SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from ____________ to ___________
Commission file number 0-10909
PHASE III MEDICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2343568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 SOUTH SERVICE ROAD, SUITE 120, MELVILLE, NEW YORK 11747
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 631-574-4955
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act of 1934). Yes __ No X
51,747,321 SHARES, $.001 PAR VALUE, AS OF AUGUST 12, 2005
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
I N D E X
Page No.
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Part I - Financial Information:
Item 1. Financial Statements (Unaudited):
Balance Sheets
At June 30, 2005 and December 31, 2004 3
Statements of Operations
for the three and six months
ended June 30, 2005 and 2004 4
Statements of Cash Flows
for the six months ended
June 30, 2005 and 2004 5
Notes to Unaudited Financial Statements 6 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13 - 16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
Item 4. Controls and Procedures 16
Part II - Other Information:
Item 1. Legal Proceedings 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 6. Exhibits 18
Signatures
2
PHASE III MEDICAL, INC.
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
2005 2004
-------------------------------
Current assets:
Cash and cash equivalents $ 260 $ 27,868
Prepaid expenses and other current assets 19,923 21,233
-------------------------------
Total current assets 20,183 49,101
Property and equipment, net 2,467 3,446
Deferred acquisition costs 29,877 43,897
Other assets 3,000 3,000
-------------------------------
$ 55,527 $ 99,444
===============================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Interest and dividends payable - preferred stock $ 504,722 $ 480,880
Accounts payable 213,897 149,169
Accrued liabilities 281,084 88,883
Notes payable 420,000 390,000
Notes payable, related parties 108,000 85,000
Convertible debentures, related party -
net of debt discount of $0 and $5,882 100,000 94,118
-------------------------------
Total current liabilities 1,627,703 1,288,050
Unearned revenues 42,024 62,007
Series A mandatorily redeemable convertible
preferred stock 681,174 681,174
-------------------------------
Total Liabilities 2,350,901 2,031,231
-------------------------------
Stockholders' Deficit:
Preferred stock; authorized, 5,000,000 shares
Series B convertible redeemable preferred stock,
liquidation value, 10 shares of common stock per
share; $0.01 par value; authorized, 825,000 shares;
issued and outstanding, 10,000 shares 100 100
Common stock, $.001 par value; authorized,
500,000,000 shares; issued and outstanding,
46,399,566 shares at June 30, 2005 and
41,029,552 shares at December 31, 2004 46,400 41,031
Additional paid-in capital 10,811,188 10,537,408
Accumulated deficit (13,153,062)(12,510,326)
-------------------------------
Total stockholders' deficit (2,295,374) (1,931,787)
-------------------------------
$ 55,527 $ 99,444
===============================
See accompanying notes to financial statements
3
PHASE III MEDICAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Earned revenues $ 9,448 $ 7,073 $ 19,983 $ 34,415
Direct costs (6,603) (4,871) (14,020) (24,144)
--------------------------------------------
Gross profit 2,845 2,202 5,963 10,271
Selling, general and administrative (358,760) (175,532) (574,261) (324,611)
Purchase of medical royalty stream - (240,000) - (480,000)
--------------------------------------------
Operating loss (355,915) (413,330) (568,298) (794,340)
Other income (expense):
Interest income - 4 - 159
Interest expense (25,230) (66,933) (50,596) (130,363)
Interest expense - Series A mandatorily redeemable convertible preferred
stock (11,921) (11,921) (23,842) (23,842)
--------------------------------------------
Net loss attributable to common stockholders $ (393,066) $(492,180) $(642,736) $(948,386)
============================================
Net loss per common share $ (.01) $ (.02) $ (.02) $ (.03)
============================================
Weighted average
common shares outstanding 43,647,024 29,501,515 43,726,123 28,076,075
============================================
See accompanying notes to financial statements.
4
PHASE III MEDICAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
2005 2004
---- ----
Cash flows from operating activities:
Net loss $(642,736) $(948,386)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common shares issued and stock
options granted for services rendered and
interest expense 27,149 115,708
Depreciation 979 798
Amortization of debt discount 5,882 -
Series A mandatorily redeemable preferred stock dividends 23,842 -
Deferred acquisition costs 14,020 24,144
Changes in operating asset and
liabilities:
Prepaid expenses and other current assets 1,310 10,006
Unearned revenues (19,983) (34,415)
Accounts payable, accrued expenses,
and other current liabilities 256,929 66,999
--------------------
Net cash used in operating activities (332,608) (765,146)
--------------------
Cash flows from investing activities:
Acquisition of property and equipment - (3,288)
--------------------
Net cash used in investing activities - (3,288)
--------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 152,000 428,750
Net proceeds from advances on notes payable 155,000 140,000
Net proceeds from advances on notes payable - related party 23,000 -
Repayment of notes payable (25,000) -
Repayment of long-term debt - (9,513)
--------------------
Net cash provided by financing activities 305,000 559,237
--------------------
Net decrease in cash and cash equivalents (27,608) (209,197)
Cash and cash equivalents at beginning of period 27,868 210,947
--------------------
Cash and cash equivalents at end of period $260 $1,750
====================
2005 2004
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 41,011 $ 22,254
========== =========
Supplemental Schedule of Non-cash Financing Activities:
Net accrual of dividends on Series A Preferred Stock $ 23,842 $ 23,842
========== =========
Issuance of common stock for services rendered $ 26,275 $ -
========== =========
Compensatory element of stock options $ 874 $ 96,508
========== =========
See accompanying notes to financial statements.
5
PHASE III MEDICAL, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Phase III Medical, Inc. ("Phase III" or the "Company") provides capital as
well as consulting and guidance to companies in multiple sectors of the
healthcare and life sciences industries, in exchange for a percentage of
revenues, royalty fees, licensing fees and other product sales of the target
companies. The Company charges payments for the purchase of these interests
to expense as paid and will record revenues when payments are received. As
of June 30, 2005, the Company has not received any such payments. Through
June 30, 2002, the Company was a provider of extended warranties and service
contracts via the Internet at warrantysuperstore.com. The business of the
Company today comprises the "run off" of its sale of extended warranties and
service contracts via the Internet and the new business opportunity it is
pursuing in the healthcare and life sciences industries.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, the statements
contain all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position as of June 30, 2005 and
December 31, 2004, the results of operations for the three and six months
ended June 30, 2005 and 2004 and the cash flows for the six months ended
June 30, 2005 and 2004. The results of operations for the three and six
months ended June 30, 2005 are not necessarily indicative of the results to
be expected for the full year.
The Company's financial statements have been prepared assuming the Company
will continue as a going concern. The Company currently has no operations
and limited financial resources to pay its current expenses and liabilities.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The December 31, 2004 balance sheet has been derived from the audited
financial statements at that date included in the Company's Annual Report on
Form 10-K. These unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K.
NOTE 3 -STOCK OPTIONS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-Based Compensation-Transition and Disclosure - an amendment of
FASB Statement No. 123 ("SFAS 148"). SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation and does
not permit the use of the original SFAS No. 123 prospective method of
transition in fiscal years beginning after December 15, 2003. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the
effect of the method used on reported results, regardless of whether, when,
or how an entity adopts preferable fair value based method of accounting.
SFAS No. 148 improves the prominence and clarity of the pro forma
disclosures required by SFAS No. 123 by prescribing a specific tabular
format and by requiring disclosure in the "Summary of Significant Accounting
Policies" or its equivalent and improves the timeliness of those disclosures
by requiring their inclusion in financial reports for interim periods. The
Company has adopted the disclosure requirements of SFAS No. 148. The Company
will continue to account for stock-based employee compensation under APB
Opinion No. 25 and its related interpretations.
6
The following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based
employee compensation for all periods:
Three Months Ended June 30, Six Months Ended June 30,
2005 2004 2005 2004
---------------- ---------------- ---------------- -------------------
Net loss as reported $ (393,066) $ (492,180) $ (642,736) $ (948,386)
Additional compensation (17,726) (10,985) (35,452) (157,785)
---------------- ---------------- ---------------- -------------------
Adjusted net loss $ (410,792) $ (503,165) $ (678,188) $ (1,106,171)
================ ================ ================ ===================
Net loss per share as reported $ (.01) $ (.02) $ (.02) $ (.03)
================ ================ ================ ===================
Adjusted net loss per share $ (.01) $ (.02) $ (.02) $ (.04)
================ ================ ================ ===================
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment"
("SFAS No. 123(R)"). SFAS No. 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services. This statement focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123(R) requires that the fair
value of such equity instruments be recognized as an expense in the
historical financial statements as services are performed. Prior to SFAS No.
123(R), only certain pro forma disclosures of fair value were required. The
provisions of this statement are effective for small business filers the
first interim reporting period that begins after December 31, 2005.
.
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2005, FASB issued SFAS No. 154 - Accounting Changes and Error
Corrections, which replaces APB Opinion No. 20 and FASB Statement No. 3.
This statement applies to all voluntary changes in accounting principles and
to changes required by an accounting pronouncement in the unusual instance
that the pronouncement does not include specific transition provisions. When
a pronouncement includes specific transition provisions, those provisions
should be followed. This pronouncement is effective for fiscal years
beginning after December 15, 2005. The Company does not believe that this
statement will have a material effect on its financial statements.
NOTE 5 - NOTES PAYABLE
On March 17, 2003, the Company commenced a private placement offering which
raised $250,000 in 6-month promissory notes in increments of $5,000 bearing
interest at 15% per annum. Only selected investors which qualify as
"accredited investors" as defined in Rule 501(a) under the Securities Act of
1933, as amended (the "Securities Act"), were eligible to purchase these
promissory notes. As of June 30, 2005, $170,000 remains unpaid and the due
date of these notes has been extended until August 31, 2005. All interest
payments on these notes have been made.
On August 26, 2003, the Company borrowed $25,000 from a then consultant to
the Company. In October 2004, this note was combined with a note of $50,000
previously held by an unrelated third party. This new note accrues interest
at 8% and is due on August 31, 2005 together with the accrued interest.
In February 2004, the Company commenced a sale of 30 day 20% notes in the
amount of $125,000 to three accredited investors to fund current operations.
It was anticipated that these notes would be repaid from the proceeds of the
January 2004 amended equity private placement. Two of these notes have a
default provision that if they are not paid within 30 days, there is an
additional interest payment of $250 per $25,000 of principal outstanding for
each 30 day period or part thereof the notes remain unpaid. As of June 30,
2005, all of these notes together with accrued interest have been repaid. In
May 2004, the Company sold an additional 30 day 20% note in the amount of
$40,000 to an accredited investor to fund current operations. This note plus
interest has been repaid. In July 2004, the Company sold a five month 20%
note in the amount of $25,000 and two six month 20% notes totaling $80,000
to three accredited investors to fund current operations. As of June 30,
2005, the $25,000 note has been repaid together with accrued interest and
all interest payments are current and the due dates have been extended until
August 31, 2005 on the other two notes. In August 2004, the Company sold
additional 30 day 20% notes in the amount of $55,000 to two accredited
investors to fund current operations. As of June 30, 2005, $25,000 of these
notes remains unpaid. All interest payments are current and the due date has
been extended until August 31, 2005. In December 2004, the Company sold a 60
day 8% note in the amount of $35,000 to the President and CEO, a 180 day 15%
note in the amount of $25,000 to a related party, a 180 day 20% note in the
amount of $15,000 and a 90 day 8% note in the amount of $25,000 to a
Director, all accredited investors, totaling $100,000. As of June 30, 2005,
these notes remain unpaid. All interest payments are current and the due
dates have been extended until August 31, 2005 except for the $15,000 note
which has been extended until September 15, 2005.
7
In August 2004, the Company sold a six month 20% convertible note in the
amount of $100,000 to its Chief Operating Officer ("COO"). Upon maturity,
the Company and the COO have agreed to convert the principal amount of the
new note into shares of the Company's Common Stock at 85% of the average
price as quoted on the NASD Over-the-Counter Bulletin Board for the five
days prior to the maturity date of the note. The remaining debt discount of
$5,882 was amortized in the first quarter of 2005. On February 20, 2005, the
note was converted into 1,960,784 shares of Common Stock as per the
prescribed formula. All interest payments have been paid.
In January 2005, the Company sold a six month 20% note in the amount of
$25,000 to an accredited investor to fund current operations. In February
2005, the Company sold a six month 20% note in the amount of $10,000 to an
accredited investor to fund current operations. This note has been extended
until September 30, 2005. In March 2005, the Company sold a 30 day 8% note
(for which the due date has been extended to August 31, 2005) in the amount
of $17,000 to the President and CEO and a one year 15% note in the amount of
$20,000 to two accredited investors to fund current operations. All interest
payments on these notes are current.
In April 2005, the Company sold a one year 15% note in the amount of
$100,000 to its Executive Vice President and General Counsel. The note
contains certain rights and obligations regarding its conversion into shares
of the Company's Common Stock. All interest payments on this note are
current.
In June 2005, the Company sold an 8% note in the amount of $6,000 to its
President and CEO, an accredited investor which is due on demand.
A summary of the above transactions is as follows:
Repayments/
Conversions
December 31, to Common
2004 Proceeds Stock June 30, 2005
---- -------- ----- -------------
March 2003 Notes $ 170,000 $ - $ - $ 170,000
Consultant Note 75,000 - - 75,000
February - August 2004 Notes 230,000 - (25,000) 205,000
2005 Notes - 55,000 - 55,000
2005 Notes - Related Parties - 23,000 - 23,000
Convertible Debt - Related Parties 94,118 100,000 (94,118) 100,000
--------- ---------- ----------- ----------
Total $ 569,118 $ 178,000 $ (119,118) $ 628,000
========= ========== =========== ==========
On June 28, 2005, the Company commenced a private placement of a minimum of
$500,000 and a maximum of $2,000,000, without accounting for any
over-subscription allowances, of Senior Secured Convertible Notes and Common
Stock Warrants. The Convertible Notes bear interest at 10% per annum paid
semiannually in arrears and are convertible at any time into shares of the
Company's Common Stock at a conversion price of $.08 per share. In addition,
for each $1,000 face amount of Convertible Notes purchased, the investor
will receive a Warrant to purchase 12,500 shares of Common Stock. Each
Warrant is exercisable at a price of $.10 per share. This offering will
expire on August 31, 2005 unless extended by the Company and the placement
agent. As of August 11, 2005, the placement agent has not closed nor
remitted any funds to the Company. Sale of these securities is not being
registered under the Securities Act and the securities may not be resold
absent registration or an applicable exemption from registration.
NOTE 6 - SERIES "A" MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Certificate of Designation for the Company's Series A Preferred Stock
provides that at any time after December 1, 1999 any holder of Series A
Preferred Stock may require the Company to redeem his shares of Series A
Preferred Stock (if there are funds with which the Company may legally do
so) at a price of $1.00 per share. Notwithstanding the foregoing redemption
provisions, if any dividends on the Series A Preferred Stock are past due,
no shares of Series A Preferred Stock may be redeemed by the Company unless
all outstanding shares of Series A Preferred Stock are simultaneously
redeemed. The holders of Series A Preferred Stock may convert their Series A
Preferred Stock into shares of Common Stock of the Company at a price of
$5.20 per share. At June 30, 2005 and December 31, 2004, 681,174 shares of
Series A Preferred Stock were outstanding.
8
NOTE 7 - STOCKHOLDERS' EQUITY
(a) Common Stock:
On each of January and February 20, 2005, the Company issued 37,500
shares of its Common Stock, for a total of 75,000 shares, as
compensation to its public relations firm. The Company recorded $4,875
of expense as a result of this issuance.
On February 20, 2005, the Company issued 1,960,784 shares of its Common
Stock in exchange for the conversion of the promissory note held by its
COO.
On April 1, 2005, the Company issued 800,898 shares of its Common Stock
to its COO in partial payment of salary as per his employment agreement.
On April 20, 2005, the Company sold 1,666,666 shares of its Common Stock
to its Executive Vice president and General Counsel at a price of $.06
per share resulting in net proceeds to the Company of $100,000.
On May 4, 2005, the Company sold 100,000 shares of its Common Stock to
an unrelated third party at a price of $.06 per share resulting in net
proceeds to the Company of $6,000.
In May 2005, the Company sold a total of 350,000 shares of its Common
Stock to two directors at a price of $.06 per share resulting in net
proceeds to the Company of $21,000.
On June 8, 2005, the Company sold 416,666 shares of its Common Stock to
an unrelated third party at a price of $.06 per share resulting in net
proceeds to the Company of $25,000.
(b) Warrants:
The Company has issued Common Stock purchase warrants from time to time
to investors in private placements, certain vendors, underwriters, and
directors and officers of the Company. A total of 432,500 shares of
Common Stock are reserved for issuance upon exercise of outstanding
warrants as of June 30, 2005 at prices ranging from $0.05 to $8.10 and
expiring through December 2008. In connection with the September 2003
equity private placement, the Company issued a 5 year warrant to
purchase 282,500 shares of its Common Stock at an exercise price of
$0.12 per share to its retained placement agent, Robert M. Cohen &
Company. The warrant contains piggyback registration rights. On January
20, 2005, the Company issued three year warrants to purchase a total of
25,000 shares of its Common Stock at $.05 per share to Consulting For
Strategic Growth, Ltd., the Company's investor relations and public
relations firm. This issuance brings their total warrants to 150,000.
