-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IS2FbmtEZwNnys10lA3bLtB2njxNkL/JQaBDTuVDzK/W3RfhbTSEZGsf+8twmFuN 8ZSX2nYgnQE0CdJsbmF5DA== 0000931731-96-000139.txt : 19960626 0000931731-96-000139.hdr.sgml : 19960626 ACCESSION NUMBER: 0000931731-96-000139 CONFORMED SUBMISSION TYPE: 10-K CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960625 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECIALIZED HEALTH PRODUCTS INTERNATIONAL INC CENTRAL INDEX KEY: 0000790228 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 930945003 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26694 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 655 EAST MEDICAL DRIVE CITY: BOUNTIFUL STATE: UT ZIP: 84010 BUSINESS PHONE: 8012983360 MAIL ADDRESS: STREET 1: 655 EAST MEDICAL DRIVE CITY: BOUNTIFUL STATE: UT ZIP: 84010 FORMER COMPANY: FORMER CONFORMED NAME: RUSSCO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WARE HADLEY VENTURES INC DATE OF NAME CHANGE: 19910123 FORMER COMPANY: FORMER CONFORMED NAME: SANTIAM VENTURES INC DATE OF NAME CHANGE: 19900510 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 Commission file number 0-26694 Specialized Health Products International, Inc. (Exact name of registrant as specified in its charter) Delaware 87-0431035 (State or other jurisdiction of (IRS employer identification no.) incorporation) 655 East Medical Drive, (801) 578-3580 Bountiful, Utah 84010 (Address of principal executive (Registrant's telephone number, offices) including area code) Securities registered pursuant to Section 12(g) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $.02 Par Value None 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. [x] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of voting stock held by non-affiliates of the registrant at March 26, 1996, was $78,023,231. On that date, there were 8,566,653 outstanding shares of the registrant's common stock. Documents Incorporated by Reference: Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. Specialized Health Products International, Inc. TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1995 PART I Item 1. Business. 3 Item 2. Properties. 15 Item 3. Legal Proceedings. 15 Item 4. Submission of Matters to a Vote of Security Holders 15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. 15 Item 6. Selected Financial Data. 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 19 Item 8. Financial Statements and Supplementary Data 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 21 PART III Item 10. Directors and Executive Officers of Registrant. 22 Item 11. Executive Compensation. 24 Item 12. Security Ownership of Certain Beneficial Owners and Management. 24 Item 13. Certain Relationships and Related Transactions. 24 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 24 PART I Item 1. Business. General The Company primarily develops health care products that limit or prevent the risk of accidental needle sticks which may cause the spread of blood- borne diseases such as HIV and hepatitis B, and secondarily develops other products for use in the health care industry. The Company has created a portfolio of proprietary health care products that are in various stages of production, pre-production, development and research. The Company's products include those being currently commercialized, those utilizing the ExtreSafe(TM) medical needle technology and those relating to certain filmless digitized imaging technology. In December 1994, the Company introduced the first in its line of newly developed containers for the disposal of contaminated "sharps" (i.e.,needles, syringes, blood collection systems, intravenous catheters, surgical blades, lancets, etc.). Additional sizes and versions of its Safety Cradle(R) sharps containers were released in the third and forth quarters of 1995. The Company is developing a safety lancet (the "SafetyStrip(TM)"), a small hand- held device for penetrating the skin to obtain blood for analysis. Commercial production of the SafetyStrip(TM) is anticipated to commence in 1996. The Company is also developing a line of products using the Company's ExtreSafe(TM) medical needle technology (the"ExtreSafe(TM) Products"), which incorporates a system to allow a contaminated needle to be automatically retracted directly from a patient and immediately encapsulated without exposure to the health care worker. Products under development that incorporate the ExtreSafe(TM) medical needle technology include the ExtreSafe(TM) blood draw system, ExtreSafe(TM) catheter and ExtreSafe(TM) syringe. The Company expects to introduce additional products using this technology. Prototypes of the first product using the ExtreSafe(TM) medical needle technology were completed in April 1995 and commercial production is anticipated to commence in December 1996, provided the necessary FDA approvals are obtained, of which there is no assurance. Prototypes of the ExtreSafe(TM) catheter and ExtreSafe(TM) syringe were completed in the second half of 1995. The Company's concepts for a safety intravenous flow gauge and blood collection needle are in the research stage. The Company has also entered into a joint venture to design and produce an improved filmless digitized imaging technology, to be used in the medical field (the "Imaging Products") which is in the research stage. Company Background and 1995 Reorganization The Company was incorporated in 1986 as Santian Ventures, Inc., a Utah corporation. Santian Ventures, Inc. was organized to engage in the business of acquiring assets and properties of any kind without regard to any specific type of business or industry. In 1989 the Company changed its name to Ware/Hadley Ventures, Inc. Subsequently, the Company's corporate domicile was changed to the State of Delaware, and its name was changed to Russco, Inc., effective December 20, 1990, by merger into a newly created Delaware corporation. The Company had no operations until July 28, 1995. On that date and pursuant to the terms of a Placement Agreement, the terms of which were proposed by Capital Growth International ("Capital Growth") the Company acquired Specialized Health Products, Inc. ("SHP"), a Utah corporation (the "Acquisition"), through a merger with a subsidiary of the Company, and the Company changed its name to "Specialized Health Products International, Inc." Pursuant to an Agreement and Plan of Merger dated June 23, 1995, among the Company, SHP and Scott R. Jensen, the sole officer and director of the Company prior to the Acquisition (the "Merger Agreement"), Scott R. Jensen resigned as the sole officer and director of the Company effective upon consummation of the Acquisition wherein SHP became a wholly owned subsidiary of the Company. The persons serving as officers and directors of SHP immediately prior to the consummation of the Acquisition were elected to the same offices with the Company and retained their positions as directors and officers of SHP. In addition, the outstanding securities of SHP became outstanding securities of the Company. Prior to the Acquisition, neither SHP nor any affiliate of SHP had an interest in Russco, Inc. Products Sharps Containers In January 1994, SHP acquired the Sharp-Trap(R) name and all technology developed by Sharp-Trap, Inc., a Michigan corporation, relating to a patented container entry system that is designed to reduce the risk of accidental needle sticks and exposure to contaminated instruments when disposing of contaminated instruments. At the time of SHP's purchase of the Sharp-Trap(R) technology, Sharp-Trap, Inc. was already manufacturing two sharps container product configurations, a 0.5 quart and a 1.5 quart (the "Sharp-Trap(R)" containers). Following additional research and discussions with medical product distributors and end users, SHP designed an improved line of Safety Cradle(R) sharps containers (the "Safety Cradle(R)") which retained the basic container closure technology and incorporated improvements to make them safer, higher quality, easier to use and less costly to manufacture than the Sharp-Trap(R) containers. The self-closing Safety Cradle(R) containers allow for disposal of sharps in a container that incorporates a self closing sharps containment flap open/close/lock mechanism. Especially adapted for alternate site use, SHP's new line of Safety Cradle(R) sharps containers provide convenience and safety for portable applications. In addition, each of SHP's sharps containers is designed to be used as a self-contained shipping container, used in the transport of unused medical material, and readily converted at a users site for use as a safe and efficacious sharps container. The Safety Cradle(R) sharps container's novel, single-molded-part lid fits three sizes of container wells to fill a broad spectrum of sharps containment applications, especially alternate site use which includes, emergency vehicle, in-home and insurance testing. As each Safety Cradle(R) sharps container is formed from only two molded parts, unit manufacturing cost places SHP's sharps containers in a competitive position, while the special design for transportability permits the Safety Cradle(R) container to fill a unique market niche. These containers are made of environmentally safe polypropylene material. SHP has developed three sizes of the Safety Cradle(R) container wells. Each container well uses the same top, but the bottom section varies in size to allow different volumes to be accommodated (i.e., a 3 inch, a 5 inch and a 9 inch). By manufacturing the top separately, savings in manufacturing cost are achieved. Also, the containers may be used not only as Safety Cradle(R) sharps containers and transporters, but also as recyclers. The Safety Cradle(R) products can be used for a variety of purposes, including: Safety Cradle(R) Sharps Container - all three sizes will be used as Safety Cradle(R) sharps containers to contain and dispose of contaminated sharps. Sale of the 3 inch and the 5 inch sizes began in March 1995 with earlier models. Sales of the latest models began in December of 1995. Transporter - all three sizes are designed to house medical kits and new syringes for shipping to the customer. Upon arrival at a customer site, each Safety Cradle(R) sharps container can be utilized as a sharps disposal container. The first sales of Safety Cradle(R) products as transporter/sharps containers are anticipated to take place in the second quarter of 1996. Recycler - all three sizes are designed for use by medical product manufacturers as a secured container, so that discarded sharps may be shipped back to the manufacturer or to a sharps disposer for recycling. The Company anticipates that it will be prepared to execute orders for its SafetyCradle(R) products used as recyclers by the fourth quarter of 1996. Closed lid design - an improved lid design was completed in March 1995. The initial molds were completed in October 1995. In the new lid design, the Safety Cradle(R) is located under the lid which closes over the Safety Cradle(R) to drop the sharps into the safe holding compartment. This model is designed for use in the home and home health care markets due to the need to have a sharps container with a lid covering and locking over the entry area for the sharps. The first sales took place in the fourth quarter of 1995. Products Under Development The SafetyStripO Lancet Lancets are small devices used to penetrate the skin, usually a finger, to obtain a few drops of blood for analysis. Lancets are used by health care workers and are self-administered by individuals, especially insulin users. The same safety concerns exist with the handling of lancets as with needles, because lancets become contaminated after they come into contact with blood. There are a number of lancets on the market today, the most common of which is a small "nail" type instrument which is pressed against the finger, and the "nail" is then triggered to penetrate the skin by hand pressure. Some lancets penetrate the skin with a blade, which is commonly considered to be less painful to the patient than the "nail" and generally is more successful in blood production. The nail type lancet is often inserted into a spring loaded hand held device, about the size of a large pen. The device is pressed against the skin of the patient's finger which is penetrated when the spring is triggered. After triggering, the lancet handle must be emptied and then reloaded with another single lancet for use on the next patient. The Company is unaware of any lancets on the market today that provide absolute protection against being used more than once on different patients. Furthermore, existing lancet handle parts may become contaminated by blood splattering when the finger is pierced. To help prevent contamination, contaminated lancets parts should be sterilized or disposed of after each use. In practice, however, sterilization usually does not take place on all such parts after each use and some lancet parts are commonly used more than once. The Company's SafetyStrip(TM) lancets will be easy-to-use and provide protection against being used more than once. SafetyStrip(TM) lancets will be provided in cartridge strip housings of six lancets per strip. The strip configuration is patent protected. Lancets are used one at a time, by breaking off and discarding lancets immediately after use. A strip housing is loaded into a convenient low-cost hand held carrier which also provides a means for safely and conveniently triggering each lancet. After penetrating the skin, the SafetyStrip(TM) automatically returns inside its housing and cannot be refired for further use. The used lancet, encased by its protective housing, is then broken off from the cartridge strip and appropriately discarded. Reloading the handle with another cartridge is a simple process. Use of the Company's SafetyStrip(TM) will be easier and faster than use of existing lancets. Testing has shown the Company's SafetyStrip(TM) to be less painful to the patient than traditional lancets because of the revolutionary design of the blade and its rotary spring motio which drives the blade both outward to lance and inward for retraction. It is also noteworthy that part of the lancet in contact with the patient's skin prior to lancing is sterile until contaminated by use. A prototype of the SafetyStrip(TM) lancet was completed earlier this year and the Company anticipates that commercial production will begin in July 1996. ExtreSafe(TM) Blood Collection Needle For certain blood tests it is necessary to draw blood from the patient for analysis. The present method for obtaining a draw of blood involves the insertion of a needle into a blood vessel an the drawing of blood by way of vacuum pressure most often into a small evacuated tube-like container commonly known as a Vacutainer(R) (the Vacutainer(R) is not a trademark of the Company). After the blood draw, the needle is manually removed from the patient and, while continuing to attend to the patient, the Vacutainer(R) and needle are often placed on a tray or set aside. Afterward, the needle is usually unscrewed and discarded into a sharps container. The Company's ExtreSafeO blood collection needle provides a safer method. The device retracts the inserted needle directly from the patient into a safe housing quickly and automatically, minimizing the chance of an inadvertent stick by a "dirty" needle. Retraction is initiated by a simple depression of a selected distortable portion of the housing assuring that there is no action directed toward or away from the patient which might affect the depth of needle penetration. The Company's ExtreSafe(TM) medical needle technology has a number of other applications, including an ExtreSafe(TM) catheter and ExtreSafe(TM) syringe described hereafter. Prototypes of the ExtreSafe(TM) blood collection needle were completed in 1995 and the Company anticipates that commercial production will begin in December 1996 provided the necessary FDA approvals are obtained, of which there is no assurance. ExtreSafe(TM) Catheter Contemporary catheter use has problems similar to those faced in blood draw. Inserting a catheter involves a percutaneous needle stick followed by threading the catheter over the needle into a patient's vein or artery. This method is unsafe in two respects. First, when the needle is pulled out of the catheter there is a discharge of blood which could contaminate the health care worker. Second, needle sticks occur when the needle is withdrawn from the catheter because, in some instances, the needle is temporarily left exposed while the patient is being attended to by the health care worker. Like the ExtreSafe(TM) blood collection needle, the Company's ExtreSafe(TM) catheter is a needle extractor which retracts a contaminated needle from a patient and encloses the needle in a safe housing when an operator squeezes a portion of the housing at the time the needle is to be extracted from the patient and catheter. Further, in one version of the ExtreSafe(TM) catheter, a manually closeable portion of the catheter stem permits the catheter channel to be held closed until a connection is made to a medical line thereby restricting blood loss. Prototypes of one version of the ExtreSafe(TM) catheter were completed earlier this year and the Company anticipates that commercial production will begin in 1997 provided the necessary FDA approvals are obtained, of which there is no assurance. ExtreSafeTM Syringe Another area where there is significant risk of needle sticks is in syringe use. Contemporarily, there are many different aspects of syringe use which range from integral units which combine a filled syringe and attached needle for unit dose applications to syringe needles which are attached to separate syringes by leur-lock connectors. Generally, access to the needle for a medical procedure involves removing a protective needle cover just prior to performing the procedure. In the past, medical personnel attempted needle protection by replacing the needle cover after performing the procedure, but the volume of accidental needle sticks related to needle replacement resulted in the banning of such needle cover replacement. Following this ban, medical personnel attempted to supplant cover replacement by carrying the needles to sharps containers (normally found within each patient care room) and by providing needle/syringe apparatus having a shroud which can be extended over the exposed needle after the procedure. The ExtreSafeTM syringe provides an extendible needle which is retractable into a safe housing in a manner similar to the retraction of the ExtreSafe(TM) blood draw and catheter systems described above. Prototypes of the ExtreSafeTM syringe were completed in 1995. Production is forecast for 1997 provided the necessary FDA approvals are obtained, of which there is no assurance. Filmless Digitized Imaging Technology The procedure for taking a large area x-ray image having generally acceptable resolution and presenting the x-ray to the attending physician for interpretation, has changed little over the past forty years. The most common x-ray image today is taken by way of a film which requires development in a darkroom. The physician personally handles the x-ray, which is generally imprinted on a 14" x 17" film sheet. For record keeping purposes, hospitals usually maintain an inventory of x-rays for at least six years. X-ray storage and retrieval is a costly problem for many medical facilities. While some filmless x-ray systems have recently been introduced, none fulfill desired and necessary resolution requirements of commonly performed x-ray procedures. In October 1995, the Company entered into a joint venture with Zerbec, Inc., a Texas corporation, to develop, manufacture, distribute and market products and technologies using a patented solid state filmless digitized imaging technology through Quantum Imaging Corporation, a newly formed Utah corporation. The filmless digitized imaging technology involves a method o directly producing an electrical signal from an image recorded on an x-ray plate. The signal is instantly digitized and stored on a CD-ROM and the same x-ray plate is then available for a later procedure. The filmless digitized imaging technology will eliminate film as the x-ray image recording form and will also enable x-ray films to be translated to a CD-ROM format to simplify their storage, retrieval and handling. The Company believes the filmless digitized imaging technology will provide a unique method for revolutionizing the way in which x-ray images are taken, interpreted and stored, while also providing clearer images having high resolution that are more easily interpreted than x-ray films. Furthermore, the technology will provide a breakthrough for the use of x-ray facilities in mobile medical emergency units which has not been achieved to date because of the necessity for local chemical handling equipment associated with film processing. Under the terms of the joint venture agreement, Zerbec, Inc. and the Company formed Quantum Imaging Corporation, a Utah corporation, to finish the development and commercialize the filmless digitized imaging technology. A research prototype of the filmless digitized imaging technology has been demonstrated. A new prototype which is being produced to demonstrate picture resolution compatible with breast cancer diagnosis was fabricated and demonstration in the first quarter of 1996, provided timely funding is obtained. An alpha test system is scheduled for completion in 1996. A beta test system is scheduled for completion in 1997 and production is scheduled for 1998. At present, the Company and Zerbec, Inc. are the sole and equal owners of Quantum Imaging Corporation. Pursuant to the terms of the joint venture agreement, Zerbec, Inc. assigned the patented filmless digitized imaging technology to Quantum Imaging Corporation, and will provide ongoing support in the development and commercialization of the technology. The joint venture agreement also provides that the Company will support the development and commercialization of the technology, in part, by contributing up to $30,000 per month for a twelve month period to Quantum Imaging Corporation, which funds shall be used to support the company's operations. For Quantum Imaging Corporation to be successful, the Company estimates that between $3,000,000 and $6,000,000 will have to be raised through available financing channels, if any. It is anticipate that at least one-third of the outstanding shares of Quantum Imaging Corporation will be sold to fund development through initial production of related filmless digitized imaging systems. The Company and Zerbec, Inc., are seeking to bring in additional venturers to provide funding, depending on financing needs. As a result, the Company's ownership interest may decrease, but its financial and other obligations to support the development and commercialization of the technology may not decrease. Company Strategy The Company's primary objective is to establish itself as a leading provider of safety medical products and devices. The manufacture of these products will be subcontracted to reputable manufacturers. To achieve this objective, the Company's growth strategy is focused on the following four principal elements. - Capturing significant market share of the sharps container, lancet, blood draw, IV catheter and syringe markets. - Broadening the Company's existing products lines and developing product lines to increase penetration into closely related markets. - Seeking additional market opportunities based on the Company's proprietary technology. - Developing agreements with large medical product marketing and distributing organizations. Sharps Containers The Company was only able to produce sharps containers on a limited basis in 1995 because the related molds had not been completed. Full scale production of the Company's SafetyCradle(R) sharps containers is currently beginning and the Company anticipates significantly expanding its production of Safety Cradle(R) sharps container products in 1996. The Company believes the manufacture and sale of its Safety Cradle(R) products should find a significant niche in home sharps container and combined new instrument transport/sharps container applications. The Company also intends to develop license/joint venture agreements in international markets. Entrance into such markets is not anticipated until after the Company's Safety Cradle(R) sharps container products are being successfully marketed in the United States. Products in Development The Company's SafetyStrip(TM), ExtreSafe(TM) blood collection needle, ExtreSafe(TM) catheter, ExtreSafe(TM) syringe, intravenous flow gauge, blood collection system, other ExtreSafe(TM) medical needle technology products and the filmless digitized imaging technology are in various stages of research and/or development. The Company plans to continue development of each of these products/systems. The necessary production equipment and testing, however, must be completed before such products are brought to market. The Company intends to minimize the cost and time necessary to bring these products to market by using the information and experience gained in the design, development and assembly of its Safety Cradle(R) sharps containers. In addition, the Company is seeking alliances with large medical product marketing, sales and distribution companies to sell its Safety Cradle(R) sharps container products and these follow-on products. There can be no assurance, however, that the Company will be able to form an alliance and that the Company will be able to complete development of these products. Future Market Opportunities The Company will seek to enter additional markets in situations where it believes that it can gain significant market share based on patent protected intellectual properties or by capitalizing on its sales channels for complementary products. There are a number of possible future applications for the Company's technology, but there can be no assurance that the Company will commence development of any such products. Marketing and Sales The Company currently intends to market and sell its products in the United States and possibly in select foreign countries through third party manufacturers and distributors. The Company's plan for the distribution and sales of its products will target major segments of the respective markets for those products, including, major hospital and institutional buying groups, pharmaceutical companies, distributors and wholesalers, and government and military agencies. The Company intends to market and distribute its products through one or more companies that have a major presence in these markets. The Company will not sell its ExtreSafe(TM) medical needle technology for commercial use in the United States until proper regulatory approval is obtained. See "Business -- Government Regulation." The Company must also comply with the laws and regulations of the various foreign countries in which the Company plans to sell its products prior to selling such products in such foreign countries. Certain foreign countries may only require the Company to submit evidence of the FDA's pre-market clearance of the relevant products prior to selling in such countries. However, some foreign countries may have more stringent requirements and require additional testing and approvals. See "Business -- Government Regulation." The Company currently plans to hire a limited number of sales and marketing personnel; however, the number will vary depending on the extent to which the Company contracts with third parties or forms strategic alliances with other parties to market and sell its products. The Company may seek third parties to market and distribute its products in select foreign countries. The Company will seek third parties to market and distribute its products in the United States. The Company may enter into contracts, licensing agreements and joint ventures with such third parties whereby the Company would receive a licensing fee and/or royalty payments based on the licensee's revenues. The Company would likely enter into such licensing arrangements with several companies, possibly by country, geographical regions and/or product types but may enter into an exclusive arrangement with a single company having a major presence in all markets the Company seeks to penetrate. The Company has not entered into any such licensing arrangements and there can be no assurance that the Company will be able to enter into such licensing arrangements on acceptable terms. The Company intends to market its products by, among other things, attending trade shows and advertising in industry publications. The Company intends to distribute samples of some or all of its products free of charge to various health care institutions and professionals in the United States and in selected foreign countries to introduce and create a demand for the products in the marketplace. Industry Market Health care is one of the largest industries in the world and continues to grow. There is increasing demand in the health care market for products that are safer, more efficacious and cost-effective. The Company's products target segments of this market. While traditional, non-safety, products in the market segments which the Company seeks to address compete primarily on the basis of price, the Company expects to compete on the basis of healthcare worker safety, ease of use, reduced cost of disposal, patient comfort and compliance with OSHA regulations, but not on the basis of purchase price. However, the Company believes that when all indirect costs (disposal of needles, and testing , treatment and workers compensation expense related to needle stick injuries) are considered, the Company's products will compete effectively both with "traditional" products and the safety products of the Company's competitors. Accidental Needle Sticks Needles for hypodermic syringes, phlebotomy sets and intravenous catheters are used for introducing drugs and other fluids into the body and drawing out blood and other bodily fluids. Among the applications for needles are the injection of drugs (hypodermic needles), the drawing of blood (phlebotomy sets) and the infusion of drugs and nutrients (catheters). There is an increasing awareness of the potential danger of infections and illness that result from accidental needle sticks and of the need for safer needle devices which reduce the number of accidental needle sticks that occur each year. Infections contracted as a result of accidental needle sticks are a major concern to health care institutions, health care workers, sanitation and environmental services workers and the regulatory agencies charged with the task of making their working environment safe. Accidental needle sticks may result in the spread of infectious diseases such as hepatitis B, HIV (which may lead to AIDS), diphtheria, gonorrhea, typhus, herpes, malaria, rocky mountain spotted fever, syphilis and tuberculosis. According to The American Hospital Association's (the "AHA") report dated December 1992, an estimated 800,000 occupational needle sticks occur nationwide each year. The number of reported needle sticks, however, is believed to be only a portion of the actual number of occurrences. The AHA report estimates that the direct costs (excluding costs such as time lost from work and other administrative activities) for medical evaluation and follow-up treatment after a single needle stick injury range from $200 to $1,200. While it is difficult to estimate the total costs associated with treating accidental needle stick injuries with any degree of confidence, Theta Corporation, in its Report No. 346 on Medical Needles and Syringes dated January 1994, estimates that the total cost associated with treating accidental needle sticks in the United States averages $3 billion each year. The AHA and other authorities have also stated that the benefits resulting from the prevention of accidental needle sticks (and the resulting incidence of infection, illness, time lost from work and death) cannot be measured solely by savings in the costs of medical treatment. Currently available safety needle devices are priced at approximately two to twelve times that of standard devices. Notwithstanding the price differential, the Company believes that, based upon the estimated costs associated with accidental needle sticks, its products should be considered cost-effective by the marketplace. The possibility of health care workers becoming infected from contaminated needles has caused and continues to cause a great deal of concern in the health care field and the agencies regulating that area. OSHA has adopted regulations requiring employers to institute universal precautions to prevent contact with blood and other potentially infectious materials. OSHA's regulations also require employers to establish engineering controls (e.g., sharps disposal containers and self-sheathing needles) and safe work practices to insure compliance with these universal precautions. OSHA does not mandate specific technologies; rather, employers are permitted to choose the most appropriate and effective safety control devices to meet their specific institutional needs. According to OSHA guidelines, while employers do not have to institute the most sophisticated engineering controls, it is the employer's responsibility to evaluate the effectiveness of existing controls and the evaluate the feasibility of instituting more advanced engineering controls. OSHA specifically prohibits the recapping, bending or removal of needles, unless there is no feasible alternative or if required for a specific medical procedure. If recapping, bending or removal is necessary, workers must use either a mechanical device or a one-handed technique. In April 1992, the FDA issued a safety alert to hospitals warning of the risks of needle stick injuries from the use of hypodermic needles with intravenous equipment. Among other things, the safety alert stated that although the FDA could not recommend specific products, it urged the use of needleless systems or recessed needle system devices with a fixed safety feature. According to the alert, (1) a fixed safety feature should provide a barrier between the hands and needle after use; (2) the safety feature should allow or require the worker's hand to remain behind the needle at all times; (3) the safety feature should be an integral part of the device, and not an accessory; (4) the safety feature should be in effect before disassembly and remain in effect after disposal to protect the users and trash haulers and for environmental safety; and (5) the safety feature should be as simple as possible, and require little or no training to use effectively. The majority of health care workers' adverse exposures to blood are either product-mediated (e.g., needle sticks) or could be prevented by the use of appropriate products (e.g., sharps containers). Increasing pressure is mounting from the government and private sectors for the health care industry to develop medical devices that will provide a safer working environment for health care workers and their patients. The Company's products attempt to address the growing demand for medical devices that reduce the risk of accidental exposure to blood-borne diseases. Disposal of Sharps There is extensive everyday use of "sharps" (i.e., needles, syringes, blood collection systems, intravenous catheters,surgical blades, lancets, etc.) by doctors, nurses and other health care workers who are in danger of accidenta exposure to transmittable blood-borne diseases such as AIDS and hepatitis B. The most extensively used sharp is the medical needle. About six billion needles a year are used in U.S. hospitals. Needle stick injuries are the most common cause of disease transmission in the health care industry. More than once each minute, about eight hundred thousand times a year, a health care worker is accidentally injured by a potentially contaminated needle. Every year as many as 12,000 workers become infected by accidental exposure to hepatitis B, which is more contagious than AIDS. OSHA mandates the use of special containers for sharps disposal purposes to reduce the incidence of accidental transmission of blood-borne diseases. OSHA requires that the design of sharps containers meet certain minimum standards of safety. It also makes recommendations with respect to the safe handling of needles. One of the most common causes of accidental needle sticks occurs when a worker tries to recap a needle. The most recent OSHA regulations require that needles not be recapped or purposely bent or broken. After they are used, disposable syringes, needles, and other sharp items should be placed in closeable, disposable, puncture-resistant containers that are leak proof on the sides and bottom and labeled, according to OSHA guidelines. Facilities now being affected by current state and federal legislation regarding the disposal of biohazardous items include hospitals, laboratories, clinics, nursing homes, blood banks, physicians' offices and mortuaries. Stricter legislation may be introduced that relates to all environments where sharps can befound (e.g., homes, public facilities, etc.). In addition, some states have passed legislation and others considering legislation relating to the disposal of sharps. Patents and Proprietary Rights The Company owns four United States patents and has other patent applications pending in the United States and in other countries which are directly applicable to the Company's Safety Cradle(R) sharps container products. The Company also owns two United States patents relating to its SafetyStrip(TM), and four United States patents and allowed patent applications relating to its ExtreSafeO medical needle technology. The Company has three additional United States patent applications pending relating to its safe-needle retraction technology. None of the above referenced patents expire before April 1, 2006. Quantum Imaging Corporation, an affiliate of the Company, owns three United States patents and has three Canadian patents relating to the filmless digitized imaging technology. These patents expire in May 2001, September 2002 and September 2005. The Company expects that additional patents will be applied for relating to the technology owned by Quantum Imaging Corporation. The future success of the Company may depend upon the strength of its intellectual property. The Company believes that the scope of its patents/patent applications is sufficiently broad to prevent competitors from introducing devices of similar novelty and design to compete with its current products and that such patents and patent applications are or will be valid and enforceable. This belief, however, may prove to be incorrect if such patents are challenged. In addition, patent applications filed in foreign countries and patents granted in such countries are subject to laws, rules and procedures which differ from those in the United States. Patent protection in such countries may be different from patent protection provided by U.S. laws and may not be as favorable to the Company. The Company plans to timely file international patents in all countries in which the Company is seeking market share. The Company is not aware