<PAGE>
As filed with the Securities and Exchange Commission on July 23, 1996
Registration No. 333-3184
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
_____________________
MEDJET INC.
(Name of small business issuer in its charter)
DELAWARE 3841 22-3283541
(State or jurisdiction (Primary Standard (IRS Employer
of incorporation Industrial Identification No.)
or organization) Classification
Code Number)
1090 KING GEORGES POST ROAD, SUITE 301
EDISON, NEW JERSEY 08837
(908) 738-3990
(908) 738-3984 (FAX)
(Address and telephone number of principal executive offices and principal place
of business)
EUGENE I. GORDON
PRESIDENT
MEDJET INC.
1090 KING GEORGES POST ROAD, SUITE 301
EDISON, NEW JERSEY 08837
(908) 738-3990
(908) 738-3984 (FAX)
(Name, address and telephone number of agent for service)
Please send a copy of all communications to:
JANE E. JABLONS, ESQ. STUART NEUHAUSER, ESQ.
KELLEY DRYE & WARREN LLP BERNSTEIN & WASSERMAN, LLP
101 PARK AVENUE 950 THIRD AVENUE
NEW YORK, NEW YORK 10178 NEW YORK, NEW YORK 10022
(212) 808-7800 (212)826-0730
(212) 808-7897 (FAX) (212)371-4730 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
<PAGE>
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 offering. [ ] _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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. [ ]
If any of the Securities being registered on this Form are to be offered on
a delayed or continual basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ X ]
--------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Class Offering Price Aggregate Amount of
of Securities Dollar Amount Per Security Offering Registration
Being Registered to Be Registered (1) Price (1) Fee (1)(4)
- ------------------- ---------------- --- --------- ------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting
of one share of Common
Stock and one $6,900,000(3) $5.60 $6,900,000 $2,379.31
Class A Warrant
- ----------------------------------------------------------------------------------------------------
Common Stock,
par value
$.001 per share, -- -- -- --
included in the Units
- ----------------------------------------------------------------------------------------------------
Class A Warrants
included in the Units -- -- -- --
- ----------------------------------------------------------------------------------------------------
Common Stock
underlying $12,321,430(3) $10.00 $12,321,430 $4,248.77
Class A Warrants (2)
- ----------------------------------------------------------------------------------------------------
Underwriter's Options $107.14 $.001 $107.14 $.04
- ----------------------------------------------------------------------------------------------------
Units underlying
Underwriter's Options $720,000.96 $6.72 $720,000.96 $248.28
- ----------------------------------------------------------------------------------------------------
Common Stock
included in Units
underlying -- -- -- --
Underwriter's Options
- ----------------------------------------------------------------------------------------------------
Class A Warrants
included in Units
underlying -- -- -- --
Underwriter's Options
- ----------------------------------------------------------------------------------------------------
Common Stock
underlying Warrants
included in Units
underlying
Underwriter's
Options $1,071,430 $10.00 $1,071,430 $369.46
- ----------------------------------------------------------------------------------------------------
Total Registration Fee $21,012,968.10 $21,012,968.10 $7,245.86
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
-ii-
<PAGE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457 of the Securities Act.
(2) Pursuant to Rule 416, there are also being registered hereby such
additional indeterminate number of shares of Common Stock as may become
issuable by reason of stock splits, stock dividends, anti-dilution
adjustments and similar adjustments as set forth in the provisions of the
Warrants and the Underwriter's Option Agreement.
(3) Includes 160,714 Units subject to the Underwriter's over-allotment option.
(4) Fee of $9,641.43 was previously paid.
------------------------------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
-iii-
<PAGE>
MEDJET INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Heading in Prospectus
- --------------------------------- ---------------------
<S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus. . . . . . . . . . . . . . . . . . Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus. . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors . . . . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds. . . . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price. . . . . . . . . . . . Risk Factors; Underwriting
6. Dilution . . . . . . . . . . . . . . . . . . . . . . . Dilution; Risk Factors
7. Selling Security Holders . . . . . . . . . . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings. . . . . . . . . . . . . . . . . . . Business
10. Directors, Executive Officers, Promoters and
Control Persons. . . . . . . . . . . . . . . . . . . . Risk Factors; Management
11. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . Principal Stockholders
12. Description of Securities. . . . . . . . . . . . . . . Description of Securities
13. Interests of Named Experts and Counsel . . . . . . . . Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . . Description of Securities
15. Organization Within Last Five Years. . . . . . . . . . Business; Certain Transactions
16. Description of Business. . . . . . . . . . . . . . . . Business
17. Management's Discussion and Analysis or Plan of
Operation. . . . . . . . . . . . . . . . . . . . . . . Plan of Operation
18. Description of Property. . . . . . . . . . . . . . . . Prospectus Summary; Risk Factors; Plan of Operation; Business
19. Certain Relationships and Related Transactions . . . . Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . Risk Factors; Dilution; Management; Shares Eligible for Future Sale
21. Executive Compensation . . . . . . . . . . . . . . . . Management
22. Financial Statements . . . . . . . . . . . . . . . . . Financial Statements
23. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . Not Applicable
</TABLE>
-iv-
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 23, 1996
PROSPECTUS
MEDJET INC.
1,071,429 Units
Each Unit Consisting of One Share of Common Stock
and One Class A Redeemable Common Stock Purchase Warrant
----------------------------
Medjet Inc., a Delaware corporation (the "Company"), hereby offers
1,071,429 Units (the "Units") for sale (the "Offering"). Each Unit consists of
one share of common stock, $.001 par value (the "Shares" or "Common Stock") and
one redeemable Common Stock Purchase Warrant (the "Class A Warrants" or the
"Warrants") to purchase one share of Common Stock at $10.00 for 24 months
commencing on the date that is three months following the date of this
Prospectus (the "Effective Date"). The Common Stock and the Class A Warrants
will become separable on the date (the "Separation Date") which is the earlier
of three months following the Effective Date or such earlier date as may be
agreed to by the Company and the Underwriter. The Units, Common Stock and
Warrants are sometimes collectively referred to as the "Securities."
The Units, Common Stock and Warrants will be separately transferable
commencing on the Separation Date. All of the Units offered hereby are being
sold by the Company. The Company is in the development stage and has not yet
sold any products or generated any revenues. The Company believes that it will
require additional capital before it reaches profitability, of which there can
be no assurance.
The Company has applied for the inclusion of the Securities on the National
Association of Securities Dealers ("NASD") OTC Bulletin Board, an unorganized,
inter-dealer, over-the-counter market which provides significantly less
liquidity than the Nasdaq National Market System, and quotes for stocks included
on the OTC Bulletin Board are not listed in the financial sections of newspapers
as are those for the Nasdaq National Market System. In the event the Securities
are not included on the OTC Bulletin Board, quotes for the Securities may be
included in the "pink" sheets for the over-the-counter market. While the
Company has applied for inclusion of its Securities on the Nasdaq SmallCap
Market ("Nasdaq"), the application was denied by the Nasdaq staff. The Company
has appealed the Nasdaq staff decision. See "Risk Factors -- No Assurance of
Public Trading Market; Denial of Nasdaq Listing." (TEXT FOLLOWS ON NEXT PAGE)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 9 AND "DILUTION."
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit . . . . $5.60 $.56 $5.04
- --------------------------------------------------------------------------------
Total (3). . . . $6,000,002 $600,000.20 $5,400,001.80
- --------------------------------------------------------------------------------
</TABLE>
(FOOTNOTES FOLLOW ON NEXT PAGE)
The Units are being offered when, as and if delivered to and accepted by
the Underwriter and subject to certain conditions, including the right to reject
orders in whole or in part. It is anticipated that delivery of the Units will
be made against payment therefor on or about , 1996 at the offices of
--------
the Underwriter.
- -----------------------------------------------------
PATTERSON TRAVIS, INC.
---------------------------
The date of this Prospectus is , 1996.
----------------------
<PAGE>
(TEXT CONTINUED FROM PREVIOUS PAGE)
The Warrants are redeemable by the Company for $.01 per warrant on 30 days'
prior written notice, if the market price of the Common Stock equals or exceeds
$13.00 for any 10 consecutive trading days within a period of 30 trading days
ending within five days prior to the date of the notice of redemption. See
"Description of Securities -- Warrants." Prior to this Offering, there has been
no public market for the Units, the Common Stock or the Warrants, and there can
be no assurance that a public market will develop. The initial public offering
price of the Units has been arbitrarily determined by agreement between the
Company and the Underwriter and is not related to the Company's earnings,
assets, book value or any other established criteria of value. See "Risk
Factors" and "Underwriting."
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(1) Does not include additional compensation to the Underwriter, including
(i) options (the "Underwriter's Options") to purchase 107,143 Units at
an exercise price of $6.72 per Unit for a period of four years,
commencing one year from the date of this Prospectus, each unit
consisting of one share of Common Stock and one redeemable Common
Stock Purchase Warrant and (ii) a non-accountable expense allowance of
$180,000. The Company has also agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses (including legal, accounting and filing fees
and printing and engraving) payable by the Company, estimated at
$337,000, excluding the non-accountable expense allowance to the
Underwriter referred to above.
(3) The Company has granted to the Underwriter an option, exercisable for
a period of 30 days from the date of this Prospectus, to purchase up
to 160,714 additional Units to cover over-allotments. If this option
is exercised in full, the total price to public will be $6,900,000,
the total Underwriting Discounts and Commissions will be approximately
$690,000 and the total proceeds to Company will be approximately
$6,210,000.
-2-
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
amendments thereto, the "Registration Statement") under the Securities Act with
respect to the Securities offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits filed therewith, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Securities offered hereby,
reference is hereby made to the Registration Statement and to the exhibits filed
therewith. Statements contained in this Prospectus regarding the contents of
any contract or other document referred to are not necessarily complete and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
deemed to be qualified in its entirety by such reference. However, all material
elements of each such contract or other document are set forth in this
Prospectus. The Registration Statement, including all exhibits thereto, may be
inspected without charge at the principal office of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Commission's regional offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, upon the payment of prescribed
fees.
SPECIAL STANDARDS FOR UNITS SOLD IN CALIFORNIA
EACH CALIFORNIA INVESTOR, AND EACH TRANSFEREE THEREOF WHO ALSO IS A
CALIFORNIA INVESTOR, MUST HAVE AN ANNUAL GROSS INCOME OF AT LEAST $65,000 AND
A NET WORTH, EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES, OF AT LEAST
$250,000, OR IN THE ALTERNATIVE, A NET WORTH, EXCLUSIVE OF HOME, FURNISHINGS AND
AUTOMOBILES, OF AT LEAST $500,000. IN ADDITION, AN INVESTOR'S TOTAL PURCHASE
MAY NOT EXCEED 10% OF SUCH INVESTOR'S NET WORTH.
------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE COMMON STOCK AND
THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-3-
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I)
ASSUMES THAT THE INITIAL PUBLIC OFFERING PRICE FOR THE UNITS WILL BE $5.60, (II)
ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION AND (III) HAS
BEEN ADJUSTED TO REFLECT A 1.987538926-FOR-1 STOCK SPLIT OF THE COMPANY'S COMMON
STOCK EFFECTED IMMEDIATELY PRIOR TO THE DATE OF THIS PROSPECTUS. SEE
"DESCRIPTION OF SECURITIES." UNLESS OTHERWISE INDICATED, NO EFFECT IS GIVEN IN
THIS PROSPECTUS TO (I) THE SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON THE
EXERCISE OF THE WARRANTS INCLUDED IN THE UNITS, (II) THE SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE UPON THE EXERCISE OF OPTIONS GRANTED TO THE UNDERWRITER
FOR NOMINAL CONSIDERATION AND THE WARRANTS INCLUDED THEREIN OR (III) THE SHARES
OF COMMON STOCK RESERVED FOR ISSUANCE PURSUANT TO THE COMPANY'S STOCK OPTION
PLAN. SEE "DESCRIPTION OF SECURITIES," "UNDERWRITING" AND "MANAGEMENT -- 1994
STOCK OPTION PLAN." FOR DEFINITIONS OF CERTAIN TERMS AND ABBREVIATIONS USED IN
THIS PROSPECTUS, SEE THE "GLOSSARY" AT PAGE 49.
THE COMPANY
Medjet Inc. (the "Company"), founded in December 1993, has developed a
proprietary surgical device known as a keratome, which utilizes a hair-thin
(approximately 30 microns in diameter) circular beam of supersonic velocity
water. The waterjet beam substitutes for a conventional metal or diamond blade
scalpel and in combination with other elements of the device is capable of
shaving thin, shaped layers from the cornea of the eye, a procedure known as
lamellar keratoplasty. The keratome is used to treat diseases of the cornea as
well as to correct vision deficiencies such as nearsightedness ("myopia"),
farsightedness ("hyperopia") and astigmatism by excising layers, either parallel
or shaped, of the cornea in order to reshape the cornea to achieve proper
focusing. In combination with a template of prescribed dimensions, the shape of
the layer to be removed can be determined in advance.
The Company believes that its keratome can be used to treat corneal disease
in a procedure known as hydro-therapeutic keratoplasty ("HTK"), in which
diseased corneal tissue is removed and the remaining corneal tissue may be
reshaped to provide proper focusing. About 45,000 corneal procedures, including
full transplants and partial removals, are performed annually in the United
States. The Company believes that the same keratome, through a procedure known
as hydro-refractive keratoplasty ("HRK"), has the potential to reduce or
eliminate a patient's dependence on eyeglasses or contact lenses by modifying
the shape of the cornea to correct vision deficiencies. Based upon feasibility
studies and limited animal testing conducted by the Company, the Company
believes that its waterjet scalpel cuts more precisely and smoothly than the
sharpest metal, diamond or laser scalpel and that, as a result, HRK may result,
if approved, in a safer, more accurate and more stable corneal adjustment that
is less painful for patients than other refractive surgical procedures currently
available. The Company anticipates that HRK will also be competitively priced
with, or cost less than, such other procedures. The Company has not
independently tested competing products but has reviewed research reports and
offering materials describing various competitive products.
Due to funding limitations, the Company has not yet constructed a full
prototype of its keratome or conducted tests of either the HRK or HTK procedures
using its keratome. The Company believes that limited testing of HRK and/or HTK
procedures using a keratome similar to the Company's has been done by others.
The Company's keratome, which consists of a waterjet nozzle and a device
known as a globe fixation device (to align and fix the eye in place relative to
the template during surgery), is intended to be used with a miniature high
pressure water storage element and related equipment, which together produce the
water beam; a scanning mechanism to move the water beam across the cornea; a
device to regulate and control the action of the water beam; a force transducer
to monitor the water beam status; and a template designed to support and shape
the eye during surgery. The keratome will be placed on the patient's eye during
the surgical procedure.
The Company intends to initially seek a ruling from the United States Food
and Drug Administration ("FDA") to market the HTK Keratome for two intended
uses, the removal of the epithelium and the removal of
-4-
<PAGE>
diseased corneal tissue on the basis of substantial equivalence to devices in
use (referred to herein as "permission to market"). The HTK Keratome is
intended to become the first commercially available product using the Company's
waterjet technology and would be both an early source of income for the Company
and the basis for additional applications for FDA-permitted uses of the
keratome.
The subsequent and possibly more commercially valuable use of the keratome
is for refractive surgery through HRK. Subsequent to the permitted marketing of
the HTK Keratome, the Company intends to seek FDA permission to market the
keratome for HRK (the "HRK Keratome"). In the United States, more than 145
million people wear either eyeglasses or contact lenses. Over $13 billion is
spent annually in the United States for corrective eyewear products.
Approximately 29 million Americans wear contact lenses, primarily for cosmetic
or convenience reasons. The number of people in the United States newly
electing to wear contact lenses is over one million per year. This large and
growing population of contact lens wearers is the largest potential market for
refractive surgery, including HRK. Studies indicate that approximately 60% of
persons electing refractive surgery are contact lens wearers. However, there
can be no assurance that eyeglass or contact lens wearers will elect to undergo
surgery.
Upon regulatory permission to market, or other approval of, the HRK
Keratome (of which there can be no assurance), the Company intends to market the
HRK Keratome to individual ophthalmologists and groups of ophthalmologists for
the treatment of patients in a clinical setting. The Company believes that its
proprietary waterjet technology may have additional surgical applications;
however, the Company has conducted only limited studies of such applications to
date.
The Company has sought to protect its proprietary interest in the HRK
Keratome by applying for patents in the United States and corresponding patents
abroad. In September 1994, a U.S. patent application was filed in the name of
Dr. Eugene I. Gordon, President of the Company, and two employees of the
Company, as inventors, which application was assigned to the Company. The U.S.
patent application, as allowed for issuance, covers a method and device for use
in the HRK Keratome, including use of a template for corneal shaping and
holding, during use of a waterjet keratome device. A corresponding
international application has been filed, pursuant to the Patent Cooperation
Treaty ("PCT"), with designation of all member countries foreign to the United
States, including but not limited to Japan, the members of the European Patent
Office, Canada, Mexico, Australia, Russia, China and Brazil. The PCT filing has
been published and separate patent applications have been or will be filed
pursuant to the PCT filing. In addition, for countries not currently part of
the PCT, patent applications have also been filed in Israel, Taiwan and South
Africa. A U.S. patent application is currently pending and relates to
topographic corneal mapping, which has utility for surgery utilizing the HRK
Keratome.
The Company is in the development stage and has not sold any products or
generated any revenues as of the date of this Prospectus. To date, the
Company's research and development activities have been limited to constructing
and testing experimental versions of the keratome and conducting a limited
number of feasibility studies using porcine, rabbit and human cadaver eyes and
live animals to prove that a hair-thin beam of water can smoothly incise and
shape the anterior surface of the cornea and that the cornea will heal properly
after the surgery. No human clinical trials have been performed to date.
The FDA has regulatory authority over the manufacture, labeling,
distribution and promotion of the keratome. The initial phase of the Company's
FDA strategy involves seeking permission to market the HTK Keratome. The FDA
has recommended to the Company that it seek permission to market the HTK
Keratome through a Section 510(k) pre-market notification ("510(k)
notification") procedure together with a limited number of clinical trials, and
it is the intent of the Company to file two such notifications with the FDA in
the second half of 1996 relating to two uses of the HTK Keratome. Although
there can be no assurance that this will prove to be the case, permission
granted for the 510(k) notifications should enable the Company to commence its
marketing efforts sooner than if the Company had to submit to the FDA a pre-
market approval ("PMA") application, which typically is a much more complex
submission requiring lengthy human clinical trials. See "Risk Factors -- No
Assurance of FDA and Other Regulatory Approval" and "Business -- U.S.
Government Regulation."
Although the therapeutic uses described above are the Company's initial
intended uses for its keratome, the Company recognizes that other uses may
eventually be made of the waterjet keratome. One such use, for which
-5-
<PAGE>
the Company believes the potential market could be significant, is for
refractive surgical correction. Therefore, the later phase of the Company's FDA
strategy relates to the HRK Keratome. Although the Company believes that the
HRK Keratome will be considered for permission to market by the FDA through a
510(k) notification based upon the similarities of the keratome between HTK use
and HRK use, obtaining such permission for the HRK Keratome is likely to be
somewhat more complicated than for HTK. There can be no assurance that either
the HTK use or the HRK use will be permitted for marketing by the FDA. The
differences between the two uses are found in the components, other than the
waterjet scalpel, which comprise the keratome. For the HRK Keratome, the
Company may be required to show that the procedure is effective, stable and does
not decrease visual acuity to any significant extent.
The Company believes that, based on three features of the HRK Keratome, it
will also be considered for 510(k) notification by the FDA. First, there are no
known or anticipated physical or chemical processes that would impact on the
safety of the HRK procedure. The second feature is the benign nature of the
waterjet cut compared with cuts from other types of scalpels. Third, the
portion of the corneal tissue targeted for removal by the HRK Keratome is
extracted in a single piece similar to a contact lens and the Company believes
that its proposed method of extraction and testing would be compatible with a
510(k) notification process that would be relatively short and consist of tests
on a limited number of live eyes.
The Company may distribute its products internationally. Distribution of
the Company's products in countries other than the United States may be subject
to regulation in those countries. In some countries, the regulations governing
such distribution are less burdensome than in the United States and the Company
may pursue marketing its products in such countries prior to receiving
permission to market from the FDA. The Company will endeavor to obtain the
necessary government approvals in those foreign countries where the Company
decides to manufacture, market and sell its products. See "Business -- Foreign
Government Regulation."
With the net proceeds of this Offering, the Company intends to continue the
research and development of its keratome and related manufacturing processes and
to commence human clinical trials of the HRK Keratome. See "Plan of Operation."
If the HTK Keratome or the HRK Keratome is permitted for marketing or otherwise
approved in the United States, the Company will be required to establish a
marketing organization and production facilities, which will require additional
financing. No assurance can be given that the Company's research and
development efforts will be successfully completed, that the HTK Keratome or HRK
Keratome will prove to be safe and effective in correcting vision, that the HTK
Keratome or HRK Keratome will be permitted for marketing by the FDA or any other
regulatory agency, or that the HTK Keratome or HRK Keratome or any other product
developed by the Company will be commercially successful.
The Company was incorporated under the laws under the State of Delaware in
December 1993. Its offices are located at 1090 King Georges Post Road, Suite
301, Edison, New Jersey 08837; its telephone number is (908) 738-3990. The
Company has elected Subchapter "S" status pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended (the "Code"), which status will
terminate upon the Closing Date.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities Offered . . . . 1,071,429 Units at $5.60 per Unit, each Unit
consisting of one share of Common Stock and one
Warrant. The shares of Common Stock and Warrants
offered as Units become detachable and separately
transferable on the date (the "Separation Date")
which is the earlier of three months following the
date of this Prospectus (the "Effective Date") or
such earlier date as may be agreed to by the
Company and the Underwriter. See "Description of
Securities."
-6-
<PAGE>
Warrants . . . . . . . . . The Warrants will be exercisable at $10.00 per
share for 24 months commencing on the date which
is three months following the Effective Date,
which period may be extended by mutual agreement
between the Company and the Underwriter. The
Warrants will be redeemable at $.01 per Warrant if
the market price of the Common Stock equals or
exceeds $13.00 for 10 consecutive trading days
within a period of 30 consecutive trading days
ending within 5 days of the notice of redemption.
See "Description of Securities -- Warrants."
Common Stock
Outstanding prior to the
Offering(1). . . . . . . . 2,450,312 shares
Common Stock to be
Outstanding after the
Offering(1). . . . . . . . 3,521,741 shares
Use of Proceeds. . . . . . Research and development of the HTK Keratome and
the HRK Keratome, human clinical trials, repayment
of indebtedness, working capital and general
corporate purposes. See "Use of Proceeds."
Risk Factors . . . . . . . An investment in the Units involves a high degree
of risk and immediate substantial dilution. See
"Risk Factors" at page 9 and "Dilution."
Proposed OTC Bulletin. . . Units: MJETU
Board Symbols (2). . . . . Common Stock: MJETC
Class A Warrants: MJETW
- -----------------------------------
</TABLE>
(1) Unless otherwise indicated, no effect is given to (i) 1,071,429 shares
reserved for issuance upon the exercise of the Warrants included in the
Units, (ii) 160,714 shares reserved for issuance upon the exercise of the
Underwriter's over-allotment option, (iii) 160,714 shares reserved for
issuance upon the exercise of the Warrants included in the Units included
in the Underwriter's over-allotment option, (iv) 214,286 shares reserved
for issuance upon the exercise of the Underwriter's Options and the
Warrants included therein, and (v) 200,000 shares reserved for issuance
pursuant to stock options available for grant under the Company's 1994
Stock Option Plan, as amended (the "Stock Option Plan"), 49,688 shares
reserved for issuance pursuant to stock options which have been granted
under the Stock Option Plan as of the date of this Prospectus and 102,000
shares reserved for issuance pursuant to outstanding warrants. Gives
effect to a stock split ratio of 1.987538926-for-1 effected in connection
with the Offering.
(2) Application has been made for the inclusion of the Securities on the OTC
Bulletin Board. See "Risk Factors -- No Assurance of Public Trading
Market; Denial of Nasdaq Listing."
RISK FACTORS
The discussion of risk factors which begins on page 9 hereof should be
considered carefully in evaluating an investment in the Securities. The risks of
investing in the Securities include the following factors: No Revenues;
Uncertain Profitability; Development Stage Company; History of Losses; Uncertain
Ability to Continue as a Going Concern; Dependence on Proceeds of this Offering;
Need for Future Financing; Dependence Upon Key Officer; Attraction and Retention
of Key Personnel; Uncertainty of Market Acceptance; Reliance on Single
Technology; Dependence on Patents and Proprietary Rights; Competitive
Technologies, Procedures and Companies; No Manufacturing Experience; Dependence
on Third Parties; No Sales or Marketing Experience; Risk of Product Liability
Litigation; Potential Unavailability of Insurance; Surgical Risks; No Assurance
of FDA and Other Regulatory Approval; International Sales and Operations Risks;
Broad Discretion in Application of Proceeds; Control by Current Stockholders;
Immediate Dilution; Disparity of Consideration Paid by Investors; Repayments
-7-
<PAGE>
to Management from Proceeds of Offering; Future Sale of Unregistered
Securities; Registration Rights; Depressive Effect on Market Price of
Securities of Future Exercise of Options and Warrants; Loss of Warrants
through Redemption; Need for Current Prospectus and State Blue Sky
Registration in Connection with Exercise of Warrants; Underwriter as Market
Maker; No Dividends; Adverse Impact on Common Stock of Issuance of Preferred
Stock; Anti-Takeover Provisions; Arbitrary Determination of Offering Price;
Possible Volatility of Stock Price; No Assurance of Public Trading Market;
Denial of Nasdaq Listing; and Risk of Low-Priced Securities.
SUMMARY FINANCIAL INFORMATION
The following summary financial information is derived from the Company's
unaudited financial statements at March 31, 1996 included elsewhere in this
Prospectus and should be read in conjunction with, and are qualified in their
entirety by reference to, such financial statements and the notes thereto, and
in conjunction with "Plan of Operation."
<TABLE>
<CAPTION>
SUMMARY BALANCE SHEET DATA: Actual March 31, 1996
------ --------------
as Adjusted(1)
--------------
<S> <C> <C>
Working capital (deficiency) . . . . . . $(460,445) $4,265,575
Total assets . . . . . . . . . . . . . . 352,707 4,728,727
Total liabilities. . . . . . . . . . . . 527,301 177,301
Stockholders' equity (deficit) . . . . . (174,594) 4,668,426
- ------------------------------
</TABLE>
(1) Adjusted to give effect to (i) the sale of the Units in this Offering at
$5.60 per Unit and the net proceeds to the Company of approximately
$4,883,000 therefrom, (ii) the repayment from such net proceeds of $350,000
of indebtedness outstanding at March 31, 1996 and (iii) payment of $156,980
of expenses in this Offering which was reflected as an asset, "Deferred
Offering Costs," in the Company's unaudited financial statements at March
31, 1996. See "Use of Proceeds."
-8-
<PAGE>
RISK FACTORS
The purchase of the Securities offered hereby involves a high degree of
risk. Before subscribing for the Securities, each prospective investor should
consider carefully the following risk factors.
NO REVENUES; UNCERTAIN PROFITABILITY; DEVELOPMENT STAGE COMPANY; HISTORY OF
LOSSES. Since its inception, the Company has been principally engaged in
developmental and organizational activities. To date, the Company has generated
no revenues from operations. No revenues are expected from operations until,
and only if, the Company begins commercial marketing of its keratome or other
products, which is not expected to occur before the third quarter of 1997. In
addition, commercial marketing of the Company's products in the U.S. will be
contingent upon obtaining FDA permission or approval and possibly the approval
of other governmental agencies. The approval procedure will be extremely time
consuming, expensive and uncertain. Accordingly, there can be no assurance that
the Company will be able to generate sufficient revenues to operate on a
profitable basis in the future.
The Company, which was founded in December 1993, is in the development
stage, and its business is subject to all of the risks inherent in the
establishment of a new business enterprise. The likelihood of the success of
the Company must be considered in light of the problems, expenses, complications
and delays frequently encountered in connection with the formation of a new
business, the development of new products, the competitive and regulatory
environment in which the Company may be operating, and the possibility that its
activities will not result in the development of any commercially viable
products. There can be no assurance that the Company's activities will
ultimately result in the development of commercially saleable or useful
products.
The Company has experienced annual operating losses and negative operating
cash flow since inception. At December 31, 1995, the Company had an accumulated
deficit of approximately $964,676. Unless and until the Company's product
development and marketing activities are successful and its products are sold,
of which there can be no assurance, the Company will not have revenues to apply
to operating expenses and the Company will continue to incur losses.
Additionally, as a result of the start-up nature of its business and the fact
that it has not commercially marketed any products, the Company can be expected
to sustain substantial operating losses in the future. See "Use of Proceeds"
and "Plan of Operation."
UNCERTAIN ABILITY TO CONTINUE AS A GOING CONCERN. The report of the
Company's independent auditors dated January 15, 1996, and with respect to Note
A(2), Note B(5) and (6), Note E, Note F, Note H, Note I and Note J which are
dated July 19, 1996, on the Company's financial statements for the period from
December 16, 1993 (Date of Inception) to December 31, 1995, includes an
explanatory paragraph expressing substantial doubt with respect to the Company's
ability to continue as a going concern. The financial statements do not contain
any adjustments that might result from the outcome of this uncertainty. See
"Use of Proceeds" and "Plan of Operation."
DEPENDENCE ON PROCEEDS OF THIS OFFERING; NEED FOR FUTURE FINANCING. The
Company is dependent on the proceeds of this Offering to fund current working
capital needs, additional research, development, engineering and testing of its
products, establishment of manufacturing and marketing capabilities and to fund
the governmental approval process. It anticipates that the net proceeds of this
Offering are sufficient to meet its cash requirements for approximately 24
months following this Offering if permission for the Company's 510(k)
notification is granted, or approximately 36 months if such permission is not
granted. The Company believes that, in order to proceed with the research,
development and marketing currently planned, it will require additional capital
before it reaches profitability and positive cash flows, if at all. As a
result, the Company will be required to raise additional funds through public or
private financing or grants that may be available for its research and
development. There can be no assurance that the Company will be able to obtain
additional financing on terms favorable to it or its stockholders, if at all.
If adequate funds are not available to satisfy short-term or long-term capital
requirements, the Company may be required to reduce substantially, or eliminate,
certain areas of its product development activities, limit its operations
significantly, or otherwise modify its business strategy. The failure of the
Company to obtain acceptable financing would have a material adverse effect on
the operations of the Company. Other than this Offering, the Company has no
current plans, understandings or commitments to raise any additional financing.
Additional financing may result in dilution for then current shareholders. See
"Use of Proceeds" and "Plan of Operation."
-9-
<PAGE>
DEPENDENCE UPON KEY OFFICER; ATTRACTION AND RETENTION OF KEY PERSONNEL.
The business of the Company is highly dependent upon the active participation of
its founder and President, Dr. Eugene I. Gordon. The loss or unavailability to
the Company of Dr. Gordon would have a materially adverse effect on the
Company's business prospects and potential earning capacity. The recruitment of
skilled scientific personnel is critical to the Company's success. There can be
no assurance that it will be able to continue to attract such personnel in the
future. In addition, the Company's anticipated growth and expansion into areas
and activities requiring additional expertise, clinical testing, governmental
approvals, production and marketing are expected to place increased demands upon
the Company's financial resources and corporate structure. These demands, if
they arise, are expected to require the addition of new management personnel and
the development of additional expertise by existing management. See "Use of
Proceeds" and "Plan of Operation."
UNCERTAINTY OF MARKET ACCEPTANCE; RELIANCE ON SINGLE TECHNOLOGY.
Acceptance of the Company's keratome is difficult to predict and will require
substantial marketing efforts and the expenditure of significant funds. There
can be no assurance that the HTK Keratome or the HRK Keratome will be accepted
by the medical community once it is permitted or approved. Market acceptance of
the Company's keratome will depend in large part upon the Company's ability to
demonstrate the operational advantages, safety and cost-effectiveness of the
keratome compared to other refractive surgical techniques. Failure of the
keratome to achieve market acceptance will have a material adverse effect on the
Company's financial condition and results of operations. See "Business --
Markets."
At present, the Company's only product (although still in development
stage) is its keratome, and the Company expects that its keratome will be, if
and when commercially available, its sole product for an indefinite period of
time. The Company's present narrow focus on a particular product makes the
Company vulnerable to the development of superior competing products and changes
in technology that could eliminate the need for the Company's products. There
can be no assurance that significant changes in the foreseeable future in the
need for the Company's products or the desirability of those products, will not
occur. See "Risk Factors -- Dependence on Patents and Proprietary Rights" and
"Business -- Patents."
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's success will
depend in part on whether it successfully obtains and maintains patent
protection for its products, preserves its trade secrets and operates without
infringing the proprietary rights of third parties.
The Company has sought to protect its proprietary interest in the keratome
by applying for patents in the United States and corresponding patents abroad.
The Company has been notified by the United States Patent and Trademark Office
(the "PTO") that its patent application covering the Company's keratome has been
allowed for issuance. There can be no assurance that any other patent will be
issued to the Company, that any patents owned by or issued to the Company, or
that may issue to the Company in the future, will provide a competitive
advantage or will afford protection against competitors with similar technology,
or that competitors of the Company will not circumvent, or challenge the
validity of, any patents issued to the Company. There also can be no assurance
that any patents issued to or licensed by the Company will not be infringed upon
or designed around by others or would prevail in a legal challenge, that others
will not obtain patents that the Company will need to license or design around,
that the keratome or any other potential product of the Company will not
inadvertently infringe upon the patents of others, or that others will not
manufacture the Company's patented products upon expiration of such patents.
There can be no assurance that existing or future patents of the Company will
not be invalidated. Moreover, there can be no assurance that the Company's non-
disclosure agreements and other safeguards will protect its proprietary
information and trade secrets or provide adequate remedies for the Company in
the event of unauthorized use or disclosure of such information, or that others
will not be able to independently develop such information. As is the case with
the Company's patent rights, the enforcement by the Company of its non-
disclosure agreements can be lengthy and costly, with no guarantee of success.
The Company received a license from the New Jersey Institute of Technology
("NJIT") for the patent rights under a patent application assigned to it by Dr.
Gordon and two other individuals relating to a refractive correction procedure
based on the use of an isotonic waterjet, in a manner similar to photorefractive
keratectomy ("PRK").
-10-
<PAGE>
Such patent application was subsequently denied by the PTO and on February 15,
1996, the Company gave notice to NJIT of its intent to terminate such license
agreement effective August 15, 1996.
If the Company becomes involved with patent infringement litigation, either
to enforce the Company's patents or defend against patent infringement suits,
such litigation would be lengthy and expensive, and if it occurs, would divert
Company resources from planned uses. Further, any adverse outcome in such
litigation could have a material adverse effect on the Company. If any of the
Company's products are found to infringe upon the patents or proprietary rights
of another party, the Company may be required to obtain licenses under such
patents or proprietary rights of such other party. No assurance can be given
that any such licenses would be made available on terms acceptable to the
Company, if at all. In addition, patent applications filed in foreign countries
and patents granted in such countries are subject to laws, rules and procedures
which differ from those in the United States. Patent protection in such
countries may be different from patent protection provided by United States laws
and may not be as favorable to the Company. There can be no assurance that the
Company's program of patent protection, including the internal security of its
proprietary information, and non-disclosure agreements will be sufficient to
protect the Company's proprietary technology from competitors. See "Business --
Patents and Proprietary Rights."