The Company recorded expense of $874 as the fair value of these warrants
using the Black-Scholes method.
(c) Stock Option Plans:
In February 2003, the Company adopted the 2003 Equity Participation Plan
(the "2003 EPP") , which was approved by stockholders at the Company's
Annual Meeting on July 24, 2003. Under this plan, the Company has
reserved 15,000,000 shares of common stock for the grant of incentive
stock options and non-statutory stock options to employees and
non-employee directors, consultants and advisors.
Information with respect to options under the 2003 Equity Participation
Plan is summarized as follows:
For the Six Months Ended
June 30, 2005
-------------- --------------
Shares Prices
-------------- --------------
Outstanding at beginning of 6,685,000 $0.03 to
period $0.18
Granted 350,000 $ 0.07 to $.10
Expired - -
Cancelled - -
-------------- --------------
Outstanding at end of period 7,035,000 $0.03 to $0.18
============== ==============
9
Options are usually granted at an exercise price at least equal to the
fair value of the Common Stock at the grant date. During the six months
ended June 30, 2005, options to purchase 200,000 shares of the Company's
Common Stock at an exercise price of $.07 were granted to a member of
the Company's Board of Advisors pursuant to his agreement and options to
purchase 150,000 shares at an exercise price of $.10 were granted to the
Executive Vice President and General Counsel.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
On March 20, 2004, the Company entered into a consulting agreement which
provides for the Company to give advice as to business development
possibilities for the services and technology of NeoStem Inc. (See
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS). The agreement provides for the issuance of options to
purchase 300,000 shares of the Company's Common Stock at an exercise
price of $.10 per share. This option is immediately vested and expires
ten years from the date of issue. The agreement also provides for the
payment of $2,500 per month for each month after the Company has
received capital contributions of $1,000,000 from the date of the
agreement. If certain performance levels are met, the Company is
obligated to issue an additional option to purchase 500,000 shares of
the Company's Common Stock for an exercise price of $.10 per share.
On December 12, 2003, the Company signed a royalty agreement with
Parallel Solutions, Inc. "(PSI") to develop a new bioshielding platform
technology for the delivery of therapeutic proteins and small molecule
drugs in order to extend circulating half-life to improve
bioavailability and dosing regimen, while maintaining or improving
pharmacologic activity. The agreement provides for PSI to pay the
Company a percentage of the revenue received from the sale of certain
specified products or licensing activity. The Company is providing
capital and guidance to PSI to conduct a proof of concept study to
improve an existing therapeutic protein with the goal of validating the
bioshielding technology for further development and licensing the
technology. The Company has paid a total of $720,000 since the inception
of the agreement. The agreement also calls for the Company to pay on
behalf of PSI $280,000 of certain expenses relating to testing of the
bioshielding concept. Since inception, through June 30, 2005, the
Company paid $74,060 of such expenses.
NOTE 9 - RELATED PARTIES
On May 4, 2005, the Company's Board of Directors (the "Board") voted to
approve an amendment to Mr. Weinreb's letter agreement, subject to
approval of the stockholders which was obtained on July 20, 2005,
pursuant to which Mr. Weinreb's employment agreement will be amended to
(a) extend the expiration date thereof from February 2006 to December
2008; (b) change Mr. Weinreb's annual base salary of $217,800 (with an
increase of 10% per annum) to an annual base salary of $250,000 (with no
increase per annum); (c) grant Mr. Weinreb 3,000,000 shares of common
stock, 1,000,000 shares of which shall vest on each of the date of grant
and the first and second anniversaries of the date of grant; (d) amend
the severance provision of the existing employment agreement to provide
that in the event of termination without cause (subject to certain
exceptions), Mr. Weinreb will be entitled to receive a lump sum payment
equal to his then base salary and automobile allowance for a period of
one year; (e) commencing in August 2006, increase Mr. Weinreb's annual
bonus from $20,000 to $25,000; (f) in August 2005, pay Mr. Weinreb
$15,000 to cover costs incurred by him on behalf of the Company; and (g)
in 2006, provide for the reimbursement of all premiums in an annual
aggregate amount of up to $18,000 payable by Mr. Weinreb for life and
long term care insurance covering each year during the remainder of the
term of his employment.
On September 13, 2004, ("Commencement Date") the Company entered into a
letter agreement (the "Letter Agreement") with Mr. Robert Aholt Jr.
pursuant to which the Company appointed Mr. Aholt as its Chief Operating
Officer. Subject to the terms and conditions of the Letter Agreement,
the term of Mr. Aholt's employment in such capacity will be for a period
of three (3) years from the Commencement Date (the "Term").
In consideration for Mr. Aholt's services under the Letter Agreement,
Mr. Aholt will be entitled to receive a monthly salary of $4,000 during
the first year of the Term, $5,000 during the second year of the Term,
and $6,000 during the third year of the Term. In further consideration
for Mr. Aholt's services under the Letter Agreement, on January 1, 2005
and on the first day of each calendar quarter thereafter during the
Term, Mr. Aholt will be entitled to receive shares of Common Stock with
a "Dollar Value" of $26,750, $27,625 and $28,888, respectively, during
the first, second and third years of the Term. The per share price (the
"Price") of each share granted to determine the Dollar Value will be the
average closing price of one share of Common Stock on the Bulletin Board
(or other similar exchange or association on which the Common Stock is
then listed or quoted) for the five (5) consecutive trading days
immediately preceding the date of grant of such shares; provided,
however, that if the Common Stock is not then listed or quoted on an
exchange or association, the Price will be the fair market value of one
share of Common Stock as of the date of grant as determined in good
faith by the Board of Directors of the Company. The number of shares of
Common Stock for each quarterly grant will be equal to the quotient of
the Dollar Value divided by the Price. The shares granted will be
subject to a one year lockup as of the date of each grant. Mr. Aholt
received 477,679 shares of the Company's Common Stock on January 1, 2005
and 800,898 shares on April 1, 2005.
10
In the event Mr. Aholt's employment is terminated prior to the end of
the Term for any reason, earned but unpaid cash compensation and
unreimbursed expenses due as of the date of such termination will be
payable in full. In addition, in the event Mr. Aholt's employment is
terminated prior to the end of the Term for any reason other than by the
Company with cause, Mr. Aholt or his executor of his last will or the
duly authorized administrator of his estate, as applicable, will be
entitled (i) to receive severance payments equal to one year's salary,
paid at the same level and timing of salary as Mr. Aholt is then
receiving and (ii) to receive, during the one (1) year period following
the date of such termination, the stock grants that Mr. Aholt would have
been entitled to receive had his employment not been terminated prior to
the end of the Term; provided, however, that in the event such
termination is by the Company without cause or is upon Mr. Aholt's
resignation for good reason, such severance payment and grant shall be
subject to Mr. Aholt's execution and delivery to the Company of a
release of all claims against the Company.
On May 4, 2005, the Board voted to approve an amendment to Mr. Aholt's
letter agreement, subject to approval of the stockholders which was
obtained on July 20, 2005, to (a) replace the provision of Mr. Aholt's
existing employment agreement pursuant to which he is compensated in
shares of common stock with a provision pursuant to which he will be
compensated solely in cash, effective as of September 30, 2005; (b)
replace the provision of Mr. Aholt's existing employment agreement
pursuant to which his compensation accrues on a monthly and/or quarterly
basis with a provision pursuant to which his compensation will be paid
in accordance with the Company's normal payroll practices, effective as
of September 30, 2005; and (c) provide for a minimum annual bonus of
$12,000, payable in January of each year during the term of his
employment, commencing in January 2006.
On August 12, 2004 ("Commencement Date") the Company and Dr. Wayne A.
Marasco, a Company Director, entered into a Letter Agreement appointing
Dr. Marasco as the Company's Senior Scientific Advisor. Dr. Marasco will
be responsible for assisting the Company in reviewing and evaluating
business, scientific and medical opportunities, and for other
discussions and meetings that may arise during the normal course of the
Company conducting business. For his services, during a three year
period ("Term"), Dr. Marasco shall be entitled to annual cash
compensation with increases each year of the Term and an additional cash
compensation based on a percentage of collected revenues derived from
the Company's royalty or revenue sharing agreements. Although the annual
cash compensation and additional cash compensation stated above shall
begin to accrue as of the Commencement Date, Dr. Marasco will not be
entitled to receive any such amounts until the Company raises $1,500,000
in additional equity financing after the Commencement Date. In addition,
Dr. Marasco was granted an option, fully vested, to purchase 675,000
shares of the Company's common stock at an exercise price of $.10 cents
per share. The shares will be subject to a one year lockup as of the
date of grant. The exercise period will be ten years, and the grant will
otherwise be in accordance with the Company's 2003 Equity Participation
Plan and Non-Qualified Stock Option Grant Agreement. As of June 30,
2005, Mr. Marasco has accrued $96,500 in salary under this agreement.
On May 4, 2005, the Board voted to approve an amendment to Dr. Marasco's
letter agreement, subject to approval of the stockholders which was
obtained on July 20, 2005, pursuant to which Dr. Marasco's letter
agreement with the Company will be amended to (a) extend the term of the
letter agreement from August 2007 to August 2008; (b) provide for an
annual salary of $110,000, $125,000 and $150,000 for the years ended
August 2006, 2007 and 2008, payable in each such year during the term;
(c) provide for a minimum annual bonus of $12,000, payable in January of
each year during the term, commencing in January 2006; (d) eliminate Dr.
Marasco's right under his existing letter agreement to receive 5% of all
collected revenues derived from the Company's royalty or other revenue
sharing agreements (which right is subject to the limitation that the
amount of such additional cash compensation and Dr. Marasco's annual
salary do not exceed, in the aggregate, $200,000 per year); and (e)
permit Dr. Marasco to begin receiving all accrued but unpaid cash
compensation under his letter agreement upon the Company's consummation
of any financing, whether equity or otherwise, pursuant to which the
Company raises $1,500,000.
On April 20, 2005 (the "Commencement Date"), the Company entered into a
letter agreement (the "Letter Agreement") with Catherine M. Vaczy
pursuant to which Ms. Vaczy will serve as the Company's Executive Vice
President and General Counsel. Subject to the terms and conditions of
the letter agreement, the term of Ms. Vaczy's employment in such
capacity will be for a period of three (3) years from the commencement
date (the "Term").
11
In consideration for Ms. Vaczy's services under the letter agreement,
Ms. Vaczy is entitled to receive an annual salary of $155,000 during the
first year of the term, a minimum annual salary of $170,500 during the
second year of the term, and a minimum annual salary of $187,550 during
the third year of the term. Ms. Vaczy and the Company have agreed that
from the commencement date until the 90th day thereafter (the "Initial
90 Day Period"), Ms. Vaczy's salary will be paid to her at a rate of 50%
of the annual rate and accrue as to the remainder. At the end of the
initial 90 day period, and at the end of each additional 90 day period
thereafter, whether to continue to accrue salary at this rate and
provision for payment of accrued amounts will be discussed in good
faith. Payment of accrued salary may be made in cash, or, upon mutual
agreement, shares of Common Stock. Any shares of Common Stock issued in
payment of accrued salary shall have a per share price equal to the
average closing price of one share of common stock on the Bulletin Board
(or other similar exchange or association on which the Common Stock is
then listed or quoted) for the five (5) consecutive trading days
immediately preceding the date of issue of such shares; provided,
however, that if the common stock is not then quoted on the Bulletin
Board or otherwise listed or quoted on an exchange or association, the
price shall be the fair market value of one share of common stock as of
the date of issue as determined in good faith by the Board. The number
of shares of common stock for any issuance in payment of accrued salary
shall be equal to the quotient of the amount of the accrued salary
divided by the price. The shares issued will be subject to a one-year
lock up as of the date of each grant and shall be registered with the
Securities and Exchange Commission on a Registration Statement on Form
S-8.
In the event Ms. Vaczy's employment is terminated prior to the end of
the term for any reason, earned but unpaid cash compensation and
unreimbursed expenses due as of the date of such termination will be
payable in full. In addition, in the event Ms. Vaczy's employment is
terminated prior to the end of the term for any reason other than by the
Company with "cause" or Ms. Vaczy without "good reason", Ms. Vaczy or
her executor of her last will or the duly authorized administrator of
her estate, as applicable, will be entitled in the event the employment
termination date is after April 20, 2006, to receive severance payments
equal to Ms. Vaczy's then one year's salary, paid in accordance with the
Company's standard payroll practices for executives of the Company and
(ii) in the event the employment termination date is before April 20,
2006 but after October 20, 2005, to receive severance payments equal to
one-sixth of Ms. Vaczy's then one year's salary, paid in accordance with
the Company's standard payroll practices for executives of the Company.
In addition, in the event Ms. Vaczy's employment is terminated prior to
the end of the term by the Company without "cause" or by Ms. Vaczy for
"good reason", the option (as defined below) shall vest and become
immediately exercisable in its entirety and remain exercisable in
accordance with its terms. No other payments shall be made, nor benefits
provided, by the Company in connection with the termination of
employment prior to the end of the term, except as otherwise required by
law.
NOTE 10 - INDUSTRY AND GEOGRAPHICAL SEGMENTAL INFORMATION
The Company's operations are currently in one segment, namely the "run
off" of its sale of extended warranties and service contracts via the
Internet. Additionally, the Company is currently endeavoring to
establish new business operations by providing capital as well as
consulting and guidance to companies in multiple sectors of the
healthcare and life sciences industries, in exchange for a percentage of
revenues, royalty fees, licensing fees and other product sales of the
target companies. To date, the company has not realized any revenue from
its purchase of those interests. The Company's operations are conducted
entirely in the United States.
NOTE 11 - SUBSEQUENT EVENTS
On July 1, 2005, 668,750 shares of the Company's Common Stock were
issued to Robert Aholt based on the formula in his employment agreement
in partial payment of salary.
On July 1, 2005, 16,666 shares of the Company's Common Stock were issued
to Consulting for Strategic Growth Ltd., the Company's investor
relations and public relations firm; as compensation for work to be
performed in July 2005.
On July 18, 2005, the Company sold 1,250,000 shares of its Common Stock
to its Executive Vice President and General Counsel at a price of $.06
per share resulting in net proceeds to the Company of $75,000.
In July 2005, the President and CEO advanced the Company $19,000 which
bears interest at 8% per annum and is due on demand.
On July 20, 2005, at the Company's Annual Meeting of Stockholders, the
Company's stockholders approved the issuance of 3,000,000 shares of the
Company's Common Stock to Mark Weinreb, President and CEO under the 2003
Equity Participation Plan, of which 1,000,000 shares vest immediately
and 1,000,000 shares vest on each of the next two anniversary dates. In
addition, the shareholders approved the following:
12
1. An increase in the number of authorized shares of Common Stock
from 250,000,000 to 500,000,000
2. An amendment to the 2003 Equity Participation Plan to increase
the shares of Common Stock covered by the plan from 15 million to
50 million shares
3. Granting of 8,000,000 options to purchase the Company's Common
Stock to Officers, Directors and employees at an exercise price
of $.06 per share which was greater than the fair market value of
one share of Common Stock on the date of grant.
4. Amendments to the employment agreements of the CEO, COO and Chief
Scientific Officer
5. The appointment of Holtz Rubenstein Reminick LLP as the Company's
independent certified public accountant for fiscal year 2005
There was not present at the meeting a quorum of the holders of the Series A
Preferred Stock and the meeting was adjourned with respect to the proposal to
approve an amendment to the certificate of designations for the Series A
Preferred Stock. There were no shares of Series A Preferred Stock present,
accordingly, this action was ratified by the shares of Common Stock present.
Pursuant to the proposal, stockholders were asked to approve an amendment to the
certificate of designations to permit the Company to issue in conversion of the
outstanding shares of Series A Preferred Stock and its obligation to pay accrued
dividends thereon a total of 5,449,368 shares of common stock (eight (8) shares
per Series A Preferred Stock outstanding).
On August 11, 2005, at a meeting of the Board, the Board approved (i)
the adoption of the Company's Amended and Restated By-laws; (ii) the issuance to
Mark Weinreb, the Company's President and CEO, of a promissory note in the
aggregate amount of $25,000 bearing annual interest of 8% and payable on demand,
which relates to cash advances totaling $25,000 made by Mr. Weinreb to the
Company during July and August 2005; (iii) the approval of the sale to Wayne
Marasco, the Company's Chief Scientific Officer, of 833,333 shares of Common
Stock at a per share purchase price of $.06, for an aggregate purchase price of
$50,000; and (iv) the approval of an agreement with Catherine Vaczy, the
Company's Executive Vice President and General Counsel, pursuant to which (A) on
August 12, 2005 Ms. Vaczy was issued 412,339 shares of Common Stock in payment
of $24,740 in salary accrued during the period April 20, 2005 through August 12
2005, based on a per share purchase price of $.06, the closing price of the
Common Stock on August 12, 2005; (B) Ms. Vaczy will continue to accrue her
salary as to 50% through September 30, 2005 at which time she will be issued
shares of Common Stock in payment therefor based on the closing price of the
Common Stock on September 30, 2005; and (C) commencing on October 1, 2005, Ms.
