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PART II -- OTHER INFORMATION
Item 1 Legal Proceedings
------------------------
None
Item 2 Changes in Securities
----------------------------
On May 18, 1999, the Company, pursuant to Regulation D, Rule 506, issued
400 shares of Series B preferred stock (par value $0.25) (the "Series B
Preferred") and related warrants described below for $4,000,000 ($10,000 per
share). The Series B preferred stock was sold to six accredited investors and no
unaccredited investors. The key provisions regarding the issuance and conversion
of Series B Preferred are as follows:
Dividends
The holders of the Series B Preferred shall be entitled to receive a 6.0%
annual dividend, which shall be cumulative and which shall accrue daily from the
date of issuance and be payable, at the option of the Company, either (i) in
shares of Common Stock upon conversion of the Series B Preferred or (ii) in
cash.
Conversion by Holders
Subject to the limitations discussed below, each share of the Series B
Preferred shall be convertible into shares of Common Stock at a variable
conversion rate (the "Conversion Rate") equal to the Conversion Amount (defined
below) divided by the applicable Conversion Price (defined as follows). The
"Conversion Price" is the lesser of (i) the fixed conversion price (the "Fixed
Conversion Price"), which is $7.80 or (ii) the variable conversion price (the
"Variable Conversion Price"). The Variable Conversion Price is the lower of (a)
the closing bid price on the day the holder delivers the required notice of his
intention to convert to the Company or (b) the average of the 10 lowest closing
bid prices in the 40 trading days immediately preceding the date such notice is
given. The "Conversion Amount" is defined as $10,000, plus any stock dividends
that have accrued but have not been paid out, plus any default interest (equal
to 15%) for dividends which the Company has elected to pay in cash but has
failed to pay on a timely basis. The above formula may or may not result in the
common stock being issued at a discount to the current market price.
The investors' right to convert the Series B Preferred is limited as
follows. From the date of issuance (May 18, 1999) of the Series B Preferred
through and including the date which is 120 days after the date of issuance, no
shares of the Series B Preferred may be converted. From 121 days after the date
of issuance through the date which is 150 days after the date of issuance, the
Investors may convert up to 1/3 of their shares. From 151 days after the date of
issuance through the date which is 180 days after the date of issuance, the
investors may convert up to 2/3 of their shares. From the date which is 181 days
following the date of issuance through the expiration date of the Series B
Preferred (5 years after the date of issuance), the investors may convert up to
all of their shares. The foregoing restrictions do not apply if certain events
occur.
Adjustment of Conversion Price
The Conversion Price of the Series B Preferred is subject to customary
anti-dilution provisions which take effect upon such events as the issuance by
the Company of Common Stock, options or other convertible securities, the
subdivision or combination of outstanding shares of Common Stock of the Company,
the recapitalization, merger or other reorganization of the Company, or any
other similar events. However, no such adjustment will be made unless the
adjustment would result in a cumulative increase or decrease of at least 1% in
the Conversion Price.
Mandatory Conversion
The shares of Series B Preferred mature five years after they are issued,
and any shares of the Series B Preferred left outstanding on the applicable
maturity date are automatically converted into shares of Common Stock.
Redemption at the Option of Investors
Each outstanding share of the Series B Preferred is redeemable, at the
option of the Investors, in the event of any of the following transactions (each
a "Major Transaction"): (i) the consolidation, merger or other business
combination of the Company, (ii) the sale or transfer of all or substantially
all of the Company's assets or (iii) a purchase, tender or exchange offer made
to and accepted by the holders of more than 50% of the outstanding shares of
Common Stock, provided that such Major Transaction shall have occurred or have
been the subject of a public announcement during the period beginning on the
date of issuance and ending on the later of (a) the first anniversary of the
date of issuance and (b) the date which is 270 days after the effective date of
the Registration Statement relating to the applicable shares. In the event of a
Major Transaction, the redemption price per share shall be the greater of (i)
115% of the Liquidation Amount (as defined below) and (ii) the product of (a)
the applicable Conversion Rate and (b) the closing bid price on the date of the
public announcement of the event. The "Liquidation Amount" is equal to $10,000
plus any stock dividends that have accrued but have not been paid out, plus any
default interest (equal to 15% per annum) for dividends which the Company has
elected to pay in cash but has failed to pay on a timely basis.
In addition, in the event of the occurrence of certain events (the
"Triggering Events"), including the failure of the Registration Statement to be
declared effective within 180 days of the date of issuance, the delisting of the
Common Stock for a period of five consecutive days and the Company's breach of
any representations, warranties or covenants in the Documents, the Investors
have the right to require the Company to redeem all or a portion of such
Investor's Series B Preferred. The redemption price per share is the same as
the redemption price per share in the event of a Major Transaction.
