-9746.
SHARES ELIGIBLE FOR FUTURE SALE
If our current stockholders sell substantial amounts of our common
stock, including shares issued upon the exercise of outstanding options and/or
warrants, in the public market following this offering, the market price of our
common stock could fall. These sales also might make it more difficult for us to
sell equity or equity-related securities in the future at a time and price that
we deem appropriate.
Upon completion of this offering, we will have outstanding an aggregate
of approximately 70,938,995 shares of our common stock, assuming all of the
shares offered by this prospectus are issued. All of the shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, unless such shares are purchased by "affiliates" as
that term is defined in Rule 144 under the Securities Act. Of the balance of the
shares to be outstanding, approximately 10,400,000 shares are held by public
shareholders and may also be freely traded without restriction. This leaves
41,500,000 shares eligible for future sale in the public market as follows:
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Date Number of Shares
---- ----------------
After the date of this prospectus. 21,392,000 shares
After 180 days from the date 1,013,365 shares
of this prospectus (subject, in some
cases, to volume limitations).
At various times after 180 days from 17,094,635 shares
the date of this prospectus.
Lock- Up Agreements. None of our officers and directors or other
stockholders have signed lock-up agreements restricting their ability to
transfer or dispose of, directly or indirectly, any shares of our common stock
Rule 144. In general, under Rule 144 as currently in effect, beginning
90 days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of
o 1% Of the number of shares of our common stock then
outstanding, which will equal approximately 709,390 shares
immediately after this offering; or
o the average weekly trading volume of our common stock on a
national securities exchange and/or reported through the
automatic quotation system of a registered securities
association during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner other than an affiliate,
is entitled to sell those shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon the completion of this offering. None of the shares of common
stock that will be outstanding after completion of this offering will be
eligible to be sold under Rule 144(k) until at least May 2002.
As of April 4, 2000, there were outstanding warrants to purchase an
aggregate of 9,739,242 shares of our common stock at exercise prices ranging
from $.0375 to $4.25 per share, all of which are presently exercisable. Shares
of our common stock issued upon conversion of these warrants would be eligible
for sale under Rule 144 one year after the holders exercises the warrant and
makes full payment for the shares.
PLAN OF DISTRIBUTION
We will not receive any of the proceeds from the sale of common stock
by the Selling Stockholders. Upon conversion of the Debentures, we will have
benefitted from the cessation of the indebtedness represented by the Debentures
in the amount of $2,000,000. We will bear all costs relating to the registration
of the common stock offered by this prospectus, including printing, accounting,
legal and filing fees. Such costs are estimated by us to be approximately
$102,000.
This Prospectus relates to the offer and sale by Selling Stockholders
of our common stock following the conversion of Debentures by the Selling
Stockholders. Selling Stockholders will be able to sell their shares of common
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stock, from time to time, in any of several ways including, without limitation;
(1) one or more market transactions at the prevailing market prices and terms;
(2) in negotiated transactions; (3) block sales; or (4) individual sales. Sales
by Selling Stockholders will be without the payment of any underwriting
discounts or commissions, except for usual and customary selling commissions
paid to brokers or dealers. Selling Stockholders also may sell such shares of
common stock from time to time as permissible under Rule 144 promulgated under
the Securities Act, if applicable.
We do not know for certain how or when Selling Stockholders will choose
to make such sales. However, each selling stockholder must represent to us that
he or she currently has no plans, proposals, arrangements or understandings with
any potential sales agent with respect to participating in the distribution of
the common stock. Each selling stockholder has further represented that no
securities selected dealer agreement or similar agreement is intended to be used
with respect to the offering and sale of the common stock. Also, as currently
contemplated, any sale of our common stock will take place in an ordinary
brokerage transaction, without any placement or other agent and for normal and
customary brokerage fees and/or commissions.
Selling Stockholders (other than Treadstone) may be deemed to be
underwriters with respect to the shares sold by them, and Treadstone is an
underwriter with respect to any shares sold by it. Broker-dealers who act in
connection with the sale of the common stock may also be deemed to be
underwriters. Profits on any resale of the common stock as a principal by these
boker-dealers, may be deemed underwriting discounts and commissions under the
Securities Act of 1933.
Pursuant to our equity line of credit agreement with Treadstone,
beginning on the date the registration statement, of which this prospectus forms
a part, is declared effective by the SEC and for a period of eighteen months
thereafter, subject to certain conditions we may from time to time, in our sole
discretion, sell or "put" shares of our common stock to Treadstone. Thereafter,
Treadstone may resell these shares pursuant to this prospectus,. Other than the
equity line of credit agreement, we do not have any material relationship with
Treadstone.
SELLING STOCKHOLDERS
On February 28, 2000, we completed the offering to AMRO of $1,000,000
face value 6% Convertible Debentures Due August 31, 2001. An additional $500,000
will be completed upon the filing of the registration statement, of which this
prospectus is a part, and the final $500,000 will be funded upon effectiveness
of the registration statement. Holders of the Debentures have the option, to
convert the principal amount of their Debenture into shares of our common stock.
We also issued warrants to AMRO and Jesup & Lamont to purchase 200,000 shares of
our common stock at the exercise price of $2.00 per share.
On February 28, 2000, we entered into the equity line of credit with
Treadstone to provide financing for a period of up to eighteen months from the
effective date of the registration statement. As Treadstone provides funds upon
the exercise of put options, it receives shares of our common stock. As a
provision of that agreement, we issued warrants to Treadstone and Jesup & Lamont
to purchase an aggregate of 1,550,000 shares of our common stock at the exercise
price of $2.00 per share.
Pursuant to the Debenture and line of credit, we agreed to file a
registration statement with the SEC for the purpose of registering the shares of
common stock issued under the agreements and upon exercise of into which the
Debentures are convertible and upon exercise of the warrants. This prospectus
relates to the offer of common stock by the Selling Stockholders into the public
market. All expenses associated with the sale of shares of common stock by the
Selling Stockholders will be paid by the Selling Stockholders.
Following effectiveness of our registration statement, the Selling
Stockholders' shares will be free of restrictions, other than restrictions under
the Securities Act with respect to persons who may be deemed to be affiliates of
ours.
The Selling Stockholders may sell their respective shares of common
stock: (1) directly through broker-dealers acting as agents for them; or (2) to
broker-dealers who may purchase shares as principal and thereafter sell the
shares from time to time in negotiated transactions or otherwise. Such
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broker-dealer, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or both. Compensation as to a particular broker-dealer may be in
excess of customary commissions.
The Selling Stockholders, broker-dealers and any other persons, if any,
acting in connection with such sale of the shares of common stock, might be
deemed "underwriters" within the meaning of Section 2(11) of the Securities Act.
Any commission received by them or discounts or concessions allowed to such
persons, and any profits received on the resale of the shares may be deemed to
be underwriting discounts and commissions under the Securities Act. The shares
of our common stock covered by this prospectus may, in the future, also be sold
under Rule 144 instead of under this Prospectus. There is no assurance that the
Selling Stockholders will sell any or all or the securities offered hereby.
The Selling Stockholders have been advised by us that during the time
each is engaged in distribution of the securities covered by this Prospectus,
each must comply with Rule 10b-5 and Regulation M under the Exchange Act, and
pursuant thereto: (1) each must not engage in any stabilization activity in
connection with our securities; (2) each must furnish each broker through which
securities covered by this Prospectus may be offered the number of copies of
this Prospectus which are required by each broker; and (3) each must not bid for
or purchase any of our common stock or attempt to induce any person to purchase
any of our common stock other than as permitted under the Exchange Act. Any
Selling Stockholders who may be "affiliated purchasers" of us as defined in
Regulation M, have been further advised that pursuant to Securities Exchange Act
Release 34-38067 (December 20, 1996), they must coordinate their sales under
this prospectus with each other and with us for purposes of Regulation M. None
of the Selling Stockholders has been an officer, director or otherwise an
affiliate of our company during the last three years.
The following table sets forth as of the date hereof, certain
information regarding the beneficial ownership of our common stock, or the right
to convert Debentures into our common stock, by each selling stockholder. Except
as otherwise noted, the persons shown in the table have sole voting and
investment power with respect to the shares. These Selling Stockholders are
presented together in this table for convenience of presentation only.
<TABLE>
<CAPTION>
Number
Beneficial Ownership Prior to Offering of shares
Name Number of Shares Percent of Class(1) To Be Sold(2)
---- ---------------- ------------------- -------------
<S> <C> <C> <C>
AMRO International, S.A..................... 3,125,000(3) 5.0% 3,125,000
Treadstone Investments Limited 8,250,000(4) 12.3% 8,250,000
Dispomedic 2000............................ 7,000,000 11.9% 7,000,000
Jesup and Lamont Securities
Corporation................................ 500,000 .8% 500,000
</TABLE>
Totals
- ------------------------------
(1) Based on 59,063,995 shares actually issued and outstanding as of April
4, 2000 and includes as outstanding the maximum number of shares being
offered by AMRO and Treadstone.
-46-
<PAGE>
(2) Computations of percentages based on conversion of all Debentures, but
does not take into account shares issued for interest or penalty upon
conversion and does not include shares issuable upon exercise of
various warrants and stock options held by certain other individuals at
various prices, additional shares of common stock that may be issued
upon conversion of certain other convertible securities that are either
presently outstanding or may be issued in the future. See "Description
of Securities", and "Risk Factors."
(3) Based on conversion by AMRO of Debentures into 3,000,000 shares of
common stock at $.667 per share, which is equal to 85% of an estimated
market price of $.785 per share, which is lower than the price as of
the close on April 24, 2000, and exercise of all warrants.
(4) Based upon the maximum shares plus options being put to
Treadstone and exercise of all warrants.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Leonard E. Neilson, P.C., Attorney at Law.
EXPERTS
The financial statements as of December 31, 1999 included in this
prospectus have been so included in reliance on the report of Jones, Jensen and
Company, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the Securities
and Exchange Commission, or the SEC, for the stock offered by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement for
additional information about us, our common stock and this offering, including
the full texts of the exhibits, some of which have been summarized in this
prospectus.
We are subject to the reporting requirements of the Securities Exchange
Act of 1934 and, in accordance with that Act, we file reports, proxy statements
and other information with the SEC. We intend to furnish our stockholders with
annual reports containing financial statements audited by independent
accountants, quarterly reports containing unaudited financial statements for the
first three quarters of each fiscal year, and other periodic reports as we may
deem appropriate or as we may be required by law.
You may inspect and copy our registration statement, reports and other
information at the SEC's public reference room at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information about
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains our registration
statement, reports and other information that was filed electronically. The
address of the SEC's Internet site is "http://www.sec.gov."
-47-
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S
<S> <C>
Independent Auditors' Report ............................................................................. F-3
Consolidated Balance Sheet ............................................................................... F-4
Consolidated Statements of Operations .................................................................... F-6
Consolidated Statements of Stockholders' Equity (Deficit)................................................. F-7
Consolidated Statements of Cash Flows .................................................................... F-9
Notes to Consolidated Financial Statements .............................................................. F-11
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Medisys Technologies, Inc. and Subsidiaries
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheet of Medisys
Technologies, Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended December 31, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Medisys
Technologies, Inc. and Subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the years ended December 31, 1999 and
1998 in conformity with generally accepted accounting principles.
/s/Jones, Jensen & Company
- --------------------------
Jones, Jensen & Comapany
Salt Lake City, Utah
April 11, 2000
F-3
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
------
December 31,
1999
------------------
CURRENT ASSETS
Cash $ 290,269
Accounts receivable, net (Note 1) 222,100
Accounts receivable, related parties 50,572
Advances 2,500
Inventory (Note 1) 396,601
Prepaid expenses 21,802
------------------
Total Current Assets 983,844
------------------
FIXED ASSETS (Note 1)
Computers and equipment 73,341
Machinery and equipment 301,087
Buildings and improvements 463,803
Furniture and equipment 50,248
Vehicles 19,915
Accumulated depreciation (314,751)
------------------
Total Fixed Assets 593,643
------------------
OTHER ASSETS
Deposits 36,039
Patent and trademark costs, net (Note 1) 492,254
------------------
Total Other Assets 528,293
------------------
TOTAL ASSETS $ 2,105,780
==================
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
December 31,
1999
------------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 924,490
Accrued expenses 261,786
Customer deposits 94,096
Payable - shareholders (Note 2) 140,758
Notes payable, current portion (Note 8) 56,695
Line of credit (Note 4) 250,000
Notes payable - shareholders (Note 6) 25,000
Debentures payable - related parties (Note 3) 92,000
------------------
Total Current Liabilities 1,844,825
------------------
LONG-TERM DEBT
Notes payable (Note 8) 304,490
------------------
Total Long-Term Debt 304,490
------------------
TOTAL LIABILITIES 2,149,315
------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares
authorized of $0.0005 par value,
47,055,644 shares issued and outstanding 23,527
Additional paid-in capital 10,743,768
Stock subscriptions receivable (Note 5) (1,075,000)
Accumulated deficit (9,735,830)
------------------
Total Stockholders' Equity (Deficit) (43,535)
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,105,780
==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
----------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 2,716,819 $ 26,846
COST OF GOODS SOLD 2,017,844 5,396
----------------- -----------------
GROSS MARGIN 698,975 21,450
----------------- -----------------
OPERATING EXPENSES
Product research and development 230,075 382,318
Depreciation and amortization 89,069 14,322
Selling, general and administrative 1,616,553 564,543
----------------- -----------------
Total Operating Expenses 1,935,697 961,183
----------------- -----------------
OPERATING LOSS (1,236,722) (939,733)
----------------- -----------------
OTHER INCOME (EXPENSES)
Gain on sale of asset -- 1,475
Interest income 65 --
Interest expense (341,503) (312,213)
Bad debt expense (109,461) (2,030)
----------------- -----------------
Total Other Income (Expenses) (450,899) (312,768)
----------------- -----------------
LOSS BEFORE INCOME TAXES (1,687,621) (1,252,501)
----------------- -----------------
INCOME TAXES -- --
----------------- -----------------
NET LOSS $ (1,687,621) $ (1,252,501)
================= =================
BASIC LOSS PER SHARE (Note 1) $ (0.05) $ (0.09)
================= =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional Stock
---------------------------- Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
-------------- --------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 13,120,810 $ 6,560 $ 6,373,102 $ (175,000) $ (6,795,708)
Common stock issued to acquire
Phillips Pharmatech Labs, Inc.
(Note 1) 15,602,147 7,801 25,687 -- --
Common stock issued in satisfaction
of accrued wages and accounts
payables 2,448,767 1,224 978,284 -- --
Common stock issued for services
rendered 881,255 441 307,843 -- --
Common stock issued for cash at
$0.25 per share 546,666 273 169,727 -- --
Common stock issued for interest
expense 760,112 380 268,495 -- --
Additional common stock issued
for cash received in prior year 650,000 325 (325) -= --
Net loss for the year ended
December 31, 1998 -- -- -- -- (1,252,501)
-------------- --------------- ------------- ---------------- ----------------
Balance, December 31, 1998 34,009,757 $ 17,004 $ 8,122,813 $ (175,000) $ (8,048,209)
-------------- --------------- ------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock Additional Stock
---------------------------- Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
-------------- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 34,009,757 $ 17,004 $ 8,122,813 $ (175,000) $ (8,048,209)
Common stock issued for
subscription receivable 5,555,555 2,778 997,222 (1,000,000) --
Common stock issued for
services rendered 2,121,619 1,061 424,282 -- --
Common stock issued for
accrued wages 324,477 162 89,838 -- --
Common stock canceled (972,214) (486) 486 -- --
Common stock issued to
convert debentures payable 1,435,000 717 302,283 -- --
Issuance of common stock from
exercise of common stock warrants 8,889 5 9,995 -- --
Common stock issued for interest
expense 1,184,118 592 277,408 -- --
Common stock issued for cash 3,388,443 1,694 519,441 -- --
Cash received on stock
subscription receivable -- -- -- 100,000 --
Net loss for the year ended
December 31, 1999 -- -- -- -- (1,687,621)
-------------- -------------- -------------- ---------------- ----------------
Balance, December 31, 1999 47,055,644 $ 23,527 $ 10,743,768 $ (1,075,000) $ (9,735,830)
============== ============== ============== ================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,687,621) $ (1,252,501)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Common stock issued for services and interest 703,343 577,159
Depreciation and amortization 89,069 14,322
Bad debt expense 109,461 2,030
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (36,612) 7,139
(Increase) decrease in accounts receivable - related
party (32,026) (2,857)
(Increase) decrease in inventory 36,105 15,719
(Increase) decrease in prepaid expenses 3,856 172
(Increase) decrease in deposits 5,726 3,165
(Increase) decrease in other assets (2,500) 2,561
Increase (decrease) in accounts payable 332,802 (43,684)
Increase (decrease) in accrued expenses 255,967 328,884
Increase (decrease) in customer deposits (22,104) 116,200
----------------- -----------------
Net Cash (Used) by Operating Activities (244,534) (231,691)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in purchase of subsidiary -- 50,461
Increase in patent costs (31,473) (65,822)
Purchase of fixed assets (108,624) -
Disposal of fixed assets -- 10,010
----------------- -----------------
Net Cash (Used) by Investing Activities (140,097) (5,351)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from payable - shareholders 28,941 2,625
Payments on notes payable - shareholders (5,222) (4,278)
Payment on notes payable (55,437) -
Issuance of common stock 631,135 170,000
Proceeds from debentures - related parties -- 142,000
----------------- -----------------
Net Cash Provided by Financing Activities $ 599,417 $ 310,347
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
NET INCREASE (DECREASE) CASH AND
CASH EQUIVALENTS $ 214,786 $ 73,305
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 75,483 2,178
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 290,269 $ 75,483
================= =================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR
Income taxes $ -- $ --
Interest $ 55,887 $ 222
NON-CASH FINANCING ACTIVITIES
Stock issued for services and interest expense $ 703,343 $ 577,159
Stock issued in payment of accrued expenses and
accounts payable $ 90,000 $ 979,508
Stock issued to convert debentures payable $ 303,000 $ --
Stock issued for stock subscription receivable $ 1,000,000 $ --
Purchase of building by issuing a note payable $ 299,250 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Business Organization
The Company was incorporated on March 17, 1983 under the laws of
the State of Utah. The Company subsequently ceased its original
business activity in 1985 and thereafter primarily investigated
and sought new business opportunities and was reclassified as a
development stage company until December of 1998 when it acquired
Phillips Pharmatech Labs, Inc.
The Company has a wholly-owned subsidiary Medisys Technologies,
Inc. (Medisys) which was incorporated in the State of Louisiana,
on January 21, 1991, for the purpose of developing a device for
the assistance of childbirth under a patent which was applied for
in May 1990 and granted on June 15, 1992.
Medisys has been classified as a development stage company since
all activities to date have been related to the development of a
childbirth assistance device as well as other medical devices.
On August 6, 1992 the Company acquired all of the outstanding
common stock of Medisys. For accounting purposes the acquisition
has been treated as a recapitalization of Medisys with Medisys as
the acquirer.
Phillips Pharmatech Labs, Inc. (Phillips) was organized under the
laws of the State of Florida on December 13, 1994. It was
incorporated for the purpose of engaging in the manufacturing and
bottling of health supplements and other health related and
natural products.
On December 22, 1998, the Company completed an acquisition and
share exchange agreement whereby Medisys issued 15,602,147 shares
of its common stock in exchange for all of the outstanding common
stock of Phillips. The shares issued by Medisys represented 50% of
the total shares of the Company's common stock issued and
outstanding immediately following the acquisition. The acquisition
is accounted for as a purchase of Phillips.
b. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Expenditures for small tools, ordinary maintenance and repairs are
charged to operations as incurred. Major additions and
improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives as follows:
Buildings and improvements 39 years
Furniture and fixtures 5 years
Computers and equipment 5 years
Machinery and equipment 5 to 7 years
Vehicles 5 years
Depreciation expense for the year ended December 31, 1999 was
$87,781.
F-11
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
c. Patent and Trademark Costs
The capitalized costs of obtaining patents consists of legal fees
and associated filing costs. These patent costs will be amortized
over the shorter of their legal or useful lives. The Company has
numerous patents in various stages of development and the
application process. Several patents have been granted but are
being developed further in a continuation-in-part (CIP) status
until the development of a commercial product is complete, the
related product has received FDA (Food and Drug Administration)
approval and is in a marketable condition ready for sale. Once
patents have been granted, FDA approval obtained, and sales
commenced, no further costs associated with the patent are
capitalized. As of December 31, 1999, the Company did have one
patented product for which sales have commenced with the related
costs being amortized over the estimated useful life (17 years) of
the patent. Management has determined that estimated future cash
flows from this product will be sufficient to recover the
capitalized basis of the costs associated with that patent. The
other patents for which costs have been capitalized are considered
to have continued viability according to management of the Company
with no significant events occurring which would impair the value
of the capitalized costs associated with the individual patents.
The Company has also incurred costs associated with obtaining
trademarks related to the Company's existing and future products.
Those costs have been capitalized and will be amortized over the
estimated useful life of the trademarks once approval has been
received and usage begins. These trademarks are considered to have
continued viability according to management with no significant
events occurring which would impair the value of the capitalized
costs associated with the trademarks.
Patent and trademark costs incurred are as follows:
December 31,
1999
-----------------
Patents $ 485,552
Trademarks 11,961
-----------------
Subtotal 497,513
Less accumulated amortization (5,259)
-----------------
Total $ 492,254
=================
Amortization expense for the year ended December 31, 1999 was
$1,288.
d. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
F-12
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. Cash and Cash Equivalents
For purposes of financial statement presentation, the Company
considers all highly liquid investments with a maturity of three
months or less, from the date of purchase, to be cash equivalents.
f. Income Taxes
No provision for federal income taxes has been made at December
31, 1999 due to accumulated operating losses. The Company has
accumulated $9,651,830 of net operating losses as of December 31,
1999, which may be used to reduce taxable income and income taxes
in future years. The use of these losses to reduce future income
taxes will depend on the generation of sufficient taxable income
prior to the expiration of the net operating loss carryforwards.
The carryforwards expire as follows:
Year of Net Operating
Expiration Loss
----------------- -----------------
2006 $ 8,667
2007 269,551
2008 802,338
2009 960,966
2010 1,162,772
2011 1,498,725
2012 2,092,689
2018 1,252,501
2019 1,603,621
-----------------
$ 9,651,830
=================
In the event of certain changes in control of the Company, there
will be an annual limitation on the amount of net operating loss
carryforwards which can be used. The potential tax benefits of the
net operating loss carryforwards have been offset by a valuation
allowance of the same amount.
g. Principles of Consolidation
The consolidated financial statements include the accounts of
Medisys Technologies, Inc. (parent), Medisys Technologies, Inc.
(Medisys) a wholly owned subsidiary and Phillips Pharmatech, Inc.
(Phillips) a wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
h. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer.
F-13
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
i. Inventory
Inventory is carried at the lower of cost or market value using
the first-in, first-out method. Inventory consisted of the
following at December 31, 1999:
Amount
Raw materials $ 376,449
Work-in-process 12,423
Finished goods 7,729
----------------
Total $ 396,601
================
j. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements as follows:
<TABLE>
<CAPTION>
Loss Shares Per Share
(Numerator) (Denominator) Amount
------------------ ------------------ ------------------
<S> <C> <C> <C>
For the year ended
December 31, 1999 $ (1,687,621) 37,152,674 $ (0.05)
================== ================== ==================
For the year ended
December 31, 1998 $ (1,252,501) 14,596,423 $ (0.09)
================== ================== ==================
</TABLE>
Fully diluted earnings (loss) per share is not presented as any
common stock equivalents are antidilutive in nature.
k. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
l. Credit Risks
Medisys maintains its cash accounts primarily in one bank in
Louisiana and Phillips maintains its cash accounts primarily in
one bank in Florida. The Federal Deposit Insurance Corporation
insures accounts to $100,000. The Company's accounts occasionally
exceed the insured amount.
