<PAGE>
As filed with the Securities and Exchange Commission on July 3, 1996
Registration No. 333-3184
================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 2
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 of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
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 Aggregate Amount of
Title of Each Class of Securities Dollar Amount Offering Price Offering Registration
Being Registered to Be Registered Per Security (1) Price (1) Fee (1)(4)
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<S> <C> <C> <C> <C>
Units, each consisting of one
share of Common Stock and one $6,900,000(3) $5.00 $6,900,000 $2,379.31
Class A Warrant
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Common Stock, par value $.001 -- -- -- --
per share, included in the Units
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Class A Warrants included in the -- -- -- --
Units
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Common Stock underlying Class $13,800,000(3) $10.00 $13,800,000 $4,758.62
A Warrants (2)
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Underwriter's Options $120 $.001 $120 $.04
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Units underlying Underwriter's $720,000 $6.00 $720,000 $248.28
Options
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Common Stock included in Units
underlying Underwriter's -- -- -- --
Options
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Class A Warrants included in
Units underlying Underwriter's -- -- -- --
Options
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Common Stock underlying
Warrants included in Units
underlying Underwriter's $1,200,000 $10.00 $1,200,000 $413.79
Options
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Total Registration Fee $22,620,120 $22,620,120 $7,800.04
================================================================================================================================
</TABLE>
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<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 $900,000 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.
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<PAGE>
MEDJET INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Heading in Prospectus
- --------------------------------- ---------------------
<S> <C> <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 Risk Factors; Dilution; Management; Shares Eligible for
Matters.................................................. 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>
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JULY 3, 1996
PROSPECTUS
MEDJET INC.
1,200,000 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
1,200,000 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 18 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 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."
The Company is seeking to have the Units approved for trading on the Nasdaq
SmallCap Market ("Nasdaq") under the symbol "MJETU," and the Common Stock and
the Warrants approved for trading under the symbols "MJETC" and "MJETW,"
respectively.
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.
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
Per Unit.................. $5.00 $.50 $4.50
Total (3)................. $6,000,000 $600,000 $5,400,000
(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>
(1) Does not include additional compensation to the Underwriter, including (i)
options (the "Underwriter's Options") to purchase 120,000 Units at an
exercise price of $6.00 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, excercisable for a
period of 30 days from the date of this Prospectus, to purchase up to
180,000 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 $690,000 and the total
proceeds to Company will be $6,210,000.
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<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.
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<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 $5.00, (ii)
assumes no exercise of the Underwriter's over-allotment option and (iii) has
been adjusted to reflect a 2.226043597-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 50.
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 and has not yet conducted tests of either the HRK or
HTK procedures using its keratome.
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 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
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<PAGE>
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 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.
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 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
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<PAGE>
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.
The Offering
Securities Offered.......... 1,200,000 Units at $5.00 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."
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<PAGE>
Warrants..................... The Warrants will be exercisable at $10.00 per
share for 18 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)..... 2,744,349 shares
Common Stock to be
Outstanding after the
Offering(1).................. 3,944,349 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 Nasdaq Trading
Symbol (2)................... Units: MJETU
Common Stock: MJETC
Class A Warrants: MJETW
- ----------
(1) Unless otherwise indicated, no effect is given to (i) 1,200,000 shares
reserved for issuance upon the exercise of the Warrants included in the
Units, (ii) 180,000 shares reserved for issuance upon the exercise of the
Underwriter's over-allotment option, (iii) 180,000 shares reserved for
issuance upon the exercise of the Warrants included in the Units included
in the Underwriter's over-allotment option, (iv) 240,000 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"), 55,651 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 110,000
shares reserved for issuance pursuant to outstanding warrants. Gives effect
to a stock split ratio of 2.226043597-for-1 effected in connection with the
Offering.
(2) Application will be made for the quotation of the Securities on Nasdaq. See
"Risk Factors -- No Assurance of Public Trading Market or Continued Nasdaq
Inclusion."