COMPETITIVE TECHNOLOGIES, PROCEDURES AND COMPANIES. The Company is engaged
in a rapidly evolving field. The HRK Keratome will compete with other presently
existing forms of treatment for vision disorders, including eyeglasses, contact
lenses, corneal transplants, other refractive surgery procedures and other
technologies under development. There can be no assurance that persons whose
vision can be corrected with eyeglasses or contact lenses will elect to undergo
the HRK surgical procedure when such non-surgical vision correction alternatives
are available.
There are many companies, both public and private, universities and
research laboratories engaged in activities relating to research on other vision
correction alternatives, including RK, PRK, KIS and various forms of corneal
inserts. Competition from these companies, universities and laboratories is
intense and is expected to increase.
The Company is not aware of any commercial entity, other than itself,
involved in the development of a waterjet scalpel for use in refractive surgery,
although it is aware of ongoing research at many companies and institutions into
a wide variety of procedures for corneal adjustment, as noted above. Many of
these companies and institutions have substantially greater resources, research
and development staffs and facilities, as well as greater experience in research
and development, obtaining regulatory approval and manufacturing and marketing
medical device products than the Company, and represent significant long-term
competition for the Company.
In addition to those mentioned above, other recently developed technologies
or procedures are, or may in the future be, the basis of competitive products.
There can be no assurance that the Company's competitors will not succeed in
developing technologies, procedures or products that are more effective or
economical than those being developed by the Company or that would render the
Company's technology and proposed products obsolete or noncompetitive.
Furthermore, if the Company is permitted to commence commercial sales of
products, it will also be competing with respect to manufacturing efficiency and
marketing capabilities, areas in which the Company has no experience. See "Risk
Factors -- No Manufacturing Experience; Dependence on Third Parties" and "-- No
Sales or Marketing Experience" and "Business -- Competition."
NO MANUFACTURING EXPERIENCE; DEPENDENCE ON THIRD PARTIES. The Company has
no volume manufacturing capacity or experience in manufacturing medical devices
or other products. To be successful, the Company's proposed products must be
manufactured in commercial quantities in compliance with regulatory requirements
at acceptable costs. Production in clinical or commercial-scale quantities may
involve technical challenges for the Company. Establishing its own
manufacturing capabilities would require significant scale-up expenses and
additions to facilities and personnel. The Company may consider seeking
collaborative arrangements with other companies to manufacture certain of its
potential products, including the HRK Keratome and the disposable templates to
be used in connection therewith. There can be no assurance that the Company
will be able to obtain necessary regulatory approvals on a timely basis or at
all. Delays in receipt of or failure to receive such approvals or loss of
previously received approvals would have a material adverse effect on the
Company's business,
-11-
<PAGE>
financial condition and results of operations. There can be no assurance that
the Company will be able to develop clinical or commercial-scale manufacturing
capabilities at acceptable costs or enter into agreements with third parties
with respect to these activities. If the Company is dependent upon third
parties for the manufacture of its proposed products, then the Company's profit
margins and its ability to develop and deliver such products on a timely basis
may be adversely affected. Moreover, there can be no assurance that such
parties will perform adequately, and any failures by third parties may delay the
submission of products for regulatory approval, impair the Company's ability to
deliver products on a timely basis, or otherwise impair the Company's
competitive position. See "Business -- Markets."
NO SALES OR MARKETING EXPERIENCE. The Company intends to market and sell
the keratome in the United States and certain foreign countries, if and when
regulatory approval is obtained, through a direct sales force or a combination
of a direct sales force and distributors. The Company currently has no
marketing organization and has never sold a product. Establishing sufficient
marketing and sales capability will require significant resources. There can be
no assurance that the Company will be able to recruit and retain skilled sales
management, direct salespersons or distributors, or that the Company's sales
effort will be successful. To the extent that the Company enters into
distribution arrangements for the sale of its products, the Company will be
dependent on the efforts of third parties. There can be no assurance that such
efforts will be successful. See "Business -- The HRK Keratome" and "--
Markets."
RISK OF PRODUCT LIABILITY LITIGATION; POTENTIAL UNAVAILABILITY OF
INSURANCE. The testing, manufacture, marketing and sale of medical devices
entail the inherent risk of liability claims or product recalls. As a result,
the Company faces a risk of exposure to product liability claims and/or product
recalls in the event that the use of its keratome or other future potential
products are alleged to have caused injury. In addition to testing,
manufacturing and marketing the keratome, the Company intends to lease the
keratome and provide sterilization and maintenance services for the keratome,
which may enhance the Company's exposure to product liability claims. There can
be no assurance that the Company will avoid significant liability in spite of
the precautions taken to minimize exposure to avoid product liability claims.
Prior to the commencement of clinical testing, the Company intends to procure
product liability insurance. It is expected that such insurance will be in the
amount of $1 million per claim with an annual aggregate limit of $20 million.
After any commercialization of its products, the Company will seek to obtain an
appropriate increase in its coverage. However, there can be no assurance that
adequate insurance coverage will be available at an acceptable cost, if at all.
Consequently, a product liability claim, product recall or other claims with
respect to uninsured liabilities or in excess of insured liabilities could have
a material adverse effect on the business or financial condition of the Company.
See "Business -- Product Liability Insurance."
SURGICAL RISKS. There can be no assurance that the HRK System will be
successful in providing reliable refractive correction. As with all surgical
procedures, the procedures for which the Company's products are intended entail
certain inherent risks, including error in the location of the incision due to
movement of the eye, defective equipment or human error, infection or other
injury resulting in partial or total loss of vision. Such injury could expose
the Company to product liability or other claims. There can be no assurance
that the Company's product liability insurance in effect from time to time will
be sufficient to cover any such claim in part or in whole. Any such claim could
adversely impact the commercialization of the Company's products and could have
a material adverse effect on the business or financial condition of the Company.
NO ASSURANCE OF FDA AND OTHER REGULATORY APPROVAL. As a medical device,
the Company's keratome is subject to regulation by the FDA under the Federal
Food, Drug, and Cosmetic Act (the "FD&C Act") and implementing regulations.
Pursuant to the FD&C Act, the FDA regulates, among other things, the
development, manufacture, labeling, distribution, and promotion of the keratome
in the United States.
The Company believes, based on permission granted to other keratomes, that
the HTK Keratome, and subsequently the HRK Keratome, will be considered by the
FDA for permission through a Section 510(k) procedure, a much shorter and less
extensive process than the alternative PMA procedure. See "Plan of Operation."
However, there can be no assurance that the Company will obtain permission to
market the HTK Keratome, or the HRK Keratome, pursuant to a 510(k) notification,
or that in order to obtain such permission, the Company will not be required to
submit extensive clinical data or meet additional FDA requirements that may
substantially delay the
-12-
<PAGE>
510(k) permission process and add to the Company's expenses. Moreover, such
permission, if obtained, may be subject to conditions with respect to the
marketing or manufacturing of the HTK Keratome that may impede the Company's
ability to market and/or manufacture such product. See "Business -- U.S.
Government Regulation."
If Section 510(k) permission is not granted for the HTK Keratome or the HRK
Keratome, the Company will seek approval through a PMA, typically a more complex
submission which usually includes the results of clinical studies, and preparing
an application is a detailed and time-consuming process. Once a PMA application
has been submitted, the FDA's review may be lengthy and may include requests for
additional data. Furthermore, there can be no assurance that a PMA application
will be approved by the FDA. See "Business -- The Company."
The process of obtaining required regulatory clearances or approvals can be
time-consuming and expensive, and compliance with the FDA's Good Manufacturing
Practices ("GMP") regulations and other regulatory requirements can be
burdensome. Moreover, there can be no assurance that the required regulatory
clearances will be obtained, and such clearances, if obtained, may include
significant limitations on the uses of the product in question. In addition,
changes in existing regulations or guidelines or the adoption of new regulations
or guidelines could make regulatory compliance by the Company more difficult in
the future. The failure to comply with applicable regulations could result in
fines, delays or suspensions of clearances, seizures or recalls of products,
operating restrictions and criminal prosecutions, and would have a material
adverse effect on the Company. See "Business -- U.S. Government Regulation."
Distribution of the Company's products in countries outside the United
States may be subject to regulation in those countries. Foreign regulatory
requirements vary widely from country to country. In addition, export sales of
medical devices that have not received FDA marketing clearance are generally
subject to FDA export permit requirements. There can be no assurance that the
Company will be able to obtain the approvals necessary to market the keratome or
any other product outside the United States.
INTERNATIONAL SALES AND OPERATIONS RISKS. The Company initially plans to
sell the keratome and any future products to customers outside of the United
States. However, the Company may begin manufacturing or operating activities
outside of the United States. A number of risks are inherent in international
transactions. International sales and operations may be limited or disrupted by
the imposition of the regulatory approval process, government controls, export
license requirements, political instability, price controls, trade restrictions,
changes in tariffs or difficulties in staffing and managing international
operations. Foreign regulatory agencies have or may establish product standards
different from those in the United States, and any inability to obtain foreign
regulatory approvals on a timely basis could have an adverse effect on the
Company's international business and its financial condition and results of
operations. Additionally, the Company's business, financial condition and
results of operations may be adversely affected by fluctuations in currency
exchange rates, increases in duty rates and difficulties in obtaining export
licenses. There can be no assurance that the Company will be able to
successfully commercialize the keratome or any future product in any foreign
market. See "Business -- Marketing and Sales."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately $568,000, or
11.6%, of the estimated $4,883,000 of net proceeds from the sale of the Units
offered hereby will be applied to working capital and general corporate
purposes. Accordingly, the Company's management will have broad discretion as
to the use of these proceeds. See "Use of Proceeds."
CONTROL BY CURRENT STOCKHOLDERS. Upon consummation of this Offering, the
Company's current stockholders will own 2,450,312 shares of Common Stock
(without giving effect to 49,688 shares of Common Stock reserved for issuance
pursuant to outstanding options under the Stock Option Plan and 102,000 shares
of Common Stock reserved for issuance pursuant to outstanding warrants),
representing approximately 69.6% of the issued and outstanding shares (66.5%, if
the over-allotment option is exercised in full). Accordingly, the current
stockholders will be able to elect all the Company's directors and generally
direct the affairs of the Company. The control of the Company by these persons
could impede or prevent a change of control of the Company. As a result,
potential future purchasers might not seek to complete a proposed purchase of
the Company. See "Management," "Principal Stockholders" and "Description of
Securities -- Common Stock."
-13-
<PAGE>
IMMEDIATE DILUTION; DISPARITY OF CONSIDERATION PAID BY INVESTORS. Upon
consummation of this Offering, purchasers of the Units offered hereby will
experience immediate and substantial dilution in the net tangible book value of
their investment in the Company of $4.27, or approximately 76.3%, per share.
Dr. Gordon and certain other current stockholders of the Company each acquired
their shares of Common Stock at a nominal price. Additional dilution to future
net tangible book value per share may occur upon the exercise of the Warrants to
be issued to the Underwriter and options that may be issued pursuant to the
Stock Option Plan. See "Dilution," "Management -- 1994 Stock Option Plan" and
"Underwriting."
REPAYMENTS TO MANAGEMENT FROM PROCEEDS OF OFFERING. After the consummation
of this Offering, the Company intends to repay an aggregate principal amount of
$315,000 of indebtedness to Eugene I. Gordon, who is President, Chairman of the
Board and a principal stockholder of the Company, and $50,000 of indebtedness to
each of Steven G. Cooperman, a Director of the Company, and Sanford J.
Hillsberg, who has been elected to serve as a Director of the Company upon
consummation of the Offering. Thus, purchasers of the Units offered hereby are
advised that such members of the Company's management will personally benefit
from the consummation of this Offering. See "Use of Proceeds," "Management" and
" Certain Transactions."
FUTURE SALE OF UNREGISTERED SECURITIES; REGISTRATION RIGHTS. After the
Offering, the Company will have outstanding 3,521,741 shares (3,682,455 shares,
if the over-allotment option is exercised in full) of Common Stock (without
giving effect to (i) 1,071,429 shares of Common Stock reserved for issuance upon
the exercise of the Warrants included in the Units and 160,714 additional shares
of Common Stock reserved for issuance upon the exercise of the additional
warrants if the over-allotment option is exercised in full, (ii) 214,286 shares
of Common Stock reserved for issuance upon the exercise of the Underwriter's
Options and the Warrants included therein, (iii) 249,688 shares of Common Stock
reserved for issuance pursuant to the Stock Option Plan and (iv) 102,000 shares
of Common Stock reserved for issuance pursuant to outstanding warrants), all of
which are "restricted securities" within the meaning of Rule 144 under the
Securities Act. As of the date of this Prospectus, options to purchase 49,688
shares of Common Stock have been granted pursuant to the Stock Option Plan and
warrants to purchase 102,000 shares of Common Stock have been granted. The
Company has agreed with the Underwriter that options with respect to the 200,000
shares under the Stock Option Plan which have not yet been granted as of the
date of this Prospectus shall, upon grant vest no earlier than one year from the
date of grant.
The Company has granted certain piggyback registration rights to certain of
its existing stockholders with respect to 703,595 shares. The holders of all of
such shares have agreed to waive such registration rights for a period of two
years. Shares issuable upon exercise of stock options granted under the Stock
Option Plan may be registered under the Securities Act commencing 24 months
after the Effective Date or such earlier date as consented to by the
Underwriter. All of the shares of Common Stock issuable in connection with the
Underwriter's Options, including the Common Stock contained in the Units and the
Common Stock issuable upon exercise of the Warrants, may, at the request of the
Underwriter (as defined herein) be registered by the Company for sale to the
public. The sale or the availability for sale of any or all of such shares of
Common Stock or other Securities could adversely affect the market price of the
Securities prevailing from time to time. See "Management -- 1994 Stock Option
Plan," "Shares Eligible for Future Sale" and "Underwriting."
DEPRESSIVE EFFECT ON MARKET PRICE OF SECURITIES OF FUTURE EXERCISE OF
OPTIONS AND WARRANTS. Sales of the Company's Common Stock upon exercise of
options may have a depressive effect on the price of the Units, the Common Stock
and the Warrants, and issuance of additional Common Stock upon the exercise of
options, the Warrants, the Underwriter's Options or otherwise will also dilute
the proportionate ownership of the then current stockholders of the Company.
The Company has agreed with the Underwriter not to issue shares of Common Stock
without the Underwriter's prior written consent during the 24-month period
following the Effective Date, other than pursuant to the Stock Option Plan and
the Warrants. The Company has further agreed with the Underwriter that during
the 12-month period commencing 12 months after the Effective Date, it will not
issue shares of Common Stock at a price less that the then "Market Price"
thereof, other than pursuant to the Stock Option Plan. "Market Price" is
defined as (i) the average closing bid price, for any 10 consecutive trading
days within a period of 30 consecutive trading days ending within five days
prior to the date of issuance of the Common Stock, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or the OTC
Bulletin Board or (ii) the average of the last reported sale price, for the 10
consecutive business days ending within five days of
-14-
<PAGE>
the date of issuance of the Common Stock, on the primary exchange on which the
Common Stock is traded, if the Common Stock is traded on a national securities
exchange. See "Management -- 1994 Stock Option Plan" and "Description of
Securities."
LOSS OF WARRANTS THROUGH REDEMPTION. The Warrants are subject to
redemption by the Company. Redemption of the Warrants could force the holders
to exercise the Warrants and pay the exercise prices at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the current
market price when they might otherwise wish to hold the Warrants or to accept
the redemption price, which may be substantially less than the market value of
the Warrants at the time of redemption. The holders of the Warrants will
automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless the Warrants are exercised before
they are redeemed. The holders of Warrants will not possess any rights as
stockholders of the Company unless and until their Warrants are exercised. See
"Description of Securities -- Warrants."
NEED FOR CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION
WITH EXERCISE OF WARRANTS. The Company will be able to issue shares of its
Common Stock upon exercise of the Warrants only if there is a then current
prospectus relating to the Common Stock issuable upon the exercise of the
Warrants under an effective registration statement filed with the Commission,
and only if such Common Stock is then qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of Warrants reside. There can be no assurance that
the Company will be able to meet these requirements. The failure of the Company
to meet these requirements may deprive the Warrants of their value and cause the
resale or disposition of Common Stock issued upon the exercise of the Warrants
to become unlawful. See "Description of Securities."
UNDERWRITER AS MARKET MAKER. A significant amount of the Units that are to
be sold in this Offering may be sold to customers of the Underwriter. These
customers subsequently may engage in transactions for the sale or purchase of
such securities through or with the Underwriter. Although it has no legal
obligation to do so, the Underwriter has indicated that it intends to act as a
market-maker and otherwise effect transactions in the securities offered hereby.
To the extent the Underwriter acts as a market-maker in the Units, Common Stock
or Warrants, it may be a dominating influence in those markets. The degree of
participation in those markets by the Underwriter may significantly affect the
price and liquidity of the Company's securities. The Underwriter may
discontinue these activities at any time or from time to time. The Company
cannot ensure that broker-dealers other than the Underwriter will make a market
in the Company's securities. In the event that other broker-dealers fail to
make a market in the Company's securities, the possibility exists that the
market for and the liquidity of the Company's securities could be adversely
affected, which in turn could affect stockholders' ability to trade the
Company's securities.
Further, unless granted an exemption by the Commission pursuant to Rule
10b-6 under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Underwriter may be prohibited from engaging in any market making activities with
regard to the Company's securities for the period of from two to nine business
days prior to the exercise of the Underwriter's Options or if it is soliciting
the exercise of the Warrants. As a result, the Underwriter may be unable to
continue to provide a market for the Company's securities during certain
periods, which may adversely affect the price and liquidity of the securities.
See "Underwriting."
NO DIVIDENDS. The Company has paid no dividends since its inception and
does not intend to pay dividends in the foreseeable future. Any earnings which
the Company may realize in the foreseeable future will be retained to finance
the growth of the Company. See "Dividend Policy."
ADVERSE IMPACT ON COMMON STOCK OF ISSUANCE OF PREFERRED STOCK; ANTI-
TAKEOVER PROVISIONS. The Board of Directors of the Company has the authority to
issue up to 1,000,000 shares of preferred stock in one or more series and to
determine the number of shares in each series, as well as the designations,
preferences, rights and qualifications or restrictions of those shares, without
any further vote or action by the stockholders of the Company. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future, including that the market price of the Common Stock may be adversely
impacted upon the issuance of a series of preferred stock with voting and/or
-15-
<PAGE>
distribution rights superior to those of the Common Stock. The issuance of
preferred stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company. In
addition, the Company will, upon consummation of this Offering, be subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law. In general, this statute prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. See "Description of Securities -- Preferred Stock" and
"Description of Securities -- Anti-Takeover Effects of Delaware Law."
ARBITRARY DETERMINATION OF OFFERING PRICES. The initial offering price of
the Units and the exercise and redemption price of the Warrants were arbitrarily
determined by negotiations between the Company and the Underwriter and bear no
relationship to the Company's asset value, book value, net worth, results of
operations or any other generally accepted criteria of value. See
"Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE. The market prices for securities of
medical device companies have been highly volatile. Announcements regarding the
results of regulatory approval filings, clinical studies or other testing,
technological innovations or new commercial products by a Company or its
competitors, proposed government regulations, developments concerning
proprietary rights or public concern as to safety of technology have
historically had, and are expected to continue to have, a significant impact on
the market prices of the securities of medical device companies. The trading
price of the Common Stock could also be subject to significant fluctuations in
response to variations in the Company's operating results. See "Business --
Competition."
NO ASSURANCE OF PUBLIC TRADING MARKET; DENIAL OF NASDAQ LISTING. Prior to
this Offering, there has been no established trading market for the Securities
and there is no assurance that a regular trading market for the Securities on
the Nasdaq system, or any other exchange, will develop after the consummation of
this Offering. If a trading market does develop for the Securities offered
hereby, there can be no assurance that it will be sustained. The Company's
application to list the Securities on Nasdaq was denied by the Nasdaq staff
because of its concerns regarding the Company's early stage of development. The
Company is in the process of appealing the determination of Nasdaq and will
continue to pursue the listing of its Securities on Nasdaq, the success of which
there can be no assurance. Although the Company has applied for the inclusion
of the Securities on the OTC Bulletin Board, there can be no assurance that such
application will be approved or that, even if it is approved, a regular trading
market for the Securities will develop after this Offering or that, if
developed, it will be sustained. The OTC Bulletin Board is an unorganized,
inter-dealer, over-the-counter market which provides significantly less
liquidity than the Nasdaq National Market system, and quotes for stocks included
on the OTC Bulletin Board are not listed in the financial sections of newspapers
as are those for the Nasdaq National Market system. Therefore, prices for
securities traded solely on the OTC Bulletin Board may be difficult to obtain
and purchasers of the Units may be unable to resell the Securities offered
hereby at or near their original offering price or at any price. In the event
the Securities are not included on the OTC Bulletin Board, quotes for the
Securities may be included in the "pink sheets" for the over-the-counter market.
See "Risk Factors -- Risk of Low-Priced Securities," "Description of Securities
- -- Certain Market Information" and "Underwriting."
RISK OF LOW-PRICED SECURITIES. The Commission has adopted regulations
which generally define a "penny stock" to be any equity security that has a
market price (as defined in the regulations) of less than $5.00 per share and
that is not traded on a national stock exchange, Nasdaq or The Nasdaq National
Market System. If the Securities are included on the OTC Bulletin Board and are
trading at less than $5.00 per Security, they may become subject to rules of the
Commission that impose additional sales practice requirements on broker-dealers
effecting transactions in penny stocks. In most instances, unless the purchaser
is either (i) an institutional accredited investor, (ii) the issuer, (iii) a
director, officer, general partner or beneficial owner of more than 5% of any
class of equity security of the issuer of the penny stock that is the subject of
the transaction or (iv) an established customer of the broker-dealer, the
broker-dealer must make a special suitability determination for the purchaser of
such securities and have received the purchaser's prior written consent to the
transaction. Additionally, for any transaction involving a penny stock, the
rules of the Commission require, among other things, the delivery, prior to the
transaction, of a disclosure schedule prepared by the Commission relating to the
penny stock market and the risks associated therewith. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and
-16-
<PAGE>
its registered representative and current quotations for the securities.
Finally, among other requirements, monthly statements must be sent to the
purchaser of the penny stock disclosing recent price information for the
penny stock held in the purchaser's account and information on the limited
market in penny stocks. Consequently, the penny stock rules may restrict the
ability of broker-dealers to sell the Securities and may affect the ability
of purchasers in this Offering to sell the Securities in the secondary
market. See "Risk Factors -- No Assurance of Public Trading Market; Denial
of Nasdaq Listing."
-17-
<PAGE>
USE OF PROCEEDS
The estimated net proceeds from the sale of the Units offered hereby, after
deducting the underwriting discount of $600,000 and other expenses of the
Offering, estimated to be $517,000, will be approximately $4,883,000 ($5,666,000
if the over-allotment option is exercised in full). The Company currently
intends to initially allocate the net proceeds of this Offering as follows:
<TABLE>
<CAPTION>
Approximate Percent
Application of Proceeds Amount of Proceed of Net Proceeds
- ----------------------- ------------------ ---------------
<S> <C> <C>
Research and development (1) 3,050,000 62.5%
Human clinical trials (2) 500,000 10.2
Repayment of indebtedness (3) 715,000 14.6
Patent filings (4) 50,000 1.0
Working capital and general
corporate purposes 568,000 11.6
Total $4,883,000 100.0%
--------- ------
--------- ------
</TABLE>
- --------------------------
(1) Includes trials involving rabbit eyes, generation of data at the Company's
Edison, New Jersey laboratory, payments for the use of laboratory
facilities at the University (as defined herein), salaries of officers and
other employees and payments to consultants engaged in research and
development.
(2) Includes payments to hospitals or other institutions at which operations on
humans will be conducted.
(3) Includes four loans to the Company from Mrs. Jan Wernick in an aggregate
principal amount of $200,000, which bear interest at the rate of 12% per
annum and are due and payable on or after December 31, 1996. Mrs.
Wernick's husband is affiliated with the Underwriter as the manager of its
New York office. Such loans were obtained through the Underwriter in
connection with the Offering, and the terms thereof (including the interest
rates) were negotiated under different circumstances than other loans
obtained by the Company. Also includes seven loans to the Company from
Eugene I. Gordon, six in an aggregate principal amount of $250,000 which
bear interest at the rate of 7% per annum and one in the amount of $65,000
which bears interest at the rate of 9% per annum, and are due and payable
upon demand; two loans to the Company, one from each of Steven G. Cooperman
and Sanford J. Hillsberg, each in the principal amount of $50,000, which
bear interest at the rate of 8% per annum and are due and payable on the
earlier of (a) written demand made any time on or after January 31, 1997 or
(b) the consummation of this Offering, and a loan to the Company from
Robert P. Lehmann, M.D., a stockholder of the Company, in the principal
amount of $100,000 which bears interest at the rate of 9% per annum and is
due and payable upon written demand made any time on or after December 31,
1996. Drs. Gordon and Cooperman are directors and stockholders of the
Company. Mr. Hillsberg will begin serving as a director upon the
consummation of the Offering and is a stockholder of the Company. All such
loans were made after September 30, 1995 and were used for various
purposes, including research costs, payroll and other expenses. See
"Certain Transactions" and "Underwriting."
(4) The amount of proceeds to be applied to patent filings in the event of the
sale of the maximum number of Units offered hereby reflects the costs
associated with the filing of additional patent applications by the
Company.
-18-
<PAGE>
The initial application of the net proceeds of this Offering represents the
Company's estimates based upon current business and economic conditions.
Although the Company does not contemplate material changes in the proposed
allocation of the use of proceeds, to the extent that the Company finds that an
adjustment is required by reason of existing business conditions, the amounts
shown may be adjusted among the uses indicated above.
The Company has limited cash and working capital and is dependent on the
net proceeds of this Offering for the continuation and expansion of the
Company's operations. The Company believes that the net proceeds of this
Offering will be sufficient for the Company to conduct its proposed business for
at least the 24-month period following this Offering; however, there can be no
assurance that such net proceeds will be sufficient to finance the Company's
operations for such period. The Company believes that it will require
additional capital before it reaches profitability and positive cash flow, if at
all. See "Risk Factors -- Dependence on Proceeds of this Offering -- Need for
Future Financing" and "Plan of Operation."
To the extent that the Company's expenditures are less than projected, the
resulting balances will be used for the purposes set forth above and/or for
other general working capital expenses. The net proceeds of this Offering that
are not expended immediately will be deposited in interest-bearing accounts, or
invested in money market investments, certificates of deposit or similar short-
term, low-risk investments. Any additional proceeds received upon the exercise
of the Underwriter's Options, as well as from the foregoing short-term
investments, will be added to working capital.
-19-
<PAGE>
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share after this
Offering constitutes the dilution to investors in this Offering. Net tangible
book value per share is determined by dividing the net tangible book value of
the Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. At March 31, 1996, the Company had a net
tangible book value of $(372,777), or $(.15) per share.
After the sale of 1,071,429 Units (less underwriting commissions and
estimated expenses of this Offering), the pro forma net tangible book value of
the Company at March 31, 1996 would have been $4,667,203, or $1.33 per share,
representing an immediate increase in net tangible book value of $1.48 per share
to the existing shareholders and an immediate dilution of $4.27 (76.3%) per
share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per-share basis upon the sale of the Units:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share(1) . . . . . . . . . . . . . . . $5.60
Net tangible book value per share before Offering. . . . . . . . $(.15)
Increase per share attributable to new investors . . . . . . . . 1.48
As adjusted, net tangible book value per share after Offering(2) 1.33
Dilution per share to public investors . . . . . . . . . . . . . $4.27
</TABLE>
- -----------------
(1) Does not attribute any value to the Warrants.
(2) Does not include funds that may be received upon the exercise of the
Warrants.
If the over-allotment option is exercised in full, the dilution to
purchasers of the Units would be $4.12 (73.6%) per share.
The following tables set forth, at March 31, 1996, with respect to the (a)
Company's existing stockholders and (b) purchasers of the Units offered hereby,
a comparison of the number of shares of Common Stock acquired from the Company,
the total consideration paid (but attributing no value to the Warrants) and the
average price per share of Common Stock upon the sale of the Units.
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration per Share
---------------- ------------------- ---------
---------------- ------------------- ---------
Number Percent Amount Percent
------ ------- ------ -------
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 2,450,312 70.0% $ 966,824 14% $ .352
New Investors. . . . 1,071,429 30.0 6,000,000 86 5.60
--------- ----- --------- ----
Total. . . . . . 3,521,741 100% $6,966,824 100%
--------- ---- --------- ----
--------- ---- --------- ----
</TABLE>
-20-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, as adjusted to give effect to (i) the sale of the Units and the
application of the estimated net proceeds therefrom, (ii) the repayment of
$350,000 of indebtedness, including interest, outstanding at March 31, 1996,
from the net proceeds received by the Company and (iii) a 1.987538926 for-1
stock split of the Company's Common Stock effected immediately prior to the date
of this Prospectus. See "Financial Statements," "Use of Proceeds" and
"Description of Securities."
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------------------
Actual Adjustments As Adjusted
------ ----------- -----------
<S> <C> <C> <C>
Notes payable. . . . . . . . . . . . . . . . . . . . . . $ 350,000 $ (350,000) $ -0-
------- ------------
Stockholders' equity:
Common Stock, $.001 par value,
7,000,000 shares authorized; 2,450,312 shares issued
and outstanding; 3,521,741 shares as adjusted (1). . . $ 2,450 $ 1,072 $ 3,522
Additional paid-in capital . . . . . . . . . . . . . . 964,374 3,699,686 4,664,060
Deficit accumulated during the development stage (2) . (1,141,418) 1,141,418 0
----------- ------------
Total capitalization . . . . . . . . . . . . . . . . . . $ (174,594) $ 4,668,426
--------- ------------
</TABLE>
- -----------------
(1) Unless otherwise indicated, no effect is given to (i) 1,071,429 shares of
Common Stock reserved for issuance upon the exercise of the 1,071,429
Warrants included in the Units, (ii) 160,714 shares reserved for issuance
upon the exercise of the Underwriter's over-allotment option, (iii) 160,714
shares reserved for issuance upon the exercise of the Warrants included in
the Units included in the Underwriter's over-allotment option, (iv) 214,826
shares reserved for issuance upon the exercise of the Underwriter's Options
and the Warrants included therein, (v) 200,000 shares reserved for issuance
pursuant to stock options available for grant under the Stock Option Plan,
49,688 shares of Common Stock reserved for issuance upon the exercise of
outstanding options under the Stock Option Plan and 102,000 shares reserved
for issuance pursuant to outstanding warrants and (vi) payment of $156,980
of expenses in this Offering which was reflected as an asset, "Deferred
Offering Costs," in the Company's unaudited financial statements at March
31, 1996. See "Description of Securities" and "Underwriting."
(2) Upon completion of the Offering, the Company's status will change from an
"S" corporation to a "C" corporation. Accordingly, the deficits
accumulated during the development stage are charged against additional
paid in capital.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock since its
inception and does not expect to pay any cash or other dividends in the
foreseeable future. Earnings of the Company, if any, are expected to be
retained for use in expanding the Company's business. The payment of dividends
is within the discretion of the Board of Directors of the Company and will
depend upon the Company's earnings, if any, capital requirements, financial
condition and such other factors as are considered relevant by the Board of
Directors.
PLAN OF OPERATION
OPERATION FOR THE NEXT TWELVE MONTHS
For the next 12 months, the Company intends to continue testing and
developing the HTK Keratome and the HRK Keratome. If the Company's animal
testing program in the United States continues to succeed, the Company intends
to have discussions with FDA officials and then initiate clinical testing
programs on blind human eyes at one site in the United States and at four sites
outside the United States. The Company anticipates that its first keratome
suitable for use in human clinical trials will be completed early in the third
quarter of 1996. The clinical test sites selected by the Company are located
in Israel, Germany, Mexico and the Dominican Republic.
-21-
<PAGE>
The Company estimates that the cost of conducting clinical trials at each
site will be approximately $50,000. However, there can be no assurance that
such actions will be taken within such time periods.
510(K) NOTIFICATION
In an effort to expedite the regulatory approval process for the Company's
keratome, the Company intends to submit to the FDA two Section 510(k)
notifications with respect to the HTK Keratome within approximately six months
of the Effective Date. The Company's applications will be based on the HTK
Keratome's similarity to other FDA-permitted keratomes. See "Business - U.S.
Government Regulation." A successful 510(k) notification generally results in
FDA permission within three to 12 months. However, there can be no assurance
that the Company's 510(k) notifications will be granted on a timely basis or at
all.
CASH REQUIREMENTS
If any of the Company's 510(k) notifications for the HTK Keratome is
permitted by the FDA in the first half of 1997, the Company estimates that the
net proceeds of this Offering will be sufficient to fund its operations for
approximately 24 months after the Effective Date, without taking into account
operating cash flow, if any. In that event, the Company intends to make
expenditures to establish a manufacturing facility as well as to hire marketing
staff. If none of the Company's 510(k) notifications are permitted within such
period, the Company estimates that the net proceeds from this Offering will be
sufficient to fund its operations for approximately 36 months. In that event,
the Company plans to conduct human clinical trials during such period for the
purpose of accumulating sufficient clinical data to obtain FDA permission to
market the HTK Keratome. The FDA process can be expensive, uncertain and
lengthy; accordingly, the Company may require additional financing prior to
obtaining FDA permission to market the HTK Keratome.
CLINICAL TRIALS AND PRODUCT RESEARCH AND DEVELOPMENT
The Company intends to use approximately $0.5 million of the net proceeds
of this Offering to initiate and conduct human clinical trials involving blind
eyes or eyes scheduled to be removed for other reasons, and approximately $3.1
million for research and development of the HRK Keratome. These amounts include
the salaries of the employees who will be conducting research and development of
the HRK Keratome, monitoring the progress of clinical testing and preparing
applications and other filings with regulatory authorities.
LABORATORY FACILITIES
The Company currently leases a 4,982 square foot facility in Edison, New
Jersey for its research and development operations, which the Company believes
will be adequate for research and development of the keratome prior to its
commercialization. The Company believes that nearby space suitable for a
manufacturing facility is in adequate supply.
NUMBER OF EMPLOYEES
The Company currently employs nine individuals on a full-time basis and one
individual on a part-time basis, as well as one medical consultant, one
marketing consultant and two strategic planning and business development
consultants. After the consummation of this Offering, the Company intends to
increase its laboratory staff to 10 persons. If and when the HTK Keratome
receives FDA permission to market or other approval, the Company intends to
employ additional individuals in connection with the manufacturing and marketing
of the HRK Keratome.
-22-
<PAGE>
BUSINESS
THE COMPANY
The Company, founded in December 1993, has developed a proprietary surgical
device known as a keratome, which utilizes a hair-thin (approximately 30 microns
in diameter) circular beam of supersonic velocity water. The waterjet beam
substitutes for a conventional metal or diamond blade scalpel and in combination
with other elements of the device is capable of shaving thin, shaped layers from
the cornea of the eye, a procedure known as lamellar keratoplasty. The keratome
is used to remove layers of the cornea and to treat diseases of the cornea as
well as to correct vision deficiencies such as nearsightedness ("myopia"),
farsightedness ("hyperopia") and astigmatism by excising layers, either parallel
or shaped, of the cornea in order to reshape the cornea to achieve proper
focusing. In combination with a template of prescribed dimensions, the shape of
the layer to be removed can be determined in advance.