F-14
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
m. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
n. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts of $226,627 at December 31, 1999.
o. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of this statement had no material
impact on the Company's financial statements.
NOTE 2 - PAYABLE - SHAREHOLDERS
From time to time Medisys and Phillips receive advances from
certain shareholders for the purpose of providing funds for their
respective operating expenditures. The companies also advance
funds to shareholders. The outstanding balances of these advances
fluctuates during the year and do not have specific repayment
terms although the advances are generally considered to be due or
payable on demand. Accordingly, the related receivable or payable
has been reflected as current in the accompanying consolidated
financial statements. At December 31, 1999, the balance payable to
shareholders totaled $140,758, which includes $73,528 due from
Phillips and $67,230 due from Medisys.
NOTE 3 - DEBENTURES PAYABLE - RELATED PARTIES
The Company also has notes payable (debentures) to various
shareholders in the aggregate of $92,000 at December 31, 1999. The
notes bear interest at 10% per annum, are secured by stock and
were due in 1999.
F-15
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 4 - LINE OF CREDIT
An analysis of the Phillips' line of credit with Nations Bank as
of December 31, 1999 is shown below:
Available
Line of Debt
Credit Outstanding
-------------------- --------------------
$ 250,000 $ 250,000
==================== ====================
Borrowings under the line of credit are guaranteed by inventory
and accounts receivable of Phillips. Interest accrues at the
bank's prime rate plus 2.75% (9.50% at December 31, 1999).
NOTE 5 - STOCK SUBSCRIPTION RECEIVABLE
During 1999, the Company issued 5,555,555 shares of common stock
for $1,000,000. Payment for the common stock was made with a
non-interest bearing promissory note. Those shares are being held
in escrow as collateral until the note is paid. As of December 31,
1999, $100,000 on the note had been paid.
During 1996, the Company issued 100,000 shares of restricted
common stock upon the exercise of common stock warrants
representing the same number of shares, having an exercise price
of $1.75 per share. Payment for the common stock was made with a
non- interest bearing four year promissory note. The related
shares are being held by the Company as collateral for the
promissory note. The shares have been reflected as issued and
outstanding with a corresponding $175,000 stock subscription
receivable reflected as a reduction of stockholders' equity.
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS
<TABLE>
<CAPTION>
Notes payable - shareholders consisted of the following:
December 31,
1999
-----------------
<S> <C>
Note payable to Richard L. Apel, unsecured, dated November 2,
1993 at 8%; principal and interest delinquent since August 18, 1994. $ 12,500
Note payable to Cynthia F. Vatz, unsecured, dated October 19, 1993
at 8%; principal and interest delinquent since August 18, 1994. 12,500
-----------------
Total 25,000
Less current portion (25,000)
-----------------
Total long-term portion $ --
=================
</TABLE>
These notes payable are technically in default. None of the
related note holders have demanded repayment and the Company is in
the process of negotiating repayment terms (see Note 12).
F-16
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 7 - COMMON STOCK
During 1999, the Company issued 324,477 shares of its common stock
in satisfaction of accrued wages of $90,000. The Company issued
1,435,000 shares of its common stock to convert $303,000 of
debentures payable. The Company issued 3,305,737 shares of its
common stock for services and interest expense. The shares issued
for services and interest were valued at the trading price of the
common stock on the date the shares were issued. The Company
issued 3,388,443 shares of its common stock for cash of $521,135.
The Company issued 8,889 shares of its common stock from the
exercise of warrants for cash of $10,000. Finally, certain
officers and directors of the Company canceled 972,214 shares of
common stock and the shares were reissued to convert a portion of
the debentures payable.
During 1998, the Company issued 2,448,767 shares of its common
stock in satisfaction for accrued wages and accounts payable of
$979,508. The Company issued 881,255 shares of its common stock
for services. The services were valued at the trading price of the
common stock on the date the shares were issued. The Company
issued 546,666 shares of its common stock for cash at $0.25 per
share. The Company issued 760,112 for interest expense of
$268,875. The Company issued an additional 650,000 shares of its
common stock to a shareholder to prevent dilution of the shares
previously issued to the shareholder.
<TABLE>
<CAPTION>
NOTE 8 - NOTES PAYABLE
<S> <C>
Notes payable at December 31, 1999 consisted of the following:
Note payable to Nations Bank, collateralized by a vehicle of
Phillips, interest at 8.99%, principal and interest payments of
$303 are due monthly,
matures on September 11, 2000. $ 2,079
Note payable to Nations Bank, collateralized by equipment of
Phillips, interest at 12.5%, principal and interest payments of
$450 are due monthly,
matures on November 4, 2002. 13,072
Note payable to Nations Bank, collateralized by certain assets of
Phillips, interest at the bank's prime rate plus 2.25%, interest
payments due monthly along with
principal payments of $3,333, matures on June 12, 2001. 54,993
Note payable to Nations Bank, collateralized by the building
of Phillips, interest at 7.75%, principal and interest
payments of $2,817 due monthly, matures on February 18, 2014. 291,041
-----------------
Total notes payable 361,185
Less: current portion (56,695)
-----------------
Long-term notes payable $ 304,490
=================
</TABLE>
F-17
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 8 - NOTES PAYABLE (Continued)
Maturities of notes payable are as follows:
Year Ending
December 31, Amount
----------------- -----------------
1999 $ 56,695
2000 31,062
2001 17,111
2002 13,482
2003 14,564
2004 and thereafter 228,271
-----------------
Total $ 361,185
=================
NOTE 9 - COMMITMENTS AND CONTINGENCIES
During 1996, the Company adopted a Simplified Employee Pension
(SEP) Plan. The Plan enables the Company to make an annual
discretionary contribution to be allocated to employees on a
prorata basis according to their compensation for the year. In
addition, employees have the option to make voluntary Retirement
Savings Contributions in amounts not to exceed 15% of their annual
compensation. The Company elected to not make a contribution for
the year ended December 31, 1999. The Company has no other bonus,
profit sharing or deferred compensation plans for the benefit of
its employees, officers or directors except if discussed
elsewhere.
The Company currently has employment contracts with Edward P.
Sutherland and Kerry Frey whereby they each will receive salaries
of $12,500 per month.
Any additional compensation to these employees is to be in the
form of an annual cash bonus or the granting of stock and/or stock
options at the discretion of the Board of Directors. The cash
bonus is not to exceed 50% of their annual compensation and stock
bonuses are not to exceed 100% of their annual dispensation.
However, additional compensation may be awarded by the Board of
Directors under the terms of the employment contracts.
Phillips leases warehouse space at a rate of $3,766 per month
though January 2000. Medisys entered into a lease agreement with a
related party for its office space located in Louisiana. The lease
is for a period of one year at a rate of $900 per month, expiring
in September 2000.
F-18
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
NOTE 10 - COMMON STOCK WARRANTS
As of December 31, 1999, the Company had outstanding warrants for
the issuance of common stock as follows:
Number of Date Expiration Exercise Estimated
Warrants Issued Dates Prices Proceeds
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
300,000 1995 2005 $2.6250 $ 787,500
2,684,432 1996 2000-2001 $ 1.0000 - $4.2500 6,506,741
977,737 1997 2000-2002 $ 0.6875 - $1.8750 1,188,211
5,383,155 1998 2000-2005 $ 0.2500 - $4.2500 10,012,835
1,514,525 1999 2001-2002 $ 0.4000 - $0.7500 748,263
-------------------- ------------------
10,859,849 $ 19,243,550
==================== ==================
</TABLE>
During 1999, the Company completed private placements of common
stock wherein the purchaser of one share of the Company's common
stock received one-half (1/2) a warrant to purchase common stock
at prices ranging from $0.50 to $0.75 per share. The Company
issued 1,244,525 common stock warrants pursuant to these private
placements. The company also issued 270,000 common stock warrants
as bonuses to certain officers and directors of the Company
exercisable at $0.40 per share.
During 1998, the Company conducted a private placement of its
common stock, wherein the purchaser of one share of the Company's
common stock also received a warrant to purchase one additional
share of common stock at $1.25 per share. The Company issued
912,333 common stock warrants pursuant to this private placement.
The Company also issued 4,670,534 common stock warrants (199,712
expired unexercised in 1999) to the stockholders of Phillips
pursuant to the acquisition agreement redeemable at various prices
depending on the expiration dates of the warrants.
All common stock warrants issued in 1999 and 1998 had exercise
prices at or above the trading price of the shares.
F-19
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 11 - GOING CONCERN
The Company's consolidated financial statements have been prepared
using generally accepted accounting principles applicable to a
going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has incurred significant losses since inception, relating
to its research and development efforts and has had no significant
operating revenues until the acquisition of Phillips in December
1998. In 1999, the Company was able to raise working capital
through the private placement of its common stock. The Company has
now closed a private placement of combined debt and equity of up
to $14,000,000 for operating capital of which $1,000,000 has been
received in 2000. The Company believes cash flow projections now
show the Company's reserves should be adequate to cover its
operating needs as well as its needs for the expansion of its
research and development projects and for the commercialization of
its proprietary products. The Company also expects to generate
additional revenue from the sales of its proprietary products.
NOTE 12 - SUBSEQUENT EVENTS
a. Debt Conversions
By March 31, 2000, the Company had converted the remaining balance
of debentures payable into common stock. The Company issued
330,000 shares of its common stock for the conversion of $92,000
of debentures payable - related parties.
On January 31, 2000, the Company converted the note payable of
$12,500 due to Richard Apel along with accrued interest into
common stock. The Company issued 8,500 shares to convert this
note.
b. Subscription Receivable
By March 31, 2000, the Company had received an additional $450,000
as payment on the stock subscription receivable (see Note 5).
c. Convertible Debentures
The Company received a $2,000,000 face value 6% convertible
debenture due August 31, 2001. $1,000,000 of the debenture was
received on February 28, 2000. An additional $500,000 will be
received within five days of the filing of the registration
statement and the final $500,000 will be received within five days
of when the registration statement becomes effective. The
conversion price of the debentures is the lower of 85% of the
market price of the Company's common stock at the conversion date
or $2.00. The conversion discount of 15% will be charged to
interest expense in the amount of $300,000 during 2000. The
Company also issued warrants to purchase 125,000 shares of the
Company's common stock at an exercise price of $2.00 per share.
d. Manufacturing Agreement
On January 19, 2000, the Company entered into a manufacturing
agreement for the production of the Company's patented syringes.
The Company has agreed to pay $500,000 cash and issue 7,000,000
shares of its common stock as part of the agreement.
F-20
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - SUBSEQUENT EVENTS (Continued)
e. Legal Issues
On March 16, 2000, Medisys filed a complaint against the former
shareholders of Phillips. The complaint alleges various
securities law violations and related claims in connection with
the 1998 acquisition of Phillips. Medisys is seeking recission of
the acquisition, damages and other relief.
NOTE 13 - SEGMENTS OF OPERATIONS
The Company operates in two segments. The Company
researches and develops medical products through the Medisys
subsidiary. The Company manufactures and bottles health
supplements and other health products through the Phillips
subsidiary.
The Company's consolidated balance sheet and
statement of operations for the year ended December 31, 1999 are
broken out as follows:
<TABLE>
<CAPTION>
Medisys Phillips Eliminations Totals
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 245,305 $ 44,964 $ -- $ 290,269
Accounts receivable, net -- 222,100 -- 222,100
Accounts receivable, related parties -- 50,572 -- 50,572
Advances 2,500 -- -- 2,500
Inventory 7,729 388,872 -- 396,601
Prepaid expenses 21,328 474 -- 21,802
----------- ----------- ---------- -----------
Total Current Assets 276,862 706,982 -- 983,844
----------- ----------- ---------- -----------
FIXED ASSETS
Computers and equipment 42,535 30,806 -- 73,341
Machinery and equipment -- 301,087 -- 301,087
Buildings and improvements 2,195 461,608 -- 463,803
Furniture and equipment 34,410 15,838 -- 50,248
Vehicles -- 19,915 -- 19,915
Accumulated depreciation (67,414) (247,337) -- (314,751)
----------- ----------- ---------- -----------
Total Fixed Assets 11,726 581,917 -- 593,643
----------- ----------- ---------- -----------
OTHER ASSETS
Deposits 835 35,204 -- 36,039
Patent and trademark costs, net 492,254 -- -- 492,254
----------- ----------- ---------- -----------
Total Other Assets 493,089 35,204 -- 528,293
----------- ----------- ---------- -----------
TOTAL ASSETS $ 781,677 $ 1,324,103 $ -- $ 2,105,780
=========== =========== ========== ===========
</TABLE>
21
<PAGE>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
NOTE 13 - SEGMENTS OF OPERATIONS (Continued)
Medisys Phillips Eliminations Totals
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 82,649 $ 841,841 $ -- $ 924,490
Accrued expenses 229,164 32,622 -- 261,786
Customer deposits -- 94,096 -- 94,096
Payable - shareholders 67,230 73,528 -- 140,758
Notes payable, current portion -- 56,695 -- 56,695
Line of credit -- 250,000 -- 250,000
Notes payable - shareholders 25,000 -- -- 25,000
Debentures payable - related
parties 92,000 -- -- 92,000
------------ ------------ ------------ ------------
Total Current Liabilities 496,043 1,348,782 -- 1,844,825
------------ ------------ ------------ ------------
LONG-TERM DEBT
Notes payable -- 304,490 -- 304,490
------------ ------------ ------------ ------------
Total Long-Term Debt -- 304,490 -- 304,490
------------ ------------ ------------ ------------
TOTAL LIABILITIES 496,043 1,653,272 -- 2,149,315
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 23,527 900 (900) 23,527
Additional paid in capital 10,710,280 -- 33,488 10,743,768
Stock subscriptions receivable (1,075,000) -- -- (1,075,000)
Accumulated deficit (9,373,173) (330,069) (32,588) (9,735,830)
------------ ------------ ------------ ------------
Total Stockholders' Equity
(Deficit) 285,634 (329,169) -- (43,535)
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 781,677 $ 1,324,103 $ -- $ 2,105,780
============ ============ ============ ============
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
MEDISYS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 13 - SEGMENTS OF OPERATIONS (Continued)
Medisys Phillips Eliminations Totals
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 1,973 $ 2,714,846 $ -- $ 2,716,819
COST OF GOODS SOLD 523 2,017,321 -- 2,017,844
----------- ----------- ----------- -----------
GROSS MARGIN 1,450 697,525 -- 698,975
----------- ----------- ----------- -----------
OPERATING EXPENSES
Product research and development 230,075 -- -- 230,075
Depreciation and amortization 14,627 74,442 -- 89,069
Selling, general and administrative 799,879 816,674 -- 1,616,553
----------- ----------- ----------- -----------
Total Operating Expenses 1,044,581 891,116 -- 1,935,697
----------- ----------- ----------- -----------
OPERATING LOSS (1,043,131) (193,591) -- (1,236,722)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest income 65 -- -- 65
Interest expense (282,547) (58,956) -- (341,503)
Bad debt income (expense) 648 (110,109) -- (109,461)
----------- ----------- ----------- -----------
Total Other Income (Expenses) (281,834) (169,065) -- (450,899)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,324,965) (362,656) -- (1,687,621)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $(1,324,965) $ (362,656) $ -- $(1,687,621)
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE>
May __, 2000
MEDISYS TECHNOLOGIES, INC.
18,875,00 Shares of
Common Stock
---------------
PROSPECTUS
---------------
================================================================================
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall imply that the
information contained in this prospectus or the affairs of Medisys Technologies,
Inc. have not changed since that date.
================================================================================
<PAGE>
MEDISYS TECHNOLOGIES, INC.
Part II
Item 24. Indemnification of Directors and Officers
As permitted by the provisions of Utah law, we have the power
to indemnify an individual made a party to a proceeding because they are or were
a director of our company, against liability incurred in the proceeding,
provided such individual acted in good faith and in a manner reasonably believed
to be in, or not opposed to, our best interest and, in a criminal proceeding,
they had no reasonable cause to believe their conduct was unlawful.
Indemnification under this provision is limited to reasonable expenses incurred
in connection with the proceeding. We must indemnify a director or officer who
is successful, on the merits of otherwise, in the defense of any proceeding or
in defense of any claim, issue, or matter in the proceeding, to which they are a
party to because they are or were a director or officer of our company, against
reasonable expenses incurred by them in connection with the proceeding or claim
with respect to which they have been successful. Our Articles of Incorporation
empower the board of directors to indemnify our officers, directors, agents, or
employees against any loss or damage sustained when acting in good faith in the
performance of their corporate duties.
We may pay for or reimburse reasonable expenses incurred by a director,
officer employee, fiduciary or agent of ours who is a party to a proceeding in
advance of final disposition of the proceeding provided the individual furnishes
us with a written affirmation that their conduct was in good faith and in a
manner reasonably believed to be in, or not opposed to, our best interest, and
undertake to repay the advance if it is ultimately determined that they did not
meet such standard of conduct.
Also pursuant to Utah law, a corporation may set forth in its articles
of incorporation, by-laws or by resolution, a provision eliminating or limiting
in certain circumstances, liability of a director to the corporation or its
shareholders for monetary damages for any action taken or any failure to take
action as a director. This provision does not eliminate or limit the liability
of a director (i) for the amount of a financial benefit received by a director
to which they are not entitled; (ii) an intentional infliction of harm on the
corporation or its shareholders; (iii) for liability for a violation relating to
the distributions made in violation of Utah law; and (iv) an intentional
violation of criminal law. To date, we have not adopted such a provision in our
Articles of Incorporation, By-Laws, or by resolution. A corporation may not
eliminate or limit the liability of a director for any act or omission occurring
prior to the date when such provision becomes effective. Utah law also permits a
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees, fiduciaries or agents. We do maintain directors'
and officers' insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us as
S-1
<PAGE>
described above, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable. At present, there is no pending material litigation
or proceeding involving any director, officer, employee or agent of ours in
which indemnification will be required or permitted.
<TABLE>
<CAPTION>
Item 25. Other Expenses of Issuance and Distribution
Filing fee under the Securities Act
<S> <C>
of 1933............................................................. $ 2,500
Accountants' fees and expenses........................................ 7,500
Legal fees and expenses............................................... 75,000
Printing ............................................................. 10,000
Transfer agent and registrar fees
and expenses(1)....................................................... 2,000
Miscellaneous......................................................... 5,000
-------
Total.................................................... $ 102,000
</TABLE>
Item 26. Recent Sales of Unregistered Securities
The following table sets forth information relating to all previous
sales of securities by the Registrant within the past three years that were not
registered under the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
Date
of Sale Name of Purchaser Type Number Consideration
- ------- ----------------- ---- ------ -------------
<S> <C> <C> <C> <C>
1/5/97 to 8 directors (a) 38,600 Directors fees valued at
11/25/97 $1.33 per share
5/15/97 Christopher Boniol (a) 10,000 Private placement for cash
of $15,000
6/11/97 I.V. Jeansonne (a) 120,000 Private placement for cash
of $150,000
6/11/97 Steve Katznelson (a) 30,000 Adjustment of former
purchase valued at $1.23
per share
7/9/97 Rachel Dunn (a) 5,000 Services rendered valued at
$1.33 per share
7/28/97 3 persons (a) 2,631 Services rendered valued at
$1.33 per share
7/28/97 Stan R. Aaron (a) 2,540 Services rendered valued at
$1.33 per share
8/20/97 Susan Schoch (a) 2,000 Services rendered valued at
$1.33 per share
8/26/97 Tiffiny Babin (a) 1,000 Services rendered valued at
$1.33 per share
9/16/97 Abraham Eckstein (a) 8,572 Satisfaction of note
payable for $6,686
9/22/97 Clayton Simpson (a) 500 Services rendered valued at
$1.33 per share
10/14/97 Kimberly Jordan (a) 1,000 Services rendered valued at
$1.33 per share
10/16/97 Susan Schoch (a) 2,000 Services rendered valued at
$1.33 per share
10/16/97 Joel S. Fadan (a) 5,000 Consulting services
rendered valued at $1.33
per share
10/16/97 Roy, Kiesel & Tucker (a) 200,624 Legal services rendered
valued at $1.33 per share
12/17/97 Stan R. Aaron (a) 3,278 Services rendered valued at
$1.33 per share
12/29/97 Shannon Properties (a) 36,000 Payment of rent valued at
$18,000
1/20/98 to Directors (a) 114,753 Compensation for directors
12/1/98 valued at $.35 per share
4/22/98 Ed Sutherland (a) 82,979 Deferred compensation and
loans valued at $.354 per
share
4/22/98 Kerry Frey (a) 79,660 Deferred compensation and
loans valued at $.354 per
share
4/22/98 Gary Alexander (a) 59,745 Deferred compensation and
loans valued at $.354 per
share
6/18/98 & KJS Investments (a) 346,666 Private placement for cash
10/12/98 of $112,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date
of Sale Name of Purchaser Type Number Consideration
- ------- ----------------- ---- ------ -------------
<S> <C> <C> <C> <C>
8/31/98 Paul Radke (a) 7,800 Deferred compensation and
loans valued at $.354 per
share
10/12/98 4 directors (a) 529,928 Deferred compensation and
loans valued at $.354 per
share
11/30/98 Wishard, Ltd. (a) 100,000 Private placement for cash
of $32,500
12/14/98 Steve Katznelson (a) 650,000 Adjustment of former
purchase valued at $.25 per
share
12/17/98 Shareholders of Phillips (a) 15,602,147 Acquisition of Phillips
Pharmatec Labs valued at
$6,379,662
12/21/98 Employees and contractors (a) 766,501 Services rendered valued at
$$.35 per share
12/28/98 Dr. Timothy Andrus (a) 100,000 Private placement for cash
of $25,000
12/31/98 Directors and employees (a) 2,448,767 Accrued wages value at $.35
per share
1/1/99 Ed Sutherland (a) 135,199 Deferred compensation
valued at $per share
1/1/99 Kerry Frey (a) 135,199 Deferred compensation
valued at $.277 per share
1/1/99 Gary Alexander (a) 54,079 Deferred compensation
valued at $.277 per share
1/1/99 to 5 directors (a) 1,184,118 Interest expense, deferred
3/1/99 compensation and bonuses
valued at $278,000
1/19/99 to Directors (a) 399,330 Compensation for directors
11/3/99 valued at $.20 per share
1/19/99 Employees (a) 1,722,289 Services rendered valued at
$.20 per share
1/19/99 2 investors (a) 8,889 Exercise of warrant at
$1.125 per share
10/21/99 Charles Potter (a) 5,555,555 Private placement for note
and cash of $1,000,000
11/1/99 to 17 accredited investors (a) 3,388,443 Private placement for cash
12/31/99 of $.154 per share
thru 1999 10 Debenture holders (a) 1,435,000 Conversion of debenture
valued at $.211 per share
1/13/00 5 accredited investors (a) 188,500 Conversion of debentures
and notes valued at
$192,500
1/14/00 4 warrant holders (a) 188,833 Exercise of warrants for
cash of $83,333
1/17/00 to 23 accredited investors (a) 3,288,322 Private placement for cash
2/10/00 of $688,750
1/19/00 Dispomedic (a) 7,000,000 Manufacturing agreement
valued at $12,000,000
2/28/00 AMRO International, SA (b) - $1,000,000 convertible
debenture for cash
1/13/00 to Directors and employees (a) 1,342,322 Services rendered and
4/4/00 directors fees value at
$420,000
</TABLE>
- ---------------------------
(a) Common Stock.