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 to
Management from Proceeds of Offering; Future Sale of Unregistered Securities;
Registration Rights; Depressive Effect on Market Price
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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 Prices; Possible
Volatility of Stock Price; No Assurance of Public Trading Market or Continued
Nasdaq Inclusion; 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
- ----------
(1) Adjusted to give effect to (i) the sale of the Units in this Offering at
$5.00 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."
</TABLE>
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<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(6) and Note I, which are dated March 22, 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."
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<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"). 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.
-10-
<PAGE>
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,
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
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<PAGE>
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 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
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<PAGE>
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 $668,000, or
13.7%, 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 2,744,349 shares of Common Stock
(without giving effect to 55,651 shares of Common Stock reserved for issuance
pursuant to outstanding options under the Stock Option Plan and 110,000 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."
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 $3.31, or approximately 66.2%, 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
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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 3,944,349 shares (4,124,349 shares,
if the over-allotment option is exercised in full) of Common Stock (without
giving effect to (i) 1,200,000 shares of Common Stock reserved for issuance upon
the exercise of the Warrants included in the Units and 180,000 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) 240,000 shares
of Common Stock reserved for issuance upon the exercise of the Underwriter's
Options and the Warrants included therein, (iii) 255,651 shares of Common Stock
reserved for issuance pursuant to the Stock Option Plan and (iv) 110,000 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 55,651
shares of Common Stock have been granted pursuant to the Stock Option Plan and
warrants to purchase 110,000 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 788,026 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 (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. 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
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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 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.
-15-
<PAGE>
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 or Continued Nasdaq Inclusion. 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 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.
Application will be made for the quotation of the Securities on The Nasdaq
SmallCap Market ("Nasdaq"), and it is anticipated that, on the Effective Date,
the Securities will be quoted on Nasdaq. If for any reason the Securities are
not eligible for continued quotation on Nasdaq, purchasers of the Securities may
have difficulty selling the Securities. In order to qualify for continued
quotation on Nasdaq, a company, among other things, must have at least
$2,000,000 in total assets and $1,000,000 in total capital and surplus, a public
float of at least 100,000 shares having a market value of at least $200,000 and
a minimum bid price of $1.00 per share (which minimum bid price requirement is
waived if the company maintains at least $2,000,000 in total capital and surplus
and $1,000,000 in market value of its public float).
If the Company is unable to satisfy the requirements for continued
quotation on Nasdaq, of which there can be no assurance, the Securities offered
hereby would be quoted in the over-the-counter market in the National Quotation
Bureau ("NQB") "Pink Sheets" or on the National Association of Securities
Dealers ("NASD") OTC Electronic Bulletin Board, a NASD-sponsored and operated
inter-dealer automated quotation system for equity securities not quoted on
Nasdaq. In such event, the prices and liquidity of the Securities could be
adversely affected and the trading of the Securities could be subject to the
so-called "penny stock" rules. Further, the removal or delisting of the
Securities from Nasdaq may cause the Company to experience difficulty in
obtaining subsequent financing and may result in a loss in coverage of the
Securities by brokers and the financial press. See "Risk Factors -- Risk of
Low-Priced Securities."
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 at some time in the future the Units offered hereby are removed or
delisted from Nasdaq, 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 its
registered representative and current quotations for the securities. Finally,
among other requirements, monthly statements must be sent to the purchaser
-16-
<PAGE>
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 or Continued Nasdaq Inclusion."
-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>
Approximate Percent
Application of Proceeds Amount of Proceeds 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).......... 615,000 12.6
Patent filings (4)..................... 50,000 1.0
Working capital and general
corporate purposes.................. 668,000 13.7
---------- -----
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; and 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. 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.
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.
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<PAGE>
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 $(.14) per share.