The Company believes that its keratome can be used to remove the epithelium
(the outer layer of the eye) or treat corneal disease in a procedure known as
hydro-therapeutic keratoplasty ("HTK"), in which diseased corneal tissue is
removed and the remaining corneal tissue may be reshaped to provide proper
focusing. About 45,000 corneal procedures, including full transplants and
partial removals, are performed annually in the United States. The Company
believes that the same keratome, through a procedure known as hydro-refractive
keratoplasty ("HRK"), has the potential to reduce or eliminate a patient's
dependence on eyeglasses or contact lenses by modifying the shape of the cornea
to correct vision deficiencies. Based upon feasibility studies and limited
animal testing conducted by the Company, the Company believes that its waterjet
scalpel cuts more precisely and smoothly than the sharpest metal, diamond or
laser scalpel and that, as a result, HRK may result, if approved, in a safer,
more accurate and more stable corneal adjustment that is less painful for
patients than other refractive surgical procedures currently available. The
Company anticipates that HRK will also be competitively priced with, or cost
less than, such other procedures. The Company has not independently tested
competing products but has reviewed research reports and offering materials
describing various competitive products.
The Company has not yet tested its Keratome on live human eyes but has
tested its waterjet keratome on approximately 1,000 porcine and rabbit corneas,
25 human cadaver eyes and 22 live rabbits. The Company began development in
March 1996 of a keratome designed for use in surgery on non-human primates and
humans in a clinical setting. Due to funding limitations, the Company has not
yet constructed a full prototype of its keratome or conducted tests on live
humans of either HRK or HTK procedures using the its waterjet keratome. The
Company believes that limited testing of HRK and/or HTK procedures using a
keratome similar to the Company's has been done by others.
The Company's keratome, which consists of a waterjet nozzle and a device
known as a globe fixation device (to align and fix the eye in place relative to
the template during surgery), is intended to be used with a miniature high
pressure water storage element and related equipment, which together produce the
water beam; a scanning mechanism to move the water beam across the cornea; a
device to regulate and control the action of the water beam; a force transducer
to monitor the water beam status; and a template designed to support and shape
the eye during surgery. The keratome will be placed on the patient's eye during
the surgical procedure.
The following diagram illustrates the Company's keratome:
[CONTINUED ON NEXT PAGE]
-23-
<PAGE>
[DIAGRAM OF MICROSCOPE WITH WATERJET KERATOME]
-24-
<PAGE>
The Company believes that the keratome, when used in HTK (the "HTK
Keratome"), would be used similarly to other keratomes but would allow for the
removal of the epithelium or layers of corneal tissue of a predetermined shape
and thickness with a higher degree of accuracy as well as producing a more
cleanly cut surface of the stroma, the main layer of the cornea. The Company
intends to seek permission from the United States Food and Drug Administration
("FDA") to market the HTK Keratome. The HTK Keratome is intended to become the
first commercially available product using the Company's waterjet technology and
would be both an early source of income for the Company and the basis for
additional applications for FDA-permitted uses of the keratome.
A subsequent and possibly more commercially valuable use of the keratome is
for refractive surgery through HRK. Subsequent to the permitted marketing of
the HTK Keratome, the Company intends to seek FDA permission to market the
keratome for HRK (the "HRK Keratome"). In the United States, more than 145
million people wear either eyeglasses or contact lenses. Over $13 billion is
spent annually in the United States for corrective eyewear products.
Approximately 29 million Americans wear contact lenses, primarily for cosmetic
or convenience reasons. The number of people in the United States newly
electing to wear contact lenses is over one million per year. This large and
growing population of contact lens wearers is the largest potential market for
refractive surgery, including HRK. Studies indicate that approximately 60% of
persons electing refractive surgery are contact lens wearers. However, there
can be no assurance that eyeglass or contact lens wearers will elect to undergo
surgery.
Upon permission to market, or other approval of, the HRK Keratome (of which
there can be no assurance), the Company intends to market the HRK Keratome to
individual ophthalmologists and groups of ophthalmologists for the treatment of
patients in a clinical setting. The Company expects to derive a significant
part of its revenues from leasing the keratome, to be returned by the
ophthalmologist to the Company after each procedure for sterilization, routine
maintenance and recharging. The Company believes that by retaining control over
the sterilization process and performing any necessary maintenance itself, the
efficacy, safety and reliability of the keratome will be enhanced. In addition,
the Company believes that the leasing arrangement will be attractive to
ophthalmologists, because they will be able to maintain a supply of keratomes on
hand, thereby eliminating the down time that would otherwise be required for the
sterilization process. The Company intends to sell the other components of the
keratome, including the disposable, single-use template designed for each
particular use as instructed by the surgeon.
The Company believes that its proprietary waterjet technology may have
additional surgical applications. However, the Company has conducted only
limited studies of such applications to date.
The Company has sought to protect its proprietary interest in the HRK
Keratome by applying for patents in the United States and corresponding patents
abroad. In September 1994, a U.S. patent application was filed in the name of
Dr. Eugene I. Gordon and two employees of the Company, as inventors, which
application was assigned to the Company. The U.S. patent application, as
allowed for issuance, covers a method and device for use in the HRK Keratome,
including use of a template for corneal shaping and holding, during use of a
waterjet keratome device. A corresponding international application has been
filed, pursuant to the Patent Cooperation Treaty ("PCT"), with designation of
all member countries foreign to the United States, including but not limited to
Japan, the members of the European Patent Office, Canada, Mexico, Australia,
Russia, China and Brazil. The PCT filing has been published and separate patent
applications have been or will be filed pursuant to the PCT filing. In
addition, for countries not currently part of the PCT, patent applications have
also been filed in Israel, Taiwan and South Africa. A U.S. patent application
is currently pending and relates to topographic corneal mapping, which has
utility for surgery utilizing the HRK Keratome.
The Company is in the development stage and has not sold any products or
generated any revenues as of the date of this Prospectus. To date, the
Company's research and development activities have been limited to constructing
and testing experimental versions of the keratome and conducting a limited
number of feasibility studies using porcine, rabbit and human cadaver eyes and
live animals to prove that a hair-thin beam of water can smoothly incise and
shape the anterior surface of the cornea and that the cornea will heal properly
after the surgery. No human clinical trials have been performed to date.
-25-
<PAGE>
The FDA has regulatory authority over the manufacture, labeling,
distribution and promotion of the keratome. The initial phase of the Company's
FDA strategy involves seeking permission to market, or other approval of, the
HTK Keratome. The FDA has recommended to the Company that it seek permission to
market the HTK Keratome through a Section 510(k) pre-market notification
("510(k) notification") procedure together with a limited number of clinical
trials, and it is the intent of the Company to file two such notifications with
the FDA in the second half of 1996 relating to two uses of the HTK Keratome.
Although there can be no assurance that this will prove to be the case,
permission granted for the 510(k) notifications should enable the Company to
commence its marketing efforts sooner than if the Company had to submit to the
FDA a pre-market approval ("PMA") application. In order to obtain FDA clearance
of a 510(k) notification, a company must prove its device is substantially
similar to a marketed product. PMA applications must demonstrate, among other
matters, that the device is safe and effective. Although human clinical trial
data is sometimes required to be submitted with a 510(k) notification, a PMA
application is typically a more complex submission which usually includes the
results of clinical studies, and preparing an application is a detailed and
time-consuming process. Once a PMA application has been submitted, the FDA's
review may be lengthy and may include requests for additional data. See "--
U.S. Government Regulation" and "Risk Factors -- No Assurance of FDA and Other
Regulatory Approval."
Although the therapeutic uses described above are the Company's initial
intended uses for its keratome, the Company recognizes that other uses may
eventually be made of the waterjet keratome. One such use, for which the
Company believes the potential market could be significant, is for refractive
surgical correction. Therefore, the later phase of the Company's FDA strategy
relates to the HRK Keratome. Although the Company believes that the HRK
Keratome will be considered for permission to market by the FDA through a 510(k)
notification based upon the similarities of the keratome between the HTK uses
and the HRK use, obtaining such permission for the HRK Keratome is likely to be
somewhat more complicated than for HTK. There can be no assurance that either
the HTK use or the HRK use will be permitted for marketing by the FDA. The
differences between the two uses are found in the components, other than the
waterjet scalpel, which comprise the keratome. For the HRK Keratome, the
Company may be required to show that the procedure is effective, stable and does
not decrease visual acuity to any significant extent.
The Company believes that, based on three features of the HRK Keratome, it
will also be considered for 510(k) notification by the FDA. First, based on the
preliminary experimentation conducted with waterjet keratomes, there are no
known or anticipated physical or chemical processes that would impact on the
safety of the HRK procedure. The waterjet keratome cuts by mechanisms similar
to that of conventional scalpels (although at speeds of more than 100 times
greater), except that the Company believes that HRK would not produce certain
side effects incident to other refractive surgery procedures. Such side effects
include the inferior cut produced by the oscillating blade used in conventional
keratomes, and the potential carcinogenic effects, dehydration from overheating
and high amplitude shock waves to the eye resulting from the high energy, pulsed
radiation used in a procedure known as photo-refractive keratotomy ("PRK"). PRK
could represent the strongest competition to HRK. As a result of the
anticipated safety issues, the FDA approval process for PRK involved numerous
clinical studies on human eyes and took several years to complete. The Company
believes that the FDA approval process for the HRK Keratome should be shorter
and entail fewer clinical studies in light of the expected higher level of
safety and lack of anticipated side effects, in comparison to other previously
permitted products.
The second feature of the HRK Keratome is the benign nature of the waterjet
cut. While a conventional scalpel tears the lamellae (layers of the stroma) and
PRK completely or partially destroys the surface lamellae, the waterjet beam has
a unique cutting action which separates the various lamellae prior to cutting
the targeted tissue, thereby preserving the integrity of the remaining lamellae
and both localizing and minimizing the damage to the lamellae generally. The
healing process following a waterjet cut is expected to be less traumatic than
that following a conventional scalpel cut or a PRK cut, although the improved
healing process has not yet been demonstrated.
The third feature of the HRK Keratome is that the portion of the corneal
tissue targeted for removal is extracted in a single piece similar to a contact
lens. The Company is developing and experimenting with an in-vitro model which
would allow intact removal of the targeted portion of corneal tissue and
comparison to the expected refraction, in effect producing a definitive model of
the relationship between the template shape and the refractive result. The
efficacy requirement of such experimentation is to demonstrate validity in
humans of the in-vitro model, a less demanding requirement than demonstrating
validity on live human eyes. The Company believes that the
26
<PAGE>
clinical studies would be primarily directed toward validating this model and
that the 510(k) notification process would be relatively short and consist of
tests on a limited number of live eyes.
The Company may distribute its products internationally. Distribution of
the Company's products in countries other than the United States may be subject
to regulation in those countries. In some countries, the regulations governing
such distribution are less burdensome than in the United States and the Company
may pursue marketing its products in such countries prior to receiving
permission to market from the FDA. The Company will endeavor to obtain the
necessary government approvals in those foreign countries where the Company
decides to manufacture, market and sell its products. See "-- Foreign
Government Regulation."
With the net proceeds of this Offering, the Company intends to continue the
research and development of its keratome and related manufacturing processes and
to commence human clinical trials of the HRK Keratome. See "Plan of Operation."
If the HTK Keratome or the HRK Keratome is permitted to be marketed or otherwise
approved for marketing in the United States, the Company will be required to
establish a marketing organization and production facilities, which will require
additional financing. No assurance can be given that the Company's research and
development efforts will be successfully completed, that the HTK Keratome or HRK
Keratome will prove to be safe and effective in correcting vision, that the HTK
Keratome or HRK Keratome will be permitted to be marketed or otherwise approved
for marketing by the FDA or any other regulatory agency, or that the HTK
Keratome or HRK Keratome or any other product developed by the Company will be
commercially successful.
The Company was incorporated under the laws under the State of Delaware in
December 1993. Its offices are located at 1090 King Georges Post Road, Suite
301, Edison, New Jersey 08837; its telephone number is (908) 738-3990. The
Company has elected Subchapter "S" status pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended (the "Code"), which status will
terminate upon the Effective Date.
DISEASES OF THE CORNEA AND THERAPEUTIC TREATMENT
The cornea is the clear window that, in addition to allowing light into the
eye for the purpose of vision, provides most of the focusing power of the vision
system of the eye. The anterior surface of the cornea is covered with a thin
layer called the epithelium. Although the epithelium has no blood cells, it has
nerve cell endings which can be a source of pain in the cornea.
There are several circumstances under which the epithelium is removed from
a cornea. An epithelium that is eroded, cut, damaged, dystrophied or diseased
can be partially or fully removed and will regenerate to cover the cornea with
healthy tissue. The epithelium is also removed prior to refractive surgery
using a laser. In addition, in certain diseases of the cornea that render it
partially or completely opaque, the cornea may be partially or fully removed and
replaced with a donor cornea from an eyebank. Certain of such transplants are
performed with a keratome that removes a partial thickness of tissue in a
procedure known as lamellar keratoplasty.
Removal of the epithelium is typically done with a hand-held, number 11
steel scalpel which is mechanically scraped across the cornea to accomplish the
removal of the epithelium in a rough and imprecise manner, often damaging the
layer of tissue underlying the epithelium. The Company believes that by
adjusting the water pressure to be used, its waterjet keratome can precisely cut
only the epithelium in the defined area targeted for removal by separating such
area from the adjoining underlying tissue without damaging such underlying
tissue.
In the therapeutic application of the HTK Keratome, the thickness and
diameter of the removed tissue can be predetermined. The smooth and precise cut
of the HTK Keratome allows for relatively simple positioning of the replacement
(donor) tissue after removal of the targeted tissue and relatively quick
healing.
REFRACTIVE DISORDERS AND CORRECTION
The human eye consists of a hollow, flexible globe approximately 25
millimeters in diameter, which is filled with a vitreous fluid. The optical
part of the eye functions much like an automatic focus video camera,
incorporating a variable focus lens system (the fixed focus cornea and the
variable focus internal lens) which adjusts the sharpness of the image on the
retina, a variable aperture system (the iris) which regulates the amount of
light
-27-
<PAGE>
falling on the retina, and a sensory array (the retina) which converts the
focused image into electrical signals which are transmitted through the optic
nerve to the brain for image processing and storage to achieve the best image.
Approximately 70% of the focusing power of the eye resides in the cornea. The
precise focusing power of the cornea is a function of the curvature of the
anterior corneal surface. The internal lens of the eye also has focusing power
and the ability to adjust its focusing power to achieve the best focus for near
or far objects; however, its ability to so adjust is limited and tends to
decrease with age, ultimately disappearing.
Most common refractive problems result from an inability of the optical
system of the eye to focus images on the retina properly with normal
accommodation. The extent of this inability to focus is known as refractive
error. For instance, in the nearsighted eye, light rays from an object at a
distance of 20 feet focus in front of the retina, because the curvature of the
cornea is too great. People with uncorrected myopia see nearby objects clearly,
but distant objects appear blurry, even with accommodation. Conversely, in the
uncorrected farsighted eye, light rays from an object at a distance of 20 feet
focus behind the retina because the curvature of the cornea is too low. People
with hyperopia see distant objects clearly, but may need correction so that
nearby objects do not appear blurry. In the astigmatic eye, the curvature of
the cornea is not uniform. This lack of uniform curvature makes it impossible
for a person to focus clearly on an object at any distance without correction.
Refractive power is measured in diopters. The current ophthalmic
measurement technology and the techniques for manufacturing eyeglasses and
contact lenses produce a refractive correction that is within +/- 1/4 diopter of
the optimum value for ideal vision. This residual error is generally viewed as
acceptable for all purposes by ophthalmologists.
Vision disorders are currently treated primarily by eyeglasses, contact
lenses or surgery, all of which compensate for the existing refractive error.
Among the surgical techniques available to treat vision disorders are radial
keratotomy ("RK"), PRK and keratomileusis in situ ("KIS"). In RK, PRK and KIS,
the object of the surgery is to change the shape of the anterior corneal
surface, thereby eliminating or reducing refractive error.
RK is a surgical procedure used to correct myopia in which steel or diamond
knives are used to make a series of deep, perpendicular cuts in a radial
configuration around the periphery of the cornea outside the vision zone. The
incisions cause a flattening of the cornea and eliminate or reduce small to
moderate amounts of myopia. Tangential cuts are used to correct moderate
astigmatism, a technique known as astigmatic keratotomy.
PRK uses energy from a type of ultraviolet laser, known as an "excimer
laser," to correct various types of refractive disorders by changing the
curvature of the anterior corneal surface. The excimer laser emits ultraviolet
light in very short, high energy pulses and "photoablates," or vaporizes, part
of the anterior corneal surface to achieve a new curvature. PRK has been
approved for use in the United States by the FDA for the correction of low to
moderate myopia (I.E., under 6 diopters).
KIS, which is also known as refractive lamellar keratoplasty ("RLK") or
automated lamellar keratoplasty ("ALK"), involves using an automated metal or
diamond scalpel in a microkeratome to cut and pull back a corneal flap
(consisting of the epithelium, the Bowman's layer and a portion of the stroma)
and to then shave away a portion of the exposed stromal area of the cornea in a
second cut, thereby changing the corneal curvature after the flap is replaced.
Light ablation system for in-situ keratomileusis ("LASIK"), an investigational
procedure under FDA review, with FDA approval anticipated by the Company to be
at least one year away, combines elements of KIS and PRK. In the LASIK
technique, the corneal flap is pulled back, and photoablation is performed
directly on the exposed stromal surface to change its curvature. In both KIS
and LASIK, the hinged flap is reset as close as possible to its original
position, where it adheres to the underlying stroma.
RK and PRK produce corrections that are usually not optimum, typically
leaving the eye within +/- 1 diopter of optimum, but sometimes worse. The
corrections generally are not stable to within 1 diopter. This leaves the
patient able to function without eyeglasses or contact lenses but not with the
best possible vision and not under all conditions. The accuracy of KIS is
generally poorer, but it is typically used to correct larger myopia and is more
stable. See "-- Competition."
-28-
<PAGE>
THE HRK KERATOME
GENERAL
The HRK Keratome uses a single, hair-thin, supersonic water beam with a
diameter of approximately 30 microns to incise corneal material and a
disposable, custom-made template to support and shape the cornea during surgery.
Other parts of the HRK Keratome include a miniature high pressure water storage
element and related equipment, which together produce the water beam; a scanning
mechanism to move the water beam across the cornea; a device to regulate and
control the action of the water beam; a force transducer to monitor the water
beam status; and a template designed to support and shape the eye during
surgery. The HRK Keratome will be placed on the patient's eye during the
surgical procedure. Once the HRK Keratome is placed into position on the eye
(directly over the area to be incised), to which it is attached by a globe
fixation device (a suction device to align and fix the eye in place relative to
the template and waterjet parts during surgery), the surgical cut takes less
than one second.
The total water volume used during the procedure, including the amount
necessary to check the waterjet beam and its performance, is less than a few
drops. Involuntary motions of the eye, including saccadic movement in which the
eye makes minute, constant side-to-side movements to assist in imaging, have no
impact during HRK because the eye is fixed to the HRK Keratome during the
procedure. The template for any procedure will be constructed according to the
specification provided by the ophthalmologist and will be provided to the
surgeon with the HRK Keratome.
HRK, with the HRK Keratome, can be done in three methods. In the first
method, a shaped slice of corneal tissue is removed without damage to the rest
of the cornea. The shape and size of the removed portion corresponds to the
error in refractive power of the cornea to be corrected, having the effect of
the permanent removal of the equivalent of a contact lens. In the other two
methods, a hinged flap is cut into the cornea and the underlying tissue is
reshaped before the flap is replaced. The Company believes that the first
method, without the creation of a flap (which the Company believes allows more
opportunity for infection, requires more surgical skill, offers the potential
for irregular astigmatism and results in a more complex healing process), is the
simplest and safest and initially intends to seek FDA permission to market, or
other approval, with respect to that method alone.
STATUS
To date the Company has spent approximately $1,100,000 on research and
development of the HTK Keratome and the HRK Keratome. Research and development
activities have consisted of developing, designing and constructing two
experimental versions of the Company's keratome, and, since July 1994,
conducting feasibility studies on approximately 1,000 porcine and rabbit
corneas, on approximately 25 human cadaver eyes and on 22 live rabbits. The
purpose of the feasibility studies was to determine if the water beam could
smoothly incise and shape the anterior surface of the cornea and to determine if
the incised eye would heal. The Company has been highly satisfied with the
results of the feasibility studies conducted to date. Specifically, the
Company, using light and electron microscopes and post incision casts, has
compared the cuts made by the waterjet scalpel with cuts made by scalpels and
lasers in other refractive surgical procedures. The Company believes that the
cuts made by the waterjet scalpel are cleaner and much less damaging than those
made by conventional scalpels and lasers. The Company has found the corneal
flaps created by the HRK Keratome to be extremely close to parallel, as desired,
and of the desired thickness (approximately 140 microns). The Company also found
the shape of the cut stromal bed to be the desired spherical shape and the
restored flap to fit the stromal bed with no discernable disparity in size or
alignment. The Company's studies have also shown that HRK incisions
(resections) heal with much less wound healing response and haze than results
from PRK incisions.
Pre-clinical research and development is being conducted by the Company
directly and, on the Company's behalf, by the University of Medicine and
Dentistry of New Jersey in Newark, New Jersey (the "University"). The Company
maintains a laboratory for its experiments at the University's animal facility
and has access to certain University diagnostic equipment. The Company has
agreed to pay the University $40,000 per year from July 1994 to June 1997 in
order to use such facilities for its research and development. Dr. Eugene I.
Gordon, the President of the Company, is an adjunct professor of ophthalmology
at the University. The Company's agreement with the
-29-
<PAGE>
University calls for tests on 40 dutch belted rabbits and 40 cats with post-
operative follow-up and, subsequently, microscope studies on enucleated eyes.
The tests are carried out by Company personnel under the supervision of Prof.
Marco Zarbin, M.D., the Chairman of the University's Department of
Ophthalmology, who serves as the principal investigator.
The Company began construction in March 1996 of a keratome designed for
use in surgery on non-human primates and humans in a clinical setting. Due to
funding limitations, the Company has not yet constructed the manufacturing
equipment for making specifically designed templates. The Company believes that
the technology for producing specifically designed templates exists and that the
Company will be able to produce such equipment or license others to do so.
However, there can be no assurance that the Company will be able to do so at all
or in a timely and cost-effective manner.
PATENTS
The Company has sought to protect its proprietary interest in the HRK
Keratome by applying for patents in the United States and corresponding patents
abroad. In September 1994, a U.S. patent application was filed in the name of
Dr. Eugene I. Gordon and two employees of the Company, as inventors, which
application was assigned to the Company. The U.S. patent application, as
allowed for issuance, covers a method and device for use in the HRK Keratome,
including use of a template for corneal shaping and holding, during use of a
waterjet keratome device. A corresponding international application has been
filed, pursuant to the Patent Cooperation Treaty ("PCT"), with designation of
all member countries foreign to the United States, including but not limited to
Japan, the members of the European Patent Office, Canada, Mexico, Australia,
Russia, China and Brazil. The PCT filing has been published and separate patent
applications have been or will be filed pursuant to the PCT filing. In
addition, for countries not currently part of the PCT, patent applications have
also been filed in Israel, Taiwan and South Africa. A prior U.S. patent
application, filed in April 1994, is currently pending and relates to
topographic corneal mapping, which has utility for surgery utilizing the HRK
Keratome.
U.S. GOVERNMENT REGULATION
The components of the Company's HTK Keratome and HRK Keratome are medical
devices. Accordingly, the Company is subject to the relevant provisions and
regulations of the FD&C Act, under which the FDA regulates the manufacturing,
labeling, distribution, and promotion of medical devices in the United States.
The FD&C Act requires manufacturers of medical devices to, among other things,
comply with labeling requirements and manufacture devices in accordance with
prescribed GMPs, which require companies to manufacture and test their products,
exercise quality control and maintain related documentation in a prescribed
manner. The FD&C Act and regulations thereunder also require all medical device
manufacturers and distributors to register with the FDA annually, to provide the
FDA with a list of those medical devices which they distribute commercially and
to report death or serious injuries alleged to have been associated with the use
of their products, as well as product malfunctions that would likely cause or
contribute to death or serious injury if the malfunction were to recur. Certain
medical devices not cleared for marketing in the United States are required to
have FDA approval before they are exported. The FDA frequently inspects medical
device manufacturing and distribution facilities and has broad authority to
order recalls of medical devices, seize noncomplying medical devices, enjoin
and/or impose civil penalties on manufacturers and distributors marketing non-
complying medical devices and criminally prosecute violators.
Pursuant to the FD&C Act, the FDA classifies medical devices intended for
human use into three classes: Class I, Class II and Class III. In general, Class
I devices are those products for which the FDA determines that safety and
effectiveness can be reasonably assured through the FD&C Act general controls
relating to such matters as adulteration, misbranding, registration,
notification, record keeping and GMP. Class II devices are those products for
which the FDA determines that the general controls in the FD&C Act alone are
insufficient to provide a reasonable assurance of safety and effectiveness. The
FDA has promulgated special controls applicable to Class II devices, including,
but not limited to, performance standards, postmarket surveillance, patient
registries and specific testing guidelines. Class III devices are devices for
which the FDA has insufficient information to conclude that either general FD&C
Act controls or special controls would be sufficient to assure safety and
effectiveness, and
-30-
<PAGE>
which are life-supporting, life-sustaining, of substantial importance in
preventing impairment of human health (E.G., a diagnostic device to detect a
life-threatening illness) or present a potential unreasonable risk of illness or
injury. Class III devices must undergo a rigorous pre-market approval process,
as described below.
The FD&C Act provides that, unless exempted by regulation, medical devices
may not be commercially distributed in the United States unless they have been
approved or cleared by the FDA. There are two review procedures by which medical
devices can receive such approval or clearance. Some products may qualify for
clearance under a 510(k) notification. Pursuant to that procedure, the
manufacturer submits to the FDA a pre-market notification that it intends to
begin marketing its product. The notification must demonstrate that the product
is substantially equivalent to another legally marketed product (I.E., that it
has the same intended use and that it is as safe and effective as, and does not
raise different questions of safety and effectiveness than does, a legally
marketed device). In some cases, the 510(k) notification must include data from
human clinical studies. In March 1995, the FDA issued a draft guidance document
in connection with 510(k) notifications for medical devices, "Addendum: How to
Submit a Premarket Notification [(510(k)]," which states that clinical data is
not needed for most devices cleared by the 510(k) process. However, the Company
anticipates that the FDA will require submission of human clinical trial data in
connection with the Company's 510(k) notifications.
A successful 510(k) notification will result in the issuance of an letter
from the FDA in which the FDA acknowledges the substantial equivalence of the
reviewed device to a legally marketed device and clears the reviewed device for
marketing to the public. Under FDA regulations, the FDA has a 90-day period to
respond to a 510(k) notification, although such response has been known to take
longer.
Based on a recommendation from the FDA, the Company intends to file two
510(k) notifications within approximately six months of the Effective Date, in
which the Company will seek to demonstrate that the HTK Keratome is
substantially equivalent to the currently available keratomes having a metal or
diamond scalpel used for two types of lamellar keratoplasty. Under current FDA
regulations, a keratome is defined as a device for shaving thin layers from the
cornea and is classified as a Class I device. The Company will seek to
demonstrate that, for the purpose of making lamellar, or substantially lamellar,
corneal incisions, the waterjet scalpel and template included in the HTK
Keratome are substantially similar to a keratome with a metal or diamond
scalpel.
There can be no assurance that the Company will obtain 510(k) premarket
notification clearance to market the HTK Keratome or, subsequently, the HRK
Keratome, in a timely manner or at all, that the Company's device will be
classified as a Class I device, or that, in order to obtain 510(k) clearance,
the Company will not be required to submit additional data or meet additional
FDA requirements that may substantially delay the 510(k) process and add to the
Company's expenses. Moreover, such 510(k) notification clearance, if obtained,
may impose conditions on the Company with respect to the marketing or
manufacturing of which may impede the Company's ability to market and/or
manufacture the HTK Keratome or the HRK Keratome. There can be no assurance
that the Company will be able to obtain necessary regulatory approvals or
clearances on a timely basis or at all. Delays in receipt of or failure to
receive such approvals, the loss of previously received approvals, or failure to
comply with existing or future regulatory requirements will have a material
adverse effect on the Company.
In addition to laws and regulations enforced by the FDA, the Company's
products may also be subject to labelling laws and regulations enforced by the
Federal Trade Commission. The Company is also subject to government regulations
applicable to all businesses, including, but not limited to, regulations related
to occupational health and safety, workers' benefits and environmental
protection.
FOREIGN GOVERNMENT REGULATION
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA approval, and requirements for licensing may
differ from FDA requirements. Export sales of investigational devices that have
not received FDA marketing clearance generally are subject to FDA export permit
requirements. Material failure to comply with any applicable regulatory
requirements could have a material adverse effect on the Company.
-31-
<PAGE>
MARKETS
In the United States, more than 145 million people wear either eyeglasses
or contact lenses. Over $13 billion is spent annually in the United States for
corrective eyewear products. Studies indicate that approximately 29 million
Americans wear contact lenses, primarily for cosmetic or convenience reasons.
The number of people in the United States newly electing to wear contact lenses
is over one million per year. This large and growing population of contact lens
wearers is the largest potential market for refractive surgery, including HRK.
Studies indicate that approximately 60% of persons electing refractive surgery
are contact lens wearers. However, there can be no assurance that eyeglass or
contact lens wearers will elect to undergo surgery.
The only refractive surgery techniques generally available in the United
States today are RK, PRK and automated lamellar keratoplasty, or ALK. The
Company believes that approximately 7 million RK procedures (each "procedure"
being performed on a single eye) have been performed worldwide, and
approximately 1.5 million in the United States, in the last 15 years. The
Company believes that approximately 5,000 PRK procedures have been performed in
the United States, with a total of several hundred thousand worldwide. The
American Society of Cataract and Refractive Surgeons has estimated that the
number of PRK procedures performed in the United States will grow to over 1
million annually within the next few years. The Company estimates that 5,000
ALK procedures are performed in the United States each year by approximately 100
surgeons and that approximately 350 ALK microkeratomes have been sold in total.
The Company anticipates that the initial market for the HRK Keratome will
be ophthalmologists, many of whom already are familiar with PRK, RK and ALK.
The American Medical Association estimates that there are currently 15,000
ophthalmologists in the United States, of which 12,000 are in private practice
and 3,000 are associated with hospitals, teaching institutions and the military.
The degree to which the Company's HRK Keratome can penetrate the potential
market of ophthalmologists will depend on a variety of factors, including, but
not limited to, acceptance by the medical community and the public of the HRK
Keratome and alternative technologies. None of these factors is under the
control of the Company. There is presently no data available to the Company to
determine what percentage HRK will have of the market for refractive surgery.
COMPETITION
If permitted or otherwise approved by the FDA and other regulatory
authorities, the primary competition for the HTK keratome will be a hand-held,
number 11 steel scalpel which is mechanically scraped across the cornea to
accomplish the removal of the epithelium, and other mechanical blades, which cut
diseased tissue intended for removal. The use of such keratomes requires a high
degree of skill and training and often does not produce satisfactory results.
If permitted or otherwise approved by the FDA and other regulatory
authorities, HRK using the Company's HRK Keratome will compete with other
treatments for refractive problems, including eyeglasses, contact lenses, other
refractive surgery procedures (such as RK, PRK and ALK), and other technologies
under development, such as LASIK, refractive intraocular lenses (lenses which
are inserted into the eye behind the cornea), intrastromal lenses (lenses which
are inserted into the stroma), corneal rings (transparent circles of acrylic
which are inserted within the cornea outside the vision zone in order to correct
the curvature of the corneal surface) and injection of hydrogel materials into
layers of corneal tissue to change the curvature of the cornea. The healthcare
field is characterized by rapid technological change. At any time, competitors
may develop and bring to market new products or surgical techniques with vision
correction capabilities superior to those of the HRK Keratome or which would
otherwise render the HRK Keratome obsolete.
Generally, refractive surgical techniques are considered to be "elective"
surgery and are typically not reimbursed under healthcare insurance policies in
the United States. However, in certain countries outside the United States,
such as China, the costs of refractive surgery are paid by the government,
because it is believed that such surgery is, over time, less costly than glasses
or contact lenses. It can be expected that many individuals will choose to
forego refractive surgery, if not reimbursed, and instead obtain eyeglasses or
contact lenses, which are
-32-
<PAGE>
covered under some healthcare insurance plans and are considerably less
expensive than refractive surgery in the short term.
Other companies, most of which are larger and better financed than the
Company, are engaged in refractive surgery research. Two companies, Summit
Technology, Inc. ("Summit") and VISX Inc. ("VISX"), have completed Phase III
clinical studies in the United States to evaluate PRK for the treatment of
myopia. Both companies have received a PMA. In addition to Summit and VISX,
there are a number of other large entities that currently market and sell laser
systems overseas for use in refractive surgery, including Aesculap-Meditec GmbH,
Chiron-Technolas and Schwind, each of Germany, and Nidek of Japan. Many of
these companies have substantially greater financial, technical and human
resources than the Company and may be better equipped to develop, manufacture
and market their technologies. In addition, many of these companies have
extensive experience in preclinical testing and human clinical studies. Certain
of these companies may develop and introduce products or processes competitive
with or superior to those of the Company. Furthermore, if the Company is
permitted to commence commercial sales of products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in
which the Company has no experience.
The Company's competition will be determined in part by those refractive
surgery technologies that are ultimately approved for sale by regulatory
authorities. The relative speed at which the Company is able to develop the HRK
Keratome, complete the necessary governmental and regulatory approval processes,
and manufacture and market commercial quantities thereof will be important
competitive factors.
Although the HRK Keratome is still in the early stages of development and
has neither been tested on live human eyes nor received the regulatory approval
necessary for sale, the Company believes that it has the potential to
effectively compete with other refractive surgical techniques because of its
relative simplicity, safety, efficacy and reduced risk of significant pain.
Each of these factors is discussed below.
SIMPLICITY. The Company's keratome is designed to allow ophthalmic
surgeons to perform HTK and HRK with relative ease. In the HRK Keratome, the
waterjet is controlled by a switch, the eye is aligned and fixed in place during
the procedure by means of the globe fixation device and the template is used to
determine exactly how much of the corneal tissue is excised. Accordingly,
whereas procedures such as ALK and LASIK are difficult and require that the
ophthalmic surgeon possess a high level of surgical skill, the HRK procedure is
largely automatic and, accordingly, the ophthalmologist will not be required to
operate manually on the cornea or perform manual adjustments or calculations in
connection with the surgery. Further, the fact that the eye is fixed in place
during the HRK procedure eliminates the surgical risk of error due to the
natural saccadic movement of the human eye in which the eye makes minute,
constant side-to-side movements to assist in imaging.
SAFETY. HRK is designed to minimize invasiveness and trauma to the cornea.
Unlike RK, but like ALK, HRK does not require deep incisions into the cornea
with the potential for perforation and weakening of the cornea. Unlike PRK, the
Company's HRK procedure does not result in heating the cornea, nor does it
hydrate or dehydrate the corneal tissue. PRK also has the potential to lacerate
the stromal surface, expose the eye to potentially carcinogenic ultraviolet
light and free radicals, produce high amplitude acoustic pulses which sometimes
cause subretinal hemorrhages or leave a residue of scar tissue and haze, all of
which can have negative effects on the cornea and the patient's ability to see
properly or at all. Unlike ALK, the Company's procedure does not require high
intraocular pressure ("IOP") with its attendant risk of inducing glaucoma or
retinal detachment. ALK also poses a risk of residual metal chips in the flap-
stroma interface from the blade edge. In addition, because HRK is largely
automatic and requires no manual adjustments or calculations or control by
software, the Company believes that HRK has the potential to promote more
consistent outcomes. For these reasons, the Company believes that the HRK
Keratome will, if permitted or otherwise approved, provide a safer method of
refractive correction than other methods available to consumers. However, the
experiments on live humans which are expected to prove such belief have not yet
been conducted.