(b) 6% Convertible Debentures Due August 31, 2000 (the "Debentures") in the
face amount of $1,000,000 which can ultimately be converted into shares
of Common Stock.
With respect to the issuance and/or sale of the
aforementioned securities, the Registrant relied on the
exemptions from
<PAGE>
Item 27. Exhibits
(a) The following exhibits are filed with this Registration
Statement:
Exhibit No. Exhibit Name
- ----------- ------------
3.1* Articles of Incorporation and all amendment
3.2* By-Laws
4.1* Specimen of common stock certificate
5 Opinion of Leonard E. Neilson
10.1* Lease agreement - principal place of business
10.2* Employment contract with Edward P. Sutherland
10.3* Employment contract with Kerry M. Frey
S-3
<PAGE>
10.4 Convertible Debentures and Warrant Purchase Agreement and
accompanying documents
10.5 Private Equity Line of Credit Agreement and accompanying
documents
21 Subsidiaries
23.1 Consent of Jones Jensen & Company, Independent Certified
Public Accountants
23.2 Consent of Leonard E. Neilson, P.C. (included in
Exhibit 5)
27.1 Financial Data Schedule
- ------------------
* Previously filed as Exhibit to Form 10-SB
(b) Financial Statement Schedules for Registrant.
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or
the required information is shown in the financial statements
or notes therein.
Item 28. Undertakings
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together represent a fundamental
change in the information in the registration statement;
and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities as at that time
to be the initial bona fide offering.
(3) File a post effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
S-4
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) If the issuer relies on Rule 430A under the Securities
Act, the small business issuer will:
(1) For determining any liability under the Securities Act
treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be a part of this registration statement as of the time the Commission
declared it effective.
(2) For determining any liability under the Securities Act,
that each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
S-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Baton
Rouge, State of Louisiana, on this 1st day of May 2000.
MEDISYS TECHNOLOGIES, INC.
(REGISTRANT)
BY: /s/ EDWARD P. SUTHERLAND
------------------------
EDWARD P. SUTHERLAND
Chairman and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
BY: /s/ EDWARD P. SUTHERLAND
EDWARD P. SUTHERLAND
Chairman, Chief Executive
Officer and Director
DATE: May 1, 2000
BY: /s/ GARY E. ALEXANDER
-----------------------
GARY E. ALEXANDER
Vice President, Chief
Technology Officer and
Director
DATE: May 1, 2000
BY: /s/ KERRY M. FREY
-------------------
KERRY M. FREY
President, Chief
Operating Officer and
Director
DATE: May 1, 2000
BY: /s/ William David Kiesel
WILLIAM David KIESEL
Corporate Secretary and
Director
DATE: May 1, 2000
BY: /s/ ROBERT DIBENNEDETTO
Dr. Robert diBenedetto
Director
DATE: May 1, 2000
S-6
Medisys Technologies, Inc.
April 28, 2000
Exhibit 5
Opinion
Leonard E. Neilson
Attorney at Law
8160 South Highland Drive
Suite 209
Sandy, Utah 84093
Phone: (801) 733-0800 Fax: (801) 733-0808
May 1, 2000
Medisys Technologies, Inc.
144 Napoleon Street
Baton Rouge, Louisiana, 70802
Re: Form SB-2 Registration Statement of Medisys
Technologies, Inc.
To the Board of Directors:
I have acted as counsel to Medisys Technologies, Inc., a Utah
corporation (the "Company"), in connection with its registration statement on
Form SB-2 related to the offer by certain selling shareholders of 18,875,000 of
the Company's common stock, par value $.0005 per share. Of the subject shares
being offered, 7,000,000 shares are presently issued and outstanding and the
balance are issuable as follows: (i) 3,000,000 shares pursuant to the conversion
of certain 6% Convertible Debentures, due August 31, 2001; (ii) 7,125,000 shares
under that certain Private Equity Line of Credit Agreement; and (iii) 1,750,000
upon the exercise of certain common stock warrants. These amounts include shares
possibly issued due to rounding-up of fractional shares, interest and penalty,
and for fluctuations in per share market price of the Company's shares. The
shares are being offered pursuant to fulfillment of the terms and conditions set
forth in the Registration Statement filed on Form SB-2 in accordance with the
registration provisions of the Securities Act of 1933, as amended.
I have examined the Articles of Incorporation and all amendments
thereto, By-Laws, minutes of corporate proceedings and other corporate documents
with respect to the issuance of the shares by the Company and the offering of
shares by the selling shareholders. I have been furnished with originals, or
copies certified to my satisfaction, of all such corporate or other records of
the Company and I have made such other legal and factual examinations and
inquiries as I have considered necessary as a basis for the opinions expressed
herein. In the examination of the Company's corporate records, I have presumed
the authenticity of all signatures which existed on the records and have
presumed the veracity and regularity of all corporate records.
As to the question of fact material to this opinion letter, I have
relied upon the representations and warranties, certificates of and
<PAGE>
Medisys Technologies, Inc.
May 1, 2000
Page 2
conversations and correspondences with, officers and representatives of the
Company. Based upon the foregoing, I am of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Utah.
2. The shares subject to the registration statement will be
legally and validly authorized under the Articles of
Incorporation and Board of Directors of the Company and, when
distributed and paid for in accordance with the terms set
forth in the registration statement, the shares will be duly
and validly issued and outstanding, fully paid and
nonassessable.
I hereby consent to the reference to myself in the registration
statement covering the offering of the shares, the use of my name beneath the
caption "Legal Matters" in the prospectus forming a part thereof, and to the
filing of a copy of this opinion as Exhibit 5 thereof.
Yours truly,
/s/Leonard E. Neilson
---------------------
Leonard E. Neilson
:ae
EXHIBIT A
6% CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE
RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
No. 1 US $1,000,000
MEDISYS TECHNOLOGIES, INC.
6% CONVERTIBLE DEBENTURE DUE August 31, 2001
THIS DEBENTURE is issued by Medisys Technologies, Inc., a
corporation organized and existing under the laws of the State of Utah (the
"Company") and is designated as its 6% Convertible Debenture Due August 31,
2001.
FOR VALUE RECEIVED, the Company promises to pay to AMRO
International, S.A. or permitted assigns (the "Holder"), the principal sum of
One Million and 00/100 US Dollars (US $1,000,000) on August 31, 2001 (the
"Maturity Date"), and to pay interest on the principal sum outstanding from time
to time quarterly in arrears at the rate of 6% per annum accruing from the date
of initial issuance. Accrual of interest shall commence on the first business
day to occur after the date of initial issuance and continue until payment in
full of the principal sum has been made or duly provided for. Quarterly interest
payments shall be due and payable on July 1, October 1, January 1 and April 1 of
each year, commencing with April 1, 2000. If any interest payment date or the
Maturity Date is not a business day in the State of New York, then such payment
shall be made on the next succeeding business day. The interest on this
Debenture is payable at the option of the Holder, in cash or in registrable
shares of Common Stock of the Company, $.0005 par value per share ("Common
Stock") valued at the Conversion Price (as defined herein) on the interest
payment date, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder from time to time. The Company
will pay the principal of and any accrued but unpaid interest due upon this
Debenture on the Maturity Date, less any amounts required by law to be deducted,
to the registered holder of this Debenture as of the tenth day prior to the
Maturity Date and addressed to such holder at the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a payment of
principal and interest hereunder and shall satisfy and discharge the liability
for principal and interest on this Debenture to the extent of the sum
represented by such check plus any amounts so deducted.
This Debenture is subject to the following additional
provisions:
1. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any amounts required
to be withheld under the applicable provisions of the United States income tax
laws or other applicable laws at the time of such payments, and Holder shall
execute and deliver all required documentation in connection therewith.
1
<PAGE>
2. This Debenture has been issued subject to
investment representations of the original purchaser hereof and may be
transferred or exchanged only in compliance with the Securities Act of 1933, as
amended (the "Act"), and other applicable state and foreign securities laws. The
Holder shall deliver written notice to the Company of any proposed transfer of
this Debenture. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation including legal
opinions that the issuance of the Debenture in such other name does not and will
not cause a violation of the Act or any applicable state or foreign securities
laws. Prior to due presentment for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture is
duly registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary. This Debenture has been
executed and delivered pursuant to the Convertible Debentures and Warrants
Purchase Agreement dated as of February 23, 2000 between the Company and the
original Holder(s) (the "Purchase Agreement"), and is subject to the terms and
conditions of the Purchase Agreement, which are, by this reference, incorporated
herein and made a part hereof. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement.
3. The Holder of this Debenture is entitled, at its
option, to convert at any time commencing on or after the 120th day after the
initial issuance date, the principal sum outstanding of this Debenture or any
portion thereof, together with accrued but unpaid interest, into shares of
Common Stock of the Company ("Conversion Shares") at a conversion price for each
share of Common Stock ("Conversion Price") equal to the lower of (a) 85% of the
Market Price at the Conversion Date (as defined in Section 8 hereof) or (b)
$2.00. The term "Market Price" shall have the meaning set forth in the Purchase
Agreement.
4. The Company shall have the right to deliver to the
Holder a written notice of the Company's intent to redeem the entire outstanding
principal sum of this Debenture at a price equal to (i) during the sixty (60)
day period following the date of initial issuance, one hundred five percent
(105%) of the principal amount outstanding and all accrued and unpaid interest
hereon, (ii) on or after the 61st day after the date of initial issuance and up
to and including the 120th day after the date of initial issuance, one hundred
ten percent (110%) of the principal amount outstanding and all accrued and
unpaid interest hereon, and (iii) on or after the 120th day after the date of
initial issuance and up to and including the 180th day after the date of initial
issuance, one hundred and fifteen percent (115%) of the principal amount, plus
all accrued but unpaid interest. The Company shall make the redemption payment
to the Holder within five (5) Trading Days of the redemption date set forth in
the Company notice of redemption, or else the redemption notice shall be void,
and the Company shall thereafter not have any further right to redeem this
Debenture. The Holder shall have the right to convert this Debenture as set
forth in Section 8 until the Trading Day prior to the Trading Day set for
payment of the redemption price.
5. Except as set forth in the Disclosure Schedule
pursuant to Section 6.9 of the Purchase Agreement, if the Company enters into
any equity financing arrangement prior to repayment or conversion in full of
this Debenture, the Company shall be obligated to use fifty percent (50%) of the
proceeds of any such equity financing to redeem as much of the outstanding
principal sum of this Debenture as the equity financing provides in accordance
with the terms of this Section 5, at a price according to the schedule in
Section 4 of this Debenture.
2
<PAGE>
6. Notwithstanding anything to the contrary contained
herein and only if the rules of the Principal Market will be violated otherwise,
in the event that a conversion (when aggregated with all prior conversions of
portions of this Debenture) requires the Company to issue a number of shares of
Common Stock which would exceed 19.9% of the number of shares of Common Stock
issued and outstanding on the date of this Debenture, the Company shall issue
only such number of shares of Common Stock as shall not exceed such limit and
shall pay the Holder cash in the amount of the closing asked price on the
Principal Market on the Conversion Date times the number of shares of Common
Stock in excess of such number of shares into which this Debenture (or the
portion thereof then being converted) is then convertible at the Conversion
Price. Any payments under this Section 6 shall be made to an account designated
in writing by the Holder to the Company when the Notice of Conversion is given.
The rights of all holders of Convertible Debentures issued under the Purchase
Agreement to convert their Convertible Debentures into shares of Common Stock
shall be prorated among such holders based on their respective percentage
holdings at the time of conversion of the aggregate outstanding amount of all
Convertible Debentures in order to comply with the aforesaid overall limitation.
Any conversion which is paid in cash under this Section 6 shall be paid within
five (5) Trading Days of the Conversion Date, or else the Company shall
thereafter be unable to exercise its redemption rights under Section 4 with
respect to the outstanding Debentures.
7. On any Conversion Date, the Company may elect to
deliver to the Holder in consideration of any such conversion cash, Conversion
Shares or any combination thereof. The amount of cash to be delivered shall
equal the closing ask price on the Conversion Date multiplied by the number of
shares of Common Stock as would have been issued at the Conversion Price upon
such conversion. The Company's ability to deliver cash as full or partial
conversion consideration in accordance with this Section 7 shall be conditioned
on the Company's delivery of notice to the Holder of such election by the
Company no later than six (6) business hours following the Company's receipt of
a Notice of Conversion. The Holder shall then have a further twenty-four (24)
hour period in which to withdraw his Notice of Conversion, or else the Holder
shall be deemed to have accepted such alternative cash consideration and such
sum shall be due and payable within five (5) Trading Days.
8. (a) Conversion shall be effectuated by
surrendering this Debenture to the Company (if such Conversion will convert all
outstanding principal) together with the form of conversion notice attached
hereto as Exhibit A (the "Notice of Conversion"), executed by the Holder of this
Debenture evidencing such Holder's intention to convert this Debenture or a
specified portion (as above provided) hereof, and accompanied, if required by
the Company, by proper assignment hereof in blank. Interest accrued or accruing
from the date of issuance to the date of conversion shall, at the option of the
Company, be paid in cash as set forth above or in Common Stock upon conversion
at the Conversion Price on the Conversion Date. No fraction of a share or scrip
representing a fraction of a share will be issued on conversion, but the number
of shares issuable shall be rounded to the nearest whole share. The date on
which Notice of Conversion is given (the "Conversion Date") shall be deemed to
be the date on which the Holder faxes the Notice of Conversion duly executed to
the Company. Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number: (225) 343-8023 Attn: Edward P. Sutherland.
Certificates representing Common Stock upon conversion will be delivered to the
Holder within five (5) Trading Days from the date the Notice of Conversion is
delivered to the Company. Delivery of shares upon conversion shall be made to
the address specified by the Holder in the Notice of Conversion.
(b) The Company understands that a delay in the
issuance of shares of Common Stock upon a conversion beyond the five (5) Trading
Day period described in Section 8(a) could result in economic loss to the
Holder. As compensation to the Holder for such loss, the Company agrees to pay
late payments to the Holder for late issuance of shares of Common Stock upon
conversion in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond five (5) Trading Days from
the date the Notice of Conversion is delivered to the Company).
3
<PAGE>
- -------------------------------------------------------------------------------
o. Trading Days Late Late Payment for Each
$5,000 of Principal Amount
Being Converted
- -------------------------------------------------------------------------------
1 $100
- -------------------------------------------------------------------------------
2 $200
- -------------------------------------------------------------------------------
3 $300
- -------------------------------------------------------------------------------
4 $400
- -------------------------------------------------------------------------------
5 $500
- -------------------------------------------------------------------------------
6 $600
- -------------------------------------------------------------------------------
7 $700
- -------------------------------------------------------------------------------
8 $800
- -------------------------------------------------------------------------------
9 $900
- -------------------------------------------------------------------------------
10 $1,000
- -------------------------------------------------------------------------------
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
- -------------------------------------------------------------------------------
The Company shall pay any payments incurred under
this Section 8(b) in immediately available funds upon demand. Nothing herein
shall limit Holder's right to pursue injunctive relief and/or actual damages for
the Company's failure to issue and deliver Common Stock to the holder,
including, without limitation, the Holder's actual losses occasioned by any
"buy-in" of Common Stock necessitated by such late delivery. Furthermore, in
addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of such shares of
Common Stock within five (5) Trading Days from the date the Notice of Conversion
is delivered to the Company, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion, and in
such event no late payments shall be due in connection with such withdrawn
conversion.
(c) If (a) the Company challenges, disputes or denies
the right of the Holder to effect the conversion of this Debenture into Common
Stock or otherwise dishonors or rejects any Notice of Conversion delivered in
accordance with this Section 8 or (b) any Company stockholder who is not and has
never been an Affiliate (as defined in Rule 405 under the Securities Act of
1933, as amended) of the Holder obtains a judgment or any injunctive relief from
any court or public or governmental authority which denies, enjoins, limits,
modifies, delays or disputes the right of the holder hereof to effect the
conversion of this Debenture into Common Stock, then the Holder shall have the
right, by written notice, to require the Company to promptly redeem this
Debenture for cash at a redemption price equal to one hundred forty percent
(140%). Under any of the circumstances set forth above, the Company shall be
responsible for the payment of all costs and expenses of the Holder, including
reasonable legal fees and expenses, as and when incurred in disputing any such
action or pursuing its rights hereunder (in addition to any other rights of the
Holder), subject in the case of clause (b) to the Company's right to control and
assume the defense of any such action. In the absence of an injunction
precluding the same, the Company shall issue shares upon a properly noticed
conversion.
(d) The Holder shall be entitled to exercise its
conversion privilege notwithstanding the commencement of any case under 11
U.S.C.ss. 101 et seq. (the "Bankruptcy Code"). In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C.ss.362 in
respect of the Holder's conversion privilege.
4
<PAGE>
9. No provision of this Debenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Debenture at the time, place, and
rate, and in the coin or currency or shares of Common Stock, herein prescribed.
This Debenture is a direct obligation of the Company.
10. No recourse shall be had for the payment of the
principal of, or the interest on, this Debenture, or for any claim based hereon,
or otherwise in respect hereof, against any incorporator, shareholder, employee,
officer or director, as such, past, present or future, of the Company or any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
11. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee agree that the Debenture may
thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property receivable upon
such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Debenture might have been converted immediately
before such merger, consolidation, sale or transfer, subject to adjustments
which shall be as nearly equivalent as may be practicable. In the event of any
proposed merger, consolidation or sale or transfer of all or substantially all
of the assets of the Company (a "Sale"), the Holder hereof shall have the right
to convert by delivering a Notice of Conversion to the Company within fifteen
(15) days of receipt of notice of such Sale from the Company. In the event the
Holder hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture as provided in Section 4, less
all amounts required by law to be deducted, upon which tender of payment
following such notice, the right of conversion shall terminate.
12. The Holder of the Debenture, by acceptance
hereof, agrees that this Debenture is being acquired for investment and that
such Holder will not offer, sell or otherwise dispose of this Debenture or the
Shares of Common Stock issuable upon conversion thereof except under
circumstances which will not result in a violation of the Act or any applicable
state Blue Sky or foreign laws or similar laws relating to the sale of
securities.
13. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York. Each of the parties
consents to the jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
14. The following shall constitute an "Event of
Default":
a. The Company shall default in the payment of
principal or interest on this Debenture and same
shall continue for a period of ten (10) days; or
b. Any of the representations or warranties made by
the Company herein, in the Purchase Agreement, the
Registration Rights Agreement, or in any agreement,
certificate or financial or other written statements
heretofore or hereafter furnished by the Company in
connection with the execution and delivery of this
Debenture or the Purchase Agreement shall be false or
misleading in any material respect at the time made;
or
5
<PAGE>
c. The Company fails to issue shares of Common Stock
to the Holder or to cause its Transfer Agent to issue
shares of Common Stock upon exercise by the Holder of
the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when
required by this Debenture or the Registration Rights
Agreement, and such transfer is otherwise lawful, or
fails to remove any restrictive legend or to cause
its Transfer Agent to transfer any certificate or any
shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by
this Debenture, the Purchase Agreement or the
Registration Rights Agreement and such legend removal
is otherwise lawful, and any such failure shall
continue uncured for five (5) business days; or
d. The Company shall fail to perform or observe, in
any material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under the Purchase Agreement, the
Registration Rights Agreement or this Debenture and
such failure shall continue uncured for a period of
thirty (30) days after written notice from the Holder
of such failure; or
e. The Company shall (1) admit in writing its
inability to pay its debts generally as they mature;
(2) make an assignment for the benefit of creditors
or commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
f. A trustee, liquidator or receiver shall be
appointed for the Company or for a substantial part
of its property or business without its consent and
shall not be discharged within sixty (60) days after
such appointment; or
g. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
h. Any money judgment, writ or warrant of attachment,
or similar process in excess of Five Hundred Thousand
($500,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against
the Company and, if instituted against the Company,
shall not be dismissed within sixty (60) days after
such institution or the Company shall by any action
or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
6
<PAGE>
j. The Company shall have its Common Stock suspended
or delisted from trading on a Principal Market for in
excess of two (2) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law;
provided, that any payment of this Debenture in connection with an Event of
Default (other than a delisting of its Common Stock pursuant to clause (j.)) may
be made, at the Company's election, in cash or in shares of Common Stock, in
such number as would be issued at the Conversion Price on the date the Debenture
becomes due and payable.
15. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
16. In no event shall the Holder be permitted to convert this
Debenture for shares of Common Stock in excess of the amount of this Debenture
upon the conversion of which, (x) the number of shares of Common Stock owned by
such Holder (other than shares of Common Stock issuable upon conversion of this
Debenture) plus (y) the number of shares of Common Stock issuable upon
conversion of this Debenture, would be equal to or exceed 9.9% of the number of
shares of Common Stock then issued and outstanding, including shares issuable
upon conversion of this Debenture held by such Holder after application of this
Section 16. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 16 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in the
sole discretion of such Holder, and the submission of a Notice of Conversion
shall be deemed to be such Holder's determination of whether this Debenture is
convertible (in relation to other securities owned by such holder) and of which
portion of this Debenture is convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a holder to convert this Debenture into shares
of Common Stock at such time as such conversion will not violate the provisions
of this Section 16. The provisions of this Section 16 may be waived by the
Holder of this Debenture upon not less than 75 days' prior notice to the
Company, and the provisions of this Section 16 shall continue to apply until
such 75th day (or such later date as may be specified in such notice of waiver).
No conversion of this Debenture in violation of this Section 16 but otherwise in
accordance with this Debenture shall affect the status of the Common Stock
issued upon such conversion as validly issued, fully-paid and nonassessable.
Notwithstanding anything contained herein to the contrary, no interest shall
accrue after the Maturity Date on any such unconverted portion of this
Debenture.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized.
Dated: February __, 2000
MEDISYS TECHNOLOGIES, INC.
By:
Edward P. Sutherland, Chairman and CEO
Attest:
- -----------------------
8
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $______ of the
principal amount of the above Debenture No.__into Shares of Common Stock of
Medisys Technologies, Inc. (the "Company") according to the conditions hereof,
as of the date written below.
Date of Conversion* ____________________________________________________________
Applicable Conversion Price * _________________________________________________
Accrued Interest________________________________________________________________
Signature_____________________________________________________________________
[Name]
Address:______________________________________________________________________
-----------------------------------------------------------------------
* This original Notice of Conversion must be received by the Company by the
third Trading Day following the Date of Conversion, and, if such conversion
represents the remaining principal balance of the Debenture, the original
Debenture.
9
<PAGE>
EXHIBIT B
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 75,000 Shares of Common Stock of
MEDISYS TECHNOLOGIES, INC.
THIS CERTIFIES that, for value received, Jesup & Lamont Securities
Corp. (the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after February 23, 2000 (the "Initial
Exercise Date") and on or prior to the close of business on February 23, 2003
(the "Termination Date") but not thereafter, to subscribe for and purchase from
Medisys Technologies, Inc., a corporation incorporated in Utah (the "Company"),
up to seventy-five thousand (75,000) shares (the "Warrant Shares") of Common
Stock, $.0005 par value, of the Company (the "Common Stock"). The purchase price
of one share of Common Stock (the "Exercise Price") under this Warrant shall be
$2.00, pursuant to the Convertible Debentures and Warrants Purchase Agreement
dated as of February 23, 2000 pursuant to which this Warrant has been issued
(the "Purchase Agreement"). The Exercise Price and the number of shares for
which the Warrant is exercisable shall be subject to adjustment as provided
herein. In the event of any conflict between the terms of this Warrant and the
Purchase Agreement, the Purchase Agreement shall control. Capitalized terms used
and not otherwise defined herein shall have the meanings set forth for such
terms in the Purchase Agreement.