of any patent infringement claims against the Company. Litigation to enforce patents issued to the Company, to protect proprietary information owned by the Company, or to defend the Company against claimed infringement of the rights of others, may occur. Such litigation would be costly and could divert the resources of the Company from other planned activities. There can be no assurance that the Company would be successful in any such litigation. The Company's policy is to seek patent protection for all developments, inventions and improvements that are patentable and which have potential value to the business of the Company and to protect as trade secrets other confidential and proprietary information. The Company intends to vigorously defend its intellectual property rights. Manufacturing The Company has designed and paid for the construction of various molds and machinery used to manufacture its Safety Cradle(R) sharps containers. The Company owns all molds used to manufacture its Safety Cradle(R) sharps containers. The Company contracts for the manufacture of its Safety Cradle(R) sharps containers from outside sources. Presently a single corporation is manufacturing the Company's Safety Cradle(R) sharps container products. In the past, polypropylene resin, the major plastic material used in the Company's Safety Cradle(R) sharps containers, has been in short supply for limited periods of time. While alternative manufacturers exist, changes in the Company's manufacturer or an unforeseen short supply of polypropylene could disrupt production schedules and could materially and adversely affect the Company. Final arrangements have not been made for the manufacture of the SafetyStrip(TM), ExtreSafe(TM) blood collection needle protection system, ExtreSafe(TM) catheter, ExtreSafe(TM) syringe, intravenous flow gauge, blood collection needle, other ExtreSafe(TM) medical needle technology products or filmless digitized imaging technology although one molding company has been preliminarily selected to build pre-production molds for the ExtreSafe(TM) blood collection needle. A company has also been selected to produce molds and pre-production parts for the SafetyStrip(TM). Effective May 1995, prototype drawings for lancet molds were approved. The company chosen to produce molds for the ExtreSafe blood collection needle is targeting completion of preproduction prototypes for the ExtreSafeO blood collection needle for June 1996. The materials that the Company plans to use to produce these products are generally widely available. The Company does not anticipate difficulty in obtaining such materials. At present, there are a number of manufacturers that could produce lancet and needle retraction products and a number of suppliers could supply necessary parts. Any difficulties that may arise, however, with respect to the availability of manufacturers and/or suppliers could disrupt the planned production of each such product and could materially and adversely affect the Company. Competition The leading manufacturers in the sharps container market are Sage Products, Inc., Devon Industries, Inc., Becton Dickinson and Company, and Baxter International, Inc. There are also numerous smaller manufacturers. A variety of sharps disposal products have been introduced into the marketplace. Some of these disposal containers accommodate only the needle while others accommodate the needle, syringe and limited surgical instruments. The majority of the sharps containers on the market, however, allow contaminated instruments to fall out when inverted. Many of the products are unstable if not supported by wall supports or other apparatus. Access to many sharps containers are too accessible. In addition, there are no sharps disposable transporters or recycler/transporter type products on the market today. The leading manufacturers in the lancet market are Becton Dickinson and Company, Surgicutt, Inc., Miles, Inc., Diagnostic Corporation, Boehringer Mannheim, Inc., and Sherwood Medical Company, a subsidiary of American Home Products Corporation. There are also numerous smaller manufacturers. To the best of the Company's knowledge, there are no safety lancets on the market today that operate in a manner similar to the Company's SafetyStrip(TM) lancet. The leading manufacturers of standard needles are Becton Dickinson and Company, Sherwood Medical Company, Inc. and Terumo Medical Corporation of Japan. The Company is aware of no products on the market today that are comparable to the ExtreSafe(TM) blood collection needle (i.e., that is transversely activated to automatically extract a contaminated needle from a patient and immediately retracts the needle into a safe housing). Applications for the Company's needle retraction technologies may also be found in percutaneous catheter insertion, syringes, and other medical needle devices. While traditional, non-safety, products in the market segments which the Company seeks to address compete primarily on the basis of price, the Company expects to compete on the basis of healthcare worker safety, ease of use, reduced cost of disposal, patient comfort and compliance with OSHA regulations, but not on the basis of purchase price. However, the Company believes that when all indirect costs (disposal of needles, and testing , treatment and workers compensation expense related to needle stick injuries) are considered, the Company's products will compete effectively both with "traditional" products and the safety products of the Company's competitors. It should be noted, however, that the health care products market is highly competitive. Many of the Company's competitorshave longer operating histories and are substantially larger, better financed and better situated in the market than the Company. Acquisition of Technology/Research and Development The Company has devoted substantially all of its efforts since the formation of SHP to acquiring its health care products and research and development relating thereto. Research and development costs were $290,950 for the year ended December 31, 1994 and $568,787 for the year ended December 31, 1995. The Company plans to acquire additional technologies that it determines are advantageous to acquire. In addition, the Company plans to continue research and development on its current products. See "Business -- Products Under Development" Government Regulation The Company and its products are regulated by the FDA, pursuant to various statutes, including the FD&C Act, as amended and supplemented by the Medical Device Amendments of 1976 (the "1976 Amendments") and the Safe Medical Devices Act of 1990. Pursuant to the 1976 Amendments, the FDA classifies medical devices intended for human use into three classes, Class I, Class II and Class III. The controls applied to the different classifications are those the FDA believes are necessary to provide reasonable assurance that a device is safe and effective. Class I devices are products not requiring pre-market notification, which can be adequately regulated by the same types of controls the FDA has used on devices since the passage of the FD&C Act in 1938. These "general controls" include provisions related to labeling, producer registration, defect notification, records and reports and good manufacturing practices ("GMPs"). GMPs include implementation of quality assurance programs, written manufacturing specifications and processing procedures, written distribution procedures and record keeping requirements. Class II devices are products for which the general controls of Class I devices are deemed not sufficient to assure the safety and effectiveness of the device and require special controls. Special controls for Class II devices include performance standards, post-market surveillance, patient registries and the use of FDA guidelines. Standards may include both design and performance requirements. Class III devices have the most restrictive controls and require pre-market approval by the FDA. Generally, Class III devices are limited to life-sustaining, life-supporting or implantable devices. Section 510(k) of the FD&C Act requires individuals or companies manufacturing medical devices intended for human use to file a notice with the FDA at least ninety (90) days before introducing the product into the marketplace. The notice (a "510(k) Notification") must state the class in which the device is classified and the actions taken to comply with performanc standards or pre-market approval which may be needed if the device is a Class II registrant states the device is unclassified, it must explain the basis for that determination. In some cases obtaining pre-market approval can take several years. Clearance pursuant to a 510(k) Notification can be obtained in much less time. In general, clearance of a 510(k) Notification for a Class II device may be obtained if the registrant can establish that the new device is "substantially equivalent" to another device of such Class that is already on the market. This requires the new device to have the same intended use as a legally marketed predicate device and have the same technological characteristics as the predicate device. If the technological characteristics are different, the new device can still be found to be "substantially equivalent" if information submitted by the applicant (including clinical data if requested) supports a finding that the new device is as safe and effective as a legally marketed device and does not raise questions of safety and efficacy that are different from the predicate device. The Company has a notification from the FDA that its Sharp Trap(R) sharps containers are substantially equivalent to legally marketed predicate devices. The Company's Safety Cradle(R) sharps containers are subject to the general controls of the FD&C Act and the additional controls applicable to Class II devices. The Company believes that its Safety Cradle(R) sharps container is sufficiently similar to the Sharp Trap(R) container to preclude necessity for another FDA submittal. OSHA also insists, in part, that sharps containers are closeable, disposable, puncture-resistant, leak proof on the sides and bottom and appropriately labeled. The Company's Safety Cradle(R) sharps containers are in compliance with present OSHA regulations. Future regulations, however, may be imposed which might have a material adverse effect on the Company and/or one or more of its products. The Company's follow-on products (i.e., the SafetyStrip(TM), ExtreSafe(TM) medical needle technology, intravenous flow gauge and blood collection needle) are still in the development stage. The Company expects the SafetyStrip(TM) to be a Class I device and to be subject to lower level controls than are imposed on its Safety Cradle(R) sharps containers. In March 1995, the FDA issued a draft guidance document on 510(k) Notifications for medical devices with sharps injury prevention features, a category that would cover most of the Company's follow-on ExtreSafe(TM) technology products. The draft guidance provisionally placed this category of products into Class II Tier 3 for purposes of 510(k) review, meaning that such products will be subject to the FDA's most comprehensive and rigorous review for 510(k) products. However, review under this classification is expedited. The draft guidance also states that in most cases, FDA will accept, in support of a 510(k) notification, data from tests involving simulated use of such a product by health care professionals, although in some cases the agency might require actual clinical data. The Company expects its other follow-on products to be Class II devices. The Company also expects that its follow-on products will not require pre-market approval applications but will be eligible for marketing clearance through the 510(k) notifications procedure based upon its substantial equivalence to a previously marketed device or devices. Although the 510(k) pre-market clearance process is ordinarily simpler and faster than the pre- market approval application process, there can be no assurance that the Company will obtain 510(k) pre-market clearance to market its follow-on products, or that the Company's follow-on products will be classified as set forth above, or that, in order to obtain 510(k) clearance, the Company will not be required to submit additional data or meet additional FDA requirements that may substantially delay the 510(k) process and add to the Company's expenses. Moreover, such 510(k) pre-market clearance, if obtained, may be subject to conditions on the marketing or manufacturing of the corresponding follow-on products that may impede the Company's ability to market and/or manufacture such products. In addition to the requirements described above, the FD&C Act requires that all medical device manufacturers and distributors register with the FDA annually and provide the FDA with a list of those medical devices which they distribute commercially. The FD&C Act also requires that all manufacturers of medical devices comply with labeling requirements and manufacture devices in accordance with GMPs, which require that companies manufacture their products and maintain their documents in a prescribed manner with respect to manufacturing, testing, and quality control activities. The FDA's Medical Device Reporting regulation requires that companies provide information to the FDA on death or serious injuries alleged to have been associated with the use of their products, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur. The FDA further requires that certain medical devices not cleared for marketing in the United States have FDA approval before they are exported. The FDA inspects medical device manufacturers and distributors, and has broad authority to order recalls of medical devices, to seize noncomplying medical devices, to enjoin and/or to impose civil penalties on manufacturers and distributions marketing non-complying medical devices, and to criminally prosecute violators. In addition to laws and regulations enforced by the FDA and OSHA, the Company is subject to government regulations applicable to all businesses, including, among others, regulations related to occupational health and safety, workers' benefits and environmental protection. Distribution of the Company's products in countries other than the United States may be subject to regulations in those countries. There can be no assurance that the Company will be able to obtain the approvals necessary to market its blood collection needle or any other product outside the United States. Seasonality of Business The Company products sales are not subject to seasonal variations. Backlog As a result of purchasing practices typical to the medical supply industry in which the Company operates, there is no material backlog of unfilled orders. Employees As of March 1, 1996, the Company employed ten people, including five research and development employees, two sales and marketing employees and three administrative employees. The Company expects to add to the number of employees, principally in the areas of sales and marketing. The planned increase in personnel is based primarily on expected increases in production and sales. The Company's employees are not represented by a labor union, and the Company believes its employee relations are good. Item 2. Properties. The Company's offices are located at 655 East Medical Drive, Bountiful, Utah, under terms of a lease with an unaffiliated lessor which expires in June 1998, with an annual rent of approximately $72,000. The lease covers approximately 4,400 square feet of space. Item 3. Legal Proceedings. During 1994, SHP entered into various agreements with Mold Threads, Inc., a Connecticut corporation ("MT"), whereby MT would construct various molds and manufacture sharps containers for SHP. SHP alleges that MT did not complete its obligations in a timely or satisfactory manner. When SHP attempted to move the mold work and production to another mold maker/manufacturer MT refused to release SHP's molds. In January 1995, SHP filed suit in the United States District Court for the District of Utah against MT alleging breach of contract, conversion, and intentional interference with business relations. Thereafter, MT agreed to release SHP's molds. In January 1996, MT counterclaimed in the amount of $22,328, exclusive of attorney's fees and costs, for funds it alleges are owed on a purchase order. SHP believes that MT waived its right to assert any additional counterclaims. The litigation is in the early stages, is subject to all of the risks and uncertainties of litigation and the outcome cannot presently be predicted. Specifically, there is no assurance that SHP will be successful in this lawsuit or that the lawsuit will be resolved on acceptable terms, and SHP may incur significant costs in asserting its claims. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 1995. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Dividend Policy To date, the Company has not paid dividends on its common stock. The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon the Company's earnings, its capital requirements and financial condition, and other relevant factors. The Board of Directors does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company's operations. Share Price History The Company's common stock (the "Common Stock") has been quoted on Nasdaq Small-Cap Market since October 1995 under the trading symbol "SHPI." From July 1995 through October 1995 the Common Stock was quoted on the NASD Over-the-Counter market. Prior to July 1995, 294,872 shares of Common Stock were effectively free trading, although no active trading market existed for the Company's Common Stock. On March 26, 1996, the reported high and low bid and ask prices of the Common Stock were $11.0625 and $10.875, respectively. The following table sets forth the high and low bid information of the Common Stock for the periods indicated. It should be understood that only 294,872 shares of Common Stock have been available for trading to date, and that such over the counter market quotations reflect inter-dealer prices without retail markup, markdown or commission, and the quotations may not reflect any actual market transactions in the Common Stock.
Quarter Ended High Low ------------- ---- --- 1995 ---- September 30 $5.25 $2.50 December 31 $8.625 $8.25 1996 ---- March 31(through March $11.06 $7.375 26) 25
Holders of Record At March 27, 1996 there were 340 holders of record of the Company's Common Stock. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Item 6. Selected Financial Data. The following data have been derived from consolidated financial statements that have been audited by KPMG Peat Marwick LLP, independent auditors. The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with the Financial Statements and related Notes appearing elsewhere in this Form 10-K: Year Ended (1) -------------- Nov. 19, 1993 Dec. 31, Dec. 31, (inception) to 1994 1995 Dec. 31, 1993
Statement of Operations Data: Sales $ -- 33,256 447,844 Cost of sales -- 21,669 294,171 -------------- -------- --------- Gross profit -- 11,587 153,673 Expenses: Research and development expense -- 290,950 568,787 General and administrative expense 3,450 620,022 2,368,873 Write off of operating assets -- -- 255,072 -------------- -------- ------- Total expenses 3,450 910,972 3,192,732 -------------- -------- ------- Operating loss (3,450) (899,385) (3,039,059) Net interest income (expense) -- (7,563) 119,570 Net loss (3,450) (906,948) (2,919,489) Dividends on preference stock -- (16,780) (11,389) Net loss attributable to common $ (3,450) (923,728) (2,908,100) stockholders =============== ========= ========== Net loss per common share $ -- (.76) (.68) =============== ========= ========== Weighted average number of shares used for net loss per share 1,170,000 1,224,074 4,269,131 computation (2) =============== ========== ========== Balance Sheet Data (at period end): Working capital $ (12,150) (287,723) 4,194,567 Total assets 16,550 656,865 5,950,729 Long-term debt, less current -- 458,333 -- maturities Total stockholders equity (2,150) (355,878) 5,369,805 (deficit) (1) Excludes Specialized Health Products International, Inc.(formerly, Russco, Inc.) which had no operations prior to the Acquisition on July 28, 1995, and is immaterial. (2) Net loss per common share is based on the weighted average number of common shares outstanding. Stock options and warrants, and preferred shares prior to conversion, are not included in the calculation because this inclusion would be anti-dilutive and reduce the net loss per share amount.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. Wherever in this discussion the term "Company" is used, it should be understood to refer to the Company and SHP, on a consolidated basis, except where the context clearly indicates to the contrary. Prior to the Acquisition wherein the Company acquired SHP (See note 1 to the consolidated financial statements) the Company had no operations. Overview From its inception, the Company has incurred losses from operations. As of December 31, 1995, the Company had cumulative net losses totaling $3,858,056. To date, the Company's principal focus has been the design, development, testing, and evaluation of its Safety Cradle(R) sharps containers, SafetyStripO, ExtreSafe(TM) medical needle technology, intravenous flow gauge system, blood collection needle, and other products, and the design and development of its molds and production processes relating to its Safety Cradle(R) sharps containers. In 1994, the Company had limited sales of its sharps containers due, in part, to the fact the molds used to produce the sharps containers had not been completed and come on line. Certain of the Company's Safety Cradle(R) sharps container molds were completed in the first half of 1995, and additional Safety Cradle(R) sharps container molds were completed in the second half of 1995. As molds were completed, the Company's sales increased from $33,256 for 1994 to $447,844 for 1995. During the fourth quarter of 1995 the Company had sales of $5,503. The decrease in sales was related to the Company inability to use the molds during a good part of the fourth period of 1995 due to improvements that were being made to the molds. Said improvements were completed in January 1996. During the fourth quarter of 1995, the aggregate effect of year end adjustments, which related to prior quarters, increased the net loss by approximately $457,000. These adjustments were primarily the result of a write off of operating assets and amounts capitalized as research and development and adjustments to consulting and expense reimbursement. The Company anticipates that commercial production of its SafetyStrip(TM) lancet, will commence in July 1996. Provided the necessary FDA approvals are obtained, of which there is no assurance, the Company anticipates commercial production of the following products will commence as follows: ExtreSafe(TM) catheter in October 1997, ExtreSafeO blood collection needle in December 1996 and the ExtreSafeO syringe in July 1997. The Company's other ExtreSafe(TM) medical needle technology products, intravenous flow gauge and blood collection needle are conceptual ideas in the research stage. No assurance can be given, however, that the Company will be able to adhere to these time frames or that such products will ever go to market. Years Ended December 31, 1995 and December 31, 1994 The Company had sales of $447,844 for the year ended December 31, 1995, and sales of $33,256 for the year ended December 31, 1994. The 1994 revenues were derived largely from the sale of sharps containers that were produced on a limited basis during 1994. Commercial manufacture and sale of additional sizes and versions of the Company's sharps containers were introduced in the third and fourth quarters of 1995. At present, the only product the Company is selling is its Safety Cradle(R) sharps container products. Moreover, during fiscal 1995 $418,509 or ninety-three percent of the Company's sales were through Moore Medical Corp., a non-exclusive distributor for the Safety Cradle(R) sharps container products. Research and development expenses were $568,787 for the year ended December 31, 1995, compared with $290,950 for the year ended December 31, 1994. The Company's efforts in the year ended December 31, 1995, were focused on refining the design and molds for its Safety Cradle(R) sharps container products, and upon the design and development of its SafetyStrip(TM) and ExtreSafe(TM) medical needle technology, intravenous flow gauge system, and blood collection needle. The Company's efforts in the year ended December 31, 1994, were focused on refining the design and molds for its Safety Cradle(R) sharps container products. General and administrative expenses were $2,368,873 for the year ended December 31, 1995, compared to $620,022 for the year ended December 31, 1994. The increased costs resulted largely from the following increases in expenditures. First, selling and consulting costs increased from $4,563 for the year ended December 31, 1994 to $360,694 for the year ended December 31, 1995. The increase in selling and consulting costs were primarily a result of an increase in the expenditures made by the Company to market and sell its Safety Cradle(R) sharps container products. Next, salaries and benefit increased from $344,519 for the year ended December 31, 1994 to $791,434 for the year ended December 31, 1995. The increase resulted primarily from the hiring of additional product development, sales and marketing personnel to support sales and commercialization of the Company's products as well as pay increases made to certain of the Company's employees. Next, legal and accounting fees increased from $259,674 for the year ended December 31, 1994 to $553,527 for the year ended December 31, 1995. The increase in costs was primarily from accounting and legal expenses associated with the Acquisition, the filing of an Form S-1 registration statement, increased financing activities and expenses associated with litigation. Finally, travel and entertainment costs increased from $113,623 for the year ended December 31, 1994 to $182,989 for the year ended December 31, 1995. The increase resulted primarily from increased costs associated with financing, manufacturing, selling, and marketing activities. Net interest income was $119,570 for the year ended December 31, 1995, compared with net interest expense of $7,563 for the year ended December 31, 1994. The interest income for year ended December 31, 1995, relates to interest earned on funds derived from the sale of the Company's equity securities which closed in August 1995 wherein the Company raised gross proceeds of $8,602,500 (net proceeds of $7,519,060). Net interest expense was $7,563 for the year ended December 31, 1994. The interest expense relates to the accrued interest on certain notes payable and the interest on the Company's line of credit. Year Ended December 31, 1993 During this period the Company (not including SHP) had no operations and its financial results were immaterial. Liquidity and Capital Resources The Company's need for funds has increased from period to period as it has increased its research and development activities, expanded staff, and commenced the purchase and construction of molds and production equipment. To date the Company has financed its operations principally through borrowings and private placements of equity securities and debt. Through December 31, 1995 the Company had received net proceeds of approximately $9,100,000 through financing activities. The bulk of the proceeds from the Company's financing activity resulted from the sale of equity securities. As of December 31, 1995, the Company's liabilities totaled $580,924. All of these liabilities are current liabilities. The Company had working capital at the year ended December 31, 1995 of $4,194,567 and the Company used net cash in operating activities of $2,605,616. The Company has 3,110,875 Series A Warrants and 1,290,375 Series B Warrants outstanding which are exercisable for shares of Common Stock of the Company at a price of $3.00 per share in the case of Series A Warrants and $2.00 per share in the case of Series B Warrants, and expire on the earlier of (a) two years from the date of effectiveness of a registration statement under the Securities Act covering the issuance of the shares of Common Stock underlying such Warrants upon issuance by the Company or for resale of such stock by the holder, which period shall be extended day-for-day for any time that a prospectus meeting the requirements of the Securities Act is not available, or (b) the date specified in a notice of redemption from the Company (subject to the prior right of the holder to exercise the Warrants for at least 20 days following the date of such notice) in the event that the closing price of the Common Stock for any ten consecutive trading days preceding such notice exceeds $6.00 per share and subject to the availability of a current prospectus covering the underlying stock. Thus, the Company may accelerate the expiration of the Warrants in the event that the average market price of the Common Stock exceeds $6.00 per share, in which event the holders of the Warrants would be permitted to exercise the Warrants during a period of not less than 20 days following notice of such an event. The exercise of all the Series A and Series B Warrants would result in a gross cash inflow to the Company of $11,913,375. The Company presently intends to accelerate the expiration of the Warrants when and if such conditions are met. All of the Warrants are currently outstanding. There can be no assurance, however, that any of theWarrants will be exercised. Prior to the Acquisitions, SHP issued to a nonaffiliated shareholder a warrant to purchase 45,000 shares of Common Stock at $1.67 per share. Said warrant was issued by SHP in exchange for cash. This warrant expires in 1996 and became an outstanding obligation of the Company, rather than of SHP, on July 28, 1995 (the date of the Acquisition). On September 1, 1995, the Company adopted a Company's non-qualified stock option plan ("NQSOP") wherein the Company is authorized to grant options to purchase up to 1,284,998 shares of Common Stock of the Company. Pursuant to the NQSOP, in September 1995, the Company granted Stock Options to purchase 1,151,810 shares of Common Stock, and in November, the Company issued Stock Options to purchase 20,000 shares of Common Stock. All of these Stock Options are immediately exercisable. These options expire in 2000. In addition to the options outstanding under the NQSOP, the Company also has 108,000 options outstanding that were issued under the SHP NQSOP and that became obligations of the Company pursuant to the terms of the Acquisition. The SHP NQSOP options allows the holders thereof to purchase 108,000 shares of the Company's common stock at $0.39 per share. The SHP NQSOP options expire in 2004. The Company has also given certain officers and directors of the Company the opportunity to receive up to an aggregate of 2,000,000 shares of Common Stock (the "Earn-Out Shares"). Any issuance of Earn-Out Shares would be based upon the level of pre-tax consolidated net income, adjusted to exclude any expense arising from the obligation to issue or the issuance of the Earn- Out Shares and any income or expense associated with non-recurring or extraordinary items as determined in accordance with generally accepted accounting principles ("Adjusted PTNI"). The Company expects that the issuance of Earn-Out Shares will be deemed to be the payment of compensation to the recipients and will result in a charge to the earnings of the Company in the year or years the Earn-Out Shares are earned, in an amount equal to the fair market value of the Earn-Out Shares. This charge to earnings could have a substantial negative impact on the earnings of the Company in the year or years in which the compensation expense is recognized. The effect of the charge to earnings associated with the issuance of Earn-Out Shares could place the Company in a net loss position for the relevant year, even though the Adjusted PTNI was at a level requiring the issuance of Earn-Out Shares. Because Earn-Out Shares are issuable based on the results of a single year, the Adjusted PTNI in a particular year could require the issuance of Earn-Out Shares even thought he cumulative Adjusted PTNI for the three years 1996, 1997 and 1998, or any combination of those years, could reflect a lower amount of Adjusted PTNI that would not require the Company to issue such Earn-Out Shares or even a loss at the Adjusted PTNI line. There is no assurance that years subsequent to the year or years in which Earn-Out Shares are issued will produce the same level of Adjusted PTNI or will be profitable. The management of the Company may have the discretion to accelerate or defer certain transactions that could shift revenue or expense between years or otherwise affect the Adjusted PTNI in any year or years. The Company has agreed to file a registration statement under the Securities Act with respect to the Earn-Out Shares, when issued. The issuance of the Earn-Out Shares, or the perception that the issuance of such stock may occur, could adversely affect prevailing market prices for the Common Stock. The Company has entered into an agreement with a third party (Zerbec, Inc.) to form a Joint Venture (the "Venture") to develop, make and distribute an improved filmless digitized imaging system. The Venture is seeking funding to provide an alpha test system in 1996, beta test systems in 1997 and production deliveries in 1998. For a 50% interest in the Venture (before dilution by financing investors), the Company is providing up to $360,000 to support the operations of the Venture over a 12-month period of which approximately $83,000 was paid and expensed in 1995. For the Venture to be successful, the Company estimates that between $3,000,000 and $6,000,000 must be raised. It is anticipated that at least one-third of the outstanding shares of the Venture will be sold to fund development through initial production of related filmless digitized imaging systems. No assurance can be given that the system will find profitable acceptance in the marketplace. See "Business -- Products Under Development." The Company's working capital and other capital requirements during the next year or more will vary based upon a number of factors, including the cost to complete development and bring the SafetyStrip(TM) and ExtreSafe(TM) medical needle technology, intravenous flow gauge system, blood collection needle and other products, to commercial viability, the cost and effort needed to complete production of the Sharp-Trap(R) molds, the level of sales and marketing for the Safety Cradle(R) sharps containers, and the resources that are expended in SHP's lawsuit against Mold Threads, Inc. See "Legal Proceedings" At present, the Company has committed to spend $103,805 during fiscal 1996 on projects relating to the development and manufacture of its products. The Company believes that the funds described above and funds generated from the sale of its Safety Cradle(R) sharps containe products, will be sufficient to support the Company's operations and planned capital expenditures at least through fiscal 1996. The Company's failure either to produce or sell sufficient quantities of Safety Cradle(R) sharps container products could materially and adversely affect the Company's cash flows. In addition, the Company's business plans may change or unforeseen events may occur which require the Company to raise additional funds. Inflation The Company does not expect the impact of inflation on operations to be significant. Future Results This report contains both historical facts and forward-looking statements. Any forward-looking statements involves risks and uncertainties, including but not limited to risk of product demand, market acceptance, economic conditions, competitive products and pricing, difficulties in product development, commercialization, and technology, and other risks. As a result, the Company's actual future operations could differ significantly from those discussed in the forward-looking statements. Item 8. Financial Statements and Supplementary Data See index to financial statements and financial statement schedules included herein as Item 14. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. On November 10, 1995 the Company's Board of Directors elected to retain KPMG Peat Marwick, LLP ("KPMG") as its independent auditor. Prior to that time Nielson, Grimmett & Company ("NGC") had acted as the Company's independent auditor. The decision to change auditors was recommended by the Company's Board of Directors, in part, because KPMG had acted as SHP's auditor prior to the Acquisition. The reports of NGC on the financial statements of the Company for each of the two fiscal years in the period ended December 31, 1994, did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the Company's two most recent fiscal years and all subsequent interim periods preceding such change in auditors, there were no disagreements with NGC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements(s), if not resolved to the satisfaction of the former accountant, would have caused it to make a reference to the subject matter of the disagreements(s) in connection with its report; nor has NGC ever presented a written report, or otherwise communicated in writing to the Company or its Board of Directors the existence of any "disagreement" or "reportable event" within the meaning of Item 304 of Regulation S-K. The Company authorized NGC to respond fully to the inquiries of the Company's successor accountant and NGC provided the Company with a letter addressed to the SEC, as required by Item 304(a)(3) of Regulations S-K, which letter has been filed with the SEC. PART III Item 10. Directors and Executive Officers of Registrant. In connection with the Acquisition, the individual serving as the sole director and officer of the Company at the effective date resigned on July 28, 1995. The persons serving as directors and officers of SHP immediately prior to that date were elected to the same offices with of the Company and retained their positions as directors and officers of SHP. In addition, Stanley Hollander and J. Clark Robinson were subsequently appointed to fill vacancies on the Company's Board of Directors. Mr. Hollander and Mr. Clarke then resigned from the Board of Directors in March 1996 for personal reasons. Set forth below is certain information concerning each of the directors and executive officers of the Company as of March 15, 1996:
With SHP and Name Age Position Company Since ---- --- -------- ------- David A. 52 President, Chief Executive 1993 Robinson (1) Officer and Director Bradley C. 26 Vice President, Operations 1993 Robinson (1) and Investor Relations, and Director Dr. Gale H. 63 Vice President, Product 1994 Thorne Development and Director J. Clark 53 Vice President, Chief 1995 Robinson Financial Officer, Secretary and Director Gary W. Farnes 53 Director 1995 (2) Robert R. 65 Director 1994 Walker _______________ (1) Member of Executive Committee. (2) Member of Compensation Committee.