EFFICACY. Efficacy refers to the ability of a surgical technique to
achieve the desired result with a minimum of adverse side effects. The Company
believes that, once conducted, research will show a high level of efficacy with
HRK when compared with efficacy of other refractive surgical procedures.
-33-
<PAGE>
Studies have shown that RK does not regularly achieve optimum vision
correction; residual refractive error can be as large as +/- 1 diopter,
sometimes with some small loss in visual acuity. RK has been reported to cause
adverse side effects, such as halo (I.E., appearance of a bright spot with a
surrounding area of confusion) and glare, and to result in diurnal fluctuations
in refractive correction and unstable post-operative correction due to weakening
of the cornea from the multiple corneal incisions. Such weakening often
results in progress toward hyperopia over a period of up to 10 years following
the surgery, with changes as large as several diopters in patients with moderate
to high myopia before the surgery. A significant number of RK procedures are
repeated as a result of inaccurate correction. There is also a higher risk of
post-operative infections from RK than PRK, due to the number and depth of the
incisions made.
Studies have shown that when PRK is used on patients with low to moderate
myopia, the post-operative refractive correction is not predictable within +/- 1
diopter. Generally, the range of inaccuracy varies directly with the degree of
attempted change. Following PRK surgery, some patients' vision has been
reported to regress toward myopia over a period of approximately one year
following the surgery and some patients report haze. The Company believes that
these inaccuracies and instability are the result of the photoablation process,
which causes a variety of wound-healing responses which are difficult to
predict. As with RK, the achieved correction following PRK is adequate, in most
cases, to allow a patient to perform typical daily functions, such as driving,
without vision assistance; however, optimum vision correction is not typically
achieved without the use of eyeglasses or contact lenses. Furthermore, patients
undergoing PRK generally require a period ranging from several days to two weeks
before vision is restored, whereas vision is generally restored in patients
undergoing RK or ALK within a short time or immediately following those
procedures. In up to 5.0% of PRK procedures, permanent loss of visual acuity
(as much as two lines or more on the standard eye chart) has been reported.
Subretinal hemorrhages, induced in the operated eye by the procedure sometimes
occur and have been reported to have caused blindness in a very small percentage
of PRK patients. Based on experimental data, LASIK appears to be comparable to
PRK with respect to post-operative refractive error but more stable as a result
of a more predictable wound-healing response. However, it has the potential for
flap-related problems.
ALK is generally regarded as highly inaccurate but useful for correcting
high myopia and hyperopia and is reasonably stable. Studies have shown that in
some cases, the epithelium under the flap will regenerate after the ALK
procedure, requiring removal of the flap and/or cleaning of the interface.
Accurate realignment of the flap after such procedure is difficult and can
produce irregular astigmatism.
HRK is similar to PRK, but the Company believes it will allow more accurate
correction of high and low myopia, hyperopia and astigmatism. The expected
accuracy of the Company's HRK procedure is based on the use of a custom template
to flatten and shape the stroma, so as to reliably shave the proper amount of
tissue to achieve the desired correction. However, the Company has not yet
conducted human clinical trials and, accordingly, the Company has not yet
demonstrated that in live human eyes, the mechanical properties of the stroma
are similar enough that a given template will consistently shave exactly the
same amount of tissue. The Company also anticipates that the cleanness of the
HRK incisions, together with the fact that the epithelium is not scraped off
during HRK, may result in a lower incidence of post-operative infections.
However, no assurances can be given that the safety and efficacy of HRK
anticipated by the Company will be realized.
REDUCED RISK OF SIGNIFICANT PAIN. The Company anticipates that patients
who undergo HRK utilizing the HRK Keratome will not experience significant pain
as compared with the pain reported to result from other refractive surgical
procedures. The pain following refractive surgery through PRK is primarily due
to the scraping off from the cornea of a portion of the epithelium, which
contains most of the nerve endings in the cornea. Less pain is associated with
merely cutting through the epithelium in a limited region, such as in RK and
ALK. In the Company's HRK procedure, only a small cut is made into the
epithelium, similar to that made in ALK and possibly more cleanly, which the
Company anticipates should result in minimal pain.
In addition to the competitive factors listed above, HRK is expected to be
less costly than PRK, because of the high costs of the laser equipment and laser
facility necessary for PRK, and to be competitively priced with, or less costly
than, other refractive surgery procedures.
-34-
<PAGE>
LITIGATION
The Company is not a party to any pending litigation, nor is it aware of
any litigation threatened against it. The Company is involved in a contract
dispute in which the amount in controversy is less than $35,000.
EMPLOYEES
As of May 1, 1996, the Company had nine full-time employees, all of whom,
including its President, were engaged in research and development activities,
and one part-time employee. As of such date, the Company also had consulting
arrangements with one medical consultant, one marketing consultant and two
strategic planning and business development consultants. The Company's ability
to design, develop, manufacture, market and sell its products successfully will
depend to a large extent on its ability to attract and retain qualified
personnel, for which competition is or may be intense. None of the Company's
employees are represented by a union. The Company believes that its relations
with its employees are satisfactory.
FACILITIES
The Company leases approximately 4,982 square feet of research and
development and office space in Edison, New Jersey. The term of the lease
expires in March 1999. The base rent is $57,440 per year. The Company believes
that nearby space suitable for a manufacturing facility is in adequate supply.
PRODUCT LIABILITY INSURANCE
The use of medical devices, both in clinical and commercial settings,
entails the risk of allegations of product liability, and there can be no
assurance that substantial product liability claims will not be asserted against
the Company. The Company does not now have any product liability insurance, but
it expects to obtain such insurance prior to the commencement of clinical
testing. It is expected that such insurance will be in the amount of $1 million
per claim with an annual aggregate limit of $20 million. After any
commercialization of its products, the Company will seek to obtain an
appropriate increase in its coverage. However, there can be no assurance that
adequate insurance coverage will be available at an acceptable cost, if at all.
Consequently, a material product liability claim or other material claims with
respect to uninsured liabilities or in excess of insured liabilities would have
a material adverse effect on the Company.
-35-
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers, directors and nominees for director of the Company:
NAME AGE POSITION
---- --- --------
Eugene I. Gordon, Ph.D. 65 President and Chairman of the Board
Thomas M. Handschiegel 49 Vice President for Finance and Human
Resources
Steven G. Cooperman, M.D. 54 Director
Sanford J. Hillsberg* 48 Director
Steven Katz, Ph.D.** 51 Director
_____________________
*Mr. Hillsberg was elected as a director to begin serving upon the consummation
of this Offering.
**Mr. Katz was elected as a director to begin serving 30 days after the
Effective Date.
Prior to the commencement of the Offering, the Company intends to elect one
additional person to the Board of Directors of the Company. Such person will
not be an officer or employee of the Company.
DR. EUGENE I. GORDON is the founder and President of the Company and has
been a Director and Chairman of the Board since its inception in December 1993.
He is an inventor of the Company's HRK Keratome technology. From 1987 to 1988,
Dr. Gordon served as Senior Vice President and Director of the Research
Laboratories for Hughes Aircraft Co. of Malibu, California. Dr. Gordon has
served as an adjunct professor in the Department of Ophthalmology at the
University of Medicine and Dentistry of New Jersey since 1994, and was a
professor in the Department of Electrical and Computer Engineering at the New
Jersey Institute of Technology from 1990 to 1995. Dr. Gordon was Laboratory
Director for AT&T Bell Laboratories and the founder of Lytel Incorporated, a
manufacturer of lasers and optical transmission subsystems which is a wholly-
owned subsidiary of AMP Incorporated. Dr. Gordon has done extensive research on
laser and opto-electronic systems, is a named inventor under approximately 70
U.S. patents and has published widely on those subjects. Dr. Gordon has a Ph.D.
in physics from the Massachusetts Institute of Technology. He is a member of
the National Academy of Engineering and has been awarded the Edison Medal of the
Institute of Electrical and Electronic Engineers, among a number of other
prestigious awards.
DR. STEVEN G. COOPERMAN has been a Director of the Company since September
1994. Dr. Cooperman was engaged in the private practice of ophthalmology and
ophthalmic surgery in Beverly Hills, California from 1972 to his retirement in
1989. Since his retirement, Dr. Cooperman has been active as a private
investor. He is the founder of the American Intraocular Implant Society (now
known as the American Society for Cataract and Refractive Surgery), has served
on the teaching staff of the Jules Stein Eye Institute and has lectured widely
on phacoemulsification and intraocular lens implant surgery. Dr. Cooperman
received his M.D. from the Northwestern University Medical School.
THOMAS M. HANDSCHIEGEL has been an executive officer of the Company since
March 1996. Mr. Handschiegel has been a Certified Public Accountant since 1980.
From November 1995 to March 1996, he served as Senior Managing Director of
Gruntal & Co. Incorporated. From 1994 to November 1995, Mr. Handschiegel was
self-employed as an independent financial consultant. From 1993 to 1994, he
served as Senior Vice President and Division Financial Officer, Industry
Services Group for Cowen & Company. From 1989 to 1993, he served as Vice
President, Comptroller and Chief Accounting Officer for Discount Corporation of
New York. Mr. Handschiegel received a B.B.A. in Accounting from Loyola
University (Chicago) in 1969.
-36-
<PAGE>
SANFORD J. HILLSBERG has agreed to serve as a director of the Company upon
the consummation of this Offering. Mr. Hillsberg has been engaged in the
private practice of corporate law since 1973 and is currently the managing
partner of Troy & Gould Professional Corporation. From 1983 to 1993, he served
as a director and Vice President of Medco Research Inc., a publicly-traded
pharmaceutical research and development company. Mr. Hillsberg received his
J.D. from Harvard Law School.
DR. STEVEN KATZ has agreed to serve as a director of the Company commencing
30 days after the Effective Date. Dr. Katz is the President, Chief Executive
Officer, Chairman of the Board and a founder of Ortec International, Inc., a
publicly-traded company which has developed proprietary technology to create
natural replacement skin. He has been employed by Ortec International, Inc. and
a predecessor since 1991. Dr. Katz has also been a professor of Economics and
Finance at Bernard Baruch College in New York City since 1972. He has a Ph.D.
in Finance and Statistics as well as an M.B.A. and M.S. in Operations Research,
both from New York University.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Executive officers are
elected by the Board of Directors to hold office for such term as may be
prescribed by the Board of Directors.
The Board of Directors has established a Stock Option Committee which
administers the Stock Option Plan. The Stock Option Committee is currently
composed of one member, Dr. Gordon, and, upon the closing of the Offering, will
be composed of two members, Dr. Cooperman and Mr. Hillsberg.
KEY EMPLOYEE
The following individual is a key employee of the Company:
PERETZ M. FEDER has served as Vice President for Biological Studies and
Applications and Comptroller of the Company since 1994. His responsibilities
include safety and efficacy of the Company's animal studies. Prior to joining
the Company, Mr. Feder served for five years as Vice President of Research and
Development and later as General Manager for Photon Imaging Corporation, where
his responsibilities included imaging science for hard copy printer design,
optical and fiber optics design, and manufacturing. Mr. Feder received an M.S.
in electrical engineering from Columbia University in 1981.
DIRECTORS' COMPENSATION
Directors who are officers or employees of the Company receive no
additional compensation for service as members of the Board of Directors or
committees thereof. Outside directors will be reimbursed for out-of-pocket
expenses incurred in connection with attendance of meetings of the Board of
Directors. Upon consummation of the Offering and upon each election as director
thereafter, outside directors will receive options under the Stock Option Plan
to purchase 4,000 shares of Common Stock with an exercise price equal to the
fair market value per share of the Common Stock on the date of grant and which
shall vest one year after the date of grant if such director has served as such
for that full year. The exercise price for the initial grants to directors upon
consummation of the Offering will be $5.60 per share.
EMPLOYMENT AGREEMENTS
Effective as of March 15, 1996, the Company entered into an employment
agreement with Eugene I. Gordon as President, for an initial term of three
years. The agreement provides for a base compensation of $125,000 per year and
bonuses and other additional compensation as may be determined by the Board of
Directors (without the participation of Dr. Gordon) in its sole discretion. The
Board of Directors (without the participation of Dr. Gordon) may also increase
such base compensation in its sole discretion. The agreement may be terminated
for cause and contains proprietary information, invention and non-competition
provisions which prohibit disclosure of any of the Company's proprietary
information and preclude competition with the Company for two years after
termination of employment. The Company has procured life insurance in the
amount of $500,000 to compensate
-37-
<PAGE>
it for the loss, through death, of Dr. Gordon, who is 65 years old. The Company
has arranged to increase such coverage (i) in connection with the Offering, to
$1 million compensation and (ii) in accordance with the employment agreement,
for the loss through disability as well as death of Dr. Gordon. However, there
can be no assurance that the Company will be able to obtain such additional
coverage at an acceptable cost or at all.
Effective as of March 18, 1996, the Company entered into an employment
agreement with Thomas M. Handschiegel as Vice President for Finance and Human
Resources, for an indefinite term. The agreement provides for a base
compensation of $95,000 per year. The agreement may be terminated by either
party at any time upon two weeks' prior notice and contains proprietary
information, invention and non-competition provisions which prohibit disclosure
of any of the Company's proprietary information and preclude competition with
the Company for two years after termination of employment.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid to the
Company's Chief Executive Officer in 1995. No other executive officer of the
Company was paid any other compensation from the period of the Company's
inception through December 31, 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Eugene I. Gordon, Ph.D. 1995 $96,400 -- $66,700(1)
</TABLE>
- -------------------------
(1) Consists entirely of deferred 1994 salary.
The Stock Option Committee intends to make a grant of 10,000 stock options
under the Stock Option Plan effective upon the Effective Date to Mr.
Handschiegel, which will vest, as to 25%, one year from the date of grant and,
as to the remainder, ratably over the following three-year period.
1994 STOCK OPTION PLAN
The Stock Option Plan has been adopted by the Company's Board of Directors
and approved by its stockholders. The Underwriting Agreement restricts the
Company from granting, after the date of this Prospectus, options to purchase
more than 200,000 shares of Common Stock under the Stock Option Plan, and from
registering any shares covered by the Stock Option Plan, without the prior
written consent of the Underwriter, until 24 months after the Effective Date.
Upon expiration of that period, the Company intends to file a registration
statement on Form S-8 covering all shares issuable upon the exercise of stock
options that may be granted under the Stock Option Plan.
ADMINISTRATION. The Stock Option Plan is administered by the Stock Option
Committee of the Board of Directors. The Stock Option Committee interprets the
terms, and establishes administrative regulations to further the purposes, of
the Stock Option Plan, authorizes awards to eligible participants, determines
vesting schedules and takes any other action necessary for the proper
implementation of the Stock Option Plan. Members of the Stock Option Committee
must be "disinterested" within the meaning of Rule 16b-3 under the Exchange Act.
PARTICIPATION. Under the Stock Option Plan, options to purchase shares of
Common Stock of the Company may be granted only to employees (including
officers) and directors of the Company or individuals who are rendering services
to the Company as consultants, advisors or other independent contractors.
SHARES AVAILABLE FOR AWARDS. 249,688 shares of Common Stock of the Company
have been reserved for issuance under the Stock Option Plan, subject to
adjustment for stock splits, stock dividends, recapitalizations and similar
events. Such shares may consist in whole or in part of authorized and unissued
shares or treasury shares. In the event that any outstanding option for any
reason expires or is terminated or canceled and/or shares of
-38-
<PAGE>
Common Stock subject to repurchase are repurchased by the Company, the shares
allocable to the unexercised portion of such option or repurchased shares,
may again be subject to an option grant. Notwithstanding the foregoing, any
such shares shall be made subject to a new option only if the grant of such
new option and the issuance of such shares pursuant to such new option would
not cause the Stock Option Plan or any option granted under the Stock Option
Plan to contravene Rule 16b-3 under the Exchange Act.
AWARDS. The Stock Option Plan authorizes grants of either incentive stock
options ("ISOs"), as defined in Section 422 of the Code, or non-statutory
(nonqualified) stock options. Under the Stock Option Plan, all options must be
granted, if at all, within 10 years from the earlier of the date the Stock
Option Plan is adopted by Board of Directors or the date the Stock Option Plan
is approved by the stockholders of the Company. The Stock Option Committee
shall set, including by amendment of an option, the time or times within which
each option shall be exercisable or the event or events upon the occurrence of
which all or a portion of each option shall be exercisable and the term of each
option; provided, however, that (i) no option shall be exercisable after the
expiration of 10 years after the date such option is granted and (ii) no ISO
granted to an Optionee who at the time the option is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company within the meaning of Section 422(b)(6) of the Code (a "Ten
Percent Owner Optionee") shall be exercisable after the expiration of five years
after the date such option is granted. The Company has agreed with the
Underwriter not to issue shares of common Stock without the Underwriter's prior
written consent, during the 24 months following the Effective Date, other than
pursuant to the Stock Option Plan. As of the date of this Prospectus, non-
statutory stock options to purchase a total of 23,850 shares of Common Stock
have been granted to Steven G. Cooperman, a director of the Company, and ISOs to
purchase an additional 25,838 shares of Common Stock have been granted to
employees of the Company. The Company has agreed with the Underwriter that it
will not issue options to purchase more than 200,000 shares of Common Stock
during the 24-month period following the Effective Date without the
Underwriter's prior written consent, and that of such number, it will not issue
options to purchase more than 50,000 shares of Common Stock at less than fair
market value on the date of grant. The Company has also agreed with the
Underwriter that the options with respect to the 200,000 shares under the option
Plan which have not yet been granted as of the date of this Prospectus shall
vest no earlier than one year from the date of grant.
STOCK OPTIONS. The Stock Option Plan provides that (i) the exercise price
per share for an ISO shall not be less than the fair market value, as determined
by the Stock Option Committee, of a share of Common Stock on the date of the
granting of the option; and (ii) no ISO granted to a Ten Percent Owner Optionee
shall have an exercise price per share less than 110% of the fair market value,
as determined by the Stock Option Committee, of a share of Common Stock on the
date of the granting of the option. Notwithstanding the foregoing, an option
may be granted with an exercise price lower than the minimum exercise price set
forth above if such option is granted pursuant to an assumption or substitution
for another option in a manner qualifying within the provisions of Section
424(a) of the Code.
FEDERAL INCOME TAX CONSEQUENCES. The federal income tax consequences of
awards granted pursuant to the Stock Option Plan under the Code, and the
regulations thereunder are summarized below.
The grant of a stock option will create no immediate tax consequences for
the participant or the Company. The participant will have no taxable income
upon exercising an ISO (except that an alternative minimum tax may apply), and
the Company will not receive a deduction when an ISO is exercised. If the
participant does not dispose of the shares acquired on exercise of an ISO within
the two-year period beginning on the day after the grant of the ISO or within
one year after the transfer of the shares to the participant, the gain or loss
on a subsequent sale will be a capital gain or loss. If the participant
disposes of the shares within the two-year or one-year period described above,
the participant generally will realize ordinary income, and the Company will be
entitled to a corresponding deduction. Upon exercising a non-statutory stock
option, the participant must recognize ordinary income in an amount equal to the
difference between the exercise price and the fair market value of the Common
Stock on the exercise date, unless the shares are subject to certain
restrictions. The Company will receive a deduction for the same amount on the
exercise date (or the date the restrictions lapse).
-39-
<PAGE>
With respect to other awards granted under the Stock Option Plan that are
settled in cash or shares of Common Stock that are either transferable or not
subject to a substantial risk of forfeiture, the participant must recognize
ordinary income in an amount equal to the cash or the fair market value of the
shares received. With respect to other awards granted under the Stock Option
Plan that are settled in shares of Common Stock that are subject to restrictions
as to transferability and subject to a substantial risk of forfeiture, the
participant must recognize ordinary income in an amount equal to the fair market
value of the shares received at the first time the shares become transferable or
not subject to a substantial risk of forfeiture, whichever occurs earlier. The
Company will receive a deduction for the amount recognized as income by the
participant, subject to the provisions of Section 162(m) of the Code, which
provides for a possible denial of a tax deduction to the Company for
compensation for any of the five most highly compensated executive officers in
excess of $1 million in any year.
The tax treatment upon disposition of shares acquired under the Stock
Option Plan will depend on how long the shares have been held. In the case of
shares acquired through exercise of an option, the tax treatment will also
depend on whether or not the shares were acquired by exercising an ISO. There
will be no tax consequences to the Company upon the disposition of shares
acquired under the Stock Option Plan, except that the Company may receive a
deduction in the case of disposition of shares acquired under an ISO before the
applicable holding period has been satisfied.
SCIENTIFIC ADVISORY BOARD
The Company has recently formed a Scientific Advisory Board to advise and
consult with management and the Board of Directors of the Company at such times
as the Board of Directors shall require on matters relating to the refractive
surgical device industry. Members of the Advisory Board may be employed on a
full-time basis by employers other than the Company, and may have commitments
to, or consulting or advisory contracts with, other entities that may limit
their availability to the Company. The Board of Directors has not to date
convened a meeting of the Scientific Advisory Board, but members of the
Scientific Advisory Board have provided consulting and other services to the
Company from time to time. The members of the Scientific Advisory Board are
Stephen G. Slade, M.D., a member of the clinical faculty in the Department of
Ophthalmology at the University of Texas Medical School; David M. Dillman, M.D.,
a specialist in cataract and refractive surgery; Marco Zarbin, M.D., the
Chairman of the Department of Ophthalmology at the University of Medicine and
Dentistry of New Jersey; and Theo Seiler, M.D., a Professor at Universitats
Klinikum Carl Gustav Carus in Dresden, Germany.
CONSULTANTS
The Company has retained Joseph F. Carroll, III as a consultant, to assist
and advise the Company in connection with market studies related to the HRK
Keratome. The Company does not pay Mr. Carroll a consulting fee. As
compensation for services rendered, and to be rendered, in the period from April
1994 to April 1998, the Company issued 29,813 shares of Common Stock to Mr.
Carroll in April 1994, which vest ratably over a four-year period.
The Company has also retained Dr. Joseph Calderone as a consultant, to
assist and advise the Company with respect to medical issues associated with
refractory surgery and clinical examination of animals under study. The Company
does not pay Dr. Calderone a consulting fee. As compensation for services
rendered, and to be rendered, in the period from April 1994 to April 1998, the
Company issued 29,813 shares of Common Stock to Dr. Calderone, which vest
ratably over a four-year period.
The Company has also retained Dr. Steven G. Cooperman, a director of the
Company, as a consultant, to assist and advise the Company with respect to
strategic planning and business development. The Company does not pay Dr.
Cooperman a consulting fee. As compensation for services rendered, the Company
issued warrants to purchase 89,439 shares of Common Stock, with an exercise
price of $3.37 per share, 25% of which shall vest at the completion of each year
of service until fully vested.
The Company has also retained Sanford J. Hillsberg, a director of the
Company, as a consultant, to assist and advise the Company with respect to
strategic planning and business development. The Company does not pay
Mr. Hillsberg a consulting fee. As compensation for services rendered, the
Company issued warrants to purchase
-40-
<PAGE>
7,950 shares of Common Stock, with an exercise price of $3.37 per share, 25%
of which shall vest at the completion of each year of service until fully
vested.
-41-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of May 1, 1996 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock, (ii) each executive officer, director and
nominee for director of the Company and (iii) all executive officers and
directors of the Company as a group (assuming no exercise of the over-allotment
option):
PERCENTAGE OF OUTSTANDING SHARES OF COMMON STOCK
------------------------------------------------
NAME AND ADDRESS NUMBER OF
OF BENEFICIAL OWNER SHARES(1) BEFORE OFFERING AFTER OFFERING
- ------------------- --------- --------------- --------------
Eugene I. Gordon
1090 King Georges Post 1,591,687 65.0% 45.2%
Road Suite 301
Edison, NJ 08837
Thomas M. Handschiegel -0- -- --
1090 King Georges Post
Road
Suite 301
Edison, NJ 08837
Steven G. Cooperman(2)
201 Beagling Hill Circle
Fairfield, CT 06430 82,483 3.4 2.3
Sanford J. Hillsberg (3)
c/o Troy & Gould
1801 Century Park East
Suite 1700
Los Angeles, CA 90067 18,550 * *
Steven Katz (3)
8000 Cooper Avenue
Building 28
Glendale, NY 11355 -0- -- --
All executive officers and
directors of the Company as a
group (3 persons) (3) 1,692,720 69.1 48.0
________________
* Represents holdings of less than one percent.
(1) All shares owned directly unless otherwise noted.
(2) Includes 10,931 shares of Common Stock which Mr. Cooperman has the right to
acquire through the exercise of options within 60 days of May 1, 1996.
(3) Mr. Hillsberg will begin serving as a director of the Company upon the
consummation of the Offering. Mr. Katz will begin serving as a director of
the Company 30 days after the Effective Date.
-42-
<PAGE>
CERTAIN TRANSACTIONS
Between September 1995 and December 1995, Eugene I. Gordon, President and
Chairman of the Board made five unsecured loans to the Company in an aggregate
principal amount of $150,000, which bear interest at the rate of 7% per annum
and are due and payable on demand. A portion of the proceeds of this Offering
will be used for repayment of such indebtedness. See "Use of Proceeds." In
each of May and June 1996, Dr. Gordon made an unsecured loan to the Company in
the principal amount of $100,000 and $65,000, respectively, which bear interest
at the rates of 7% and 9%, respectively, per annum, and are due and payable on
demand.
In February 1996, Steven G. Cooperman, a Director of the Company, made an
unsecured loan to the Company in the principal amount of $50,000, which bears
interest at the rate of 8% per annum and is due and payable on the earlier of
(a) written demand made any time on or after January 31, 1997 or (b) the
consummation of this Offering. A portion of the proceeds of this Offering will
be used for repayment of such indebtedness. See "Use of Proceeds."
In February 1996, Sanford Hillsberg, who will become a Director of the
Company upon the consummation of the Offering, made an unsecured loan to the
Company in the principal amount of $50,000, which bears interest at the rate of
8% per annum and is due and payable on the earlier of (a) written demand made
any time on or after January 31, 1997 or (b) the consummation of this Offering.
A portion of the proceeds of this Offering will be used for repayment of such
indebtedness. See "Use of Proceeds."
Each such loan was made, and all future transactions of a similar nature
will be made, on terms no less favorable to the Company than other loans
available from unaffiliated parties.
Certain other bridge loans were made to the Company at higher interest
rates under different circumstances than those described above. See "Use of
Proceeds."
DESCRIPTION OF SECURITIES
The authorized capital of the Company consists of 7,000,000 shares of
Common Stock, par value $.001 per share and 1,000,000 shares of Preferred Stock,
par value $.01 per share (the "Preferred Stock"). As of the date of this
Prospectus, 2,450,312 shares of Common Stock are currently issued and
outstanding to approximately 25 holders, and no shares of preferred stock have
been issued or are outstanding (without giving effect to 49,688 shares of Common
Stock reserved for issuance pursuant to outstanding options under the Stock
Option Plan and 102,000 shares of Common Stock reserved for issuance pursuant to
outstanding warrants). There will be 3,521,741 shares of Common Stock and
1,071,429 Warrants issued and outstanding after the sale of the Units (without
giving effect to the Underwriter's over-allotment option, 49,688 shares of
Common Stock reserved for issuance pursuant to outstanding options under the
Stock Option Plan and 102,000 shares of Common Stock reserved for issuance
pursuant to outstanding warrants).
Immediately prior to the date of this Prospectus, the Company will effect a
1.987538926-for-1 split of its Common Stock. The information contained in this
Prospectus has been adjusted to give effect to such stock split.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption (including sinking fund
provisions), redemption prices and liquidation preferences and the number of
shares constituting and the designation of any such series, without approval by
the stockholders. The Company's Board of Directors currently does not have any
plans to issue any shares of Preferred Stock. The Company has agreed with the
Underwriter not to issue shares of capital stock without the Underwriter's prior
written consent during the 24-month period following the Effective Date, other
than pursuant to the Stock Option Plan and the Warrants.
-43-
<PAGE>
CERTAIN EFFECTS OF AUTHORIZED AND UNISSUED STOCK
There are currently 2,571,894 unissued and unreserved shares of Common
Stock and 1,000,000 unissued and unreserved shares of Preferred Stock. These
additional shares may be issued for a variety of proper corporate purposes,
including future public or private offerings to raise additional capital or
facilitate acquisitions. The Company has agreed with the Underwriter not to
issue shares of Common Stock without the Underwriter's prior written consent
during the 24-month period following the Date, other than in connection with the
Stock Option Plan and the Warrants.
One of the effects of the existence of unissued and unreserved shares of
Common Stock and Preferred Stock may be to enable the Company's Board of
Directors to discourage an attempt to change control of the Company (by means of
a tender offer, proxy contest or otherwise) and thereby to protect the
continuity of the Company's management. The issuance of shares of Preferred
Stock, whether or not related to any attempt to effect change in control, may
adversely affect the rights of the holders of shares of Common Stock.
UNITS
Each Unit consists of one share of Common Stock and one Class A Warrant.
The shares of Common Stock and the Warrants offered as Units become detachable
and separately transferable commencing on the date (the "Separation Date") which
is the earlier of three months after the Effective Date or such earlier date as
may be agreed upon by the Company and the Underwriter.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share for the
election of directors and with respect to all other matters to be voted on by
stockholders. Shares of Common Stock do not have cumulative voting rights.
Therefore, the holders of more than 50% of such shares voting for the election
of directors can elect all of the directors if they choose to do so and, in that
event, the holders of the remaining shares will not be able to elect any
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of legally available funds.
See "Dividend Policy." In the event of liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of shares of Common Stock, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock.
WARRANTS
Each Class A Warrant entitles the holder to purchase, at a price of $10.00,
one share of Common Stock for a period of 24 months commencing on the date that
is three months following the Effective Date, which period may be extended by
mutual agreement between the Company and the Underwriter, unless redeemed by the
Company prior to such expiration date. The exercise price of the Warrants and
the number of shares of Common Stock or other securities or property to be
obtained upon exercise of the Warrants, are subject to adjustment under certain
circumstances, including, but not limited to, certain sales by the Company of
its shares of Common Stock for a price per share less than the then market price
of the Common Stock, or issuance by the Company of any shares of its Common
Stock as a dividend, or subdivision or combination of the Company's outstanding
shares of Common Stock into a greater or lesser number of shares. Reference is
hereby made to the complete text of the form of Warrant Agreement filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The Class A Warrants are redeemable by the Company in whole but not in part
for $.01 per Warrant, upon 30 days' prior written notice, if the market price of
the Common Stock equals or exceeds $13.00 per share. In the event that the
Company gives notice of its intention to redeem the Warrants, holders would be
forced to exercise their Warrants or accept the redemption price. For purposes
of redemption, market price means (i) the average closing bid price for any 10
consecutive trading days within a period of 30 consecutive trading days, ending
within
-44-
<PAGE>
five days of the date of the notice of redemption, of the Common Stock as
reported by Nasdaq or the OTC Bulletin Board or (ii) the average of the last
reported sale price for the 10 consecutive business days ending within five days
of the date of the notice of redemption, on the primary exchange on which the
Common Stock is traded, if the Common Stock is traded on a national securities
exchange.
The Warrants may be exercised by filling out and signing the appropriate
notice of exercise form attached to the Warrant and mailing or delivering it
(together with the Warrant) to Continental Stock Transfer & Trust Company of New
York, New York, the Warrant Agent, in time to reach the Warrant Agent prior to
the time fixed for termination or redemption of the Warrants, accompanied by
payment of the full warrant exercise price.
The holders of the Warrants are not entitled to vote, receive dividends, or
exercise any of the rights of the holders of shares of Common Stock for any
purpose until the Warrants have been duly exercised and payment of the Warrant
exercise price has been made. Although the Company has applied for the Warrants
to be included for quotation on the OTC Bulletin Board, of which there can be no
assurance, at the present time there is no market for the Warrants and there can
be no assurance that a trading market for the Warrants will ever develop. The
Company's previous application for inclusion of the Warrants on Nasdaq was
denied by the Nasdaq staff because of its concerns regarding the Company's early
stage of development. See "Risk Factors -- No Assurance of Public Trading
Market; Denial of Nasdaq Listing."
For the life of the Warrants, the holders are given the opportunity to
profit from the rise, if any, in the market price of the Common Stock at the
expense of the remaining holders of the Common Stock. However, during the
outstanding period of the Warrants, the Company might be deprived of favorable
opportunities to secure additional equity capital for its business, since
holders of Warrants may be expected to exercise their Warrants at a time when
the Company would be able to obtain equity capital by a public sale of new
securities on terms more favorable than those provided in the Warrants.
CERTAIN GENERAL CORPORATION LAW PROVISIONS
A Delaware statute prevents an "interested stockholder" (defined generally
as a person owning 15% or more of a corporation's voting stock) from engaging in
a "business combination" with the Delaware corporation for three years following
the date on which the person became an interested stockholder unless, with
certain exceptions, the transaction is approved by the Company's Board of
Directors and the vote of two-thirds of the outstanding shares not owned by such
interested stockholder. This statute could have the effect of discouraging,
delaying or preventing hostile takeovers, including those that might result in
the payment of a premium over market price for the Common Stock, or changes in
control or management of the Company.
CERTAIN MARKET INFORMATION
The Company has applied for the inclusion of its Units, Common Stock and
Warrants on the OTC Bulletin Board under the symbol "MJETU," "MJETC" and
"MJETW," respectively.
While the Company has met the quantitative criteria for inclusion on
Nasdaq, the Company's application for listing on Nasdaq was denied by the Nasdaq
staff because its concerns regarding the Company's early stage of development.
The Company does not agree with the determination of the staff and is appealing
the decision.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock and the warrant agent for the
Warrants is Continental Stock Transfer & Trust Company, whose address is 2
Broadway, New York, New York 10004.
-45-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have outstanding
3,521,741 shares of Common Stock (without giving effect to 49,688 shares of
Common Stock reserved for issuance pursuant to outstanding options under the
Stock Option Plan and 102,000 shares of Common Stock reserved for issuance
pursuant to outstanding warrants). In addition, the Company will have reserved
(i) 1,071,429 shares of Common Stock for issuance upon the exercise of the
Warrants included in the Units, (ii) 160,714 shares of Common Stock for issuance
upon the exercise of the Underwriter's over-allotment option, (iii) 160,714
shares of Common Stock for issuance upon the exercise of Warrants included in
the Units in the Underwriter's over-allotment option, (iv) 214,286 shares of
Common Stock for issuance upon the exercise of the maximum number of Options
granted to the Underwriter and the Warrants included therein, (v) 249,688 shares
of Common Stock for issuance pursuant to the Stock Option Plan and (vi) 102,000
shares of Common Stock for issuance pursuant to outstanding warrants. Of such
outstanding shares, the shares underlying the Units sold in connection with the
Offering will become freely tradeable in the United States without restriction
under the Securities Act after the Separation Date, except that shares
underlying the Units purchased by an "affiliate" of the Company, within the
meaning of the rules and regulations adopted under the Securities Act, may be
subject to resale restrictions. The remaining outstanding shares and any shares
issued pursuant to the Stock Option Plan of the Company are "restricted
securities," as that term is defined under such rules and regulations, and may
not be sold unless they are registered under the Securities Act or sold in
accordance with Rule 144 under the Securities Act or another applicable
exemption from such registration requirement.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, subject to certain conditions with respect to the manner of sale,
the availability of current public information concerning the Company and
other matters, each of the existing stockholders who has beneficially owned
shares of Common Stock for at least two years will be entitled to sell within
any three-month period that number of such shares which does not exceed the
greater of 1% of the total number of then outstanding shares of Common Stock
or the average weekly trading volume of shares of Common Stock during the
four calendar weeks preceding the date on which notice of the proposed sale
is sent to the Commission. Moreover, each of the existing stockholders who
is not deemed to be an affiliate of the Company at the time of the proposed
sale, who is not deemed to be such an affiliate during the three months
preceding the time of the proposed sale and who has beneficially owned his
shares of Common Stock for at least three years will be entitled to sell such
shares under Rule 144 without regard to such volume limitations. All of the
shares of Common Stock held by the existing stockholders will be eligible for
sale under Rule 144 after December 31, 1997. Approximately 71.7% of such
shares are presently held by affiliates of the Company and, therefore, would
not presently be eligible for sale under Rule 144 without regard to such
volume limitations.