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1. Title to Warrant. Prior to the Termination Date and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant together
with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of the
purchase rights represented by this Warrant may be made at any time or times on
or after the Initial Exercise Date, and before the close of business on the
Termination Date by the surrender of this Warrant and the Notice of Exercise
Form annexed hereto duly executed, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Company) and upon payment of the Exercise Price of the shares thereby
purchased by wire transfer or cashier's check drawn on a United States bank, the
holder of this Warrant shall be entitled to receive a certificate for the number
of shares of Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within five (5) Trading Days
after the date on which this Warrant shall have been exercised as aforesaid.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes required
to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of
such shares, have been paid. If this Warrant shall have been exercised in part,
the Company shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased shares of Common Stock called for
by this Warrant, which new Warrant shall in all other respects be identical with
this Warrant. If there is no registration in effect permitting the resale by the
Holder of the Warrant Shares at any time from and after one year from the
issuance date of this Warrant, then the Holder shall have the right to a
"cashless exercise" in which the Holder shall be entitled to receive a
certificate for the number of shares equal to the quotient obtained by dividing
[(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrant; and
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(X) = the number of shares issuable upon exercise of the Warrant in accordance
with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common
Stock upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its shareholder books or records
in any manner which prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination. (a) Subject to compliance with any
applicable securities laws, transfer of this Warrant and all rights hereunder,
in whole or in part, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at the principal
office of the Company, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by Holder or its agent
or attorney and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be exercised by a
new holder for the purchase of shares of Common Stock without having a new
Warrant issued.
(b) This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
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(c) The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of the
Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle the
holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price, the Warrant Shares so purchased shall
be and be deemed to be issued to such holder as the record owner of such shares
as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant certificate or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock
Splits, etc. The number and kind of securities purchasable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment from time to
time upon the happening of any of the following. In case the Company shall (i)
pay a dividend in shares of Common Stock or make a distribution in shares of
Common Stock to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Warrant Shares or other securities of
the Company resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
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(b) Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
12. Voluntary Adjustment by the Company. The Company may at any time during the
term of this Warrant, reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or number or
kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
holder of this Warrant notice of such adjustment or adjustments setting forth
the number of Warrant Shares (and other securities or property) purchasable upon
the exercise of this Warrant and the Exercise Price of such Warrant Shares (and
other securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such notice, in the absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
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14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property, assets
or business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 30
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 16(d).
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15. Authorized Shares. The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Principal Market upon which the Common
Stock may be listed.
The Company shall not by any action, including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any
time during the period this Warrant is outstanding acknowledge in writing, in
form reasonably satisfactory to Holder, the continuing validity of this Warrant
and the obligations of the Company hereunder.
Before taking any action which would cause an
adjustment reducing the current Exercise Price below
the then par value, if any, of the shares of Common Stock issuable upon exercise
of the Warrants, the Company shall take any corporate action which may be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable shares of such Common Stock at such adjusted Exercise Price.
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
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16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any successors or assigns
of the Company. This Warrant shall constitute a contract under the laws of New
York without regard to its conflict of law, principles or rules, and be subject
to arbitration pursuant to the terms set forth in the Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
Company fails to comply with any provision of this Warrant, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
(d) Notices. Any notice, request or other document required or permitted to be
given or delivered to the holder hereof by the Company shall be delivered in
accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the absence of affirmative
action by Holder to purchase shares of Common Stock, and no enumeration herein
of the rights or privileges of Holder hereof, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
(f) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(g) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold harmless Holder
from and against any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses and
disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's negligence,
bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
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(i) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.
(j) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: February ____, 2000
MEDISYS TECHNOLOGIES, INC.
By:
Edward P. Sutherland, Chairman and CEO
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NOTICE OF EXERCISE
To: MEDISYS TECHNOLOGIES, INC.
(1)______The undersigned hereby elects to purchase ________ shares of Common
Stock (the "Common Stock"), of Medisys Technologies, Inc. pursuant to the terms
of the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2)______Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
(Name)
----------------------------------------
(Address)
Dated:
------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute this form and
supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
whose address is
- -----------------------------------------------
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated:
-----------------------
Holder's Signature:
-----------------------------
Holder's Address:
-----------------------------
Signature Guaranteed:
---------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
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EPSTEIN BECKER & GREEN, P.C.
New York JOB NO.
DOCUMENT PROFILE SHEET ------------
- -------------------------------------------------------------------------------
DATE / TIME NEEDED:
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CLIENT/MATTER NAME: CURZON CAPITAL CORP/General
---------------------------
CLIENT/MATTER ID: 21653/100
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DOCUMENT NAME: Stock Purchase Agreement
------------------------
AUTHOR: Joseph Smith
RETURN TO: J. Smith
--------
STATUS: DEPARTMENT:
( ) Draft ( ) Health (Health)
( ) Final ( ) Corporate/Securities (CorpSec)
( ) Single Space ( ) Tax Pension Employee Benefits (PenEmptTx)
( ) Double Space ( ) Labor (Labor)
( ) Input ( ) Bankruptcy (Bankrupt)
( ) Revisions ( ) Real Estate (Real)
( ) Print Out ( ) Trust & Estates (Estates)
( ) Scan ( ) Litigation: Non-Labor (Litigate)
PAPER: MISCELLANEOUS:
( ) White 81/2x 11 ( ) Back (Velobind)
( ) Legal 81/2x 14 (Fold-over)
( ) Letterhead ( ) Covers
( ) Redrules 8 1/2x 11
( ) Will Paper 8 1/2x 14
( ) DUPE & REVISE: ______ Original:
----------------------------
( ) COMPARE-RITE:________ Original:
----------------------------
_________ Revise:
----------------------------
(OPTIONS) - ADDITIONS:
( ) Bold & Double Underline
========================
DELETIONS:
( ) ^ (carat) OR ( ) Strikethrough
SPECIAL INSTRUCTIONS:
-------------------------------------------------
- --------------------------------------------------------------------------------
Call when done: Ext. 4924
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SPELL-CHECKED BY: ________________ (Write your initials; do not type.)
PRACTICE AREA: CORPORATE
---------
DOCUMENT NUMBER: NY:95601.4
----------
DATE/TIME: 04/28/00 - 5:30 AM OPERATOR: admin
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<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 23,
2000, between the investor or investors signatory hereto (each an "Investor" and
together the "Investors"), and Medisys Technologies, Inc., a Utah corporation
(the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Investor is purchasing from the Company, pursuant to a
Convertible Debentures and Warrants Purchase Agreement dated the date hereof
(the "Purchase Agreement"), in the aggregate, up to $2,000,000 principal sum of
Convertible Debentures and Warrants to purchase up to 125,000 shares of the
Company's Common Stock (terms not defined herein shall have the meanings
ascribed to them in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investors the
registration rights set forth herein with respect to the Conversion Shares of
Common Stock issuable upon conversion of or as interest upon the Convertible
Debentures purchased pursuant to the Purchase Agreement and shares of Common
Stock issuable upon exercise of the Warrants (hereinafter referred to as the
"Stock" or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities until (i) the Registration Statement
has been declared effective by the Commission, and all Securities have been
disposed of pursuant to the Registration Statement, (ii) all Securities have
been sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Securities have been otherwise transferred to
holders who may trade such Securities without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such Securities not bearing a restrictive legend or (iv) such time
as, in the opinion of counsel to the Company, all Securities may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.
Section 2. Restrictions on Transfer. Each Investor
acknowledges and understands that prior to the registration of the Securities as
provided herein, the Securities are "restricted securities" as defined in Rule
144 promulgated under the Act. Each Investor understands that no disposition or
transfer of the Securities may be made by Investor in the absence of (i) an
opinion of counsel to the Investor, in form and substance reasonably
satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.
With a view to making available to the Investors the
benefits of Rule 144 under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of
Rule 144; and
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(b) file with the Commission in a timely manner all
reports and other documents required to be filed with the Commission pursuant to
Section 13 or 15(d) under the Exchange Act by companies subject to either of
such sections, irrespective of whether the Company is then subject to such
reporting requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file
with the Securities and Exchange Commission ("Commission"), within forty-five
(45) days after the Closing Date a registration statement (on Form S-3, or other
appropriate registration statement form) under the Securities Act (the
"Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of the Investors, so as to permit a
public offering and resale of the Securities under the Act by the Investors as
selling stockholders and not as underwriters.
The Company shall use its best efforts to cause such
Registration Statement to become effective within one hundred (100) days from
the first Closing Date, or, if earlier, within five (5) days of SEC clearance to
request acceleration of effectiveness. The number of shares designated in the
Registration Statement to be registered shall include all the Warrant Shares, at
least 200% of the shares issuable upon conversion of the Convertible Debentures
based upon the Conversion Price in effect on the day prior to the filing date,
and such number of shares as the Company deems prudent for the purpose of
issuing shares of Common Stock as interest on the Convertible Debentures, and
shall include appropriate language regarding reliance upon Rule 416 to the
extent permitted by the Commission. The Company will notify the Investors of the
effectiveness of the Registration Statement within one Trading Day of such
event. In the event that the number of shares so registered shall prove to be
insufficient to register the resale of all of the Securities, then the Company
shall be obligated to file, within thirty (30) days of notice from any Investor,
a further Registration Statement registering such remaining shares and shall use
diligent best efforts to prosecute such additional Registration Statement to
effectiveness within ninety (90) days of the date of such notice.
(b) The Company will maintain the Registration
Statement or post-effective amendment filed under this Section 3 effective under
the Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the date that all of the Securities have been sold pursuant to such
Registration Statement, (iii) the date the Investors receive an opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Investors, that the Securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) all Securities have been otherwise
transferred to persons who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend, or
(v) all Securities may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) or any similar provision then in effect under the
Securities Act in the opinion of counsel to the Company, which counsel shall be
reasonably acceptable to the Investor (the "Effectiveness Period"), or (vi)
three (3) years from the first Closing Date.
(c) All fees, disbursements and out-of-pocket
expenses and costs incurred by the Company in connection with the preparation
and filing of the Registration Statement under subparagraph 3(a) and in
complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees of the Company) shall be borne by the Company.
The Investors shall bear the cost of underwriting and/or brokerage discounts,
fees and commissions, if any, applicable to the Securities being registered and
the fees and expenses of their counsel. The Investors and their counsel shall
have a reasonable period, not to exceed five (5) Trading Days, to review the
proposed Registration Statement or any amendment thereto, prior to filing with
the Commission, and the Company shall provide each Investor with copies of any
comment letters received from the Commission with respect thereto within two (2)
Trading Days of receipt thereof. The Company shall qualify any of the securities
for sale in such states as any Investor reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the sellers, or which will
require the Company to qualify to do business in such state or require the
Company to file therein any general consent to service of process. The Company
at its expense will supply the Investors with copies of the applicable
Registration Statement and the prospectus included therein and other related
documents in such quantities as may be reasonably requested by the Investors.
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(d) The Company shall not be required by this Section
3 to include an Investor's Securities in any Registration Statement which is to
be filed if, in the opinion of counsel for both the Investor and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Investor and the Company)
the proposed offering or other transfer as to which such registration is
requested is exempt from applicable federal and state securities laws and would
result in all purchasers or transferees obtaining securities which are not
"restricted securities", as defined in Rule 144 under the Securities Act.
(e) In the event that (i) the Registration Statement
to be filed by the Company pursuant to Section 3(a) above is not filed with the
Commission within forty-five (45) days from the Closing Date, (ii) such
Registration Statement is not declared effective by the Commission within the
earlier of one hundred (100) days from the Closing Date or five (5) days of
clearance by the Commission to request effectiveness, (iii) such Registration
Statement is not maintained as effective by the Company for the period set forth
in Section 3(b) above or (iv) the additional Registration Statement referred to
in Section 3(a) is not filed within forty-five (45) days or declared effective
within one hundred (100) days as set forth therein (each a "Registration
Default") then the Company will pay Investor (pro rated on a daily basis if less
than a month), as liquidated damages for such failure and not as a penalty two
percent (2%) of the aggregate market value of shares of Common Stock purchased
from the Company (including the Conversion Shares which would be issuable upon
conversion of the Convertible Debentures on any date of determination, and
whether or not the Convertible Preferred Shares are then Convertible pursuant to
their terms) and held by the Investor until such Registration Statement has been
filed, and in the event of late effectiveness (in case of clause (ii) above) or
lapsed effectiveness (in the case of clause (iii) above), two percent (2%) per
month (pro rated on a daily basis for periods less than thirty (30) days) of the
aggregate market value of shares of Common Stock purchased from the Company and
held by the Investor (including the Conversion Shares which would be issuable
upon conversion of the Convertible Debentures on any date of determination, and
whether or not the Convertible Debentures are then convertible pursuant to their
terms) (regardless of whether one or more such Registration Defaults are then in
existence) until such Registration Statement has been declared effective. Such
payment of the liquidated damages shall be made to the Investors in cash, within
five (5) calendar days of demand, provided, however, that the payment of such
liquidated damages shall not relieve the Company from its obligations to
register the Securities pursuant to this Section. The market value of the Common
Stock for this purpose shall be the closing price (or last trade, if so
reported) on the Principal Market for each day during such Registration Default.
Notwithstanding anything to the contrary contained herein, a failure to maintain
the effectiveness of an filed Registration Statement or the ability of an
Investor to use an otherwise effective Registration Statement to effect resales
of Securities during the period after 45 days and within 90 days from the end of
the Company's fiscal year resulting solely from the need to update the Company's
financial statements contained or incorporated by reference in such Registration
Statement shall not constitute a Registration Default and shall not trigger the
accrual of liquidated damages hereunder.
If the Company does not remit the payment to the
Investors as set forth above, the Company will pay the Investors reasonable
costs of collection, including attorneys' fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall not
affect or limit the Investors' other rights or remedies as set forth in this
Agreement.
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(f) The Company shall not include any other
securities in any Registration Statement in which it is required to include
Securities pursuant to this Section 3.
(g) If at any time or from time to time after the
effective date of any Registration Statement, the Company notifies the Investors
in writing of the existence of a Potential Material Event (as defined in Section
3(h) below), the Investors shall not offer or sell any Securities or engage in
any other transaction involving or relating to Securities, from the time of the
giving of notice with respect to a Potential Material Event until the Investors
receive written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event; provided, however, that the Company may not so suspend the right
to such holders of Securities for more than twenty (20) days in the aggregate
during any twelve month period, during the period the Registration Statement is
required to be in effect, and if such period is exceeded, such event shall be a
Registration Default. If a Potential Material Event shall occur prior to the
date a Registration Statement is required to be filed, then the Company's
obligation to file such Registration Statement shall be delayed without penalty
for not more than twenty (20) days, and such delay or delays shall not
constitute a Registration Default. The Company must, if lawful, give the
Investors notice in writing at least two (2) Trading Days prior to the first day
of the blackout period.
(h) "Potential Material Event" means any of the
following: (a) the possession by the Company of material information not ripe
for disclosure in a registration statement, as determined in good faith by the
Chief Executive Officer or the Board of Directors of the Company that disclosure
of such information in a Registration Statement would be detrimental to the
business and affairs of the Company; or (b) any material engagement or activity
by the Company which would, in the good faith determination of the Chief
Executive Officer or the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Chief
Executive Officer or the Board of Directors of the Company that the applicable
Registration Statement would be materially misleading absent the inclusion of
such information.
Section 4. Cooperation with Company. The Investors will
cooperate with the Company in all respects in connection with this Agreement,
including timely supplying all information reasonably requested by the Company
(which shall include all information regarding the Investors and proposed manner
of sale of the Registrable Securities required to be disclosed in any
Registration Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the Registrable
Securities and entering into and performing their obligations under any
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering. Nothing in this Agreement shall obligate any Investor to
consent to be named as an underwriter in any Registration Statement. The
obligation of the Company to register the Registrable Securities shall be
absolute and unconditional as to those Securities which the Commission will
permit to be registered without naming the Investors as underwriters. Any delay
or delays caused by the Investors by failure to cooperate as required hereunder
shall not constitute a Registration Default.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible, subject to the Investors' assistance and cooperation as reasonably
required with respect to each Registration Statement:
(a) (i) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such registration statement
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whenever the Investors shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of securities from
time to time in connection with a registration statement pursuant to Rule 415
promulgated under the Act) and (ii) take all lawful action such that each of (A)
the Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (B) the prospectus forming part of the Registration Statement,
and any amendment or supplement thereto, does not at any time during the
Registration Period include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(b) (i) prior to the filing with the Commission of
any Registration Statement (including any amendments thereto) and the
distribution or delivery of any prospectus (including any supplements thereto),
provide draft copies thereof to the Investors as required by Section 3(c) and
reflect in such documents all such comments as the Investors (and their counsel)
reasonably may propose respecting the Selling Shareholders and Plan of
Distribution sections (or equivalents) and (ii) furnish to each Investor such
numbers of copies of a prospectus including a preliminary prospectus or any
amendment or supplement to any prospectus, as applicable, in conformity with the
requirements of the Act, and such other documents, as such Investor may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Investor;
(c) 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 shall reasonably request (subject to
the limitations set forth in Section 3(c) above), and do any and all other acts
and things which may be necessary or advisable to enable each Investor to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Investor;
(d) list such Registrable Securities on the Principal
Market, if the listing of such Registrable Securities is then permitted under
the rules of such Principal Market;
(e) notify each Investor at any time when a
prospectus relating thereto covered by the Registration Statement is required to
be delivered under the Act, of the happening of any event of which it 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 not misleading in the light of the circumstances
then existing, and the Company shall prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware
of such event, notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) cooperate with the Investors to facilitate the
timely preparation and delivery of certificates for the Registrable Securities
to be offered pursuant to the Registration Statement and enable such
certificates for the Registrable Securities to be in such denominations or
amounts, as the case may be, as the Investors reasonably may request and
registered in such names as the Investors may request; and, within three (3)
Trading Days after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors) an appropriate instruction
and, to the extent necessary, an opinion of such counsel;
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(h) take all such other lawful actions reasonably
necessary to expedite and facilitate the disposition by the Investors of their
Registrable Securities in accordance with the intended methods therefor provided
in the prospectus which are customary for issuers to perform under the
circumstances;
(i) in the event of an underwritten offering,
promptly include or incorporate in a prospectus supplement or post-effective
amendment to the Registration Statement such information as the managers
reasonably agree should be included therein and to which the Company does not
reasonably object and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such Prospectus supplement or
post-effective amendment; and
(j) maintain a transfer agent and registrar for its
Common Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the
Company agrees to indemnify and hold harmless the Investors and each person, if
any, who controls an Investor within the meaning of the Securities Act (each a
"Distributing Investor") against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses), to which the Distributing Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each
Distributing Investor agrees that it will indemnify and hold harmless the
Company, and each officer and director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, or any related final prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Distributing Investor may otherwise have.
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(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action against such
indemnified party, such indemnified party will, if a claim in respect thereof is
to be made against the indemnifying party under this Section 6, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party except to the extent
the failure of the indemnified party to provide such written notification
actually prejudices the ability of the indemnifying party to defend such action.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified parties as a group
shall have the right to employ one separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party unless (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by its counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the indemnified party or any other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld so long
as such settlement includes a full release of claims against the indemnified
party.
Section 7. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any indemnified party,
then the Company and the applicable Distributing Investor shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), in either such case (after contribution from
others) on the basis of relative fault as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the applicable
Distributing Investor on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Investor agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 7 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
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Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to undertake liability to any person under this Section 7
for any amounts in excess of the dollar amount of the proceeds received by such
Investor from the sale of such Investor's Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) pursuant to
any Registration Statement under which such Registrable Securities are
registered under the Securities Act and (ii) underwriter be required to
undertake liability to any person hereunder for any amounts in excess of the
aggregate discount, commission or other compensation payable to such underwriter
with respect to the Registrable Securities underwritten by it and distributed
pursuant to such Registration Statement.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) hand delivered,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth in the
Purchase Agreement or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the first business day following the date of sending
by reputable courier service, fully prepaid, addressed to such address, or (c)
upon actual receipt of such mailing, if mailed. Either party hereto may from
time to time change its address or facsimile number for notices under this
Section 8 by giving at least ten (10) days' prior written notice of such changed
address or facsimile number to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. The rights granted the Investors under this
Agreement may be assigned to any purchaser of substantially all of the
Registrable Securities (or the rights thereto) from an Investor, as otherwise
permitted by the Purchase Agreement.
Section 10. Additional Covenants of the Company. The Company
agrees that at such time as it otherwise meets the requirements for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable Securities, it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original, but all of which, when together shall constitute but one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each party hereto and delivered to the other parties. In lieu of the
original, a facsimile transmission or copy of the original shall be as effective
and enforceable as the original.
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Section 12. Remedies. The remedies provided in this Agreement
are cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement or otherwise prevents the Company from complying with all of its
obligations hereunder.
Section 14. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 15. Governing Law, Arbitration. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York applicable to contracts made in New York by persons domiciled in New York
City and without regard to its principles of conflicts of laws. Any dispute
under this Agreement shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York, and shall be
finally and conclusively determined by the decision of a board of arbitration
consisting of three (3) members (hereinafter referred to as the "Board of
Arbitration") selected as according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive business days in New York City, New York,
and shall reach and render a decision in writing (concurred in by a majority of
the members of the Board of Arbitration) with respect to the amount, if any,
which the losing party is required to pay to the other party in respect of a
claim filed. In connection with rendering its decisions, the Board of
Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available, and the non-prevailing party
in any such injunctive proceeding shall pay the expenses of the prevailing
party, including reasonable attorneys' fees, in connection with such injunctive
proceeding.
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IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
MEDISYS TECHNOLOGIES, INC.
By: /s/Edward P. Sutherland
-----------------------
Edward P. Sutherland, Chairman and CEO
AMRO International, S.A.
By: /s/H. U. Bachofen
-----------------
H. U. Bachofen, Director
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EXHIBIT D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of
February 23, 2000 by and among Medisys Technologies, Inc., a corporation
incorporated under the laws of the State of Utah (the "Company"), the investors
signatory hereto (each an "Investor" and together the "Investors") and Epstein
Becker & Green, P.C., (the "Escrow Agent"). Capitalized terms used but not
defined herein shall have the meanings set forth in the Convertible Debenture
and Warrants Purchase Agreement referred to in the first recital.
W I T N E S S E T H:
WHEREAS, the Investors will be purchasing from the Company, in
the aggregate, up to $2,000,000 principal sum of Convertible Debentures (the
"Convertible Debentures") and Warrants to purchase, in the aggregate, up to
125,000 shares of Common Stock, at the purchase price set forth in the
Convertible Debentures and Warrants Purchase Agreement (the "Purchase
Agreement") dated the date hereof between the Investors and the Company, which
will be issued as per the terms contained herein and in the Purchase Agreement;
and
WHEREAS, it is intended that the purchase of the securities be
consummated in accordance with the requirements set forth by Sections 4(2)
and/or 4(6) and/or Regulation D promulgated under the Securities Act of 1933, as
amended; and
WHEREAS, the Company and the Investors have requested that the
Escrow Agent hold the applicable Purchase Price with respect to each Closing in
escrow until the Escrow Agent has received the Convertible Debentures, the
Warrants and certain other closing documents specified herein;
NOW, THEREFORE, in consideration of the covenants and mutual
promises contained herein and other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1. The parties hereby agree to establish an escrow account with the Escrow
Agent whereby the Escrow Agent (i) shall hold the funds for the purchase of the
initial $1,000,000 principal sum Convertible Debentures and the Warrants at the
first Closing as contemplated by the Purchase Agreement, (ii) shall hold the
funds for the purchase of the $500,000 principal sum Convertible Debentures at
the second Closing as contemplated by the Purchase Agreement and (iii) shall
hold the funds for the purchase of the $500,000 principal sum Convertible
Debentures at the third Closing as contemplated by the Purchase Agreement
1.2. (a) At each Closing, upon the Escrow Agent's receipt of the applicable
Purchase Price for the Closing into its attorney trustee account from the
Investors, together with, at the first Closing, executed counterparts of this
Agreement, the Purchase Agreement and the Registration Rights Agreement, it
shall telephonically advise the Company, or the Company's designated attorney or
agent, of the amount of funds it has received into its account.