David A. Robinson. Mr. Robinson is the President and Chief Executive Officer of the Company. He has been a Director since November 1993. From November 1992 to November 1993, Mr. Robinson was President of EPC Products, Inc., a packaging company based in Bountiful, Utah. From 1981 to 1992, Mr. Robinson was President of Royce Photo/Graphics Supply, Inc., a distributor of photographic and graphic arts equipment and supplies and parts based in Glendale, California. He holds a Masters degree in Business Administration and a Masters degree in Management Science from the University of Southern California. Mr. Robinson is the brother of J. Clark Robinson, Vice President, Chief Financial Officer, Secretary and a Director of the Company, and an uncle of Bradley C. Robinson, Vice President, Operations, and a Director of the Company. Bradley C. Robinson. Mr. Robinson is the Vice President, Operations and Investor Relations, of the Company. He has been a Director since November 1993. From November 1992 to November 1993, Mr. Robinson was Vice President of EPC Products, Inc., a packaging company based in Bountiful, Utah. From 1990 to 1992, Mr. Robinson was employed by Cargo Link, a Salt Lake City, Utah, import-export broker. Mr. Robinson is the son of J. Clark Robinson, Vice President, Chief Financial Officer, Secretary and a Director of the Company, a nephew of David A. Robinson, President, Chief Executive Officer, and a Director of the Company, and a son-in-law of Gary W. Farnes, a Director of th Company. Gale H. Thorne. Dr. Thorne is the Vice President, Product Development, for the Company. He has been a Director since January 1995, and has held his present position as Vice President, Product Development, since October 1994. From 1993 to 1994, Dr. Thorne was a Vice President, Engineering, of Eneco, Inc., a Salt Lake City, Utah, corporation engaged in the business of developing cold-fusion products. During Dr. Thorne's tenure at Eneco, Inc. the company was engaged primarily in the business of prosecuting patent applications relating to the cold-fusion technology. From 1989 to 1993, Dr. Thorne was employed as a patent consultant and patent agent with Foster & Foster, a Salt Lake City intellectual property law firm. Dr. Thorne holds eighteen patents and has published numerous technical publications. He has been a technical consultant and a member of Board of the Small Business Innovation Program of the State of Utah. Dr. Thorne manages all the patent and product development work for the Company. He holds a Ph.D. in Biophysics from the University of Utah. J. Clark Robinson. Mr. Robinson became a Vice President, Chief Financial Officer, Secretary and Director of the Company in September 1995. From 1974 to the present, Mr. Robinson has been General Manager of Lagoon Corporation, which operates an amusement park in the Salt Lake City, Utah, area. At present, Mr. Robinson spends approximately one-half of his time working for the Company and one-half of his time working for Lagoon Corporation. Mr. Robinson has also been President of the International Association of Amusement Parks and Attractions, an international industry trade group. He holds a Masters degree in Business Administration from the University of Utah. Mr. Robinson is the brother of David A. Robinson, President, Chief Executive Officer and a Director of the Company, and the father of Bradley C. Robinson, Vice President, Operations, and a Director of the Company. Gary W. Farnes. Mr. Farnes is a Director of the Company. He has been a Director since 1995 and is currently the Senior Executive Vice President of Holy Cross Health System, a multi-hospital health care system headquartered in South Bend, Indiana. From 1977 to 1995, Mr. Farnes was employed by Intermountain Health Care, a regional hospital company. At the time that Mr. Farnes left Intermountain Health Care, he held the position of Vice President, Hospital Division. He holds a Bachelors degree in Business and Psychology from Brigham Young University and a Masters degree in Business Administration from George Washington University. Mr. Farnes is the father-in-law of Bradley C. Robinson, Vice President, Operations, of the Company. Robert R. Walker. Mr. Walker is a Director of the Company. Mr. Walker has been a Director since March 1994. He is currently self-employed as a consultant in the health care industry primarily in the area of start-up medical device companies. From 1976 to 1992, Mr. Walker was employed by IHC Affiliated Services Division of Intermountain Health Care, a regional hospital company, from which he retired as President of IHC Affiliated Services. He recently retired as the Chairman of the Board of AmeriNet, Inc., which is a national group purchasing organization for hospitals, clinics, detox/drug centers, emergency, nursing homes, private laboratories, psychiatric centers, rehabilitation facilities, surgical centers and institutions such as schools and prisons. Mr. Walker is a member of the American Hospital Association and the Hospital Financial Management Association. He holds a Bachelor of Science degree in Business Administration. Mr. Hollander was nominated to serve as a Director of the Company in August 1995, pursuant to an agreement between the Company and Capital Growth, as placement agent for certain securities of the Company. The agreement provided that Mr. Hollander, or another person nominated by Capital Growth, be elected for at least three one-year terms. Mr. Hollander resigned from the Board of Directors for personal reasons in March 1996. In addition, Mr. John T. Clark, who was a Directo of the Company since November 1993, also resigned from the Board of Directors for personal reasons on March 5, 1996. The Company's Board is currently reviewing independent persons to fill the two vacancies existing on the Board. Other than as described above, there are no family relationships among any of the executive officers or directors of the Company. Executive officers of the Company are elected by the Board of Directors on an annual basis and serve at the discretion of the Board. The Company's Board of Directors is divided into three classes. Beginning with the annual meeting of stockholders in 1996, one class of directors will be elected at each annual meeting of stockholders for a three-year term. Each year a different class of directors will be elected on a rotating basis. The terms of Gary W. Farnes and Robert R. Walker will expire in 1996. The terms of Gale H. Thorne and Brad C. Robinson will expire in 1997 and the term of David A. Robinson and J. Clark Robinson will expire in 1998. The Board of Directors has an Executive Committee and Compensation Committee. The Executive Committee has the authority to act on various matters requiring Board of Directors action. The Compensation Committee makes decisions regarding salaries and other compensation. As part of its responsibilities, the Compensation Committee administers the Company's "NQSOP". Item 11. Executive Compensation. Incorporated by reference to the Company's proxy statement which the Company intends to file with the Securities and Exchange Commission within 120 days after the close of its fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference to the Company's proxy statement which the Company intends to file with the Securities and Exchange Commission within 120 days after the close of its fiscal year. Item 13. Certain Relationships and Related Transactions. Incorporated by reference to the Company's proxy statement which the Company intends to file with the Securities and Exchange Commission within 120 days after the close of its fiscal year. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements Listed on page F-1 of the Financial Statements. (2) Financial Statement Schedules Listed on page F-1 of the Financial Statements. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the fourth quarter ended December 31, 1995. (c) Exhibits Listed on page 27 hereof. 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 hereunto duly authorized. Specialized Health Products International, Inc. (Registrant) Date: March 29, 1996 By /s/ David A. Robinson -------------- ----------------------------- David A. Robinson President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Act of 1933, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ David A. Robinson President, Chief Executive March 29,1996 - ----------------------- Officer and Director (Principal David A. Robinson Executive Officer /s/ Bradley C. Robinson Director and Vice President March 29,1996 - ------------------------- Bradley C. Robinson /s/ J. Clark Robinson Director, Vice President, Chief March 29,1996 - ----------------------- Financial Officer and Secretary J. Clark Robinson (Principal Financial and Accounting Officer) /s/ Gale H. Thorne Director and Vice President March 29,1996 - -------------------- Gale H. Thorne /s/ Robert R. Walker Director March 29,1996 - ---------------------- Robert R. Walker
EXHIBIT INDEX Exhibits.
Exhibit No. Description Page* ----------- ----------- ----- 3(i).1 Restated Certificate of Incorporation of the Company 47 3(i).2 Articles of Incorporation of SHP 52 3(i).3 Articles of Amendment of SHP 58 3(i).4 Plan and Articles of Merger of Russco Resources, Inc. 63 into SHP (Incorporated by reference to Exhibit 3(i).1 to the Company's Current Report on Form 8-K dated July 28, 1995) 3(ii).1 Bylaws of the Company 64 3(ii).2 Bylaws of SHP 84 4.1 Form of Series A Warrant 102 4.2 Form of Series B Warrant 117 10.1 Agreement and Plan of Reorganization dated as of 132 June 23, 1995, among the Company, Russco Resources, Inc., Scott R. Jensen and Specialized Health Products, Inc.(Incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, dated July 28, 1995. 10.2 Placement Agreement between the Company, SHP and U.S. 132 Sachem Financial Consultants, L.P., dated June 23, 1995 10.3 Form of Employment Agreement with Executive Officers 10.4 Form of Indemnity Agreement with Executive Officers and 169 Directors 10.5 Form of Confidentiality Agreement 177 10.6 Joint Venture Agreement between SHP and Zerbec, Inc., 180 dated as of October 30, 1995 16.1 Letter re change in certifying accountant 213 21.1 Schedule of Subsidiaries 215 _______________ * Refers to sequentially numbered copy.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Financial Statements
Page ---- Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1994, and 1995 F-3 Consolidated Statements of Operations for years ended December 31, 1993, 1994, and 1995 F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1993, 1994, and 1995 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994, and 1995 F-6 Notes to Consolidated Financial Statements F-8
Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders Specialized Health Products International, Inc.: We have audited the accompanying consolidated balance sheets of Specialized Health Products International, Inc. and subsidiary as of December 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended and for the period from November 19, 1993 (date of inception) to December 31, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Specialized Health Products International, Inc. and subsidiary as of December 31, 1994 and 1995, and the results of their operations and their cash flows for the years then ended and for the period from November 19, 1993 (date of inception) to December 31, 1993, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Salt Lake City, Utah February 2, 1996
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Consolidated Balance Sheets December 31, 1994 and 1995 Assets 1994 1995 ------ ---- ---- Current assets: Cash and cash equivalents $ - 4,251,584 Trade Accounts receivable 4,471 350,718 Related party receivable (note 11) - 122,850 Inventories - 16,322 Prepaid expenses and other 5,436 34,017 ------ -------- Total current assets 9,907 4,775,491 ------ -------- Equipment and furnishings, net of accumulated depreciation 285,770 812,049 of $1,753 in 1994 and $8,196 in 1995 (note 3) Other assets, net of accumulated amortization of $27,564 361,188 363,188 1994 and $90,314 in 1995 ------- ------- $656,865 5,950,728 ======== ========= Liabilities and Stockholders' Equity (Deficit) - ----------------------------------------------- Current liabilities: Bank overdraft $ 10,675 - Accounts payable 84,655 134,449 Accrued expenses 7,800 446,474 Due to stockholders (note 11) 194,500 - Total current liabilities 297,630 580,923 Stockholder loans (note 4) 358,333 - Due to stockholders - long-term (note 11) 100,000 - Total liabilities 755,963 580,923 9% cumulative redeemable preference stock, $1.50 par value. Authorized 250,000 shares; 160,000 256,780 - shares issued and outstanding in 1994 (liquidation value $256,780) (note 8) Stockholders' equity (deficit) (notes 6 and 7): Preferred stock, $.389 par value in 1994 and $.001 par value in 1995. Authorized 5,000,000 shares; 1,440,000 shares issued and outstanding in 1994 (liquidation value $560,000) and no shares issued and outstanding as of December 31, 1995 560,000 Common stock, no par value in 1994 and $.02 par value in 1995. Authorized 50,000,000 shares; issued and oustanding 1,363,500 in 1994 and 8,566,653 shares in 1995 209,800 171,333 Common stock subscriptions receivable (note 6) (198,500) (259,500) Additional paid-in capital - 9,316,028 Accumulated deficit (927,178) (3,858,056) --------- ----------- Total stockholders' equity (deficit) (355,878) 5,369,805 --------- ----------- Commitments and contingencies (notes 2, 5, 7, 10, and 12) $656,865 5,950,728 ======== =========
See accompanying notes to consolidated financial statements SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Consolidated Statements of Operations
For the period from November, 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 1993 1994 1995 ---- ---- ---- Sales $ - 33,256 447,844 Cost of sales - 21,669 294,171 ---- ------ ------- Gross profit - 11,587 153,673 Expenses: Research and development - 290,950 568,787 Selling, general and administrative 3,450 620,022 2,368,873 Write off of operating assets - - 255,072 ----- ------- --------- Total expenses 3,450 910,972 3,192,732 ----- ------- --------- Operating loss (3,450) (899,385) (3,039,059) Other Income (expense): Interest income - 237 135,428 Interest expense - (7,800) (15,858) ------- ------- -------- Total other income (expense) - (7,563) 119,570 Net loss (3,450) (906,948) (2,919,489) Dividends on preference stock - (16,780) (11,389) -------- -------- -------- Net loss attributable to common $ (3,450) (923,728) (2,908,100) stockholders ======== ========= =========== Net loss per common share $ - (.75) (.68) ======== ========= =========== Weighted average number of shares used for net loss per share 1,170,000 1,224,074 4,269,131 computation ========= ========= ==========
See accompanying notes to consolidated financial statements. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Consolidated Statements of Stockholders' Equity (Deficit) For the period from November, 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 Common Net stock- stock Additonal holders Preferred Stock Common stock subscription Paid in Accumulated equity deficit Shares Amount Shares Amount receivable capital deficit deficit -------------- ------------- ------------ --------- ----------- -------------- Issuance of common stock for cash at inception - - 1,170,000 1,300 - - - 1,300 Net Loss - - - - - - (3,450) (3,450) -------------- -------------- ------------ --------- ------------ -------------- Balances at - $ - 1,170,000 $1,300 - - (3,450) (2,150) December 31, 1993 Issuance of preferred 1,440,000 560,000 - - - - - 560,000 stock for cash Issuance of common stock for services - - 193,500 208,500 (198,500) - - 10,000 and stock subscription receivable Unpaid - - - - - - (16,780) (16,780) dividends on preference stock Net loss - - - - - - (906,948) (906,948) --------- ------- ------- ------- -------- ------ --------- --------- Balances at 1,4400,000 560,000 1,363,500 209,800 (198,500) - (927,178) (355,878) December 31, 1994 Issuance of preferred 362,403 604,001 - - - - - 604,001 stock for cash Cash received for stock - - - - 190,000 - - 190,0 subscriptions receivable Services provided for - - - - 8,500 - - 8,500 stock subscriptions receivable Unpaid dividends on preference - - - - - - (11,389) (11,389) stock Conversion of debt for common - - 346,500 385,000 - - - 385,000 stock (note 4) Issuance of additional common shares - - 90,000 180,000 - (180,000 - - to stockholders under antidilution provisions Business (1,802,403) (1,164,001) 2,102,403(696,752) - 1,860,753 - - combination (noteE1) Issuance of common stock - - 4,256,250 85,125 - 7,193,935 - 7,279,606 for cash net of expenses (note 7) Conversion of debt for common - - 50,000 1,000 - 99,000 - 100,000 stock (note 7) Issuance of common stock for stock - - 70,000 1,400 (140,000) 138,600 - - subscription receivable (note 7) Cash received for stock - - - - 90,000 - - 90,000 subscription receivable Exercise of stock options for common - - 288,000 5,760 (209,500) 203,740 - - stock subscription receivable Net loss - - - - - - (2,919,489) (2,919,489) ------------- ---------- ---------- -------- --------- ------------ ------------------ --------------- Balances at - $ - 8,566,653 $171,333 (259,500) 9,316,028 (3,858,056) 5,369,805 December 31, 1995 ============= ========== ========== ========= ======== ============ ================== ===============
See accompanying notes to consolidated financial statements. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Statements of Cash Flows For the period from November, 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 1993 1994 1995 Cash flows from operating activities: Net loss $ (3,450) (906,948) (2,919,489) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization - 29,317 74,542 Common stock issued for services - 10,000 8,500 Loss on sale of equipment - - 1,291 Write off of operating assets - - 255,072 Changes in operating assets and libilities Increase in trade accounts receivable - (4,471) (346,247) Increase in prepaid expenses and other (146) (5,290) (28,581) assets Decrease (increase) in inventories (6,104) 6,104 (16,322) Increase in related party receivable - - (122,850) Increase in accounts payable and accrued - 92,455 488,468 expenses ------- ------ --------- Net cash used in operating activities (9,700) (778,833) (2,605,616) ------- --------- ----------- Cash flows from investing activities: Proceeds from the sale of equipment - - 2,943 Capital expenditures - (287,523) (797,377) Payments to acquire patents and (10,000) (278,752) (64,750) technology -------- --------- --------- Net cash used in investing activities (10,000) (566,275) (859,184) Cash flows from financing activities: Borrowings on due to stockholders - 194,500 - Payments on due to stockholders - - (194,500) Proceeds from issuance of stockholder 18,700 339,633 44,167 loans Payments on stockholder loans - - (17,500) Proceeds from issuance of common stock 1,300 - 7,279,060 Proceeds from issuance of preferred stock - 560,000 604,001 Proceeds from issuance of redeemable - 240,000 - preference stock Payments on redeemable preference stock and - - (268,169) dividends Proceeds (payments) on bank overdraft - 10,675 (10,675) Proceeds from stock subscriptions - - 280,000 receivable ------ -------- ---------- Net cash provided by financing 20,000 1,344,808 7,716,384 activities ------ --------- ---------- Net increase (decrease) in cash 300 (300) 4,251,584 Cash at beginning of year - 300 - ------ --------- ---------- Cash at end of year $ 300 - 4,251,584 ====== ========= ==========
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Consolidated Statements of Cash Flows (continued) For the period from November, 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 1993 1994 1995 Supplemental Disclosure of Cash Flow Information - ------------------------------------------------ Cash paid during the year for interest $ - - 15,858 Supplemental Disclosures of Noncash Investing and Financing Activities - ----------------------------------- Dividends on redeemable preference stock $ - 16,780 11,389 Common stock issued for subscription - 198,500 349,500 receivable Conversion of stockholder loans and due to - - 485,000 stockholders to common stock Acquisition of purchased technology and patents for stockholder payable - 100,000 -
See accompanying notes to consolidated financial statements. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (1)Summary of Significant Accounting Policies (a)Organization and Business Description Specialized Health Products, Inc. (Specialized Health) was organized November 19, 1993, with a commercial objective to develop, manufacture, and market safe, easy-to-use and cost-effective products for the health care industry. Initial development has focused on products that limit or prevent the spread of blood-borne diseases. The Company has several products currently in the production or development stage. The sharps container is the only product which is currently in the production stage. This device is designed to provide means for disposing of sharps in order to reduce the potential for accidental needle sticks. The other two major product lines are the lancet and the needle withdrawal technology; both are in the development stage. The lancet device is designed to provide a nonreusable,safer, and less painful way of obtaining small blood samples from patients. The needle withdrawal technology is designed to automatically retract needles directly from the injection site while providing permanent and safe containment of the needle. Specialized Health's activities since inception have principally consisted of obtaining financing, recruiting personnel, conducting research and development, developing products, and identifying and contracting with manufacturers. The Company conducts its operations primarily in the Continental United States. Specialized Health entered into a business combination in July 1995 with Russco, Inc. (Russco) wherein Specialized Health became a wholly-owned subsidiary of Russco and Russco's name was changed to Specialized Health Products International, Inc. (the Company). Russco was organized in February 1986 as a public blind pool company to evaluate, structure, and complete a merger with, or acquisition of, any privately held business seeking to obtain the perceived advantages of being a publicly owned Company. Russco had no significant operations and minimal capital with which to conduct its operations. At the closing of the business combination, (a) the 300,000 shares of Russco's common stock previously outstanding (as adjusted for a reverse stock split) remained outstanding as common stock of the Company and (b) Russco issued 3,602,403 shares of its common stock for all of the issued and outstanding shares of Specialized Health's common stock and preferred stock. The business combination has been treated for accounting purposes as a "reverse merger" wherein Specialized Health has been shown as the acquiring company even though Russco issued its common shares to acquire Specialized Health because the stockholders of Specialized Health received the significant majority of the outstanding common stock of the Company and management of Specialized Health became the management of the Company. Because Russco had limited operations, the business combination has been accounted for as a purchase transaction with the net assets of Russco (which were insignificant) being recorded at their fair value at the date of closing and operating results of Russco prior to the business combination not being included with the historical operating results of Specialized Health. Contemporaneously with the business combination, Specialized Health engaged in a private placement of securities wherein 4,376,250 shares of the Company's common stock were issued, net of offering costs, for consideration of $7,519,060, as more fully discussed in note 7. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (a)Organization and Business Description (continued) ------------------------------------- The accompanying consolidated financial statements subsequent to the business combination include the accounts of the Company and its wholly-owned subsidiary Specialized Health. All intercompany accounts and transactions have been eliminated in consolidation. Prior to the business combination Specialized Health had no subsidiary. (b)Cash and Cash Equivalents ------------------------- Cash and cash equivalents are comprised of a checking and money market account. The Company considers all investments with original maturities of three months or less to be cash equivalents. (c)Inventories ----------- Inventories which consist primarily of finished goods are stated at the lower of cost or market. Cost is determined using the first-in first-out method. (d) Other Assets ------------ The Company has included in other assets at December 31, 1994 and 1995, the cost of purchased technology and patents, and related patent costs amounting to $388,752 and $453,502, respectively, which is being amortized using the straight-line method over seven years. These assets include the following technologies: acquisitions from third parties include a catheter closure patent; lancet patent; the sharps container technology acquired from Sharp-Trap, Inc.; and an Automatic Needle Withdrawing and Securing System purchased from Gale H. Thorne, a director and employee. Management evaluates the recoverability of these costs on a periodic basis, based on sales of the product related to the technology, revenue trends, and projected cash flows based on estimates of future sales. (e)Equipment and Furnishings ------------------------- Equipment and furnishings are stated at cost and consist primarily of manufacturing molds and equipment, and office furniture and fixtures. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets which is 5 years with the exception of manufacturing equipment which is depreciated on the straight-line method over 7 years or the units-of-production method whichever is greater. (f)Revenue Recognition ------------------- Revenues are recognized upon shipment of products. Sales recorded in the year ended December 31, 1994, relate primarily to products received upon acquisition of technology and patents. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (g)Research and Development Costs ------------------------------ Research and development costs are expensed as incurred. (h)Income Taxes ------------ Income taxes are recorded using the asset and liability method for all periods presented in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (i)Net Loss Per Common Share ------------------------- Net loss per common share is based on the weighted average number of common shares outstanding. Stock options, warrants, and preferred shares prior to conversion are not included in the calculation because their inclusion would be antidilutive and reduce the net loss per share amount. (j)Reclassification ---------------- Certain amounts in 1994 have been reclassified to conform with 1995 classifications. (k)Fair Value Disclosure --------------------- At December 31, 1995, the book value of the CompanyOs financial instruments approximates fair value. (l)Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (2)Investments ----------- In October 1995, the Company entered into an agreement with a third party to form a joint venture Quantum Imaging Corporation (Venture) to develop an improved filmless X-Ray system. For a fiftyEpercent interest in the Venture (before dilution by financing investors), the Company is obligated to pay to the Venture $15,000 a month, which is paid to the other Venture partner to perform research and development on the VentureOs behalf. Additionally, the Company is obligated to pay the general and administrative expenses of the Venture up to $15,000 per month. These obligations continue through September of 1996, and are cancelable only upon 30 days written notice and failure of the other Venture partner to meet requirements as specified in the Venture agreement. Unless this agreement is terminated, the Company is obligated at December 31, 1995 for a minimum of $135,000 and up to an additional $135,000 as general and administrative expenses are incurred by the Venture. In managementOs opinion, for the Venture to be successful, it must raise between $3,000,000 and $6,000,000. The Company contributed total capital of $83,624 to the joint venture during 1995, all of which the Company expensed and the Venture used to fund research and development and administrative expenses. Assets and liabilities as of December 31, 1995 were immaterial. (3)Equipment and Furnishings ------------------------- Equipment and furnishings consist of the following:
1994 1995 ---- ---- Assembly and manufacturing equipment $ 750 33,605 Manufacturing molds 276,370 245,753 Office furnishings and fixtures 10,403 144,992 Construction-in-progress - 395,895 -------- ------- 287,523 820,245 Less accumulated depreciation (1,753) (8,196) $ 285,770 812,049 ======== =======
During 1995, operating assets comprised primarily of manufacturing molds totaling $255,072 were written off. The molds became obsolete due to design changes in the sharp container technology. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (4)Stockholders' Loans ------------------- During 1994 and 1995, prior to the business combination certain existing stockholders made direct loans to Specialized Health aggregating $385,000 and bearing interest at ten percent under a bridge loan agreement. Subscriptions under the bridge loan agreement were offered proportionately to stockholders based on the number of shares held. The subscribers to the bridge loan agreement were issued a total of 346,500 warrants permitting them to acquire an equal number of shares of common stock at $1.11 per share on or before December 31, 1996. No value was ascribed to the warrants. In connection with the business combination discussed in note 1, the 346,500 warrants were exercised through conversion of the outstanding loans. (5)Leases ------ The Company leases office space, equipment, and vehicles under noncancelable operating leases. Future minimum lease payments under these leases are as follows:
Fiscal year ending December 31: 1996 $ 107,972 1997 93,132 1998 38,718 ------- $ 239,822 =======
Rent expense was $1,881 for the period from November 19, 1993 (date of inception) to December 31, 1993, $52,051 in 1994, and $67,091 in 1995. (6)Stock Options ------------- In 1995, the Company adopted a nonqualified stock option plan whereby it has reserved 1,284,998 shares of its common stock for issuance to officers, directors, and employees. At the time of adoption, the Company granted options to acquire 1,171,810 shares of common stock at $2.00 per share of which 1,117,000 vested immediately, and 54,810 vest at various times over the next three years. The options expire five years from date of grant. During 1994, the Board of Directors of Specialized Health approved a nonqualified stock option plan for its officers, directors, and employees and authorized 396,000 shares of common stock for issuance upon the exercise of options granted under this plan. The exercise price of the options is equivalent to the estimated fair market value of the stock as determined by the Board of Directors at the date of grant. The number of shares, terms, and exercise period are determined by the Board of Directors on an option-by-option basis. During 1994, options to acquire 396,000 common shares were granted at a price range of $.39 to $1.11 per share. No options were exercised or lapsed during 1994. On September 1, 1995, options to acquire 288,000 shares were exercised from which the Company received $209,500 in a common stock subscription receivable. All common stock subscription receivables are due within one year. The remaining 108,000 shares will become exercisable over the next eighteen months, have an option price of $.39 per share, and expire in 2004. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (7)Preferred and Common Stock -------------------------- The Company has authorized 50,000,000 shares of common stock with $.02 par value and 5,000,000 shares of preferred stock with a par value of $.001 per share. In connection with the business combination discussed in note 1, Specialized Health completed a 9 for 1 forward stock split of both its common and preferred stock. The number of common and preferred shares and per share amounts presented in the accompanying consolidated financial statements have been restated for the effect of this split. In addition, the Company issued 90,000 shares of common stock to non- affiliated shareholders existing at the time of the private placement under antidilutive provisions. Specialized Health and the Company engaged in a private placement of securities in July 1995, wherein 860.25 units were sold for $10,000 per unit for total consideration, net of expenses of $7,519,060. This consideration was comprised of $7,279,060 of cash, $100,000 of debt converted to common stock, and a common stock subscription receivable of $140,000. The private placement was completed contemporaneously with the business combination. In the private placement, the Company sold an aggregate of $4,301,250 shares of the Company's $.02 par value common stock and Series A warrants to purchase an aggregate of 2,580,750 shares of the Company's common stock at a price of $3.00 per share, exercisable for a period of two years from the date of effectiveness of a registration statement covering the issuance of the shares of common stock underlying the Series A warrants. For services provided in connection with the private placement of securities, the underwriter received a commission of $860,251 in cash, 75,000 shares of common stock, Series A warrants to purchase 530,125 shares of common stock for $3.00 per share, and Series B warrants to purchase 1,290,375 shares of common stock for $2.00 per share. The warrants expire on the earlier of (a) two years from the effective date of a registration statement under the Securities Act covering the issuance of the shares of common stock underlying such warrants or (b) the date specified in a notice of redemption from the Company in the event that the closing price of the common stock for any ten consecutive trading days preceding such notice exceeds $6.00 per share and subject to the availability of a current prospectus covering the underlying shares. The Company may redeem all or a portion of the warrants, in each case at $.001 per warrant upon at least 20 days prior written notice to the warrant holders. The warrants may only be redeemed if a current prospectus is available with respect to the issuance of shares of common stock upon the exercise thereof. At December 31, 1995 the Company has a common stock subscription receivable amounting to $50,000 from the underwriter. The underwriter had a continuing relationship with the Company pursuant to which the underwriter was to provide financial advisory and investment banking services to the Company through July 1997. The Company was to pay the underwriter $4,000 per month for such services. Additionally, the underwriter had the right of first refusal to undertake any financings of the Company during this period. Subsequent to year end, the Company amended their agreement with the underwriter canceling the monthly service fees and the underwriters right of first refusal. The Company signed a new agreement with PaineWebber to act as its exclusive financial advisor and to assist in the development of strategic alliances. Also, during 1995 the Company issued a warrant to a nonaffiliated stockholder of the Company to purchase 45,000 shares of common stock at $1.67 per share. This warrant expires in 1996. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (7)Preferred and Common Stock (continued) --------------------------------------- Each preferred and common share of Specialized Health was converted into one common share of the Company in connection with the business combination. The Company has granted to a director and certain officers the right to receive up to an aggregate of 2,000,000 additional shares of common stock based upon the level of pre- tax consolidated net income (PTNI) for 1996, 1997, or 1998. If PTNI equals of exceeds $1,500,000, $5,000,000, or $8,000,000 in any of these years these individuals will receive an aggregate of 350,000, 1,100,000, or 2,000,000 common shares, respectively, less shares previously received but no more than an aggregate of 2,000,000 shares. The Company expects that the issuance of such shares will be deemed to be the payment of compensation to the recipients and will result in a charge to the earnings of the Company in the year or years the shares are earned, in an amount equal to the fair market value of the shares. This charge to earnings could have a substantial negative impact on the earnings of the Company in the year or years in which the compensation expense is recognized. The effect of the charge to earnings associated with the issuance of the shares could place the Company in a net loss position for the relevant year, even though the PTNI was at a level requiring the issuance of the shares. Because the shares are issuable based on the results of a single year, the PTNI in a particular year could require the issuance of shares even though the cumulative PTNI for the three years 1996, 1997, and 1998, or any combination of those years, could reflect a lower amount of PTNI that would not require the Company to issue such shares or even a pre-tax net loss. (8)Redeemable Preference Stock --------------------------- Specialized Health had authorized 250,000 shares of redeemable preference stock with a par value of $1.50 per share, of which 160,000 shares were issued and outstanding at December 31, 1994. Each redeemable preference share was entitled to a cumulative annual dividend of nine percent of the par value from the date of original issue. Dividends were payable when and as declared by the Board of Directors. The preference stock and related dividends were paid in cash at the time of the business combination. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (9)Income Taxes ------------ There was no income tax expense in 1993, 1994, and 1995, due to net operating losses. The difference between the expected tax benefit and the actual tax benefit is primarily attributable to the effect of start-up costs and net operating losses being offset by an increase in the Company's valuation allowance. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and December 31, 1995, are presented below: 1994 1995 ---- ---- Deferred tax assets: Organization costs $ 5,138 3,854 Start-up costs 1,030 720 Patent costs - 19,244 Net operating loss carryforwards 275,843 1,374,198 Accrued compensation 57,629 - Accrued vacation - 19,894 ------- -------- Total gross deferred tax assets 339,640 1,417,910 Less valuation allowance (339,579)(1,417,910) --------- ---------- Net deferred tax assets 61 - Deferred tax liability - equipment, principally due to differences in 61 - depreciation ---------- ---------- Total gross deferred tax liability 61 - ---------- ---------- Net deferred tax liability $ - - ========== ==========