The Company and its executive officers, directors and stockholders have
agreed that, for a period of 24 months after the Effective Date, they will
not dispose of any securities held by them under Rule 144 or otherwise
without the prior written consent of the Company and the Underwriter.
Prior to the Offering, there has been no public market for the Units or
underlying Common Stock and Warrants, and no assurance can be given that such
a market will develop or, if it develops, that it will be sustained after the
Offering or that the purchasers of the Units will be able to resell such
Units at a price higher than the initial public offering price or otherwise.
UNDERWRITING
Patterson Travis, Inc. (the "Underwriter") has entered into an underwriting
agreement with the Company pursuant to which, and subject to the terms and
conditions thereof, it has agreed to purchase all of the Units offered hereby.
The Company has granted an option to the Underwriter, exercisable during
the 30-day period from the date of this Prospectus, to purchase up to a maximum
of 160,714 additional Units at the offering price, less the underwriting
discount, to cover over-allotments, if any.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds of this Offering upon the closing of
this Offering.
The Underwriter proposes to offer the Units to the public at the offering
price set forth on the cover page. The Company has agreed to pay the
Underwriter a commission for the Units sold equalling 10.0% of the public
offering price thereof. In addition, the Company has agreed to pay the
Underwriter a commission of 8.0% of the
-46-
<PAGE>
exercise price of all Warrants exercised beginning one year after the date
hereof as the result of solicitation made by the Underwriter. A commission
for Warrant exercise will not be paid if (i) the market price of the Common
Stock is lower than the exercise price; (ii) the Warrants are held in a
discretionary account; (iii) disclosure of the compensation arrangements have
not been made in documents provided to the holder of Warrants both as part of
this Offering and at the time of exercise; or (iv) the exercise of Warrants
is unsolicited. An exercise of Warrants will be presumed to be unsolicited
pursuant to (iv) above unless the holder has indicated in writing that the
transaction was solicited and has designated the broker/dealer that is to
receive compensation for the exercise.
The Underwriter may allow to selected dealers who are members of the
National Association of Securities Dealers, Inc., and such dealers may reallow,
a concession not in excess of $.56 per Unit to certain other dealers, including
the Underwriter. The Underwriter has informed the Company that it will not
confirm sales to any accounts over which it exercises discretionary authority.
The initial offering price of the Units and the exercise and redemption
price of the Warrants were arbitrarily determined by negotiations between the
Company and the Underwriter. The factors which were considered in determining
such prices were the history of and the prospects for the field in which the
Company competes, the ability and expertise of the Company's management, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
Offering and the recent market prices of and the demand for publicly traded
common stock of generally comparable companies.
Upon the sale of the Units, the Company has also agreed to sell to the
Underwriter, for a nominal consideration, options (the "Underwriter's Options")
for the purchase of 107,143 Units. Each of the Underwriter's Options is
exercisable to purchase one Unit at $6.72 at any time during a period of four
years commencing one year from the date of this Prospectus. The Units will each
consist of one share of Common Stock and one Class A 24-month Warrant to
purchase one share of Common Stock at an exercise price of $10.00. The
Underwriter's Options require, under certain circumstances, the Company to
register the Common Stock underlying such Options for sale to the public. The
Underwriter's Options are nontransferable for a period of one year except to
officers of the Underwriter or the selling group. The exercise price of the
Underwriter's Options and the number of Units covered thereby are subject to
adjustment to protect the holders against dilution in certain events. The Class
A Warrants contained in the Units are redeemable by the Company for $.01 per
Warrant if the market price for the Common Stock equals or exceeds $10.00 within
a period of any 10 consecutive trading days within a period of 30 trading days
ending within five days prior to the date of the notice of redemption.
The Company has agreed with the Underwriter not to issue shares of Common
Stock without the Underwriter's prior written consent during the 24-month period
following the Effective Date, other than pursuant to options which have been or
will be granted under the Stock Option Plan and pursuant to the Warrants. The
Company has further agreed that during the 12-month period commencing 12 months
after the Effective Date, it will not issue options for shares of Common Stock
at an exercise price less than the then "Market Price" thereof. "Market Price"
is defined as (i) the average closing bid price, for any 10 consecutive trading
days within a period of 30 consecutive trading days ending within five days
prior to the date of issuance of the Common Stock, as reported by Nasdaq or the
OTC Bulletin Board or (ii) the average of the last reported sale price, for the
10 consecutive business days ending within five days of the date of issuance of
the Common Stock, on the primary exchange on which the Common Stock is traded,
if the Common Stock is traded on a national securities exchange. The Company
also has agreed with the Underwriter not to issue shares of preferred stock
without the Underwriter's prior written consent during the 24-month period
following the Effective Date.
The Company and its executive officers, directors and stockholders have
agreed that, for a period of 24 months after the Effective Date, they will not
dispose of any securities held by them under Rule 144 or otherwise without the
prior written consent of the Company and the Underwriter.
Pursuant to a letter agreement dated January 25, 1996, the Underwriter has
arranged bridge financing for the Company from Mrs. Jan Wernick in the amount of
$50,000 per month, not to exceed an aggregate of $200,000, with interest payable
at the rate of 12%. Mrs. Wernick's husband is affiliated with the Underwriter
as the manager of its New York office. All amounts outstanding under such
bridge financing, which was $200,000 at May 6, 1996,
-47-
<PAGE>
become due and payable upon the Effective Date. A portion of the
proceeds of this Offering will be used for repayment of such indebtedness.
See "Use of Proceeds."
The Underwriting Agreement provides that the Underwriter shall have the
right to designate one member to the Board of Directors of the Company for a
period of three years after the closing of this Offering. Dr. Steven Katz has
been designated by the Underwriter to serve as a Director.
The Company and the Underwriter have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including liabilities under
the Securities Act. Insofar as indemnification for liabilities arising under
the Securities Act may be provided to officers, directors or controlling persons
of the Company, such indemnification, in the opinion of the Commission, is
against public policy and therefore unenforceable.
LEGAL MATTERS
The legality of the Securities offered and certain legal matters relating
to this Offering (other than matters relating to patent law and regulatory
matters relating to the FDA) will be passed upon for the Company by Kelley Drye
& Warren LLP, New York, New York. Matters relating to United States patent law
will be passed upon for the Company by Graham & James LLP, New York, New York.
Regulatory matters relating to the FDA will be passed upon for the Company by
Dean E. Snyder, Esquire, Northfield, Illinois. Bernstein & Wasserman, LLP, New
York, New York, has acted as counsel for the Underwriter in connection with this
Offering.
EXPERTS
The financial statements of the Company included in this Prospectus at
December 31, 1993, 1994 and 1995 and for the years ended December 31, 1993, 1994
and 1995 and the period from December 16, 1993 (inception) through December 31,
1995, have been audited by Rosenberg Rich Baker Berman & Company, P.A.,
independent certified public accountants, as set forth in their reports thereon
appearing elsewhere herein and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
-48-
<PAGE>
GLOSSARY
As used in this Prospectus, the following terms have the following
meanings:
ALK. See KERATOMILEUSIS IN SITU.
ACCOMMODATION is the ability of the internal lens of the eye to adjust its
shape, and hence its refractive power, in order to achieve best focus.
Accommodation diminishes and ultimately disappears in mature adults.
ASTIGMATISM is a result of a nonuniformity in the curvature of the cornea.
This causes a blurring of vision in the uncorrected eye because of its inability
to achieve a single point focus.
BOWMAN'S LAYER is the layer of the cornea between the epithelium and the
stroma.
CORNEA is the curved, transparent, outermost surface of the eye and serves
as a "window" through which light can pass. It is the primary focusing element
of the optical system of the eye.
EPITHELIUM is the outer regenerative layer of the cornea.
EMMETROPIA is a condition in which the eyes focus optimally and no vision
correction is required. In emmetropia, the focusing system of the eye is not
myopic, hyperopic or astigmatic.
FDA means the United States Food and Drug Administration.
FD&C ACT means the Federal Food, Drug, and Cosmetic Act and implementing
regulations.
HYDRO-REFRACTIVE KERATOPLASTY ("HRK") is a refractive surgical procedure
which utilizes an ultra-fine beam of water traveling at supersonic speeds as
a scalpel. The waterjet scalpel, in conjunction with a template, is used to
reshape the anterior surface of the cornea, thereby correcting refractive
disorders or errors.
HYDRO-THERAPEUTIC KERATOPLASTY ("HTK") is a therapeutic procedure which
utilizes an ultra-fine beam of water traveling at supersonic speeds as a
scalpel. The waterjet scalpel, in conjunction with a template, is used to
remove diseased tissue from the cornea.
HYPEROPIA is farsightedness, which occurs when the cornea is too flat for
the depth of the eye.
INTERNAL LENS is an element of the optical system of the eye which
changes or accommodates its refractive power to achieve best focus.
INTRAOCULAR PRESSURE ("IOP") is the internal gauge pressure of the liquid
within the eye globe.
KERATECTOMY is a surgical procedure in which a portion of the cornea is
removed in order to modify its refractive power.
KERATO- is a prefix meaning cornea.
KERATOME is a surgical device employed in keratoplasty to shave thin layers
from the anterior surface of the cornea. One of the components of a keratome is
a cutting instrument, consisting of a diamond, metal, laser or waterjet scalpel,
which actually makes the incision across the cornea.
KERATOMILEUSIS is a refractive surgical procedure in which the cornea is
carved or shaved in order to modify its curvature.
-49-
<PAGE>
KERATOMILEUSIS IN SITU ("KIS"), also known as refractive lamellar
keratoplasty ("RLK") or automated lameller keratoplasty ("ALK"), is a
refractive surgical procedure in which a keratome with a metal or diamond
scalpel is used to shave away a portion of the intact stromal bed after a
flap has been formed by the keratome to gain access to the stroma.
KERATOPLASTY is any surgical modification of the cornea.
KERATOTOMY is a surgical incision into the cornea, which is approximately
perpendicular to the surface of the eye.
LASIK is a combination of KIS to make a flap and PRK to shape the stomal
bed. LASIK stands for "Light Ablation System for In-Situ Keratomileusis."
MYOPIA is nearsightedness, a focusing deficiency which occurs when the
cornea is too spherical for the depth of the eye.
PHOTOABLATION is a process which uses high intensity pulsed light to
remove a thin surface layer of the cornea.
PHOTOREFRACTIVE KERATECTOMY ("PRK") is a refractive surgical procedure
using a particular type of pulsed laser, known as an excimer laser, to remove
by photoablation many very thin layers of tissue of locally variable
thickness from the cornea in order to modify its curvature.
PRE-MARKET APPROVAL APPLICATION ("PMA") is an application to seek
approval from the FDA to market a product under Section 515 of the FD&C Act.
PRE-MARKET NOTIFICATION APPLICATION refers to an application to the FDA
under Section 510(k) of the FD&C Act for a ruling that a new device is
substantially equivalent to an already marketed device and permitting the new
device to be marketed (without obtaining a PMA).
RLK. See KERATOMILEUSIS IN SITU.
RADIAL KERATOTOMY ("RK") is a refractive surgical procedure utilizing a
diamond or metal scalpel in which radial incisions are made in the periphery of
the cornea, outside of the vision zone, producing a flattening of the cornea due
to a redistribution of stresses in the cornea. The incisions are approximately
perpendicular to the surface of the eye.
REFRACTION refers to the passage of light rays from one optical medium, such
as air, into a second optical medium, such as the cornea, which passage is
accompanied by the bending of light rays at the interface. The amount of
bending depends on the direction of the light rays relative to the surface
normal direction.
REFRACTIVE ERROR is the amount of deviation from emmetropia in the focusing
system of the eye. It is measured in diopters.
REFRACTIVE SURGERY is surgery of which the purpose is to alter the
refraction of light passing into the cornea in order to change the focusing
strength of the cornea. This is accomplished by modifying the anterior
curvature of the corneal surface.
SCLERA is the opaque white of the eye surrounding the cornea. It
constitutes the main structure of the eye.
STROMA is the main layer of the cornea, constituting about 80% of its
thickness, which is responsible for most of its mechanical and optical
properties. It is a complex structure, composed of about 70% water.
-50-
<PAGE>
VISION ZONE is a circular region within the cornea through which all of the
light ultimately reaching the retina passes.
-51-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report................................................ F-2
Balance Sheets as of March 31, 1996 (Unaudited) and
December 31, 1995..........................................................F-3
Statements of Operations for the three months ended
March 31, 1996 and 1995 (Unaudited) and for the
years ended December 31, 1995 and 1994 and the
period from December 16, 1993 (inception) to
March 31, 1996 (Unaudited).................................................F-5
Statement of Stockholders' Equity as of March 31, 1996
(Unaudited) and December 31, 1995 and 1994.................................F-7
Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 (Unaudited) and for the
years ended December 31, 1995 and 1994 and the
period from December 16, 1993 (inception) to
March 31, 1996 (Unaudited).................................................F-8
Notes to the Financial Statements...........................................F-12
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Medjet Inc.
(A Development Stage Company)
1090 King Georges Post Road
Suite 301
Edison, New Jersey 08837
We have audited the accompanying balance sheet of Medjet Inc. (A
Development Stage Company) as of December 31, 1995 and the related statements of
operations, stockholders' equity and cash flows for the years then ended
December 31, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Medjet Inc. (A
Development Stage Company) as of December 31, 1995 and the results of its
operations and its cash flows for the years then ended December 31, 1995 and
1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company continues to
be in the development stage as of December 31, 1995 and has incurred a net
loss of $677,385 for the year ended December 31, 1995 and has incurred losses
since inception of $964,676. These factors, among others as discussed in
Note A to the financial statements, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note A. The 1995 financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
ROSENBERG RICH BAKER BERMAN AND COMPANY
Maplewood, New Jersey
January 15, 1996, except as to Note A(2), Note B(5) and (6), Note E, Note F,
Note H, Note I and Note J which are dated July 19, 1996.
F-2
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March Pro-Forma March December
31, 1996 Adjustments 31, 1996 31, 1995
-------- ----------- -------- --------
(Unaudited) (Unaudited)
(Pre-Pro- (Post-Pro-
Forma Forma
Adjustments) Adjustments)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 60,660 - $ 60,660 $ 57,678
Marketable securities, at cost - - - -
Interest receivable - - - -
Prepaid expenses 6,196 - 6,196 2,543
Prepaid income taxes - - - -
-------- -------- -------- --------
66,856 66,856 60,221
PROPERTY, PLANT & EQUIPMENT:
Leasehold improvements 1,620 - 1,620 -
Ophthalmic equipment 29,688 - 29,688 29,688
Office furniture 10,011 - 10,011 8,781
Lab furniture 2,851 - 2,851 2,851
Computer equipment 26,892 - 26,892 20,487
Optical equipment 20,144 - 20,144 19,207
Waterjet equipment 35,794 - 35,794 32,497
Software 5,025 - 5,025 3,640
Mechanical equipment 2,313 - 2,313 2,313
Electronic equipment 2,874 - 2,874 1,169
-------- -------- -------- --------
137,212 - 137,212 120,633
Less - Accumulated depreciation 54,981 - 54,981 47,127
-------- -------- -------- --------
82,231 - 82,231 73,506
-------- -------- -------- --------
DEFERRED OFFERING COSTS 156,980 - 156,980 36,263
-------- -------- -------- --------
ORGANIZATION COSTS - Less
accumulated amortization of $14,531
in 1996, $12,661 in 1995 and $5,183
in 1994 22,856 - 22,856 24,726
PATENT - Less accumulated
amortization of $1,058 in 1996,
$772 in 1995 and $208 in 1994 18,347 - 18,347 18,633
SECURITY DEPOSITS 5,437 - 5,437 3,702
-------- -------- -------- --------
$352,707 - $352,707 $217,051
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See Notes to the Financial Statements.
F-3
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH PRO-FORMA MARCH DECEMBER
31, 1996 Adjustments 31, 1996 31, 1995
-------- ----------- -------- --------
(Unaudited) (Unaudited)
(Pre-Pro- (Post-Pro-
Forma Forma
Adjustments) Adjustments)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 171,783 - $ 171,783 $ 64,753
Accrued interest payable 5,368 - 5,368 -
Notes payable 200,000 - 200,000 -
Notes payable - officer 150,000 - 150,000 150,000
Income taxes payable 150 - 150 150
Accrued officer's salary - - - -
--------- --------- --------- ---------
527,301 - 527,301 214,903
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value,
7,000,000 shares authorized, 2,450,312
(post-split) issued and outstanding 2,450 - 2,450 2,450
Preferred Stock, $.01 par value,
1,000,000 shares authorized, no
shares issued - - - -
Additional paid in capital 964,374 (1,141,418)(1) (177,044) 964,374
Accumulated deficit during
development stage (1,141,418) 1,141,418 (1) - (964,676)
--------- --------- --------- ---------
(174,594) - (174,594) 2,148
--------- --------- --------- ---------
$ 352,707 - $352,707 $217,051
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
PRO-FORMA ADJUSTMENT
(1) Upon completion of the Initial Public Offering (see "Subsequent
Event" note) the Company's status changes from an "S" corporation
to a "C" corporation. Accordingly, the deficits accumulated during
the development stage are charged against additional paid in
capital.
F-4
<PAGE>
See Notes to the Financial Statements.
F-5
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994, AND THE PERIOD FROM
DECEMBER 16, 1993 (DATE OF INCEPTION) TO MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE DECEMBER 16, 1993
MONTHS ENDED MONTHS ENDED (INCEPTION) TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996
-------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
NET SALES $ - $ - $ -
EXPENSES: --------- --------- -----------
Officer's salary 28,867 24,100 191,967
Consultant fees 7,000 26,850 93,100
Other salaries 80,429 44,638 427,125
Professional fees 2,280 - 50,695
Rent 6,105 6,663 47,884
Mechanical supplies 7,417 18,711 65,793
Depreciation 7,854 6,791 54,981
Ophthalmology research 2,700 804 22,349
Insurance 1,147 - 14,400
Amortization 2,156 1,998 15,589
Travel 1,625 2,366 21,956
Payroll taxes 11,704 8,998 50,079
Optical supplies 392 633 5,938
Telephone 1,462 1,213 11,146
Miscellaneous expenses,
fees and taxes 3,184 2,184 17,576
Advertising - 402 3,104
Biological supplies 800 1,202 10,530
Freight 1,352 1,603 8,765
Office supplies 1,363 477 7,189
Employee welfare 1,038 1,199 12,741
Electrical supplies 794 896 3,837
Chemical supplies 396 956 5,055
Payroll processing fees 182 178 1,710
Bank charges 61 - 649
Postage 160 93 1,195
Blueprinting and photostats 502 125 4,874
Security system 204 - 546
Membership fees - 45 90
--------- --------- -----------
171,174 153,125 1,150,863
--------- --------- -----------
OTHER INCOME (EXPENSE):
Interest income - 6,074 15,263
Interest expense (5,368) - (5,368)
LOSS BEFORE INCOME
TAXES (176,542) (147,051) (1,140,968)
STATE INCOME TAXES 200 - 450
--------- --------- -----------
NET LOSS $(176,742) $(147,051) $(1,141,418)
--------- --------- -----------
--------- --------- -----------
NET LOSS PER SHARE $ (.07) $ (.06) $ (.51)
--------- --------- -----------
--------- --------- -----------
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 2,450,312 2,410,893 2,258,848
--------- --------- -----------
--------- --------- -----------
</TABLE>
See Notes to the Financial Statements.
F-6
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994, AND THE PERIOD FROM
DECEMBER 16, 1993 (DATE OF INCEPTION) TO MARCH 31, 1996 (UNAUDITED)
(CONTINUED)
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
NET SALES $ - $ -
EXPENSES: --------- ---------
Officer's salary 96,400 66,700
Consultant fees 29,850 56,250
Other salaries 302,774 43,922
Professional fees 26,689 21,726
Rent 24,066 17,713
Mechanical supplies 40,994 17,382
Depreciation 32,321 14,806
Ophthalmology research 7,874 11,775
Insurance 7,672 5,581
Amortization 8,042 5,391
Travel 15,566 4,765
Payroll taxes 34,015 4,360
Optical supplies 1,985 3,561
Telephone 6,186 3,498
Miscellaneous expenses,
fees and taxes 11,125 3,267
Advertising 762 2,342
Biological supplies 7,609 2,121
Freight 5,636 1,777
Office supplies 4,063 1,763
Employee welfare 10,303 1,400
Electrical supplies 1,715 1,328
Chemical supplies 3,643 1,016
Payroll processing fee 812 716
Bank charges 20 568
Postage 598 437
Blueprinting and photostats 4,182 190
Security system 166 176
Membership fees 45 45
--------- ---------
685,113 294,576
--------- ---------
OTHER INCOME (EXPENSES):
Interest income 7,928 7,335
Interest expense - -
LOSS BEFORE INCOME
TAXES (677,185) (287,241)
STATE INCOME TAXES 200 50
--------- ---------
NET LOSS $(677,385) $(287,291)
--------- ---------
--------- ---------
NET LOSS PER SHARE $ (.28) $ (.14)
--------- ---------
--------- ---------
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 2,422,953 2,111,597
--------- ---------
--------- ---------
F-7
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM DECEMBER 16, 1993 (DATE OF INCEPTION)
TO MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON PRICE TOTAL COMMON STOCK PAID
SHARES PER CONSIDERATION ($.001 PAR IN ACCUMULATED
DATE DESCRIPTION ISSUED SHARE PAID VALUE CAPITAL DEFICIT
---- ----------- ------ ----- ---- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
March 12, 1994 Share Issuance 800,000 $ .10 $ 80,000 $ 800 $ 79,200 $ -
April 21, 1994 Share Issuance 15,000 .10 1,500 15 1,485 -
May 1, 1994 Share Issuance 63,000 .10 6,300 63 6,237 -
May 25, 1994 Share Issuance 50,000 1.00 50,000 50 49,950 -
May 31, 1994 Share Issuance 25,000 1.00 25,000 25 24,975 -
June 6, 1994 Share Issuance 50,000 1.00 50,000 50 49,950 -
June 7, 1994 Share Issuance 50,000 1.00 50,000 50 49,950 -
June 13, 1994 Share Issuance 25,000 1.00 25,000 25 24,975 -
June 20, 1994 Share Issuance 25,000 1.00 25,000 25 24,975 -
July 28, 1994 Share Issuance 25,000 1.00 25,000 25 24,975 -
September 23, 1994 Share Issuance 45,002 6.00 270,012 45 269,967
October 20, 1994 Share Issuance 20,501 6.00 123,008 21 122,987 -
October 28, 1994 Share Issuance 2,500 6.00 15,000 2 14,998 -
November 10, 1994 Share Issuance 14,500 6.00 87,000 15 86,985 -
November 16, 1994 Share Issuance 2,501 6.00 15,004 2 15,002 -
Net Loss, Year Ended December 31, 1994 - - - - - (287,291)
------ ------- ------- ------- ---------
Balance, December 31, 1994 1,213,004 847,824 1,213 846,611 (287,291)
August 8, 1995 Share Issuance 5,000 6.00 30,000 5 29,995 -
August 28, 1995 Share Issuance 4,000 6.00 24,000 4 23,996 -
September 21, 1995 Share Issuance 5,000 6.00 30,000 5 29,995 -
September 29, 1995 Share Issuance 5,000 6.00 30,000 5 29,995 -
December 31, 1995 Share Issuance 833 6.00 5,000 1 4,999 -
December 31, 1995 Stock Split
1.987538926 for
1 Share Outstanding 1,217,475 - - 1,217 (1,217) -
Net Loss, Year Ended December 31, 1995 - - - - - (677,385)
------ ------- ------- ------- ---------
Balance, December 31, 1995 2,450,312 $ 966,824 $ 2,450 $965,591 $ (964,676)
Net Loss, Three Months Ended
March 31, 1996 - - - - - (176,742)
------ ------- ------- ------- ---------
Balance, March 31, 1996 (Unaudited) 2,450,312 $ 966,824 $ 2,450 $965,591 $(1,141,418)
</TABLE>
See Notes to the Financial Statements.
F-8
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994, AND THE PERIOD FROM
DECEMBER 16, 1993 (DATE OF INCEPTION), TO MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE DECEMBER 16, 1993
MONTHS ENDED MONTHS ENDED (INCEPTION) TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996
-------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $(176,742) $(147,051) $(1,141,418)
Adjustments to Reconcile
Net Loss to Net Cash Used
by Operating Activities:
Depreciation and
amortization 10,010 8,789 70,570
(Increase) Decrease in
interest receivable - (4,663) -
(Increase) Decrease in
prepaid income taxes - - -
(Increase) in prepaid
expenses (3,653) (3,779) (6,196)
(Decrease) Increase in
accounts payable (13,687) 407 14,803
Increase in accrued
interest payable 5,368 - 5,368
Increase in income taxes
payable - - 150
Increase (Decrease) in
accrued officer's salary - (18,000) -
--------- --------- -----------
Net Cash Used by
Operating Activities (178,704) (164,297) (1,056,723)
--------- --------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Cash (purchases) redemption
of marketable securities - 320,605 -
Cash purchases of property
and equipment (16,579) (16,937) (137,212)
Cash purchase of
organization costs - - (37,387)
Cash purchase of patents - - (19,405)
Cash payments for security
deposits (1,735) - (4,437)
--------- --------- -----------
Net Cash Provided (Used) by
Investing Activities (18,314) 303,668 (199,441)
--------- --------- -----------
</TABLE>
See Notes to the Financial Statements.
F-9
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994, AND THE PERIOD FROM
DECEMBER 16, 1993 (DATE OF INCEPTION), TO MARCH 31, 1996 (UNAUDITED)
(CONTINUED)
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $(677,385) $(287,291)
Adjustments to reconcile
Net Loss to Net Cash Used
by Operating Activities:
Depreciation and
amortization 40,363 20,197
(Increase) Decrease in
interest receivable 2,877 (2,877)
(Increase) Decrease in
prepaid income taxes 25 (25)
(Increase) in prepaid
expenses (2,543) -
(Decrease) Increase in
accounts payable (3,016) 31,506
Increase in accrued
interest payable - -
Increase in income taxes
payable 150 -
Increase (Decrease) in
accrued officer's salary (66,700) 66,700
-------- --------
Net Cash Used by
Operating Activities (706,229) (171,790)
-------- --------
CASH FLOW FROM
INVESTING ACTIVITIES:
Cash (purchases) redemption
of marketable securities 320,605 (320,605)
Cash purchase of property
and equipment (43,918) (76,715)
Cash purchase of
organization costs - (37,387)
Cash purchase of patents (10,716) (8,689)
Cash payments for security
deposits - (3,702)
-------- --------
Net Cash Provided (Used) by
Investing Activities 265,971 (447,098)
-------- --------
See Notes to the Financial Statements.
F-10
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994, AND THE PERIOD FROM
DECEMBER 16, 1993 (DATE OF INCEPTION), TO MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE DECEMBER 16, 1993
MONTHS ENDED MONTHS ENDED (INCEPTION) TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996
-------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES (CONTINUED):
Proceeds from issuance
of common stock $ - $ - $ 966,824
Proceeds from officer loan - - 156,000
Repayment of officer loan - - (6,000)
Proceeds from notes payable 200,000 - 200,000
---------- ---------- ----------
Net Cash Provided by
Financing Activities 200,000 - 1,316,824
---------- ---------- ----------
NET INCREASE
(DECREASE) IN CASH 2,982 139,371 60,660
CASH AND CASH
EQUIVALENTS - BEGINNING
OF PERIOD 57,678 228,936 -
---------- ---------- ----------
CASH AND CASH
EQUIVALENTS - END
OF PERIOD $ 60,660 $ 368,307 $ 60,660
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Year For:
Income taxes $ - $ - $ 200
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Increase in Accounts
Payable for Accrual
of Deferred Charges $ 120,717 $ - $ 156,980
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to the Financial Statements.
F-11
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994, AND THE PERIOD FROM
DECEMBER 16, 1993 (DATE OF INCEPTION), TO MARCH 31, 1996 (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES (CONTINUED):
Proceeds from issuance
of common stock $ 119,000 $ 847,824
Proceeds from officer loan 150,000 6,000
Repayment of officer loan - (6,000)
Proceeds from notes payable - -
--------- ---------
Net Cash Provided by
Financing Activities 269,000 847,824
--------- ---------
NET INCREASE
(DECREASE) IN CASH (171,258) 228,936
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 228,936 -
--------- ---------
CASH AND CASH
EQUIVALENTS - END
OF PERIOD $ 57,678 $ 228,936
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Year For:
Income taxes $ 125 $ 75
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Increase in Accounts
Payable for Accrual
of Deferred Charges $ 36,263 $ -
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE A - NATURE OF ORGANIZATION AND BASIS OF PRESENTATION:
(1) NATURE OF ORGANIZATION:
Medjet Inc. (the Company) is a development stage company
incorporated in the State of Delaware on December 16, 1993. The
Company was organized to engage in the design, development,
production and sales of refractive corneal correction technology and
equipment.
(2) BASIS OF PRESENTATION:
The Company is a development stage enterprise and has neither
realized any operating revenue nor has any assurance of realizing
any future operating revenue. Successful future operations depend
upon the successful development and marketing of the refractive
corneal correction technology and equipment. During the period
required to successfully develop and market a commercial product,
the Company will require additional funds for operations.
Substantial additional financing may be required to continue and
complete the development of refractive corneal correction technology
and equipment, obtain regulatory approval and market the product.
These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to
these matters include (1) an initial public offering of 1,071,429
units ("Units"), with each Unit consisting of (i) one share of
Medjet common stock and (ii) one 24-month warrant to purchase one
common share at an exercise price of $10 per share, (2) securing
interim short-term financing until such time as the planned initial
public offering is completed, (3) reducing the level of research and
administrative expenses, including the deferment of officers'
salaries until such time as additional equity financing is
completed, and (4) considering additional private placements of
equity securities in the event the initial public offering is not
completed. The Units are expected to be offered for sale to the
public at $5.60 per Unit. There is no assurance that the offering
will be successful. Management believes that the net proceeds of
the offering, if successful, will be sufficient to meet the
Company's anticipated cash requirements for a period of
approximately 24 months following the offering. Between December
31, 1995 and March 31, 1996, the Company obtained two $50,000 bridge
loans arranged for by the Company's underwriter. Both of the bridge
loans bear interest at 12% per annum and are payable at the earlier
of (a) December 31, 1996 or (b) the closing of an equity or debt
financing for not less than $1,000,000 or (c) the closing of any
sale of the Company's securities. During that time, the Company
also obtained two additional $50,000 loans which bear interest at 8%
per annum and are payable at the earlier of (a) January 31, 1997 or
(b) the closing of an equity or debt financing for not less than
$1,000,000 or (c) the closing of any sale of the Company's
securities. Also during each of May and June 1996, the Company
obtained an additional loan from the officer of $100,000 and
$65,000, respectively, which bear interest at rates of 7% and 9%,
respectively, per annum, are payable upon demand and are unsecured
and during July 1996, the Company obtained a loan of $100,000 which
bears interest at 9% per annum and is payable upon written demand on
or after December 31, 1996. The accompanying financial statements
do not include any adjustments that might result from the outcome of
the aforementioned uncertainty.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) CASH AND EQUIVALENTS:
For the purpose of the statement of cash flows, cash equivalents
include all highly liquid treasury bill instruments with original
maturities of three months or less.
(2) MARKETABLE SECURITIES:
Marketable securities are treasury bills stated at cost which
approximates market at December 31, 1994.
F-13
<PAGE>
F-14
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(3) DEFERRED OFFERING COSTS:
Deferred offering costs consist of expenses incurred to date with
respect to a public offering which the Company is pursuing. These
costs will be charged against the proceeds of such offering or, in
the event the offering is unsuccessful, against operations in the
period in which the offering is aborted.
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Depreciation is
computed using primarily accelerated methods based upon the
estimated useful lives of the assets which range from 5 to 7 years.
Repairs and maintenance which do not extend the useful lives of the
related assets are expensed as incurred.
(5) AMORTIZATION:
Organizational costs are being amortized over sixty months on a
straight-line basis. Total amortization in 1996 (to date), 1995 and
1994 was $1,870, $7,478 and $5,183, respectively.
Patents are being amortized over seventeen years on a straight-line
basis. These costs will be expensed if and when it is concluded that
nonapproval or no future economic benefits are probable. Total
amortization in 1996 (to date), 1995 and 1994 was $286, $564 and
$208, respectively.
(6) NET LOSS PER SHARE:
Net loss per share is computed by dividing net loss by the weighted
average number of shares of Common Stock outstanding during the year
after giving effect to a 1.987538926 to 1 stock split of the
Company's Common Stock on the effective date based on the minimum
number of units to be sold in the offering.
(7) INCOME TAXES:
The Company, with the consent of its shareholders, has elected to be
an "S" Corporation under the Internal Revenue Code. Instead of
paying Federal corporate income taxes, the shareholders of an "S"
Corporation are taxed individually on their proportionate share of
the Company's taxable income. Therefore, no provision or liability
for Federal income taxes has been included in these financial
statements.
In accordance with the provision of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"), deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases for State purposes
only. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change
in state tax rates is recognized in income in the period that
includes the enactment date.
(8) RECLASSIFICATION:
Certain accounts in the prior year's financial statements have been
reclassified for comparative purposes to conform with presentation
in the current year's financial statements.
F-15
<PAGE>
(9) UNAUDITED FINANCIAL STATEMENTS:
The accompanying unaudited financial statements as of March 31, 1996
and for the three months ended March 31, 1996 and 1995 have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain
information and note disclosures normally included in financial
statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. In the opinion of the
Company, all adjustments consisting of only normal recurring
adjustments necessary to present fairly the financial position,
results of operations and changes in cash flows for the periods
presented have been made.
F-16
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE C - EQUITY TRANSACTIONS:
The Company's founder and President, Dr. Eugene I. Gordon ("Dr.
Gordon"), and three other original investors were initially issued
stock (pre-split) of the Company as follows between March 12, 1994
and May 1, 1994:
Price
Shares per
Issued share Total
------ ----- --------
Dr. Gordon, President 800,000 $.10 $80,000
Other Original Investors (3) 78,000 $.10 7,800
------- -------
878,000 $87,800
------- -------
------- -------
The sale of these securities was exempt from registration under
Section 4(2) of the Securities Act of 1933 ("the Act").
Pursuant to a first private placement offering that commenced May
25, 1994 and concluded July 28, 1994, the Company sold an aggregate
of 250,000 shares (pre-split) at $1 per share ($250,000). The sale
of these securities was exempt from registration under Rule 506,
Regulation D of the Act.
Pursuant to a second private placement offering that commenced
September 23, 1994 and concluded November 16, 1994, the Company sold
an aggregate of 85,004 shares (pre-split) at $6 per share
($510,024). The sale of these securities was exempt from
registration under Rule 506, Regulation D of the Act.