1
<PAGE>
(b) Wire transfers to the Escrow Agent shall be made as follows:
Epstein Becker & Green, P.C.
Master Escrow Account
Chase Manhattan Bank
1411 Broadway - Fifth Floor
New York, New York 10018
ABA No. 021000021
Account No. 035-1-346036
Attention: L. Borneo
1.3. At the first Closing, the Company, upon receipt of said notice,
shall deliver to the Escrow Agent Convertible Debentures evidencing the
$1,000,000 principal amount of Convertible Debentures and the Warrants to be
issued to each Investor at such Closing together with:
(i) the original executed Registration Rights Agreement in the form of
Exhibit C to the Purchase Agreement;
(ii) Instructions to Transfer Agent in the form of Exhibit F to the
Purchase Agreement;
(iii) the original executed opinion of Leonard E. Neilson, Esq. in the
form of Exhibit E to the Purchase Agreement;
(iv) an original counterpart of this Escrow Agreement; and
(v) warrants, in addition to the warrants purchased pursuant to the
Warrant, identical in form to that of the Investors, for seventy-five
thousand (75,000) shares registered in the name of Jesup & Lamont as
its commission.
In the event that the foregoing items are not in the Escrow
Agent's possession within three (3) Trading Days of the Escrow Agent notifying
the Company that the Escrow Agent has custody of the Purchase Price applicable
to such Convertible Debentures, then each Investor shall have the right to
demand the return of said Purchase Price.
1.4. At the first Closing, once Escrow Agent confirms the validity of
the issuance of the applicable Convertible Debentures and the Warrants by means
of its receipt of a Release Notice in the form attached hereto as Exhibit X
executed by the Company and each Investor, it shall enter the Exercise Price on
the face of each Warrant, insert the applicable Closing Date on each Convertible
Debenture and then wire that amount of funds necessary to purchase the
applicable Convertible Debenture and the Warrants per the written instructions
of the Company, net of nine percent (9%) of the Purchase Price as directed by
Jesup & Lamont as payment of their fee.
Once the funds (as set forth above) have been sent per the Company's
instructions, the Escrow Agent shall then arrange to have the applicable
Convertible Debentures, the Warrants, the Registration Rights Agreement and the
opinion of counsel delivered as per instructions from the Investors and to
deliver the Instructions to Transfer Agent to the Transfer Agent.
1.5. At the second Closing, the Company, upon receipt of said notice of
receipt of funds, shall deliver to the Escrow Agent Convertible Debentures
evidencing the $500,000 principal amount of Convertible Debentures to be issued
to the Investors.
2
<PAGE>
In the event that the foregoing items are not in the Escrow Agent's
possession within three (3) Trading Days of the Escrow Agent notifying the
Company that the Escrow Agent has custody of the Purchase Price applicable to
such Convertible Debentures, then each Investor shall have the right to demand
the return of said Purchase Price.
Once Escrow Agent confirms the validity of the issuance of the
Convertible Debentures by means of its receipt of a Release Notice in the form
attached hereto as Exhibit X executed by the Company and each Investor, it shall
insert the applicable Closing Date on Convertible Debenture and it shall
immediately wire that amount of funds necessary to purchase the applicable
Convertible Debenture per the written instructions of the Company, net of nine
percent (9%) of the Purchase Price as directed by Jesup & Lamont as payment of
their fee.
Once the funds (as set forth above) have been sent per the Company's
instructions, the Escrow Agent shall then arrange to have the applicable
Convertible Debentures delivered as per instructions from the Investors.
1.6. At the third Closing, the Company, upon receipt of said notice of
receipt of funds, shall deliver to the Escrow Agent Convertible Debentures
evidencing the $500,000 principal amount of Convertible Debentures to be issued
to the Investors.
In the event that the foregoing items are not in the Escrow Agent's
possession within three (3) Trading Days of the Escrow Agent notifying the
Company that the Escrow Agent has custody of the Purchase Price applicable to
such Convertible Debentures, then each Investor shall have the right to demand
the return of said Purchase Price.
Once Escrow Agent confirms the validity of the issuance of the
Convertible Debenture by means of its receipt of a Release Notice in the form
attached hereto as Exhibit X executed by the Company and each Investor, it shall
insert the applicable Closing Date on each Convertible Debenture and it shall
immediately wire that amount of funds necessary to purchase the applicable
Convertible Debenture per the written instructions of the Company.
Once the funds (as set forth above) have been sent per the Company's
instructions, the Escrow Agent shall then arrange to have the applicable
Convertible Debentures delivered as per instructions from the Investors.
ARTICLE 2
MISCELLANEOUS
2.1. No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed any extension of
the time for performance of any other obligation or act.
2.2. Except as otherwise set forth above, all notices or other
communications required or permitted hereunder shall be in writing, and shall be
sent as set forth in the Purchase Agreement.
2.3. This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.
3
<PAGE>
2.4. This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Escrow
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
2.5. Whenever required by the context of this Escrow Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Escrow Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.
2.6. The parties hereto expressly agree that this Escrow Agreement
shall be governed by, interpreted under and construed and enforced in accordance
with the laws of the State of New York. Any action to enforce, arising out of,
or relating in any way to, any provisions of this Escrow Agreement shall only be
brought in a state or Federal court sitting in New York City.
2.7. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, each Investor and
the Escrow Agent.
2.8. The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or presented
by the proper party or parties. The Escrow Agent shall not be personally liable
for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent
while acting in good faith, and without gross negligence or willful misconduct.
2.9. The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
2.10. The Escrow Agent shall not be liable in any respect on account of
the identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder.
2.11. The Escrow Agent shall be entitled to employ such legal counsel
and other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Investors, and may continue to act as legal counsel for the Investors, from time
to time, notwithstanding its duties as the Escrow Agent hereunder. The Company
consents to the Escrow Agent in such capacity as legal counsel for the Investors
and waives any claim that such representation represents a conflict of interest
on the part of the Escrow Agent. The Company understands that the Investors and
the Escrow Agent are relying explicitly on the foregoing provision in entering
into this Escrow Agreement.
2.12. The Escrow Agent's responsibilities as escrow agent hereunder
shall terminate if the Escrow Agent shall resign by written notice to the
Company and the Investors. In the event of any such resignation, the Investors
and the Company shall appoint a successor Escrow Agent.
4
<PAGE>
2.13. If the Escrow Agent reasonably requires other or further
instruments in connection with this Escrow Agreement or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
2.14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (1) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or the escrow funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned by a final order,
decree or judgment or a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Escrow Agent shall
be under no duty whatsoever to institute or defend any such proceedings or (2)
to deliver the escrow funds and any other property and documents held by the
Escrow Agent hereunder to a state or Federal court having competent subject
matter jurisdiction and located in the City of New York in accordance with the
applicable procedure therefor.
2.15. The Company and each Investor agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or expenses in
any way arising from or relating to the duties or performance of the Escrow
Agent hereunder or the transactions contemplated hereby or by the Purchase
Agreement other than any such claim, liability, cost or expense to the extent
the same shall have been determined by final, unappealable judgment of a court
of competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date set forth above.
Medisys Technologies, Inc.
By: /s/Edward P. Sutherland
-----------------------
Edward P. Sutherland, Chairman and CEO
INVESTOR: AMRO INTERNATIONAL, S.A.
By: /s/H. U. Bachofen
-----------------
Name: H. U. Bachofen
Title: Director
ESCROW AGENT:
EPSTEIN BECKER & GREEN, P.C.
By: /s/Epstein Becker & Green
-------------------------
5
<PAGE>
Exhibit X to
Escrow Agreement
RELEASE NOTICE
The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of
February 23, 2000 among Medisys Technologies, Inc., the Investors signatory
thereto and Epstein Becker & Green, P.C., as Escrow Agent (the "Escrow
Agreement"; capitalized terms used herein and not defined shall have the meaning
ascribed to such terms in the Escrow Agreement), hereby notify the Escrow Agent
that each of the conditions precedent to the purchase and sale of the
Convertible Debentures and Warrants set forth in the Convertible Debenture and
Warrants Purchase Agreement have been satisfied. The Company and the undersigned
Investor hereby confirm that all of their respective representations and
warranties contained in the Purchase Agreement remain true and correct and
authorize the release by the Escrow Agent of the funds and documents to be
released at the Closings as described in the Escrow Agreement. This Release
Notice shall not be effective until executed by the Company and the Investor.
This Release Notice may be signed in one or more counterparts,
each of which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have caused this Release
Notice to be duly executed and delivered as of this __ day of ____________,
2000.
MEDISYS TECHNOLOGIES, INC.
By: /s/Edward P. Sutherland
-----------------------
Edward P. Sutherland, Chairman and CEO
INVESTOR: AMRO INTERNATIONAL, S.A.
By: /s/H. U. Bachofen
-----------------
Name: H. U. Bachofen
Title: Director
6
<PAGE>
EXHIBIT E
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[Date]
Address
Re: Convertible Debentures and Warrants Purchase Agreement between
the Investors Signatory thereto and Medisys Technologies, Inc.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Purchase
Agreement by and between the investors signatory thereto (the "Investors") and
Medisys Technologies, Inc., a Utah corporation (the "Company"), dated as of
February ___, 2000 (the "Purchase Agreement"), which provides for the issuance
and sale by the Company of, in the aggregate, (i) up to $2,000,000 principal sum
of Convertible Debentures and (ii) warrants to purchase up to 250,000 shares of
Common Stock of the Company (the "Warrants"). All terms used herein have the
meanings defined for them in the Purchase Agreement unless otherwise defined
herein.
We have acted as counsel for the Company in connection with
the negotiation of the Purchase Agreement, the Convertible Debentures, the
Warrants, and the Registration Rights Agreement between the Investors and the
Company, dated as of February __, 2000 (the "Registration Rights Agreement"),
and the Escrow Agreement between the Investors, the Company and Epstein Becker &
Green, P.C., dated as of February ___, 2000 (the "Escrow Agreement", and
together with the Purchase Agreement, the Convertible Debentures, the Warrants
and the Registration Rights Agreement, the "Agreements"). As counsel, we have
made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion. In addition,
we have examined, among other things, originals or copies of such corporate
records of the Company, certificates of public officials and such other
documents and questions of law that we consider necessary or advisable for the
purpose of rendering this opinion. In such examination we have assumed the
genuineness of all signatures on original documents, the authenticity and
completeness of all documents submitted to us as originals, the conformity to
original documents of all copies submitted to us as copies thereof, the legal
capacity of natural persons, and the due execution and delivery of all documents
(except as to due execution and delivery by the Company) where due execution and
delivery are a prerequisite to the effectiveness thereof.
As used in this opinion, the expression "to our knowledge"
refers to the current actual knowledge of the attorneys of this firm who have
worked on matters for the Company solely in connection with the Agreements and
the Warrants and the transactions contemplated thereby, and without any
independent investigation of any underlying facts or situations.
For purposes of this opinion, we have assumed that you have
all requisite power and authority, and have taken any and all necessary
corporate action, to execute and deliver the Agreements, and we are assuming
that the representations and warranties made by each Investor in the Agreements
and pursuant thereto are true and correct.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Utah and has all requisite
corporate power and authority to carry on its business and to own, lease and
operate its properties and assets as described in the Company's SEC Documents.
To our knowledge, the Company does not have any subsidiaries and does not own
more than fifty percent (50%) of the outstanding capital stock of or control any
other business entity other than as disclosed in the SEC Documents.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements and the Warrants and to
issue the Convertible Debentures, the Exchange Shares, the Warrants and the
Warrant Shares. The execution and delivery of the Agreements by the Company and
the consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, except that the issuance of Exchange Shares and Warrant Shares may be
limited by the corporate governance rules of the Principal Market until the
receipt of stockholder approval. Each of the Agreements has been duly executed
and delivered, and the Convertible Debentures certificates and the Warrants have
each been duly executed, issued and delivered by the Company and each of the
Agreements and the Warrants constitutes valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
3. The execution, delivery and performance of the Agreements by the
Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Convertible
Debentures, the Exchange Shares, the Warrants and the Warrant Shares, do not and
will not (i) result in a violation of the Company's Certificate of Incorporation
or By-Laws; (ii) to our knowledge, conflict with, or constitute a material
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture, instrument
or any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company is a party; or (iii) result in a violation of any federal
or state law, rule or regulation applicable to the Company or by which any
property or asset of the Company is bound or affected, except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. To our knowledge, the Company is not in violation of any terms
of its Certificate of Incorporation or Bylaws.
4. The issuance of the Convertible Debentures, the Exchange Shares and
the Warrants in accordance with the Purchase Agreement, and the issuance of the
Warrant Shares in accordance with the Warrants, will be exempt from registration
under the Securities Act of 1933, as amended, and will be in compliance with the
state securities laws of the Company's principal place of business. When so
issued, the Exchange Shares and the Warrant Shares will be, duly and validly
issued, fully paid and nonassessable, and free of any liens, encumbrances and
preemptive or similar rights contained in the Company's Certificate of
Incorporation or Bylaws or, to our knowledge, in any agreement to which the
Company is party.
5. We have not been engaged to devote substantive attention to any
claims, actions, suits, proceedings or investigations that are pending against
the Company or its properties, or against any officer or director of the Company
in his or her capacity as such. To our knowledge, the Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
6. Assuming receipt of stockholder approval as may be required by the
corporate governance rules of the Principal Market, the issuance of the
Convertible Debentures, the Exchange Shares, the Warrants and the Warrant Shares
will not violate the applicable listing agreement between the Company and any
securities exchange or market on which the Company's securities are listed.
7. The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, $.0005 par value per share, and no other shares of which
have been designated as to series or class.
This opinion is furnished to the Investors solely for their
benefit in connection with the transactions described above and may not be
relied upon by any other person or for any other purpose without our prior
written consent.
Very truly yours,
<PAGE>
EXHIBIT F
INSTRUCTIONS TO TRANSFER AGENT
MEDISYS TECHNOLOGIES, INC.
February 25, 2000
Interstate Transfer
874 East 5900 South
Salt Lake City, UT 84107
Attn: Janice Sutherland
Ladies and Gentlemen:
Reference is made to the Convertible Debenture and Warrants
Purchase Agreement and all Exhibits thereto (the "Agreement") dated as of
February 23, 2000, between the investors signatory thereto (the "Investors") and
Medisys Technologies, Inc. (the "Company"). Pursuant to the Agreement, and
subject to the terms and conditions set forth in the Agreement, the Company has
issued to the Investors, in the aggregate, (i) up to $2,000,000 principal sum of
Convertible Debentures (the "Debentures") and (ii) Warrants to purchase up to
125,000 shares of Common Stock (the "Warrants"). As a condition to the
effectiveness of the Agreement, the Company has agreed to issue to you, as the
transfer agent for the Common Stock (the "Transfer Agent"), these instructions
relating to the Common Stock to be issued to the Investors (or a permitted
assignee) pursuant to the Agreement upon conversion of any portion of the
Debentures or upon exercise of the Warrants. All capitalized terms used herein
and not otherwise defined shall have the meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement and the Registration Rights
Agreement, the Company is required to prepare and file with the Commission, and
maintain the effectiveness of, a registration statement or registration
statements registering the resale of the Common Stock to be acquired by the
Investors (i) upon exercise of the Warrants and (ii) upon conversion of, or as
payment of dividends on, the Debentures, all as provided in the Registration
Rights Agreement. The Company will advise the Transfer Agent in writing of the
effectiveness of any such registration statement promptly upon its being
declared effective, and shall deliver an opinion of its counsel to that effect.
The Transfer Agent shall be entitled to rely on such advice and such opinion and
shall assume that such registration statement remains in effect unless the
Transfer Agent is otherwise advised in writing by the Company or such counsel,
and the Transfer Agent shall not be required to independently confirm the
continued effectiveness of such registration statement. In the circumstances set
forth in the following three paragraphs, the Transfer Agent shall deliver to the
appropriate Investor certificates representing Common Stock not bearing the
Legend without requiring further advice or instruction or additional
documentation from the Company or its counsel or the Investor or its counsel or
any other party (other than as described in such paragraphs).
(a) At any time after the effective date of the
registration statement (provided that the Company has not informed the Transfer
Agent in writing that such registration statement is not effective) upon any
surrender of one or more certificates evidencing Common Stock which bear the
Legend, to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered, in such names and
in such denominations as the Investor may request, provided that in connection
with any such event, the Investor (or its permitted assignee) shall confirm in
writing to the Transfer Agent that (i) the Investor has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (ii) the Investor confirms to the transfer agent
that the Investor has complied with the prospectus delivery requirement.
<PAGE>
(b) In the event a registration statement is not
filed by the Company, or for any reason the registration statement which is
filed by the Company is not declared effective by the Securities and Exchange
Commission, the Investor, or its permitted assignee, or its broker confirms to
the Transfer Agent that (i) the Investor has beneficially owned the shares of
Common Stock for at least one year, (ii) counting the shares surrendered as
being sold upon the date the unlegended Certificates would be delivered to the
Investor (or the Trading Day immediately following if such date is not a Trading
Day), the Investor will not have sold more than the greater of (a) one percent
(1%) of the total number of outstanding shares of Common Stock or (b) the
average weekly trading volume of the Common Stock for the preceding four weeks
during the three months ending upon such delivery date (or the Trading Day
immediately following if such date is not a Trading Day), and (iii) the Investor
has complied with the manner of sale and notice requirements of Rule 144 under
the Securities Act; or
(c) The Investor (or its permitted assignee) shall
represent that it is permitted to dispose of such shares of Common Stock without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act.
In the case of subparagraphs (b) or (c), the Transfer Agent
shall be entitled to require an opinion of counsel to the Company or from
counsel to the Investor (which opinion shall be from an attorney or law firm
reasonably acceptable to the Transfer Agent and be in form and substance
reasonably acceptable to the Transfer Agent). Any advice, notice, or
instructions to the Transfer Agent required or permitted to be given hereunder
may be transmitted via facsimile to the Transfer Agent's facsimile number of
[--------------].
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON
STOCK
In connection with any conversion of any portion of
the Debentures or exercise of Warrants pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent is hereby instructed to
deliver to the Investor, certificates representing Common Stock (with or without
the Legend, as appropriate) within two (2) Trading Days of receipt by the
Transfer Agent of a copy of the Notice of Conversion (in the case of the
Debentures) or Notice of Exercise (in the case of the Warrant) from the
Investor, and to deliver such certificates to the Investor, in the case of
original issuance, and in the case of subsequent transfer, if the Transfer Agent
is able to deliver such Common Stock to the Investor's account pursuant to the
DWAC system of the Depository Trust Company, the Transfer Agent shall make
delivery pursuant to such system and provide the Investor with confirmation
thereof in lieu of such Common Stock certificates.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent
for all fees incurred in connection with these Irrevocable Instructions. The
Company agrees to indemnify the Transfer Agent and its officers, employees and
agents, against any losses, claims, damages or liabilities, joint or several, to
which it or they become subject based upon the performance by the Transfer Agent
of its duties in accordance with the Irrevocable Instructions, other than as a
result of the Transfer Agent's gross negligence or willful misconduct.
<PAGE>
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and
agree that the Investors are each an express third party beneficiary of these
Irrevocable Instructions and shall be entitled to rely upon, and enforce, the
provisions thereof.
MEDISYS TECHNOLOGIES, INC.
By: /s/Edward P. Sutherland
-----------------------
Edward P. Sutherland, Chairman and CEO
AGREED: Interstate Transfer
By:__________________________
Name:
Title:
<PAGE>
CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE AGREEMENT
Between
Medisys Technologies, Inc.
and
the Investors Signatory Hereto
CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE AGREEMENT dated as of
February 23, 2000 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Medisys Technologies,
Inc., a corporation organized and existing under the laws of the State of Utah
(the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase, in the aggregate, (i) up to $2,000,000
principal sum of Convertible Debentures (as defined below) and (ii) Warrants (as
defined below) to purchase up to 250,000 shares of the Common Stock (as defined
below) at $2.00 per share.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
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Section 1.3. "Closing" shall mean each closing of the purchase and sale of the
Convertible Debentures and Warrants pursuant to Section 2.1. Section 1.4.
"Closing Date" shall mean the date on which all conditions to the applicable
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and such
Closing shall have occurred. Section 1.5. "Common Stock" shall mean the
Company's common stock, $.0005 par value per share. Section 1.6. "Conversion
Price" shall have the meaning set forth in the Convertible Debentures.
Section 1.7. "Conversion Shares" shall mean the shares of Common Stock issuable
upon conversion of the Convertible Debentures and any shares of Common Stock
issued as payment of interest on the Convertible Debentures. Section 1.8.
"Convertible Debenture" and together the "Convertible Debentures" shall mean
Convertible Debenture(s) in the form of Exhibit A hereto.
Section 1.9. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.10. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.11. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement. Section 1.12. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.13. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.14. "Exercise Price" shall have the meaning set forth in the Warrant.
Section 1.15. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.16. "Market Price" on any given date shall mean the average of the
twenty (20) lowest closing bid prices on the Principal Market (as reported by
Bloomberg L.P.) of the Common Stock during the forty (40) Trading Day period
ending on the Trading Day immediately prior to the date for which the Market
Price is to be determined. Section 1.17. "Material Adverse Effect" shall mean
any effect on the business, operations, properties, prospects, stock price or
financial condition of the Company that is material and adverse to the Company
and its subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debentures or the Warrants in any material respect.
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Section 1.18. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.19. "Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.20. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, the NASDAQ Small-Cap Market or
the OTC Bulletin Board, whichever is at the time the principal trading exchange
or market for the Common Stock, based upon share volume.
Section 1.21."Purchase Price" shall mean the face principal amount of the
Convertible Debentures.
Section 1.22. "Registrable Securities" shall mean the Conversion Shares and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC, and all Conversion Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Conversion Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares and Warrant Shares may be sold without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.
Section 1.23. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investor as of the first
Closing Date in the form annexed hereto as Exhibit C.
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Section 1.24. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.25. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.26. "SEC" shall mean the Securities and Exchange Commission.
Section 1.27. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.28. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement. Section 1.29. "SEC Documents" shall mean the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998 and each report, proxy statement or registration statement filed by the
Company with the SEC pursuant to the Exchange Act or the Securities Act since
the filing of such Annual Report through the date hereof.
Section 1.30. "Shares" shall have the meaning set forth in Section 1.18.
Section 1.31. "Trading Day" shall mean any day during which the Principal
Market shall be open for business. Section 1.32.
"Warrants" shall mean the Warrants
substantially in the form of Exhibit B to be issued to the Investors hereunder.