Vaczy will be paid her salary solely in cash in accordance with the Company's
standard payroll practice.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Disclosure Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated herein contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. When used in this
Quarterly Report, statements that are not statements of current or historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "plan", "intend," "may," "will," "expect," "believe",
"could," "anticipate," "estimate," or "continue" or similar expressions or other
variations or comparable terminology are intended to identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Except
as required by law, the Company undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
GENERAL
On December 12, 2003, the Company signed a royalty agreement with Parallel
Solutions, Inc. "(PSI") to develop a new bioshielding platform technology for
the delivery of therapeutic proteins and small molecule drugs in order to extend
circulating half-life to improve bioavailability and dosing regimen, while
maintaining or improving pharmacologic activity. The agreement provides for PSI
to pay the Company a percentage of the revenue received from the sale of certain
specified products or licensing activity. The Company is providing capital and
guidance to PSI to conduct a proof of concept study to improve an existing
therapeutic protein with the goal of validating the bioshielding technology for
further development and licensing the technology. The Company has paid a total
of $720,000 since the inception of the agreement. The agreement also calls for
the Company to pay on behalf of PSI $280,000 of certain expenses relating to
testing of the bioshielding concept. Since inception, through June 30, 2005, the
Company paid $74,060 of such expenses.
On June 28, 2005, the Company commenced a private placement of a minimum of
$500,000 and a maximum of $2,000,000, without accounting for any
over-subscription allowances, of Senior Secured Convertible Notes and Common
Stock Warrants. The Convertible Notes bear interest at 10% per annum paid
semiannually in arrears and are convertible at any time into shares of the
Company's Common Stock at a conversion price of $.08 per share. In addition, for
each $1,000 face amount of Convertible Note purchased, the investor will receive
a Warrant to purchase 12,500 shares of Common Stock. Each Warrant is exercisable
at a price of $.10 per share. This offering will expire on August 31, 2005
unless extended by the Company and the placement agent. As of August 11, 2005,
the placement agent has not closed nor remitted any funds to the Company.
RESULTS OF OPERATIONS
The Company recognizes revenue from its warranty service contracts business over
the life of contracts executed. Additionally, the Company purchased insurance to
fully cover any losses under the service contracts from a domestic carrier. The
insurance premium expense and other costs related to the sale are amortized
ratably over the life of the contracts.
Three Months Ended June 30, 2005 Compared To Three Months Ended June 30, 2004.
The Company recognized revenues from the sale of extended warranties and service
contracts via the Internet of $9,448 for the three months ended June 30, 2005 as
compared to $7,073 for the three months ended June 30, 2004. The revenues
generated in the quarter were derived entirely from revenues deferred over the
life of contracts sold in prior periods. Similarly, direct costs incurred were
$6,603 and $4,871 for the three months ended June 30, 2005 and 2004,
respectively. In addition, the Company paid $0 and $240,000 respectively for the
three months ended June 30, 2005 and 2004 towards the purchase of royalty
interests as per its agreement with PSI. Due to the uncertainty of the future
revenues, the amounts paid have been charged to current operations.
General and administration expenses increased approximately $183,000 to $358,760
for the three months ended June 30, 2005 as compared to $175,532 for the three
months ended June 30, 2004. The increase in general and administrative expenses
is primarily due to increases in payroll and related expenses of $90,000 and
investor relations expenses of $11,000, legal expenses of $75,000, professional
fees of $40,000 partially offset by reductions in D&O insurance of $18,000 and
investment banking commissions of $15,000.
14
Interest expense decreased by approximately $42,000 for the three months ended
June 30, 2005 from the three months ended June 30, 2004. Such decrease was
primarily as a result of reduced interest rates on certain debt, no shares being
issued as additional interest and the elimination of default options on debt
that has been repaid.
For the reasons cited above, including primarily that no payments were made
towards royalty interests in the three months ended June 30, 2005, the net loss
for the three months ended June 30, 2005 decreased to $393,066 from $492,180 for
the three months ended June 30, 2004.
Six Months Ended June 30, 2005 Compared To Six Months Ended June 30, 2004.
The Company recognized revenues from the sale of extended warranties and service
contracts via the Internet of $19,983 for the six months ended June 30, 2005 as
compared to $34,415 for the six months ended June 30, 2004. The revenues
generated in the quarter were derived entirely from revenues deferred over the
life of contracts sold in prior periods. Similarly, direct costs incurred were
$14,020 and $24,144 for the six months ended June 30, 2005 and 2004,
respectively. In addition, the Company paid $0 and $480,000 respectively for the
six months ended June 30, 2005 and 2004 towards the purchase of royalty
interests as per its agreement with PSI. Due to the uncertainty of the future
revenues, the amounts paid have been charged to current operations.
General and administration expenses increased approximately $250,000 to $574,261
for the six months ended June 30, 2005 as compared to $324,611 for the six
months ended June 30, 2004. The increase in general and administrative expenses
is primarily due to increases in payroll and related expenses of $169,000 and
investor relations expenses of $14,000, legal expenses of $69,000, professional
fees of $21,000, travel of $7,000, rent and other expenses of $3,000 partially
offset by reductions in D&O insurance of $18,000 and investment banking
commissions of $15,000.
Interest expense decreased by approximately $80,000 for the six months ended
June 30, 2005 from the six months ended June 30, 2004. Such decrease was
primarily as a result of reduced interest rates on certain debt, no shares being
issued as additional interest and the elimination of default options on debt
that has been repaid.
For the reasons cited above, including primarily that no payments were made
towards royalty interests in the six months ended June 30, 2005, the net loss
for the six months ended June 30, 2005 decreased to $642,736 from $948,386 for
the six months ended June 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period indicated:
Six Months Ended
----------------
June 30, 2005 June 30, 2004
Cash used in
Operating Activities $ (332,608) $ (765,146)
Cash used in
Investing Activities $ - $ (3,288)
Cash provided by
Financing Activities $ 305,000 $ 559,237
The Company incurred a net loss of $642,736 for the six months ended June 30,
2005. Such loss adjusted for non-cash items such as deferred revenues (net of
deferred acquisition costs) ($5,963) and other non-cash credits totaling $34,010
resulted in cash used in operations totaling $332,608 for the six months ended
June 30, 2005 including working capital movements of $258,239 which is comprised
of accounts payable, accrued expenses and other liabilities of $256,929 and
prepaid expenses of $1,310.
To meet its cash requirement for the six months ended June 30, 2005, the Company
relied on the net proceeds from the issuance of Promissory Notes and Common
Stock in the amount of $305,000. In order to address the cash requirements for
the Company through the end of the year, the Company, on June 28, 2005,
commenced a private placement of a minimum of $500,000 and a maximum of
$2,000,000, without accounting for any over-subscription allowances, of Senior
Secured Convertible Notes and Common Stock Warrants. The Convertible Notes bear
interest at 10% per annum paid semiannually in arrears and are convertible at
any time into shares of the Company's Common Stock at a conversion price of $.08
per share. In addition, for each $1,000 face amount of Convertible Note
purchased, the investor will receive a Warrant to purchase 12,500 shares of
Common Stock. Each Warrant is exercisable at a price of $.10 per share. This
offering will expire on August 31, 2005 unless extended by the Company and the
placement agent. As of August 11, 2005, the placement agent has not closed nor
remitted any funds to the Company.
15
The Company has a contractual commitment to pay PSI up to an additional $205,940
through the end of its agreement. As of June 30, 2005, the Company had virtually
no cash balances. The Company will rely on its current cash, the private
placement of convertible notes and warrants and proceeds from the sale of
promissory notes and common stock to fund its new business operations until they
become cash generative, if at all. All interest payments are current. There can
be no assurance that sufficient proceeds will be raised to meet current
obligations when due.
The Company's financial statements have been prepared assuming the Company will
continue as a going concern. The Company currently has no operations and limited
financial resources to pay its current expenses and liabilities. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
INFLATION
The Company does not believe that its operations have been materially influenced
by inflation for the six months ended June 30, 2005, a situation which is
expected to continue for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
(a) Our principal executive officer has concluded, based on his
evaluation of, the effectiveness of our "disclosure controls and
procedures" as of the end of the period covered by this quarterly
report on Form 10-Q (as defined under Rule 13a-15(e) and Rule 15d-15(e)
of the Securities Exchange Act of 1934) were effective as of such date
to ensure that information we are required to disclose in the reports
we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and forms, and include controls and procedures designed to ensure
that information we are required to disclose in such reports is
accumulated and communicated to management, including our principal
executive, as appropriate, to allow timely decisions regarding required
disclosure.
(b) During our last fiscal quarter and subsequent to our evaluation,
there were no significant changes in internal controls or other factors
that have materially affected, or reasonably likely to materially
affect our internal controls over financial reporting.
16
PHASE III MEDICAL, INC.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings or claims
against the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Cumulative dividends payable on Series A Convertible Redeemable Preferred Stock
totaled $504,722 at June 30, 2005, of which $23,842 represents dividends for the
six months then ended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders was held on July 20, 2005.
(b) The Directors elected at the annual meeting were Mark Weinreb, Wayne A.
Marasco and Joseph D. Zuckerman. Such persons are all of the Directors of
the Company whose term of office continued after the annual meeting.
(c) The matters voted upon at the annual meeting and the results of the voting,
including broker non-votes where applicable, are set forth below:
(i) Election of Directors
Name In Favor Witheld
--------- -------- -------
Mark Weinreb 34,340,869 19,258
Wayne A. Marasco 34,340,876 19,251
Joseph D. Zuckerman 34,340,865 19,262
(ii) The stockholders approved an amendment to the certificate of
incorporation to increase the number of shares of the Company's
authorized Common Stock from 250,000,000 to 500,000,000. The
stockholders voted 34,185,651 shares in favor and 144,245 shares
against. 30,230 shares abstained from voting.
(iii) There was not present at the meeting a quorum of the holders of the
Series A Preferred Stock and the meeting was adjourned with respect to
the proposal to approve an amendment to the certificate of designations
for the Series A Preferred Stock. This action was ratified by the
shares of Common Stock present. There were no shares of Series A
Preferred Stock present. The Common Stock holders voted 22,519,124
shares in favor and 142,119 shares against. 11,126 shares abstained
from voting.
(iv) The stockholders approved (A) an amendment to the Company's 2003 EPP
and the grants of options to the Company's executive officers,
controller and directors under the 2003 EPP; (B) amendments to the
employment agreements of certain of the Company's executive officers;
and (C) a grant of a restricted stock award under the 2003 EPP to the
President and CEO. The stockholders voted 24,526,134 shares in favor
and 159,038 shares against. 3,863 shares abstained from voting. There
were 9,671,092 broker nonvotes.
(v) The stockholders ratified the appointment by the Board of Holtz
Rubenstein Reminick LLP as the Company's independent certified public
accountants for the fiscal year ending December 31, 2005. The
stockholders voted 34,342,434 shares in favor and 2,103 shares against.
15,590 shares abstained from voting.
17
ITEM 6. EXHIBITS
(a) Exhibits
3.1 Amended and Restated By-laws
3.2 Amendment dated July 20, 2005 to Certificate of Incorporation
10.1 Amendment dated July 18, 2005 to Stock Purchase Agreement with
Catherine M. Vaczy dated April 20, 2005
10.2 Amendment dated July 20, 2005 to Employment Agreement with Mark
Weinreb dated February 6, 2003
10.3 Amendment dated July 20, 2005 to Employment Agreement with Wayne
A. Marasco dated August 12, 2004
10.4 Amendment dated July 20, 2005 to Employment Agreement with Robert
Aholt dated September 13, 2004
10.5 Form of Option Agreement dated July 20, 2005
10.6 Form of Promissory Note Extension
10.7 Letter Agreement dated August 12, 2005 with Catherine M. Vaczy
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.1 2003 Equity Participation Plan, as amended
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHASE III MEDICAL, INC.
(Registrant)
By: /s/ Mark Weinreb
-----------------
Mark Weinreb, President and Chief
Executive Officer
Date: August 15, 2005
19
Exhibit 3.1
AMENDED AND RESTATED
BY-LAWS
OF
PHASE III MEDICAL, INC.
A DELAWARE CORPORATION
Dated: August 11, 2005
PHASE III MEDICAL, INC.
* * * * *
AMENDED AND RESTATED BY-LAWS
----------------------------
* * * * *
ARTICLE I
MEETINGS OF STOCKHOLDERS
1.1 Place of Meetings. All meetings of the stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Chairman of the Board (if any), the board of directors of
the Corporation (the "Board of Directors") or the Chief Executive Officer, or if
not so designated, at the registered office of the Corporation. Notwithstanding
the foregoing, the Board of Directors may, in its sole discretion, determine
that the meeting shall not be held at any place, but may instead be held solely
by means of remote communication as authorized by Section 211(a)(2) of the
General Corporation Law of Delaware. If so authorized, and subject to such
guidelines and procedures as the Board of Directors may adopt, stockholders and
proxyholders not physically present at a meeting of stockholders may, by means
of remote communication, participate in a meeting of stockholders whether such
meeting is to be held at a designated place or solely by means of remote
communication, provided that (i) the Corporation shall implement reasonable
measures to verify that each person deemed present and permitted to vote at the
meeting by means of remote communication is a stockholder or proxyholder, (ii)
the Corporation shall implement reasonable measures to provide such stockholders
and proxyholders a reasonable opportunity to participate in the meeting and to
vote on matters submitted to the stockholders, including an opportunity to read
or hear the proceedings of the meeting substantially concurrently with such
proceedings, and (iii) if any stockholder or proxyholder votes or takes other
action at the meeting by means of remote communication, a record of such vote or
other action shall be maintained by the Corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held, at such date (which date shall not be
a legal holiday in the place where the meeting is to be held) and time and by
such means of remote communication, if any, as shall be designated from time to
time by the Chairman of the Board (if any), the Board of Directors or the Chief
Executive Officer and stated in the notice of the meeting.
1.3 Special Meetings. Special meetings of the stockholders may, unless
otherwise prescribed by law or by the certificate of incorporation, be called by
the Chairman of the Board (if any), the Board of Directors or the Chief
Executive Officer and shall be held at such place, on such date and at such time
as shall be fixed by the Board of Directors or the person calling the meeting.
Business transacted at any special meeting shall be limited to matters relating
to the purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, stating the place,
date and hour of the meeting, the means of remote communications, if any, by
which stockholders and proxyholders may be deemed to be present in person and
vote at such meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
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1.5 Voting List. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either (i) on a reasonably accessible
electronic network, provided that the information required to gain access to
such list is provided with the notice of the meeting, or (ii) at the
Corporation's principal place of business. In the event that the Corporation
determines to make the list available on an electronic network, the Corporation
may take reasonable steps to ensure that such information is available only to
stockholders of the Corporation. If the meeting is to be held at a place, then
the list shall be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
If the meeting is to be held solely by means of remote communication, then the
list shall also be open to the examination of any stockholder during the whole
time of the meeting on a reasonably accessible electronic network, and the
information required to access such list shall be provided with the notice of
the meeting.
1.6 Quorum. Except as otherwise required by law, the certificate of
incorporation or these By-Laws, the holders of a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote
thereat, present in person or by remote communication, or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business. Shares held by brokers which such brokers are
prohibited from voting (pursuant to their discretionary authority on behalf of
beneficial owners of such shares who have not submitted a proxy with respect to
such shares) on some or all of the matters before the stockholders but which
shares would otherwise be entitled to vote at the meeting ("Broker Non-Votes")
shall be counted, for the purpose of determining the presence or absence of a
quorum, both (a) toward the total voting power of the shares of capital stock of
the Corporation and (b) as being represented by proxy. If a quorum has been
established for the purpose of conducting the meeting, a quorum shall be deemed
to be present for the purpose of all votes to be conducted at such meeting;
provided that where a separate vote by a class or classes, or series thereof, is
required, a majority of the voting power of the shares of such class or classes,
or series present in person or by remote communication, or represented by proxy,
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If no quorum shall be present or represented at any meeting of
stockholders, such meeting may be adjourned in accordance with Section 1.7
hereof, until a quorum shall be present or represented.