The net change in the total valuation allowance for the years ended December 31, 1994 and 1995, was an increase of $338,292 and $1,078,331, respectively. Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets will be recognized as an income tax benefit to be reported in the statement of operations. At December 31, 1995, the Company had total tax net operating losses of approximately $3,684,177, that can be carried forward to reduce federal income taxes. If not utilized, the tax loss carryforwards expire beginning in 2009. Under the rules of the Tax Reform Act of 1986, the Company has undergone a greater than 50Epercent change of ownership. Consequently, a certain amount of the Company's net operating loss carryforward available to offset future taxable income in any one year may be limited. The maximum amount of carryforwards available in a given year is limited to the product of the Company's value on the date of ownership change and the federal long-term tax-exempt rate, plus any limited carryforwards not utilized in prior years. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (10)Commitments and Contingencies ----------------------------- The Company is party to litigation and claims arising in the normal course of business. Management, after consultation with legal counsel, believes that such matters will not have a material impact on the Company's financial position or results of operations. As a result of the acquisition of certain product rights and related patents the Company is required to pay a specified royalty on future sales of products related to these rights and patents. (11)Related Party Transactions -------------------------- Related party receivables at December 31, 1995 represent advances to certain related parties. During 1995 the Company paid to an entity, owned in part by a shareholder of the Company, $231,475 as reimbursement for expenses it expended on behalf of the Company and as consulting fees. Amounts due to stockholders in 1994 consisted of unpaid consulting expenses of $154,500 and a $40,000 note payable. The note payable was replaced subsequent to year-end with a line of credit from a commercial bank in the amount of $100,000 due November 1995 bearing interest at prime plus two percent. Long-term amounts due to a stockholder related to the acquisition of purchased technology, and are non-interest bearing. These amounts were repaid in 1995, and as of December 31, 1995 there were no remaining amounts due. (12)Business and Credit Concentrations ---------------------------------- During 1995, the CompanyOs revenues were solely from the sale of the sharps container of which $418,509 represented sales to a single distributor. At December 31, 1995, the Company had $348,266 of trade accounts receivable due from this customer for which payment was received subsequent to year- end. The Company currently buys all of its sharp containers, the CompanyOs only device in production, from one supplier. Although there are a limited number of manufacturers who could manufacture this device, management believes that other suppliers could provide similar services on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales. Additionally, the Company has a limited direct sales force and no third party agreements to distribute its products which may result in limited sales of the CompanyOs products. (13)Fourth Quarter Results ---------------------- During the fourth quarter, the aggregate effect of year end adjustments, which related to prior quarters, increased the net loss approximately $457,000. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Notes to Consolidated Financial Statements For the period from November 19, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 (14)Accounting Standards Issued Not Yet Adopted ------------------------------------------- In March of 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of (FASB 121). The Company is required to adopt the provisions of this statement for years beginning after December 15, 1995. This statement requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The impact of FASB 121 is not expected to have a material affect on the Company. In October of 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (FASB 123). The Company is required to adopt the provisions of this statement for years beginning after December 15, 1995. This statement encourages all entities to adopt a fair value based method of accounting for employee stock options or similar equity instruments. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic-value method of accounting prescribed by APB opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Entities electing to remain with the accounting in APB 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in this statement had been applied. It is currently anticipated that the Company will continue to account for employee stock options or similar equity instruments in accordance with APB 25 and provide the disclosures required by FASB 123. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ EXHIBITS to FORM 10-K REGISTRATION STATEMENT Under the Securities Exchange Act of 1934 _______________ Specialized Health Products International, Inc. Exhibits. Exhibit No. Description Page* ---------- ----------- ----- 3(i).1 Restated Certificate of Incorporation of the Company 3(i).2 Articles of Incorporation of SHP 3(i).3 Articles of Amendment of SHP 3(i).4 Plan and Articles of Merger of Russco Resources, Inc., into SHP (Incorporated by reference to Exhibit 3(i).1 to the Company's Current Report on Form 8-K dated July 28, 1995) 3(ii).1 Bylaws of the Company 3(ii).2 Bylaws of SHP 4.1 Form of Series A Warrant 4.2 Form of Series B Warrant 10.1 Agreement and Plan of Reorganization dated as of June 23, 1995, among the Company, Russco Resources, Inc., Scott R. Jensen and Specialized Health Products, Inc.(Incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, dated July 28, 1995. 10.2 Placement Agreement between the Company, SHP and U.S. Sachem Financial Consultants, L.P., dated June 23, 1995 10.3 Form of Employment Agreement with Executive Officers 10.4 Form of Indemnity Agreement with Executive Officers and Directors 10.5 Form of Confidentiality Agreement 10.6 Joint Venture Agreement between SHP and Zerbec, Inc., dated as of October 30, 1995 16.1 Letter re change in certifying accountant 21.1 Schedule of Subsidiaries 27.1 Financial Date Schedule _______________ * To be filed by amendment. ** Refers to sequentially numbered copy. EX-3.(I)1 2 EXHIBIT 3(i).1 Restated Certificate of Incorporation of the Company RESTATED CERTIFICATE OF INCORPORATION Russco, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is Russco, Inc. Russco, Inc., was originally incorporated under the same name and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of Delaware on Nobember 27, 1990. 2. Pursuant to Section 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this corporation. 3. This restated Certificate of Incorporation supersedes the Original Certificate of Incorporation and all amendments thereto and the Certificate of Incorporation is hereby amended to read in its entirety as follows: ARTICLE FIRST Name: The name of this corporation is Specialized Health Products International, Inc. ARTICLE SECOND Duration: This corporation shall exist perpetually unless sooner dissolved by law. ARTICLE THIRD Purposes: The purpose for which this corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. ARTICLE FOURTH Stock: The total number of authorized shares of stock which this corporation shall be authorized to issue is: Fifty-Five Million (55,000,000) shares divided into Fifty Million (50,000,000) Common shares with a par value of Two Cents ($0.02) per share and Five Million (5,000,000) Preferred shares with a par value of One-tenth Cent ($0.001) per share. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article, to provide for the issuance of the shares of preferred stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. ARTICLE FIFTH Pre-emptive Rights: The stockholders shall have no pre-emptive rights to acquire additional shares of the corporation. ARTICLE SIXTH Management of the Corporation's Affairs. The business and affairs of the corporation shall be managed under the direction of the Board of Directors. The exact number of directors shall be fixed from time to time by, or in the manner provided in, the Bylaws of the corporation and may be increased or decreased as therein provided. Directors of the corporation need not be elected by ballot unless required by the Bylaws. The directors shall be divided into three classes. Each such class shall consist, as nearly as may be possible, of one-third of the total number of directors, and any remaining directors shall be included within such group or groups as the Board of Directors shall designate. A class of directors shall be elected for a one-year term, a class of direc tors for a two-year term and a class of directors for a three-year term. At each succeeding annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal an possible, but in no case shall a decrease in the number of directors shorten the term or any incumbent director. A director may be removed from office for cause only and, subject to such removal, death, resignation, retirement or disqualification, shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and qualified. No alteration, amendment or repeal of this Article SIXTH or the Bylaws of the corporation shall be effective to shorten the term of any director holding office at the time of such alteration, amendment or repeal, to permit any such director to be removed without cause, or to increase the number of directors in any class or in the aggregate from that existing at the time of such alteration, amendment or repeal, until the expiration of the terms of office of all directors then holding office, unless (1) in the case of this Article SIXTH, such alteration, amendment or repeal has been approved by the affirmative vote of two-thirds of the shares of stock of the corporation outstanding and entitled to vote thereon, or (ii) in the case of the Bylaws, such alteration amendment or repeal has been approved by either the affirmative vote of two-thirds the holders of all shares of stock of the corporation outstanding and entitled to vote thereon or by a vote of a majority of the entire Board of Directors. To the extent that any holders of any class or series of stock other than Common Stock issued by the corporation shall have the separate right, voting as a class or series, to elect directors, the directors elected by such class or series shall be deemed to constitute an additional class of directors and shall have a term of office for one year or such other period as may be designated by the provisions of such class or series providing such separate voting right to the holders of such class or series of stock, and any such class of directors shall be in addition to the classes designated above. Any such directors so elected shall be subject to removal in such manner as may be provided by law. ARTICLE SEVENTH Action by Stockholders. Action shall be taken by stockholders of the corporation only at annual or special meetings of stockholders, and stockholders may not act by written consent. Special meetings of the stockholders of the corporation for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President of the corporation, but such special meetings may not be called by any other person or persons. ARTICLE EIGHTH Amendment: Except as otherwise provided in this Certificate of Incorporation, the provisions of this Certificate of Incorporation may be amended by the affirmative vote of a majority of the shares entitled to vote on each such amendment. ARTICLE NINTH Limitation of Directors' Liability: To the fullest extent permitted by the laws of the State of Delaware now or hereafter in force, no director of this corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of the foregoing provisions of this Article NINTH shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. The provisions of this Article NINTH shall not be deemed to limit or preclude indemnification of a director by the corporation for any liability of a director which has not been eliminated by the provisions of this Article NINTH. ARTICLE TENTH REGISTERED AGENT: The registered office in the State of Delaware is located at 1013 Centre Road, in the City of Wilmington, County of New Castle and its registered agent at such address is Corporation Service Company. IN WITNESS WHEREOF, the undersigned sign and execute this Restated Certificate of Incorporation and certify to the truth of the facts herein stated and that this Restated Certificate of Incorporation was duly adopted in accordance with the provisions of the Delaware General Corporation Law, this 25th day of July, 1995. RUSSCO, INC. By _/s/ Scott R. Jensen___ Scott R. Jensen President/Secretary EX-3.(I)2 3 EXHIBIT 3(i).2 Articles of Incorporation of SHP ARTICLES OF INCORPORATION OF SPECIALIZED HEALTH PROUDUCTS, INC. The undersigned, natural persons eighteen (18) years of age or older, acting under the Utah Revised Business Corporation Act, hereby adopt the following Articles of Incorporation for such corporation: ARTICLE FIRST Name: The name of this corporation is SPECIALIZED HEALTH PRODUCTS, INC. ARTICLE SECOND Duration: This corporation shall exist perpetually unless sooner dissolved by law. ARTICLE THIRD Purposes: The purpose or purposes for which this corporation is organized are: a. To engage in any lawful act or activity for which corporations may be organized under the Utah Revised Business Corporations Act. b. To acquire by purchase, exchange, gift, bequest, subscription or otherwise, and to hold, own, mortgage, pledge, hypothecate, sell, assign, transfer, exchange or otherwise dispose of or deal in or with its own corporate securities or stock or other securities, including without limitations, any shares of stock, bonds, debentures, notes, mortgages, or other obligations, and any certificates, receipts or other instruments representing rights or interests therein or any property or assets created or issued by any person, firm, association, or corporation, or any government or subdivisions, agencies or instrumentalities thereof; to make payment therefor in any lawful manner or to issue in exchange therefor its own securities or to purchase its own shares; and to exercise as owner or holder of any securities, any and all rights, powers and privileges in respect thereof; to make payment therefor in any lawful manner or to issue in exchange therefor its own securities or to purchase its own shares; and to exercise as owner or holder of any securities, any and all rights, power and privileges in respect thereof. c. To become a partner (either general or limited or both) and to enter into agreements of partnership with one or more other persons or corporations for the purpose of carrying on any business whatsoever which this corpora tion may deem proper or convenient in connection with any of the purposes herein set forth or otherwise, or which may be calculated, directly or indirectly, to promote the interests of this corporation or to enhance the value of its property or business. d. To do each and every thing necessary, suitable or proper for the accomplishment of any of the purposes or the attainment of any one or more of the subjects herein enumerated, or which may at any time appear conducive to or expedient for the protection or benefit of this corporation, and to do said acts as fully and to the same extent as natural persons might, or could do, in any part of the world as principals, agents, partners, trustees or otherwise, either alone or in conjunction with any other person, association or corporation. e. The foregoing clauses shall be construed both as purposes and powers and shall not be held to limit or restrict in any manner the general powers of the corporation, and the enjoyment and exercise thereof, as conferred by the laws of the State of Utah; and it is the intention that the purposes and powers specified in each of the paragraphs of this Article Third shall be regarded as independent purposes and powers.] ARTICLE FOURTH Stock: The total number of authorized shares of this corporation shall be one hundred thousand (100,000) common voting shares with no par value. All of the shares of this corporation shall have the same rights and preferences. The shareholders of said stock shall have unlimited voting rights and a right to the net assets of the corporation upon dissolution. Any unissued shares of this corporation may be used, allotted and sold from time to time in such amounts and for such consideration as may be lawfully determined by the board of directors subject to the pre-emptive rights of the shareholders. ARTICLE FIFTH Pre-emptive Rights: The shareholders shall have pre-emptive rights to acquire additional shares of the corporation. ARTICLE SIXTH Directors' Contracts: No contract or other transaction between this corporation and one or more of its directors or any other person, partnership, corporation, firm, association or entity in which one or more of this corporation's directors are directors or officers or are financially interested, shall be either void or voidable because of such relationship or interest, or because such director or directors are present at the meeting of the board of directors, or a committee thereof which authorizes, approves or ratifies such contract or transaction, and each such director of this corporation is hereby released from liability which might otherwise exist from such contract if: (a) such relationship or interest is disclosed or known to the board of directors or committee which authorizes, approves or ratifies the contract or transaction and a majority of non- interested directors, or all non-interested directors in the case of a committee, vote to approve or ratify the contract or transaction; (b) such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or (c) the contract or transaction is fair and reasonable to the corporation. ARTICLE SEVENTH Cumulative Voting: At each election of directors, every shareholder entitled to vote at such election shall have the right to accumulate their votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of their shares, or by distributing such votes on the same principle among any number of such candidates. ARTICLE EIGHTH Amendment: These Articles of Incorporation may be amended by the affirmative vote of a majority of the shares entitled to vote on each such amendment. ARTICLE NINTH Initial Registered Office and Agent: The street address of this corporation's initial registered agent office is 420 West 1500 south, Bountiful, Utah 84010. The name of the initial registered agent at such address is Brad C. Robinson. ARTICLE TENTH Directors: The maximum number of directors constituting the initial board of directors of this corporation is seven. The minimum number of directors constituting the board of directors of this corporation is five. ARTICLE ELEVENTH Incorporators: The name and address of each Incorporator is: David A. Robinson 420 West 1500 South Bountiful, Utah 84010 Brad C. Robinson 420 West 1500 South Bountiful, Utah 84010 ARTICLE TWELFTH Limitation of Directors' Liability: Pursuant to Section 16- 10a-841 of the Utah Code Annotated, as amended, the directors shall have no personal liability for monetary damages for any action or failure to take any action; provided, however, that notwithstanding the foregoing, directors may be personally liable for monetary damages for: (1) the amount of financial benefit received by a director to which the director is not entitled; (2) an intentional infliction of harm on the corporation or the shareholders; (3) voting for an unlawful distribution as defined by Section 16-10a-640 of the Utah Code, and laws amendatory thereto; or (4) an intentional violation of criminal law. ARTICLE THIRTEENTH Indemnification: The corporation may indemnify an individual against liability incurred in a proceeding where the individual was made a party to a proceeding because the person is or was a director or officer and if: (1) the individual's conduct was in good faith; (2) the individual reasonably believed that the conduct was in, or not opposed to, the corporation's best interests; and (3) in the case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful. The corporation will indemnify a director or officer who was successful, on the merits or otherwise, in defense of any proceeding, or in defense of any claim, issue, or matter in the proceeding, to which the individual was a party because the person is or was a director or officer of the corporation, against reasonable expenses incurred by the individual in connection with the proceeding or claim with respect to which the individual has been successful. The corporation may not indemnify a director or officer in connection with: (1) a proceeding by or in the right of the corporation in which the individual was adjudged liable to the corporation; or (2) any other proceeding charging that the individual derived an improper personal benefit, whether or not involving action in the individual's official capacity, in which proceeding the individual was adjudged liable on the basis that the individual derived an improper personal benefit. IN WITNESS WHEREOF, the undersigned, being the incorporators of the Corporation, execute these Articles of Incorporation and certify to the truth of the facts herein stated, this 17th day of November, 1993. /s/ David A. Robinson _ David Robinson, Incorporator /s/ Brad Robinson _ Brad Robinson, Incorporator The appointment of the undersigned as the initial registered agent of the Corporation is hereby accepted. /s/ Brad Robinson _ Brad Robinson, Registered Agent EX-3.(I)3 4 EXHIBIT 3(i).3 Articles of Amendment of SHP ARTICLES OF AMENDMENT OF SPECIALIZED HEALTH PRODUCTS, INC. The undersigned, being the duly elected President of Specialized Health Products, Inc., a Utah corporation (the "Corporation"), pursuant to Section 16-10a-1001 et seq. of the Utah Revised Business Corporation Act, executes the following Articles of Amendment (the "Articles of Amendment") to the Articles of Incorporation for the Corporation as filed with the Division of Corporations and Commercial Code of Utah on the 19th day of November, 1993 (the "Articles of Incorporation"). ARTICLE FIRST Amendment: Without altering or amending any other provision of the Articles of Incorporation, Article Forth of the Articles of Incorporation is hereby amended to read in its entirety as follows: Stock: The total number of authorized shares of the Corporation shall be 1,500,000, which shall be divided into three classes designated as follows: 1,000,000 of Common Stock having no par value; 250,000 shares of Preferred Stock having a par value of $3.50 per share; and 250,000 shares of Preference Stock having a par value of $1.50 per share. Any unissued shares of the Corporation may be used, allotted and sold from time to time in such amounts and for such consideration as may be lawfully determined by the board of directors. Voting Rights and Limitations: Except as otherwise required by statute, all voting rights of the Corporation shall be vested in and exercised exclusively by the holders of the Common and Preferred Stock, as a single voting group, with each share of Common Stock being entitled to one vote and each share of Preferred Stock being entitled to one vote. The holders of the Preference Stock shall not be entitled to vote upon the election of directors or upon any other matters affecting the management or affairs of the Corporation, except: (1) such matters as to which they shall at the time be indefeasibly vested by statute with such right to vote, (2) upon the failure of the Corporation to pay the required dividend (discussed infra), or (3) upon the failure of the Corporation to redeem the Preference Stock prior to the Redemption Date (defined infra). If the holders of the Preference Shares are entitled to vote each Preference Share shall be entitled to one vote, and the classes of stock shall vote as a single voting group. Preferences and Relative Rights of Shares: The holders of the Preference Stock shall be entitled to receive, out of any funds of the Corporation at the time legally available for the declaration of dividends, dividends at the rate of 9% per annum of the par value of such Preference Stock, payable in cash annually, or at such intervals as the board of directors may from time to time determine, when and as declared by the board of directors. Dividends on the Preference Stock shall accrue from the date of issuance of such shares and shall accrue from day to day, whether or not earned or declared. Such dividends shall be payable before any dividends shall be declared or paid upon or set apart from the other classes of outstanding stock and shall be cumulative, such that if in any year or years dividends upon the outstanding Preference Stock at the rate of 9% per annum of the par value thereof shall not have been paid thereon or declared or set apart therefor in full, the amount of the deficiency shall be fully paid or declared and set apart for payment (but without interest) before any distribution, whether by way of dividend or otherwise, shall be declared or paid upon, or set apart for, the other classes of stock. In the event of a voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of the Preference Stock and Preferred Stock shall be entitled to receive out of the net assets of the Corporation (whether such assets are capital or surplus of any nature) an amount equal to the par value of such Preference Stock and Preferred Stock (the "Par Value Payment"). If the assets thus distributed among the holders of the Preference Stock and Preferred Stock shall be insufficient to permit the payment of the full preferential amounts to all holders of the Preference Stock and Preferred Stock, then the entire assets of the Corporation available for distribution shall be distributed ratably among the Preference and Preferred Shareholders. If upon any such liquidation, dissolution, or winding up of the Corporation there are assets remaining after the Par Value Payment, the Preference Shareholders shall receive an additional amount equal to the dividends unpaid and accumulated thereon as provided in this Article to the date of such distribution, whether or not earned or declared (the "Dividend Payment"), before any additional amounts or assets are distributed to the shareholders. If upon any such liquidation, dissolution, or winding up of the Corporation there are assets remaining in the Corporation after the Par Value Payment and Dividend Payment, then the holders of any shares of any class of stock shall receive, ratably, all of the remaining assets of the Corporation. A consolidation or merger of the Corporation with or into another Corporation or Corporations shall not be deemed to be a liquidation, dissolution, or winding up of the Corporation for purposes of this Article. Redemption Rights: The Corporation, no later than December 31, 1995 (the "Redemption Date"), applicable law permitting, shall redeem the issued and outstanding shares of Preference Stock by paying in cash therefor, an amount equal to the par value of such shares to be redeemed plus an additional amount equal to the dividends unpaid and accumulated thereon as provided in this Article to the date fixed for redemption, whether or not earned or declared and no more. In case of the redemption of only a part of the issued and outstanding shares of Preference Stock prior to the Redemption Date, the Corporation shall designate by lot, in such manner as the board of directors may determine, the shares to be redeemed, or shall effect such redemption pro rata. Unless such partial redemption is pro rata, less than all of the Preference Stock at any time outstanding may not be redeemed until (1) all outstanding shares have been paid for all past dividend periods, and (2) full dividends for the then current dividend period on all Preference Stock (other than shares to be redeemed) shall have been paid or declared and the full amount thereof set apart for payment. Public Offering: If the Corporation makes a public offering of stock, or becomes a publicly quoted company, the Preferred Stock will convert into Common Stock, each share of outstanding Preferred Stock being converted into one share of Common Stock. ARTICLE SECOND Amendment: Without altering or amending any other provision of the Articles of Incorporation, Article Fifth of the Articles of Incorporation is hereby amended to read in its entirety as follows: Pre-emptive Rights: The shareholders shall have no pre- emptive rights to acquire additional shares of the Corporation. ARTICLE THIRD Amendment: Without altering or amending any other provision of the Articles of Incorporation, Article Tenth of the Articles of Incorporation is hereby amended to read in its entirety as follows: Directors: The maximum number of directors constituting the board of directors of the Corporation is eight. The minimum number of directors constituting the board of directors of the Corporation is three. ARTICLE FOURTH Date of the Adoption of the Amendment: The Articles of Amendment were adopted by a majority of the shareholders of the Corporation in conformity with the procedures of the Utah Revised Business Corporation Act by written consent of the shareholders dated April 8, 1994. ARTICLE FIFTH Vote: Three shares of capital stock of the Corporation were issued and outstanding as of the date of adoption of the Articles of Amendment. All shares of capital stock were entitled to vote as a single class on the Adoption of the Articles of Amendment. The Articles of Amendment were approved and adopted by the shareholders of the Corporation by written consent as follows: For Against 3 shares 0 shares In WITNESS WHEREOF, the undersigned executes these Articles of Amendment and certifies to the truth of the facts herein stated this 8th day of April, 1994. EX-3.(I)4 5 /s/ David A. Robinson _ David A. Robinson, President EXHIBIT 3(i).4 Plan and Articles of Merger of Russco Resources, Inc., into SHP (Incorporated by reference to Exhibit 3(i).1 to the Company's Current Report on Form 8-K dated July 28, 1995) EX-3.(II)1 6 EXHIBIT 3(ii).1 Bylaws of the Company BY-LAWS OF RUSSCO, INC. ARTICLE I - OFFICES Section 1. The registered office of the corporation in the State of Delaware shall be at 1013 Centre Road, Wilmington, Delaware 19805-1297. The registered agent in charge thereof shall be CSC Networks. Section 2. The corporation may also have offices at such other places as the Board of Directors may from time to time appoint or the business of the corporation may require. ARTICLE II - SEAL Section 1. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". ARTICLE III - STOCKHOLDERS' MEETINGS Section 1. Meetings of stockholders shall be held at the registered office of the corporation in this state or at such place, either within or without this state, as may be selected from time to time by the Board of Directors. Section 2. ANNUAL MEETINGS: The annual meeting of the stockholders shall be held on such date as is determined by the Board of Directors for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting. Section 3. ELECTION OF DIRECTORS: Elections of the directors of the corporation shall be by written ballot. Section 4. SPECIAL MEETINGS: Special meetings of the stockholders may be called at any time by the President, or the Board of Directors, or stockholders entitled to cast at least one- fifth of the votes which all stockholders are entitled to cast at the particular meeting. At any time, upon written request of any person or persons who have duly called a special meeting, it shall be the duty of the Secretary to fix the date of the meeting, to be held not more than sixty days after receipt of the request, and to give due notice thereof. If the Secretary shall neglect or refuse to fix the date of the meeting and give notice thereof, the person or persons calling the meeting may do so. Business transacted at all special meetings shall be confined to the objects stated in the call and matters germane thereto, unless all stockholders entitled to vote are present and consent. Written notice of a special meeting of stockholders stating the time and place and object thereof, shall be given to each stockholder entitled to vote thereat at least ten days before such meeting, unless a greater period of notice is required by statute in a particular case. Section 5. QUORUM: A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding shares entitled to vote is represented at a meeting, a vote of one-third of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 6. PROXIES: Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. All proxies shall be filed with the Secretary of the meeting before being voted upon. Section 7. NOTICE OF MEETINGS: Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 8. CONSENT IN LIEU OF MEETINGS: Any action required to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 9. LIST OF STOCKHOLDERS: The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten 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. No share of stock upon which any installment is due and unpaid shall be voted at any meeting. The 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 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also 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. ARTICLE IV - DIRECTORS Section 1. The business and affairs of this corporation shall be managed by its Board of Directors, no less than one in number or such other minimum number as is required by law. The directors need not be residents of this state or stockholders in the corporation. They shall be elected by the stockholders of the corporation or in the case of a vacancy by remaining directors, and each director shall be elected for the term of one year, and until his successor shall be elected and shall qualify or until his earlier resignation or removal. Section 2. REGULAR MEETINGS: Regular meetings of the Board shall be held without notice other than this by-law immediately after, and at the same place as, the annual meeting of stockholders. The directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. Section 3. SPECIAL MEETINGS: Special Meetings of the Board may be called by the President or any director upon two day notice. The person or persons authorized to call special meetings of the directors may fix the place for holding any special meeting of the directors called by them. Section 4. QUORUM: A majority of the total number of directors shall constitute a quorum for the transaction of business. Section 5. CONSENT IN LIEU OF MEETING: 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 or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. The Board of Directors may hold its meetings, and have an office or offices, outside of this state. Section 6. CONFERENCE TELEPHONE: One or more directors may participate in a meeting of the Board, of a committee of the Board or of the stockholders, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other; participation in this manner shall constitute presence in person at such meeting. Section 7. COMPENSATION: Directors as such, shall not receive any stated salary for their services, but by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board PROVIDED, that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 8. REMOVAL: Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that when cumulative voting is permitted, if less than the entire Board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors, or, if there be classes of directors, at an election of the class of directors of which he is a part. ARTICLE V - OFFICERS Section 1. The executive officers of the corporation shall be chosen by the directors and shall be a President, Secretary and Treasurer. The Board of Directors may also choose a Chairman, one or more Vice Presidents and such other officers as it shall deem necessary. Any number of offices may be held by the same person. Section 2. SALARIES: Salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 3. TERM OF OFFICE: The officers of the corporation shall hold office for one year and until their successors are chosen and have qualified. Any officer or agent elected or appointed by the Board may be removed by the Board of Directors whenever in its judgment the best interest of the corporation will be served thereby. Section 4. PRESIDENT: The President shall be the chief executive officer of the corporation; he shall preside at all meetings of the stockholders and directors; he shall have general and active management of the business of the corporation, shall see that all orders and resolutions of the Board are carried into effect, subject, however, to the right of the directors to delegate any specific powers, except such as may be by statute exclusively conferred on the President, to any other officer or officers of the corporation. