Amendment to Escrow Agreement from:
INFORMATION CIRCULAR
as at February 1, 2003 unless otherwise indicated
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528315.11
Amendment to Escrow Agreement
Of the Common shares issued and outstanding as of February 1, 2003, 3,750,000 Common shares are
currently held in escrow pursuant to the terms of an Escrow Agreement dated for reference July 15, 1992
(as amended by agreement dated February 20, 1998) and made among CIBC Mellon Trust Company (the
“Escrow Agent”), Pyng Technologies, Michael W. Jacobs (“Jacobs”) and Susan Winkler (“Winkler”) (the
“Escrow Agreement”). Of the 3,750,000 shares held in escrow (the “Escrow Shares”), 3,550,000 Escrow
Shares are owned by Jacobs and 200,000 are owned by Winkler. Jacobs is founder, President and Chief
Executive Officer of Pyng Technologies. Winkler is a director of Canadian Custom Profiles Ltd.
(“CCPL”), a dormant wholly owned subsidiary of Pyng Technologies. Under the provisions of the
Escrow Agreement, all Escrow Shares are subject to cancellation on May 10, 2003, being 15 years from
the date of the receipt issued by the British Columbia Securities Commission for Pyng Technologies’ first
prospectus. The Escrow Agreement is in the form adopted by the British Columbia Securities
Commission in 1989. This form was approved by the shareholders of Pyng Technologies on December
17, 1992.
Under the terms of the Escrow Agreement, all 3,750,000 Escrow Shares will be cancelled on May 10,
2003 unless the term of the escrow is extended (an extension of 5 years from May 10, 1998 to May 10,
2003 was previously granted by the shareholders on February 20, 1998). Shareholders are being asked to
pass a resolution, the text of which is set out in Schedule B.
The TSX Venture Exchange (“TSXV”) has advised Pyng Technologies that it has no objection to this
amendment as long as the “disinterested” shareholders approve it.
It should be noted that the Escrow Shares are not tradable, and are not entitled to dividends, unless
released. They do however, carry voting rights.
The disinterested shareholders are those other than:
(a) Jacobs and Winkler;
(b) Pyng Technologies itself;
(c) Any person or company acting jointly or in concert with Jacobs and/or Winkler;
(d) Any affiliate or associate of Jacobs and/or Winkler.
The Escrow Shares cannot be transferred or sold without the consent of the TSXV until they have been
released from escrow. The Escrow Agreement provides that for each $2.66 in cash flow, one share will be
released from escrow. Pyng Technologies has, since 1992, devoted most of its capital and human
resources towards the development of its Intraosseous Infusion Technology (the “Technology”), and its
cash flow has to date been insufficient to permit any material release of the Escrow Shares. Cash flow, as
defined in the Escrow Agreement, means net income or loss before tax, adjusted to add back the
following expenses:
(a) Depreciation,
(b) Amortization of goodwill and deferred research and development costs, excluding
general and administrative costs,
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(c) Expensed research and development costs, excluding general and administrative costs,
and
(d) Any other amounts permitted or required by the TSXV.
Under the policies of the TSXV, Pyng Technologies and the holders of the Escrow Shares could request
the consent of the shareholders to convert the release terms from a performance based, or earnout
formula, to a time-release formula. Such consent was sought at last year’s annual general meeting, but
was abandoned for a variety of reasons, not the least of which was that all things being considered, it was
believed to be in the best interests of Pyng Technologies and the shareholders that management be
required to enhance Pyng Technologies’ earnings in order to benefit from a release of the Escrow Shares.
Pyng Technologies is now operating on a close to breakeven basis, and should soon be generating
positive cash flow.
Pyng Technologies' subsidiary, Pyng Medical, through which the Technology has been developed, began
commercial distribution of the F.A.S.T.lTM Intraosseous Infusion System (the “System”) and ancillary
products in November 2000. Gross sales to date have been $1,399,000 including fiscal 2002 and the first
quarter of 2003 and Jan 2003.
In the event that the shareholders fail to approve the proposed amendment to the Escrow Agreement, the
Escrow Shares will be cancelled on May 10, 2003, the result being that the number of shares outstanding
will be reduced from 12,219,083 to 8,469,083. This will have the effect of increasing each shareholder’s
proportionate interest in Pyng Technologies; however, it will also result in management losing control of
Pyng Technologies as the Escrow Shares, while not tradable, do carry a vote. Management, in particular
Michael Jacobs, David Johnson and Judy Findlay, have led the Pyng companies to the successes to date.
It is this team of individuals that is needed to drive the Pyng companies into the future.
Elimination of the Escrow Shares in 2003 would come at precisely the wrong time, as management’s
prior efforts, contacts, experience and reputation in the medical device industry are now yielding positive
results. A new phase of management commitment and continuity is needed. The best and most recent
example of the need for management continuity is the recent decision by the U.S. Army, the greatest
ground force in the world, to include the System in all Combat Medic bags and Ground Ambulance
Medical Equipment sets used by the U.S. Army. Mr. Jacobs has developed and is continuing to develop
business relationships with major buyers of the System in military organizations. David Johnson and
Judy Findlay who, along with Mr. Jacobs have developed the Technology and led Pyng Medical, which is
now producing and marketing the System, are needed to realize the market potential, expand production,
manage growth and support the F.A.S.T.1 product and its evolution as it continues to enter the market.
The Escrow Shares form an important part of the motivation of this team of individuals in leading your
company. Escrow Shares are released ONLY as your company performs and cash flow is realized.
Allowing the Escrow Shares to expire prior to full market realization of the System will significantly and
deleteriously affect the market success of F.A.S.T.1 and ultimately the success of your company if the key
individuals are deprived of this motivation.
Secondly, the Escrow Shares may prove to be an important asset that could attract a strategic partner with
greater capital resources and additional human resources that will help maximize the market success of
the product. Pyng Technologies’ future is clearly bright, and it is becoming increasingly attractive as a
potential merger candidate or takeover bid target.
In summary, the Escrow Shares are a very important, possibly vital, component to ensure that Pyng
Technologies succeeds, through key management motivation and through opportunities for strategic
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partnership. It should be clear that Escrow Shares are only released when your company succeeds
through positive cash flow.
Shareholders will be asked to pass an ordinary resolution in the form attached as Schedule “B” to this
Information Circular. An ordinary resolution means a resolution passed by a simple majority of the votes
at the Meeting on the resolution by holders of Common shares who attend in person or by proxy and, in
this particular case, who are disinterested shareholders. Only disinterested shareholders are permitted to
vote on this particular resolution.
The directors of Pyng Technologies recommend that you vote in favour of the resolution to provide a
strong incentive for management to produce benefits both for it and you.
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