1.7 Adjournments. Any meeting of stockholders may be adjourned from time to
time to any other time and to any other place at which a meeting of stockholders
may be held under these By-Laws, which time and place shall be announced at the
meeting, by a majority of the stockholders present in person or by remote
communication, or represented by proxy at the meeting and entitled to vote
(whether or not a quorum is present), or, if no stockholder is present or
represented by proxy, by any officer entitled to preside at or to act as
secretary of such meeting, without notice other than announcement at the
meeting. At such adjourned meeting, any business may be transacted which might
have been transacted at the original meeting, provided that a quorum either was
present at the original meeting or is present at the adjourned meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
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1.8 Voting and Proxies. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote for each share of capital stock having voting power held of
record by such stockholder and a proportionate vote for each fractional share so
held. Each stockholder entitled to vote at a meeting of stockholders, or to
express consent or dissent to corporate action in writing without a meeting (to
the extent not otherwise prohibited by the certificate of incorporation or these
By-Laws), may authorize another person or persons to act for such stockholder by
proxy, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the proxy provides for a longer period.
1.9 Action at Meetings. When a quorum is present at any meeting of
stockholders, the affirmative vote of the holders of a majority of the stock
present in person or by remote communication, or represented by proxy, entitled
to vote and voting on the matter (or where a separate vote by a class or
classes, or series thereof, is required, the affirmative vote of the majority of
shares of such class or classes or series present in person or represented by
proxy at the meeting) shall decide any matter (other than the election of
Directors) brought before such meeting, unless the matter is one upon which by
express provision of law, the certificate of incorporation or these By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such matter. The stock of holders who abstain from
voting on any matter shall be deemed not to have been voted on such matter.
Directors shall be elected by a plurality of the votes of the shares present in
person or by remote communication, or represented by proxy at the meeting,
entitled to vote and voting on the election of Directors, except as otherwise
provided by the certificate of incorporation. For purposes of this paragraph,
Broker Non-Votes represented at the meeting but not permitted to vote on a
particular matter shall not be counted, with respect to the vote on such matter,
in the number of (a) votes cast, (b) votes cast affirmatively, or (c) votes cast
negatively.
1.10 Introduction of Business at Meetings.
A. Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders (a) pursuant to the Corporation's
notice of meeting, (b) by or at the direction of the Board of Directors or (c)
by any stockholder of the Corporation who was a stockholder of record at the
time of giving of notice provided for in this Section 1.10, who is entitled to
vote at the meeting and who complies with the notice procedures set forth in
this Section 1.10.
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(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 1.10, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
one hundred twentieth (120th) day nor earlier than the close of business on the
one hundred fiftieth (150th) day prior to the first anniversary of the date of
the proxy statement delivered to stockholders in connection with the preceding
year's annual meeting; provided, however, that if either (i) the date of the
annual meeting is more than thirty (30) days before or more than sixty (60) days
after such an anniversary date or (ii) no proxy statement was delivered to
stockholders in connection with the preceding year's annual meeting, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of (x) the sixtieth (60th) day prior to
such annual meeting and (y) the tenth (10th) day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of capital stock of the
Corporation that are owned beneficially and held of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 1.10 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.10 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive office of the Corporation
not later than the close of business on the tenth (10th) day following the day
on which such public announcement is first made by the Corporation.
B. Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which Directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
Directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.10. If the
Corporation calls a special meeting of stockholders for the purpose of electing
one or more directors to the Board of Directors, any such stockholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section 1.10 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the ninetieth (90th) day prior to such special meeting nor
later than the later of (x) the close of business on the sixtieth (60th) day
prior to such special meeting or (y) the close of business on the tenth (10th)
day following the day on which public announcement is first made of the date of
such special meeting and of the nominees proposed by the Board of Directors to
be elected at such meeting.
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C. General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.10 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.10. Except as otherwise provided by law, the
certificate of incorporation or these By-Laws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 1.10 and, if any
proposed nomination or business is not in compliance herewith, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 1.10, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
1.10, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 1.10 shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
1.11 Action without Meeting. Stockholders of the Corporation may not take
any action by written consent in lieu of a meeting. Notwithstanding any other
provision of law, the certificate of incorporation or these By-Laws, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast at any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Section 1.11.
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1.12 Inspectors. Prior to any meeting of stockholders, the Board of
Directors or the President shall appoint one or more inspectors to act at such
meeting and make a written report thereof and may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at the meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting and the
validity of proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes and
ballots. The inspectors may appoint or retain other persons to assist them in
the performance of their duties. The date and time of the opening and closing of
the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting. No ballot, proxy or vote, nor any revocation
thereof or change thereto, shall be accepted by the inspectors after the closing
of the polls. In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted therewith, any information provided by a stockholder who submits a
proxy by telegram, cablegram or other electronic transmission from which it can
be determined that the proxy was authorized by the stockholder, ballots and the
regular books and records of the Corporation, and they may also consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent more votes than the holder of a proxy is authorized by the
record owner to cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for such purpose, they shall, at
the time they make their certification, specify the precise information
considered by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
ARTICLE II
DIRECTORS
2.1 General Powers. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the Corporation except as otherwise provided by law or the
certificate of incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or the
certificate of incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors, but in no event shall be less than three. Subject to the
preceding sentence, the number of Directors may be decreased at any time and
from time to time by a majority of the directors then in office, but only to
eliminate vacancies existing by reason of the death, resignation, removal or
expiration of the term of one or more directors. The Directors shall be elected
at the annual meeting of stockholders (or, if so determined by the Board of
Directors pursuant to Section 2.10 hereof, at a special meeting of
stockholders), by such stockholders as have the right to vote on such election.
Directors need not be stockholders of the Corporation.
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2.3 Tenure. Each Director shall serve for a term ending on the date of the
annual meeting following the annual meeting at which such Director was elected.
Notwithstanding any provisions to the contrary contained herein, each Director
shall hold office until his or her successor is elected and qualified, or until
his or her earlier death, resignation or removal.
2.4 Vacancies. Unless and until filled by the stockholders, any vacancy in
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement thereof, may be filled only by vote of a majority of the Directors
then in office, although less than a quorum, or by a sole remaining Director. A
Director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office, if applicable, and a Director chosen to fill a
position resulting from an increase in the number of Directors shall hold office
until the next election of Directors and until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
2.5 Resignation. Any director may resign at any time upon notice given in
writing or by electronic transmission to the Corporation at its principal place
of business or to the Chief Executive Officer or Secretary. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.
2.6 Chairman of the Board. If the Board of Directors appoints a chairman of
the board, he shall, when present, preside at all meetings of the stockholders
and the Board of Directors. He shall perform such duties and possess such powers
as are customarily vested in the office of the Chairman of the Board or as may
be vested in him by the Board of Directors.
2.7 Place of Meetings. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware.
2.8 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the Board of Directors; provided that any Director who is absent
when such a determination is made shall be given notice of such determination. A
regular meeting of the Board of Directors may be held without notice immediately
after and at the same place as the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board (if any), the Chief Executive Officer, two
(2) or more Directors, or by one Director in the event that there is only one
Director in office. At least one (1) days' notice to each Director, either
personally or by telegram, cable, telecopy, electronic mail, commercial delivery
service, telex or similar means sent to his business or home address, or three
(3) days' notice by written notice deposited in the mail, shall be given to each
Director by the Secretary or by the officer or one of the Directors calling the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
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2.10 Quorum, Action at Meeting, Adjournments. At all meetings of the Board
of Directors a majority of Directors then in office shall constitute a quorum
for the transaction of business. In the event one or more of the Directors shall
be disqualified to vote at any meeting, then the required quorum shall be
reduced by one for each so disqualified; provided however, that in no case shall
less than one third of the entire Board of Directors constitute a quorum for the
transaction of business. The act of a majority of the Directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by law, the certificate of
incorporation or these By-Laws. For purposes of this section, the term "entire
Board of Directors" shall mean the number of Directors last fixed by the
stockholders or Directors, as the case may be, in accordance with law, the
certificate of incorporation and these By-Laws; provided, however, that if less
than all the number so fixed of Directors were elected, the "entire Board of
Directors" shall mean the greatest number of Directors so elected to hold office
at any one time pursuant to such authorization. If a quorum shall not be present
at any meeting of the Board of Directors, a majority of the Directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
2.11 Action by Consent. Unless otherwise restricted by the certificate of
incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing or electronic transmission, and the
writing or writings or electronic transmission or transmissions are filed with
the minutes of proceedings of the Board of Directors or committee. Such filing
shall be in paper form if the minutes are maintained in paper form and shall be
in electronic form if the minutes are maintained in electronic form.
2.12 Telephonic Meetings. Unless otherwise restricted by the certificate of
incorporation or these By-Laws, members of the Board of Directors or of any
committee thereof may participate in a meeting of the Board of Directors or of
any committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
2.13 Removal. Unless otherwise provided in the certificate of
incorporation, any one or more or all of the Directors may be removed without
cause by the holders of at least seventy-five percent (75%) of the shares then
entitled to vote at an election of Directors. Any one or more or all of the
Directors may be removed with cause only by the holders of at least a majority
of the shares then entitled to vote at an election of Directors.
2.14 Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of Delaware, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to (a) adopting,
amending or repealing the By-Laws of the Corporation or any of them or (b)
approving or adopting, or recommending to the stockholders any action or matter
expressly required by law to be submitted to stockholders for approval. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and make such reports to the Board of
Directors as the Board of Directors may request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the Directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-Laws for the conduct of its business by the Board of
Directors. Adequate provisions shall be made for notice to members of all
meetings of committees. One third of the members of any committee shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum, and all matters shall be
determined by a majority vote of the members present.
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2.15 Compensation. Unless otherwise restricted by the certificate of
incorporation or these By-Laws, the Board of Directors shall have the authority
to fix from time to time the compensation of Directors. The Directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors and the performance of their responsibilities as Directors and may be
paid a fixed sum for attendance at each meeting of the Board of Directors and/or
a stated salary as a Director. No such payment shall preclude any Director from
serving the Corporation or its parent or subsidiary corporations in any other
capacity and receiving compensation therefor. The Board of Directors may also
allow compensation for members of special or standing committees for service on
such committees.
2.16 Amendments to Article. Notwithstanding any other provisions of law,
the certificate of incorporation or these By-Laws, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of a least seventy-five percent (75%) of the votes which all the
stockholders would be entitled to cast at any annual election of directors or
class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article II.
ARTICLE III
OFFICERS
3.1 Enumeration. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Secretary and a Treasurer and
such other officers with such titles, terms of office and duties as the Board of
Directors may from time to time determine, including one or more
Vice-Presidents, and one or more Assistant Secretaries and Assistant Treasurers.
Any number of offices may be held by the same person, unless the certificate of
incorporation or these By-Laws otherwise provide.
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3.2 Election. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a President, a Secretary and a Treasurer.
Other officers may be appointed by the Board of Directors at such meeting, at
any other meeting, or by written consent.
3.3 Tenure. The officers of the Corporation shall hold office until their
successors are chosen and qualify, unless a different term is specified in the
vote choosing or appointing them, or until their earlier death, resignation or
removal. Any officer may be removed at any time, with or without cause, by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the Corporation may be filled by the Board of Directors, at its
discretion. Any officer may resign by delivering his written resignation to the
Chairman of the Board (if any), to the Board of Directors at a meeting thereof,
to the Corporation at its principal place of business or to the Chief Executive
Officer or the Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
3.4 President. The President shall, subject to the direction of the Board
of Directors, have general and active management of the business of the
Corporation. He shall also be the Chief Executive Officer unless the Board of
Directors otherwise provides. If no Chief Executive Officer shall have been
appointed by the Board of Directors, all references herein to the "Chief
Executive Officer" shall be to the President. The President shall, unless the
Board of Directors provides otherwise in a specific instance or generally and
provided there is no Chairman of the Board or that the Chairman is not
available, preside at all meetings of the stockholders and the Board of
Directors. The President shall prepare an agenda of items to be discussed at
each meeting of the Board of Directors and shall report regularly to the Board
with respect to the operations of the Company. The President shall execute
bonds, mortgages, and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
3.5 Vice-Presidents. In the absence of the President or in the event of his
or her inability or refusal to act, the Vice-President, or if there be more than
one Vice-President, the Vice-Presidents in the order designated by the Board of
Directors or the Chief Executive Officer shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. The Vice-Presidents shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
3.6 Secretary. The Secretary shall have such powers and perform such duties
as are incident to the office of Secretary. The Secretary shall maintain a stock
ledger and prepare lists of stockholders and their addresses as required and
shall be the custodian of corporate records. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be from time to
time prescribed by the Board of Directors or Chief Executive Officer, under
whose supervision the Secretary shall be. The Secretary shall have custody of
the corporate seal of the Corporation and the Secretary, or an assistant
Secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his or her signature.
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3.7 Assistant Secretaries. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors, the Chief Executive Officer or the Secretary (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the Secretary or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Secretary may from time to time
prescribe. In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or Directors, the person presiding at the meeting shall
designate a temporary or acting secretary to keep a record of the meeting.
3.8 Treasurer. The Treasurer shall perform such duties and shall have such
powers as may be assigned to him or her by the Board of Directors or the Chief
Executive Officer. In addition, the Treasurer shall perform such duties and have
such powers as are incident to the office of Treasurer. The Treasurer shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board of
Directors, when the Chief Executive Officer or Board of Directors so requires,
an account of all his or her transactions as Treasurer and of the financial
condition of the Corporation.
3.9 Assistant Treasurers. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors, the Chief Executive Officer or the Treasurer (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the Treasurer or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Treasurer may from time to time
prescribe.
3.10 Bond. If required by the Board of Directors, any officer shall give
the Corporation a bond in such sum and with such surety or sureties and upon
such terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of his office and for the restoration to the Corporation of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control and belonging to the Corporation.
3.11 Action with Respect to Securities of Other Corporations. The
President, the Chief Executive Officer, the Treasurer or any officer of the
Corporation authorized by the Board of Directors shall, unless otherwise
directed by the Board of Directors, have power to vote and otherwise act on
behalf of the Corporation, in person or by proxy, at any meeting of stockholders
of or with respect to any action of stockholders of any other corporation in
which the Corporation may hold securities and otherwise to exercise any and all
rights and powers which this Corporation may possess by reason of its ownership
of securities in such other corporation.
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ARTICLE IV
NOTICES
4.1 Delivery. Except as otherwise specifically provided herein or required
by law or the certificate of incorporation, all notices required to be given to
any person under these By-Laws, such notice may be given by mail, addressed to
such person, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Unless written
notice by mail is required by law, notice may also be given by telegram, cable,
telecopy, commercial delivery service, telex or similar means, addressed to such
person at his address as it appears on the records of the corporation, in which
case such notice shall be deemed to be given when delivered into the control of
the persons charged with effecting such transmission, the transmission charge to
be paid by the Corporation or the person sending such notice and not by the
addressee. Notice may also be given to stockholders by a form of electronic
transmission in accordance with and subject to the provisions of Section 232 of
the General Corporation Law of Delaware. Oral notice or other in-hand delivery
(in person or by telephone) shall be deemed given at the time it is actually
given.
4.2 Waiver of Notice. Whenever any notice is required to be given under the
provisions of law or of the certificate of incorporation or of these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice or a waiver by electronic transmission by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
CAPITAL STOCK
5.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the certificate of incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any issued, authorized capital stock of the
Corporation held in its treasury may be issued, sold, transferred or otherwise
disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
5.2 Certificates of Stock. Every holder of stock in the Corporation shall
be entitled to have a certificate, signed by, or in the name of the Corporation
by, the chairman or Vice-chairman of the Board of Directors, or the President or
a Vice-President and the Treasurer or an assistant Treasurer, or the Secretary
or an assistant Secretary of the Corporation, certifying the number of shares
owned by such holder in the Corporation. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the certificate of incorporation, these By-Laws, applicable
securities laws or any agreement among any number of shareholders or among any
such holders and the Corporation shall have conspicuously noted on the face or
back of such certificate either the full text of such restriction or a statement
of the existence of such restriction.
13
5.3 Lost, Stolen or Destroyed Certificates. The Corporation may issue a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors or the Chief Executive Officer may, in
their discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to give reasonable evidence of such loss, theft or
destruction, to advertise the same in such manner as it shall require and/or to
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed or the issuance of
such new certificate.
5.4 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which shall not be more than sixty (60)
days nor less then ten (10) days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted, and which shall be not more than sixty (60) days prior to such action.
If no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
5.5 Registered Stockholders. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
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ARTICLE VI
CERTAIN TRANSACTIONS
6.1 Transactions with Interested Parties. No contract or transaction
between the Corporation and one or more of its Directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its Directors or officers are Directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction or solely because his, her or their votes
are counted for such purpose, if:
(a) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known
to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the
disinterested Directors, even though the disinterested
Directors be less than a quorum; or
(b) the material facts as to the relationship or
interest and as to the contract or transaction are disclosed
or are known to the stockholders entitled to vote thereon, and
the contract or transaction is specifically approved in good
faith by vote of the stockholders; or
(c) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof, or
the stockholders.
6.2 Quorum. Common or interested Directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE VII
GENERAL PROVISIONS
7.1 Fiscal Year. The fiscal year of the Corporation shall be the calendar
year unless otherwise fixed by resolution of the Board of Directors.