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation. He shall be EX-OFFICIO a member of all committees, and shall have the general power and duties of supervision and management usually vested in the office of President of a corporation. Section 5. SECRETARY: The Secretary shall attend all sessions of the Board and all meetings of the stockholders and act as clerk thereof, and record all the votes of the corporation and the minutes of all its transactions in a book to be kept for that purpose, and shall perform like duties for all committees of the Board of Directors when required. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, and under whose supervision he shall be. He shall keep in safe custody the corporate seal of the corporation, and when authorized by the Board, affix the same to any instrument requiring it. Section 6. TREASURER: The Treasurer shall have 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 keep the moneys of the corporation in a separate account to the credit of the corporation. He shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the corporation. ARTICLE VI - VACANCIES Section 1. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise, shall be filled by the Board of Directors. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of these By-Laws. Section 2. RESIGNATIONS EFFECTIVE AT FUTURE DATE: When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. ARTICLE VII - CORPORATE RECORDS Section 1. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in this state or at its principal place of business. ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC. Section 1. The stock certificates of the corporation shall be numbered and registered in the share ledger and transfer books of the corporation as they are issued. They shall bear the corporate seal and shall be signed by the Section 2. TRANSFERS: Transfers of shares shall be made on the books of the corporation upon surrender of the certificates therefor, endorsed by the person named in the certificate or by attorney, lawfully constituted in writing. No transfer shall be made which is inconsistent with law. Section 3. LOST CERTIFICATE: The corporation may issue a new certificate of stock in the place of any certificate theretofore signed by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 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, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or 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, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (a) 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 next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (d) 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. Section 5. DIVIDENDS: The Board of Directors may declare and pay dividends upon the outstanding shares of the corporation, from time to time and to such extent as they deem advisable, in the manner and upon the terms and conditions provided by statute and the Certificate of Incorporation. Section 6. RESERVES: Before payment of any dividend there may be set aside out of the net profits of the corporation such sum or sums as the directors, f rom time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or f or such other purpose as the directors shall think conducive to the interests of the corporation, and the directors may abolish any such reserve in the manner in which it was created. ARTICLE IX - MISCELLANEOUS PROVISIONS Section 1. CHECKS: All checks or demands for money and notes of the corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. Section 2. FISCAL YEAR: The fiscal year shall begin on the first day of January. Section 3. NOTICE: Whenever written notice is required to be given to any person, it may be given to such person, either personally or by sending a copy thereof through the mail, or by telegram, charges prepaid, to his address appearing on the books of the corporation, or supplied by him to the corporation for the purpose of notice. If the notice is sent by mail or by telegraph, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office for transmission to such person. Such notice shall specify the place, day and hour of the meeting and, in the case of a special meeting of stockholders, the general nature of the business to be transacted. Section 4. WAIVER OF NOTICE: Whenever any written notice is required by statute, or by the Certificate or the By-Laws of this corporation a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Except in the case of a special meeting of stockholders, neither the business to be transacted at nor the purpose of the meeting need be specified in the waiver of notice of such meeting. Attendance of a person either in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. Section 5. DISALLOWED COMPENSATION: Any payments made to an officer or employee of the corporation such as a salary, commission, bonus, interest, rent, travel or entertainment expense incurred by him, which shall be disallowed in whole or in part as a deductible expense by the Internal Revenue Service, shall be reimbursed by such officer or employee to the corporation to the full extent of such disallowance. It shall be the duty of the directors, as a Board, to enforce payment of each such amount disallowed. In lieu of payment by the officer or employee, subject to the determination of the directors, proportionate amounts may be withheld from his future compensation payments until the amount owed to the corporation has been recovered. Section 6. RESIGNATIONS: Any director or other officer may resign at any time, such resignation to be in writing and to take effect from the time of its receipt by the corporation, unless some time be fixed in the resignation and then from that date. The acceptance of a resignation shall not be required to make it effective. ARTICLE X - ANNUAL STATEMENT Section 1. The President and the Board of Directors shall present at each annual meeting a full and complete statement of the business and affairs of the corporation for the preceding year. Such statement shall be prepared and presented in whatever manner the Board of Directors shall deem advisable and need not be verified by a Certified Public Accountant. ARTICLE XI - INDEMNIFICATION AND INSURANCE: Section 1. (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding") , by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) , against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition: provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (b) RIGHT OF CLAIMANT TO BRING SUIT: If a claim under paragraph (a) of this Section is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard or conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard or conduct. (c) Notwithstanding any limitation to the contrary contained in sub-paragraphs (a) and 8 (b) of this section, the corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (d) INSURANCE: The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Del General Corporation Law. ARTICLE XII - AMENDMENTS Section 1. These By-Laws may be amended or repealed by the vote of directors. /s/ Scott R. Jensen _ Scott R. Jensen, President and Secretary December 19, 1990 EX-3.(II)2 7 EXHIBIT 3(ii).2 Bylaws of SHP BYLAWS OF SPECIALIZED HEALTH PRODUCTS, INC. TABLE OF CONTENTS Page I. OFFICES Section 1.01. Principal Office 1 Section 1.02. Other Offices 1 II. MEETINGS OF SHAREHOLDERS Section 2.01. Place of Meetings 1 Section 2.02. Annual Meetings 1 Section 2.03. Special Meetings 2 Section 2.04. Adjourned Meetings and Notice Thereof 2 Section 2.05. Voting 3 Section 2.06. Quorum 3 Section 2.07. Consent of Absentees 3 Section 2.08. Action Without Meeting 4 Section 2.09. Proxies 4 Section 2.10. Meetings by Telecommunication 4 III. DIRECTORS Section 3.01. Powers 4 Section 3.02. Number and Qualification of Directors 5 Section 3.03. Election and Term of Office 5 Section 3.04. Vacancies 6 Section 3.05. Place of Meeting 6 Section 3.06. Organization Meeting 6 Section 3.07. Other Regular Meetings 6 Section 3.08. Special Meetings 6 Section 3.09. Notice of Adjournment 7 Section 3.10. Waiver of Notice 7 Section 3.11. Quorum 7 Section 3.12. Adjournment 8 Section 3.13. Fees and Compensation 8 Section 3.14. Action Without Meeting 8 Section 3.15. Meeting by Telecommunication 8 Section 3.16. Loans to Directors 8 IV. OFFICERS Section 4.01. Officers 9 Section 4.02. Election 9 Section 4.03. Subordinate Officers, Etc. 9 Section 4.04. Removal and Resignation 9 Section 4.05. Vacancies 9 Section 4.06. Chairperson of the Board 10 Section 4.07. President 10 Section 4.08. Vice-President 10 Section 4.09. Secretary 10 V. MISCELLANEOUS Section 5.01. Record Date and Closing Stock Books 11 Section 5.02. Inspection of Corporate Records 11 Section 5.03. Checks, Drafts, Etc. 12 Section 5.04. Contract, Etc., How Executed 12 Section 5.05. Certificate of Stock 12 Section 5.06. Representation of Shares of Other Corporations 12 Section 5.07. Loans and Encumbrances 13 VI. AMENDMENTS Section 6.01. Power of Shareholders 13 Section 6.02. Power of Directors 13 BYLAWS OF SPECIALIZED HEALTH PRODUCTS, INC. ARTICLE I OFFICES Section 1.01. Principal Office. The principal office for the transaction of the business of the corporation shall be located in Bountiful, County of Davis, Utah. The board of directors is hereby granted full power and authority to change, from time to time, said principal office from one location to another in said county. Section 1.02. Other Offices. Branch or subordinate offices may at any time be established by the board of directors at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS Section 2.01. Place of Meetings. All meetings of shareholders shall be held either at the principal office of the corporation or at any other place within or without the State of Utah which may be designated either by the board of directors pursuant to authority hereinafter granted to said Board, or by the written consent of all shareholders entitled to vote thereat, given either before or after the meeting and filed with the secretary of the corporation. Section 2.02. Annual Meetings. The annual meetings of shareholders shall be held on the third Wednesday of April of each year at 12:00 o'clock p.m., except as otherwise may be annually determined by the board of directors, provided, however, that should said day fall upon a legal holiday, then any such annual meeting shall be held on the next succeeding business day. At such meetings directors shall be elected, reports of the affairs of the corporation shall be considered, and any other business may be transacted which is within the powers of the shareholders. Written notice of each annual meeting shall be given to each shareholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such shareholder at shareholder's address appearing on the books of the corporation or given by shareholder to the corporation for the purpose of notice. Notice is excused and need not be given to any shareholder to whom: (1) a notice of two consecutive annual meetings, and all notices of meetings or the taking of actions by written consent without a meeting during the period between the two consecutive annual meetings, have been mailed to the shareholder's address as shown on the records of the corporation, and have been returned undeliverable; or (2) at least two payments, if sent by first class mail, of dividends or interest on securities during a twelve month period, have been mailed, addressed to the shareholder at the address of the shareholder on the corporate records, and have been returned as undeliverable. If a shareholder to whom notice is excused delivers to the corporation a written notice setting forth the shareholder's current address, or if another address for the shareholder is otherwise made known to the corporation, the requirement that notice be given to the shareholder is reinstated. All such notices shall be sent to each shareholder entitled thereto not less than ten (10) nor more than sixty (60) days before each annual meeting, and shall specify the place, the day and the hour of such meeting, and shall state such other matters, if any, as may be expressly required by statute. Section 2.03. Special Meetings. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the president, the vice-president, the board of directors, or if the holders of shares representing at least ten percent of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting make a written demand for the meeting to the corporation's secretary. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for annual meetings of shareholders. Notices of any special meeting shall specify, in addition to the place, day and hour of such meeting, a description of the purpose or purposes of the meeting. Section 2.04. Adjourned Meetings and Notice Thereof. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented at the meeting, the holders of which are either present in person or represented by proxy thereat, but in the absence of a quorum no other business may be transacted at such meeting. If an annual or special shareholders meeting is adjourned to a different date, time, or place, notice need not be given if the new date, time, or place is announced at the meeting before adjournment. However, notice must be given in the manner provided in Section 2.02 of these Bylaws if the adjournment is for more than 30 days or a new record date for the adjourned meeting is or must be fixed. Section 2.05. Voting. Unless a record date for voting purposes be fixed as provided in Section 5.01 of these Bylaws then, but subject to the provisions of Section 16-10a-707 of the Utah Code, only persons in whose names shares entitled to vote standing on the stock records of the corporation on the day thirty (30) days prior to any meeting of shareholders shall be entitled to vote at such meeting. Such vote may be viva voce or by ballot; provided, however, that all elections for directors must be by ballot upon demand made by a shareholder at any election and before the voting begins. Each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders, unless otherwise specifically required by law or the Articles of Incorporation or the Bylaws of this corporation, and if a quorum exists at the meeting, action on any matter, other than election of directors, is approved if the votes cast in favor of the matter exceed votes cast against the matter. Every shareholder entitled to vote at any election for directors shall have the right to cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such shareholder's shares are entitled, or to distribute such shareholder's votes on the same principle among as many candidates as shareholder shall think fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected. [Note: There will be no cumulative voting unless the Articles so provide.] Section 2.06. Quorum. The presence in person or by proxy of persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 2.07. Consent of Absentees. The transactions of any meeting of shareholders, either annual or special, however called and noticed, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the shareholders entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 2.08. Action Without Meeting. Any action which under any provision of the Utah Revised Business Corporation Act may be taken at a meeting of the shareholders, may be taken without a meeting if authorized by a writing filed with the secretary of the corporation signed by the number of shareholders that would be necessary to authorize or to take action at such a meeting. However, directors cannot be elected in an action without a meeting unless shareholder consent for such a meeting is unanimous. Section 2.09. Proxies. A shareholder may vote in person or by proxy. A proxy may be appointed by: (1) signing an appointment form either personally or by the shareholder's attorney-in-fact; or (2) transmitting a written statement of appointment to the proxy, the proxy's agent, or to the corporation, provided the transmission contains written evidence that shows the shareholder authorized the transmission of the appointment. Section 2.10. Meetings by Telecommunication. Any annual or special meeting of the shareholders may be conducted through the use of any means of communication that allows persons participat ing in the meeting to hear one another. ARTICLE III DIRECTORS Section 3.01. Powers. Subject to limitation of the Articles of Incorporation, of the Bylaws, and of the Utah Revised Business Corporation Act as to action which shall be authorized or approved by the shareholders, and subject to the duties of directors as prescribed by the Bylaws, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of the board of directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the following powers, to wit: (a) To select and remove all the other officers, agents and employees of the corporation, prescribe such powers and duties for them as may not be inconsistent with law, or with the Articles of Incorporation or the Bylaws, fix their compensation, and require from them security for faithful service. (b) To conduct, manage and control the affairs and business of the corporation, and to make such rules and regulations therefor not inconsistent with law, or with the Articles of Incorporation or the Bylaws, as they may deem best. (c) To change from time to time the principal office for the transaction of the business of the corporation from one location to another within the same county as provided in Section 1.01 hereof; to fix and locate from time to time one or more subsidiary offices of the corporation within or without the State of Utah as provided in Section 1.02 hereof; to designate any place within or without the State of Utah for the holding of any shareholders' meeting or meetings and to adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certifi cates from time to time, as in their judgment they may deem best, provided such seal and such certificates shall at all times comply with the provisions of law. (d) To authorize the issuance of shares of stock of the corporation from time to time, upon such terms as may be lawful, in consideration of money paid, labor done or services actually rendered, debts or securities cancelled, or tangible or intangible property actually received, or in the case of shares issued as a dividend, against amounts transferred from surplus to stated capital. (e) To borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor, in the corporation name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidence of debt and securities therefor. (f) To appoint an executive committee and other committees, and to delegate to the executive committee any of the powers and authority of the board in the management of the business and affairs of the corporation, except the power to declare dividends and to adopt, amend or repeal bylaws. The executive committee shall be composed of two or more directors. Section 3.02. Number and Qualification of Directors. The authorized maximum number of directors of the corporation shall be seven and the minimum number of directors of the corporation shall be five until changed by amendment of the Articles of Incorporation duly adopted by the shareholders or by a Bylaw amending this Section 3.02. [Note: The number of directors can be a range of numbers. Before shares are issued there need be only one director. After shares are issued the number of directors must be at least equal to the lesser of three directors or the number of shareholders.] Section 3.03. Election and Term of Office. The directors shall be elected at each annual meeting of shareholders, but if any such annual meeting is not held, or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. All directors shall hold office until their respective successors are elected. Section 3.04. Vacancies. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum, by a sole remaining director, or by the shareholders, and each director so elected shall hold office until the director's successor is elected at an annual or a special meeting of the shareholders. A vacancy or vacancies in the board of directors shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors be increased, or if the shareholders fail at any annual or special meeting of shareholders at which any director or directors are elected to elect the full authorized number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. If the board of directors accepts the resignation of a director tendered to take effect at a future time, the board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director's term of office. Section 3.05. Place of Meeting. Meetings of the board of directors shall be held at any place within or without the State of Utah which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such designation, meetings shall be held at the principal office of the corporation. Section 3.06. Organization Meeting. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, election of officers, and the transaction of other business. Notice of such meeting is hereby dispensed with. Section 3.07. Other Regular Meetings. Other regular meetings of the board of directors are hereby dispensed with and all business conducted by the board of directors shall be conducted at special meetings. Section 3.08. Special Meetings. Special meetings of the board of directors for any purpose or purposes shall be called at any time by the president or, if he is absent or unable or refuses to act, by any vice-president or by any two directors. Notice of the time and place of special meetings may be accomplished by any of the following methods: (a) written notice delivered personally to each director; (b) written notice sent to each director by mail or by other form of written communication, charges prepaid, addressed to director at director's address as it is shown upon the records of the corporation, or if it is not so shown on such records or is not readily ascertainable at the place in which the meetings of directors are regularly held; or (c) verbal notice by telephone or in-person communication. In case notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company in the place in which the principal office of the corporation is located at least forty-eight (48) hours prior to the time of the holding of the meeting. In the case of written or verbal notice delivered personally or by telephone as above provided, it shall be so delivered or communicated at least twenty-four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing, communicating or delivering as above provided shall be due, legal and personal notice to such director. Section 3.09. Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. Section 3.10. Waiver of Notice. A director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting, or promptly upon the director's arrival, objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice, and does not thereafter vote for or assent to action taken at the meeting. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present, and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 3.11. Quorum. A majority of the authorized number of directors shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter pro vided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, unless a greater number be required by law or by the Articles of Incorporation. Section 3.12. Adjournment. A quorum of the directors may adjourn any directors' meeting to meet again at a stated day and hour; provided, however, that in the absence of a quorum, a majority of the directors present at any directors' meeting, either regular or special, may adjourn from time to time until the time fixed for the next regular or special meeting of the board. Section 3.13. Fees and Compensation. Directors shall not receive any stated salary for their services as directors, but, by resolution of the board, a fixed fee, with or without expenses of attendance, may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any direc tor from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensa tion therefor. Section 3.14. Action Without Meeting. Any action required or permitted to be taken by the board of directors under any provision of the Utah Revised Business Corporation Act and under these Bylaws may be taken without a meeting if all of the directors of the corporation shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the Minutes of the proceedings of the board of directors. Such action by written consent shall have the same force and effect as the unanimous vote of such directors. Section 3.15. Meeting by Telecommunication. Members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the Board or committee by any means of communication by which all persons participating in the meeting can hear each other during the meeting, and participation in a meeting under this Section shall constitute presence in person at the meeting. Section 3.16. Loans to Directors. The corporation shall not make loans to a director or directors unless the transaction is: (1) approved by the majority of non-interested directors after the required disclosure has been made; (2) approved by the majority of shareholders where a quorum is present and after the required disclosure has been made; or (3) the terms of the loan, at the time of commitment, are fair and reasonable to the corporation. ARTICLE IV OFFICERS Section 4.01. Officers. The officers of the corporation shall be a president, vice-president and a secretary. The corporation may also have, at the discretion of the board of directors, a chairperson of the board, one or more vice-presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 4.03. Any person may hold any or all offices. Section 4.02. Election. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 4.03 or Section 4.05, shall be chosen annually by the board of directors, and each shall hold office until the officer shall die, resign or be removed or otherwise disqualified to serve, or officer's successor shall be elected and qualified. Section 4.03. Subordinate Officers, Etc. The board of directors may appoint such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the board of directors may from time to time determine. Section 4.04. Removal and Resignation. Any officer may be removed, either with or without cause, by a majority of the direc tors at the time in office, at any regular or special meeting of the board, or, except in case of an officer chosen by the board of directors, by an officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the board of directors or to the president, or to the secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4.05. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for regular appointments to such office. Section 4.06. Chairperson of the Board. The chairperson of the board, if there shall be such an officer, shall, if present, preside at all meetings of the board of directors, and exercise and perform such other powers and duties as may be from time to time assigned to the chairperson by the board of directors or prescribed by the Bylaws. Section 4.07. President. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and officers of the corporation. The president shall preside at all meetings of the shareholders and in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. The president shall be ex officio a member of all the standing committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of the president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the Bylaws. Specifically, the president shall have full corporate power and authority to negotiate and enter into an agreement to purchase intellectual property from Sharp-Trap, Inc., a Michigan corporation, and/or Rick Sawaya, M.D. Section 4.08. Vice-President. In the absence or disability of the president, the vice-presidents in order of their rank as fixed by the board of directors, or if not ranked, the vice- president designated by the board of directors, shall perform all 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 have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the Bylaws. Specifically, the vice-president shall have full corporate power and authority to negotiate and enter into an agreement to purchase intellectual property from Sharp-Trap, Inc., a Michigan corporation, and/or Rick Sawaya, M.D. Section 4.09. Secretary. The secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the board of directors may order, of all meetings of directors and shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or repre sented at shareholders' meetings and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all of the meetings of the shareholders and of the board of directors required by the Bylaws or by law to be given (provided, however, that in the event of the absence or disability of the secretary, such notice may be given by any other officer of the corporation), and the secretary shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or the Bylaws. ARTICLE V MISCELLANEOUS Section 5.01. Record Date and Closing Stock Books. The board of directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to receive any dividend or distribution, or any allotment of rights, or to exercise rights in respect to any change, conversion or exchange of shares. The record date so fixed shall be no more than fifty (50) days prior to the date of the meeting or event for the pur poses of which it is fixed. When a record date is so fixed, only shareholders of record of that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. The board of directors may close the books of the corporation against transfers of shares during the whole or any part of a period not more than fifty (50) days prior to the date of a shareholders' meeting, the date when the right to any dividend, distribution, or allotment of rights vest, or the effective date of any change, conversion or exchange of shares. [Note: The record date is set by the board and can be more than 50 days.] Section 5.02. Inspection of Corporate Records. The share register or duplicate share register, the books of account, the bylaws, and minutes of proceedings of the shareholders and the board of directors and of executive committees of directors shall be open to inspection upon at least five days written notice by any shareholder or the holder of a voting trust certificate, at any reasonable time, and for a purpose reasonably related to the shareholder's interests as a shareholder, or as the holder of such voting trust certificate, and shall be exhibited at any time when required by the demand at any shareholders' meeting of ten percent (10%) of the shares represented at the meeting. Such inspection may be made in person or by agent or attorney, and shall include the right to make extracts. Demand of inspection other than at a shareholders' meeting shall be made in writing upon the president, secretary, assistant secretary or general manager of the corporation. Section 5.03. Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corpora tion, shall be signed or endorsed by the treasurer and/or by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. Section 5.04. Contract, Etc., How Executed. The board of directors, except as otherwise provided in the Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and unless so authorized by the board of directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit to render it liable for any purpose or to any amount. Section 5.05. Certificate of Stock. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any such shares are fully paid up. All such certificates shall be signed by the president or a vice-president and the secretary or an assistant secretary, or be authenticated by facsimiles of the signatures of the president and secretary, or by a facsimile of the signature of the president and the written signatures of the secretary or an assistant secretary. Every certificate authenticated by a facsimile of a signature must be countersigned by a transfer agent or transfer clerk, and be registered by an incorporated bank or trust company, either domestic or foreign, as registrar of transfers, before issuance. Certificates for shares may be issued prior to full payments under such restrictions and for such purposes as the board of directors or the Bylaws may provide; provided, however, that any such certificate so issued prior to full payment shall state the amount remaining unpaid and the terms of payment thereof. Section 5.06. Representation of Shares of Other Corporations. The president or any vice-president and the secretary or assistant secretary of this corporation are authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted to said officers to vote or represent on behalf of this corporation any and all shares held by this corpo ration in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to do by proxy or power of attorney duly executed by said officers. Section 5.07. Loans and Encumbrances. No loan or advance shall be contracted on behalf of the corporation, and no property of the corporation shall be mortgaged, pledged, hypothecated, transferred or conveyed as security for the payment of any loan, advance, indebtedness or liability, unless and except as author ized by the board of directors. Any such authorization may be general or confined to specific instances. ARTICLE VI AMENDMENTS Section 6.01. Power of Shareholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote of shareholders entitled to exercise a majority of the voting power of the corporation or by the written assent of such shareholders, except as otherwise provided by law or by the Articles of Incorporation. Section 6.02. Power of Directors. Subject to the right of shareholders as provided in Section 6.01 to adopt, amend or repeal Bylaws, Bylaws other than a Bylaw or amendment thereof changing the authorized number of directors may be adopted, amended or repealed by the board of directors. CERTIFICATE OF SECRETARY I, the undersigned, do hereby certify: 1. That I am the duly elected and acting Secretary of Specialized Health Products, Inc., a Utah corporation; and 2. That the foregoing Bylaws, comprising thirteen (13) pages, constitute the original Bylaws of said corporation as duly adopted at the Organizational Meeting of the incorporators, duly held on November 19, 1993. /s/ _ Secretary EX-4.1 8 EXHIBIT 4.1 Form of Series A Warrant SERIES "A" WARRANTS THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Incorporated Under the Laws of the State of Delaware No. A - Series A Common Stock Purchase Warrants CERTIFICATE FOR SERIES "A" COMMON STOCK PURCHASE WARRANTS 1. Warrant. This Warrant Certificate certifies that , or registered assigns (the "Registered Holder"), is the registered owner of the above indicated number of Warrants expiring on the Expiration Date, as hereinafter defined. One (1) Warrant entitles the Registered Holder to purchase one (1) share of the common stock, $.02 par value (a "Share"), of Specialized Health Products International, Inc., a Delaware corporation (the "Company"), from the Company at a purchase price of Three Dollars and no/100 ($3.00) (the "Exercise Price") at any time during the Exercise Period, as hereinafter defined, upon surrender of this Warrant Certificate with the exercise form hereon duly completed and executed and accompanied by payment of the Exercise Price at the principal office of the Company. Upon due presentment for transfer or exchange of this Warrant Certificate at the principal office of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued in exchange for this Warrant Certificate, subject to the limitations provided herein, upon payment of any tax or governmental charge imposed in connection with such transfer. Subject to the terms hereof, the Company shall deliver Warrant Certificates in required whole number denominations to Registered Holders in connection with any transfer or exchange permitted hereunder. 