After the sale of 1,200,000 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 $4,627,223, or $1.69 per share,
representing an immediate increase in net tangible book value of $1.83 per share
to the existing shareholders and an immediate dilution of $3.31 (66.2%) 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:
Public offering price per share(1)............... $5.00
Net tangible book value per
share before Offering........................... $(.14)
Increase per share attributable to
new investors................................... 1.83
----
As adjusted, net tangible book value
per share after Offering(2)..................... 1.69
-----
Dilution per share to public investors........... $3.31
=====
- ----------
(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 $3.03 (60.6%) 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..... 2,744,349 70.0% $ 966,824 14% $ .352
New Investors............. 1,200,000 30.0 6,000,000 86 5.000
--------- ----- ---------- ---
Total............ 3,944,349 100% $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 2.226043597-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; 2,744,349 shares issued
and outstanding; 3,944,349 shares as adjusted (1)................. $ 2,744 $ 1,200 $ 3,944
Additional paid-in capital........................................ 964,080 3,700,402 4,664,482
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) 1,200,000 shares of
Common Stock reserved for issuance upon the exercise of the 1,200,000
Warrants included in the Units, (ii) 180,000 shares reserved for issuance
upon the exercise of the Underwriter's over-allotment option, (iii) 180,000
shares reserved for issuance upon the exercise of the Warrants included in
the Units included in the Underwriter's over-allotment option, (iv) 240,000
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,
55,651 shares of Common Stock reserved for issuance upon the exercise of
outstanding options under the Stock Option Plan and 110,000 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. The Company
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<PAGE>
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 and has not yet conducted tests on live humans
of either HRK or HTK procedures using the Company's waterjet keratome.
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 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.
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, or other approval
-25-
<PAGE>
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 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.
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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
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
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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."
The HRK Keratome
General
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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 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.
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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 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
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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.
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
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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 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
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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.
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
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<PAGE>
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.
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
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<PAGE>
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.
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<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:
<TABLE>
Name Age Position
---- --- --------
<S> <C> <C>
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
</TABLE>
- ----------
* 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.
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<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 Employees
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 $5.00 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 it for the loss, through death, of Dr. Gordon, who is
65 years old. The Company has arranged to increase such coverage (i) in
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<PAGE>
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>
Summary Compensation Table
<S> <C> <C> <C> <C>
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
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. 255,651 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 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
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<PAGE>
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 26,712 shares of Common Stock
have been granted to Steven G. Cooperman, a director of the Company, and ISOs to
purchase an additional 28,938 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 Stock
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).
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
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<PAGE>
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 33,391 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 33,391 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 100,172 shares of Common Stock, with an exercise
price of $3.00 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 8,904 shares of Common Stock, with an exercise price
of $3.00 per share, 25% of which shall vest at the completion of each year of
service until fully vested.
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<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):
<TABLE>
<CAPTION>
Percentage of Outstanding
Shares of Common Stock
-------------------------
Name and Address Number of Before After
of Beneficial Owner Shares(1) Offering Offering
- ------------------- --------- -------- --------
<S> <C> <C> <C>
Eugene I. Gordon .................... 1,782,689 65.0% 45.2%
1090 King Georges Post
Road Suite 301
Edison, NJ 08837
Thomas M. Handschiegel .............. -0- -- --
1090 King Georges Post
Road
Suite 301
Edison, NJ 08837
Steven G. Cooperman(2) .............. 92,381 3.4 2.3
201 Beagling Hill Circle
Fairfield, CT 06430
Sanford J. Hillsberg (3) ............ 20,776 * *
c/o Troy & Gould
1801 Century Park East
Suite 1700
Los Angeles, CA 90067
Steven Katz (3) ..................... -0- -- --
8000 Cooper Avenue
Building 28
Glendale, NY 11355
All executive officers and .......... 1,895,846 69.1 48.0
directors of the Company as a
group (3 persons) (3)
</TABLE>
- ----------
* Represents holdings of less than one percent.
(1) All shares owned directly unless otherwise noted.