7.2 Seal. The Board of Directors may, by resolution, adopt a corporate
seal. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the Board
of Directors.
7.3 Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized by these By-Laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
15
7.4 Time Periods. In applying any provision of these By-Laws that requires
that an act be done or not be done a specified number of days prior to an event
or that an act be done during a period of a specified number of days prior to an
event, unless otherwise required by law or the certificate of incorporation,
calendar days shall be use, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
7.5 Certificate of Incorporation. All references in these By-Laws to the
certificate of incorporation shall be deemed to refer to the certificate of
incorporation of the Corporation, as amended and restated and in effect from
time to time.
7.6 Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
7.7 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons so designated may require.
ARTICLE VIII
AMENDMENTS
8.1 By the Board of Directors. Except as is otherwise set forth in these
By-Laws or the certificate of incorporation, these By-Laws may be altered,
amended or repealed, or new by-laws may be adopted, by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
8.2 By the Stockholders. Except as otherwise set forth in these By-Laws or
the certificate of incorporation, these By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
at least seventy-five percent (75%) of the voting power of all the then
outstanding shares of capital stock of the Corporation entitled to vote at any
regular meeting of stockholders, or at any special meeting of stockholders,
voting together as a single class; provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
16
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PHASE III MEDICAL INC.
(Under Section 242 of the General Corporation Law)
The undersigned, being the President of Phase III Medical Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby amend and certify as follows:
1. That the name of the Corporation is PHASE III MEDICAL INC.
2. The Certificate of Incorporation of the Corporation is hereby
amended to effect the following amendment which was set forth in a resolution
adopted by the board of directors and adopted by the holders of a majority of
the outstanding shares of common stock of the Corporation entitled to vote
thereon, in accordance with the provisions of Section 242 of the Delaware
General Corporation Law to increase the number of authorized shares of Common
Stock.
3. To accomplish this amendment the first paragraph of Article FOURTH
of the Certificate of Incorporation, as amended, is restated in its entirety as
follows:
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is FIVE HUNDRED FIVE MILLION (505,000,000) shares
consisting of (i) Five Hundred Million (500,000,000) shares of Common Stock of
the par value of $.001 per share and (ii) Five Million (5,000,000) shares of
Preferred Stock of the par value of $.01 per share.
4. Article FIRST of the Certificate of Incorporation, as amended, is
hereby amended to change the name of the corporation as follows: "The name of
the Corporation is PHASE III MEDICAL, INC."
IN WITNESS WHEREOF, the undersigned being a duly elected officer of the
Corporation, has executed this Certificate of Amendment and affirms the
statements herein contained on this 8th day of August 2005.
PHASE III MEDICAL INC.
By: /s/ Mark Weinreb
Mark Weinreb, President
Exhibit 10.1
PHASE III MEDICAL, INC.
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 18,
2005, is by and between Phase III Medical, Inc., a Delaware corporation (the
"Company"), and Catherine M. Vaczy (the "Investor").
WHEREAS, the Company and the Investor entered into a Stock Purchase
Agreement (the "First Stock Purchase Agreement") dated as of April 20, 2005
pursuant to which the Investor purchased 1,666,666 shares of the Company's
common stock , $.001 par value (the "Common Stock") for $100,000; and
WHEREAS, pursuant to the First Stock Purchase Agreement, the Investor has
the right to purchase additional shares of Common Stock on the terms set forth
in the First Stock Purchase Agreement; and
WHEREAS, the Investor, who is now employed as the Company's Executive Vice
President and General Counsel, desires to exercise this right and purchase from
the Company additional shares of Common Stock pursuant to the First Stock
Purchase Agreement, upon and subject to the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements of the parties set forth in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties agree as follows:
1. Purchase and Sale of the Shares.
1.1. Agreement to Sell and Purchase Shares. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the Investor and the
Investor agrees to purchase from the Company, at the Closing (as defined below),
an aggregate of 1,250,000 shares of Common Stock (the "Shares"), at a per share
purchase price (the "Per Share Purchase Price") equal to $.06 for an aggregate
purchase price of $75,000 (the "Purchase Price"), payable by check or bank wire
at the Closing.
1.2. Delivery of Shares; Legend.
(a) As soon as reasonably practicable after the Closing, the
Company shall deliver to the Investor one or more certificates, registered in
the name of the Investor, representing the Shares.
(b) The certificates representing the Shares delivered
pursuant to Section 1.2(a), and any securities and any shares issued
pursuant to Section 1.4 hereof, shall bear a legend in substantially
the following form:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended. The securities may not be sold,
transferred or assigned in the absence of an
effective registration statement for the securities
under said Act, or an opinion of counsel, in form,
substance and scope reasonably acceptable to the
Company, that registration is not required under said
Act or unless sold pursuant to Rule 144 under said
Act."
1.3. Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place on the date hereof at the
offices of the Company or such other place as the parties may agree.
2. Representations, Warranties and Covenants of the Investor.
2.1. Authorization; Enforceability. The Investor is (i) a bona fide
resident of the state contained in the address set forth on the signature page
as the Investor's home address, (ii) at least 21 years of age and (iii) legally
competent to execute this Agreement. This Agreement has been duly executed and
delivered by the Investor and, assuming the due authorization, execution and
delivery of this Agreement by the other party hereto, constitutes the legal,
valid and binding obligation of the Investor, enforceable against the Investor
in accordance with its terms, subject to the effects of any applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
general laws of applicability affecting creditors' rights generally and to
general equitable principles.
2.2. No Conflict. The execution, delivery and performance by the
Investor of this Agreement will not result in the violation by the Investor of
any law, statute, rule, regulation, order, writ, injunction, judgment or decree
of any court or governmental authority to or by which the Investor is bound, and
will not conflict with, or result in a breach or violation of, any of the terms
or provisions of, or constitute (with due notice or lapse of time or both) a
default under, any lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Investor is a party or
by which she is bound or to which any of her properties or assets is subject.
2.3. Consents. No consent, approval, authorization or other order of
any governmental authority or other third party is required to be obtained by
the Investor in connection with the authorization, execution, delivery and
performance by the Investor of this Agreement.
2.4. Investment Representations.
(a) The Investor hereby represents and warrants to the Company
that the Investor is an "accredited investor" as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). Specifically, the Investor certifies that (initial all
appropriate spaces on the following pages):
CMV (1) The Investor is an accredited investor because
(Initial) she has an individual net worth, or with her spouse
has a joint net worth, in excess of
$1,000,000. For purposes of this
Agreement, "net worth" means the excess
of total assets at fair market value,
including home, home furnishings and
automobiles, over total liabilities.
_________ (2) The Investor is an accredited investor because
(Initial) she has individual income (exclusive of any income
attributable to her spouse) of more than $200,000
in each of the past two years, or joint income
with her spouse in excess of $300,000 in
each of those years, and such investor
reasonably expects to reach the same
income level in the current year.
_________ (3) The Investor is an accredited investor because
(Initial) she is a director, executive officer or managing
member of the Company.
(b) The Investor hereby certifies that she is not a
non-resident alien for purposes of income taxation (as such term is defined in
the Internal Revenue Code of 1986, as amended, and Income Tax Regulations). The
Investor hereby agrees that if any of the information in this Section 2.4(b)
changes, the Investor will notify the Company within 60 days thereof. The
Investor understands that the information contained in this Section 2.4(b) may
be disclosed to the Internal Revenue Service by the Company and that any false
statement contained in this Section 2.4(b) could be punished by fine,
imprisonment or both.
(c) The Investor will not sell or otherwise transfer the
Shares without registration under the Securities Act or an exemption therefrom,
and fully understands and agrees that she must bear the economic risk of her
investment for an indefinite period of time because, among other reasons, the
Shares have not been registered under the Securities Act or under the securities
laws of certain states and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless they are subsequently registered under the
Securities Act and under applicable securities laws of such states or an
exemption from such registration is available. The Investor understands that,
except as provided herein, the Company is under no obligation to register the
Shares on her behalf or to assist her in complying with any exemption from such
registration under the Securities Act, except that if any sale proposed by the
Investor is exempt from registration, the Company will cause its counsel, at the
Company's expense, to provide an appropriate opinion to that effect to the
Company's transfer agent. It also understands that sales or transfers of the
Shares are further restricted by state securities laws. The Investor further
understands that the Company is not registered as an investment company under
the Investment Company Act of 1940, as amended (the Investment Company Act").
2
(d) The Investor acknowledges that in making a decision to
subscribe for the Shares, the Investor has relied solely upon independent
investigations made by the Investor and the representations contained herein.
The Investor understands the business objectives and policies of, and the
strategies which may be pursued by, the Company. The Investor's investment in
the Shares is consistent with the investment purposes and objectives and cash
flow requirements of the Investor and will not adversely affect the Investor's
overall need for diversification and liquidity. The Investor acknowledges that
she is not subscribing pursuant hereto for any Shares as a result of or
subsequent to (a) any advertisement, article, notice or other communications
published on-line, in any newspaper, magazine or similar media or broadcast over
television or radio, or (b) any seminar or meeting whose attendees, including
the Investor, had been invited as a result of, subsequent to or pursuant to any
of the foregoing.
(e) The Investor has not reproduced, duplicated or delivered
this Agreement to any other person, except professional advisors to the Investor
or as instructed by the Company.
(f) The Investor has such knowledge and experience in financial
and business matters that the Investor is capable of evaluating the merits and
risks of the Investor's investment in the Shares and is able to bear such risks,
and has obtained, in the Investor's judgment, sufficient information from the
Company or its authorized representatives to evaluate the merits and risks of
such investment. The Investor has evaluated the risks of investing in the Shares
and has determined that the Shares is a suitable investment for the Investor.
(g) The Investor can afford a complete loss of the investment
in the Shares.
(h) The Investor is acquiring the Shares subscribed for herein
for her own account, for investment purposes only and not with a view to
distribute or resell such Shares in whole or in part.
(i) The Investor agrees and is aware that:
(1) the Company has a limited operating history under
its current business plan;
(2) no federal or state agency has passed upon the
Shares or made any findings or determination as to
the fairness of this investment; and
(3) there are substantial risks of loss of investment
incidental to the purchase of the Shares.
(j) The Investor and her advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Shares, which have
been requested by the Investor. The Investor and her advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
satisfactory answers to any such inquiries. Except as set forth in this
Agreement, the Company has made no representation or warranty on which the
Investor has relied to enter into this Agreement and acquire the Shares.
(k) The Investor does not have a present intention to sell the Shares
nor a present arrangement or intention to effect any distribution of any of the
Shares to or through any person or entity for purposes of selling, offering,
distributing or otherwise disposing of any of the Shares.
3
(l) The Investor understands that the net proceeds to the Company
from this subscription will be used by the Company for general operating
expenses.
2.5. Brokers. There is no broker, investment banker, financial advisor,
finder or other person which has been retained by or is authorized to act on
behalf of the Investor who is entitled to any fee or commission in connection
with the execution of this Agreement.
3. Representations, Warranties and Covenants of the Company
3.1 Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to so
qualify would not reasonably be expected to have a material adverse effect upon
the business, financial condition, properties, or operations of the Company
taken as a whole (a "Material Adverse Effect").
3.2 Shares. All of the issued and outstanding shares of the Company's
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable, have been issued in material compliance with all federal and
state securities laws, and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities. The
Shares to be sold pursuant to this Agreement and issued upon exercise of the
option granted to Investor in connection with Investor's employment with the
Company have been duly and validly authorized, and when issued and paid for in
accordance with the terms of this Agreement and the applicable option agreement,
will be duly and validly issued, fully paid and non-assessable.
3.3 Corporate Authority. The Company has all the requisite power and
authority to carry on its business as now conducted.
3.4 Authorization; Enforceability. This Agreement has been duly authorized,
executed and delivered by the Company and, assuming the due authorization,
execution and delivery of this Agreement by the other party hereto, constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to the effects of any applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
general laws of applicability affecting creditors' rights generally and to
general equitable principles.
3.5 No Conflict. The execution, delivery and performance by the Company of
this Agreement (i) will not result in the violation by the Company of any law,
statute, rule, regulation, order, writ, injunction, judgment or decree of any
court or governmental authority to or by which the Company is bound, and will
not conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute (with due notice or lapse of time or both) a
default under, any lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of the Company's properties or assets
are subject, and (ii) will not violate any provision of the certificate of
incorporation, by-laws or other organizational documents of the Company.
3.6 Consents. No consent, approval, authorization or other order of any
governmental authority or other third party is required to be obtained by the
Company in connection with the authorization, execution, delivery and
performance by the Company of this Agreement, including without limitation, the
issue and sale of the Shares, except filings as may be required to be made by
the Company with: (i) the Securities and Exchange Commission (the "Commission"),
(ii) state blue sky or other securities regulatory authorities, and (iii) such
other consents that have been obtained.
3.7 No Actions. There are no judicial, administrative or governmental
actions, suits, investigations or proceedings (collectively, "Legal
Proceedings") pending or to the knowledge of the Company, threatened to which
the Company is or may be a party or which property owned or leased by the
Company is or may be the subject, which, individually or in the aggregate, which
are reasonably likely to result in a Material Adverse Effect. The Company is not
a party to or subject to the provisions of any material injunction, judgment,
decree or order of any court, regulatory body, administrative agency or other
governmental body.
4
3.8 No Material Change. Since the filing with the Commission of the
Company's Annual Report on Form 10-K for the year ended December 31, 2004 and
any amendment thereto (the "2004 Form 10-K"), except as disclosed in subsequent
filings made with the Commission, the Company has not incurred or sustained any
event or change that has had a Material Adverse Effect.
3.9 Investment Company Act. The Company does not believe, after reasonable
inquiry, that it is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act, and
neither the sale of the Shares nor the transactions contemplated herein will
cause the Company to become an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act.
3.10 Accuracy of Disclosure. The information contained in the Company's
2004 Form 10-K, as of the date of the Form 10-K, and in all subsequent filings
made with the Commission, did not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
4. Indemnification. The Investor agrees to indemnify and hold harmless the
Company, and its managers, officers, directors, employees, agents and
shareholders, and each other person, if any, who controls or is controlled
by the Company, within the meaning of Section 15 of the Securities Act,
against any and all loss, liability, claim, damage, cost and expense
whatsoever (including, but not limited to, legal fees and disbursements and
any and all other expenses whatsoever incurred in investigating, preparing
for or defending against any litigation, arbitration proceeding, or other
action or proceeding, commenced or threatened, or any claim whatsoever)
arising out of or in connection with, or based upon or resulting from the
inaccuracy of any representation or warranty made by Investor herein. The
Company agrees to indemnify and hold harmless the Investor, against any and
all loss, liability, claim, damage, cost and expense whatsoever (including,
but not limited to, legal fees and disbursements and any and all other
expenses whatsoever incurred in investigating, preparing for or defending
against any litigation, arbitration proceeding, or other action or
proceeding, commenced or threatened, or any claim whatsoever) arising out
of or in connection with, or based upon or resulting from the inaccuracy of
any representation or warranty made by the Company herein.
5. Registration Rights. The Company agrees that the registration rights
contained in the First Stock Purchase Agreement shall apply to the Shares.
6. Miscellaneous.
6.1. Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
or when mailed by certified or registered mail, return receipt requested and
postage prepaid, and addressed to the address of such party set forth below or
to such changed address as such party may have fixed by written notice to the
other given in accordance with this Section 6.1; provided, however, that any
notice of change of address shall be effective only upon receipt:
If to the Company:
Phase III Medical, Inc.
330 South Service Road, Suite 120
Melville, NY 11747
Attn: Mark Weinreb, President and CEO
If to the Investor:
Catherine M. Vaczy
140 East 28th Street
Apartment #11C
New York, New York 10016
5
6.2. Entire Agreement; Amendment. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them. This Agreement may be amended
only by mutual written agreement of the Company and the Investor. No course of
dealing between or among any persons having any interest in this Agreement will
be deemed effective to modify, amend or discharge any part of this Agreement or
any rights or obligations of any person under or by reason of this Agreement.
6.3. Successors and Assigns. This Agreement shall be binding upon
the Investor and her heirs, legal representatives, successors, and permitted
assigns and shall inure to the benefit of the Company and its successors and
assigns. The Investor shall not assign any of its obligations hereunder without
the prior written consent of the Company.
6.4. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York without regard to its choice
of law provisions.
6.5. Jurisdiction. The Investor hereby irrevocably agrees that any
suit, action or proceeding with respect to this Agreement and any or all
transactions relating hereto and thereto may be brought in U.S. federal and
state courts in the State of New York. The Investor hereby irrevocably submits
to the jurisdiction of such courts with respect to any such suit, action or
proceeding and agrees and consents that service of process as provided by U.S.
federal and New York law may be made upon the Investor in any such suit, action
or proceeding brought in any of said courts, and may not claim that any such
suit, action or proceeding has been brought in an inconvenient forum. The
Investor hereby further irrevocably consents to the service of process out of
any of the aforesaid courts, in any such suit, action or proceeding, by the
mailing of copies thereof, by certified or registered mail, return receipt
requested, addressed to the Investor at the address of the Investor then
appearing on the records of the Company. Nothing contained herein shall affect
the right of the Company to commence any action, suit or proceeding or otherwise
to proceed against the Investor in any other jurisdiction or to serve process
upon the Investor in any manner permitted by any applicable law in any relevant
jurisdiction.