2. Restrictive Legend. Each Warrant Certificate and each certificate representing Shares issued upon exercise of a Warrant, unless such Shares are then registered under the Securities Act of 1933, as amended (the "Act"), shall bear a legend in substantially the following form: "THE [SECURITIES] REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE." 3. Exercise. Subject to the terms hereof, the Warrants, evidenced by this Warrant Certificate, may be exercised at the Exercise Price in whole or in part at any time during the period (the "Exercise Period") commencing on the date hereof and terminating at the close of business on that day (the "Expiration Date") which is the second anniversary of the date on which a registration statement filed pursuant to the Act and covering the Shares to be issued upon exercise of this Warrant is declared effective, provided that the Exercise Period shall be extended and the Expiration Date delayed by one business day for each business day subsequent to such effectiveness on which a prospectus meeting the prospectus delivery requirements of the Act and covering the issuance of such Shares to and, if appropriate, the resale of such Shares by the Registered Holder hereof or the successors in interest to such Registered Holder is not available. The Exercise Period may also be extended by the Company's Board of Directors. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date (the "Exercise Date") of the surrender to the Company at its principal offices of this Warrant Certificate with the exercise form attached hereto executed by the Registered Holder and accompanied by payment to the Company, in cash, wire transfer, or by official bank or certified check, of an amount equal to the aggregate Exercise Price, in lawful money of the United States of America. The person entitled to receive the Shares issuable upon exercise of a Warrant or Warrants ("Warrant Shares") shall be treated for all purposes as the holder of such Warrant Shares as of the close of business on the Exercise Date. The Company shall not be obligated to issue any fractional share interests in Warrant Shares issuable or deliverable on the exercise of any Warrant or scrip or cash with respect thereto, and such right to a fractional share shall be of no value whatsoever. If more than one Warrant shall be exercised at one time by the same Registered Holder, the number of full Shares which shall be issuable on exercise thereof shall be computed on the basis of the aggregate number of full shares issuable on such exercise. Promptly, and in any event within ten business days after the Exercise Date, the Company shall cause to be issued and delivered to the person or persons entitled to receive the same, a certificate or certificates for the number of Warrant Shares deliverable on such exercise. The Company may deem and treat the Registered Holder of the Warrants at any time as the absolute owner thereof for all purposes, and the Company shall not be affected by any notice to the contrary. The Warrants shall not entitle the Registered Holder thereof to any of the rights of shareholders or to any dividend declared on the Shares unless the Registered Holder shall have exercised the Warrants and thereby purchased the Warrant Shares prior to the record date for the determination of holders of Shares entitled to such dividend or other right. 4. Reservation of Shares and Payment of Taxes. The Company covenants that it will at all times reserve and have available from its authorized Common Stock such number of shares as shall then be issuable on the exercise of outstanding Warrants. The Company covenants that all Warrant Shares which shall be so issuable shall be duly and validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Registered Holder shall pay all documentary, stamp or similar taxes and other government charges that may be imposed with respect to the issuance, transfer or delivery of any Warrant Shares on exercise of the Warrants. In the event the Warrant Shares are to be delivered in a name other than the name of the Registered Holder of the Warrant Certificate, no such delivery shall be made unless the person requesting the same has paid the amount of any such taxes or charges incident thereto. 5. Registration of Transfer. The Warrant Certificates may be transferred in whole or in part, provided any such transfer complies with all applicable federal and state securities laws and, if requested by the Company, the Registered Holder delivers to the Company an opinion of counsel to that effect, in form and substance reasonably acceptable to the Company. Warrant Certificates to be transferred shall be surrendered to the Company at its principal office. The Company shall execute, issue and deliver in exchange therefor the Warrant Certificate or Certificates which the Registered Holder making the transfer shall be entitled to receive. The Company shall keep transfer books at its principal office or at the office of its warrant agent which shall register Warrant Certificates and the transfer thereof. On due presentment of any Warrant Certificate for registration of transfer at such office, the Company shall execute, issue and deliver to the transferee or transferees a new Warrant Certificate or Certificates representing an equal aggregate number of Warrants. All Warrant Certificates presented for registration of transfer or exercise shall be duly endorsed or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company. The Company may require payment of a sum sufficient to cover any tax or other government charge that may be imposed in connection therewith. All Warrant Certificates so surrendered, or surrendered for exercise, or for exchange in case of mutilated Warrant Certificates, shall be promptly canceled by the Company and thereafter retained by the Company until the Expiration Date. Prior to due presentment for registration of transfer thereof, the Company may treat the Registered Holder of any Warrant Certificate as the absolute owner thereof (notwithstanding any notations of ownership or writing thereon made by anyone other than the Company), and the Company shall not be affected by any notice to the contrary. 6. Loss or Mutilation. On receipt by the Company of evidence satisfactory as to the ownership of and the loss, theft, destruction or mutilation of this Warrant Certificate, the Company shall execute and deliver, in lieu thereof, a new Warrant Certificate representing an equal aggregate number of Warrants. In the case of loss, theft or destruction of any Warrant Certificate, the individual requesting issuance of a new Warrant Certificate shall be required to indemnify the Company in an amount satisfactory to the Company. In the event a Warrant Certificate is mutilated, such Certificate shall be surrendered and canceled by the Company prior to delivery of a new Warrant Certificate. Applicants for a new Warrant Certificate shall also comply with such other regulations and pay such other reasonable charges as the Company may prescribe. 7. Call Option. So long as the closing bid price or last trade in the principal market in which, or on the principal exchange on which, the Shares trade exceeds Six Dollars ($6.00) for the ten (10) consecutive trading days preceding but not including the date of such call, the Company shall have the right and option, upon no less than twenty (20) trading days' written notice to the Registered Holder, to call, and thereafter to redeem and acquire all of the Warrants remaining outstanding and unexercised at the date fixed for such redemption in such notice (the "Redemption Date"), which Redemption Date shall be at least 20 trading days after the date of such notice, for an amount equal to One-Tenth of One Cent ($.001) per Warrant; provided, however, that the Registered Holder shall have the right during the period between the date of such notice and the Redemption Date to exercise the Warrants in accordance with the provisions of Section 3 hereof and provided further that a prospectus meeting the prospectus delivery requirements of the Act and covering the issuance of such Shares to and, if appropriate, the resale of such Shares by the Registered Holder hereof or the successors in interest to such Registered Holder is available during the entire period between such notice and the Redemption Date. Said notice of redemption shall require the Registered Holder to surrender to the Company, on the Redemption Date, at the principal executive offices of the Company, his certificate or certificates representing the Warrants to be redeemed. Notwithstanding the fact that any Warrants called for redemption have not been surrendered for redemption and cancellation on the Redemption Date, after the Redemption Date such Warrants shall be deemed to be expired and all rights of the Registered Holder of such unsurrendered Warrants shall cease and terminate, other than the right to receive the redemption price of $.001 per Warrant for such Warrants, without interest. In connection with any call hereunder, the Company shall have no obligation to call any other stock purchase warrant or warrants, whether or not having similar terms, and no call made pursuant to any other stock purchase warrant shall obligate the Company to exercise its right and option to make a call hereunder. 8. Adjustment of Shares. The number and kind of securities issuable upon exercise of a Warrant shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) Stock Splits, Stock Combinations and Certain Stock Dividends. If the Company shall at any time subdivide or combine its outstanding Shares, or declare a dividend in Shares or other securities of the Company convertible into or exchangeable for Shares, a Warrant shall, after such subdivision or combination or after the record date for such dividend, be exercisable for that number of Shares and other securities of the Company that the Registered Holder would have owned immediately after such event with respect to the Shares and other securities for which a Warrant may have been exercised immediately before such event had the Warrant been exercised immediately before such event. Any adjustment under this Section 8 (a) shall become effective at the close of business on the date the subdivision, combination or dividend becomes effective. (b) Adjustment for Reorganization, Consolidation, Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable upon exercise of a Warrant) or in case the Company (or any such other corporation) shall merge into or with or consolidate with another corporation or convey all or substantially all of its assets to another corporation or enter into a business combination of any form as a result of which the Shares or other securities receivable upon exercise of a Warrant are converted into other stock or securities of the same or another corporation, then and in each such case, the Registered Holder of a Warrant, upon exercise of the purchase right at any time after the consummation of such reorganization, consolidation, merger, conveyance or combination, shall be entitled to receive, in lieu of the Shares or other securities to which such Registered Holder would have been entitled had he exercised the purchase right immediately prior thereto, such stock and securities which such Registered Holder would have owned immediately after such event with respect to the Shares and other securities for which a Warrant may have been exercised immediately before such event had the Warrant been exercised immediately prior to such event. In each case of an adjustment in the Shares or other securities receivable upon the exercise of a Warrant, the Company shall promptly notify the Registered Holder of such adjustment. Such notice shall set forth the facts upon which such adjustment is based. 9. Reduction in Exercise Price at Company's Option. The Company's Board of Directors may, at its sole discretion, reduce the Exercise Price of the Warrants in effect at any time either for the life of the Warrants or any shorter period of time determined by the Company's Board of Directors. The Company shall promptly notify the Registered Holders of any such reduction in the Exercise Price. 10. Registration Rights. (a) Certain Definitions. As used in this Section 10, the following definitions shall apply: "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Act. "Holder" means any holder of a Warrant or outstanding Registerable Securities. "Registerable Securities" means the Warrant Shares issued or issuable upon the exercise of a Warrant, provided, however, that Registerable Securities shall not include any Shares and other securities which have previously been registered and sold to the public. "Registration Expenses" means all expenses incurred by the Company in complying with Section 10(b) including, without limitation, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required in connection with any such registration. Registration Expenses shall not include selling commissions, discounts or other compensation paid to underwriters or other agents or brokers to effect the sale. The terms "register", "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Act (and any post-effective amendments filed in connection therewith), and the declaration of the effectiveness of such registration statement. (b) Registration. The Company shall: (i) Following the original issuance of the Warrants represented by this Warrant Certificate at such time as the Company first prepares and files with the Commission a registration statement on an appropriate form that would permit inclusion of the Registrable Securities in such registration statement or a pre-effective amendment to such a registration statement, include the Registrable Securities among the securities being registered pursuant to such registration statement. The Company shall diligently prosecute such registration statement to effectiveness. Such registration statement shall cover both the issuance of Warrant Shares upon exercise of this Warrant and, to the extent appropriate, the resale of such Warrant Shares by the Holder. The Company will promptly notify the Holder regarding (i) the filing of such registration statement and all amendments thereto, (ii) the effectiveness of such registration statement and any post-effective amendments thereto, (iii) the occurrence of any event or condition that causes the prospectus that is part of such registration statement no longer to comply with the requirements of the Act, and (iv) any request by the Commission for any amendment or supplement to such registration statement or any prospectus relating thereto; (ii) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and current and to comply with the provisions of the Act with respect to the issuance, sale or resale of the Registerable Securities, including such amendments and supplements as may be necessary to reflect the intended method of disposition of the Holder, but for no longer than one hundred eighty (180) days subsequent to the Expiration Date or the Redemption Date; (iii) Furnish to each Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as such Holder may reasonably request in order to facilitate the public sale or other disposition of the Registerable Securities by such Holder; (iv) Use its best efforts to register or qualify the Registrable Securities under such securities or blue sky laws of any state as a Holder may reasonably request, and do any and all other acts which may be reasonably necessary or advisable to enable such Holder to dispose of Registrable Securities in such jurisdictions; (v) Use its best efforts to comply with all applicable rules and regulations of the Commission, including without limitation the rules and regulations relating to the periodic reporting requirements under the Securities Exchange Act of 1934, as amended; and (vi) Make available for inspection by the Holder or by any underwriter, attorney, accountant or other agent acting for such Holder in connection with the disposition of Registrable Securities, in each case upon receipt of an appropriate confidentiality agreement, all corporate records, documents and properties as may be reasonably requested. (c) Expenses of Registration. All Registration Expenses incurred in connection with the registration, qualification or compliance pursuant to Section 10(b) hereof shall be borne by the Company. (d) Indemnification. In the event any of the Registerable Securities are included in a registration statement under this Section 10: (i) The Company will indemnify each Holder, each of its officers and directors and partners and each person controlling such Holder within the meaning of Section 15 of the Act, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse the Holder, each of its officers and directors and partners and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by such Holder or underwriter for use therein. (ii) In order to include Registerable Securities in a registration statement under this Section 10, a Holder will be required to indemnify the Company, each of its directors and officers, its legal counsel and independent accountants, each underwriter, if any, of the Company's securities covered by such registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Act, and each other selling shareholder, each of its officers and directors and partners and each person controlling such selling shareholder within the meaning of Section 15 of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse the Company, such holders, such directors, officers, counsel, accountants, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by the Holder for use therein. (iii) Each party entitled to indemnification under this Section (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (which approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such Indemnified Party's expense. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (iv) If the indemnification provided for in this Section is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying the Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party with respect to such loss, liability, claim, damage or expense in the proportion that is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) Information by Holder. Each Holder of Registerable Securities included in any registration shall furnish to the Company such information regarding such Holder, such securities and the distribution proposed by such Holder as the Company may request in writing. 11. Notices. All notices, demands, elections, or requests (however characterized or described) required or authorized hereunder shall be deemed given sufficiently if in writing and sent by registered or certified mail, return receipt requested and postage prepaid, or by facsimile or telegram to the Company, at its principal executive office, and of the Registered Holder, at the address of such holder as set forth on the books maintained by the Company. 12. General Provisions. This Warrant Certificate shall be construed and enforced in accordance with, and governed by, the laws of the State of Delaware. Except as otherwise expressly stated herein, time is of the essence in performing hereunder. The headings of this Warrant Certificate are for convenience in reference only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed as of the day of , 199 . SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC By /s/ J. Clark Robinson By /s/ David A. Robinson _ _ Secretary President SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the entireties Custodian _ JR TEN - as joint tenants with right (Cust) (Minor) of survivorship and not as under Uniform Gifts tenants in common to Minors Act _____ (State) Additional abbreviations may also be used though not in the above list. FORM OF ASSIGNMENT (To be Executed by the Registered Holder if He or She Desires to Assign Warrants Evidenced by the Within Warrant Certificate) FOR VALUE RECEIVED ___________________________ hereby sells, assigns and transfers unto _____________________________ _____________________ (_______) Warrants, evidenced by the within Warrant Certificate, and does hereby irrevocably constitute and appoint _____________________ __________________ Attorney to transfer the said Warrants evidenced by the within Warrant Certificates on the books of the Company, with full power of substitution. Dated:____________________ _____________________________ Signature Notice: The above signature must correspond with the name as written upon the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. Signature Guaranteed: __________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. FORM OF ELECTION TO PURCHASE (To be Executed by the Holder if he Desires to Exercise Warrants Evidenced by the Warrant Certificate) To Specialized Health Products International, Inc. The undersigned hereby irrevocably elects to exercise _______ ____________________ (______)Warrants, evidenced by the within Warrant Certificate for, and to purchase thereunder, _____________ _______________ (______) full shares of Common Stock issuable upon exercise of said Warrants and delivery of $_________ and any applicable taxes. The undersigned requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER ________________________________ ________________________________ (Please print name and address _________________________________________________________________ _________________________________________________________________ If said number of Warrants shall not be all the Warrants evidenced by the within Warrant Certificate, the undersigned requests that a new Warrant Certificate evidencing the Warrants not so exercised by issued in the name of and delivered to: _________________________________________________________________ (Please print name and address) _________________________________________________________________ _________________________________________________________________ (SIGNATURES CONTINUED ON FOLLOWING PAGE) Dated:_____________________ Signature:__________________________ NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the within Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. Signature Guaranteed: ___________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. EX-4.2 9 EXHIBIT 4.2 Form of Series B Warrant SERIES "B" WARRANTS THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE. SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. Incorporated Under the Laws of the State of Delaware No. B - Series B Common Stock Purchase Warrants CERTIFICATE FOR SERIES "B" COMMON STOCK PURCHASE WARRANTS 1. Warrant. This Warrant Certificate certifies that , or registered assigns (the "Registered Holder"), is the registered owner of the above indicated number of Warrants expiring on the Expiration Date, as hereinafter defined. One (1) Warrant entitles the Registered Holder to purchase one (1) share of the common stock, $.02 par value (a "Share"), of Specialized Health Products International, Inc., a Delaware corporation (the "Company"), from the Company at a purchase price of Two Dollars and no/100 ($2.00) (the "Exercise Price") at any time during the Exercise Period, as hereinafter defined, upon surrender of this Warrant Certificate with the exercise form hereon duly completed and executed and accompanied by payment of the Exercise Price at the principal office of the Company. Upon due presentment for transfer or exchange of this Warrant Certificate at the principal office of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued in exchange for this Warrant Certificate, subject to the limitations provided herein, upon payment of any tax or governmental charge imposed in connection with such transfer. Subject to the terms hereof, the Company shall deliver Warrant Certificates in required whole number denominations to Registered Holders in connection with any transfer or exchange permitted hereunder. 2. Restrictive Legend. Each Warrant Certificate and each certificate representing Shares issued upon exercise of a Warrant, unless such Shares are then registered under the Securities Act of 1933, as amended (the "Act"), shall bear a legend in substantially the following form: "THE [SECURITIES] REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE." 3. Exercise. Subject to the terms hereof, the Warrants, evidenced by this Warrant Certificate, may be exercised at the Exercise Price in whole or in part at any time during the period (the "Exercise Period") commencing on the date hereof and terminating at the close of business on that day (the "Expiration Date") which is the second anniversary of the date on which a registration statement filed pursuant to the Act and covering the Shares to be issued upon exercise of this Warrant is declared effective, provided that the Exercise Period shall be extended and the Expiration Date delayed by one business day for each business day subsequent to such effectiveness on which a prospectus meeting the prospectus delivery requirements of the Act and covering the issuance of such Shares to and, if appropriate, the resale of such Shares by the Registered Holder hereof or the successors in interest to such Registered Holder is not available. The Exercise Period may also be extended by the Company's Board of Directors. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date (the "Exercise Date") of the surrender to the Company at its principal offices of this Warrant Certificate with the exercise form attached hereto executed by the Registered Holder and accompanied by payment to the Company, in cash, wire transfer, or by official bank or certified check, of an amount equal to the aggregate Exercise Price, in lawful money of the United States of America. The person entitled to receive the Shares issuable upon exercise of a Warrant or Warrants ("Warrant Shares") shall be treated for all purposes as the holder of such Warrant Shares as of the close of business on the Exercise Date. The Company shall not be obligated to issue any fractional share interests in Warrant Shares issuable or deliverable on the exercise of any Warrant or scrip or cash with respect thereto, and such right to a fractional share shall be of no value whatsoever. If more than one Warrant shall be exercised at one time by the same Registered Holder, the number of full Shares which shall be issuable on exercise thereof shall be computed on the basis of the aggregate number of full shares issuable on such exercise. Promptly, and in any event within ten business days after the Exercise Date, the Company shall cause to be issued and delivered to the person or persons entitled to receive the same, a certificate or certificates for the number of Warrant Shares deliverable on such exercise. The Company may deem and treat the Registered Holder of the Warrants at any time as the absolute owner thereof for all purposes, and the Company shall not be affected by any notice to the contrary. The Warrants shall not entitle the Registered Holder thereof to any of the rights of shareholders or to any dividend declared on the Shares unless the Registered Holder shall have exercised the Warrants and thereby purchased the Warrant Shares prior to the record date for the determination of holders of Shares entitled to such dividend or other right. 4. Reservation of Shares and Payment of Taxes. The Company covenants that it will at all times reserve and have available from its authorized Common Stock such number of shares as shall then be issuable on the exercise of outstanding Warrants. The Company covenants that all Warrant Shares which shall be so issuable shall be duly and validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Registered Holder shall pay all documentary, stamp or similar taxes and other government charges that may be imposed with respect to the issuance, transfer or delivery of any Warrant Shares on exercise of the Warrants. In the event the Warrant Shares are to be delivered in a name other than the name of the Registered Holder of the Warrant Certificate, no such delivery shall be made unless the person requesting the same has paid the amount of any such taxes or charges incident thereto. 5. Registration of Transfer. The Warrant Certificates may be transferred in whole or in part, provided any such transfer complies with all applicable federal and state securities laws and, if requested by the Company, the Registered Holder delivers to the Company an opinion of counsel to that effect, in form and substance reasonably acceptable to the Company. Warrant Certificates to be transferred shall be surrendered to the Company at its principal office. The Company shall execute, issue and deliver in exchange therefor the Warrant Certificate or Certificates which the Registered Holder making the transfer shall be entitled to receive. The Company shall keep transfer books at its principal office or at the office of its warrant agent which shall register Warrant Certificates and the transfer thereof. On due presentment of any Warrant Certificate for registration of transfer at such office, the Company shall execute, issue and deliver to the transferee or transferees a new Warrant Certificate or Certificates representing an equal aggregate number of Warrants. All Warrant Certificates presented for registration of transfer or exercise shall be duly endorsed or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company. The Company may require payment of a sum sufficient to cover any tax or other government charge that may be imposed in connection therewith. All Warrant Certificates so surrendered, or surrendered for exercise, or for exchange in case of mutilated Warrant Certificates, shall be promptly canceled by the Company and thereafter retained by the Company until the Expiration Date. Prior to due presentment for registration of transfer thereof, the Company may treat the Registered Holder of any Warrant Certificate as the absolute owner thereof (notwithstanding any notations of ownership or writing thereon made by anyone other than the Company), and the Company shall not be affected by any notice to the contrary. 6. Loss or Mutilation. On receipt by the Company of evidence satisfactory as to the ownership of and the loss, theft, destruction or mutilation of this Warrant Certificate, the Company shall execute and deliver, in lieu thereof, a new Warrant Certificate representing an equal aggregate number of Warrants. In the case of loss, theft or destruction of any Warrant Certificate, the individual requesting issuance of a new Warrant Certificate shall be required to indemnify the Company in an amount satisfactory to the Company. In the event a Warrant Certificate is mutilated, such Certificate shall be surrendered and canceled by the Company prior to delivery of a new Warrant Certificate. Applicants for a new Warrant Certificate shall also comply with such other regulations and pay such other reasonable charges as the Company may prescribe. 7. Call Option. So long as the closing bid price or last trade in the principal market in which, or on the principal exchange on which, the Shares trade exceeds Six Dollars ($6.00) for the ten (10) consecutive trading days preceding but not including the date of such call, the Company shall have the right and option, upon no less than twenty (20) trading days' written notice to the Registered Holder, to call, and thereafter to redeem and acquire all of the Warrants remaining outstanding and unexercised at the date fixed for such redemption in such notice (the "Redemption Date"), which Redemption Date shall be at least 20 trading days after the date of such notice, for an amount equal to One-Tenth of One Cent ($.001) per Warrant; provided, however, that the Registered Holder shall have the right during the period between the date of such notice and the Redemption Date to exercise the Warrants in accordance with the provisions of Section 3 hereof and provided further that a prospectus meeting the prospectus delivery requirements of the Act and covering the issuance of such Shares to and, if appropriate, the resale of such Shares by the Registered Holder hereof or the successors in interest to such Registered Holder is available during the entire period between such notice and the Redemption Date. Said notice of redemption shall require the Registered Holder to surrender to the Company, on the Redemption Date, at the principal executive offices of the Company, his certificate or certificates representing the Warrants to be redeemed. Notwithstanding the fact that any Warrants called for redemption have not been surrendered for redemption and cancellation on the Redemption Date, after the Redemption Date such Warrants shall be deemed to be expired and all rights of the Registered Holder of such unsurrendered Warrants shall cease and terminate, other than the right to receive the redemption price of $.001 per Warrant for such Warrants, without interest. In connection with any call hereunder, the Company shall have no obligation to call any other stock purchase warrant or warrants, whether or not having similar terms, and no call made pursuant to any other stock purchase warrant shall obligate the Company to exercise its right and option to make a call hereunder. 8. Adjustment of Shares. The number and kind of securities issuable upon exercise of a Warrant shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) Stock Splits, Stock Combinations and Certain Stock Dividends. If the Company shall at any time subdivide or combine its outstanding Shares, or declare a dividend in Shares or other securities of the Company convertible into or exchangeable for Shares, a Warrant shall, after such subdivision or combination or after the record date for such dividend, be exercisable for that number of Shares and other securities of the Company that the Registered Holder would have owned immediately after such event with respect to the Shares and other securities for which a Warrant may have been exercised immediately before such event had the Warrant been exercised immediately before such event. Any adjustment under this Section 8 (a) shall become effective at the close of business on the date the subdivision, combination or dividend becomes effective. (b) Adjustment for Reorganization, Consolidation, Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable upon exercise of a Warrant) or in case the Company (or any such other corporation) shall merge into or with or consolidate with another corporation or convey all or substantially all of its assets to another corporation or enter into a business combination of any form as a result of which the Shares or other securities receivable upon exercise of a Warrant are converted into other stock or securities of the same or another corporation, then and in each such case, the Registered Holder of a Warrant, upon exercise of the purchase right at any time after the consummation of such reorganization, consolidation, merger, conveyance or combination, shall be entitled to receive, in lieu of the Shares or other securities to which such Registered Holder would have been entitled had he exercised the purchase right immediately prior thereto, such stock and securities which such Registered Holder would have owned immediately after such event with respect to the Shares and other securities for which a Warrant may have been exercised immediately before such event had the Warrant been exercised immediately prior to such event. In each case of an adjustment in the Shares or other securities receivable upon the exercise of a Warrant, the Company shall promptly notify the Registered Holder of such adjustment. Such notice shall set forth the facts upon which such adjustment is based. 