On September 30, 1994, the Company adopted its 1994 Stock Option
Plan ("the Plan"). The Plan provides that certain options granted
thereunder are intended to qualify as "incentive stock options"
within the meaning of Section 422A of the Internal Revenue Code of
1986, while non-qualified options may also be granted under the
Plan. The Plan provides for authorization of up to 25,000 shares.
The option price per share of Common Stock purchasable under an
incentive stock option shall be determined at the time of grant but
shall be not less than 100% of the fair market value of the Common
Stock on such date, or, in the case of a 10% Stockholder, the option
price per share shall be no less than 110% of the fair market value
of the Common Stock on the date an Incentive Stock Option is granted
to such 10% Stockholder.
Pursuant to a third private placement offering that commenced August
8, 1995 and concluded October 31, 1995, the Company offered an
additional 85,000 shares (pre-split) of which an aggregate of 19,833
shares (pre-split) have been sold through December 31, 1995 at $6
per share ($118,988). The sale of these securities was exempt from
registration under Rule 506, Regulation D of the Act.
On December 31, 1995, 833 additional common shares (pre-split) were
issued to Dr. Gordon at $6 per share ($5,000), bringing his total
share holdings of the Company's Common Stock to be 800,833 shares
(pre-split) at December 31, 1995.
NOTE D - DEVELOPMENT STAGE OPERATIONS:
The Company was formed December 16, 1993. Operations since then
have consisted primarily of raising capital, locating and acquiring
equipment, obtaining qualified staff, installing and testing
equipment and experimenting, testing and developing the procedures
necessary to produce positive results and to lay the foundation for
specific development for manufacturing and FDA approvals.
F-17
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE E - NOTES PAYABLE
Between December 31, 1995 and March 31, 1996, the Company obtained
two $50,000 bridge loans arranged for by the Company's underwriter.
Both of the bridge loans bear interest at 12% per annum and are
payable at the earlier of (a) December 31, 1996 or (b) the closing
of an equity or debt financing for not less than $1,000,000 or (c)
the closing of any sale of the Company's securities. During that
time, the Company also obtained two additional $50,000 loans which
bear interest of 8% per annum and are payable at the earlier of (a)
January 31, 1997 or (b) the closing of an equity or debt financing
for not less than $1,000,000 or (c) the closing of any sale of the
Company's securities. The accompanying financial statements do not
include any adjustments that might result from the outcome of the
aforementioned uncertainty.
NOTE F - NOTES PAYABLE - OFFICER:
Loans made to the Company by the officer bear interest at 7% per
annum, except one loan that bears interest at 9% per annum, are
payable upon demand and are unsecured.
NOTE G - RETIREMENT PLAN:
The Company sponsors a qualified 401(k) plan covering substantially
all full time employees under which eligible employees can defer a
portion of their annual compensation. At the present time, the
Company makes no matching contributions to the plan.
NOTE H - INCOME TAXES:
The income tax provision is comprised of the following at March 31,
1996 (unaudited) and December 31 of each of 1995 and 1994:
State current provision $ 200 $ 200 $ 50
-------- -------- --------
-------- -------- --------
The Company's total deferred tax asset and valuation allowance at
March 31, 1996 (unaudited) and December 31 of each of 1995 and 1994
are as follows:
Total deferred tax asset $ 95,972 $ 80,083 $ 26,133
Less valuation allowance (95,972) (80,083) (26,133)
-------- -------- --------
Net deferred tax asset $ - $ - $ -
-------- -------- --------
The Company has available a $889,815 net operating loss carry
forward which may be used to reduce future state taxable income
available through December 31, 2002.
F-18
<PAGE>
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE I - OPERATING LEASE:
The Company leases its building and office space.
The following is a schedule by years of future minimum lease
payments as of March 31, 1996 under operating leases that have
initial or remaining non-cancelable lease terms in excess of one
year.
For the Year Ended March 31,
1997 57,444
1998 59,069
1999 64,764
--------
Total Minimum Lease Payments Required $181,277
--------
--------
Rent expense under the operating lease totaled $6,105, $24,066 and
$17,713 at March 31, 1996 (unaudited), December 31, 1995 and 1994,
respectively.
The lease also contains provisions for contingent rental payments
based upon increases in taxes, insurance and common area maintenance
expense.
NOTE J - SUBSEQUENT EVENTS:
On April 3, 1996, the Company filed with the SEC a registration
statement to sell and issue 1,071,429 units consisting of one share
of Common Stock and one redeemable Class A Common Stock purchase
warrant.
All costs associated with this offering will be deferred and
deducted from the proceeds from the sale of stock. If the Company
does not complete this offering, such costs will be charged to
expense.
On the effective date of the registration, the Company will give
effect to a 1.987538926 to 1 stock split of its Common Stock on all
shares of Common Stock outstanding based on the minimum number of
units to be sold in the offering.
During April and May 1996, the Company obtained additional bridge
financing in the amount of $100,000. In exchange for the $100,000,
the Company executed in favor of the lender two promissory notes,
each in the amount of $50,000. The notes accrue interest at 12% per
annum and are due on the earlier of (i) December 31, 1996 or (ii)
the closing date of this offering or (iii) the closing of an equity
or debt financing for not less than $1,000,000.
During each of May and June 1996, the Company obtained an additional
loan from an officer of $100,000 and $65,000, respectively, which
bear interest at 7% and 9%, respectively, per annum, are payable
upon demand and are unsecured.
During July 1996, the Company obtained an additional loan of
$100,000 from a stockholder which bears interest at 9% per annum and
is payable upon written demand made at any time on or after December
31, 1996.
F-19
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
---------
TABLE OF CONTENTS
Page
Available Information...................................................... 3
Prospectus Summary......................................................... 4
Risk Factors............................................................... 9
Use of Proceeds............................................................ 18
Dilution................................................................... 20
Capitalization............................................................. 21
Dividend Policy............................................................ 21
Plan of Operation.......................................................... 21
Business................................................................... 23
Management................................................................. 36
Principal Stockholders..................................................... 42
Certain Transactions....................................................... 43
Description of Securities.................................................. 43
Shares Eligible for Future Sale............................................ 45
Underwriting............................................................... 46
Legal Matters.............................................................. 48
Experts.................................................................... 48
Glossary................................................................... 49
Index to Financial Statements.............................................. F-1
---------
UNTIL _____________, 1996 [90 DAYS AFTER THE DATE OF THIS PROSPECTUS], ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
1,071,429 UNITS
Each Unit Consisting of One Share
of Common Stock and One Class A
Redeemable Common
Stock Purchase Warrant
MEDJET INC.
------------
PROSPECTUS
-----------
PATTERSON TRAVIS, INC.
_______, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law
("GCL"), the Company's Certificate of Incorporation (the "Certificate") provides
that no Director shall be personally liable to the Company or any stockholder
for monetary damages for breach of fiduciary duty as a Director, except for
liability: (i) arising from payment of dividends or approval of a stock purchase
in violation of Section 174 of the GCL; (ii) for any breach of the duty of
loyalty to the Company or its stockholders; (iii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; or (iv) for any action from which the Director derived an improper personal
benefit. While the Certificate provides protection from awards for monetary
damages for breaches of the duty of care, it does not eliminate the Director's
duty of care. Accordingly, the Certificate will not affect the availability of
equitable remedies, such as an injunction, based on a Director's breach of the
duty of care. The provisions of the Certificate described above apply to
officers of the Company only if they are Directors of the Company and are acting
in their capacity as Directors, and does not apply to officers of the Company
who are not Directors.
In addition, the Company's By-Laws provide that the Company shall
indemnify its officers and Directors, employees and agents, to the fullest
extent permitted by the GCL. Under the GCL, directors and officers as well as
employees and individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation as a derivative action) if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
The Company has entered into indemnification agreements with its
officers and directors which provide for indemnification in favor of such
officers and directors by the Company to the fullest extent permitted by the
GCL.
Reference is made to Section 6 of the Form of Underwriting Agreement
(to be filed as Exhibit 1.1 to this Registration Statement) which provides for
indemnification of the Company's officers, Directors and controlling persons by
the Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS
BEEN INFORMED THAT, IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION,
SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN SUCH ACT AND IS
THEREFORE UNENFORCEABLE.
The Company is seeking a Director and Officer Liability Insurance
Policy, under which each Director and certain officers of the Company would be
insured against certain liabilities.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses in connection with the issuance and distribution
of the securities being registered hereby (which exclude the Underwriter's
non-accountable expense allowance) will be borne by the Company.
Registration Fee . . . . . . . . . . . . $ 9,641
Transfer Agent and Registrar Fee* . . . . . . . . . . . . 9,000
NASD Filing Fee . . . . . . . . . . . . 3,296
NASDAQ Listing Fee . . . . . . . . . . . . 10,000
Printing Costs* . . . . . . . . . . . . 10,000
Legal Fees* . . . . . . . . . . . . 210,000
Accounting Fees* . . . . . . . . . . . . 30,000
Blue Sky Fees and Expenses* . . . . . . . . . . . . 55,000
Miscellaneous* . . . . . . . . . . . . 63
--------
Total . . . . . . . . . . . . $337,000
--------
--------
- -------------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Described below are all securities which have been issued by the Company
since December 16, 1993 (the date of the Company's inception) without
registration under the Act. There were no underwriting discounts or commissions
paid in connection with the issuance of any such securities.
1. Between March 12 and May 1, 1994, the Company sold 800,000 shares
(pre-split) of Common Stock to Eugene I. Gordon, 48,000 shares (pre-split) of
Common Stock to Peretz Feder, and 15,000 shares (pre-split) of Common Stock to
each of Joseph Calderone, Jr. and Joseph Carroll, III (an aggregate of 878,000
shares) at a purchase price of $.10 per share (an aggregate purchase price of
$87,800). The sale of these securities was exempt from registration under
Section 4(2) of the Act, because no public offering was involved.
2. Between May 25, 1994 and July 28, 1994, the Company sold 25,000 shares
(pre-split) of Common Stock to each of 10 investors (an aggregate of 250,000
shares) at a purchase price of $1.00 per share (an aggregate purchase price of
$250,000). The sale of these securities was exempt from registration under Rule
506, Regulation D of the Act.
3. Between September 23, 1994 and November 16, 1994, the Company sold an
aggregate of 85,004 shares (pre-split) of its Common Stock to nine investors at
a purchase price of $6.00 per share (an aggregate purchase price of $510,024).
The sale of these securities was exempt from registration under Rule 506,
Regulation D of the Act.
4. Between August 8, 1995 and September 29, 1995, the Company sold an
aggregate of 19,000 shares (pre-split) of its Common Stock to four investors at
a purchase price of $6.00 per share (an aggregate purchase price of $114,000).
The sale of these securities was exempt from registration under Rule 506,
Regulation D of the Act.
5. On December 31, 1995, the Company sold 833 shares (pre-split) of its
Common Stock to Eugene I. Gordon at a purchase price of $6.00 per share (an
aggregate purchase price of $5,000). The sale of these securities was exempt
from registration under Section 4(2) of the Act, because no public offering was
involved.
II-2
<PAGE>
ITEM 27. EXHIBITS.
The following is a list of all Exhibits filed as a part of this Registration
Statement.
Exhibit
Number Exhibit
------ -------
*1.1 Form of Underwriting Agreement.
1.2 [Omitted]
*1.3 Form of Selected Dealers Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 By-Laws of the Registrant.
4.1 Form of Certificate evidencing the shares of Common Stock.
4.2 Form of Certificate evidencing the Units.
4.3 Form of Certificate evidencing the Class A Warrants (included
in Exhibit 4.5).
*4.4 Form of Underwriter's Option Agreement.
*4.5 Form of Warrant Agreement for the Class A Warrants.
4.6 [Omitted]
5.1 Opinion of Kelley Drye & Warren LLP.
10.1 Employment Agreement between the Registrant and Eugene I.
Gordon, dated as of March 15, 1996.
10.2 Employment Agreement between the Registrant and Thomas
Handschiegel, dated as of March 18, 1996.
10.3 Consulting Agreement between the Registrant and Joseph F.
Carroll III, dated as of April , 1994.
10.4 Consulting Agreement between the Registrant and Joseph P.
Calderone, Jr., dated as of April 1, 1994.
10.6 The Medjet Inc. 1994 Stock Option Plan, as amended.
10.7 Promissory Note from the Registrant in favor of Eugene Gordon
in the principal amount of $25,000, dated October 27, 1995.
10.8 Promissory Note from the Registrant in favor of Eugene Gordon
in the principal amount of $25,000, dated November 13, 1995.
10.9 Promissory Note from the Registrant in favor of Eugene Gordon
in the principal amount of $25,000, dated November 30, 1995.
10.10 Promissory Note from the Registrant in favor of Eugene Gordon
in the principal amount of $25,000, dated December 18, 1995.
10.11 Promissory Note from the Registrant in favor of Eugene Gordon
in the principal amount of $50,000, dated December 30, 1995.
10.12 Promissory Note from the Registrant in favor of Jan Wernick in
the principal amount of $50,000, dated February 6, 1996.
10.13 Promissory Note from the Registrant in favor of Steven G.
Cooperman in the principal amount of $50,000, dated February
26, 1996.
II-3
<PAGE>
Exhibit
Number Exhibit
------ -------
10.14 Promissory Note from the Registrant in favor of Sanford J.
Hillsberg in the principal amount of $50,000, dated February
26, 1996.
10.15 Promissory Note from the Registrant in favor of Jan Wernick in
the principal amount of $50,000, dated March 14, 1996.
10.16 Agreement of Lease between the Registrant and Linpro Edison
Land Limited, dated May 13, 1994.
10.17 First Amendment to Lease between the Registrant and BCE
Associates, L.P., dated February 28, 1996.
10.18 Promissory Note from the Registrant in favor of Jan Wernick in
the principal amount of $50,000, dated April 15, 1996.
10.19 Promissory Note from the Registrant in favor of Jan Wernick in
the principal amount of $50,000, dated May 6, 1996.
10.20 Form of Consulting Agreement between the Registrant and Steven
G. Cooperman, dated as of _______, 1996.
10.21 Form of Consulting Agreement between the Registrant and
Sanford J. Hillsberg, dated as of _______, 1996.
10.22 Promissory Note from the Registrant in favor of Eugene Gordon
in the principal amount of $100,000, dated May 28, 1996.
10.23 Promissory Note from the Registrant in favor of Eugene Gordon
in the principal amount of $65,000, dated June 26, 1996.
*10.24 Promissory Note from the Registrant in favor of Robert P.
Lehmann in the principal amount of $100,000 dated July 19,
1996.
*23.1 Consent of Rosenberg Rich Baker Berman and Company.
23.2 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1).
23.3 Consent of Graham & James LLP.
23.4 Consent of Dean E. Snyder, Esquire.
24.1 Power of Attorney (included on signature page).
27 Amended Financial Data Schedule
- -----------------------
* Filed herewith.
Unless otherwise indicated, all exhibits were previously filed.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company, the Company has been advised
that, in the opinion of the Securities and Exchange Commission (the
"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 Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company 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 of 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.
(b) The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include a prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
which, individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any additional or changed material
information on the plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement of the securities offered, and the offering of such
securities at that time to be the initial BONA FIDE offering.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The Company will provide to the underwriter at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-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
of the requirements for filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York, on July 23, 1996.
MEDJET INC.
By:/s/ Eugene I. Gordon
-------------------------------
Eugene I. Gordon
PRESIDENT AND CHAIRMAN OF THE BOARD
In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following persons
in the capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ Eugene I. Gordon President and Chairman of the July 23, 1996
- ------------------------- Board (Principal Executive
Eugene I. Gordon Officer)
/s/ Thomas M. Handshiegel Chief Financial Officer and Vice July 23, 1996
- ------------------------- President for Finance and Human
Thomas M. Handschiegel Resources (Principal Financial and
Accounting Officer)
* Director July 23, 1996
- -------------------------
Steven G. Cooperman
*By: /s/ Thomas M. Handshiegel
-------------------------
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------- -------------
*1.1 Form of Underwriting Agreement.
1.2 [Omitted]
*1.3 Form of Selected Dealers Agreement.
3.1 Amended and Restated Certificate of
Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1 Form of Certificate evidencing the shares of
Common Stock.
4.2 Form of Certificate evidencing the Units.
4.3 Form of Certificate evidencing the Class A
Warrants (included in Exhibit 4.5).
*4.4 Form of Underwriter's Option Agreement.
*4.5 Form of Warrant Agreement for the Class A
Warrants.
4.6 [Omitted]
5.1 Opinion of Kelley Drye & Warren LLP.
10.1 Employment Agreement between the Registrant
and Eugene I. Gordon, dated as of March 15,
1996.
10.2 Employment Agreement between the Registrant
and Thomas Handschiegel, dated as of March 18,
1996.
10.3 Consulting Agreement between the Registrant
and Joseph F. Carroll, III, dated as of April
____, 1994.
10.4 Consulting Agreement between the Registrant
and Joseph P. Calderone, Jr., dated as of
April 1, 1994.
10.6 The Medjet Inc. 1994 Stock Option Plan, as
amended.
10.7 Promissory Note from the Registrant in favor
of Eugene Gordon in the principal amount of
$25,000, dated October 27, 1995.
10.8 Promissory Note from the Registrant in favor
of Eugene Gordon in the principal amount of
$25,000, dated November 13, 1995.
10.9 Promissory Note from the Registrant in favor
of Eugene Gordon in the principal amount of
$25,000, dated November 30, 1995.
10.10 Promissory Note from the Registrant in favor
of Eugene Gordon in the principal amount of
$25,000, dated December 18, 1995.
10.11 Promissory Note from the Registrant in favor
of Eugene Gordon in the principal amount of
$50,000, dated December 30, 1995.
10.12 Promissory Note from the Registrant in favor
of Jan Wernick in the principal amount of
$50,000, dated February 6, 1996.
10.13 Promissory Note from the Registrant in favor
of Steven G. Cooperman in the principal amount
of $50,000, dated February 26, 1996.
<PAGE>
10.14 Promissory Note from the Registrant in favor
of Sanford J. Hillsberg in the principal
amount of $50,000, dated February 26, 1996.
10.15 Promissory Note from the Registrant in favor
of Jan Wernick in the principal amount of
$50,000, dated March 14, 1996.
10.16 Agreement of Lease between the Registrant and
Linpro Edison Land Limited, dated May 13,
1994.
10.17 First Amendment to Lease between the
Registrant and BCE Associates, L.P., dated
February 28, 1996.
10.18 Promissory Note from the Registrant in favor
of Jan Wernick in the principal amount of
$50,000, dated April 15, 1996.
10.19 Promissory Note from the Registrant in favor
of Jan Wernick in the principal amount of
$50,000, dated May 6, 1996.
10.20 Form of Consulting Agreement between the
Registrant and Steven G. Cooperman, dated as
of _______, 1996.
10.21 Form of Consulting Agreement between the
Registrant and Sanford J. Hillsberg, dated as
of _______, 1996.
10.22 Promissory Note from the Registrant in favor
of Eugene Gordon in the principal amount of
$100,000, dated May 28, 1996.
10.23 Promissory Note from the Registrant in favor
of Eugene Gordon in the principal amount of
$65,000, dated June 26, 1996.
*10.24 Promissory Note from the Registrant in favor
of Robert P. Lehmann in the principal amount
of $100,000 dated July 19, 1996.
*23.1 Consent of Rosenberg Rich Baker Berman and
Company.
23.2 Consent of Kelley Drye & Warren LLP (included in
Exhibit 5.1).
23.3 Consent of Graham & James LLP.
23.4 Consent of Dean E. Snyder, Esquire.
24.1 Power of Attorney (included on signature page).
27 Amended Financial Data Schedule
- -----------------------
* Filed herewith.
Unless otherwise indicated, all exhibits were previously filed.
<PAGE>
1,071,429 Units
(Each Unit consisting of one share of Common Stock, par value $.001
per share and one Class A Redeemable Common Stock Purchase Warrant,
each exercisable to purchase one share of Common Stock)
MEDJET INC.
UNDERWRITING AGREEMENT
New York, New York
___________, 1996
Patterson Travis, Inc.
One Battery Park Plaza
New York, NY 10004
Medjet Inc., a Delaware corporation (the "Company"), proposes to issue and
sell to you (the "Underwriter") an aggregate of 1,071,429 Units (each Unit
consisting of one share of Common Stock, par value $.001 per share ("Common
Stock") and one Class A Redeemable Common Stock Purchase Warrant ("Warrants") to
purchase one share of Common Stock at $10.00 per share for a period of twenty-
four (24) months commencing _________, 1996, subject to redemption, in certain
instances. In addition, the Company proposes to grant to the Underwriter the
option referred to in Section 2(b) to purchase all or any part of an aggregate
of 160,714 additional Units.
Unless the context otherwise requires, the aggregate of 1,071,429 shares of
Common Stock and Warrants to be sold by the Company, together with all or any
part of the 160,714 Units which
<PAGE>
the Underwriter has the option to purchase, and the shares of Common Stock and
the Warrants comprising such Units, are herein called the "Units." The Common
Stock to be outstanding after giving effect to the sale of the Units are herein
called the "Shares." The Shares and Warrants included in the Units (including
the Units which the Underwriter has the option to purchase pursuant to paragraph
2(b), are herein collectively called the "Securities."
You have advised the Company that you desire to purchase the Units. The
Company confirms the agreements made by it with respect to the purchase of the
Units by the Underwriter as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-3184) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto and including any information omitted
therefrom pursuant
2
<PAGE>
to Rule 430A under the Act and included in the Prospectus (as hereinafter
defined); the term "Preliminary Prospectus" means each prospectus subject to
completion filed with such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement, the terms
"Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the First
Closing Date (as hereinafter defined) or the Option Closing Date, as the case
may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and
(ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus on page __ with respect to stabilization,
the paragraph under the heading "Underwriting" relating to concessions to
certain dealers, and the identity of counsel to the Underwriter under the
heading "Legal Matters" and the amount under "Blue Sky Fees and Expenses" under
Item 25 of Part II of the Registration Statement constitute for purposes of this
Section and Section 6(b) the only information furnished in writing by or on
3
<PAGE>
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company has no subsidiaries. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware with full corporate power and authority to own its
properties and conduct its business as described in the Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction in which the nature of its business or the
character or location of its properties requires such qualification, except
where the failure to so qualify will not materially adversely affect its
business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company, including the predecessors of the Company, as of the date of the
Prospectus is as set forth in the Prospectus under "Capitalization"; the shares
of issued and outstanding capital stock of the Company set forth thereunder have
been duly authorized, validly issued and are fully paid and nonassessable;
except as set forth in the Prospectus, no options, warrants, or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company; and the capital stock
conforms to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor the
offering or sale of the Units as contemplated in this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock, except as described
in the Registration Statement.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company
enforceable in
4
<PAGE>
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and holders thereof will be entitled to the
benefits provided by the warrant agreement pursuant to which such Warrants are
to be issued (the "Warrant Agreement"), which will be substantially in the form
filed as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable, and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles.
The Shares and the Warrants contained in the Underwriter's Options (as
defined in the Registration Statement) have been duly authorized and, when duly
issued and delivered, such Shares and Warrants will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms
and entitled to the benefits provided by the Underwriter's Options, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally or by general equitable principles and the
indemnification contained in paragraph 7 of the Underwriter's Options may be
unenforceable. The shares of Common Stock included in the Underwriter's Options
(and the shares of Common Stock issuable upon exercise of the Warrants included
therein) when issued and sold, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights and no personal liability
will attach to the ownership thereof.
(f) This Agreement and the Underwriter's Options have been duly and
validly authorized, executed, and delivered by the Company. The Company has
full power and authority to authorize, issue, and sell the Units to be sold by
it hereunder on the terms and conditions set forth herein, and no consent,
approval,
5
<PAGE>
authorization or other order of any governmental authority is required in
connection with such authorization, execution and delivery or in connection with
the authorization, issuance, and sale of the Units or the Underwriter's Options,
except such as may be required under the Act, state securities laws or by the
National Association of Securities Dealers, Inc. (The "NASD").
(g) Except as described in the Prospectus, or which would not have a
material adverse effect on the condition (financial or otherwise), business
prospects, net worth or properties of the Company taken as a whole (a "Material
Adverse Effect"), the Company is not in violation, breach, or default of or
under, and consummation of the transactions herein contemplated and the
fulfillment of the terms of this Agreement will not conflict with, or result in
a breach or violation of, any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge, or
encumbrance upon any of the property or assets of the Company pursuant to the
terms of, any material indenture, mortgage, deed of trust, loan agreement, or
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets of the Company is
subject, nor will such action result in any violation of the provisions of the
articles of incorporation or the by-laws of the Company, as amended, or any
statute or any order, rule or regulation applicable to the Company of any court
or of any regulatory authority or other governmental body having jurisdiction
over the Company.
(h) Subject to the qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets described in
the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company is not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been asserted
by anyone adverse to rights of the Company as lessor, sublessor, lessee, or
sublessee under any of the leases or
6
<PAGE>
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise stated
in the Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Rosenberg Rich Baker Berman & Company, P.A. who have given their
report on certain financial statements filed with the Commission as a part of
the Registration Statement, are with respect to the Company, independent public
accountants within the meaning of the Act and the Rules and Regulations.
(j) The financial statements, and schedules together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in cash flow
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved except as disclosed in the Prospectus and
Registration Statement. The information set forth under the caption "Selected
Financial Data" in the Prospectus fairly present, on the basis stated in the
Prospectus, the information included therein.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company has not incurred any liabilities
or obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which would
have a Material Adverse Effect, and there has not been any change in the capital
stock of, or any incurrence of long-term debt by, the Company or any issuance of
options, warrants or other rights to purchase the capital stock of the Company
or any material adverse change or any development involving, so far as the
Company can now reasonably foresee a prospective adverse change in the
condition (financial or other), net worth, results of operations, business,
7
<PAGE>
key personnel or properties of them which would have a Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened, any action, suit or proceeding
to which the Company is a party before or by any court or governmental agency or
body, which might result in a Material Adverse Effect on the Company, nor are
there any actions, suits or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion or race; and no
labor disputes involving the employees of the Company exist or to the knowledge
of the Company are threatened which might be expected to have a Material Adverse
Effect.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state, and foreign income and franchise tax returns required
to be filed as of the date hereof (taking into account all extensions of time to
file) and has paid all taxes shown as due thereon; and there is no tax
deficiency which has been asserted against the Company.
(n) Except as disclosed in the Registration Statement, the Company
has sufficient licenses, permits, and other governmental authorizations
currently necessary for the conduct of its business or the ownership of its
properties as described in the Prospectus and is in all material respects
complying therewith and owns or possesses adequate rights to use all material
patents, patent applications, trademarks, service marks, trade-names, trademark
registrations, service mark registrations, copyrights, and licenses necessary
for the conduct of such business and had not received any notice of conflict
with the asserted rights of others in respect thereof. To the best knowledge of
the Company, none of the activities or business of the Company or its
subsidiaries are in violation of, or cause the Company or its subsidiaries to
violate, any law, rule, regulation, or order of the United States, any state,
county, or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a Material Adverse
Effect.
(o) The Company has not, directly or indirectly, at any time (i) made
any contributions to any candidate for political office, or failed to disclose
fully any such contribution in violation of law or (ii) made any payment to any
state, federal or
8
<PAGE>
foreign governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (as hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Units hereunder will have been
fully paid or provided for by the Company and all laws imposing such taxes will
have been complied with in all material respects.
(q) All contracts and other documents of the Company which are, under
the Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) Intentionally Omitted.
(s) The Company has not entered into any agreement pursuant to which
any person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public offering
other than as described in the Registration Statement, including under the
caption "Litigation".
(t) Except as disclosed in the Prospectus, no officer, director, or
stockholder of the Company or its subsidiaries has any NASD affiliation.
(u) No other firm, corporation or person has any rights to underwrite
an offering of any of the Company's securities.
2. PURCHASE, DELIVERY AND SALE OF THE UNITS.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties, and agreements herein contained,
the Company agrees to issue and sell to the Underwriter, and the Underwriter
agrees to buy from the Company at $5.04 per Unit, at the place and time
hereinafter specified, 1,071,429 Units (the "First Units").
9
<PAGE>
Delivery of the First Units against payment therefor shall take
place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New York,
New York (or at such other place as may be designated by agreement between the
Underwriter and the Company) at 10:00 a.m., New York time, on ___________, 1996,
or at such later time and date as the Underwriter may designate in writing to
the Company at least two business days prior to such purchase, but not later
than ____________, 1996, such time and date of payment and delivery for the
First Units being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter to
purchase all or any part of an aggregate of an additional 160,714 Units at the
same price per Unit as the Underwriter shall pay for the First Units being sold
pursuant to the provisions of subsection (a) of this Section 2 (such additional
Units being referred to herein as the "Option Units"). This option may be
exercised within 30 days after the effective date of the Registration Statement
upon written notice by the Underwriter to the Company advising as to the amount
of Option Units as to which the option is being exercised, the names and
denominations in which the certificates for such Option Units are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four nor later than ten full business days after the exercise of
said option (but in no event more than 40 days after the First Closing Date),
nor in any event prior to the First Closing Date, and such time and date is
referred to herein as the "Option Closing Date." Delivery of the Option Units
against payment therefor shall take place at the offices of Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York (or at such other place as
may be designated by agreement between the Underwriter and the Company). The
Option granted hereunder may be exercised only to cover over-allotments in the
sale by the Underwriter of First Units referred to in subsection (a) above. No
Option Units shall be delivered unless all First Units shall have been delivered
to the Underwriter as provided herein.
(c) The Company will make the certificates for the securities
comprising the Units to be purchased by the Underwriter
10
<PAGE>
hereunder available to the Underwriter for checking at least two full business
days prior to the First Closing Date or the Option Closing Date (which are
collectively referred to herein as the "Closing Dates"). The certificates shall
be in such names and denominations as the Underwriter may request, at least
three full business days prior to the Closing Dates. Delivery of the
certificates at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Units to be
purchased by the Underwriter hereunder will be delivered by the Company to the
Underwriter for the account of the Underwriter against payment of the respective
purchase prices by the Underwriter, by wire transfer in immediately available
funds, payable to the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Units pursuant to the
provisions of subsection (b) above, payment for such Units shall be made to or
upon the order of the Company by certified or bank cashier's checks payable in
immediately available funds at the offices of Bernstein & Wasserman, LLP,
950 Third Avenue, New York, New York (or at such other place as may be
designated by agreement between the Underwriter and the Company), at the time
and date of delivery of such Units as required by the provisions of
subsection (b) above, against receipt of the certificates for such Units by the
Underwriter for the Underwriter's account registered in such names and in such
denominations as the Underwriter may reasonably request.
It is understood that the Underwriter proposes to offer the Units to
be purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective. If required, the Company will file the
Prospectus and any amendment or supplement
11
<PAGE>
thereto with the Commission in the manner and within the time period required by
Rule 424(b) under the Act. Upon notification from the Commission that the
Registration Statement has become effective, the Company will so advise the
Underwriter and will not at any time, whether before or after the Effective
Date, file any amendment to the Registration Statement or supplement to the
Prospectus of which the Underwriter shall not previously have been advised and
furnished with a copy or to which the Underwriter or its counsel shall have
reasonably objected in writing or which is not in compliance with the Act and
the Rules and Regulations. At any time prior to the later of (A) the completion
by the Underwriter of the distribution of the Units contemplated hereby (but in
no event more than nine months after the date on which the Registration
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
effective, the Company will prepare and file with the Commission, promptly upon
the Underwriter's request, any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel to the Company and the
Underwriter, may be reasonably necessary or advisable in connection with the
distribution of the Units.
As soon as the Company is advised thereof, the Company will advise the
Underwriter, and provide the Underwriter copies of any written advice, of the
receipt of any comments of the Commission, of the effectiveness of any
post-effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for an amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the Units
for offering in any jurisdiction, or of the institution of any proceedings for
any of such purposes, and will use its best efforts to prevent the issuance of
any such order, and, if issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to the Underwriter copies of
each Preliminary Prospectus, and the Company has
12
<PAGE>
consented and hereby consents to the use of such copies for the purposes
permitted by the Act. The Company authorizes the Underwriter and dealers to use
the Prospectus in connection with the sale of the Units for such period as in
the opinion of counsel to the Underwriter and the Company the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period as a
Prospectus is required under the Act to be delivered in connection with sales by
the Underwriter or dealer, of any event of which the Company has knowledge and
which materially affects the Company or the securities of the Company, or which
in the opinion of counsel for the Company and counsel for the Underwriter should
be set forth in an amendment of the Registration Statement or a supplement to
the Prospectus in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Units or in case it shall be necessary to amend
or supplement the Prospectus to comply with law or with the Rules and
Regulations, the Company will notify the Underwriter promptly and forthwith
prepare and furnish to the Underwriter copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as the
Underwriter may reasonably request, in order that the Prospectus, as so amended
or supplemented, will not contain any untrue statement of a material fact or
omit to state any material facts necessary in order to make the statements in
the Prospectus, in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be attached
to the Prospectus shall be without expense to the Underwriter, except that in
case the Underwriter is required, in connection with the sale of the Units to
deliver a Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon request of and at the expense of
the Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Units.
<PAGE>
(b) The Company will furnish such information as may be required and
will otherwise cooperate and use its best efforts to qualify to register the
Units for sale under the securities or "blue sky" laws of such jurisdictions as
the Underwriter may reasonably designate and will make such applications and
furnish such information as may be required for that purpose and to comply with
such laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the Units. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the counsel to the Company and
the Underwriter deem reasonably necessary, but not for a period of less than
three (3) years.
(c) If the sale of the Units provided for herein is not consummated
as a result of the Company's actions or failure to take such actions as the
Underwriter believes are reasonably required to complete the transaction, the
Company shall pay all costs and expenses incurred by it which are incident to
the performance of the Company's obligations hereunder, including but not
limited to, all of the expenses itemized in Section 8, including the actual
accountable out-of-pocket expenses of the Underwriter which shall not exceed
$150,000 (including the reasonable fees and expenses of counsel to the
Underwriter). If the sale of the Units provided herein is not consummated and
the reasons therefore are reasonably related to a Material Adverse Effect on the
Company, the Company shall pay the Underwriter promptly its actual out-of-pocket
expenses not to exceed $100,000.
(d) The Company will use its best efforts (i) to cause a registration
statement under the Securities Exchange Act of 1934 to be declared effective
concurrently with the completion of this offering and will notify you in writing
immediately upon the effectiveness of such registration statement, and (ii) to
obtain and keep current a listing in the Standard & Poors or Moody's OTC
Industrial Manual for a period of five (5) years from the Effective Date.
(e) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Securities Exchange Act of 1934, the Company, at
its expense, will furnish to its
14
<PAGE>
stockholders an annual report (including financial statements audited by
independent public accountants), in reasonable detail and at its expense, will
furnish to the Underwriter during the period ending five (5) years from the date
hereof, (i) as soon as practicable after the end of each fiscal year, but no
earlier than the filing of such information with the Commission, a balance sheet
of the Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by
a copy of the certificate or report thereon of independent accountants; (ii) as
soon as practicable after the end of each of the first three fiscal quarters of
each fiscal year, but no earlier than the filing of such information with the
Commission, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are publicly available, a
copy of all reports (financial or other) mailed to security holders; (iv) as
soon as they are available, a copy of all non-confidential reports and financial
statements furnished to or filed with the Commission or any securities exchange
or automated quotation system on which any class of securities of the Company is
listed; and (v) such other information as you may from time to time reasonably
request. In addition, the Company shall deliver to the Underwriter for a three
(3) year period following the effective date, copies of all transfer sheets
relating to the Company's securities.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to the Underwriter at or before the
First Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the Underwriter's order, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriter may reasonably request.