(2) Includes 12,243 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.
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<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, 2,744,349 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 55,651 shares of Common
Stock reserved for issuance pursuant to outstanding options under the Stock
Option Plan and 110,000 shares of Common Stock reserved for issuance pursuant to
outstanding warrants). There will be 3,944,349 shares of Common Stock and
1,200,000 Warrants issued and outstanding after the sale of the Units (without
giving effect to the Underwriter's over-allotment option, 55,651 shares of
Common Stock reserved for issuance pursuant to outstanding options under the
Stock Option Plan and 110,000 shares of Common Stock reserved for issuance
pursuant to outstanding warrants).
Immediately prior to the date of this Prospectus, the Company will effect a
2.226043597-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.
Certain Effects of Authorized and Unissued Stock
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<PAGE>
There are currently 3,890,000 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 Effective 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 18 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 five days of the date of the notice of redemption, of the Common Stock as
reported by Nasdaq 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.
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<PAGE>
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 it is anticipated that the Warrants will
commence trading on Nasdaq commencing on the Separation Date, there can be no
assurance that a trading market for the Warrants will ever develop.
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.
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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have outstanding
3,944,349 shares of Common Stock (without giving effect to 55,651 shares of
Common Stock reserved for issuance pursuant to outstanding options under the
Stock Option Plan and 110,000 shares of Common Stock reserved for issuance
pursuant to outstanding warrants). In addition, the Company will have reserved
(i) 1,200,000 shares of Common Stock for issuance upon the exercise of the
Warrants included in the Units, (ii) 180,000 shares of Common Stock for issuance
upon the exercise of the Underwriter's over-allotment option, (iii) 180,000
shares of Common Stock for issuance upon the exercise of Warrants included in
the Units in the Underwriter's over-allotment option, (iv) 240,000 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) 255,651 shares
of Common Stock for issuance pursuant to the Stock Option Plan and (vi) 110,000
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.
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<PAGE>
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 180,000 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 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 $.50 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
-45-
<PAGE>
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 120,000 Units. Each of the Underwriter's Options is
exercisable to purchase one Unit at $6.00 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 18- 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 (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, 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
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<PAGE>
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.
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<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.
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
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<PAGE>
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.
Vision zone is a circular region within the cornea through which all of the
light ultimately reaching the retina passes.
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<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 June 27, 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, 2,744,349
(post-split) issued and outstanding .. 2,744 -- 2,744 2,744
Preferred Stock, $.01 par value,
1,000,000 shares authorized, no
shares issued -- -- -- --
Additional paid in capital 964,080 (1,141,418)(1) (177,338) 964,080
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.
See Notes to the Financial Statements.
F-4
<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)
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)
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 $ (.06) $ (.05) $ (.44)
=========== =========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 2,744,349 2,700,200 2,580,440
=========== =========== ===========
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)
(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 $ (.25) $ (.12)
=========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 2,713,707 2,364,989
=========== ===========
F-6
<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 2.2260435971
for 1 Share Outstanding 1,511,512 - - 1,511 (1,511) -
Net Loss, Year Ended December 31, 1995 - - - - - (677,385)
--------- ----------- ---------- -------- -----------
Balance, December 31, 1995 2,744,349 $ 966,824 $ 2,744 $964,080 $ (964,676)
Net Loss, Three Months Ended March 31, 1996 - - - - - (176,742)
--------- ----------- ---------- -------- -----------
Balance, March 31, 1996 (Unaudited) 2,744,349 $ 966,824 $ 2,744 $964,080 $(1,141,418)
========= =========== ========== ======== ===========
</TABLE>
See Notes to the Financial Statements.