Warrants
Along with the Series B Preferred, the Company issued common stock warrants
to the investors. Subject to the vesting schedule described below, each warrant
entitles its holder to 200 shares of Common Stock for (i) each issued share of
the Series B Preferred held on the applicable vesting date and (ii) each share
of the Series B Preferred converted prior to the applicable vesting date at the
Fixed Conversion Price. The Warrants expire five years after they are issued.
The vesting dates of the Warrants are (i) the date which is 120 days after the
date of issuance of the applicable Series B Preferred Shares; (ii) the date
which is 300 days after the date of issuance of the applicable Series B
Preferred Shares and (iii) the date which is 480 days after the date of issuance
of the applicable Series B Preferred Shares. The exercise price of each Warrant
is 125% of the average of the closing bid prices of the Company's Common Stock
for the five consecutive trading days immediately preceding the applicable
vesting date.
Investor Call Option
For every (i) unconverted Series B Preferred share held by the investors on
the first anniversary of the closing and (ii) preferred share converted at the
Fixed Conversion Price prior to the first anniversary of the closing, the
investors have the right to subscribe for an additional preferred share and
related warrants under the same terms and conditions of the original closing
(revised to reflect the Company's then current common stock market price). Each
investor may exercise this right only at such time when the closing market price
of the Company's common stock is greater than the Fixed Conversion Price.
Use of Proceeds
The Company will use the net proceeds of $3,883, 879 for the expansion of
its MedCare program to additional sites, working capital and potential
acquisitions. Currently, there are no specific acquisitions identified. The
effective date of the S-3 registration statement (file no. 333-81219) for the
Common Stock underlying the Series B Preferred Stock was July 9, 1999.
Item 3 Defaults Upon Senior Securities
--------------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders
----------------------------------------------------------
The annual meeting of shareholders of Medcare Technologies, Inc. was held on
June 30th, 1999. Shareholders holding 7,052,712 shares or 90% of the outstanding
shares were represented at the meeting in person or by proxy. Matters submitted
at the meeting for vote by the shareholders were as follows:
a. Election of Directors
The following were elected to serve as directors of the Company for a term
of one year:
Shares Shares Shares
------ ------ ------
For Against Abstaining
--- ------- ----------
Harmel S. Rayat 6,970,605 53,323 28,784
Jeff Aronin 6,959,195 65,803 27,714
Michael M. Blue 6,977,311 48,497 26,904
Greg Wujek 6,968,977 52,547 31,188
Alan Jagiello 6,959,841 58,778 34,093
b. Series B Preferred Stock Transaction
Shareholders approved the issuance of shares of the Company's common stock
upon conversion of the Company's Series B Convertible Preferred Stock and
exercise of related warrants to acquire shares of common stock, all on the
terms and conditions set forth in the Securities Purchase Agreement, dated
as of May 18, 1999, between the Company and certain investors by a vote of
4,577,616 shares for, 128,775 shares against, 54,650 shares abstaining and
2,291,671 broker non-votes.
c. Ratify appointment of independent auditor for fiscal year ending
December 31, 1999
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Shareholders ratified the appointment of Arthur Andersen, LLP as the
Company's independent auditor for the fiscal year ending December 31, 1999
by a vote of 6,984,024 shares for, 39,310 shares against, 27,378 shares
abstaining, and 2,000 broker non-votes.
d. Company's 2000 Stock Option Plan
Shareholders approved a proposal to adopt the Company's 2000 Stock Option
Plan and the reservation of 2,000,000 shares of common stock for issuance
thereunder by a vote of 4,459,262 shares for, 244,605 shares against,
53,474 shares abstaining, and 2,295,371 broker non-votes.
Item 5 Other Information
------------------------
None
Item 6 Exhibits and Reports on Form 8-K
---------------------------------------
On May 15, 1999, the Company filed a Form 8-K to disclose that it had dismissed
Clancy and Co., P.L.L.C., as its independent public accountants and appointed
Arthur Andersen LLP.
On June 2, 1999, the Company filed a Form 8-K to disclose that it had issued 400
shares of Series B preferred stock (par value $0.25) and related warrants for
$4,000,000 ($10,000 per share).
Signature Page
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Pursuant to the requirements of section 13 or 15(d) 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.
MEDCARE TECHNOLOGIES, INC.
/s/ Jeffrey S. Aronin
---------------------
Jeffrey S. Aronin
CEO and President
/s/ Alan Jagiello
-----------------
By Alan Jagiello
CFO
Dated: August 4, 1999
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