6.6. Additional Information and Subsequent Changes to
Representations.
(a) The Company may request from time to time such information
as it may deem necessary to determine the eligibility of the Investor to hold
Stock or to enable the Company's compliance with applicable regulatory
requirements or tax status, and the Investor shall provide such information as
may reasonably be requested.
(b) The Investor agrees that at any time in the future at
which the Investor may acquire additional shares of Common Stock, the Investor
shall be deemed to have reaffirmed, as of the date of such acquisition of
additional shares of Common Stock, each and every representation made by the
Investor in this Agreement, except to the extent modified in writing by the
Investor and consented to by the Company.
6.7. Severability. In the event that any provision of this Agreement or
the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless the provision held
invalid shall substantially impair the benefit of the remaining portion of this
Agreement.
6.8. Headings. The headings of the sections hereof are inserted as a
matter of convenience and for reference only and in no way define, limit or
describe the scope of this Agreement or the meaning of any provision hereof.
6.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto to the same extent as if delivered personally.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above under penalties of perjury.
COMPANY:
PHASE III MEDICAL, INC.
By: /s/ Mark Weinreb
Name: Mark Weinreb
Title: President and CEO
INVESTOR:
/s/ Catherine M. Vaczy
Catherine M. Vaczy
Address: 140 East 28th Street
Apartment #11C
New York, New York 10016
7
Exhibit 10.2
PHASE III MEDICAL, INC.
330 South Service Road
Suite 120
Melville, New York 11747
631.574.4955
August 12, 2005
Mr. Marrk Weinreb
c/o Phase III Medical, Inc.
330 South Service Road
Suite 120
Melville, NY 11747
Dear Mr. Weinreb:
This letter agreement shall serve as an amendment (the "Amendment")
to your employment agreement (the "Agreement") with Phase III Medical, Inc. (the
"Company") dated February 6, 2003 to serve as the Company's President and Chief
Executive Officer. The terms of this Amendment were unanimously approved by the
Board of Directors of the Company on May 4, 2005, subject to the approval of the
Company's shareholders, which was obtained on July 20, 2005.
The Agreement is hereby amended as follows:
1. Section 1.1 of the Agreement is amended to provide that the
termination of the Initial Term of the Agreement shall be December 31,
2008.
2. Section 4.2 of the Agreement is amended to provide that commencing as
of July 20, 2005, the Base Salary to which you are entitled under the
Agreement shall be equal to the sum of $250,000 which shall remain in
effect throughout the term of the Agreement without adjustment.
3. You are hereby granted as of July 20, 2005, under the Company's 2003
Equity Participation Plan (the "2003 EPP"), 3,000,000 shares of Common
Stock which shall vest as to 1,000,000 shares on each of July 20,
2005, July 20, 2006 and July 20, 2007 and shall otherwise be subject
to all the terms and conditions of the 2003 EPP.
4. The second sentence of paragraph 1.3 is hereby deleted and replaced in
its entirety as follows: "In the event of termination without cause
(other than pursuant to Paragraph 6.1 hereof), as liquidated damages
and as the sole and exclusive remedy of the Employee, the Employee
shall be entitled to (a) a lump sum payment equal to his then Base
Salary and Automobile Allowance (each as hereinafter defined) for one
year, and (b) be reimbursed for the remainder of the Term pursuant to
Paragraphs 9.2 and 9.3 hereof".
5. Section 4.3 of the Agreement is amended to provide that commencing in
August 2006, you shall be entitled to an annual minimum bonus amount
of $25,000 (not $20,000).
6. A new Section 4.5 is hereby added providing that in August 2005 you
shall be paid the sum of $15,000 to cover costs incurred by you on
behalf of the Company.
7. A new Section 9.5 is hereby added providing that, commencing in 2006,
the Company shall pay for the reimbursement of all premiums in an
annual aggregate amount of up to $18,000 payable by you for life and
long term care insurance covering each year during the Term of the
Agreement.
Except as provided herein, the Agreement shall remain unchanged. All
terms not otherewise defined herein shall have the meaning set forth in the
Agreement. For our records, I would appreciate your countersigning the
attached copy of this Amendment and returning the same to me at your
earliest convenience.
Sincerely,
/s/ Catherine M. Vaczy
Catherine M. Vaczy
Executive Vice President and General Counsel
Accepted and agreed to:
/s/ Mark Weinreb
Mark Weinreb
Exhibit 10.3
PHASE III MEDICAL, INC.
330 South Service Road
Suite 120
Melville, New York 11747
631.574.4955
August 12, 2005
Wayne A. Marasco, M.D., Ph.D.
Department of Cancer Immunology & AIDS
Dana-Farber Cancer Institute - Harvard Medical School
44 Binney Street
Boston, MA 02115
Dear Dr. Marasco:
This letter agreement shall serve as an amendment (the "Amendment")
to your letter agreement (the "Letter Agreement") with Phase III Medical, Inc.
(the "Company") dated August 12, 2004 to serve as the Company's Senior
Scientific Advisor. The terms of this Amendment were unanimously approved by the
Board of Directors of the Company on May 4, 2005, subject to the approval of the
Company's shareholders, which was obtained on July 20, 2005.
The Letter Agreement is hereby amended as follows:
1. The Term is hereby extended from August 11, 2007 to August 11, 2008.
2. The annual salary to which you are entitled under the Letter Agreement
during the Term shall be equal to $110,000, $125,000 and $150,000,
respectively, for each of the years ended August 11, 2006, August 11,
2007 and August 11, 2008.
3. Under the Letter Agreement, you shall be entitled to an annual minimum
bonus of $12,000 during the Term, payable in January of each year
during the Term, commencing in January 2006.
4. Eliminated in its entirety is your right to receive 5% of all
collected revenues derived from the Company's royalty or other revenue
sharing agreements (which right was subject to the limitation that the
amount of such additional cash compensation and your annual salary do
not exceed, in the aggregate, $200,000 per year).
5. Your right to begin receiving all accrued but unpaid cash compensation
under the Letter Agreement shall commence upon the Company's
consummation of any financing, whether equity or otherwise, pursuant
to which the Company raises a minimum of $1,500,000 after the
Commencement Date.
Except as provided herein, the Letter Agreement shall remain
unchanged. Unless otherwise defined herein, initially capitalized terms used
herein shall have the meaning set forth in the Letter Agreement. For our
records, I would appreciate your countersigning the attached copy of this
Amendment and returning the same to me at your earliest convenience.
Sincerely,
/s/ Mark Weinreb
Mark Weinreb, President & CEO
Accepted and agreed to:
/s/ Wayne A. Marasco
Wayne A. Marasco, M.D., Ph.D.
Exhibit 10.4
PHASE III MEDICAL, INC.
330 South Service Road
Suite 120
Melville, New York 11747
631.574.4955
August 12, 2005
Mr. Robert Aholt, Jr.
20128 Cavern Court
Saugus, California 91390
Dear Mr. Aholt:
This letter agreement shall serve as an amendment (the "Amendment")
to your letter agreement (the "Letter Agreement") with Phase III Medical, Inc.
(the "Company") dated September 13, 2004 to serve as the Company's Chief
Operating Officer. The terms of this Amendment were unanimously approved by the
Board of Directors of the Company on May 4, 2005, subject to the approval of the
Company's shareholders, which was obtained on July 20, 2005.
The Letter Agreement is hereby amended as follows:
1. Effective as of September 30, 2005, the annual salary to which you are
entitled during the Term, which you shall receive as full
consideration for your services thereunder, shall be equal to the sum
of $170,500 and $187,550, respectively, for each of the years ended
September 12, 2006 and September 12, 2007, which shall be paid to you
in accordance with the Company's normal payroll practices.
2. Under the Letter Agreement, you shall be entitled to an annual minimum
bonus of $12,000 during the Term, payable in January of each year
during the Term, commencing in January 2006.
For purposes of clarification, we acknowledge that the foregoing
does not affect the Company's obligation to pay to you on October 1, 2005 Common
Stock with a value of $26,750 and your monthly cash salary payable through
September 30, 2005, all on the terms and conditions set forth in the Letter
Agreement.
Except as provided herein, the Letter Agreement shall remain
unchanged. Unless otherwise defined herein, initially capitalized terms used
herein shall have the meaning set forth in the Letter Agreement. For our
records, I would appreciate your countersigning the attached copy of this
Amendment and returning the same to me at your earliest convenience.
Sincerely,
/s/ Mark Weinreb
Mark Weinreb, President & CEO
Accepted and agreed to:
/s/ Robert Aholt, Jr.
Robert Aholt, Jr.
Exhibit 10.5
STOCK OPTION AGREEMENT, made as of the 20th day of July 2005 (the
"Agreement"), between Phase III Medical, Inc., a Delaware corporation (the
"Company"), and _______________ (the "Optionee").
WHEREAS, the Company has adopted the 2003 Equity Participation Plan, as
amended (the "Plan").
WHEREAS, Optionee serves as the Company's __________.
NOW, THEREFORE, in consideration of the foregoing, the Company hereby
grants to the Optionee the right and option to purchase Common Shares under and
pursuant to the terms and conditions of the Plan and upon and subject to the
following terms and conditions:
1. GRANT OF OPTION; VESTING. The Company hereby grants to the Optionee
the right and option (the "Option") to purchase up to __________________
(____________) Common Shares of the Company (the "Option Shares") during the
period commencing on the date hereof and terminating at 5:00 P.M. on July 19,
2015 (the "Expiration Date"). The Option shall vest and become exercisable as to
_______ shares on the date hereof; as to an additional _______ shares on July
20, 2006 and as to the remaining ______ shares on July 20, 2007.
2. NATURE OF OPTION. The Option is [not] intended to meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended,
relating to "incentive stock options".
3. EXERCISE PRICE. The exercise price of each of the Option Shares
shall be six cents ($.06) (the "Exercise Price"). The Company shall pay all
original issue or transfer taxes on the exercise of the Option.
4. EXERCISE OF OPTIONS. The Option shall be exercised in accordance
with the provisions of the Plan. In addition to the permissible methods of
exercise provided for in the Plan, the Optionee may elect to have the Company
reduce the number of shares otherwise issuable to him upon exercise of the
Option by a number of shares having a fair market value (determined in
accordance with the provisions of the Plan) equal to the Exercise Price of the
Option being exercised (a "Net Exercise"). As soon as practicable after the
receipt of notice of exercise and payment of the Option Price as provided for in
the Plan, or upon a Net Exercise, the Company shall tender to the Optionee
certificates issued in the Optionee's name evidencing the number of Option
Shares covered thereby.
5. RELOAD OPTIONS. In the event the Exercise Price is paid by delivery
of Common Shares (as provided for in Section 13(b)(ii) of the Plan) or through a
Net Exercise, the Optionee shall receive, contemporaneously with the payment of
the Exercise Price in such manner, and in accordance with the provisions of the
Plan, a reload stock option to purchase that number of Common Shares equal to
the sum of (i) the number of Common Shares used to exercise the Option (or not
issued in the case of a Net Exercise) and (ii) the number of Common Shares used
to satisfy any tax withholding incident to the exercise of the Option, as
provided for in the Plan.
6. TERMINATION OF EMPLOYMENT. The Option shall remain exercisable until
the Expiration Date notwithstanding any termination or cessation of employment
with the Company or its subsidiaries for any reason whatsoever.
7. INCORPORATION BY REFERENCE. The terms and conditions of the Plan are
hereby incorporated by reference and made a part hereof.
8. NOTICES. Any notice or other communication given hereunder shall be
deemed sufficient if in writing and hand delivered or sent by registered or
certified mail, return receipt requested, addressed to the Company, c/o
Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, New Jersey 07068-1791,
Attention Alan Wovsaniker, Esq. and to the Optionee at the address indicated
below. Notices shall be deemed to have been given on the date of hand delivery
or mailing, except notices of change of address, which shall be deemed to have
been given when received.
9. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective legal representatives,
successors and assigns.
10. ENTIRE AGREEMENT. This Agreement, together with the Plan, contains
the entire understanding of the parties hereto with respect to the subject
matter hereof and may be modified only by an instrument executed by the party
sought to be charged.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PHASE III MEDICAL, INC.
By:
--------------------------------------------
Mark Weinreb
President and CEO
--------------------------------------------
Signature of Optionee
--------------------------------------------
Name of Optionee
--------------------------------------------
Address of Optionee
Exhibit 10.6
NOTE EXTENSION AGREEMENT
Dated: ______ __, 2005
This Note Extension Agreement ("Agreement") is made as of _______ ___, 2005
between Phase III Medical, Inc. (formerly Corniche Group Incorporated) (the
"Company") and _________________________ (the "Lender").
1. Background. On _____________, 200__ the Lender advanced to the Company
the principal sum of $___________, which loan was evidenced by a promissory note
dated that date (the "Note"). The Note was originally due ____ days after the
date of issuance. Principal payments of $___________ have been made to date, so
that the principal sum of $_________ remains due and owing.
2. Extension. Notwithstanding the original term of the Note, and
notwithstanding any defaults prior to the date hereof, the Lender agrees that no
further payments shall be due on the Note until ___________ ___, 2005 (the
"Maturity Date"), when all principal and accrued interest shall be due and
payable. Interest on the unpaid principal amount shall be payable monthly in
arrears on the last day of each calendar month.
3. Other Modifications. Notwithstanding any interest term in the Note,
interest shall accrue from the date hereof through the Maturity Date at a rate
of ____% per annum. All interest has been paid through __________ ___, 2005. The
Lender shall have no further rights to acquire any securities of the Company by
reason of this Note and/or by reason of any default or delay in payment
hereunder. This Note shall not be deemed in default so long as payment is made
on the Maturity Date.
4. Attachment to Note. The Lender agrees to attach an original of this
Agreement to the original Note.
5. Representations by Lender. The Lender represents and warrants that it
remains the owner of the Note, and that it has never endorsed, assigned,
transferred, encumbered or otherwise disposed of the Note to any other person or
persons or to any other firm, corporation, or partnership. The Lender agrees not
to transfer the Note prior to the Maturity Date. The Lender agrees to indemnify
the Company against any loss, damage, or liability (including reasonable
attorneys' fees) resulting from or arising out of any breach of the
representations and agreements made by the Lender, including without limitation
any claims, suits, or actions by any person or entity that it is the lawful
holder or owner of the Note.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
PHASE III MEDICAL, INC.
---------------------------
(Lender)
- ------------------------ ---------------------------
Exhibit 10.7
Catherine M. Vaczy
140 East 28th Street #11C
New York, New York 10016
Phase III Medical, Inc.
330 South Service Road
Suite 120
Melville, New York 11747
Attention: Mark Weinreb, President & CEO
August 12, 2005
Dear Mark:
As you know, pursuant to the terms of my employment agreement with Phase III
Medical, Inc. (the "Company") dated April 20, 2005 (the "Employment Agreement"),
I have been accruing my salary as to 50% since April 20, 2005. This letter is
being written to confirm our agreement, as approved by the Board at their
meeting yesterday, that (i) I will cease to accrue salary as of October 1, 2005
and will as of that date begin to receive payment of my salary solely in cash in
accordance with the Company's standard payroll practices, and (ii) I will accept
in payment of my salary accruing during the period that commenced on April 20,
2005 and will end on September 30, 2005, shares (the "Shares") of the common
stock, $.001 par value (the "Common Stock") of the Company. With respect to the
portion of my salary that has accrued from April 20, 2005 through August 12,
2005, the price per share will be $.06, the closing price of the Common Stock
today. For the portion of my salary that will accrue from August 13, 2005
through September 30, 2005, the price per share will be the closing price of the
Common Stock on September 30, 2005.
By signing this agreement, you and I each reaffirm the representations made by
each of us in the Stock Purchase Agreement dated April 20, 2005 and agree that
the Shares are being sold pursuant to the rights and conditions contained
therein, including the right to registration of the Shares.
Please acknowledge your agreement with the foregoing by countersigning this
letter agreement as provided below.
Very truly yours,
/s/ Catherine M. Vaczy
Catherine M. Vaczy
Accepted and agreed:
Phase III Medical, Inc.
By: /s/ Mark Weinreb
Mark Weinreb, President and CEO
Exhibit 31.1
CERTIFICATION
I, Mark Weinreb, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Phase III Medical,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly;
4. The registrant's other certifying officer(s) (if any) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this Report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such
evaluation; and
c) presented in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting;
5. I have disclosed, based on our most recent evaluation of internal control
over financial reporting to the registrant's auditors and the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 15, 2005
/s/ Mark Weinreb
- ----------------
Name: Mark Weinreb
Title: Chief Executive Officer of Phase III Medical, Inc.