F-7
<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)
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)
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)
----------- ----------- -----------
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)
(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-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)
<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)
CASH FLOWS FROM FINANCING ACTIVITIES (CONTINUED):
<S> <C> <C> <C>
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-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)
(CONTINUED)
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
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 $ -
========= =========
F-11
<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 1,200,000 units ("Units"), with each Unit
consisting of (i) one share of Medjet common stock and (ii) one
18-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 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'ssecurities. 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. 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-12
<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 2.226043597 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-13
<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-14
<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-15
<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 1,200,000 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 2.226043597 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.
F-16
<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 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.
MEDJET INC.
---------
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....................................... 41
Certain Transactions......................................... 42
Description of Securities.................................... 42
Shares Eligible for Future Sale.............................. 44
Underwriting................................................. 45
Legal Matters................................................ 47
Experts...................................................... 47
Glossary..................................................... 48
Index to Financial Statements................................ F-1
---------
Until _____________, 1996 [25 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.
1,200,000 UNITS this
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.
*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 3, 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 3, 1996
- -------------------------- Board (Principal Executive
Eugene I. Gordon Officer)
/s/ Thomas M. Handschiegel Chief Financial Officer and Vice July 3, 1996
- -------------------------- President for Finance and Human
Thomas M. Handschiegel Resources (Principal Financial and
Accounting Officer)
* Director July 3, 1996
- -------------------------
Steven G. Cooperman
*By: /s/ Thomas M. Handschiegel
--------------------------
Attorney-in-Fact
<PAGE>
EXHIBIT 1.1
1,200,000 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 1,200,000 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 eighteen
(18) 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 180,000 additional Units.
Unless the context otherwise requires, the aggregate of 1,200,000 shares of
Common Stock and Warrants to be sold by the Company, together with all or any
part of the 180,000 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
July 3, 1996called 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 to
2
<PAGE>
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,
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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
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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 $4.50 per Unit, at the place and time
hereinafter specified, 1,200,000 Units (the "First Units").
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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 180,000 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
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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
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<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.
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<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
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<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
15
<PAGE>
the Registration Statement as the Underwriter may reasonably request. The
Company will deliver to the Underwriter on or promptly after the effective date
of 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
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<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 1,200,000 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
(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 post-effective amendments, if required by
the Act, to the
18
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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 Underwriter's request therefor of any reasonable travel and
lodging
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<PAGE>
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 Agreement, or at such later time or on such
later date as to which
20
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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 to purchase, nor are there any restrictions upon the voting or
21
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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 taken or to be taken by the
Company pursuant to this Agreement, the
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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 Statement or
any amendment thereto at the time it became effective
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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
(xi) the Units, Common Stock and Warrants have been duly
authorized for quotation on the National Association of Securities Dealers, Inc.
Automatic Quotation System.
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(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.
(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
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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 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
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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 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,
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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 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
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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 Company to sell and deliver the Units on exercise of the
option provided for in Section 2(b) hereof shall be affected.
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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 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,
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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 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,
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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 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
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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
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,
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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 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
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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
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
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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.
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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.
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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 120,000 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
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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
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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
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EXHIBIT 1.3
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.
1,200,000 UNITS
CONSISTING OF
1,200,000 SHARES OF COMMON STOCK
AND
1,200,000 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, 1,200,000 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 $5.00 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
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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.
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<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.
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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
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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>
EXHIBIT 4.4
Option to Purchase
120,000 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, 120,000 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 120,000 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 1,200,000 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 $6.00 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
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<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.
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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
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<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
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<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
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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
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<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 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
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<PAGE>
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
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<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
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<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
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<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
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<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
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<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)
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<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>
EXHIBIT 4.5
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 1,380,000
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
120,000 additional Units (the "Underwriter's Options"), the Company will
issue up to 1,500,000 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
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<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
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<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
1,500,000 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 120,000 Units, which include up to 120,000 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
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<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
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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
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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
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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
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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 (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 the date fixed for redemption, at their
last address as shall
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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.