Section 1.33. "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Convertible Debentures and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the Company
agrees to sell, and the Investors agree to purchase the Convertible Debentures
together with the Warrants at the Purchase Price on each Closing Date as
follows:
(i) First Closing. Upon execution and delivery of this
Agreement, the Investors shall purchase in the
aggregate $1,000,000 principal amount of Convertible
Debentures ("First Funding"). Each Investor shall
deliver to the Escrow Agent immediately available
funds in their proportionate amount of the Purchase
Price as set forth on the signature pages hereto, and
the Company shall deliver the Convertible Debentures
evidencing said principal sum and the Warrants to the
Escrow Agent, in each case to be held by the Escrow
Agent pursuant to the Escrow Agreement.
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(ii) Second Closing. Within five (5) Trading Days of
written notice from the Company to the Investors that
the Registration Statement has been filed, the
Investors shall purchase in the aggregate $500,000
principal amount of Convertible Debenture ("Second
Funding"). Each Investor shall deliver to the Escrow
Agent immediately available funds in their
proportionate amount of the Purchase Price as set
forth on the signature pages hereto and the Company
shall deliver the Convertible Debentures evidencing
said principal sum to the Escrow Agent, to be held by
the Escrow Agent pursuant to the Escrow Agreement.
(iii) Third Closing. Within five (5) Trading Days of
written notice from the Company to the Investors that
the Registration Statement has been declared
effective, the Investors shall purchase in the
aggregate $500,000 principal amount of Convertible
Debentures ("Third Funding"). Each Investor shall
deliver to the Escrow Agent immediately available
funds in their proportionate amount of the Third
Funding as set forth on the signature pages hereto
and the Company shall deliver the Convertible
Debenture evidencing said principal sum to the Escrow
Agent, to be held by the Escrow Agent pursuant to the
Escrow Agreement.
(iv) Each Closing. Upon satisfaction of the conditions set
forth in Section 2.1(b), each Closing ("Closing")
shall occur at the offices of the Escrow Agent at
which time the Escrow Agent (x) shall release the
applicable Convertible Debenture and the Warrants to
the Investors and (y) shall release the Purchase
Price (after all fees have been paid as set forth in
the Escrow Agreement), pursuant to the terms of the
Escrow Agreement.
(b) Each Closing is subject to the satisfaction or waiver by the party
to be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price
of the applicable Convertible Debenture and the
Warrants, as more fully set forth in the Escrow
Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of
each Closing Date (as a condition to the Company's
obligations);
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(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of
each Closing Date (as a condition to the Investors'
obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Convertible Debentures and Warrants,
or shall have the availability of exemptions
therefrom;
(vi) the sale and issuance of the Convertible Debentures
and the Warrants hereunder, and the proposed issuance
by the Company to the Investors of the Common Stock
underlying the Convertible Debentures and the
Warrants upon the conversion or exercise thereof
shall be legally permitted by all laws and
regulations to which the Investors and the Company
are subject and there shall be no ruling, judgment or
writ of any court prohibiting the transactions
contemplated by this Agreement;
(vii) delivery of the applicable original fully executed
Convertible Debentures (as to each applicable
Closing) and Warrants certificates to the Escrow
Agent (as to the first Closing);
(viii) delivery to the Escrow Agent of an opinion of Leonard
E. Neilson, counsel to the Company, in the form of
Exhibit E hereto (as to the first Closing);
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit F (as to the first Closing); and
(x) delivery to the Escrow Agent of the Registration
Rights Agreement (as to the first Closing);
(xi) as to the second Closing only, there shall have been
no Material Adverse Effect with respect to the
Company since the date of the first Closing and the
average daily trading volume of the Common Stock on
the Principal Market for the ten consecutive Trading
Days ending on the filing date of the Registration
Statement shall have been at least 40,000 shares; and
(xi) as to the third Closing only, there shall have been
no Material Adverse Effect with respect to the
Company since the date of the second Closing and the
average daily trading volume of the Common Stock on
the Principal Market for the ten consecutive Trading
Days ending on the Effective Date shall have been at
least 40,000 shares.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (b) the amounts specified in such Sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
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ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Convertible Debentures, the Warrants,
any Conversion Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Conversion Shares and Warrant Shares at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Convertible Debentures, the Warrants
and the underlying Common Stock. The Investor acknowledges that an investment in
the Convertible Debentures, the Warrants and the underlying Common Stock is
speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Section 3.4. Not an
Affiliate. The Investor is not an officer, director or "affiliate" (as that term
is defined in Rule 405 of the Securities Act) of the Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
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Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of Utah
and has all requisite corporate authority to own its properties and to carry on
its business as now being conducted. The Company does not have any subsidiaries
and does not own more that fifty percent (50%) of or control any other business
entity except as set forth in the SEC Documents. The Company is duly qualified
and is in good standing as a foreign corporation to do business in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, other than those in which the failure so
to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i)The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Convertible Debentures, the Conversion Shares, the
Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Convertible Debentures and the Warrants by
the Company and the consummation by it of the transactions contemplated hereby
will have been duly authorized by all necessary corporate action prior to the
Closing Date and no further consent or authorization of the Company or its Board
of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Convertible Debentures
and the Warrants have been duly executed and delivered by the Company and at
each Closing shall constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
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laws relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application. The
Company has duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the conversion of the Convertible
Debentures and for the exercise of the Warrants. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Conversion Shares The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Convertible Debentures and
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
and the Convertible Debentures is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). The Company shall not
seek judicial relief from its obligations hereunder except pursuant to the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. ss. 362 in respect of the conversion of the
Convertible Debentures and the exercise of the Warrants. The Company agrees,
without cost or expense to the Investors, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, $0.0005 par value per share, of
which 43,817,289 shares are issued and outstanding as of December 31, 1999.
Except as set forth in the Disclosure Schedule, there are no outstanding Capital
Shares Equivalents nor any agreements or understandings pursuant to which any
Capital Shares Equivalents may become outstanding. Except as set forth in the
Disclosure Schedule, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the OTC Bulletin Board
and the Company has not received any notice regarding, and to its knowledge
there is no threat, of the termination or discontinuance of the eligibility of
the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the Investors
true and complete copies of the SEC Documents. The Company has not provided to
the Investors any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act, and rules and regulations of the SEC promulgated thereunder and
the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
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other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid
Issuances. Subject to the accuracy of the Investors' representations in Article
III, the sale of the Convertible Debentures, the Conversion Shares, the Warrants
and the Warrant Shares will not require registration under the Securities Act
and/or any applicable state securities law. When issued and paid for in
accordance with the Warrants and validly converted in accordance with the terms
of the Convertible Debentures, the Conversion Shares and the Warrant Shares will
be duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Convertible Debentures, the Conversion Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debentures or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Convertible Debentures, the Conversion Shares, the Warrants or the
Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Convertible Debentures, the Conversion Shares,
the Warrants and the Warrant Shares shall not subject the Investors to personal
liability to the Company or its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Debentures or the Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares under the Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
interest upon the Convertible Debentures, the Conversion Shares, the Warrants
and the Warrant Shares, do not and will not (i) result in a violation of the
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Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required under any Federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Convertible Debentures or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
the first Closing, any registration statement that may be filed pursuant hereto,
and any shareholder approval required by the rules applicable to companies whose
common stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
Section 4.9. No Material Adverse Change. Since September 30, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since September 30, 1999,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold the Convertible Debentures, the Warrants or any
shares of Common Stock (including for this purpose any securities of the same or
a similar class as the Convertible Debentures, the Warrants or Common Stock, or
any securities convertible into a exchangeable or exercisable for the
Convertible Debentures or Common Stock or any such other securities) within the
six-month period next preceding the date hereof, and the Company shall not
permit any of its directors, officers or affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
Person of the Convertible Debentures, Warrants or shares of Common Stock), so as
to make unavailable the exemption from Securities Act registration being relied
upon by the Company for the offer and sale to Investors of the Convertible
Debentures (and the Conversion Shares) or the Warrants (and the Warrant Shares)
as contemplated by this Agreement.
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Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents or the Disclosure Schedule, there are no material lawsuits or
proceedings pending or, to the knowledge of the Company, threatened, against the
Company or any subsidiary, nor has the Company received any written or oral
notice of any such action, suit, proceeding or investigation, which could
reasonably be expected to have a Material Adverse Effect. Except as set forth in
the SEC Documents, no judgment, order, writ, injunction or decree or award has
been issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Debentures or the Warrants in
connection with the transaction contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax
Returns which it is required to file under applicable laws; all such Tax Returns
are true and accurate and has been prepared in compliance with all applicable
laws; the Company has paid all Taxes due and owing by it or any subsidiary
(whether or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authorities all Taxes which it
is required to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third parties; and since December 31, 1998, the charges,
accruals and reserves for Taxes with respect to the Company (including any
provisions for deferred income taxes) reflected on the books of the Company are
adequate to cover any Tax liabilities of the Company if its current tax year
were treated as ending on the date hereof.
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(b) No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the Company or any
subsidiary is or may be subject to taxation by that jurisdiction. There are no
foreign, federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company or any
subsidiary; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as disclosed
above, no written notice indicating an intent to open an audit or other review
has been received by the Company or any subsidiary from any foreign, federal,
state or local taxing authority. There are no material unresolved questions or
claims concerning the Company's Tax liability. The Company (A) has not executed
or entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(c) The Company has not made an election under ss.
341(f) of the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company under (A) Treas. Reg. ss.
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under ss.
280G of the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 1.17. Property. Except as set forth in the Disclosure Schedule, neither
the Company nor any of its subsidiaries owns any real property. Each of the
Company and its subsidiaries has good and marketable title to all personal
property owned by it, free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company; and to the Company's knowledge any real property, mineral or
water rights, and buildings held under lease by the Company as tenant are held
by it under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and intended to be made of
such property, mineral or water rights, and buildings by the Company.
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Section 4.18. Intellectual Property. To the best of the Company's knowledge,
each of the Company and its subsidiaries owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, except as disclosed in the SEC Documents neither the
Company nor any of its subsidiaries is infringing upon or in conflict with any
right of any other person with respect to any Intangibles. Except as disclosed
in the SEC Documents, no adverse claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. No Short Sales. The Investor and its affiliates shall not engage in
short sales of the Company's Common Stock (as defined in applicable SEC and NASD
rules) so long as the Investor holds any unconverted Debentures.
ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Conversion Shares and the Warrant Shares
pursuant to any conversion of the Convertible Debentures or exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered pursuant to any conversion of the Convertible
Debentures or exercise of the Warrants and the number of shares so reserved
shall be increased or decreased to reflect potential increases or decreases in
the Common Stock that the Company may thereafter be obligated to issue by reason
of adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to maintain the
listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the first Closing to list the Conversion Shares and the
Warrant Shares on the Principal Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Principal Market,
it will include in such application the Conversion Shares and the Warrant
Shares, and will take such other action as is necessary or desirable in the
opinion of the Investors to cause the Conversion Shares and Warrant Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action to continue the listing and trading of its Common Stock on a
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investors with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities.
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Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Investors have
disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto or under the Convertible Debentures.
Section 6.7. Consolidation; Merger.The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement
and the Convertible Debentures.
Section 6.8. Issuance of Convertible Debentures and Warrant Shares. The sale of
the Convertible Debentures and the Warrants and the issuance of the Warrant
Shares pursuant to exercise of the Warrants and the Conversion Shares upon
conversion of the Convertible Debentures shall be made in accordance with the
provisions and requirements of Section 4(2), 4(6) or Regulation D and any
applicable state securities law. The Company shall make any necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Investors as required by all applicable laws, and
shall provide a copy thereof to the Investors promptly after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it will
not enter into any sale of its securities for cash at a discount to Market Price
until 180 days after the effective date of the Registration Statement except for
any sales (i) up to 6,000,000 shares of Common Stock pursuant to an equity line
of credit arrangement, at a discount to market of no more than fifteen percent
(15%) (ii) pursuant to any presently existing employee benefit plan which plan
has been approved by the Company's stockholders, (iii) pursuant to any
compensatory plan for a full-time employee or key consultant, (iv) up to
3,888,889 shares of Common Stock pending payment on a certain promissory note
evidencing payment to the Company of approximately Seven Hundred Thousand
Dollars ($700,000), or (v) with the prior approval of a majority in interest of
the Investors, which will not be unreasonably withheld, in connection with a
strategic partnership or other business transaction, the principal purpose of
which is not simply to raise money.
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Section 6.10. Pro-Rata Redemption. The Company agrees that if it shall redeem
any of the Convertible Debentures, that it shall make such redemption pro-rata
among all Investors in proportion their respective initial purchases of such
Debentures pursuant to this Agreement.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive each
Closing and the consummation of the transactions contemplated hereby. In the
event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement, irrespective of any
investigation made by or on behalf of such party on or prior to any Closing
Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement
or certificate entered into or delivered by the Company pursuant to
this Agreement; or
(ii) any failure by the Company to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in
this Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of them, by any
stockholder of the Company who is not an Affiliate of an Investor, with
respect to any of the transactions contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify and
hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with:
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(i) any misrepresentation, omission of fact, or breach of any of the
Investor's representations or warranties contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement
or certificate entered into or delivered by the Investor pursuant to
this Agreement.
(ii) any failure by the Investor to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in
this Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the
Investors pursuant to this Agreement; or
(iii) any action instituted against the Company by any stockholder, member or
partner of the Investor who is not an Affiliate of the Investor, with
respect to any of the transactions contemplated by this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission so to notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
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Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, OTC Bulletin Board
or other filing, all SEC Documents and other filings with the SEC, and all other
publicly available corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such publicly available
information reasonably requested by the Investors or any such representative,
advisor or underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of the Registration Statement for the sole
purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
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(b) Nothing herein shall require the Company to disclose material non-public
information to the Investors or their advisors or representatives, and the
Company represents that it does not disseminate material non-public information
to any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
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Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon resale of the Common Stock.
ARTICLE X
Choice of Law; Arbitration
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available, and the non-prevailing party to any such injunctive
proceeding shall pay the expenses of the prevailing party, including reasonable
attorney's fees, in connection with such proceeding.
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ARTICLE XI
Assignment
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of the
Convertible Debentures or any of the Warrants purchased or acquired by any
Investor hereunder with respect to the Convertible Debentures or Warrants held
by such person, and (b) upon the prior written consent of the Company, which
consent shall not unreasonably be withheld or delayed, each Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any Affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
Notices
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
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If to the Company: Mr. Edward P. Sutherland
Medisys Technologies, Inc.
144 Napoleon St.
Baton Rouge, LA 70802
Telephone: (225) 343-8022
Facsimile: (225) 343-8023
with a copy to: Leonard E. Neilson, Esq.
(shall not constitute notice) 1121 East 3900 South, Suite C-200
Salt Lake City, UT 84124
Telephone: (801) 228-2855
Facsimile: (801) 288-2850
if to the Investors: As set forth on the signature pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1.Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Convertible
Debentures, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
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Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement. Section 13.5. Number and Gender. There may be one or more Investors
parties to this Agreement, which Investors may be natural persons or entities.
All references to plural Investors shall apply equally to a single Investor if
there is only one Investor, and all references to an Investor as "it" shall
apply equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7.Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing any Conversion Shares or Warrants or
any Warrant Shares and (ii) in the case of any such loss, theft or destruction
of such certificate, upon delivery of an indemnity agreement or security
reasonably satisfactory in form to the Company (which shall not include the
posting of any bond) or (iii) in the case of any such mutilation, on surrender
and cancellation of such certificate, the Company at its expense will execute
and deliver, in lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall issue seventy-five thousand (75,000) warrants in a
form identical to the Warrants of the Investors to Jesup & Lamont. Section 13.9.
Brokerage. Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand
payment of any fee or commission from the other party except for Jesup & Lamont,
whose fee shall be paid by the Company. The Company on the one hand, and the
Investors, on the other hand, agree to indemnify the other against and hold the
other harmless from any and all liabilities to any person claiming brokerage
commissions or finder's fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.
Section 13.10.Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two
(2) Trading Days from their receipt of such proposed release. No
release shall name the Investors without their express consent.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
MEDISYS TECHNOLOGIES, INC.
By: /s/Edward P. Sutherland
-----------------------
Edward P. Sutherland, Chairman and CEO
Address: c/o Ultrafinanz AG Investor: AMRO International, S.A.
Grossmuensterplatz 26
Zurich CH-8022 Switzerland
Fax: 011-411-262-5515
Amount: $2,000,000 By: /s/H. U. Bachofen
-----------------
H. U. Bachofen, Director
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Between
Treadstone Investments Limited
And
Medisys Technologies, Inc.
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of February 24, 2000
(the "Agreement"), between Treadstone Investments Limited, a British Virgin
Islands corporation (the "Investor") and Medisys Technologies, Inc., a
corporation organized and existing under the laws of the State of Utah (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor from
time to time as provided herein, and Investor shall purchase, up to 6,000,000
shares (the "Aggregate Purchase Amount") of the Common Stock (as defined below);
and
WHEREAS, such investments will be made by the Investor as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market on the date in
question.
Section 1.2 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
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Section 1.5 "Closing Date" shall mean, with respect to a Closing, the
fifth Trading Day following the end of the Valuation Period related to such
Closing, provided all conditions to such Closing have been satisfied on or
before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the dollar amount necessary
which the Investor has agreed to provide to the Company in order to purchase up
to 6,000,000 Put Shares pursuant to the terms and conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earliest to occur of (x) the date on which
the Investor shall have purchased 6,000,000 Put Shares pursuant to this
Agreement, (y) the date this Agreement is terminated pursuant to Section 2.4, or
(z) the date occurring eighteen (18) months from the date of commencement of the
Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $.0005 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.10 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the sale by the
Company and resale by the Investor of the Registrable Securities as set forth in
Section 7.2(f).
Section 1.11 "Escrow Agent" shall mean the escrow agent designated in
the Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the escrow agreement in the
form attached hereto as Exhibit A.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.2
hereof.
Section 1.15 "Market Price" on any given date shall mean the average of
the three (3) lowest Bid Prices (as reported by Bloomberg L.P.) of the Common
Stock on any Trading Day during the Valuation Period relating to such date.
Section 1.16 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement or the Escrow Agreement in any material
respect.
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Section 1.17 "Maximum Put Amount" shall mean, as of any Put Date, four
and one half percent (4.5%) of the weighted average price for the three (3)
month period prior to the Put Date multiplied by the total trading volume for
the three (3) month period prior to the Put Date.
Section 1.18 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19 "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.20 "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.21 "Principal Market" shall mean the NASDAQ National Market,
the NASDAQ SmallCap Market, the American Stock Exchange, the New York Stock
Exchange or the OTC Bulletin Board whichever is at the time the principal
trading exchange or market for the Common Stock.
Section 1.22 "Purchase Price" shall mean with respect to Put Shares,
eighty-five percent (85%) (the "Purchase Price Percentage") of the Market Price
during the Valuation Period related to a Put (or such other date on which the
Purchase Price is calculated in accordance with the terms and conditions of this
Agreement).
Section 1.23 "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase
shares of the Company's Common Stock, subject to the terms of this Agreement.
Section 1.24 "Put Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.25 "Put Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to sell to the
Investor in the form attached hereto as Exhibit B.
Section 1.26 "Put Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to a Put that has occurred or may
occur in accordance with the terms and conditions of this Agreement.
Section 1.27 "Registrable Securities" shall mean the Put Shares and the
Warrant Shares until (i) all Put Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been
otherwise transferred to persons who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, all Put Shares
and Warrant Shares may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
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Section 1.28 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the sale and resale of
the Registrable Securities annexed hereto as Exhibit C.
Section 1.29 "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC, such as Form S-1 or SB-2, for which the Company then qualifies and
which counsel for the Company shall deem appropriate, and which form shall be
available for the resale by the Investor of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement, the
Registration Rights Agreement, and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.30 "SEC" shall mean the Securities and Exchange Commission.
Section 1.31 "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.32 "SEC Documents" shall mean the Company's latest Form 10-K
or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the time in
question until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.33 "Trading Cushion" shall mean the mandatory twenty (20)
Trading Days between Put Dates, unless waived by the Investor.
Section 1.34 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.35 "Valuation Event" shall mean an event in which the Company
at any time prior to the end of the Commitment Period takes any of the following
actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend on its Capital Shares or
makes any other distribution of its Capital Shares;
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(c) issues any additional Capital Shares
("Additional Capital Shares"), otherwise than as provided in the foregoing
Subsections (a) and (b) above or (d) and (e) below, at a price per share less,
or for other consideration lower, than the Bid Price in effect immediately prior
to such issuance, or without consideration (other than pursuant to this
Agreement);
(d) issues any warrants, options or other rights
to subscribe for or purchase any Additional Capital Shares and the price per
share for which Additional Capital Shares may at any time thereafter be issuable
pursuant to such warrants, options or other rights shall be less than the Bid
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible or exchangeable securities shall be less than the Bid
Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or
evidences of indebtedness to the holders of its Capital Shares as a dividend in
liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for dividends under applicable law
or any distribution to such holders made in respect of the sale of all or
substantially all of the Company's assets (other than under the circumstances
provided for in the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of
Outstanding Capital Shares, other than an action described in any of the
foregoing Subsections (a) through (f) hereof, inclusive, which in the opinion of
the Company's Board of Directors, determined in good faith, would have a
Material Adverse Effect upon the rights of the Investor at the time of a Put.
Section 1.36 "Valuation Period" shall mean the period of twenty-one
(21) Trading Days beginning fifteen (15) Trading Days before the Trading Day on
which a Put Notice is deemed to be delivered and ending five (5) Trading Days
after such date; provided, however, that if a Valuation Event occurs during a
Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the twenty
first (21st) Trading Day thereafter.
Section 1.37 "Warrants" shall mean the 1,125,000 Common Stock Purchase
Warrants in the form of Exhibit D hereto to be delivered to the Investor at the
initial Closing. "Warrant Shares" shall mean the shares of Common Stock issuable
upon exercise of the Warrants.
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ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Put Date the Company may make a Put by the delivery of a Put Notice. The number
of Put Shares that the Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put Notice by the
Purchase Price for such Valuation Period; provided, however, the Investor may,
at its sole discretion, purchase up to an additional fifty percent (50%) of the
Maximum Put Amount during any Put Period by notice to the Company prior to the
end of the Valuation Period. The Investment Amount shall not exceed the Maximum
Put Amount on the date of the Put Notice.
Section 2.2 Mechanics.
(a) Put Notice. At any time during the
Commitment Period, the Company may deliver a Put Notice to the Investor, subject
to the conditions set forth in Section 7.2; provided, however, that the
Investment Amount for each Put as designated by the Company in the applicable
Put Notice shall be neither less than $100,000 nor more than the Maximum Put
Amount.
(b) Date of Delivery of Put Notice. A Put Notice
shall be deemed delivered on (i) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 12:00 noon Eastern
Time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at any
time on a day which is not a Trading Day. No Put Notice may be deemed delivered
on a day that is not a Trading Day.
Section 2.3 Closings. On or before each Closing Date for a Put the
Investor shall deliver the Investment Amount specified in the Put Notice by wire
transfer of immediately available funds to the Escrow Agent. In addition, on or
prior to the Closing Date, each of the Company and the Investor shall deliver to
the Escrow Agent all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Upon
receipt of notice from the Escrow Agent that the Escrow Agent has possession of
the Investment Amount, the Company shall, if possible, deliver the Put Shares to
the Investor's account through the Depository Trust Company DWAC system, per
written account instructions delivered by the Investor to the Company, and if
the Company is not eligible to participate in the DWAC system, to deliver to the
Escrow Agent one or more certificates, as requested by the Investor,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
registered in the name of such account or accounts as may be designated by the
Investor. Payment of funds to the Company and delivery of the certificates to
the Investor (unless delivered by DWAC) shall occur out of escrow in accordance
with the Escrow Agreement, provided, however, that to the extent the Company has
not paid the fees, expenses, and disbursements of the Investor's counsel in
accordance with Section 13.7, the amount of such fees, expenses, and
disbursements shall be paid in immediately available funds, at the direction of
the Investor, to Investor's counsel with no reduction in the number of Put
Shares issuable to the Investor on such Closing Date.