A signed original of this written statement required by Section 302 has been
provided to Phase III Medical, Inc. and will be retained by Phase III Medical,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Phase III Medical, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2005 filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Mark
Weinreb, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition of the Company as of the
dates presented and the result of operations of the Company for the
periods presented.
Dated: August 15, 2005
/s/Mark Weinreb
---------------------------
Mark Weinreb
Chief Executive Officer
The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter
63 of Title 18, United States Code) and is not being filed as part of the Form
10-Q or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been
provided to Phase III Medical, Inc. and will be retained by Phase III Medical,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.
Exhibit 99.1
PHASE III MEDICAL, INC.
2003 Equity Participation Plan (1)
1. Purpose of the Plan. The Phase III Medical, Inc. 2003 Equity
Participation Plan (the "Plan") is intended to advance the interests of Phase
III Medical, Inc. (the "Company") by inducing individuals or entities of
outstanding ability and potential to join and remain with, or provide consulting
or advisory services to, the Company, by encouraging and enabling eligible
employees, non-employee Directors, consultants and advisors to acquire
proprietary interests in the Company, and by providing the participating
employees, non-employee Directors, consultants and advisors with an additional
incentive to promote the success of the Company. This is accomplished by
providing for the granting of "Options," which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options," as later defined,
and "Restricted Stock," to employees, non-employee Directors, consultants and
advisors.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board" or "Board of Directors") or by a committee
(the "Committee") consisting of at least two (2) persons chosen by the Board of
Directors. Except as herein specifically provided, the interpretation and
construction by the Board of Directors or the Committee of any provision of the
Plan or of any Option, or with respect to any Restricted Stock, granted under it
shall be final and conclusive. The receipt of Options or Restricted Stock by
Directors, or any members of the Committee, shall not preclude their vote on any
matters in connection with the administration or interpretation of the Plan.
3. Shares Subject to the Plan. The shares subject to Options granted under
the Plan, and shares granted as Restricted Stock under the Plan, shall be shares
of the Company's common stock, par value $.001 per share (the "Common Stock"),
whether authorized but unissued or held in the Company's treasury, or shares
purchased from stockholders expressly for use under the Plan. The maximum number
of shares of Common Stock which may be issued pursuant to Options or as
Restricted Stock granted under the Plan shall not exceed in the aggregate fifty
million (50,000,000) shares. The Company shall at all times while the Plan is in
force reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirements of all outstanding Options granted under the Plan. In
the event any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject thereto shall
again be available for Options and grants of Restricted Stock under the Plan. In
the event any shares of Restricted Stock are forfeited for any reason, the
shares forfeited shall again be available for Options and grants of Restricted
Stock under the Plan. In the event shares of Common Stock are delivered to, or
withheld by, the Company pursuant to Sections 14(b) or 27 hereof, only the net
number of shares issued, i.e., net of the shares so delivered or withheld, shall
be considered to have been issued pursuant to the Plan.
4. Participation. The class of individuals that shall be eligible to
receive Options ("Optionees") and Restricted Stock ("Grantees") under the Plan
shall be (a) with respect to Incentive Stock Options described in Section 6
hereof, all employees of either the Company or any parent or subsidiary
corporation of the Company, and (b) with respect to Nonstatutory Stock Options
described in Section 7 hereof and Restricted Stock described in Section 18
hereof, all employees, and non-employee Directors of, or consultants and
advisors to, either the Company or any parent or subsidiary corporation of the
Company; provided, however, neither nonstatutory Stock Options nor Restricted
Stock shall be granted to any such consultant or advisor unless (i) the
consultant or advisor is a natural person (or an entity wholly-owned by the
consultant or advisor), (ii) bona fide services have been or are to be rendered
by such consultant or advisor and (iii) such services are not in connection with
the offer or sale of securities in a capital raising transaction and do not
directly or indirectly promote or maintain a market for the Company's
securities. The Board of Directors or the Committee, in its sole discretion, but
subject to the provisions of the Plan, shall determine the employees and
non-employee Directors of, and the consultants and advisors to, the Company and
its parent and subsidiary corporations to whom Options and Restricted Stock
shall be granted, and the number of shares to be covered by each Option and each
Restricted Stock grant, taking into account the nature of the employment or
services rendered by the individuals or entities being considered, their annual
compensation, their present and potential contributions to the success of the
Company, and such other factors as the Board of Directors or the Committee may
deem relevant. Notwithstanding the foregoing, the selection of non-employee
Directors whom Options are to be granted, the number of shares subject to the
Option, and the exercise price of any Option shall be as set forth in Section 8
hereof and the Committee shall have no discretion as to such matters. For
purposes hereof, a non-employee to whom an offer of employment has been extended
shall be considered an employee, provided that the Options granted to such
individual shall not be exercisable, and the Restricted Stock granted shall not
vest, in whole or in part, for a period of at least one year from the date of
grant and in the event the individual does not commence employment with the
Company, the Options and/or Restricted Stock granted shall be considered null
and void.
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(1) On February 6, 2003 this Plan was adopted by the Board and on July 24, 2005
approved by the shareholders; on May 4, 2005 this Plan was amended by the
Board and on July 20, 2005 the amendment was approved by the shareholders.
5. Stock Option Agreement. Each Option granted under the Plan shall be
authorized by the Board of Directors or the Committee, and shall be evidenced by
a Stock Option Agreement which shall be executed by the Company and by the
individual or entity to whom such Option is granted. The Stock Option Agreement
shall specify the number of shares of Common Stock as to which any Option is
granted, the period during which the Option is exercisable, and the option price
per share thereof, and such other terms and provisions as the Board of Directors
or the Committee may deem necessary or appropriate.
6. Incentive Stock Options. The Board of Directors or the Committee may
grant Options under the Plan which are intended to meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), with
respect to "incentive stock options," and which are subject to the following
terms and conditions and any other terms and conditions as may at any time be
required by Section 422 of the Code (referred to herein as an "Incentive Stock
Option"):
(a) No Incentive Stock Option shall be granted to individuals other
than employees of the Company or of a parent or subsidiary corporation of the
Company.
(b) Each Incentive Stock Option under the Plan must be granted prior
to February 6, 2013, which is within ten (10) years from the date the Plan was
adopted by the Board of Directors.
(c) The option price of the shares subject to any Incentive Stock
Option shall not be less than the fair market value (as defined in subsection
(f) of this Section 6) of the Common Stock at the time such Incentive Stock
Option is granted; provided, however, if an Incentive Stock Option is granted to
an individual who owns, at the time the Incentive Stock Option is granted, more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of a parent or subsidiary corporation of the Company (a
"10% Stockholder"), the option price of the shares subject to the Incentive
Stock Option shall be at least one hundred ten percent (110%) of the fair market
value of the Common Stock at the time such Incentive Stock Option is granted.
(d) No Incentive Stock Option granted under the Plan shall be
exercisable after the expiration of ten (10) years from the date of its grant.
However, if an Incentive Stock Option is granted to a 10% Stockholder, such
Incentive Stock Option shall not be exercisable after the expiration of five (5)
years from the date of its grant. Every Incentive Stock Option granted under the
Plan shall be subject to earlier termination as expressly provided in Section 13
hereof.
(e) For purposes of determining stock ownership under this Section
6, the attribution rules of Section 424(d) of the Code shall apply.
(f) For purposes of the Plan, fair market value shall be determined
by the Board of Directors or the Committee. If the Common Stock is listed or
traded on a national securities exchange, The Nasdaq Stock Market ("Nasdaq"),
the National Association of Securities Dealers OTC Electronic Bulletin Board
(the "Bulletin Board"), the Bulletin Board Exchange (the "BBX") or the Pink
Sheets (or any successor organization), fair market value shall be the closing
selling price or, if not available, the closing bid price or, if not available,
the high bid price of the Common Stock quoted on such exchange, Nasdaq, the
Bulletin Board, the BBX or the Pink Sheets (or any successor organization), as
reported thereby, as the case may be, on the day immediately preceding the day
on which the Option is granted (or, if granted after the close of business for
trading, then on the day on which the Option is granted), or, if there is no
selling or bid price on that day, the closing selling price, closing bid price
or high bid price, as the case may be, on the most recent day which precedes
that day and for which such prices are available. If there is no selling or bid
price for the ninety (90) day period preceding the date of grant of an Option
hereunder, fair market value shall be determined in good faith by the Board of
Directors or the Committee.
7. Nonstatutory Stock Options. The Board of Directors or the Committee may
grant Options under the Plan which are not intended to meet the requirements of
Section 422 of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code but the terms of which provide that they
will not be treated as Incentive Stock Options (referred to herein as a
"Nonstatutory Stock Option"). Nonstatutory Stock Options shall be subject to the
following terms and conditions:
(a) A Nonstatutory Stock Option may be granted to any individual or
entity eligible to receive an Option under the Plan pursuant to clause (b) of
Section 4 hereof.
(b) The option price of the shares subject to a Nonstatutory Stock
Option shall be determined by the Board of Directors or the Committee, in its
sole discretion, at the time of the grant of the Nonstatutory Stock Option.
(c) A Nonstatutory Stock Option granted under the Plan may be of
such duration as shall be determined by the Board of Directors or the Committee
(subject to earlier termination as expressly provided in Section 13 hereof).
8. Grant of Options to Non-Employee Directors.
(a) Subject to the provisions of Section 3 hereof, for so long as
this Plan is in effect and shares are available for the grant of Options
hereunder, each person who shall become a non-employee Director after the
effective date of this Plan shall be granted, on the date of his initial
election by stockholders or initial appointment by the Board of Directors of the
Company, an Option to purchase 300,000 shares of Common Stock at a per share
option price equal to the fair market value of a share of Common Stock on such
date (such number of shares being subject to the adjustments provided in Section
15 of the Plan).
(b) For so long as this Plan is in effect and shares are available
for the grant of options hereunder, on the date of the Company's annual meeting
of stockholders, there shall be granted to each person who is a non-employee
Director on the date of such annual meeting an Option to purchase 50,000 shares
of Common Stock at a per share option price equal to the fair market value of a
share of Common Stock on such date (such number of shares being subject to the
adjustments provided in Section 15 of the Plan); provided, however, that any
non-employee Director who received an Option grant pursuant to Section 8(a)
above shall not be entitled to receive an Option grant pursuant to this Section
8(b) in the same calendar year.
9. Reload Options. The Board of Directors or the Committee may grant
Options with a reload feature. A reload feature shall only apply when the option
price is paid by delivery of Common Stock (as set forth in Section 14(b)(ii)) or
by having the Company reduce the number of shares otherwise issuable to an
Optionee (as provided for in the last sentence of Section 14(b)) (a "Net
Exercise"). The Stock Option Agreement for the Options containing the reload
feature shall provide that the Option holder shall receive, contemporaneously
with the payment of the option price in shares of Common Stock or in the event
of a Net Exercise, a reload stock option (the "Reload Option") to purchase that
number of shares of Common Stock equal to the sum of (i) the number of shares of
Common Stock used to exercise the Option (or not issued in the case of a Net
Exercise), and (ii) with respect to Nonstatutory Stock Options, the number of
shares of Common Stock used to satisfy any tax withholding requirement incident
to the exercise of such Nonstatutory Stock Option. The terms of the Plan
applicable to the Option shall be equally applicable to the Reload Option with
the following exceptions: (i) the option price per share of Common Stock
deliverable upon the exercise of the Reload Option, (A) in the case of a Reload
Option which is an Incentive Stock Option being granted to a 10% Stockholder,
shall be one hundred ten percent (110%) of the fair market value of a share of
Common Stock on the date of grant of the Reload Option and (B) in the case of a
Reload Option which is an Incentive Stock Option being granted to a person other
than a 10% Stockholder or is a Nonstatutory Stock Option, shall be the fair
market value of a share of Common Stock on the date of grant of the Reload
Option; and (ii) the term of the Reload Option shall be equal to the remaining
option term of the Option (including a Reload Option) which gave rise to the
Reload Option. The Reload Option shall be evidenced by an appropriate amendment
to the Stock Option Agreement for the Option which gave rise to the Reload
Option. In the event the exercise price of an Option containing a reload feature
is paid by check and not in shares of Common Stock, the reload feature shall
have no application with respect to such exercise.
10. Rights of Option Holders. The holder of an Option granted under the
Plan shall have none of the rights of a stockholder with respect to the stock
covered by his Option until such stock shall be transferred to him upon the
exercise of his Option.
11. Alternate Stock Appreciation Rights.
(a) Concurrently with, or subsequent to, the award of any Option to
purchase one or more shares of Common Stock, the Board of Directors or the
Committee may, in its sole discretion, subject to the provisions of the Plan and
such other terms and conditions as the Board of Directors or the Committee may
prescribe, award to the Optionee with respect to each share of Common Stock
covered by an Option ("Related Option"), a related alternate stock appreciation
right ("SAR"), permitting the Optionee to be paid the appreciation on the
Related Option in lieu of exercising the Related Option. A SAR granted with
respect to an Incentive Stock Option must be granted together with the Related
Option. A SAR granted with respect to a Nonstatutory Stock Option may be granted
together with, or subsequent to, the grant of such Related Option.
(b) Each SAR granted under the Plan shall be authorized by the Board
of Directors or the Committee, and shall be evidenced by a SAR Agreement which
shall be executed by the Company and by the individual or entity to whom such
SAR is granted. The SAR Agreement shall specify the period during which the SAR
is exercisable, and such other terms and provisions not inconsistent with the
Plan.
(c) A SAR may be exercised only if and to the extent that its
Related Option is eligible to be exercised on the date of exercise of the SAR.
To the extent that a holder of a SAR has a current right to exercise, the SAR
may be exercised from time to time by delivery by the holder thereof to the
Company at its principal office (attention: Secretary) of a written notice of
the number of shares with respect to which it is being exercised. Such notice
shall be accompanied by the agreements evidencing the SAR and the Related
Option. In the event the SAR shall not be exercised in full, the Secretary of
the Company shall endorse or cause to be endorsed on the SAR Agreement and the
Related Option Agreement the number of shares which have been exercised
thereunder and the number of shares that remain exercisable under the SAR and
the Related Option and return such SAR and Related Option to the holder thereof.
(d) The amount of payment to which an Optionee shall be entitled
upon the exercise of each SAR shall be equal to one hundred percent (100%) of
the amount, if any, by which the fair market value of a share of Common Stock on
the exercise date exceeds the exercise price per share of the Related Option;
provided, however, the Company may, in its sole discretion, withhold from any
such cash payment any amount necessary to satisfy the Company's obligation for
withholding taxes with respect to such payment.
(e) The amount payable by the Company to an Optionee upon exercise
of a SAR may, in the sole determination of the Company, be paid in shares of
Common Stock, cash or a combination thereof, as set forth in the SAR Agreement.
In the case of a payment in shares, the number of shares of Common Stock to be
paid to an Optionee upon such Optionee's exercise of a SAR shall be determined
by dividing the amount of payment etermined pursuant to Section 11(d) hereof by
the fair market value of a share of Common Stock on the exercise date of such
SAR. For purposes of the Plan, the exercise date of a SAR shall be the date the
Company receives written notification from the Optionee of the exercise of the
SAR in accordance with the provisions of Section 11(c) hereof. As soon as
practicable after exercise, the Company shall either deliver to the Optionee the
amount of cash due such Optionee or a certificate or certificates for such
shares of Common Stock. All such shares shall be issued with the rights and
restrictions specified herein.
(f) SARs shall terminate or expire upon the same conditions and in
the same manner as the Related Options, and as set forth in Section 13 hereof.
(g) The exercise of any SAR shall cancel and terminate the right to
purchase an equal number of shares covered by the Related Option.
(h) Upon the exercise or termination of any Related Option, the SAR
with respect to such Related Option shall terminate to the extent of the number
of shares of Common Stock as to which the Related Option was exercised or
terminated.
(i) A SAR granted pursuant to the Plan shall be transferable to the
same extent as the Related Option.
(j) All references in this Plan to "Options" shall be deemed to
include "SARs" where applicable.
12. Transferability of Options.
(a) No Option granted under the Plan shall be transferable by the
individual or entity to whom it was granted other than by will or the laws of
descent and distribution, and, during the lifetime of an individual, shall not
be exercisable by any other person, but only by him.
(b) Notwithstanding Section 12(a) above, a Nonstatutory Stock Option
granted under the Plan may be transferred in whole or in part during an
Optionee's lifetime, upon the approval of the Board of Directors or the
Committee, to an Optionee's "family members" (as such term is defined in Rule
701(c)(3) of the Securities Act of 1933, as amended, and General Instruction
A(1)(a)(5) to Form S-8) through a gift or domestic relations order. The
transferred portion of a Nonstatutory Stock Option may only be exercised by the
person or entity who acquires a proprietary interest in such option pursuant to
the transfer. The terms applicable to the transferred portion shall be the same
as those in effect for the Option immediately prior to such transfer and shall
be set forth in such documents issued to the transferee as the Board of
Directors or the Committee may deem appropriate. As used in this Plan the terms
"Optionee" and "holder of an Option" shall refer to the grantee of the Option
and not any transferee thereof.