9. Reduction in Exercise Price at Company's Option. The Company's Board of Directors may, at its sole discretion, reduce the Exercise Price of the Warrants in effect at any time either for the life of the Warrants or any shorter period of time determined by the Company's Board of Directors. The Company shall promptly notify the Registered Holders of any such reduction in the Exercise Price. 10. Registration Rights. (a) Certain Definitions. As used in this Section 10, the following definitions shall apply: "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Act. "Holder" means any holder of a Warrant or outstanding Registerable Securities. "Registerable Securities" means the Warrant Shares issued or issuable upon the exercise of a Warrant, provided, however, that Registerable Securities shall not include any Shares and other securities which have previously been registered and sold to the public. "Registration Expenses" means all expenses incurred by the Company in complying with Section 10(b) including, without limitation, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required in connection with any such registration. Registration Expenses shall not include selling commissions, discounts or other compensation paid to underwriters or other agents or brokers to effect the sale. The terms "register", "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Act (and any post-effective amendments filed in connection therewith), and the declaration of the effectiveness of such registration statement. (b) Registration. The Company shall: (i) Following the original issuance of the Warrants represented by this Warrant Certificate at such time as the Company first prepares and files with the Commission a registration statement on an appropriate form that would permit inclusion of the Registrable Securities in such registration statement or a pre-effective amendment to such a registration statement, include the Registrable Securities among the securities being registered pursuant to such registration statement. The Company shall diligently prosecute such registration statement to effectiveness. Such registration statement shall cover both the issuance of Warrant Shares upon exercise of this Warrant and, to the extent appropriate, the resale of such Warrant Shares by the Holder. The Company will promptly notify the Holder regarding (i) the filing of such registration statement and all amendments thereto, (ii) the effectiveness of such registration statement and any post-effective amendments thereto, (iii) the occurrence of any event or condition that causes the prospectus that is part of such registration statement no longer to comply with the requirements of the Act, and (iv) any request by the Commission for any amendment or supplement to such registration statement or any prospectus relating thereto; (ii) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and current and to comply with the provisions of the Act with respect to the issuance, sale or resale of the Registerable Securities, including such amendments and supplements as may be necessary to reflect the intended method of disposition of the Holder, but for no longer than one hundred eighty (180) days subsequent to the Expiration Date or the Redemption Date; (iii) Furnish to each Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as such Holder may reasonably request in order to facilitate the public sale or other disposition of the Registerable Securities by such Holder; (iv) Use its best efforts to register or qualify the Registrable Securities under such securities or blue sky laws of any state as a Holder may reasonably request, and do any and all other acts which may be reasonably necessary or advisable to enable such Holder to dispose of Registrable Securities in such jurisdictions; (v) Use its best efforts to comply with all applicable rules and regulations of the Commission, including without limitation the rules and regulations relating to the periodic reporting requirements under the Securities Exchange Act of 1934, as amended; and (vi) Make available for inspection by the Holder or by any underwriter, attorney, accountant or other agent acting for such Holder in connection with the disposition of Registrable Securities, in each case upon receipt of an appropriate confidentiality agreement, all corporate records, documents and properties as may be reasonably requested. (c) Expenses of Registration. All Registration Expenses incurred in connection with the registration, qualification or compliance pursuant to Section 10(b) hereof shall be borne by the Company. (d) Indemnification. In the event any of the Registerable Securities are included in a registration statement under this Section 10: (i) The Company will indemnify each Holder, each of its officers and directors and partners and each person controlling such Holder within the meaning of Section 15 of the Act, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse the Holder, each of its officers and directors and partners and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by such Holder or underwriter for use therein. (ii) In order to include Registerable Securities in a registration statement under this Section 10, a Holder will be required to indemnify the Company, each of its directors and officers, its legal counsel and independent accountants, each underwriter, if any, of the Company's securities covered by such registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Act, and each other selling shareholder, each of its officers and directors and partners and each person controlling such selling shareholder within the meaning of Section 15 of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse the Company, such holders, such directors, officers, counsel, accountants, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by the Holder for use therein. (iii) Each party entitled to indemnification under this Section (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (which approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such Indemnified Party's expense. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (iv) If the indemnification provided for in this Section is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying the Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party with respect to such loss, liability, claim, damage or expense in the proportion that is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) Information by Holder. Each Holder of Registerable Securities included in any registration shall furnish to the Company such information regarding such Holder, such securities and the distribution proposed by such Holder as the Company may request in writing. 11. Notices. All notices, demands, elections, or requests (however characterized or described) required or authorized hereunder shall be deemed given sufficiently if in writing and sent by registered or certified mail, return receipt requested and postage prepaid, or by facsimile or telegram to the Company, at its principal executive office, and of the Registered Holder, at the address of such holder as set forth on the books maintained by the Company. 12. General Provisions. This Warrant Certificate shall be construed and enforced in accordance with, and governed by, the laws of the State of Delaware. Except as otherwise expressly stated herein, time is of the essence in performing hereunder. The headings of this Warrant Certificate are for convenience in reference only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed as of the day of , 199 . SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. ____________________ ____________________ By: J. Clark Robinson, David A. Robinson, President Secretary SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the entireties Custodian JR TEN - as joint tenants with right (Cust) (Minor) of survivorship and not as under Uniform Gifts tenants in common to Minors Act _____ (State) Additional abbreviations may also be used though not in the above list. FORM OF ASSIGNMENT (To be Executed by the Registered Holder if He or She Desires to Assign Warrants Evidenced by the Within Warrant Certificate) FOR VALUE RECEIVED ___________________________ hereby sells, assigns and transfers unto _____________________________ _____________________ (_______) Warrants, evidenced by the within Warrant Certificate, and does hereby irrevocably constitute and appoint _____________________ __________________ Attorney to transfer the said Warrants evidenced by the within Warrant Certificates on the books of the Company, with full power of substitution. Dated:____________________ _____________________________ Signature Notice: The above signature must correspond with the name as written upon the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. Signature Guaranteed: __________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. FORM OF ELECTION TO PURCHASE (To be Executed by the Holder if he Desires to Exercise Warrants Evidenced by the Warrant Certificate) To Specialized Health Products International, Inc. The undersigned hereby irrevocably elects to exercise _______ ____________________ (______)Warrants, evidenced by the within Warrant Certificate for, and to purchase thereunder, _____________ _______________ (______) full shares of Common Stock issuable upon exercise of said Warrants and delivery of $_________ and any applicable taxes. The undersigned requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER ________________________________ ________________________________ (Please print name and address _________________________________________________________________ __ _________________________________________________________________ __ If said number of Warrants shall not be all the Warrants evidenced by the within Warrant Certificate, the undersigned requests that a new Warrant Certificate evidencing the Warrants not so exercised by issued in the name of and delivered to: _________________________________________________________________ _ (Please print name and address) _________________________________________________________________ _ _________________________________________________________________ _ (SIGNATURES CONTINUED ON FOLLOWING PAGE) Dated: _____________________ Signature:__________________________ NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the within Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. Signature Guaranteed: ___________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. EX-10.1 10 EXHIBIT 10.1 Agreement and Plan of Reorganization dated as of June 23, 1995, among the Company, Russco Resources, Inc., Scott R. Jensen and Specialized Health Products, Inc. (Incorporated by reference to Exhibit 2.1 of the Company's current Report of Form 8-K, dated July 28, 1995) EX-10.2 11 EXHIBIT 10.2 Placement Agreement between the Company, SHP and U.S. Sachem Financial Consultants, L.P. 1 SPECIALIZED HEALTH PRODUCTS, INC. RUSSCO, INC. 650 UNITS Each Consisting Of 5,000 Shares of Common Stock and 3,000 Common Stock Purchase Warrants PLACEMENT AGREEMENT June 23, 1995 2 SPECIALIZED HEALTH PRODUCTS, INC. RUSSCO, INC. PLACEMENT AGREEMENT 650 Units Each Consisting of 5,000 Shares of Common Stock and 3,000 Common Stock Purchase Warrants This Placement Agreement is made and entered into effective as of the 23rd day of June, 1995 by and among Specialized Health Products, Inc., a Utah corporation (the "Company"), Russco, Inc., a Delaware corporation ("Russco"), and U.S. Sachem Financial Consultants, L.P., a Connecticut limited partnership ("Sachem"), as follows: 1. Authorization and Issuance of Securities. The Company has authorized the issuance and sale of up to 4,075,000 shares of the Company's Common Stock ("Company Common Stock"), Series A Warrants to purchase up to 2,900,000 shares of Company Common Stock at an exercise price of $3.00 per share (the "Company A Warrants"), and Series B Warrants to purchase up to 1,200,000 shares of Company Common Stock at an exercise price of $2.00 per share (the "Company B Warrants" and, collectively with Company Common Stock and Company A Warrants, the "Company Securities"), as contemplated by this Agreement. The Company A Warrants shall be substantially as described in the Offering Memorandum (as hereinafter defined), and the Company B Warrants shall be substantially identical to the Company A Warrants except for the exercise price. The Company has also authorized the issuance and sale of up to 4,100,000 shares of Company Common Stock upon exercise of the Company A Warrants and Company B Warrants. Russco has authorized the issuance and sale of up to 2,750,000 shares of Russco's Common Stock ("Russco Common Stock"), Series A Warrants to purchase up to 1,925,000 shares of Russco Common Stock at an exercise price of $3.00 per share (the "Russco A Warrants") and Series B Warrants to purchase up to 825,000 shares of Russco Common Stock at an exercise price of $2.00 per share (the "Russco B Warrants" and, collectively with Russco Common Stock and Russco A Warrants, the "Russco Securities"). The Russco A Warrants and Russco B Warrants shall be substantially identical to the Company A Warrants and Company B Warrants, respectively. (The Company Common Stock and Russco Common Stock are sometimes hereinafter referred to collectively as the "Common Stock"; the Company A Warrants and Russco A Warrants are sometimes hereinafter referred to collectively as the "A Warrants"; the Company B Warrants and the Russco B Warrants are sometimes hereinafter referred to collectively as the "B Warrants"; the A Warrants and the B Warrants are sometimes hereinafter referred to as the "Warrants"; and the Common Stock and the Warrants are sometimes hereinafter referred to collectively as the "Securities".) The Company and Russco propose to issue and sell to purchasers designated by Sachem (collectively, the "Purchasers") an aggregate of up to 3,250,000 shares of Common Stock and 1,950,000 A Warrants in Units (the "Units") consisting of 5,000 shares of Company Common Stock and 3,000 A Warrants each. The Securities will be offered and sold to the Purchasers, each of whom shall be an "accredited investor", as that term in defined in Regulation D promulgated under the Securities Act of 1933, as amended (the "Act"). In addition, the Company and Russco are prepared to issue and sell to Purchasers up to an aggregate additional 150 Units in the event of an oversubscription for the Units to be offered (the "Overallotment Units"), which Overallotment Units shall be issued and sold upon the written request of Sachem and the concurrence of the Company and Russco, which concurrence shall not be unreasonably withheld. The Company has prepared a Private Placement Memorandum, dated June 23, 1995 (the "Offering Memorandum"), relating to the Company, Russco and the Securities. Contemporaneously with the initial issuance and sale of Securities hereunder, the Company proposes to merge with a wholly-owned subsidiary of, or otherwise enter into a business combination with Russco (the "Merger") pursuant to that certain Agreement and Plan of Reorganization (the "Plan") of even date herewith by and among the Company, Russco and a subsidiary of Russco. Immediately prior to the Merger, Russco shall have outstanding no more than 300,000 shares of its Common Stock, and those shares shall be the only equity securities of Russco then issued and outstanding or which Russco is obligated under any conditions to issue other than pursuant to the Plan or this Agreement. In connection with the Merger, each of the outstanding equity securities of the Company will be converted into the same number of substantially similar equity securities of Russco, and Russco will change its name to Specialized Health Products International, Inc. or some other name approved by the Company. Prior to the Merger, all Securities to be issued and sold hereunder will be issued and sold by the Company, and after the Merger, all Securities to be issued and sold hereunder shall be issued and sold by Russco. 2. Agreements to Sell and Purchase; Delivery and Payment; Placement Agency and Fees. On the basis of the representations and warranties contained in this Placement Agreement (this "Agreement"), and subject to its terms and conditions, the Company and Russco agree to issue and sell Securities to Purchasers at a price (the "Purchase Price") of Ten Thousand Dollars per Unit. The initial delivery of and payment for Securities shall be made at such place as shall be reasonably proposed by Sachem, at 10:00 a.m. on the third business day following the date on which Sachem notifies the Company that Purchasers are ready to purchase at least 250 Units pursuant hereto but not later than October 21 1995, unless that date is extended by the Company for a period not to exceed sixty days (the "First Closing Date"). The time and date of the First Closing Date may be varied by mutual agreement between Sachem and the Company. The Company shall have no obligation to issue and sell any of the Securities unless it shall have Purchasers for at least two hundred fifty (250) Units. Included among the Units considered to constitute said minimum of 250 Units and to have been sold hereunder on the First Closing Date shall be up to forty-five (45) Units (the "Early Units") issued and sold by the Company prior to the First Closing Date, including any Units sold prior to the date of this Agreement. If fewer than 650 Units are issued and sold by the Company to Purchasers on the First Closing Date, Russco shall, in the place of the Company, continue the offering of the Securities until 650 Units are issued and sold hereunder but not later than October 21, 1995, unless that date is extended by Russco for a period not to exceed sixty (60) days. Following the First Closing Date, Russco shall be substituted for the Company hereunder, and all acts to be performed by the Company shall be performed by Russco with the same force and effect as if performed by the Company. In the event Russco so continues the offering, delivery of and payment for the Securities to be issued and sold hereunder subsequent to the First Closing Date shall be made at the place of the closing held on the First Closing Date on the third business day following the date or dates on which Sachem notifies Russco that Purchasers are ready to purchase additional Units being offered hereunder (the "Additional Closing Date" or "Additional Closing Dates" and, collectively with the First Closing Date, the "Closing Dates"). Any Additional Closing Date may be varied by mutual agreement between Sachem and Russco. At least two business days before each of the First Closing Date and each Additional Closing Date, Sachem shall provide to the Company or Russco, as the issuer may be, the names and addresses of the Purchasers and the amount of the Securities to be purchased by each Purchaser at such closing, respectively. The Company or Russco shall deliver the Securities purchased by each Purchaser to or for the account of such Purchaser on the First Closing Date and each Additional Closing Date, respectively, with transfer taxes thereon, if any, duly paid by the Company or Russco, against payment of the Purchase Price therefor. Sachem shall act as the exclusive placement agent for the Company and Russco in connection with the issuance and sale of the Securities. In connection therewith, Sachem shall use its best efforts to identify and introduce to the Company and Russco accredited investors who are ready, willing and able to purchase the Securities. On the First Closing Date and each Additional Closing Date, the Company or Russco, as the case may be, shall (i) pay to Sachem in cash an amount equal to eight percent (8%) of the aggregate Purchase Price received on such date by the Company or Russco from the Purchasers of the Securities (including on the First Closing Date the amount received from the purchasers of the Early Units) and (ii) shall issue and deliver to Sachem or to Sachem's designee or designees, as specified by Sachem in writing at least two business days before each such Closing Date, (a) five hundred (500) A Warrants and (b) one thousand five hundred (1,500) B Warrants. On the First Closing Date, the Company shall also issue and deliver to Sachem 75,000 shares of Company Common Stock and 100,000 Company A Warrants. 3. Agreements of the Company. The Company agrees with Sachem, and Russco agrees to assume and perform the obligations of the Company subsequent to the Merger, as follows: (a) To provide Sachem with as many copies of the Offering Memorandum as it may reasonably request; to make no amendment or supplement to the Offering Memorandum except as permitted herein; to provide Sachem with as many copies of any such amendment or supplement as it may reasonably request; to advise Sachem promptly if it receives notice of the issuance by any regulatory authority having jurisdiction over the Company, Russco, the Purchasers or the transactions contemplated hereby of any stop order or order preventing or suspending the use of the Offering Memorandum, of the suspension of any qualification of the Securities for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by any regulatory authority for the amending or supplementing of the Offering Memorandum or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of the Offering Memorandum or suspending any such qualification, or exemption from qualification, to use promptly its best efforts to obtain the withdrawal of such stop order or order. (b) To advise Sachem promptly, in writing, of the happening of any event or the existence of any state of facts of which it becomes aware, prior to completion of the issuance and sale of the Securities contemplated, that makes any statement of a material fact made in the Offering Memorandum untrue or that requires the making of any additions to or changes in the Offering Memorandum in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) If any event shall occur prior to completion of the issuance and sale of the Securities contemplated hereby or any state of facts shall exist as a result of which, in the opinion of Sachem, the Company or Russco, it becomes necessary to amend or supplement the Offering Memorandum in order to make the statements therein, in the light of the circumstances when the Offering Memorandum is delivered, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with any law, to forthwith prepare an appropriate amendment or supplement to the Offering Memorandum so that the statements in the Offering Memorandum as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Offering Memorandum will comply with applicable law. (d) Not to make any amendment or supplement to the Offering Memorandum, of which Sachem shall not previously have been advised or to which Sachem shall, after being so advised, reasonably object in writing. (e) During the three years after the date of this Agreement, to furnish without charge to Sachem, as soon as generally available, a copy of each report of the Company or Russco, notice or other communication that the Company or Russco shall mail or otherwise make available to holders of Company Common Stock or shall file with the Securities and Exchange Commission (the "Commission"). (f) Whether or not the transactions contemplated by this Agreement are consummated, to pay all costs, expenses and fees incident to or in connection with: (i) the preparation, reproduction, and distribution of the Offering Memorandum (including, without limitation, financial statements and exhibits) and all amendments and supplements thereto; (ii) the preparation, reproduction, issuance and delivery of this Agreement, the Common Stock, the Warrants, any "blue sky" memoranda and all other agreements, memoranda, correspondence and other documents prepared and delivered in connection herewith; and (iii) the reasonable legal fees and expenses of Sachem's counsel in connection with this Agreement, the issuance and delivery of the Securities and all other matters contemplated hereby or associated therewith, which payment obligation shall not exceed $30,000 for fees (billed at hourly rates not to exceed $300 per hour) and $5,000 for expenses. The Company and Russco shall also be responsible, in such manner as they may determine between themselves, for all costs, expenses and fees incident to or in connection with (a) the performance by the Company and Russco of their respective other obligations under this Agreement, and (b) the services of counsel and accountants for the Company and Russco, and (c) travel costs and expenses of the Company and Russco. On the First Closing Date and each Additional Closing Date, the Company or Russco, as the case may be, shall pay to Sachem in cash an amount equal to two percent (2%) of the aggregate Purchase Price received on such date by the Company or Russco from the Purchasers for the Securities (including on the First Closing Date amounts received with respect to the Early Units) as a nonaccountable expense allowance for Sachem. The Company has previously paid $15,000 to Sachem as a non-refundable advance against such expense allowance, and it shall be credited against the nonaccountable expense allowance payable to Sachem on the First Closing Date. (g) To apply the net proceeds from the sale of the Securities substantially in accordance with the description set forth in the Offering Memorandum under the caption "Use of Proceeds." (h) To use commercially reasonable efforts to do and perform all things required or necessary to be done and performed by the Company and Russco, respectively, under this Agreement and under the Plan to permit consummation of the transactions contemplated by this Agreement and the Plan. (i) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) that would be integrated with the sale of the Securities in a manner that would require the registration of the Securities under the Act in connection with the sale to the Purchasers. 4. Representations and Warranties of the Company and Russco. The Company, with respect to matters relating to the Company, and Russco, with respect to matters relating to Russco, severally and not jointly represent and warrant to Sachem that: (a) The Offering Memorandum, including any amendments and supplements thereto, does not and will 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 not misleading; provided that no representation or warranty is made as to information relating to Sachem contained in or omitted from the Offering Memorandum in reliance upon and in conformity with written information furnished to the Company by Sachem specifically for inclusion therein. (b) This Agreement has been duly authorized and validly executed and delivered by the Company and Russco. (c) The authorized, issued and outstanding Common Stock and other securities of the Company and of Russco conform in all material respects to the descriptions thereof in the Offering Memorandum. The shares of outstanding Common Stock of the Company and Russco have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive or similar rights. (d) The Securities to be issued by the Company and Russco pursuant hereto have been duly authorized and, when issued and delivered for consideration in accordance with the terms of this Agreement, will be validly issued and outstanding, fully paid and nonassessable, and free from preemptive or similar rights. The Common Stock and Warrants conform in all material respects to the descriptions thereof contained in the Offering Memorandum. (e) Neither the Company nor Russco has any subsidiaries, except that Russco will form a subsidiary to participate in the Merger which subsidiary will be inactive prior to the Merger. (f) All tax returns required to be filed by the Company and by Russco in all jurisdictions have been so filed. All taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from such entities or that are due and payable have been paid, other than those being contested in good faith and for which adequate reserves have been provided or those currently payable without penalty or interest. The Company and Russco do not know of any material proposed additional tax assessment against the Company or Russco. (g) The Company and Russco have been duly incorporated and are validly existing as corporations in good standing under the laws of the States of Utah and Delaware, respectively. The Company and Russco each has the corporate power and authority necessary to own, lease and operate its properties and to conduct business as currently conducted and as described in the Offering Memorandum. The Company and Russco each has the corporate power and authority necessary to enter into and perform its obligations under this Agreement and to issue, sell and deliver the Securities to be issued, sold and delivered by it pursuant hereto. The Company and Russco are duly registered or qualified as foreign corporations to conduct their respective businesses, and are in good standing, in each jurisdiction where such qualification is required and in which the failure to be so qualified could have a material adverse effect on the Company or Russco. The Company and Russco are in compliance with all local, state and federal laws, ordinances and regulations (including environmental laws) applicable to their properties (whether owned or leased) and their businesses, with the exception of violations of such laws, ordinances and regulations which would not individually or in the aggregate have a material adverse effect on the Company or Russco. (h) Except as set forth in the Offering Memorandum, the Company has good and marketable title, free and clear of all liens, charges and encumbrances except such as would not, in the aggregate, have a material adverse effect on the Company to all of the properties and assets described in the Offering Memorandum as owned by the Company. The properties of the Company are in good repair (reasonable wear and tear excepted), are insured in accordance with the industry practice and are suitable for their uses. The real property referred to in the Offering Memorandum as held under lease by the Company is held by it under a valid and enforceable lease, except (A) as limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors and (B) as limited by the effect of general principles of equity, including the possible unavailability of specific performance or the enforceability of waivers of certain rights or defenses, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought (items (A) and (B) are sometimes collectively referred to hereafter as the "Exceptions"), and no defaults are existing under such lease which defaults would, singly or in the aggregate, have a material adverse effect on the Company. (i) There is no action, suit or proceeding before or by any court, arbitrator or governmental agency, body or official, domestic or foreign, which has been served on the Company or Russco and is now pending or which, to the knowledge of the Company or Russco, is threatened against or affects the Company or Russco or the assets of the Company or Russco which is not disclosed in the Offering Memorandum. No Federal or state statute, rule, regulation or order has been enacted, adopted or issued by any such governmental agency or, to the knowledge of the Company, has been proposed by any such governmental body that is not disclosed in the Offering Memorandum and could reasonably be expected to have a material adverse effect on the Company or Russco, the issuance of the Securities or the consummation of any of the transactions contemplated by this Agreement. There are not pending any governmental proceedings to which the Company or Russco is a party or to which any of their property is subject, except as set forth in the Offering Memorandum. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued and remains in effect that would prevent the issuance of the Securities. (j) The Company and Russco possess such certificates, authorities, licenses or permits issued by the appropriate local, state, federal or foreign regulatory agencies or bodies as are material to, or legally required for, the operation of their respective businesses, except for those certificates, authorities, licenses or permits which if not possessed by the Company and Russco would not singly, or in the aggregate, have a material adverse effect on the Company or Russco. Neither the Company nor Russco has received any notice of proceedings relating to, or has reason to believe that any governmental body or agency is considering, limiting, suspending, modifying or revoking, any such certificate, authority, license or permit which, singly or in the aggregate, if the subject of an unfavorable opinion, ruling or finding, would have a material adverse effect on the Company or Russco. Any descriptions in the Offering Memorandum of local, state, federal or foreign statutes, laws, ordinances and regulations governing the Company and Russco in their respective businesses, including any proposed amendments or additions to any such statues, laws, ordinances or regulations, are accurate and fairly present the information shown. (k) Neither the Company nor Russco is in violation of its charter or bylaws or is in default in any respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or other evidence of indebtedness or in any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company or Russco is a party or to which either of them or their respective properties or assets is subject, except such violations or defaults which, singly or in the aggregate, would not have a material adverse effect on the Company or Russco. To the knowledge of the Company and Russco, there exists no condition that, with notice, the passage of time or otherwise, would constitute a material default under any such document, instrument or agreement. (l) The execution, delivery and performance of, and the consummation of the transactions contemplated by, this Agreement will not conflict with or constitute a breach of any of the terms or provisions of, or constitute a default (with notice, the passage of time or otherwise) under, or result in the imposition of a lien or encumbrance on any properties of the Company or Russco or an acceleration of the maturity of any indebtedness under (i) the charter or bylaws of the Company or Russco, (ii) any bond, debenture, note or other evidence of indebtedness or any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company or Russco is a party or to which either of them or their respective properties or assets are subject or (iii) any law, regulation or order of any court or governmental agency or authority applicable to the Company or Russco or any of their respective properties or assets. (m) No consent, approval, authorization, license or other order of any regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or Russco or any of their respective properties or assets is legally required for the valid issuance and sale of the Securities and the consummation of the transactions contemplated by this Agreement, other than such approvals and authorizations as have been obtained. No consents or waivers from any person are required to consummate the transactions contemplated by this Agreement, other than such consents and waivers as have been obtained. (n) The accountants who have certified the financial statements of the Company and the financial statements of Russco included or referred to in the Offering Memorandum are independent accountants with respect to the Company and Russco, respectively, within the meaning of the Act. (o) The historical financial statements of the Company and the related notes and schedules included in the Offering Memorandum present fairly the financial position of the Company as of the dates indicated and the results of its operations and the changes in financial position for the periods therein specified. The historical financial statements of Russco and the related notes and schedules included in the Offering Memorandum present fairly the financial position of Russco as of the dates indicated and the results of their operations and the changes in financial position for the periods therein specified. All such financial statements (including the related notes and schedules) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods specified, subject in the case of interim statements to normal year-end audit adjustments. (p) Subsequent to the dates as of which information is given in the Offering Memorandum, except as disclosed therein: (i) neither the Company nor Russco has incurred any liabilities or obligations, direct or contingent, or entered into any transactions, not in the ordinary course of business, that are material, individually or in the aggregate, to the business of the Company or Russco, except for short term borrowings in amounts not exceeding $220,000 in the aggregate; (ii) there has not been any material decrease in the capital stock of the Company or Russco or any increase in long-term indebtedness or any material increase in short-term indebtedness of the Company or Russco not described above or any payment of or declaration to pay any dividends or any other distribution with respect to the capital stock of the Company or Russco and (iii) there has not been any material adverse change in the condition (financial or other), business, properties, net worth or results of operations of the Company or Russco. (q) Neither the Company nor Russco is involved in any material labor dispute nor, to the knowledge of the Company and Russco, is any such dispute threatened. (r) Neither the Company nor Russco has incurred any casualty losses, whether insured or uninsured, that are material, individually or in the aggregate, to the business of the Company or Russco. (s) Except as contemplated by this Agreement or disclosed in the Offering Memorandum, no person or entity is entitled, through contract or otherwise, directly or indirectly to acquire any shares of the capital stock of the Company or Russco from the Company or Russco. (t) The Company and Russco each maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets and (iii) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (u) Except as contemplated herein or disclosed in the Offering Memorandum, there are no contracts, agreements or understandings between either the Company or Russco and any other person that would give rise to a valid claim against the Company, Russco, Sachem or the Purchasers for a brokerage commission, finder's fee or like payment in respect of the transactions contemplated herein. (v) Neither the Company nor Russco is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (w) The offer and sale of the Securities pursuant hereto are exempt from the registration requirements of the Act. No form of general solicitation or general advertising was used by the Company or any of its representatives (other than Sachem, as to whom the Company and Russco make no representation) in connection with the offer and sale of the Securities, including, but not limited to, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. 