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Section 2.4 Termination of Investment Obligation.
(a) The obligation of the Investor to purchase
shares of Common Stock shall terminate permanently (including with respect to a
Closing Date that has not yet occurred) in the event that (i) there shall occur
any stop order or suspension of the effectiveness of the Registration Statement
for an aggregate of thirty (30) Trading Days during the Commitment Period, for
any reason other than deferrals or suspensions in accordance with the
Registration Rights Agreement as a result of corporate developments subsequent
to the Effective Date that would require such Registration Statement to be
amended to reflect such event in order to maintain its compliance with the
disclosure requirements of the Securities Act or (ii) the Company shall at any
time fail to comply with the requirements of Section 6.2, 6.3 or 6.5 or (iii)
the Registration Statement shall not have become effective by July 31, 2000.
(b) The obligation of the Company to sell Put
Shares to the Investor shall terminate if the Investor fails to honor any Put
Notice within two (2) Trading Days of the Closing Date scheduled for such Put,
and the Company notifies Investor of such termination. Upon such termination,
the Company shall maintain the Registration Statement in effect for such
reasonable period, not to exceed forty-five (45) days, as the Investor may
request in order to dispose of any remaining Put Shares. Such termination shall
be the Company's sole remedy for the Investor's failure to honor a Put.
Section 2.5 Additional Shares. In the event that (a) within five
Trading Days of any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" in accordance with Section 3(f) of the Registration
Rights Agreement and (b) the Bid Price on the Trading Day immediately preceding
such "blackout period" (the "Old Bid Price") is greater than the Bid Price on
the first Trading Day following such "blackout period" (the "New Bid Price") the
Company shall issue to the Investor a number of additional shares (the "Blackout
Shares") equal to the difference between (y) the product of the number of
Registrable Securities purchased by the Investor on such most recent Closing
Date and still held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period" and the Old Bid Price,
divided by the New Bid Price and (z) the number of Registrable Securities
purchased by the Investor on such most recent Closing Date and still held by the
Investor during such "blackout period" that are not otherwise freely tradable
during such "blackout period".
Section 2.5 Liquidated Damages. The parties hereto acknowledge and
agree that the obligation to issue Registrable Securities under Section 2.5
above shall constitute liquidated damages and not penalties. The parties further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts specified in
such Sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Investor in
connection with the failure by the Company to timely cause the registration of
the Registrable Securities or in connection with a "blackout period" under the
Registration Rights Agreement, and (c) the parties are sophisticated business
parties and have been represented by legal and financial counsel and negotiated
this Agreement at arm's length.
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ARTICLE III
Representations and Warranties of Investor
Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to protect
its own interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. Investor is not an officer, director or
"affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company.
Section 3.5 Organization and Standing. Investor is a corporation duly
organized, validly existing, and in good standing under the laws of the British
Virgin Islands.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material default
thereunder; (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party; or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
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Section 3.7 Disclosure; Access to Information. Investor has received
and reviewed all documents, records, books and other publicly available
information pertaining to Investor's investment in the Company that have been
requested by Investor. The Company is subject to the periodic reporting
requirements of the Exchange Act, and Investor has reviewed copies of any such
reports that have been requested by it.
Section 3.8 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9 Financial Capacity. Investor currently has the financial
capacity to meet its obligations to the Company hereunder, and the Investor has
no present knowledge of any circumstances which could cause it to become unable
to meet such obligations in the future.
Section 3.10 Underwriter Liability. Investor understands that it is the
position of the SEC that the Investor is an underwriter within the meaning of
Section 2(11) of the Securities Act and that the Investor will be identified as
an underwriter of the Put Shares in the Registration Statement.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investor that, except as set forth on
the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1 Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Utah and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Put Shares, the Warrants and the Warrant Shares
pursuant to their respective terms, (ii) the execution, issuance and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement and the
Warrants by the Company and the consummation by it of the transactions
contemplated hereby will have been duly authorized by all necessary corporate
action before the Closing Date and no further consent or authorization of the
Company or its Board of Directors or stockholders will be required, and (iii)
this Agreement, the Registration Rights Agreement, the Escrow Agreement and the
Warrants have been duly executed and delivered by the Company and at the initial
Closing shall constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application. The
Company has duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the issuance of the Put Shares and for the
exercise of the Warrants
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Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, $0.0005 par value per share, of
which 43,817,289 shares are issued and outstanding as of December 31, 1999 and
no preferred stock. Except for (i) outstanding options and warrants as set forth
in the SEC Documents and (ii) as set forth in the Disclosure Schedule, there are
no outstanding Capital Share Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities other
than up to $2,000,000 worth of Convertible Debentures convertible into shares of
Common Stock and 250,000 shares issuable upon exercise of outstanding warrants,
and two other existing agreements with piggyback rights. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the OTC
Bulletin Board and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5 SEC Documents. The Company has made available to the
Investor true and complete copies of the SEC Documents. The Company has not
provided to the Investor any information that, according to applicable law, rule
or regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange Act, and rules and regulations of the SEC promulgated thereunder and
the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
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of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6 Valid Issuances. When issued and paid for in accordance
with the terms hereof or of the Warrants, the Put Shares and the Warrant Shares
will be duly and validly issued, fully paid, and non-assessable. Neither the
sales of the Put Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement or the Warrants will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Put Shares, the Warrants or the Warrant Shares or, except
as contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The Put
Shares, the Warrants and the Warrant Shares shall not subject the Investor to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 4.7 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares, the Warrants and the Warrant Shares, do not and will not (i)
result in a violation of the Company's Articles of Incorporation or By-Laws or
(ii) conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the foregoing
(except in each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
under any Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Put Shares or the
Warrants in accordance with the terms hereof (other than any SEC, Principal
Market or state securities filings that may be required to be made by the
Company subsequent to the initial Closing, any registration statement that may
be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Principal Market);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
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Section 4.8 No Material Adverse Change. Since September 30, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.9 No Undisclosed Events or Circumstances. Since September 30,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.10 Litigation and Other Proceedings. Except as disclosed in
the SEC Documents or the Disclosure Schedule, there are no lawsuits or
proceedings pending or, to the knowledge of the Company, threatened, against the
Company or any subsidiary, nor has the Company received any written or oral
notice of any such action, suit, proceeding or investigation, which could
reasonably be expected to have a Material Adverse Effect. Except as set forth in
the SEC Documents, no judgment, order, writ, injunction or decree or award has
been issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 4.11 No Misleading or Untrue Communication. The Company and, to
the knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Put Shares or the Warrants in connection
with the transaction contemplated by this Agreement, have not made, at any time,
any oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.12 Material Non-Public Information. The Company has not
disclosed to the Investor any material non-public information that (i) if
disclosed publicly, would reasonably be expected to have a material effect on
the price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
Section 4.13 Insurance. The Company and each subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 4.14 Tax Matters.
------------
The Company and each subsidiary has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
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accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any adjustments
pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
The Company has not made an election underss. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
For purposes of this Section 4.14:
"IRS" means the United States Internal Revenue Service.
---
Tax" or "Taxes" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or
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personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance,
stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or
filing with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.15 Property. Neither the Company nor any of its subsidiaries
owns any real property, except that Phillips Pharmatec owns a building subject
to a $200,000 mortgage. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property and buildings held under lease by the Company as
tenant are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
intended to be made of such property and buildings by the Company.
Section 4.16 Intellectual Property. To the best of the Company's
knowledge, each of the Company and its subsidiaries owns or possesses adequate
and enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, except as disclosed in the SEC Documents neither the
Company nor any of its subsidiaries is infringing upon or in conflict with any
right of any other person with respect to any Intangibles. Except as disclosed
in the SEC Documents, no adverse claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
Section 4.17 Internal Controls and Procedures. The Company maintains
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company or any subsidiary is a
party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated assets
is compared with existing assets at regular intervals; (iii) access to the
Company's consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.18 Payments and Contributions. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
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Section 4.19 No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investor pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
Covenants of the Investor
Investor covenants with the Company that:
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Investor agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of Put Shares
from the Investor.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
Section 6.2 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Put Shares and the Warrant Shares. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Put Shares and the
Warrant Shares and will take such other action as is necessary or desirable in
the opinion of the investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company will take all action to
continue the listing and trading of its Common Stock on the Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market and shall provide
Investor with copies of any correspondence to or from such Principal Market
which questions or threatens delisting of the Common Stock, within one Trading
Day of the Company's receipt thereof.
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Section 6.3 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act.
Section 6.4 Legends. The certificates evidencing the Common Stock to be
sold to the Investor shall be free of restrictive legends.
Section 6.5 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6 Additional SEC Documents. During the Commitment Period, the Company
will deliver to the Investor, as and when the originals thereof are submitted to
the SEC for filing, copies of all SEC Documents so furnished or submitted to the
SEC, or else notify the Investor that such documents are available on the EDGAR
system.
Section 6.7 Notice of Certain Events Affecting Registration; Suspension
of Right to Make a Put. The Company will immediately notify the Investor upon
the occurrence of any of the following events in respect of a registration
statement or related prospectus in respect of an offering of Registrable
Securities; (i) receipt of any request for additional information from the SEC
or any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would require
any amendments or supplements to the registration statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in the Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to the Investor any Put Notice during the continuation of any
of the foregoing events.
Section 6.8 Expectations Regarding Put Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
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Such notification shall constitute only the Company's good faith estimate and
shall in no way obligate the Company to raise such amount, or any amount, or
otherwise limit its ability to deliver Put Notices. The failure by the Company
to comply with this provision can be cured by the Company's notifying the
Investor, in writing, at any time as to its reasonable expectations with respect
to the current calendar quarter.
Section 6.9 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this
Agreement.
ARTICLE VII
Conditions to Delivery of Puts
and Conditions to Closing
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation
and Warranties. The representations and warranties of the Investor shall be true
and correct in all material respects as of the date of this Agreement and as of
the date of each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Investor at or prior to such Closing, and
Investor shall provide a certificate to the Company, substantially in the form
of that delivered by the Investor at the Closing of the sale of the Initial
Shares, to such effect.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
a Put Notice and the Obligation of the Investor to Purchase Put Shares. The
right of the Company to deliver a Put Notice and the obligation of Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on both (i) the date of delivery of such Put Notice and
(ii) the applicable Closing Date (each a "Condition Satisfaction Date"), of each
of the following conditions:
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(a) Closing Certificate. All representations and
warranties of the Company contained herein shall remain true and correct as of
the Closing Date as though made as of such date and the Company shall have
delivered into escrow an Officer's Certificate signed by its Chief Executive
Officer certifying that all of the Company's representations and warranties
herein remain true and correct as of the Closing Date and that the Company has
performed all covenants and satisfied all conditions to be performed or
satisfied by the Company prior to such Closing;
(b) Blue Sky. The Company shall have obtained
all permits and qualifications required by any state for the offer and sale of
the Common Stock to the Investor and by the Investor as set forth in the
Registration Rights Agreement or shall have the availability of exemptions
therefrom;
(c) Delivery of Put Shares. Delivery into escrow
or to DTC of the Put Shares;
(d) Opinion of Counsel. Receipt by the Investor
of an opinion of counsel to the Company, in the form of Exhibit D hereto; and
(e) Transfer Agent. Delivery to the Company's
transfer agent of instructions to such transfer agent in form and substance
reasonably satisfactory to the Investor.
(f) Registration of the Common Stock with the
SEC. The Registration Statement shall have previously become effective and shall
remain effective and available for making resales of the Put Shares and Warrant
Shares by the Investor on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the SEC otherwise has suspended or withdrawn the effectiveness of the
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed and the
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or related
prospectus shall exist.
(g) Authority. The Company will satisfy all laws
and regulations pertaining to the sale and issuance of the Put Shares.
(h) Performance by the Company. The Company shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement, the
Registration Rights Agreement and the Escrow Agreement to be performed,
satisfied or complied with by the Company at or prior to each Condition
Satisfaction Date.
(i) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
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(j) Adverse Changes. Since the date of filing of
the Company's most recent SEC Document, no event that had or is reasonably
likely to have a Material Adverse Effect has occurred.
(k) No Suspension of Trading In or Delisting of
Common Stock. The trading of the Common Stock (including, without limitation,
the Put Shares) is not suspended by the SEC or the Principal Market, and the
Common Stock (including, without limitation, the Put Shares) shall have been
approved for listing or quotation on and shall not have been delisted from the
Principal Market. The issuance of shares of Common Stock with respect to the
applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market. The Company shall not have received any
notice threatening to delist the Common Stock from the Principal Market.
(l) No Knowledge. The Company has no knowledge
of any event more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective (which event is
reasonably likely to occur within the thirty (30) Trading Days following the
Trading Day on which such Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall
have elapsed since the next preceding Put Date.
(n) Other. On each Condition Satisfaction Date,
the Investor shall have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by the
Investor in order for the Investor to confirm the Company's satisfaction of the
conditions set forth in this Section 7.2.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all SEC Documents and
other filings with the SEC, and all other publicly available corporate documents
and properties of the Company as may be reasonably necessary for the purpose of
such review, and cause the Company's officers, directors and employees to supply
all such publicly available information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
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Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public
information to the Investor, advisors to or representatives of the Investor
unless prior to disclosure of such information the Company identifies such
information as being non-public information and provides the Investor, such
advisors and representatives with the opportunity to accept or refuse to accept
such non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require the Investor's advisors
and representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) The Company represents that it does not
disseminate non-public information to any investors who purchase stock in the
Company in a public offering, to money managers or to securities analysts,
provided, however, that notwithstanding anything herein to the contrary, the
Company will, as hereinabove provided, immediately notify the advisors and
representatives of the Investor and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose the specific
event or circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE IX
Transfer Agent Instructions
Section 9.1 Transfer Agent Instructions. Upon each Closing, the Company
will issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) instructions to deliver
the Put Shares without restrictive legends to the Escrow Agent.
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Section 9.2 No Legend or Stock Transfer Restrictions. No legend shall be
placed on the share certificates representing the Put Shares and no instructions
or "stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto.
Section 9.3 Investor's Compliance. Nothing in this Article shall affect in
any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Put Shares.
ARTICLE X
Choice of Law
Section 10.1 Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
or any Exhibit attached hereto shall be submitted to arbitration under the
American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on consecutive business days in New York
City, New York, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.
ARTICLE XI
Assignment
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person except by operation of law. Notwithstanding the foregoing, upon the prior
written consent of the Company, which consent shall not unreasonably be withheld
or delayed in the case of an assignment to an affiliate of the Investor, the
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Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any other person or entity (including any affiliate of the Investor)
who agrees to make the representations and warranties contained in Article III
and who agrees to be bound hereby.
ARTICLE XII
Notices
Section 12.1 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to Medisys Technologies, Inc.: 144 Napoleon Street
Baton Rouge, Louisiana 70802
Attention: Edward P. Sutherland
Telephone: (225) 343-8022
Facsimile: (225)343-8023
if to the Investor: Treadstone Investments Limited
c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74, Postfach 86
FL-9490 Vaduz
Furstentum Liechtenstein
Telephone: 011-075-236-0404
Facsimile: 011-075-236-0405
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
22
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Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
ARTICLE XIII
Miscellaneous
Section 13.1 Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2 Entire Agreement. This Agreement, the Exhibits hereto, which
include, but are not limited to the Escrow Agreement, the Registration Rights
Agreement and the Warrants, set forth the entire agreement and understanding of
the parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 13.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company (which shall not exceed that required by the Company's transfer
agent in the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
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Section 13.7 Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Investors' counsel in the amount of $15,000 plus $1,500 per
Closing of a Put.
Section 13.8 Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party except
Jesup & Lamont Securities Corporation whose fee shall be paid by the Company.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.9 Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investor, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from its
receipt of such proposed release; provided, however, that if the Company is
advised by its outside counsel that it is required by law or the applicable
rules of any Principal Market to issue any such press release or public
announcement, then, it may do so without the prior consent of the Investor,
although it shall be required to provide prior notice (which may be by
telephone) to the Investor that it intends to issue such press release or public
announcement. No release shall name the Investor without its express consent.
Section 13.10 Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
MEDISYS TECHNOLOGIES, INC.
By:/s/ Edward P. Sutherland
---------------------------
Edward P. Sutherland, Chairman and CEO
Treadstone Investments Limited
By:/s/ Hans Gassner
-------------------
Hans Gassner, Authorized Signatory
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of February 24,
2000, by and among Medisys Technologies, Inc., a corporation incorporated under
the laws of the State of Utah, (the "Company"), Treadstone Investments Limited
("Investor"), and Epstein Becker & Green, P.C., (the "Escrow Agent").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Private Equity Line of Credit Agreement referred to in the first recital.
W I T N E S S E T H:
WHEREAS, the Investor will from time to time as requested by the
Company, purchase shares of the Company's Common Stock from the Company as set
forth in that certain Private Equity Line of Credit Agreement (the "Purchase
Agreement") dated the date hereof between the Investor and the Company, which
will be issued as per the terms and conditions contained herein and in the
Purchase Agreement; and
WHEREAS, the Company and the Investor have requested that the Escrow
Agent hold in escrow and then distribute the initial documents and certain funds
which are conditions precedent to the effectiveness of the Purchase Agreement,
and have further requested that upon each exercise of a Put, the Escrow Agent
hold the relevant documents and the applicable purchase price pending receipt by
the Investor of certificates representing the securities issuable upon such Put;
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NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE XIV
TERMS OF THE ESCROW FOR THE INITIAL CLOSING
Section 14.1 The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds and documents which
are referenced in Section 7.2 of the Purchase Agreement.
Section 14.2 At the Initial Closing, the Company shall deliver to the Escrow
Agent:
(i) the original Warrant certificate in the form of Exhibit D to the
Purchase Agreement;
(ii) the original executed Registration Rights Agreement in the form of
Exhibit C to the Purchase Agreement;
(iii) the original executed opinion of Leonard E. Neilson, counsel of the
Company, in the form of Exhibit E to the Purchase Agreement;
(iv) the sum of $15,000;
(v) the original executed Company counterpart of this Escrow Agreement;
(vi) the original executed Company counterpart of the Purchase Agreement;
and
(vii) a warrant certificate for 425,000 Warrants registered to Jesup & Lamont
Securities Corporation (the "J&L Warrant").
Section 14.3 Upon receipt of the foregoing, and receipt of executed
counterparts from Investor of the Purchase Agreement, the Registration Rights
Agreement and this Escrow Agreement, the Escrow Agent shall enter the Exercise
Price, Commencement Date and Termination Date of the Warrant on the face of the
Warrant and immediately transfer the sum of fifteen thousand dollars ($15,000)
to Epstein Becker & Green, P.C. ("EB&G"), 250 Park Avenue, New York, New York
10177 for the Investor's legal and administrative costs and the Escrow Agent
shall then arrange to have the Warrant certificate, the Purchase Agreement, this
Escrow Agreement, the Registration Rights Agreement and the opinion of counsel
delivered to the Investor and the J&L Warrant delivered to Jesup & Lamont..
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ARTICLE XV
TERMS OF THE ESCROW FOR EACH PUT
Section 15.1 (a)Each time the Company shall send a Put Notice to the
Investor as provided in the Purchase Agreement, it shall send a copy, by
facsimile, to the Escrow Agent.
(b) Each time the Investor shall purchase shares pursuant to
a Put, the Investor shall send the applicable Investment Amount of the Put
Shares to the Escrow Agent on or before the Closing Date for such Put. The
Company shall promptly, but no later than five (5) Trading Days after receipt of
notice from the Escrow Agent that it has the funds for the Investment Amount
cause its Transfer Agent to deliver the Put Shares to Investor's account through
the Depository Trust Company, if possible, or else to deliver such certificates
to the Escrow Agent. In the event that the certificates representing the Put
Shares are not in the Investor's or the Escrow Agent's possession within five
(5) Trading Days of the date of the Escrow Agent's notice, then Investor shall
have the right to demand, by notice, the return of the Investment Amount, and
the Put Notice shall be deemed cancelled. The Escrow Agent shall within one (1)
Trading Day of Closing wire the Investment Amount per the written instructions
of the Company net of:
(i) a brokerage fee equal to nine percent (9%) of the Investment Amount of
each Put, to Jesup & Lamont Securities Corporation; and
(ii) One Thousand Five Hundred Dollars ($1,500) as escrow expenses to the
Escrow Agent.
The Escrow Agent shall remit Broker's fee to Broker in accordance with wire
instructions that will be sent to Escrow Agent from Broker.
ARTICLE XVI
MISCELLANEOUS
Section 16.1 No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed an extension of
the time for performance of any other obligation or act.
All notices or other communications required or permitted hereunder shall be in
writing, and shall be sent by fax, overnight courier, registered or certified
mail, postage prepaid, return receipt requested, and shall be deemed received
upon receipt thereof, as set forth in the Purchase Agreement.
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Section 16.2 This Escrow Agreement shall be binding upon and shall inure to
the benefit of the permitted successors and permitted assigns of the parties
hereto.
Section 16.3 This Escrow Agreement is the final expression of, and contains
the entire agreement between, the parties with respect to the subject matter
hereof and supersedes all prior understandings with respect thereto. This Escrow
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by their respective agents duly authorized in writing
or as otherwise expressly permitted herein.
Section 16.4 Whenever required by the context of this Escrow Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Escrow Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.
Section 16.5 The parties hereto expressly agree that this Escrow Agreement
shall be governed by, interpreted under and construed and enforced in accordance
with the laws of the State of New York. Except as expressly set forth herein,
any action to enforce, arising out of, or relating in any way to, any provisions
of this Escrow Agreement shall brought through the American Arbitration
Association at the designated locale of New York, New York as is more fully set
forth in the Purchase Agreement.
Section 16.6 The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, each Investor and
the Escrow Agent.
Section 16.7 The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or presented
by the proper party or parties. The Escrow Agent shall not be personally liable
for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent
while acting in good faith, excepting only its own gross negligence or willful
misconduct, and any act done or omitted by the Escrow Agent pursuant to the
advice of the Escrow Agent's attorneys-at-law (other than Escrow Agent itself)
shall be conclusive evidence of such good faith.
Section 16.8 The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the parties hereto or by any other person
or corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
Section 16.9 The Escrow Agent shall not be liable in any respect on account
of the identity, authorization or rights of the parties executing or delivering
or purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder or hereunder.
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Section 16.10 The Escrow Agent shall be entitled to employ such legal
counsel and other experts as the Escrow Agent may deem necessary properly to
advise the Escrow Agent in connection with the Escrow Agent's duties hereunder,
may rely upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Investor, and may continue to act as legal counsel for the Investor, from time
to time, notwithstanding its duties as the Escrow Agent hereunder. The Company
consents to the Escrow Agent in such capacity as legal counsel for the Investors
and waives any claim that such representation represents a conflict of interest
on the part of the Escrow Agent. The Company understands that the Investor and
the Escrow Agent are relying explicitly on the foregoing provision in entering
into this Escrow Agreement.
Section 16.11 The Escrow Agent's responsibilities as escrow agent hereunder
shall terminate if the Escrow Agent shall resign by written notice to the
Company and the Investor. In the event of any such resignation, the Investors
and the Company shall appoint a successor Escrow Agent.