The Company will deliver to the Underwriter on or promptly after the effective
date of
15
<PAGE>
the Registration Statement and thereafter for so long as a Prospectus is
required to be delivered under the Act, from time to time, as many copies of the
Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriter may from time to time reasonably request.
(h) The Company will deliver to the Underwriter as soon as it is
practicable copies of all reports filed with the Commission under the Exchange
Act.
(i) The Company will apply the net proceeds from the sale of the
Units substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will promptly prepare and file with the Commission
any amendments or supplements to the Registration Statement, Preliminary
Prospectus or Prospectus and take any other action, which in the opinion of
counsel to the Underwriter and counsel to the Company, may be reasonably
necessary or advisable in connection with the distribution of the Units, and
will use its best efforts to cause the same to become effective as promptly as
possible.
(k) The Company will reserve and keep available that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Warrants and Underwriter's Options and warrants thereunder outstanding from
time to time.
(l) For a period of twenty-four (24) months from the Effective Date,
no officers or directors, nor any shareholder of the Company's securities prior
to the offering, as well as all holders of restricted securities of the Company,
will, directly or indirectly, offer, sell (including any short sale), grant any
option for the sale of, transfer or gift (except for estate planning or
charitable transfers or other privates sales, provided the transferees agree to
be bound by the same restrictions on transfer), acquire any option to dispose
of, or otherwise dispose of any shares of capital stock without the prior
written consent of
16
<PAGE>
the Underwriter, other than as set forth in the Registration Statement. In
order to enforce this covenant, the Company shall impose stop-transfer
instructions with respect to the shares owned by such persons prior to the
offering until the end of such period (subject to any exceptions to such
limitation on transferability set forth in the Registration Statement). In
addition, all such persons shall waive any of their registration rights with
respect to all such securities for such twenty-four (24) month period. In
addition, the Company agrees not to file any other registration statement
(excluding a registration statement on Form S-8 or successor form so long as the
shares of Common Stock offered thereby are also subject to this paragraph 3(l))
to register any securities of the Company for such twenty-four (24) month
period, and will not grant any future registration rights without the prior
written consent of the Underwriter for the same twenty-four (24) month period.
If necessary to comply with any applicable Blue-sky Law, the shares held by such
shareholders will be escrowed, as required by such Blue-sky Laws. In addition,
the Company shall not issue any shares of its capital stock (or securities
convertible into capital stock) for a twenty four (24) month period following
the Effective Date other than (i) pursuant to the Warrants, (ii) pursuant to the
options already granted under the Company's stock option plan, and (iii) options
to purchase up to 200,000 shares of Common Stock under employee stock option
plans in accordance with the succeeding sentence, and (iv) Common Stock issued
on or after the first anniversary of the Closing Date for consideration at least
equal to the Market Price as defined below in this paragraph (l). The Company
may grant options to purchase up to 200,000 (150,000 if only 1,071,429 Units are
sold) shares of Common Stock under employee stock option plans to the Company's
employees, officers, directors or other consultants or advisors during the
twenty-four (24) month period following the Effective Date without the prior
written consent of the Underwriter; provided that the shares underlying such
options do not vest until one (1) year following the grant of such options. The
grant of additional options during such period will require the Underwriter's
prior written consent. Of the options to purchase such 200,000 shares, the
Company may not grant options for 50,000 shares at exercise prices which are
less than the Market Price at the date of the grant without the prior written
consent of the Underwriter.
For purposes of this Agreement, Market Price shall mean (i) the average
closing bid price for any ten (10) consecutive trading
17
<PAGE>
days within a period of thirty (30) consecutive trading days ending within five
(5) days prior to the date of issuance of the Common Stock as reported by the
National Association of Securities Dealers, Inc. Automatic Quotation System or
the NASD Electronic Bulletin Board, or (ii) the last reported sale price, for
ten (10) consecutive business days ending within five (5) days of the date of
issuance on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Securities Exchange Act of
1934, to obtain the listing of the Units, Common Stock and Class A Warrants in
the NASDAQ system, and will use its best efforts to effect and maintain such
listing for at least five years from the date of this Agreement to the extent
that the Company has at least 300 record holders of Common Stock.
(n) Except for the transactions contemplated by this Agreement, the
Company represents that it has not taken and agrees that it will not take,
directly or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Units, Shares, or the Warrants or to facilitate
the sale or resale of the Securities.
(o) On the First Closing Date and simultaneously with the delivery of
the Units, the Company shall execute and deliver to you the Underwriter's
Options. The Underwriter's Options will be substantially in the form filed as
an Exhibit to the Registration Statement.
(p) Intentionally omitted.
(q) Upon the Closing Dates, the Company will have in force key person
life insurance on the life of Eugene Gordon, in the amount of not less than
$1,000,000.00 and will use its best efforts to maintain such insurance during
the three year period commencing with the First Closing Date.
(r) So long as any Warrants are outstanding and the exercise price of
the Warrants is less than the market price of the Common Stock, the Company
shall use its best efforts to cause
18
<PAGE>
post-effective amendments, if required by the Act, to the Registration Statement
to become effective in compliance with the Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to the Underwriter and each dealer as many copies of
each such Prospectus as such Underwriter or dealer may reasonably request. The
Company shall not call for redemption any of the Warrants unless a registration
statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption.
(s) For a period of five (5) years from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information and the filing of the Company's 10-Q quarterly
report, provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission.
(t) The Underwriter shall have the right to request the Company to
use its best efforts to nominate one (1) nominee of the Underwriter for election
to the Board of Directors for three (3) years following the Effective Date, and
in each case the Company will use its best efforts to cause such nominee to be
elected to the Board of Directors. Until such time as the Underwriter exercises
its right to require the Company to use its best efforts to cause a nominee of
the Underwriter to be elected to the Board of Directors and until such time as
such nominee begins to serve on the Board of Directors, the Company agrees to
allow a representative designated by the Underwriter from time to time to
receive timely, written notice of all Board of Directors meetings and notice of
all telephonic Board meetings and the right to attend all Board meetings and
participate in all telephonic Board meetings. The Underwriter shall also have
the right to obtain copies of the minutes from all Board of Directors meetings
for three (3) years following the Effective Date of the Registration Statement,
whether or not a representative of the Underwriter attends or participates in
any such Board meeting. The Company agrees to reimburse the Underwriter
immediately upon the
19
<PAGE>
Underwriter's request therefor of any reasonable travel and lodging expenses
directly incurred by the Underwriter in connection with its representative
attending Company Board meetings on the same basis for other Board members. In
addition, the Company shall compensate such representative as it does all other
outside directors of the Company.
(u) Intentionally omitted.
(v) The Company agrees to pay the Underwriter a Warrant Solicitation
fee of 8.0% of the exercise price of any of the Warrants exercised beginning one
(1) year after the Effective Date if (a) the Market Price of the Company's
Common Stock on the date the Warrant is exercised in greater than the exercise
price of the Warrant, (b) the exercise of the Warrant is solicited by the
Underwriter and the Underwriter is designated in writing by the holder of such
Warrant as the soliciting broker, (c) the Warrant is not held in a discretionary
account, (d) disclosure of the compensation arrangement is made upon the sale
and exercise of the Warrants, (e) soliciting the exercise is not in violation of
Rule 10b-6 under the Securities Exchange Act of 1934, and (f) solicitation of
the exercise is in compliance with the NASD Notice to Members 81-38 (September
22, 1981).
(w) Intentionally omitted.
(x) Intentionally omitted.
(y) On or prior to the date hereof, the Company shall have entered
into an employment agreement with Eugene Gordon on terms and conditions
satisfactory to the Underwriter.
4. CONDITIONS OF UNDERWRITERS' OBLIGATION. The obligations of the
Underwriter to purchase and pay for the Units which it has agreed to purchase
hereunder are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 a.m., New York time, on
the day following the date of this
20
<PAGE>
Agreement, or at such later time or on such later date as to which the
Underwriter may agree in writing; on or prior to the Closing Dates no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that or a similar purpose shall have been
instituted or shall be pending or, to the Underwriter's knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the satisfaction of the Commission; and no stop order shall be
in effect denying or suspending effectiveness of such qualification nor shall
any stop order proceedings with respect thereto be instituted or pending or
threatened. If required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act.
(b) (A) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Kelley Drye & Warren, counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to own its properties
and conduct its business as described in the Registration Statement and
Prospectus and, to its knowledge, is duly qualified or licensed to do business
as a foreign corporation and is in good standing in each other jurisdiction in
which the ownership or leasing of its properties or conduct of its business
requires such qualification except where the failure to qualify or be licensed
will not have a Material Adverse Effect;
(ii) the authorized capitalization of the Company as of the date
of the prospectus is as set forth under "Capitalization" in the Prospectus; all
shares of the Company's outstanding capital stock have been duly authorized,
validly issued, fully paid and non-assessable and conform in all material
respects to the description thereof contained in the Prospectus; to such
counsel's knowledge the outstanding shares of capital stock of the Company have
not been issued in violation of the preemptive rights of any shareholder and the
shareholders of the Company do not have any preemptive rights or other rights to
subscribe for or
21
<PAGE>
to purchase, nor are there any restrictions upon the voting or transfer of any
of the capital stock except as provided in the Prospectus; the Common Stock, the
Warrants, the Underwriter's Options, and the Warrant Agreement conform in all
material respects to the respective descriptions thereof contained in the
Prospectus; the Shares have been, and the shares of Common Stock to be issued
upon exercise of the Warrants and the Underwriter's Options, upon issuance in
accordance with the terms of such Warrants, the Warrant Agreement and
Underwriter's Options will have been duly authorized and, when issued and
delivered in accordance with their respective terms and applicable Delaware law,
will be duly and validly issued, fully paid, non-assessable, free of preemptive
rights and no personal liability will attach to the ownership thereof; all prior
sales by the Company of the Company's securities have been made in compliance
with or under an exemption from registration under the Act and applicable state
securities laws; a sufficient number of shares of Common Stock has been reserved
for issuance upon exercise of the Warrants and Underwriter's Options (giving
effect to the conversion ratio in effect on the First Closing Date) and to the
best of such counsel's knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated by this
Agreement gives rise to any registration rights other than (i) those which have
been waived or satisfied for or relating to the registration of any shares of
Common Stock or (ii) those contained in the Underwriter's Options.
(iii) this Agreement, the Underwriter's Options, and the Warrant
Agreement have been duly and validly authorized, executed, and delivered by the
Company;
(iv) the certificates evidencing the shares of Common Stock
comply with the Delaware General Corporation Law; the Warrants will be
exercisable for shares of Common Stock in accordance with the terms of the
Warrants and the Warrant Agreement and at the prices therein provided for;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company is a party which would materially adversely
affect the business, property, financial condition, or operations of the
Company; or which question the validity of the Securities, this Agreement, the
Warrant Agreement, or the Underwriter's Options, or of any action
22
<PAGE>
taken or to be taken by the Company pursuant to this Agreement, the Warrant
Agreement, or the Underwriter's Options; to such counsel's knowledge there are
no governmental proceedings or regulations required to be described or referred
to in the Registration Statement which are not so described or referred to;
(vi) the execution and delivery of this Agreement, the
Underwriter's Options, or the Warrant Agreement and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a breach or
violation of, or constitute a default under the certificate or articles of
incorporation or by-laws of the Company, or to the best knowledge of counsel, in
the performance or observance of any material obligations, agreement, covenant,
or condition contained in any bond, debenture, note, or other evidence of
indebtedness or in any material contract, indenture, mortgage, loan agreement,
lease, joint venture, or other agreement or instrument to which the Company is a
party or by which they or any of their properties is bound or in violation of
any order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality, or court, domestic or foreign, the result of which
would have a Material Adverse Effect;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, (a) no stop order suspending
the effectiveness of the Registration Statement is in effect, and (b) no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the Prospectus
(except for (i) the financial statements and other financial data and (ii)
certain information relating to patent law and regulatory matters relating to
the Federal Food and Drug Administration) contained therein, or omitted
therefrom, as to which such counsel need express no opinion) as of the Effective
Date comply as to form in all material respects with the applicable requirements
of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration Statement
and the Prospectus such counsel has participated in conferences with the
President of the Company with respect to the Registration Statement and
Prospectus and such discussions did not disclose to such counsel any information
which gives such counsel reason to believe that the Registration
23
<PAGE>
Statement or any amendment thereto at the time it became effective contained any
untrue statement of a material fact required to be stated therein or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial information (including without limitation, the pro forma financial
information) and schedules contained therein, as to which such counsel need
express no opinion);
(ix) except for the exceptions set forth in paragraph (vii)
above, all descriptions in the Registration Statement and the Prospectus, and
any amendment or supplement thereto, of contracts and other agreements to which
the Company is a party are accurate and fairly present in all material respects
the information required to be shown, and such counsel is familiar with all
contracts and other agreements referred to in the Registration Statement and the
Prospectus and any such amendment or supplement or filed as exhibits to the
Registration Statement, and such counsel does not know of any contracts or
agreements to which the Company is a party of a character required to be
summarized or described therein or to be filed as exhibits thereto which are not
so summarized, described or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale, or delivery of the Units by the
Company, in connection with the execution, delivery, and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Underwriter's Options or the
Securities underlying the Underwriter's Options, other than registrations or
qualifications of the Units under applicable state or foreign securities or Blue
Sky laws and registration under the Act and the NASD; and
24
<PAGE>
(xi) the Units, Common Stock and Warrants have been duly
authorized for quotation on the NASD Electronic Bulletin Board.
(xii) Except as disclosed in the Registration Statement, to the
best knowledge of such counsel, the Company has sufficient licenses, permits,
and other governmental authorizations currently necessary for the conduct of its
business or the ownership of its properties as described in the Prospectus and
is in all material respects complying therewith. To the best knowledge of such
counsel, the business of the Company is not in violation of, or will not cause
the Company to violate any law, rule, regulation, or order of the United States,
any state, county, or locality, or of any agency or body of the United States,
or of any state, county, or locality, the violation of which would have a
Material Adverse Effect and are in compliance with all rules and regulations
pertaining to the business of the Company.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of Delaware upon opinions of counsel
satisfactory to the Underwriter, in which case the opinion shall state that they
have no reason to believe that the Underwriter and they are not entitled to so
rely.
(B) At the First Closing Date, you shall have received the opinion of
Graham & James, special patent counsel, in form and substance satisfactory to
you, identifying any patent searches conducted with respect to the Company's
patent applications and providing that the description in the Registration
Statement with respect to the status of such patent applications is accurate,
that the Company owns the entire right, title and interest in and to such
applications as described in the Prospectus and has not received any notice of
conflict with the asserted rights of others in respect thereof and that the
statements on the Prospectus under the captions "Prospectus Summary-The
Company", "Risk Factors-Dependence on Patents and Proprietary Rights"
and"Business-Patent Application" are true and correct.
25
<PAGE>
(C) At the First Closing Date, you shall have received the opinion of
Dean E. Snyder, Esq., special regulatory counsel, in form and substance
satisfactory to you, providing that (i) the description in the Registration
Statement regarding the FDA and governmental regulation related thereto is true,
complete and accurate in all material respects including those statements
relating thereto contained in the following sections: "Prospectus Summary -- The
Company", "Risk Factors -- FDA Regulation," "Plan of Operation -- 510(k)
Notification," "Business -- The Company," "Business -- U.S. Government
Regulation" and "Business -- Foreign Government Regulation" and (ii) where any
conclusion with respect to likely treatment of the Company's products by the FDA
is stated in the Prospectus, after reasonable investigation, reasonable bases
exist for such conclusion and the conclusion is reasonable to the extent
qualified in the Prospectus, there being no qualifications known other than
those described in the Prospectus.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Underwriter.
(d) The Underwriter shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from Rosenberg Rich Baker Berman & Company, independent public
accountants for the Company, substantially in the form reasonably acceptable to
the Underwriter.
(e) At the Closing Dates, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing Dates
taking into account for the Option Closing Date the effect of the transactions
contemplated hereby and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Dates; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state
26
<PAGE>
any material fact required to be stated therein or necessary to make the
statements therein not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change,
or to the Company's knowledge, any development involving a prospective material
adverse change, in the business, properties, condition (financial or otherwise),
results of operations, capital stock, long-term or short-term debt, or general
affairs of the Company from that set forth in the Registration Statement and
the Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the effective date of the Registration Statement, and
the Company shall not have incurred any material liabilities or entered into any
material agreement not in the ordinary course of business other than as referred
to in the Registration Statement and Prospectus; (iv) except as set forth in the
Prospectus, no action, suit, or proceeding at law or in equity shall be pending
or threatened against the Company which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company before or by any commission, board, or administrative
agency in the United States or elsewhere, wherein an unfavorable decision,
ruling, or finding would materially and adversely affect the business, property,
condition (financial or otherwise), results of operations, or general affairs of
the Company and (v) the Underwriter shall have received, at the First Closing
Date, a certificate signed by each of the President and the principal operating
officer of the Company, dated as of the First Closing Date, evidencing
compliance with the provisions of this subsection (e).
(f) Intentionally Omitted.
(g) Upon exercise of the option provided for in Section 2(b) hereof,
the obligations of the Underwriter to purchase and pay for the Option Units will
be subject (as of the date hereof and of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any reasonable request on
the
27
<PAGE>
part of the Commission for additional information shall have been complied with
to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been delivered
to you the signed opinions of Kelley Drye & Warren, Graham & James, and Dean E.
Snyder, Esq., counsel, special counsel and special regulatory counsel to the
Company, respectively, dated as of the Option Closing Date, in form and
substance reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, which opinions shall be substantially the same in scope and
substance as the opinions furnished to you at the initial Closing Date pursuant
to Sections 4(b) hereof, except that such opinions, where appropriate, shall
cover the Option Units.
(iii) At the Option Closing Date there shall have been delivered
to you a certificate of the President and the principal operating officer of the
Company, dated the Option Closing Date, in form and substance reasonably
satisfactory to Bernstein & Wasserman, LLP, counsel to the Underwriter,
substantially the same in scope and substance as the certificate furnished to
you at the First Closing Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date there shall have been delivered
to you a letter in form and substance satisfactory to you from Rosenberg Rich
Baker Berman & Company, P.A. dated the Option Closing Date and addressed to the
Underwriter confirming the information in their letter referred to in Section
4(d) hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter to a date
not more than five business days prior to the Option Closing Date, which would
require any change in said letter if it were required to be dated the Option
Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Units shall be
reasonably satisfactory in form and substance to you, and you and Bernstein &
Wasserman, LLP, counsel to the Underwriter, shall have been furnished with all
such documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or
28
<PAGE>
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(h) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to either of the
Closing Dates (unless cured by the Company within ten (10) business days of
notice to the Company of such action), for members of the NASD to execute
transactions (as principal or agent) in the Units, Common Stock or the Warrants
and no proceedings for the taking of such action shall have been instituted or
shall be pending, or, to the knowledge of the Underwriter or the Company, shall
be contemplated by the Commission or the NASD. The Company represents that at
the date hereof it has no knowledge that any such action is in fact contemplated
by the Commission or the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date indicated,
this Agreement and all obligations of the Underwriter under this Agreement may
be canceled at, or at any time prior to, either of the Closing Dates by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to the applicable Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell and deliver the Units is subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 10:00 a.m. New York time, on the day following the date of this Agreement,
or on such later date as the Company and the Underwriter may agree in writing.
(b) At the Closing Dates, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the
29
<PAGE>
Company to sell and deliver the Units on exercise of the option provided for in
Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act 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
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages, or liabilities; insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
relate to and arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Units under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or arise out of or are based upon the omission
or alleged omission to state in the Registration Statement, any Preliminary
Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, 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 required to indemnify the Underwriter and any controlling person or
be liable in any such case to the extent, but 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 is made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter specifically for use in the
preparation of the
30
<PAGE>
Registration Statement or any such amendment or supplement thereof or any such
Blue Sky Application or any such Preliminary Prospectus or the Prospectus or any
such amendment or supplement thereto, provided, further that the indemnity with
respect to any Preliminary Prospectus shall not be applicable on account of any
losses, claims, damages, liabilities, or litigation arising from the sale of
Units to any person if the misstatement or omission was corrected in the
Prospectus but a copy of the Prospectus was not delivered to such person by the
Underwriter in accordance with this Agreement at or prior to the written
confirmation of the sale to such person. This indemnity will be in addition to
any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any losses, claims,
damages, or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and
reasonable attorneys' fees) to which the Company or any such director, nominee,
officer, or controlling person may become subject under the 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, any
Preliminary Prospectus, the Prospectus, or any 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, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or any Blue
Sky Application in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in the
preparation thereof and for any violation by the Underwriter in the sale of such
Units of any applicable state or federal law or any rule, regulation or
instruction thereunder relating to violations based on unauthorized statements
by Underwriter or its representative, provided that such violation is not based
upon any
31
<PAGE>
violation of such law, rule, or regulation or instruction by the party claiming
indemnification or inaccurate or misleading information furnished by the Company
or its representatives, including information furnished to the Underwriter as
contemplated herein. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
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, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section unless the omission so to notify prejudices 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, to assume the
defense thereof, subject to the provisions herein stated, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. 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 the reasonable 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
indemnified party and the indemnifying party and in the reasonable judgment of
the counsel to the indemnified party, there is a conflict of interest between
the indemnifying party and the indemnified party in the conduct of the defense
(in which case the indemnifying party
32
<PAGE>
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 not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than 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
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party. If it is
ultimately determined that indemnification is not permitted, then an indemnified
party will return all monies advanced to the indemnifying party with interest
thereon.
7. CONTRIBUTION. In order to provide for just and equitable contribution
under the Act in any case in which the indemnification provided in Section 6
hereof is requested but it 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 provide for indemnification in such case,
then the Company and the Underwriter 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) (after
contribution from others) such proportional amount of such losses, claims,
damages, or liabilities represented by the percentage that the underwriting
discount per Unit appearing on the cover page of the Prospectus plus all other
compensation paid to the Underwriter bears to the public offering price
appearing thereon and the Company shall be responsible for the remaining
portion, provided, however, that if such allocation is not permitted by
applicable law, then allocated in such proportion as is appropriate to reflect
relative benefits but also the relative fault of the Company and the Underwriter
and controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
33
<PAGE>
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or the Underwriter and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section 7. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 1(f) of
the Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. As used in this paragraph, the word
"Company" includes any officer, director, or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company, its officers, directors, and controlling persons,
and the Company, its officers, directors, and controlling persons shall be
entitled to contribution from the Underwriter to the full extent permitted by
law. The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of
the Units by the Underwriter is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company including,
but not limited to, the fees and expenses of counsel to the Company and of the
Company's accountants; the costs and expenses incident to the preparation,
printing, filing, and distribution under the Act of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), Preliminary Prospectus, and the Prospectus, as amended or
supplemented, the fee of the NASD
34
<PAGE>
in connection with the filing required by the NASD relating to the offering of
the Units contemplated hereby; all documented expenses, including reasonable
fees and disbursements of counsel to the Underwriter, in connection with the
qualification of the Units under the state securities or blue sky laws which the
Underwriter shall designate (which legal fees (not including filing fees or
expenses) shall not exceed $35,000); the cost of printing and furnishing to the
Underwriter copies of the Registration Statement, each Preliminary Prospectus,
if applicable, the Prospectus, this Agreement, and the Blue Sky Memorandum, any
fees relating to the listing of the Units, Common Stock, and Warrants on NASDAQ
or any other securities exchange; the cost of printing the certificates
representing the securities comprising the Units; the fees of the transfer
agent and warrant agent, reasonable and traditional advertising costs, meetings
and presentation costs; reasonable fees to due diligence experts, if any,
incurred by the Underwriter for intellectual property matters not to exceed
$25,000; and reasonable costs of bound volumes and prospectus memorabilia. The
Company shall pay any and all taxes (including any transfer, franchise, capital
stock, or other tax imposed by any jurisdiction) on sales of the Units
hereunder. The Company will also pay all costs and expenses incident to the
furnishing of any amended Prospectus or of any supplement to be attached to the
Prospectus as called for in Section 3(a) of this Agreement except as otherwise
set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at the
First Closing Date pay to the Underwriter a non-accountable expense allowance of
$180,000. In the event the over-allotment option is exercised, the Company shall
pay to the Underwriter at the Option Closing Date an additional amount in the
aggregate equal to 3.0% of the gross proceeds received upon exercise of the
over-allotment option. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant,
representation, or warranty contained herein or because any other condition to
the Underwriter's obligations hereunder required to be fulfilled by the Company
is not fulfilled other than because the Underwriter failed to take an action
necessary to such fulfillment) the Company shall not be liable for any expenses
of the Underwriter, including the Underwriter's legal fees. In the event the
transactions contemplated hereby are not consummated by reason of the Company's
35
<PAGE>
actions or failure to take such actions as the Underwriter believes are
reasonably required to complete the transaction contemplated herein, the Company
shall be liable for the actual accountable out-of-pocket expenses of the
Underwriter, including reasonable legal fees which shall not exceed $150,000
(less any amount previously paid or payable pursuant to the next sentence). In
the event the transactions contemplated hereby are not consummated due to a
material adverse change in the business or financial results, prospects or
condition of the Company or to adverse market conditions, the Company shall be
liable for the actual out-of-pocket expenses of the Underwriter, including
reasonable legal fees, not to exceed in the aggregate $100,000.
(c) Except as disclosed in the Registration Statement, including
under the caption "Litigation," no person is entitled to the Company's
knowledge, either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter, 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 costs of defense and investigation and all reasonable
attorneys' fees), to which the Underwriter or person may become subject insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such person's
or entity's influence or prior contact with the indemnifying party.
9. EFFECTIVE DATE. The Agreement shall become effective upon its
execution except that the Underwriter may, at its option, delay its
effectiveness until 11:00 a.m., New York time on the first full business day
following the effective date of the Registration Statement, or at such earlier
time on such business day after the effective date of the Registration Statement
as the Underwriter in its discretion shall first commence the initial public
offering of the Units. This Agreement may be terminated by the Underwriter at
any time before it becomes effective as provided above, except that
Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 shall remain in effect
notwithstanding such termination.
36
<PAGE>
10. TERMINATION.
(a) After this Agreement becomes effective, this Agreement, except
for Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 hereof, may be terminated at any
time prior to the Closing Date, by the Underwriter if in the Underwriter's
reasonable judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriter for the resale of the Units agreed to be
purchased hereunder by reason of (i) the Company having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident, or
other calamity, or from any labor dispute or court or government action, order,
or decree, (ii) trading in securities on Nasdaq having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in securities generally (not in force and effect on the date hereof), (iv) a
banking moratorium having been declared by federal or New York state
authorities, (v) an outbreak of major international hostilities involving the
United States or other substantial national or international calamity having
occurred, (vi) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which would materially adversely affect the Company; (vii) except as
contemplated by the Prospectus, the Company is merged with or consolidated into
or acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; (viii) the adoption of a federal law, rule or regulation which,
in the reasonable belief of the Underwriter, would have a material adverse
impact on the business or financial condition of the Company, (ix) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement, or (x) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects, or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by the Underwriter, by telephone or telegram,
confirmed by letter.
37
<PAGE>
11. UNDERWRITER'S OPTIONS. At or before the First Closing Date, the
Company will sell the Underwriter or its designees for a consideration of $.001
per option and upon the terms and conditions set forth in the form of the
Underwriter's Options annexed as an exhibit to the Registration Statement,
Underwriter's Options to purchase 107,143 Units. In the event of conflict in the
terms of this Agreement and the Underwriter's Options with respect to language
relating to the Underwriter's Options, the language of the Underwriter's Options
shall control.
12. COVENANTS OF THE UNDERWRITER. You covenant and agree with the Company
as follows:
(a) COMPLIANCE WITH LAWS. In connection with the offer and sale of
Units, you shall comply with any applicable requirements of the Act, the
Exchange Act, the NASD and the applicable state securities or "blue sky" laws,
and the rules and regulations thereunder.
(b) ACCURACY OF INFORMATION. No information supplied by you for use
in the Registration Statement, Preliminary Prospectus, Prospectus or Blue Sky
Application will contain any untrue statements of a material fact or omit to
state any material fact necessary to make such information not misleading.
(c) NO ADDITIONAL INFORMATION. You will not give any information or
make any representation in connection with the offering of the Units other than
that contained in the Prospectus.
(d) SALE OF UNITS. You shall solicit, directly or through Selected
Dealers, purchasers of the Units only in the jurisdictions in which you have
been advised by the Company that such solicitation can be made, and in which you
or the soliciting Selected Dealer, as the case may be, are qualified to so act.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company and the Underwriter and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect until
three years from the date of this Agreement, regardless of any investigation
made by or on behalf of the Underwriter, the Company, or any of its officers or
directors or any controlling person and will survive
38
<PAGE>
delivery of and payment of the Units and the termination of this Agreement.
14. NOTICE. Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed, delivered, or telecopied
and confirmed to them at Patterson Travis, Inc., One Battery Park Place, 2nd
Fl., New York, NY 10004, with a copy sent to Bernstein & Wasserman, LLP, 950
Third Avenue, New York, NY 10022, Attention: Stuart Neuhauser, Esq., or if
sent to the Company, will be mailed, delivered, or telecopied and confirmed to
it at 1090 King Georges Post Road, Suite 301, Edison, NJ 08837, Attention:
Eugene Gordon with a copy sent to Kelley Drye & Warren, 101 Park Avenue, New
York, NY 10178 Attention: Jane E. Jablons, Esq. Notice shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication.
15. PARTIES IN INTEREST. The Agreement herein set forth is made solely
for the benefit of the Underwriter, the Company, any person controlling the
Company or the Underwriter, and directors of the Company, nominees for directors
(if any) named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser,
as such purchaser, from the Underwriter of the Units.
16. APPLICABLE LAW. This Agreement will be governed by, and construed in
accordance with, of the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
18. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be
39
<PAGE>
amended except in writing, signed by the Underwriter and the Company.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriter in accordance with its terms.
Very truly yours,
MEDJET INC.
By: __________________________
Its
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
PATTERSON TRAVIS, INC.
By: __________________________
Its
40
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
MEDJET INC.
1,071,429 UNITS
CONSISTING OF
1,071,429 SHARES OF COMMON STOCK
AND
1,071,429 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_____________________, 1996
Dear Sirs:
1. Patterson Travis, Inc., named as the underwriter in the enclosed
Preliminary Prospectus (the "Underwriter"), proposes to offer on a firm
commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, 1,071,429 units (including any additional units offered
pursuant to an over-allotment option, the "Firm Units") of Medjet Inc. (the
"Company") each consisting of one (1) share of common stock par value $.001 per
share (the "Common Stock") and one (1) Class A Redeemable Common Stock Purchase
Warrant (the "Warrant"), to purchase one share of Common Stock. The Firm Units
are more particularly described in the enclosed Preliminary Prospectus,
additional copies of which as well as the Prospectus (after effective date) will
be supplied in reasonable quantities upon request.
2. The Underwriter is soliciting offers to buy Units upon the terms and
conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission ("the Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended ("the 1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. ("the NASD"), or (ii) dealers
of institutions with their principal place of business located outside the
United States, its territories and possessions and not registered under the 1934
Act who agree to make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation
<PAGE>
with respect to free-riding and withholding. Units are to be offered to the
public at a price of $5.60 per Unit. Selected Dealers will be allowed a
concession of not less than _____% of the offering price. You will be notified
of the precise amount of such concession prior to the effective date of the
Registration Statement. The offer is solicited subject to the issuance and
delivery of the Units and their acceptance by the Underwriter to the approval of
legal matters by counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Units has become effective with the Commission. Subject
to the foregoing, upon execution by you of the Offer to Purchase below and the
return of same to us, you shall be deemed to have offered to purchase the number
of Units set forth in your offer on the basis set forth in paragraph 2 above.
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Units, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of the Units assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing.
4. You agree that in re-offering the Units, if your offer is accepted
after the Effective Date, you will make a bona fide public distribution of same.
You will advise us upon request of the Units purchased by you remaining unsold,
and we shall have the right to repurchase such Units upon demand at the public
offering price less the concession as set forth in paragraph 2 above. Any of
the Units purchased by you pursuant to this Agreement are to be re-offered by
you to the public at the public offering price, subject to the terms hereof and
shall not be offered or sold by you below the public offering price before the
termination of this Agreement.
5. Payment for Units which you purchase hereunder shall be made by you on
such date as we may determine by certified or bank cashier's check payable in
New York Clearinghouse funds to Patterson Travis, Inc. Certificates for the
securities shall be delivered as soon as practicable at the offices of Patterson
Travis, Inc., One Battery Park Plaza, New York, NY 10004. Unless specifically
authorized by us, payment by you may not be deferred until delivery of
certificates to you.
6. A registration statement covering the offering has been filed with the
Commission in respect to the Units. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Units pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
Securities Act of 1933 and of the 1934 Act and any applicable
2
<PAGE>
rules and regulations issued under said Acts. No person is authorized by the
Company or by the Underwriter to give any information or to make any
representations other than those contained in the Prospectus in connection with
the sale of the Units. Nothing contained herein shall render the Selected
Dealers a member of the underwriting group or partners with the Underwriter or
with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Units have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Units in any state.
8. The Underwriter shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Units; such contractual commitment can only be made in
accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("Association") and registered as a
broker-dealer or are not eligible for membership under Section I of the By-Laws
of the Association who agree to make no sales within the United States, its
territories, or possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. Your attention is called to the
following: (a) Article III, Sections 1, 8, 24, 25, 26 and 36 of the Rules of
Fair Practice of the Association and the interpretations of said Section
promulgated by the Board of Governors of such Association including the
interpretation with respect to "Free-Riding and Withholding"; (b) Section 10(b)
of the 1934 Act and Rules 10b-6 and 10b-10 of the general rules and regulations
promulgated under said Act; (c) Securities Act Release #3907; (d) Securities Act
Release #4150; and (e) Securities Act Release #4968 requiring the distribution
of a Preliminary Prospectus to all persons reasonably expected to be purchasers
of Shares from you at least 48 hours prior to the time you expect to mail
confirmations. You, if a member of the Association, by signing this Agreement,
acknowledge that you are familiar with the cited law, rules, and releases, and
agree that you will not directly and/or indirectly violate any provisions of
applicable law in connection with your participation in the distribution of the
Units.
3
<PAGE>
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Units or its component
securities in the open market or otherwise make a market in such securities or
otherwise attempt to induce others to purchase such securities in the open
market. Nothing contained in this paragraph 11 shall, however, preclude you
from acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for
or purchases in the open market in connection with such stabilization any Units
sold to you hereunder and not effectively placed by you, the Underwriter may
charge you the Selected Dealer's concession originally allowed you on the Units
so purchased, and you agree to pay such amount to us on demand.
13. By submitting an Offer to Purchase you confirm that your net capital
is such that you may, in accordance with Rule 15c3-1 adopted under the 1934 Act,
agree to purchase the number of Units you may become obligated to purchase under
the provisions of this Agreement.
14. You agree that (i) you shall not recommend to a customer the
purchase of Firm Units unless you shall have reasonable grounds to believe that
the recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the customer's investment objectives,
financial situation and needs, and any other information known to you, (ii) in
connection with all such determinations, you shall maintain in your files the
basis for such determination, and (iii) you shall not execute any transaction in
Firm Units in a discretionary account without the prior specific written
approval of the customer.
4
<PAGE>
15. All communications from you should be directed to us at the office of
the Underwriter, Patterson Travis, Inc., One Battery Park Plaza, New York, NY
10004. All communications from us to you shall be directed to the address to
which this letter is mailed.