(f) If the shares of the Company's Common Stock are
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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 such
adjustment multiplied by a fraction, the numerator of which
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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 cause effective provision to be made so that each holder of a
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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 Assistant Secretary, of the Company setting
forth: (i) the
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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) the
sale by the Company for cash of any rights or warrants to
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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 conversion or
exchange thereunder is immediately exercisable, and
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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.
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(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
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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
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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, 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. 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
purchase of shares of Common Stock in the manner provided in the
Warrant Certificate and this Agreement.
21
<PAGE>
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 issued upon exercise of any
Warrant is fully paid and nonassessable.
22
<PAGE>
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 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.
23
<PAGE>
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 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
24
<PAGE>
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 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
25
<PAGE>
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 one (1) year from 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>
EXHIBIT 10.22
COGNOVIT NOTE
$100,000.00 MAY 28, 1996
---------- ------------------------------------------ --
ON DEMAND after date promise to pay to
------------------------- -------
the order of EUGENE I. GORDON
----------------------------------------------------
ONE HUNDRED THOUSAND AND NO/100 Dollars
----------------------------------------------------------
Value received with interest at 7% per annum
--
AND _____ HEREBY AUTHORIZE ANY ATTORNEY AT LAW TO APPEAR IN ANY
COURT OF RECORD IN THE UNITED STATES, AFTER THE ABOVE OBLIGATION
BECOMES DUE AND WAIVE THE ISSUING AND SERVICE OF PROCESS AND
CONFESS A JUDGMENT AGAINST ______ IN FAVOR OF THE HOLDER HEREOF,
FOR THE AMOUNT THEN APPEARING DUE, TOGETHER WITH COSTS OF SUIT,
AND THEREUPON TO RELEASE ALL ERRORS AND WAIVE ALL RIGHT OF
APPEAL.
MEDJET INC.
------------------------------------
No. 6 Due ON DEMAND By Eugene I. Gordon
--- --------- ----------------------------------
S & P NO CN 750-S MADE IN U S A PRESIDENT
<PAGE>
EXHIBIT 10.23
COGNOVIT NOTE
$ 65,000.00 JUNE 26, 1996
---------- ------------------------------------------ --
ON DEMAND after date promise to pay to
------------------------- -------
the order of EUGENE I. GORDON
----------------------------------------------------
SIXTY-FIVE THOUSAND AND NO/100 Dollars
----------------------------------------------------------
Value received with interest at 9% per annum
--
AND _____ HEREBY AUTHORIZE ANY ATTORNEY AT LAW TO APPEAR IN ANY
COURT OF RECORD IN THE UNITED STATES, AFTER THE ABOVE OBLIGATION
BECOMES DUE AND WAIVE THE ISSUING AND SERVICE OF PROCESS AND
CONFESS A JUDGMENT AGAINST ______ IN FAVOR OF THE HOLDER HEREOF,
FOR THE AMOUNT THEN APPEARING DUE, TOGETHER WITH COSTS OF SUIT,
AND THEREUPON TO RELEASE ALL ERRORS AND WAIVE ALL RIGHT OF
APPEAL.
MEDJET INC.
------------------------------------
No. 7 Due ON DEMAND By Eugene I. Gordon
--- --------- ----------------------------------
S & P NO CN 750-S MADE IN U S A PRESIDENT
<PAGE>
EXHIBIT 23.1
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
June 27, 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 3, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1995 (AUDITED) AND MARCH 31, 1996 (UNAUDITED) FINANCIAL
STATEMENTS OF MEDJET INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 57,678
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,221
<PP&E> 120,633
<DEPRECIATION> 47,127
<TOTAL-ASSETS> 217,051
<CURRENT-LIABILITIES> 214,903
<BONDS> 0
0
0
<COMMON> 2,744
<OTHER-SE> 964,080
<TOTAL-LIABILITY-AND-EQUITY> 2,148
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 685,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,928
<INCOME-PRETAX> (677,185)
<INCOME-TAX> 200
<INCOME-CONTINUING> (677,385)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (677,385)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> 0
</TABLE>