Section 16.12 If the Escrow Agent reasonably requires other or further
instruments in connection with this Escrow Agreement or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
Section 16.13 It is understood and agreed that should any dispute arise
with respect to the delivery and/or ownership or right of possession of the
documents or the escrow funds held by the Escrow Agent hereunder, the Escrow
Agent is authorized and directed in the Escrow Agent's sole discretion (1) to
retain in the Escrow Agent's possession without liability to anyone all or any
part of said documents or the escrow funds until such disputes shall have been
settled either by mutual written agreement of the parties concerned by a final
order, decree or judgment or a court of competent jurisdiction after the time
for appeal has expired and no appeal has been perfected, but the Escrow Agent
shall be under no duty whatsoever to institute or defend any such proceedings or
(2) to deliver the escrow funds and any other property and documents held by the
Escrow Agent hereunder to a state or federal court having competent subject
matter jurisdiction and located in the State and City of New York in accordance
with the applicable procedure therefor.
Section 16.14 The Company and the Investor agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or expenses in
any way arising from or relating to the duties or performance of the Escrow
Agent hereunder or the transactions contemplated hereby or by the Purchase
Agreement other than any such claim, liability, cost or expense to the extent
the same shall have been determined by final, unappealable judgment of a court
of competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Escrow Agent.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date written above.
MEDISYS TECHNOLOGIES, INC.
By:/s/ Edward P. Sutherland
---------------------------
Edward P. Sutherland, Chairman and CEO
Treadstone Investments Limited
By: /s/ Hans Gassner
--------------------
Hans Gassner, Authorized Signatory
ESCROW AGENT:
EPSTEIN BECKER & GREEN, P.C.
By: /s/ Joseph A. Smith
-----------------------
Joseph A. Smith,
Authorized Signatory
EXHIBIT B
PUT NOTICE/COMPLIANCE CERTIFICATE
Medisys Technologies, Inc.
The undersigned hereby certifies, with respect to shares of Common Stock of
Medisys Technologies, Inc. (the "Company") issuable in connection with this Put
Notice and Compliance Certificate dated _____________ (the "Notice"), delivered
pursuant to Article II of the Private Equity Line of Credit Agreement dated as
of February 24, 2000 (the "Agreement"), as follows:
1. The undersigned is the duly appointed Chief Executive Officer of the Company.
2. The representations and warranties of the Company set forth in the Agreement
are true and correct in all material respects as though made on and as of the
date hereof and all SEC Documents are as represented in Section 4.5 of the
Agreement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the date of this Put
Notice and has complied in all material respects with all obligations and
conditions contained in the Agreement.
4. The Investment Amount is $___________.
The undersigned has executed this Certificate this ____ day of ________, _____.
MEDISYS TECHNOLOGIES, INC.
--------------------
Chief Executive Officer
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 24th day of February, 2000,
between Treadstone Investments Limited ("Holder") and Medisys Technologies,
Inc., a corporation incorporated under the laws of the State of Utah (the
"Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, pursuant to a Private Equity Line of Credit Agreement dated the date
hereof (the "Purchase Agreement") the Holder has committed to purchase up to
6,000,000 shares of the Company's Common Stock (terms not defined herein shall
have the meanings ascribed to them in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Holder the registration
rights set forth herein with respect to the Put Shares and the Blackout Shares
issuable upon exercise of the Company's Put rights from time to time and the
Warrant Shares (hereinafter referred to as the "Put Shares" or "Stock" or
"Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
ARTICLE XVII Registrable Securities. As used herein the term "Registrable
Security" means the Securities until (i) all Put Shares and Warrant Shares have
been disposed of pursuant to the Registration Statement, (ii) all Put Shares and
Warrant Shares have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) all Put Shares and Warrant Shares
have been otherwise transferred to persons who may trade such Securities without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such Put Shares and Warrant
Shares not bearing a restrictive legend or (iv) such time as, in the opinion of
counsel to the Company, all Put Shares and Warrant Shares may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.
ARTICLE XVIII Restrictions on Transfer. The Holder acknowledges and understands
that in the absence of an effective Registration Statement authorizing the
resale of the Securities as provided herein, the Securities are "restricted
securities" as defined in Rule 144 promulgated under the Act. The Holder
understands that no disposition or transfer of the Securities may be made by
Holder in the absence of (i) an opinion of counsel to the Holder, in form and
substance reasonably satisfactory to the Company, that such transfer may be made
without registration under the Securities Act or (ii) such registration.
With a view to making available to the Holder the benefits of Rule 144
under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Holder to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
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Section 18.1 comply with the provisions of paragraph (c)(1) of Rule 144; and
Section 18.2 file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required by,
and so long as necessary to permit sales of, its Registrable Securities pursuant
to Rule 144.
ARTICLE XIX Registration Rights With Respect to the Securities.
Section 19.1 The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), within sixty (60) days after
the date hereof, a registration statement (on Form S-1, S-3, or other
appropriate form of registration statement) under the Securities Act (the
"Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), so as to permit a public offering and resale
of the Securities under the Act by Holder.
The Company shall use its best efforts to cause the Registration
Statement to become effective within ninety (90) days from the date hereof, or,
if earlier, within five (5) days of SEC clearance to request acceleration of
effectiveness. If the Registration Statement is not declared effective by July
31, 2000, this Agreement and the Purchase Agreement shall terminate. The number
of shares designated in the Registration Statement to be registered shall be
8,250,000 and shall include appropriate language regarding reliance upon Rule
416 to the extent permitted by the Commission. The Company will notify Holder of
the effectiveness of the Registration Statement within one Trading Day of such
event.
Section 19.2 The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof effective under the
Securities Act until the earlier of (i) the date that none of the Securities are
or may become issued and outstanding, (ii) the date that all of the Securities
have been sold pursuant to the Registration Statement, (iii) the date the
holders thereof receive an opinion of counsel to the Company, which counsel
shall be reasonably acceptable to the Holder, that the Securities may be sold
under the provisions of Rule 144 without limitation as to volume, (iv) all
Securities have been otherwise transferred to persons who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend, or (v) all Securities may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) or any similar provision then in
effect under the Securities Act in the opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Holder (the "Effectiveness
Period").
Section 19.3 All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys' fees
of the Company) shall be borne by the Company. The Holder shall bear the cost of
underwriting and/or brokerage discounts, fees and commissions, if any,
applicable to the Securities being registered and the fees and expenses of its
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counsel. The Holder and its counsel shall have a reasonable period, not to
exceed ten (10) Trading Days, to review the proposed Registration Statement or
any amendment thereto, prior to filing with the Commission, and the Company
shall provide each Holder with copies of any comment letters received from the
Commission with respect thereto within two (2) Trading Days of receipt thereof.
The Company shall make reasonably available for inspection by Holder, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such Holder
or any such underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by such Holder or any such underwriter, attorney,
accountant or agent in connection with the Registration Statement, in each case,
as is customary for similar due diligence examinations; provided, however, that
all records, information and documents that are designated in writing by the
Company, in good faith, as confidential, proprietary or containing any material
non-public information shall be kept confidential by such Holder and any such
underwriter, attorney, accountant or agent (pursuant to an appropriate
confidentiality agreement in the case of any such Holder or agent), unless such
disclosure is made pursuant to judicial process in a court proceeding (after
first giving the Company an opportunity promptly to seek a protective order or
otherwise limit the scope of the information sought to be disclosed) or is
required by law, or such records, information or documents become available to
the public generally or through a third party not in violation of an
accompanying obligation of confidentiality; and provided further that, if the
foregoing inspection and information gathering would otherwise disrupt the
Company's conduct of its business, such inspection and information gathering
shall, to the maximum extent possible, be coordinated on behalf of the Holder
and the other parties entitled thereto by one firm of counsel designed by and on
behalf of the majority in interest of Holder and other parties. The Company
shall qualify any of the securities for sale in such states as such Holder
reasonably designates and shall furnish indemnification in the manner provided
in Section 6 hereof. However, the Company shall not be required to qualify in
any state which will require an escrow or other restriction relating to the
Company and/or the sellers, or which will require the Company to qualify to do
business in such state or require the Company to file therein any general
consent to service of process. The Company at its expense will supply the Holder
with copies of the Registration Statement and the prospectus included therein
and other related documents in such quantities as may be reasonably requested by
the Holder.
Section 19.4 The Company shall not be required by this Section 3 to include a
Holder's Securities in any Registration Statement which is to be filed if, in
the opinion of counsel for both the Holder and the Company (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for the Holder and the Company) the proposed offering or
other transfer as to which such registration is requested is exempt from
applicable federal and state securities laws and would result in all purchasers
or transferees obtaining securities which are not "restricted securities", as
defined in Rule 144 under the Securities Act.
Section 19.5 The Company shall not include any other securities in any
Registration Statement in which it is required to include Securities pursuant to
this Section 3.
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Section 19.6 If at any time or from time to time after the effective date of the
Registration Statement, the Company notifies the Holder in writing of the
existence of a Potential Material Event (as defined in Section 3(g) below), the
Holder shall not offer or sell any Securities or engage in any other transaction
involving or relating to Securities, from the time of the giving of notice with
respect to a Potential Material Event until such Holder receives written notice
from the Company that such Potential Material Event either has been disclosed to
the public or no longer constitutes a Potential Material Event. If a Potential
Material Event shall occur prior to the date the Registration Statement is
filed, then the Company's obligation to file the Registration Statement shall be
delayed without penalty for not more than thirty (30) days. The Company must
give Holder notice in writing at least two (2) Trading Days prior to the first
day of the blackout period, if lawful to do so.
Section 19.7 "Potential Material Event" means any of the following: (a) the
possession by the Company of material information that is not ripe for
disclosure in a registration statement, as determined in good faith by the Chief
Executive Officer or the Board of Directors of the Company or that disclosure of
such information in the Registration Statement would be detrimental to the
business and affairs of the Company; or (b) any material engagement or activity
by the Company which would, in the good faith determination of the Chief
Executive Officer or the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Chief
Executive Officer or the Board of Directors of the Company that the Registration
Statement would be materially misleading absent the inclusion of such
information.
ARTICLE XX Cooperation with Company. Holder will cooperate with the Company in
all respects in connection with this Agreement, including timely supplying all
information reasonably requested by the Company (which shall include all
information regarding the Holder and proposed manner of sale of the Registrable
Securities required to be disclosed in the Registration Statement) and executing
and returning all documents reasonably requested in connection with the
registration and sale of the Registrable Securities and entering into and
performing its obligations under any underwriting agreement, if the offering is
an underwritten offering, in usual and customary form, with the managing
underwriter or underwriters of such underwritten offering. The Holder consents
to be named as a statutory underwriter in the Registration Statement.
ARTICLE XXI Registration Procedures. If and whenever the Company is required by
any of the provisions of this Agreement to effect the registration of any of the
Registrable Securities under the Act, the Company shall (except as otherwise
provided in this Agreement), as expeditiously as possible, subject to the
Holder's assistance and cooperation as reasonably required:
Section 21.1 (a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder of such Registrable Securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful action
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such that each of (A) the Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, not misleading and (B) the Prospectus forming part
of the Registration Statement, and any amendment or supplement thereto, does not
at any time during the Registration Period include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Section 21.2 (a) prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any prospectus (including any supplements thereto), provide draft copies thereof
to the Holders and reflect in such documents all such comments as the Holders
(and their counsel) reasonably may propose and (ii) furnish to each Holder such
numbers of copies of a prospectus including a preliminary prospectus or any
amendment or supplement to any prospectus, as applicable, in conformity with the
requirements of the Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such Holder;
Section 21.3 register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holder shall reasonably request (subject to the limitations
set forth in Section 3(d) above), and do any and all other acts and things which
may be necessary or advisable to enable each Holder to consummate the public
sale or other disposition in such jurisdiction of the securities owned by such
Holder, except that the Company shall not for any such purpose be required to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so qualified or to file therein any general consent to service of
process;
Section 21.4 list such Registrable Securities on the Primary Market, and any
other exchange on which the Common Stock of the Company is then listed, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange;
Section 21.5 notify each Holder at any time when a prospectus relating thereto
covered by the Registration Statement is required to be delivered under the Act,
of the happening of any event of which it 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 not
misleading in the light of the circumstances then existing, and the Company
shall prepare and file a curative amendment under Section 5(a) as quickly as
commercially possible;
Section 21.6 as promptly as practicable after becoming aware of such event,
notify Holder (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the Commission or any state authority of any
stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time and take all lawful action to effect the
withdrawal, recession or removal of such stop order or other suspension;
Section 21.7 cooperate with the Holder to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts, as the case may be, as the
Holder reasonably may request and registered in such names as the Holder may
request; and, within three Trading Days after a Registration Statement which
includes Registrable Securities is declared effective by the Commission, deliver
and cause legal counsel selected by the Company to deliver to the transfer agent
for the Registrable Securities (with copies to the Holder) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
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Section 21.8 take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Holder of its Registrable Securities in
accordance with the intended methods therefor provided in the prospectus which
are customary for issuers to perform under the circumstances;
Section 21.9 in the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment; and
Section 21.10 maintain a transfer agent and registrar for its Common Stock.
ARTICLE XXII Indemnification.
Section 22.1 The Company agrees to indemnify and hold harmless the Holder and
each person, if any, who controls the Holder within the meaning of the
Securities Act ("Distributing Holder") against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees), to which the Distributing
Holder may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, or any related
preliminary prospectus, final prospectus or amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
preliminary prospectus, final prospectus or amendment or supplement thereto in
reliance upon, and in conformity with, written information furnished to the
Company by the Distributing Holder, specifically for use in the preparation
thereof. This Section 6(a) shall not inure to the benefit of any Distributing
Holder with respect to any person asserting such loss, claim, damage or
liability who purchased the Registrable Securities which are the subject thereof
if the Distributing Holder failed to send or give (in violation of the
Securities Act or the rules and regulations promulgated thereunder) a copy of
the prospectus contained in such Registration Statement to such person at or
prior to the written confirmation to such person of the sale of such Registrable
Securities, where the Distributing Holder was obligated to do so under the
Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
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Section 22.2 Each Distributing Holder agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company or person, if
any, who controls the Company within the meaning of the Securities Act, against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all reasonable costs of defense
and investigation and all reasonable attorneys' fees) to which the Company or
any such officer, director or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, or any related preliminary prospectus, final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Holder, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Distributing Holder may otherwise have.
Section 22.3 Promptly after receipt by an indemnified party under this Section 6
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent of actual prejudice demonstrated by the indemnifying party. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Holder, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
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ARTICLE XXIII Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees), in either such
case (after contribution from others) on the basis of relative fault as well as
any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Holder on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Holder be required to undertake liability to any person under this Section 7 for
any amounts in excess of the dollar amount of the net proceeds to be received by
such Holder from the sale of such Holder's Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) pursuant to
any Registration Statement under which such Registrable Securities are to be
registered under the Securities Act and (ii) underwriter be required to
undertake liability to any person hereunder for any amounts in excess of the
aggregate discount, commission or other compensation payable to such underwriter
with respect to the Registrable Securities underwritten by it and distributed
pursuant to the Registration Statement.
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ARTICLE XXIV Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be delivered as set forth in the
Purchase Agreement. Either party hereto may from time to time change its address
or facsimile number for notices under this Section 8 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other party hereto.
ARTICLE XXV Assignment. Neither this Agreement nor any rights of the Holder or
the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock purchased by the Investor pursuant to the Purchase Agreement, and (b) upon
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed in the case of an assignment to an affiliate of
the Holder, the Holder's interest in this Agreement may be assigned at any time,
in whole or in part, to any other person or entity (including any affiliate of
the Holder) who agrees to be bound hereby.
ARTICLE XXVI Additional Covenants of the Company. The Company agrees that at
such time as it meets all the requirements for the use of Securities Act
Registration Statement on Form S-3 it shall file all reports and information
required to be filed by it with the Commission in a timely manner and take all
such other action so as to maintain such eligibility for the use of such form.
ARTICLE XXVII Counterparts/Facsimile. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when together shall constitute but one and the same instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
ARTICLE XXVIII Remedies. The remedies provided in this Agreement are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
ARTICLE XXIX Conflicting Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement or otherwise
prevents the Company from complying with all of its obligations hereunder.
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ARTICLE XXX Headings. The headings in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
ARTICLE XXXI Governing Law, Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding with thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The non-prevailing party to any arbitration (as
determined by the Board of Arbitration) shall pay the expenses of the prevailing
party, including reasonable attorneys' fees, in connection with such
arbitration. Any party shall have the right to seek injunctive relief from any
court of competent jurisdiction in any case where such relief is available.
ARTICLE XXXII Severability. If any provision of this Agreement shall for any
reason be held invalid or unenforceable, such invalidity or unenforceablity
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein. Terms not otherwise defined herein shall be defined in accordance with
the Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
MEDISYS TECHNOLOGIES, INC.
By: /s/Edward P. Sutherland
-----------------------
Edward P. Sutherland, Chairman and CEO
Treadstone Investments Limited
By: /s/Hans Gassner
---------------
Hans Gassner, Authorized Signatory
EXHIBIT D
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
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STOCK PURCHASE WARRANT
To Purchase 1,125,000 Shares of Common Stock of
MEDISYS TECHNOLOGIES, INC.
THIS CERTIFIES that, for value received, TREADSTONE INVESTMENTS LIMITED (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after the earlier of (i) the effective date of the
Registration Statement or (ii) February 25, 2000 (the "Initial Exercise Date")
and on or prior to the close of business on February 25, 2003 (the "Termination
Date") but not thereafter, to subscribe for and purchase from Medisys
Technologies, Inc., a Utah corporation (the "Company"), up to one million one
hundred twenty-five thousand (1,125,000) shares (the "Warrant Shares") of Common
Stock, $.0005 par value, of the Company (the "Common Stock"). The purchase price
of one share of Common Stock (the "Exercise Price") under this Warrant shall be
$2.00. The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. In the event of
any conflict between the terms of this Warrant and the Private Equity Line of
Credit Agreement dated February 24, 2000 pursuant to which this Warrant has been
issued (the "Purchase Agreement"), the Purchase Agreement shall control.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Purchase Agreement.
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ARTICLE XXXIII____
Title to Warrant. Prior to the Termination Date and subject to compliance with
applicable laws, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the holder hereof
in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed.
ARTICLE XXXIV Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
ARTICLE XXXV Exercise of Warrant. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date. Exercise of this Warrant or any part hereof
shall be effected by the surrender of this Warrant and the Notice of Exercise
Form annexed hereto duly executed, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Company) and upon payment of the Exercise Price of the shares thereby
purchased by wire transfer or cashier's check drawn on a United States bank, the
holder of this Warrant shall be entitled to receive a certificate for the number
of shares of Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within three (3) Trading Days
after the date on which this Warrant shall have been exercised as aforesaid.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes required
to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of
such shares, have been paid. If this Warrant shall have been exercised in part,
the Company shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased shares of Common Stock called for
by this Warrant, which new Warrant shall in all other respects be identical with
this Warrant. If the Registration Statement is not then effective, this Warrant
may also be exercised by means of a "cashless exercise" in which the holder
shall be entitled to receive a certificate for the number of shares equal to the
quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrants; and
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(X) = the number of shares issuable upon exercise of the Warrants in accordance
with the terms of this Warrant.
ARTICLE XXXVI No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
ARTICLE XXXVII Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
ARTICLE XXXVIII Closing of Books. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant.
ARTICLE XXXIX Transfer, Division and Combination. (a) Subject to compliance with
any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the Company
to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by Holder or its
agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer. Upon such surrender and, if required, such payment,
the Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be exercised by a
new holder for the purchase of shares of Common Stock without having a new
Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
45
<PAGE>
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
ARTICLE XL No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
ARTICLE XLI Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of such Warrant or stock certificate.
ARTICLE XLII Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
ARTICLE XLIII Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
46
<PAGE>
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the kind
and number of Warrant Shares or other securities of the Company which are
purchasable hereunder, the holder of this Warrant shall thereafter be entitled
to purchase the number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
Section 43.2 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
47
<PAGE>
ARTICLE XLIV Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
ARTICLE XLV Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was made. Such notice, in the absence
of manifest error, shall be conclusive evidence of the correctness of such
adjustment.
ARTICLE XLV Notice of Corporate Action. If at any time: (a) the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution, or any right to subscribe for
or purchase any evidences of its indebtedness, any shares of stock of any class
or any other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in any one or more of such
cases, the Company shall give to Holder (i) at least 30 days' prior written
notice of the date on which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 30 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with Section
16(d).
ARTICLE XLVII Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use all commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
48
<PAGE>
ARTICLE XLVIII Miscellaneous.
Section 48.1 Jurisdiction. This Warrant shall be binding upon any successors
or assigns of the Company. This Warrant shall constitute a contract under the
laws of New York without regard to its conflict of law principles or rules, and
be subject to arbitration pursuant to the terms set forth in the Purchase
Agreement.
Section 48.2 Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
Section 48.3 Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
Company willfully fails to comply with any material provision of this Warrant,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
Section 48.4 Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
Section 48.5 Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give rise
to any liability of Holder for the purchase price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
Section 48.6 Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
Section 48.7 Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
49
<PAGE>
Section 48.8 Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's negligence,
bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
Section 48.9 Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
Section 48.10 Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
Section 48.11 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: February __, 2000
MEDISYS TECHNOLOGIES, INC.
By: /s/Edward P. Sutherland
-----------------------
Edward P. Sutherland, Chairman and CEO
50
<PAGE>
NY:96583.2
NOTICE OF EXERCISE
To: Medisys Technologies, Inc.
(1)______The undersigned hereby elects to purchase ________ shares of Common
Stock (the "Common Stock"), of Medisys Technologies, Inc. pursuant to the terms
of the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2)______Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
(Name)
----------------------------------------
(Address)
---------------------------------------
Dated:
51
<PAGE>
------------------------------
Signature
<PAGE>
4
NY:96583.2
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
whose address is
- -----------------------------------------------
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated:
--------------------------
Holder's Signature:
--------------------------
Signature Guaranteed:
----------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT 21
----------
SUBSIDIARIES OF MEDISYS TECHNOLOGIES, INC.
The following are subsidiaries of Medisys Technologies,Inc., a Utah corporation:
Phillips Pharmatec Labs, Inc., a Florida corporation
JONES, JENSEN & COMPANY, LLC
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
CONSENT OF INDEPENDENT AUDITORS'
--------------------------------
We hereby consent to the use of our audit report dated April 11, 2000 in this
Form SB-2 of Medisys Technologies, Inc. and Subsidiaries for the year ended
December 31, 1999, which is part of this Form SB-2 and all references to our
firm included in this Form SB-2.
Jones, Jensen & Company
Salt Lake City, Utah
April 26, 2000
50 South Main Street
Suite 1450
Salt Lake City, Utah 84144
Telephone (801) 328-4408
Facsimile (801) 328-4461
50 South Main Street
Suite 1450
Salt Lake City, Utah 84144
Telephone (801) 328-4408
Facsimile (801) 328-4461
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE MEDISYS
TECHNOLOGIES, INC. FINANCIAL STATEMENTS FOR THE
PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 290,269
<SECURITIES> 0
<RECEIVABLES> 499,299
<ALLOWANCES> 226,627
<INVENTORY> 396,601
<CURRENT-ASSETS> 983,844
<PP&E> 908,394
<DEPRECIATION> 314,751
<TOTAL-ASSETS> 2,109,780
<CURRENT-LIABILITIES> 1,844,825
<BONDS> 304,490
0
0
<COMMON> 23,527
<OTHER-SE> 10,743,768
<TOTAL-LIABILITY-AND-EQUITY> 2,109,780
<SALES> 2,716,819
<TOTAL-REVENUES> 2,716,819
<CGS> 2,017,844
<TOTAL-COSTS> 1,935,697
<OTHER-EXPENSES> 109,461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341,503
<INCOME-PRETAX> (1,687,621)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,687,621)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,687,621)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