Very truly yours,
PATTERSON TRAVIS, INC.
By: ______________________________
Its
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1996
[Name of Dealer]
By: ______________________________
Its
5
<PAGE>
To: Patterson Travis, Inc.
One Battery Park Plaza
New York, NY 10004
We hereby subscribe for _____________ Units of Medjet Inc., each Unit
consisting of one (1) share of common stock, par value $.001 per share (the
"Common Stock") and one (1) Class A Redeemable Common Stock Purchase Warrant
(the "Class A Warrants"), to purchase one share of Common Stock, in accordance
with the terms and conditions stated in the foregoing letter. We hereby
acknowledge receipt of the Prospectus referred to in the first paragraph thereof
relating to said Units. We further state that in purchasing said Units we have
relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered as a
broker or dealer under the Securities Exchange Act of 1934, as amended, who
hereby agrees not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein.
We hereby agree to comply with the provisions of Section 24 of Article III of
the Rules of Fair Practice of the NASD, and if we are a foreign dealer and not a
member of the NASD, we also agree to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though we were a member of
the NASD, with the provisions of Sections 8 and 36 of Article III thereof as
that Section applies to non-member foreign dealers.
[Name of Dealer]
______________________________
By: ______________________________
Address
______________________________
______________________________
Dated _____________________, 1996
<PAGE>
Option to Purchase
107,143 Units
MEDJET INC.
UNIT PURCHASE OPTION
Dated: ________, 1996
THIS CERTIFIES that PATTERSON TRAVIS, INC., One Battery Park Plaza, New
York, NY 10005 (hereinafter sometimes referred to as the "Holder"), is entitled
to purchase from MEDJET INC., a Delaware corporation (hereinafter referred to as
the "Company"), at the prices and during the periods as hereinafter specified,
107,143 Units ("Units") consisting of the Company's common stock and warrants to
purchase the Company's common stock. Each Unit consists of one (1) share of the
Company's common stock, $.001 par value, as now constituted ("Common Stock") and
one (1) Class A Redeemable Common Stock Purchase Warrant to purchase one (1)
share of Common Stock as now constituted at an exercise price of $10.00 per
share ("Class A Warrants" or "Warrants"). The Class A Warrants are exercisable
until __________.
The Units have been registered under a Registration Statement on Form SB-2
(File No. 333-3184) declared effective by the Securities and Exchange Commission
on ____________, 1996 (the "Registration Statement"). This Option (the
"Option") to purchase 107,143 Units (the "Option Units") was originally issued
pursuant to an underwriting agreement between the Company and Patterson Travis,
Inc., as underwriter (the "Underwriter"), in connection with a public offering
of 1,071,429 Units (the "Public Units") through the Underwriter, in
consideration of $.001 per Option Unit.
Except as specifically otherwise provided herein, the Common Stock and the
Warrants issued pursuant to this Option shall bear the same terms and conditions
as described under the caption "Description of Securities" in the Registration
Statement, and the Warrants shall be governed by the terms of the Warrant
Agreement
<PAGE>
dated as of ________, 1996 executed in connection with such public offering (the
"Warrant Agreement"), and except that the holder shall have registration rights
under the Securities Act of 1933, as amended (the "Act"), for the Common Stock
and the Warrants included in the Units, and the shares of Common Stock
underlying the Warrants, as more fully described in paragraph 6 of this Option.
In the event of any reduction of the exercise price of the Warrants included in
the Public Units, the same percentage changes to the Warrants included in the
Option Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between ______, 1997 and _______, 2001, inclusive, the Holder
shall have the option to purchase Units hereunder at a price of $6.72 per Unit
(subject to adjustment pursuant to paragraph 8 hereof) (the "Exercise Price").
(b) After __________, 2001 (five (5) years from the Effective Date),
the Holder shall have no right to purchase any Units hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Units specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 6 and subparagraphs (b), (c)
and (d) of paragraph 7 hereof. This Option shall be deemed to have been
exercised, in whole or in part to the extent specified, immediately prior to the
close of business on the earliest date that both this Option is surrendered and
payment is made in accordance with the foregoing provisions of this paragraph 2,
and other provisions are complied with and the person or persons
2
<PAGE>
in whose name or names the certificates for shares of Common Stock and Warrants
shall be issuable upon such exercise shall become the holder or holders of
record of such Common Stock and Warrants at that time and date. The Common
Stock and Warrants and the certificates for the Common Stock and Warrants so
purchased shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) days, after the rights represented by this Option shall have
been so exercised.
3. For a period of one (1) year from the Effective Date, this Option
shall not be transferred, sold, assigned, or hypothecated, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder during such period. After such
one (1) year period any such assignment must be accompanied by an immediate
exercise of such assigned portion of this Option. Any such assignment shall be
effected by the Holder (i) executing the form of assignment at the end hereof
and (ii) surrendering this Option for cancellation at the office or agency of
the Company referred to in paragraph 2 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this paragraph 3 hereof;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and representing in
the aggregate rights to purchase the same number of Units as are purchasable
hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued as part of the Units purchased hereunder and the Common Stock
which may be issued upon exercise of the Warrants will, upon issuance, be duly
and validly issued, fully paid and nonassessable, and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of its
Common Stock to provide for the exercise of this Option and that it will have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of the Warrants included in the Units.
5. This Option shall not entitle the Holder to any voting, dividend, or
other rights as a stockholder of the Company.
3
<PAGE>
6. (a) During the period set forth in paragraph l(a) hereof, the Company
shall advise the Holder or its transferee, by written notice at least 30 days
prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act covering any securities of the Company, for its own
account or for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a period of seven
(7) years from the effective date of the Registration Statement, upon the
request of the Holder, include in any such post-effective amendment or
registration statement, such information as may be required to permit a public
offering of, all or any of the Units underlying the Option, the Common Stock, or
Warrants included in the Units or the Common Stock issuable upon the exercise of
the Warrants (the "Registrable Securities"). The Company shall supply
prospectuses and such other documents as the Holder may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities, use its reasonable efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder designates
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and do any and all other acts and
things which may be reasonably necessary or desirable to enable such Holders to
consummate the public sale or other disposition of the Registrable Securities,
and furnish indemnification in the manner provided in paragraph 7 hereof. The
Holder shall furnish information and indemnification as set forth in paragraph 7
except that the maximum amount which may be recovered from the Holder shall be
limited to the amount of proceeds received by the Holder from the sale of the
Registrable Securities. The Company shall use its best efforts to cause the
managing underwriter or underwriters of a proposed underwritten offering to
permit the holders of Registrable Securities requested to be included in the
registration to include such securities in such underwritten offering on the
same terms and conditions as any similar securities of the Company included
therein. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering advises the holders of Registrable Securities that
the total amount of securities which they intend to include in such offering is
such as to materially and adversely affect the success of such offering, then
the amount of securities to be offered for the accounts of holders of
Registrable Securities shall be eliminated, reduced, or limited to the extent
necessary to
4
<PAGE>
reduce the total amount of securities to be included in such offering to the
amount, if any, recommended by such managing underwriter or underwriters (any
such reduction or limitation in the total amount of Registrable Securities to be
included in such offering to be borne by the holders of Registrable Securities
proposed to be included therein pro rata). The Holder will pay its own legal
fees and expenses and any underwriting discounts and commissions on the
securities sold by such Holder and shall not be responsible for any other
expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof, to the
effect that such holder desires to register under the Act, the Units, or any of
the underlying securities contained in the Units underlying the Option under
such circumstances that a public distribution (within the meaning of the Act) of
any such securities will be involved, then the Company will promptly, but no
later than 60 days after receipt of such notice, file a post-effective amendment
to the current Registration Statement or a new registration statement pursuant
to the Act, to the end that the Units and/or any of the securities underlying
the Units may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such registration
to become and remain effective for a period of 120 days (including the taking of
such steps as are reasonably necessary to obtain the removal of any stop order);
provided that such holder shall furnish the Company with appropriate information
in connection therewith as the Company may reasonably request in writing. The
50% holder (which for purposes hereof shall mean any direct or indirect
transferee of such holder provided it owns at least 50% of the Option) may, at
its option, request the filing of a post-effective amendment to the current
Registration Statement or a new registration statement under the Act with
respect to the Registrable Securities on only one occasion during the term of
this Option. The Holder may at its option request the registration of any of
the securities underlying the Option in a registration statement made by the
Company as contemplated by Section 6(a) or in connection with a request made
pursuant to this Section 6(b) prior to acquisition of the Units issuable upon
exercise of the Option and even though the Holder has not given notice of
exercise of the Option. The 50% holder may, at its option, request such post-
effective amendment or new registration statement during the described period
with respect to the Units as a unit, or separately as to the Common Stock and/or
Warrants included in the Units and/or
5
<PAGE>
the Common Stock issuable upon the exercise of the Warrants, and such
registration rights may be exercised by the 50% holder prior to or subsequent to
the exercise of the Option. Within ten business days after receiving any such
notice pursuant to this subsection (b) of paragraph 6, the Company shall give
notice to the other holders of the Options, advising that the Company is
proceeding with such post-effective amendment or registration statement and
offering to include therein the securities underlying the Options of the other
holders. Each holder electing to include its Registrable Securities in any such
offering shall provide written notice to the Company within twenty (20) days
after receipt of notice from the Company. The failure to provide such notice to
the Company shall be deemed conclusive evidence of such holder's election not to
include its Registrable Securities in such offering. Each holder electing to
include its Registrable Securities shall furnish the Company with such
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of such post-effective amendment or new registration
statement shall be borne by the Company, except that the holders shall bear the
fees of their own counsel and any underwriting discounts or commissions
applicable to any of the securities sold by them.
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required to be
prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering; (iv) for the period of the financial statements called for in such
filing, the Company has only unaudited financial statements, unless the
underwriter agrees that such filing need not include audited financial
statements or (v) the Company is subject to an underwriter's lock-up as a result
of an underwritten public offering and such underwriter has refused in writing,
the Company's request to waive such lock-up. In the event of such postponement,
the Company shall be required to file the registration statement pursuant to
this Section 6(b), within 60 days of the consummation of the event requiring
such postponement.
6
<PAGE>
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of 120 days (and for up to an additional three months if requested by the
Holder) from the effective date thereof. The Company shall supply prospectuses,
and such other documents as the Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities,
use its best efforts to register and qualify any of the Registrable Securities
for sale in such states as such holder designates, provided that the Company
shall not be required to qualify as a foreign corporation or a dealer in
securities or execute a general consent to service of process in any
jurisdiction in any action and furnish indemnification in the manner provided in
paragraph 7 hereof. The demand registration rights granted hereunder will
expire no later than five (5) years from the effective date of this offering.
(c) The term "50% holder" as used in this paragraph 6 shall mean the
holder of more than 50% of the Common Stock and the Warrants underlying the
Option, as if exercised, (considered in the aggregate) and shall include any
owner or combination of owners of such securities, which ownership shall be
calculated by determining the number of shares of Common Stock held by such
owner or owners as well as the number of shares then issuable upon exercise of
the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any shares of Common Stock or Warrants issued or issuable upon the
exercise of any Options, is filed under the Act, or is amended or supplemented,
the Company will indemnify and hold harmless each holder of the securities
covered by such registration statement, amendment, or supplement (such holder
being hereinafter called the "Distributing Holder"), and each person, if any,
who controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages, or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the 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 such registration statement or any preliminary
7
<PAGE>
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or which arise out of or are based upon the omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse the Distributing
Holder and each such controlling person and underwriter for any legal or other
expenses reasonably incurred by the Distributing Holder or such controlling
person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; 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 said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder, for use in the preparation thereof; provided, further, that the
indemnity with respect to any preliminary prospectus shall not be applicable on
account of any losses, claims, damages, liabilities, or litigation arising from
the sale of such securities to any person if the misstatement or omission was
corrected in the final prospectus related thereto but such final prospectus was
not delivered by the Distributing Holder to such person at or prior to sale of
such securities.
(b) Each Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) and each other
Distributing Holder, if any, against any losses, claims, damages, or
liabilities, joint and several, to which the Company or any such director,
officer, or controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages, or liabilities arise out of or are
based upon any untrue or alleged untrue statement of any material fact contained
in said registration statement, said preliminary prospectus, said final
prospectus, or said amendment or
8
<PAGE>
supplement, 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, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus, or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder for use in the preparation thereof; and
will reimburse the Company or any such director, officer, or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not unless it is prejudiced
thereby relieve it from any liability which it may have to any indemnified party
otherwise than under this Paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price
9
<PAGE>
determined by multiplying the Exercise Price by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding after giving
effect to such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Notwithstanding
anything to the contrary contained in the Warrant Agreement, in the event an
adjustment to the Exercise Price is effected pursuant to this Subsection (a)
(and a corresponding adjustment to the number of Option Units is made pursuant
to Subsection (d) below), the exercise price of the Warrants shall be adjusted
so that it shall equal the price determined by multiplying the exercise price of
the Warrants by a fraction, the denominator of which shall be the number of
shares of Common Stock outstanding immediately after giving effect to such
action and the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. In such event, there shall be no
adjustment to the number of shares of Common Stock or other securities issuable
upon exercise of the Warrants. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option Unit by
the product of the Exercise Price in effect immediately prior to the date of
such issuance multiplied by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after
10
<PAGE>
the record date for the determination of shareholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants the Exercise Price shall be readjusted
to the Exercise Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Unit by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in Subsection (e)
below), less the fair market value per share (as determined by the Company's
Board of Directors) of said assets or evidences of indebtedness so distributed
or of such rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such current market
price per share of Common Stock. Such adjustment shall be made successively
whenever such a record date is fixed. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
distribution.
(d) Intentionally omitted.
(e) For the purpose of any computation under Subsections (b) or
(c)above, the current market price per share of Common Stock at any date shall
be deemed to be the average of the daily closing prices for 20 consecutive
business days before such date. The closing price for each day shall be the
last sale price regular way or, in case no such reported sale takes place on
such day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed
11
<PAGE>
or admitted to trading on such exchange, the average of the highest reported bid
and lowest reported asked prices as reported by NASDAQ, or other similar
organization if NASDAQ is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subsection (f) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 8 shall be made to the nearest cent or to the
nearest one-tenth of a share, as the case may be. Anything in this Section 8 to
the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal income tax liability to the
holders of Common Stock or securities convertible into Common Stock (including
Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Units issuable upon exercise of this Option
and, if requested, information describing the transactions giving rise to such
adjustments, to be mailed to the Holder, at the address set forth herein, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the
number of such
12
<PAGE>
other shares so receivable upon exercise of this Option shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Subsections (a) to (f), inclusive above.
9. No adjustment pursuant to Section 8 hereof to the Exercise Price of
the Option will be made, however,
(i) upon the sale or exercise of any Warrants, including
without limitation the sale or exercise of any of the Warrants comprising the
Option; or
(ii) upon the sale of any shares of Common Stock included in the
Units in the Company's initial public offering, including, without limitation,
shares sold upon the exercise of any over-allotment option granted to the
Underwriters in connection with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities (as defined in the Warrant Agreement) upon the exercise of any rights
or warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, whether or not such rights, warrants, or
options were outstanding on the date of the original sale of the Warrants or
were thereafter issued or sold; or
(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any adjustment in the
Exercise Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in a private placement unless the issuance or sale price is less than
85% of the fair market value of the Common Stock on the date of issuance, in
which case the adjustment shall only be for the difference between 85% of the
fair market value and the issue or sale price;
(vi) upon the issuance or sale of Common Stock or Convertible
Securities to (a) shareholders of any corporation which
13
<PAGE>
merges into the Company or from which the Company acquires assets and some or
all of the consideration consists of equity securities of the Company, in
proportion to their stock holdings of such corporation immediately prior to the
acquisition or (b) to any corporation or person from which the Company acquires
assets but only if no adjustment is required pursuant to any other provision of
this Section 9; or
(vii) upon the issuance or sale of (i) up to 200,000 options for
the purchase Common Stock to employees, officers, directors, advisors or
consultants under the Stock Option Plan or (ii) Common Stock issued upon the
exercise of options granted under the Stock Option Plan.
10. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, Medjet Inc. has caused this Option to be signed by its
duly authorized officers under its corporate seal, and this Option to be dated
_____________________, 1996.
MEDJET INC.
By: ______________________________
Its
(Corporate Seal)
14
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
____ Units of Medjet Inc., each Unit consisting of one share of $.001 Par Value
Common Stock and one Class A Redeemable Common Stock Purchase Warrant, and
herewith makes payment of $______________ therefor, and requests that the
Warrants and certificates for shares of Common Stock be issued in the name(s)
of, and delivered to ________________________ whose address(es) is
(are)_________________________________________.
_______________________
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase Units represented
by the foregoing Option to the extent of _____ Units, and appoints
_________________________________ attorney to transfer such rights on the books
of Medjet Inc., with full power of substitution in the premises.
Dated:
By: ______________________________
Address:
______________________________
______________________________
______________________________
In the presence of:
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of _______ 1996, by and between MEDJET
INC., a Delaware corporation ("Company"), and Continental Stock Transfer & Trust
Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 1,232,143 units
("Units"), each unit consisting of one (1) share of the Company's Common Stock,
$.001 par value ("Common Stock") and one (1) Class A Redeemable Common Stock
Purchase Warrant ("Class A Warrant" or "Warrant") pursuant to an underwriting
agreement (the "Underwriting Agreement") dated ______, 1996 between the Company
and Patterson Travis, Inc. ("Patterson"), and the issuance to Patterson or its
designees of Underwriter's Options to purchase 107,143 additional Units (the
"Underwriter's Options"), the Company will issue up to 1,339,286 Class A
Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
<PAGE>
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of _________ authorized shares, $.001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution, or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (i) only shares of such class designated
in the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the Warrants, or (ii) in the case of any reclassification,
change, consolidation, merger, sale, or conveyance of the character referred to
in Section 9(c) hereof, the stock, securities, or property provided for in such
section, or (iii) in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or consisting of a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office
is located at the date hereof at ___________________, New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the first business
day on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean ________, 1996.
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with
2
<PAGE>
the terms hereof, which price shall be $10.00 per share, subject to adjustment
from time to time pursuant to the provisions of Section 9 hereof, and subject to
the Company's right, in its sole discretion, to reduce the Purchase Price upon
notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.01 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
_____, ____ or the Redemption Date as defined in Section 8, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon
notice to all warrantholders the Company shall have the right to extend the
warrant expiration date.
2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the
3
<PAGE>
Company signed by its President or Chairman or a Vice President and by its
Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,339,286 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised Warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed, or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Underwriter's Options;
and (vi) those issued at the option of the Company, in such form as may be
approved by its Board of Directors, to reflect any adjustment or change in the
Purchase Price, the number of shares of Common Stock purchasable upon exercise
of the Warrants or the Redemption Price therefor made pursuant to Section 9
hereof.
(e) Pursuant to the terms of the Underwriter's Options, Patterson may
purchase up to 107,143 Units, which include up to 107,143 Class A Warrants.
3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Class A Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers, or other marks of
identification or designation and such legends, summaries, or endorsements
printed,
4
<PAGE>
lithographed, or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage or to the requirements of Section 2(b). The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange, or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President, or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4 hereof.
4. EXERCISE. (a) Each Class A Warrant may be exercised by the Registered
Holder thereof at any time on or after the Initial Warrant Exercise Date, but
not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise
5
<PAGE>
of the Warrant as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date the Warrant Agent shall deposit in a
non-interest bearing account at Chemical Bank or such other bank as the Warrant
Agent may designate, the proceeds received from the exercise of a Warrant and
shall notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the securities
deliverable upon such exercise (plus a certificate for any remaining unexercised
Warrants of the Registered Holder), unless prior to the date of issuance of such
certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Upon the exercise of
any Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant Proceeds") to
the Company or as the Company may direct in writing.
(b) If, subsequent to_______ 1997,in respect of the exercise of any
Warrant, (i) the market price of the Company's Common Stock is greater than the
then Purchase Price of the Warrants, (ii) the exercise of the Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD") and such member was designated in writing by the holder of such Warrant
as having solicited such Warrant, (iii) the Warrant was not held in a
discretionary account, (iv) disclosure of compensation arrangements was made
both at the time of the original offering and at the time of exercise and (v)
the solicitation of the exercise of the Warrant was not in violation of Rule
10b-6 (as such rule or any successor rule may be in effect as of such time of
exercise) promulgated under the Securities Exchange Act of 1934, as amended,
then the Warrant Agent, simultaneously with the distribution of proceeds to the
Company received upon exercise of the Warrant(s) so exercised shall, on behalf
of the Company, pay from the proceeds received upon exercise of the Warrant(s),
a fee of 8% of the Purchase Price to Patterson (of which 1% may be reallowed to
the dealer who solicited the exercise, which may also be Patterson). Within
five days after exercise, the Warrant Agent shall send Patterson
6
<PAGE>
a copy of the reverse side of each Warrant exercised. Patterson shall reimburse
the Warrant Agent, upon request, for its reasonable expenses relating to
compliance with this Section. In addition, Patterson and the Company may at any
time during business hours, examine the records of the Warrant Agent, including
its ledger of original Warrant Certificates returned to the Warrant Agent upon
exercise of Warrants. The provisions of this paragraph may not be modified,
amended or deleted without the prior written consent of Patterson.
5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES, ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval and will use its reasonable efforts to
obtain appropriate approvals or registrations under state "blue sky" securities
laws, provided, however, that the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction. With respect to any such securities,
however, Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such
7
<PAGE>
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue, and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or
8
<PAGE>
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed on the Registered Holder by the
Warrant Agent for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or disposed of or destroyed, at
the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement will be detachable
from the Common Stock and transferable separately therefrom upon the earlier of
(i) three (3) months from the Effective Date (as defined in the Company's
Registration Statement on Form SB-2 No. 333-3184) or upon agreement between the
Company and Patterson.
7. LOSS OR MUTILATION. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any
9
<PAGE>
Warrant Certificate and (in case of loss, theft, or destruction) of indemnity
satisfactory to them, and (in the case of mutilation) upon surrender and
cancellation thereof, the Company shall execute and the Warrant Agent shall (in
the absence of notice to the Company and/or Warrant Agent that the Warrant
Certificate has been acquired by a bona fide purchaser) countersign and deliver
to the Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Applicants for a substitute
Warrant Certificate shall comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
8. REDEMPTION.
(a) Subject to the provisions of paragraph 2(e) hereof, on not less
than thirty (30) days notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.01 per Warrant, provided that the Market Price (defined
below)of the Common Stock receivable upon exercise of the Class A Warrant shall
equal or exceed $13.00 (the "Target Price"), subject to adjustment as set forth
in Section 8(f) below. Market Price for the purpose of this Section 8 shall
mean (i) the average closing bid price for any ten (10) consecutive trading days
within a period of thirty (30) consecutive trading days ending within five (5)
days prior to the date of the notice of redemption, which notice shall be mailed
no later than five days thereafter, of the Common Stock as reported by the
National Association of Securities Dealers, Inc. Automatic Quotation System or
the NASD Electronic Bulletin Board or (ii) the average of the last reported sale
price, for ten (10) consecutive business days, ending within five (5) days of
the date of the notice of redemption, which notice shall be mailed no later than
five days thereafter, on the primary exchange on which the Common Stock is
traded, if the Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Class A Warrants, it shall
mail a notice of redemption to each of the Registered Holders of the Warrants to
be redeemed, first class, postage prepaid, not later than the thirtieth day
before
10
<PAGE>
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Class A Warrant shall be the Redemption Date.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On
and after the Redemption Date, Holders of the Warrants shall have no further
rights except to receive, upon surrender of the Warrant prior to the Redemption
Date, the Redemption Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price, shall
cease.
11
<PAGE>
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR
WARRANTS.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) (calculated as of
the date prior to the date of the sale) or issue any shares of Common Stock as a
stock dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such sale, issuance, subdivision, or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Purchase Price in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent) determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the Change of Shares and the
number of shares of Common Stock which the aggregate consideration received
(determined as provided in subsection 9(f)below) for the issuance of such
additional shares would purchase at such current market price per share of
Common Stock, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the Change of Shares. Such
adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to
12
<PAGE>
such adjustment multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to
this Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) After the date hereof, in case of any reclassification, capital
reorganization, or other change of outstanding shares of Common Stock, or in
case of any consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification,
capital reorganization, or other change of outstanding shares of Common Stock),
(or in case of any sale or conveyance to another corporation of all or
substantially all of the assets of the Company (other than a sale/leaseback,
mortgage, or other financing transaction)), the Company shall
13
<PAGE>
cause effective provision to be made so that each holder of a Warrant then
outstanding shall have the right thereafter, by exercising such Warrant, to
purchase the kind and number of shares of stock or other securities or property
(including cash) receivable upon such reclassification, capital reorganization,
or other change, consolidation, merger, sale, or conveyance by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Warrant immediately prior to such reclassification, capital reorganization,
or other change, consolidation, merger, sale, or conveyance. Any such provision
shall include provision for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 9. The
Company shall not effect any such consolidation, merger, or sale unless prior to
or simultaneously with the consummation thereof, the successor (if other than
the Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations, and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales, or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefore were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an
14
<PAGE>
Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant after such adjustment, and, if the Company shall have elected to
adjust the number of Warrants, the number of Warrants to which the registered
holder of each Warrant shall then be entitled, and the adjustment in Redemption
Price resulting therefrom, and (iii) a brief statement of the facts accounting
for such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to Patterson and to each registered holder of Warrants at his last
address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective and who is prejudiced thereby. The affidavit of an officer of the
Warrant Agent or the Secretary or an Assistant Secretary of the Company that
such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Purchase Price then in effect hereunder.
(iii) After the date hereof, in case of (1)
15
<PAGE>
the sale by the Company for cash of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, either Common Stock or any
securities convertible into or exchangeable for Common Stock without the payment
of any further consideration other than cash, if any (such convertible or
exchangeable securities being herein called "Convertible Securities"), or (2)
the issuance by the Company, without the receipt by the Company of any
consideration therefor, of any rights or warrants to subscribe for or purchase,
or any options for the purchase of, either Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants, or options shall consist of
cash, whether or not such rights, warrants, or options, or the right to convert
or exchange such Convertible Securities, are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants,
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants, or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants, or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants, or options) is less than the Market Price of the Common Stock
on the date of the issuance or sale (calculated as of the date prior to the date
of sale)of such rights, warrants, or options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities (as of
the date of the issuance or sale of such rights, warrants, or options) shall be
deemed to be outstanding shares of Common Stock for purposes of Sections 9(a)
and 9(b) hereof and shall be deemed to have been sold for cash in an amount
equal to such price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of
16
<PAGE>
conversion or exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities
determined as of the date of issuance) is less than the Market Price of the
Common Stock on the date of the sale of such Convertible Securities (calculated
as of the date prior to the date of sale), then the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Common Stock for
purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been sold
for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights of conversion,
exchange, or exercise of any of the securities referred to in subsection (iii)
above or any other securities of the Company convertible, exchangeable, or
exercisable for shares of Common Stock, for any reason other than an event that
would require adjustment to prevent dilution, so that the consideration per
share received by the Company after such modification is less than the Market
Price on the date prior to such modification (calculated as of the date prior to
the date of sale), the Purchase Price to be in effect after such modification
shall be determined by multiplying the Purchase Price in effect immediately
prior to such event by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding plus the number of shares of Common Stock
which the aggregate consideration receivable by the Company for the securities
affected by the modification would purchase at the Market Price (calculated as
of the date prior to the date of sale)and of which the denominator shall be the
number of shares of Common Stock outstanding on such date plus the number of
shares of Common Stock to be issued upon conversion, exchange, or exercise of
the modified securities at the modified rate. Such adjustment shall become
effective as of the date upon which such modification shall take effect.
17
<PAGE>
(vi) On the expiration of any such right, warrant, or option or
the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
(vii) In case of the sale (other than pursuant to the Stock
Option Plan or the Warrants)for cash of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefore shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants comprising the
Underwriter's Options; or
(ii) upon the sale of any shares of Common Stock in the
Company's initial public offering, including, without limitation, shares sold
upon the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(iii) upon the issuance or sale of Common
18
<PAGE>
Stock or Convertible Securities upon the exercise of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants, or options were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in a private placement unless the issuance or sale price is less than
85% of the fair market value of the Common Stock on the date of issuance, in
which case the adjustment shall only be for the difference between 85% of the
fair market value and the issue or sale price;
(vi) upon the issuance or sale of Common Stock or Convertible
Securities to (a) shareholders of any corporation which merges into the Company
or from which the Company acquires assets and some or all of the consideration
consists of equity securities of the Company, in proportion to their stock
holdings of such corporation immediately prior to the acquisition or (b) to any
corporation or person from which the Company acquires assets but only if no
adjustment is required pursuant to any other provision of this Section 9; or
(vii) upon the issuance or sale of (i) up to 200,000 options for
the purchase Common Stock to employees, officers, directors, advisors or
consultants under the Stock Option Plan or (ii) Common Stock issued upon the
exercise of options granted under the Stock Option Plan.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
19
<PAGE>
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution, or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units, or (i)in the case of any
reclassification, change, consolidation, merger, sale, or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities, or property
provided for in such section or, (ii)in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) Intentionally omitted.
10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation
20
<PAGE>
System or the NASD Electronic Bulletin Board, the current value shall be the
last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. or the NASD
Electronic Bulletin Board on the last business day prior to the date of the
exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants shall,
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
12. RIGHTS OF ACTION. All rights of action with respect to this Agreement
are vested in the respective Registered Holders of the Warrants, and any
Registered Holder of a Warrant, without consent of the Warrant Agent or of the
holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the
21
<PAGE>
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
13. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall purchase
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cause to be
cancelled Common Stock following exercise of any or all of the Warrants
represented thereby or delivered to it for transfer, split up, combination, or
exchange.
15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock
22
<PAGE>
issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order, or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses, and liabilities, including judgments,
costs, and counsel fees, for anything done or omitted by the Warrant
23
<PAGE>
Agent in the execution of its duties and powers hereunder except losses,
expenses, and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act, or deed; but if for any reason
it shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act, or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
24
<PAGE>
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
16. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; PROVIDED,
HOWEVER, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and PROVIDED, FURTHER, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law. In addition, the Company and Patterson may by
supplemental agreement extend the Warrant Expiration Date without the consent of
the Registered Holders.
17. NOTICES. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the
25
<PAGE>
Registered Holder of a Warrant Certificate, at the address of such holder as
shown on the registry books maintained by the Warrant Agent; if to the Company,
1090 King Georges Road, Suite 301, Edison, NJ 08837, Attention: President, with
a copy sent to the Law Offices of Kelley Drye & Warren, 101 Park Avenue, New
York, NY 10178, Attention: Jane E. Jablons, Esq.; or at such other address as
may have been furnished to the Warrant Agent in writing by the Company; and if
to the Warrant Agent, at its corporate office.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Company and, the Warrant Agent and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy, or claim, in equity or at law, or to impose upon any
other person any duty, liability, or obligation.
20. TERMINATION. This Agreement shall terminate at the close of business
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
26
<PAGE>
21. COUNTERPARTS. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MEDJET INC.
By:______________________________
Its
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By:______________________________
Its
Authorized Officer
27
<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. W ___________ Class A Warrants
VOID AFTER ______, ____
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
MEDJET INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.001 par value ("Common Stock"), of MEDJET INC., a Delaware corporation
(the "Company"), at any time between the Initial Warrant Exercise Date (as
herein defined) and the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of Continental
STOCK TRANSFER & TRUST COMPANY, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $10.00 ("Purchase Price") in lawful money of
the United States of America in cash or by official bank or certified check made
payable to Continental Stock Transfer & Trust Company, as Warrant Agent for
MEDJET INC.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated _________, 1996,
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean __________, 1996.
The term "Expiration Date" shall mean 5:00 p.m. (New York time on
______,____, or such earlier date as the Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right
2
<PAGE>
to vote or to receive dividends or other distributions, and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.01 per Warrant at any time after the Initial Warrant Exercise Date
(as defined in the Warrant Agreement), provided the Market Price (as defined in
the Warrant Agreement) for the securities issuable upon exercise of such Warrant
shall exceed $13.00 per share. Notice of redemption shall be given not later
than the thirtieth day before the date fixed for redemption, all as provided in
the Warrant Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant except to
receive the $.01 per Warrant upon surrender of this Certificate prior to the
Redemption Date (as defined in the Warrant Agreement).
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Delaware.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
MEDJET INC.
By: ______________________________
Its
By: _______________________________
Its
Date: _____________________________
3
<PAGE>
[Seal]
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By: ______________________________
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
____________________________________________
(please insert social security or other identifying number)
and be delivered to
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
____________________________________________
____________________________________________
____________________________________________
(Address)
_________________________________
(Date)
_________________________________
(Taxpayer Identification Number)
Soliciting Broker:_________________________________
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
____________________________________________
(please insert social security or other identifying number)
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
_________________________________
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
<PAGE>
PROMISSORY NOTE
$100,000.00 July 19, 1996
Edison, New Jersey
FOR VALUE RECEIVED, MEDJET INC. (the "Maker") promises to pay to the
order of Robert P. Lehmann ("Holder"), the principal sum of One Hundred Thousand
Dollars ($100,000.00), together with interest on the unpaid principal balance at
a rate per annum equal to nine percent (9%). Principal and accrued interest
hereunder shall be due and payable on written demand made at any time on or
after December 31, 1996. Interest shall accrue from the date of this Note until
the entire unpaid principal balance together with any accrued and unpaid
interest is paid in full.
Payment shall be made in lawful tender of the United States and shall be
credited first to the accrued interest then due and payable and the remainder
applied to principal. Prepayment of principal, together with accrued interest,
may be made at any time without notice, premium or penalty.
Concurrently with the delivery of this Note, Maker has granted to Holder
warrants to purchase 2,246 shares of common stock, par value $.001 per share, of
Maker at a purchase price of $11.13 per share, which shares shall, upon their
purchase, be included in piggy-back registration rights already granted by Maker
to Holder under that certain Subscription Agreement between Holder and Maker
dated July 27, 1994.
The entire unpaid principal sum of this Note, together with accrued and
unpaid interest to date, shall be due and payable at any time on or after
December 31, 1996 upon written demand or, without any demand, immediately upon
the insolvency of the Maker, the commission of any act of bankruptcy by the
Maker, the execution by the Maker of a general assignment for the benefit of
creditors, the filing by or against the Maker of any petition in bankruptcy or
any petition for relief under the provisions of the federal bankruptcy act or
any other state or federal law for the relief of debtors and the continuation of
such petition without dismissal for a period of fifteen (15) days or more, or
the appointment of a receiver or trustee to take possession of the property or
assets of the Maker.
If action is instituted to collect this Note, the Maker promises to pay
all costs and expenses, including reasonable attorneys' fees and expenses,
incurred in connection with such action.
The Maker hereby waives notice of default, presentment or demand for
payment, except as set forth in the first paragraph hereof, protest or notice of
nonpayment or dishonor and all other notices or demands relative to this
instrument.
<PAGE>
This Note may not be transferred without the prior written consent of the
Maker.
This Note shall be construed in accordance with the internal laws of the
State of New York.
"MAKER"
MEDJET INC.
By: /s/ Eugene I. Gordon
----------------------------------
Title: President
2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Medjet Inc. on Form
SB-2 of our report dated January 15, 1996 (except as to Note A(2), Note B(5) and
(6), Note E, Note F, Note H, Note I and Note J which are dated July 19, 1996),
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/Rosenberg Rich Baker Berman & Company
----------------------------------------
Maplewood, New Jersey
July 22, 1996