13. Effect of Termination of Employment or Death on Options.
(a) Unless otherwise provided in the Stock Option Agreement, if the
employment of an employee by, or the services of a non-employee Director for, or
consultant or advisor to, the Company or a parent or subsidiary corporation of
the Company shall be terminated for cause or voluntarily by the employee,
non-employee Director, consultant or advisor, then his Option shall expire
forthwith. Unless otherwise provided in the Stock Option Agreement, and except
as provided in subsections (b) and (c) of this Section 13, if such employment or
services shall terminate for any other reason, then such Option may be exercised
at any time within three (3) months after such termination, subject to the
provisions of subsection (d) of this Section 13. For purposes of the Plan, the
retirement of an individual either pursuant to a pension or retirement plan
adopted by the Company or at the normal retirement date prescribed from time to
time by the Company shall be deemed to be termination of such individual's
employment other than voluntarily or for cause. For purposes of this subsection
(a), an employee, non-employee Director, consultant or advisor who leaves the
employ or services of the Company to become an employee or non-employee Director
of, or a consultant or advisor to, a parent or subsidiary corporation of the
Company or a corporation (or subsidiary or parent corporation of the
corporation) which has assumed the Option of the Company as a result of a
corporate reorganization or like event shall not be considered to have
terminated his employment or services.
(b) Unless otherwise provided in the Stock Option Agreement, if the
holder of an Option under the Plan dies (i) while employed by, or while serving
as a non-employee Director for or a consultant or advisor to, the Company or a
parent or subsidiary corporation of the Company, or (ii) within three (3) months
after the termination of his employment or services other than voluntarily or
for cause, then such Option may, subject to the provisions of subsection (d) of
this Section 12, be exercised by the estate of the employee or non-employee
Director, consultant or advisor, or by a person who acquired the right to
exercise such Option by bequest or inheritance or by reason of the death of such
employee or non-employee Director, consultant or advisor, at any time within one
(1) year after such death.
(c) Unless otherwise provided in the Stock Option Agreement, if the
holder of an Option under the Plan ceases employment or services because of
permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) ("Permanent Disability") while employed by, or while serving as a
non-employee Director for or consultant or advisor to, the Company or a parent
or subsidiary corporation of the Company, then such Option may, subject to the
provisions of subsection (d) of this Section 13, be exercised at any time within
one (1) year after his termination of employment, termination of Directorship or
termination of consulting or advisory services, as the case may be, due to the
disability.
(d) An Option may not be exercised pursuant to this Section 13
except to the extent that the holder was entitled to exercise the Option at the
time of termination of employment, termination of Directorship, termination of
consulting or advisory services, or death, and in any event may not be exercised
after the expiration of the Option.
(e) For purposes of this Section 13, the employment relationship of
an employee of the Company or of a parent or subsidiary corporation of the
Company will be treated as continuing intact while he is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) if such leave does not exceed ninety (90) days, or, if longer, so
long as his right to reemployment is guaranteed either by statute or by
contract.
14. Exercise of Options.
(a) Unless otherwise provided in the Stock Option Agreement, any
Option granted under the Plan shall be exercisable in whole at any time, or in
part from time to time, prior to expiration. The Board of Directors or the
Committee, in its absolute discretion, may provide in any Stock Option Agreement
that the exercise of any Options granted under the Plan shall be subject (i) to
such condition or conditions as it may impose, including, but not limited to, a
condition that the holder thereof remain in the employ or service of, or
continue to provide consulting or advisory services to, the Company or a parent
or subsidiary corporation of the Company for such period or periods from the
date of grant of the Option as the Board of Directors or the Committee, in its
absolute discretion, shall determine; and (ii) to such limitations as it may
impose, including, but not limited to, a limitation that the aggregate fair
market value (determined at the time the Option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any employee during any calendar year (under all plans of the Company and its
parent and subsidiary corporations) shall not exceed one hundred thousand
dollars ($100,000). In addition, in the event that under any Stock Option
Agreement the aggregate fair market value (determined at the time the Option is
granted) of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any employee during any calendar year (under
all plans of the Company and its parent and subsidiary corporations) exceeds one
hundred thousand dollars ($100,000), the Board of Directors or the Committee
may, when shares are transferred upon exercise of such Options, designate those
shares which shall be treated as transferred upon exercise of an Incentive Stock
Option and those shares which shall be treated as transferred upon exercise of a
Nonstatutory Stock Option.
(b) An Option granted under the Plan shall be exercised by the
delivery by the holder thereof to the Company at its principal office (attention
of the Secretary) of written notice of the number of shares with respect to
which the Option is being exercised. Such notice shall be accompanied, or
followed within ten (10) days of delivery thereof, by payment of the full option
price of such shares, and payment of such option price shall be made by the
holder's delivery of (i) his check payable to the order of the Company, or (ii)
previously acquired Common Stock, the fair market value of which shall be
determined as of the date of exercise (provided that the shares delivered
pursuant hereto are acceptable to the Board of Directors or the Committee in its
sole discretion) or (iii) if provided for in the Stock Option Agreement, his
check payable to the order of the Company in an amount at least equal to the par
value of the Common Stock being acquired, together with a promissory note, in
form and upon such terms as are acceptable to the Board or the Committee, made
payable to the order of the Company in an amount equal to the balance of the
exercise price, or (iv) by the holder's delivery of any combination of the
foregoing (i), (ii) and (iii). Alternatively, if provided for in the Stock
Option Agreement, the holder may elect to have the Company reduce the number of
shares otherwise issuable by a number of shares having a fair market value equal
to the exercise price of the Option being exercised.
15. Adjustment Upon Change in Capitalization.
(a) In the event that the outstanding Common Stock is hereafter
changed by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, reverse split, stock
dividend or the like, an appropriate adjustment shall be made by the Board of
Directors or the Committee in the aggregate number of shares available under the
Plan, in the number of shares and option price per share subject to outstanding
Options, and in any limitation on exerciseability referred to in Section
14(a)(ii) hereof which is set forth in outstanding Incentive Stock Options. If
the Company shall be reorganized, consolidated, or merged with another
corporation, subject to the provisions of Section 19 hereof, the holder of an
Option shall be entitled to receive upon the exercise of his Option the same
number and kind of shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive upon the happening of any
such corporate event as if he had been, immediately prior to such event, the
holder of the number of shares covered by his Option; provided, however, that in
such event the Board of Directors or the Committee shall have the discretionary
power to take any action necessary or appropriate to prevent any Incentive Stock
Option granted hereunder which is intended to be an "incentive stock option"
from being disqualified as such under the then existing provisions of the Code
or any law amendatory thereof or supplemental thereto; and provided, further,
however, that in such event the Board of Directors or the Committee shall have
the discretionary power to take any action necessary or appropriate to prevent
such adjustment from being deemed or considered as the adoption of a new plan
requiring shareholder approval under Section 422 of the Code and the regulations
promulgated thereunder.
(b) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of the Option granted hereunder.
If fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next lower whole number of shares.
16. Further Conditions of Exercise of Options.
(a) Unless prior to the exercise of the Option the shares issuable
upon such exercise have been registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, the notice of
exercise shall be accompanied by a representation or agreement of the person or
estate exercising the Option to the Company to the effect that such shares are
being acquired for investment purposes and not with a view to the distribution
thereof, and such other documentation as may be required by the Company, unless
in the opinion of counsel to the Company such representation, agreement or
documentation is not necessary to comply with such Act.
(b) If the Common Stock is listed on any securities exchange,
including, without limitation, Nasdaq, the Company shall not be obligated to
deliver any Common Stock pursuant to this Plan until it has been listed on each
such exchange. In addition, the Company shall not be obligated to deliver any
Common Stock pursuant to this Plan until there has been qualification under or
compliance with such federal or state laws, rules or regulations as the Company
may deem applicable. The Company shall use reasonable efforts to obtain such
listing, qualification and compliance.
17. Restricted Stock Grant Agreement. Each Restricted Stock grant under
the Plan shall be authorized by the Board of Directors or the Committee, and
shall be evidenced by a Restricted Stock Grant Agreement which shall be executed
by the Company and by the individual or entity to whom such Restricted Stock is
granted. The Restricted Stock Grant Agreement shall specify the number of shares
of Restricted Stock granted, the vesting periods and such other terms and
provisions as the Board of Directors or the Committee may deem necessary or
appropriate.
18. Restricted Stock Grants.
(a) The Board of Directors or the Committee may grant Restricted
Stock under the Plan to any individual or entity eligible to receive Restricted
Stock pursuant to clause (b) of Section 4 hereof.
(b) In addition to any other applicable provisions hereof and except
as may otherwise be specifically provided in a Restricted Stock Grant Agreement,
the following restrictions in this Section 18(b) shall apply to grants of
Restricted Stock made by the Board or the Committee:
(i) No shares granted pursuant to a grant of Restricted Stock
may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated until, and to the extent that, such shares are vested.
(ii) Shares granted pursuant to a grant of Restricted Stock
shall vest as determined by the Board or the Committee, as provided for in the
Restricted Stock Grant Agreement. The foregoing notwithstanding (but subject to
the provisions of (iii) hereof and subject to the discretion of the Board or the
Committee), a Grantee shall forfeit all shares not previously vested, if any, at
such time as the Grantee is no longer employed by, or serving as a Director of,
or rendering consulting or advisory services to, the Company or a parent or
subsidiary corporation of the Company. All forfeited shares shall be returned to
the Company.
(iii) Notwithstanding the provisions of (ii) hereof,
non-vested Restricted Stock shall automatically vest to the same extent as
non-vested options as provided for in Section 19 hereof.
(c) In determining the vesting requirements with respect to a grant
of Restricted Stock, the Board or the Committee may impose such restrictions on
any shares granted as it may deem advisable including, without limitation,
restrictions relating to length of service, corporate performance, attainment of
individual or group performance objectives, and federal or state securities
laws, and may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions. Any such restrictions shall be
specifically set forth in the Restricted Stock Grant Agreement.
(d) Certificates representing shares granted that are subject to
restrictions shall be held by the Company or, if the Board or the Committee so
specifies, deposited with a third-party custodian or trustee until lapse of all
restrictions on the shares. After such lapse, certificates for such shares (or
the vested percentage of such shares) shall be delivered by the Company to the
Grantee; provided, however, that the Company need not issue fractional shares.
(e) During any applicable period of restriction, the Grantee shall
be the record owner of the Restricted Stock and shall be entitled to vote such
shares and receive all dividends and other distributions paid with respect to
such shares while they are so restricted. However, if any such dividends or
distributions are paid in shares of Company stock or cash or other property
during an applicable period of restriction, the shares, cash and/or other
property deliverable shall be held by the Company or third party custodian or
trustee and be subject to the same restrictions as the shares with respect to
which they were issued. Moreover, the Board or the Committee may provide in each
grant such other restrictions, terms and conditions as it may deem advisable
with respect to the treatment and holding of any stock, cash or property that is
received in exchange for Restricted Stock granted pursuant to the Plan.
(f) Each Grantee making an election pursuant to Section 83(b) of the
Code shall, upon making such election, promptly provide a copy thereof to the
Company.
19. Liquidation, Merger or Consolidation. Notwithstanding Section 14(a)
hereof, if the Board of Directors approves a plan of complete liquidation or a
merger or consolidation (other than a merger or consolidation that would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity), at least fifty percent (50%) of
the combined voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger or consolidation),
the Board of Directors or the Committee may, in its sole discretion, upon
written notice to the holder of an Option, provide that the Option must be
exercised within twenty (20) days following the date of such notice or it will
be terminated. In the event such notice is given, the Option shall become
immediately exercisable in full.
20. Effectiveness of the Plan. The Plan was adopted by the Board of
Directors and is effective on February 6, 2003.
21. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan)
shall terminate on February 6, 2013, which is within ten (10) years from the
date of its adoption by the Board of Directors, or sooner as hereinafter
provided, and no Option or Restricted Stock shall be granted after termination
of the Plan. The foregoing shall not be deemed to limit the vesting period for
Restricted Stock granted pursuant to the Plan.
(b) The Board of Directors may at any time, on or before the
termination date referred to in Section 21(a) hereof, without stockholder
approval, terminate the Plan, or from time to time make such modifications or
amendments to the Plan as it may deem advisable.
(c) No termination, modification, or amendment of the Plan may,
without the consent of the individual or entity to whom any Option or Restricted
Stock shall have been granted, adversely affect the rights conferred by such
Option or Restricted Stock grant.
22. Not a Contract of Employment. Nothing contained in the Plan or in any
Stock Option Agreement or Restricted Stock Grant Agreement executed pursuant
hereto shall be deemed to confer upon any individual or entity to whom an Option
or Restricted Stock is or may be granted hereunder any right to remain in the
employ or service of the Company or a parent or subsidiary corporation of the
Company or any entitlement to any remuneration or other benefit pursuant to any
consulting or advisory arrangement.
23. Use of Proceeds. The proceeds from the sale of shares pursuant to
Options or Restricted Stock granted under the Plan shall constitute general
funds of the Company.
24. Indemnification of Board of Directors or Committee. In addition to
such other rights of indemnification as they may have, the members of the Board
of Directors or the Committee, as the case may be, shall be indemnified by the
Company to the extent permitted under applicable law against all costs and
expenses reasonably incurred by them in connection with any action, suit, or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any rights
granted thereunder and against all amounts paid by them in settlement thereof or
paid by them in satisfaction of a judgment of any such action, suit or
proceeding, except a judgment based upon a finding of bad faith. Upon the
institution of any such action, suit, or proceeding, the member or members of
the Board of Directors or the Committee, as the case may be, shall notify the
Company in writing, giving the Company an opportunity at its own cost to defend
the same before such member or members undertake to defend the same on his or
their own behalf.
25. Captions. The use of captions in the Plan is for convenience. The
captions are not intended to provide substantive rights.
26. Disqualifying Dispositions. If Common Stock acquired upon exercise of
an Incentive Stock Option granted under the Plan is disposed of within two years
following the date of grant of the Incentive Stock Option or one year following
the issuance of the Common Stock to the Optionee, or is otherwise disposed of in
a manner that results in the Optionee being required to recognize ordinary
income, rather than capital gain, from the disposition (a "Disqualifying
Disposition"), the holder of the Common Stock shall, immediately prior to such
Disqualifying Disposition, notify the Company in writing of the date and terms
of such Disqualifying Disposition and provide such other information regarding
the Disqualifying Disposition as the Company may reasonably require.
27. Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be
delivered to an Optionee upon exercise of a Nonstatutory Stock Option or to a
Grantee of Restricted Stock, the Company shall be entitled to require as a
condition of delivery that the Optionee or Grantee remit or, at the discretion
of the Board or the Committee, agree to remit when due, an amount sufficient to
satisfy all current or estimated future Federal, state and local income tax
withholding requirements, including, without limitation, the employee's portion
of any employment tax requirements relating thereto. At the time of a
Disqualifying Disposition, the Optionee shall remit to the Company in cash the
amount of any applicable Federal, state and local income tax withholding and the
employee's portion of any employment taxes.
(b) The Board of Directors or the Committee may, in its discretion,
provide any or all holders of Nonstatutory Stock Options or Grantees of
Restricted Stock with the right to use shares of Common Stock in satisfaction of
all or part of the withholding taxes to which such holders may become subject in
connection with the exercise of their Options or their receipt of Restricted
Stock. Such right may be provided to any such holder in either or both of the
following formats:
(i) The election to have the Company withhold, from the shares
of Common Stock otherwise issuable upon the exercise of such Nonstatutory Stock
Option or otherwise deliverable as a result of the vesting of Restricted Stock,
a portion of those shares with an aggregate fair market value equal to the
percentage of the withholding taxes (not to exceed one hundred percent (100%))
designated by the holder.
(ii) The election to deliver to the Company, at the time the
Nonstatutory Stock Option is exercised or Restricted Stock is granted or vested,
one or more shares of Common Stock previously acquired by such holder (other
than in connection with the option exercise or Restricted Stock grant triggering
the withholding taxes) with an aggregate fair market value equal to the
percentage of the withholding taxes (not to exceed one hundred percent (100%))
designated by the holder.
28. Other Provisions. Each Option granted, and each Restricted Stock
grant, under the Plan may contain such other terms and conditions not
inconsistent with the Plan as may be determined by the Board or the Committee,
in its sole discretion. Notwithstanding the foregoing, each Incentive Stock
Option granted under the Plan shall include those terms and conditions which are
necessary to qualify the Incentive Stock Option as an "incentive stock option"
within the meaning of Section 422 of the Code and the regulations thereunder and
shall not include any terms and conditions which are inconsistent therewith.
29. Definitions. For purposes of the Plan, the terms "parent corporation"
and "subsidiary corporation" shall have the meanings set forth in Sections
424(e) and 424(f) of the Code, respectively, and the masculine shall include the
feminine and the neuter as the context requires.
30. Governing Law. The Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the laws of the State
of New York, excluding choice of law principles thereof.