5. Indemnification (a) The Company (as the "Indemnifying Party") agrees to indemnify and hold harmless Sachem and each person that controls Sachem within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the respective agents, employees, attorneys, officers and directors of each of the foregoing (individually, an "Indemnified Party" and collectively, the "Indemnified Parties") from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the reasonable fees and expenses of counsel and other expenses in connection with investigating, defending, preparing to defend or testify with respect to or settling any such action or claim) as they are incurred arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating to the Company contained in the Offering Memorandum or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading or otherwise arising out of or based upon the transactions contemplated hereby, except the Indemnifying Party shall not be liable to an Indemnified Party under the indemnity agreement in this Section 5(a) with respect to any such loss, claim, damage, judgment, liability or expense to the extent either (i) it results from or is attributable to the misconduct or negligence of Sachem or (ii) the business combination of the Company and Russco does not occur on or about the First Closing Date and it results from an untrue statement, omission or alleged untrue statement or omission described in Section 5(b). (b) Russco (as the "Indemnifying Party") agrees to indemnify and hold harmless Sachem and each person that controls Sachem within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and the respective agents, employees, attorneys, officers and directors of each of the foregoing (individually, an "Indemnified Party" and collectively, the "Indemnified Parties") from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the reasonable fees and expenses of counsel and other expenses in connection with investigating, defending, preparing to defend or testify with respect to or settling any such action or claim) as they are incurred arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating to Russco contained in the Offering Memorandum or arising out of or based upon any omission or alleged omission to state therein a material fact relating to Russco required to be stated therein or necessary to make the statements therein not misleading, except the Indemnifying Party shall not be liable to an Indemnified Party under the indemnity agreement in this Section 5(b) with respect to any such loss, claim, damage, judgment, liability or expense to the extent it results from or is attributable to the misconduct or negligence of Sachem. (c) Sachem (as the "Indemnifying Party") agrees to indemnify and hold harmless the Company and Russco and each person that controls the Company or Russco within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and the respective agents, employees, attorneys, officers and directors of each of the foregoing (individually, an "Indemnified Party" and collectively, the "Indemnified Parties") from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the reasonable fees and expenses of counsel and other expenses in connection with investigating, defending, preparing to defend or testify with respect to or settling any such action or claim) as they are incurred to the extent they arise out of or are based upon the misconduct or negligence of Sachem. (d) If any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against or shall relate to any Indemnified Party with respect to which indemnity may be sought against the Indemnifying Party pursuant to this Section 5, such Indemnified Party shall promptly notify the Indemnifying Party in writing and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all fees and expenses; provided that the omission so to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability that it may have to any Indemnified Party (except to the extent that the Indemnifying Party is actually prejudiced or otherwise forfeits substantive rights or defenses by reason of such failure). An Indemnified Party shall have the right to employ separate counsel in any such action or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the employment of such counsel has been specifically authorized in writing by the Indemnifying Party, which authorization shall not be unreasonably withheld, (ii) the Indemnifying Party has failed promptly to assume the defense and employ counsel reasonably satisfactory to the Indemnified Party or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both the Indemnified Party and the Indemnifying Party and such Indemnified Party shall have been advised in writing by counsel that there may be one or more legal defenses available to it that are different from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party). It is understood that the Indemnifying Party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Parties, which firm shall be designated in writing by Sachem, and that all such fees and expenses shall be reimbursed as they are incurred. The Indemnifying Party shall not be liable for any settlement of any such action effected without the written consent of the Indemnifying Party, but if settled with the written consent of the Indemnifying Party, or if there is a final judgment with respect thereto, the Indemnifying Party agrees to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of such settlement or judgment. The Indemnifying Party shall not, without the prior written consent of each Indemnified Party affected thereby, effect any settlement of any pending or threatened proceeding in which such Indemnified Party has sought indemnity hereunder, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such action, claim, litigation or proceeding. (e) If the indemnification provided for in Section 5 is unavailable to any party entitled to indemnification pursuant to Section 5(a), (b) or (c), then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, judgments, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, Russco and Sachem from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, Russco and Sachem in connection with the statements or omissions which resulted in such losses, claims, damages, judgments, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and Russco on the one hand and Sachem on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total compensation received by Sachem. The relative fault of the Company and Russco on the one hand and Sachem on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or Russco on the one hand or by Sachem on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (f) The Company and Sachem agree that it would not be just and equitable if contribution pursuant to Section 5(e) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 5(e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in Section 5(e) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (g) The indemnity and contribution agreements contained in this Section 5 are in addition to any liability that any indemnifying party may otherwise have to any indemnified party, including inter alia those arising under a letter agreement between the Company and Sachem dated June 2, 1995, as amended. 6. Conditions of the Purchasers' Obligations. The obligations of the Purchasers to purchase the Securities and the Company and Russco to issue and sell the Securities under this Agreement on a Closing Date are subject to the satisfaction of the each of following conditions as of each such Closing Date: (a) All of the representations and warranties of the Company and Russco contained in this Agreement shall be true and correct on such Closing Date with the same force and effect as if made on and as of such Closing Date. The Company and Russco shall, in all material respects, have performed or complied with the agreements and satisfied all conditions on their respective parts to be performed, complied with or satisfied at or prior to such Closing Date. (b) On such Closing Date, no stop order or other similar decree preventing the use of the Offering Memorandum or any amendment or supplement thereto, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued and remain in effect and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Securities in any jurisdiction shall have been issued and remain in effect, and no proceeding for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, shall be contemplated. (c) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency and remain in effect as of such Closing Date that would prevent the issuance of the Securities. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued and remain in effect as of such Closing Date that would prevent the issuance of the Securities. (d) On such Closing Date, no action, suit or proceeding shall be pending against or affecting or, to the knowledge of the Company, threatened against, the Company or Russco before any court, arbitrator or governmental body, agency or official that would interfere with or adversely affect the issuance of the Securities or consummation of the transactions contemplated by the Plan or would, except as disclosed in the Offering Memorandum, individually or in the aggregate, have a material adverse effect on the Company or Russco or in any manner draw into question the validity of this Agreement, the Plan or the Securities. (e) Since the date of the latest balance sheet included in the Offering Memorandum for the Company and Russco, respectively, and except as disclosed therein, (i) neither the Company nor Russco shall have incurred any liabilities or obligations, direct or contingent (other than short term borrowings in an aggregate amount not to exceed $220,000), or entered into any transactions, not in the ordinary course of business, that are material, individually or in the aggregate, to the business of the Company or Russco, (ii) there shall not have been any material change in the capital stock or debt of the Company or Russco from that set forth or contemplated in the Offering Memorandum, other than an increase in the authorized number of shares of capital stock of the Company and (iii) there shall not have been any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or other), business, properties, net worth or results of operations of the Company or Russco. (f) The transactions contemplated by the Plan shall have been consummated substantially as contemplated in said Plan and as described in the Offering Memorandum. (g) On the Closing Date, Sachem shall have received (i) a certificate dated such Closing Date, signed by an executive officer of the Company, confirming the matters set forth in Section 6(a)-(f) above insofar as they relate to the Company and the issuance of the Securities by the Company and (ii) a certificate dated such Closing Date, signed by an executive officer of Russco, confirming the matters set forth in Section 6(a)-(f) above insofar as they relate to Russco and the issuance of Securities by Russco. (h) On the Closing Date, Sachem shall have received an opinion (satisfactory to Sachem and its counsel), dated as of the Closing Date, of Blackburn & Stoll, LC, counsel for the Company and after the First Closing Date counsel for Russco, to the effect that: (i)The Company (and on any Additional Closing Date Russco) has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with full corporate power and corporate authority to own, lease and operate its properties and to conduct its business as now conducted and as proposed to be conducted as described in the Offering Memorandum. (ii)The Company (and on any Additional Closing Date Russco) is duly qualified or licensed to conduct business and is in good standing in each jurisdiction in which it owns or leases property or conducts business, except where the failure so to qualify or be licensed would not have a material adverse effect on the business or financial condition of such corporation. (iii)The Company's (and on each Additional Closing Date Russco's) authorized equity capitalization is as set forth in the Offering Memorandum, with such changes specified in the opinion that are acceptable to Sachem; the outstanding shares of capital stock of such corporation have been duly and validly authorized and issued, are fully paid and nonassessable, and the holders of outstanding shares of capital stock of such corporation are not entitled to preemptive or other rights to subscribe for such capital stock; to the knowledge of such counsel, except as otherwise set forth in the Offering Memorandum, there are no outstanding subscriptions, warrants, options, calls or commitments of any character related to or entitling any person to purchase or otherwise acquire any shares of such corporation's capital stock or any securities convertible into or exercisable for the purchase of such capital stock or any commitments of any character relating to or entitling any person to purchase or otherwise acquire any such obligations or securities; and on each Additional Closing Date, all of the outstanding shares of capital stock of the Company are owned by Russco, and, to the knowledge of such counsel, no other person has any rights to acquire any shares of the Company's common stock. (iv)Except as set forth in the Offering Memorandum, to the knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any Federal, state or foreign court or governmental agency, authority or body or any arbitrator against or involving the Company (and on each Additional Closing Date Russco) which, if adversely determined, individually or in the aggregate with all such other actions, suits and proceedings, would have a material adverse effect on the business or financial condition of such corporation. (v)Except as set forth in the Offering Memorandum, no consent, approval, authorization or order of, or registration or filing with, any Federal, state or foreign court or governmental agency or body is required in connection with the execution, delivery and performance by the Company (and on each Additional Closing Date Russco) of this Agreement or the Plan. (vi)To the knowledge of such counsel, the Company (and on each Additional Closing Date Russco) is not involved in any material labor dispute nor is any such dispute threatened. (vii)The Company (and on each Additional Closing Date Russco) is not in violation of its Articles of Incorporation or bylaws or, to the knowledge of such counsel and except as set forth in the Offering Memorandum, is in default (including any condition that, with notice, the passage of time or otherwise, would constitute a default) in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any indenture, mortgage, deed of trust or other material agreement or instrument of such corporation, where such default would have a material adverse effect on the business or financial condition of such corporation; except as set forth in the Offering Memorandum, the execution, delivery and performance of this Agreement and the Securities, the fulfillment of the terms therein set forth and the consummation of the transactions therein contemplated, including the offer, issuance, and sale of the Securities, will not violate, or conflict with or result in a breach of any of the terms or provisions of, or constitute a default (including any condition that, with notice, the passage of time or otherwise, would constitute a default) under (A) the Articles of Incorporation or by-laws of such corporation, (B) the terms of any indenture, mortgage, deed of trust or other material agreement or instrument known to such counsel, including without limitation any of the documents referred to above in this subparagraph (vii) and to which such corporation is a party or to which it or its properties or assets is subject, or (C) any decree or order known to such counsel to be applicable to such corporation of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over such corporation or any law or regulation applicable to such corporation which defaults, in the cases of clauses (B) and (C), would individually or in the aggregate have a material adverse effect on the business or financial condition of such corporation. (viii)To the best knowledge of such counsel, based solely on consultation with the Company's consultants, the statements in the Offering Memorandum under the captions "Risk Factors- Government Regulation" and "Business-Patents and Proprietary Rights", insofar as such statements constitute a summary of the documents and laws referred to therein, fairly present in all material respects the information described therein with respect to such documents and laws. (i) On the Initial Closing Date, Sachem shall have received an opinion (satisfactory to Sachem and its counsel), dated as of the Closing Date, of Thomas G. Kimble & Associates, counsel for Russco, to the effect that: (i)Russco has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with full corporate power and corporate authority to own, lease and operate properties and to conduct business as now conducted and as proposed to be conducted after consummation of the transactions contemplated by the Plan as described in the Offering Memorandum. (ii)Russco's authorized equity capitalization is as set forth in the Offering Memorandum; the outstanding shares of capital stock of Russco, including the shares issued on the Initial Closing Date, have been duly and validly authorized and issued, are fully paid and nonassessable, and the holders of outstanding shares of capital stock of Russco are not entitled to preemptive or other rights to subscribe for such capital stock; to the knowledge of such counsel, except as otherwise set forth in the Offering Memorandum, there are no outstanding subscriptions, warrants, options, calls or commitments of any character related to or entitling any person to purchase or otherwise acquire any shares of Russco's capital stock or any securities convertible into or exercisable for the purchase of such capital stock or any commitments of any character relating to or entitling any person to purchase or otherwise acquire any such obligations or securities; (iii)To the knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any Federal, state or foreign court or governmental agency, authority or body or any arbitrator against or involving Russco which, if adversely determined, individually or in the aggregate with all such other actions, suits and proceedings, would have a material adverse effect on the business or financial condition of Russco. (iv)Russco is not in violation of its Articles of Incorporation or bylaws or, to the knowledge of such counsel and except as set forth in the Offering Memorandum, is not in default (including any condition that, with notice, the passage of time or otherwise, would constitute a default) in the performance of any obligation, agreement or condition contained in any material agreement or instrument of Russco, where such default would have a material adverse effect on the business or financial condition of Russco; except as set forth in the Offering Memorandum, the execution, delivery and performance of this Agreement and the Securities, the fulfillment of the terms therein set forth and the consummation of the transactions therein contemplated, including the offer, issuance, and sale of the Securities, will not violate, or conflict with or result in a breach of any of the terms or provisions of, or constitute a default (including any condition that, with notice, the passage of time or otherwise, would constitute a default) under (A) the Articles of Incorporation or by-laws of the Russco, (B) the terms of any material agreement or instrument known to such counsel to which Russco is a party or to which it or its properties or assets is subject, or (C) any decree or order known to such counsel to be applicable to Russco of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over Russco or any law or regulation applicable to Russco which defaults, in the cases of clauses (B) and (C), would individually or in the aggregate have a material adverse effect on the business or financial condition of Russco. (v)Russco has full corporate power and authority (A) to execute, deliver and perform its obligations under this Agreement and the Plan and (B) to offer, issue and sell the Securities to be offered, issued and sold by Russco. This Agreement and such Securities have been duly authorized, executed and delivered by Russco; this Agreement constitutes a legal, valid and binding obligation of Russco, enforceable against Russco in accordance with its terms, except as set forth in the Offering Memorandum, and subject to the Exceptions, as to which such counsel need not express any opinion. In their opinions referred to in subsections (h) and (i) above, such counsel shall state that, although with the concurrence of Sachem they have assumed no obligation of inquiry and have not verified and are not passing upon and do not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum, no facts have come to such counsel's attention which have caused such counsel to believe that, at the time the Offering Memorandum was distributed, the Offering Memorandum contained any untrue statement of material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or, as of the date of such opinion, the Offering Memorandum contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading (except, in each case, for the financial statements, together with the related schedules and notes, and other financial and statistical data contained in or omitted from the Offering Memorandum, as to which such counsel need not express any opinion). In rendering such opinions, such counsel may rely (A) as to matters involving the application of laws of states other than the states in which they are licensed to practice and of foreign countries, to the extent deemed appropriate by such counsel and indicated in such opinion, upon the opinions of other counsel of good standing in such jurisdictions, whom they believe to be reliable and who are reasonably satisfactory to counsel for Sachem and (B) as to matters of fact to the extent they deem proper, on certificates of responsible officers of the corporations involved and public officials. All opinions, certificates, letters and other documents required by this Section 6 to be delivered to Sachem will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to Sachem and its counsel. The Company and Russco will furnish to Sachem, without charge, such conformed copies of such opinions, certificates, letters and other documents as Sachem shall reasonably request. 7. Termination. This Agreement may be terminated at any time prior to the Initial Closing Date by written notice from Sachem to the Company and Russco if any of the following has occurred: (i) after the respective dates as of which information is given in the Offering Memorandum, any material adverse change or development involving a prospective material adverse change in or affecting the business, affairs, condition (financial or otherwise) or prospects of the Company or Russco, whether or not arising in the ordinary course of business, that would, in Sachem's reasonable judgment, make the offering, sale or the delivery of the Securities impracticable; (ii) any outbreak or escalation of hostilities or other national or international calamity or crises if the effect of such outbreak, escalation, calamity or crises would, in Sachem's reasonable judgment, make the offering, sale or delivery of the Securities impracticable; (iii) any decrease in NASDAQ Composite Index measured from the date hereof which exceeds ten percent (10%) in the aggregate; (iv) any suspension of trading in securities generally on the New York Stock Exchange or the NASDAQ Stock Market or limitation on prices for securities generally on any such exchange or market; or (v) any declaration of a banking moratorium by federal or New York authorities. 8. Miscellaneous. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Russco, to: Russco, Inc. 2525 East 3300 South - Suite 2 Salt Lake City, Utah 84111 Attention: Scott R. Jensen, President with a copy to: Thomas G. Kimble, Esq. 311 South State Street - Suite 440 Salt Lake City, Utah 84111 (ii) if to the Company, to: Specialized Health Products, Inc. 655 East Medical Drive Bountiful, Utah 84010 Attention: David A. Robinson, President with a copy to: Eric L. Robinson, Esq. Blackburn & Stoll, LC 77 West 200 South - Suite 400 Salt Lake City, Utah 84101-1609 (iii) if to Sachem, to: U.S. Sachem Financial Consultants, L.P. 11601 Wilshire Boulevard - Suite 500 Los Angeles, California 90025 Attention: Stanley Hollander with a copy to: Alan D. Jacobson, Esq. 2029 Century Park East - Suite 2600 Los Angeles, California 90067 or in any case to such other address as the person to be notified may have requested in writing. The indemnity and contribution agreements and the representations, warranties and other statements of the Company, Russco and Sachem set forth or made pursuant to this Agreement (i) shall remain operative and in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation, or statement as to the results thereof, made by or on behalf of Sachem, the Company, Russco, or any Indemnified Party and (c) delivery of the Securities and payment of consideration therefor and (ii) shall be binding upon and inure to the benefit of the successors, assigns, heirs and personal representatives of Sachem, each Indemnified Party, the Company and Russco. Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, Russco, Sachem, any controlling persons and other Indemnified Parties referred to herein, and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other persons shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Securities merely because of such purchase. The Purchasers, however, shall be third party beneficiaries of the provisions of Sections 3, 4 and 6 hereof. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. This Agreement may be signed in various counterparts, which together shall constitute one and the same instrument. In Witness Whereof, the undersigned have executed this Placement Agreement effective as of the 23rd day of June, 1995. Specialized Health Products, Inc. By: /s/ David A. Robinson President Russco, Inc. By: /s/ Scott R. Jensen President U.S. Sachem Financial Consultants, L.P. By: Sachem Financial Consultants, Ltd. General Partner By: /s/ Stanley Hollander Title: President EX-10.3 12 EXHIBIT 10.3 Form of Employment Agreement with Executive Officers EMPLOYMENT AGREEMENT This employment agreement ("Agreement") is made and entered into this ___ day of _____________, 19___, by and between SPECIALIZED HEALTH PRODUCTS, INC., a Utah corporation ("Corporation"), and ____________________ ("Employee"). WHEREAS, Corporation and Employee desire that the term of this Agreement begin on _________________ ("Effective Date"). WHEREAS, Corporation desires to employ Employee as its ______________ and Employee is willing to accept such employment by Corporation, on the terms and subject to the conditions set forth in this Agreement. NOW THEREFORE, IT IS AGREED AS FOLLOWS: Section 1. Duties. During the term of this Agreement, Employee agrees to be employed by and to serve Corporation as its _______________, and Corporation agrees to employ and retain Employee in such capacities. Employee shall devote a substantial portion of his business time, energy, and skill to the affairs of the Corporation as Employee shall report to the Corporation's Board of Directors and at all times during the term of this Agreement shall have powers and duties at least commensurate with his position as _________________. Section 2. Term of Employment. 2.1 Definitions. For the purposes of this Agreement the following terms shall have the following meanings: 2.1.1 "Termination For Cause" shall mean termination by Corporation of Employee's employment by Corporation by reason of Employee's willful dishonesty towards, fraud upon, or deliberate injury or attempted injury to, Corporation or by reason of Employee's willful material breach of this Agreement which has resulted in material injury to Corporation. 2.1.2 "Termination Other Than For Cause" shall mean termination by Corporation of Employee's employment by Corporation (other than in a Termination for Cause) and shall include constructive termination of Employee's employment by reason of material breach of this Agreement by Corporation, such constructive termination to be effective upon notice from Employee to Corporation of such constructive termination. 2.1.3 "Voluntary Termination" shall mean termination by Employee of Employee's employment by Corporation other than (i) Termination Other Than For Cause, and (ii) termination by reason of Employee's death or disability as described in Sections 2.5 and 2.6. 2.2 Initial Term. The term of employment of Employee by Corporation shall be for a period of _____________ years beginning with Effective Date ("Initial Term"), unless terminated earlier pursuant to this Section. At any time prior to the expiration of the Initial Term, Corporation and Employee may by mutual written agreement extend Employee's employment under the terms of this Agreement for such additional periods as they may agree. 2.3 Termination For Cause. Termination For Cause may be effected by Corporation at any time during the term of this Agreement and shall be effected by written notification to Employee. Upon Termination For Cause, Employee shall promptly be paid all accrued salary, bonus compensation to the extent earned, vested deferred compensation (other than pension plan, profit sharing plan and stock option plan benefits which will be paid in accordance with the applicable plan), any benefits under any plans of the Corporation in which Employee is a participant to the full extent of Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by Employee in connection with his duties hereunder, all to the date of termination, but Employee shall not be paid any other compensation or reimbursement of any kind, including without limitation, severance compensation. 2.4 Termination Other Than For Cause. Notwithstanding anything else in this Agreement, Corporation may effect a Termination Other Than For Cause at any time upon giving written notice to Employee of such termination. Upon any Termination Other Than For Cause, Employee shall promptly be paid all accrued salary, bonus compensation to the extent earned, vested deferred compensation (other than pension plan, profit sharing plan and stock option plan benefits which will be paid in accordance with the applicable plan), any benefits under any plans of the Corporation in which Employee is a participant to the full extent of Employee's rights under such plans (other than pension plan, profit sharing plan and stock option plan benefits which will be paid in accordance with the applicable plan), accrued vacation pay and any appropriate business expenses incurred by Employee in connection with his duties hereunder, all to the date of termination, with the exception of salary and medical benefits which shall continue through the expiration of this Agreement. 2.5 Termination by Reason of Disability. If, during the term of this Agreement, Employee, in the reasonable judgment of the Board of Directors of Corporation, has failed to perform his duties under this Agreement on account of illness or physical or mental incapacity, and such illness or incapacity continues for a period of more than twelve (12) consecutive months, Corporation shall have the right to terminate Employee's employment hereunder by written notification to Employee and payment to Employee of all accrued salary, bonus compensation to the extent earned, vested deferred compensation (other than pension plan, profit sharing plan and stock option plan benefits which will be paid in accordance with the applicable plan), any benefits under any plans of the Corporation in which Employee is a participant to the full extent of Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by Employee in connection with his duties hereunder, all to the date of termination, with the exception of salary and medical benefits which shall continue through the expiration of this Agreement. 2.6 Death. In the event of Employee's death during the term of this Agreement, Employee's employment shall be deemed to have terminated as of the last day of the month during which his death occurs and Corporation shall promptly pay to his estate or such beneficiaries as Employee may from time to time designate all accrued salary, bonus compensation to the extent earned, vested deferred compensation (other than pension plan, profit sharing plan and stock option plan benefits which will be paid in accordance with the applicable plan), any benefits under any plans of the Corporation in which Employee is a participant to the full extent of Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by Employee in connection with his duties hereunder, all to the date of termination, but Employee's estate shall not be paid any other compensation or reimbursement of any kind, including without limitation, severance compensation. 2.7 Voluntary Termination. In the event of a Voluntary Termination, Corporation shall promptly pay all accrued salary, bonus compensation to the extent earned, vested deferred compensation (other than pension plan, profit sharing plan and stock option plan benefits which will be paid in accordance with the applicable plan), any benefits under any plans of the Corporation in which Employee is a participant to the full extent of Employee's rights under such plans, accrued vacation pay and any appropriate business expenses incurred by Employee in connection with his duties hereunder, all to the date of termination, but no other compensation or reimbursement of any kind. 2.8 Notice of Termination. Corporation may effect a termination of this Agreement pursuant to the provisions of this Section upon giving thirty (30) days' written notice to Employee of such termination. Employee may effect a termination of this Agreement pursuant to the provisions of this Section upon giving thirty (30) days' written notice to Corporation of such termination. Section 3. Salary, Benefits and Bonus Compensation. 3.1 Base Salary. As payment for the services to be rendered by Employee as provided in Section 1 and subject to the terms and conditions of Section 2, Corporation agrees to pay to Employee a "Base Salary" for the twelve (12) calendar months beginning the Effective Date at the rate of $__________ per annum payable in no fewer than 12 equal monthly installments of $_____. Employee's Base Salary shall be reviewed annually by the Compensation Committee of the Board of Directors ("Compensation Committee"), and the Base Salary for each year (or portion thereof) shall be determined by the Compensation Committee which shall authorize an increase in Employee's Base Salary for such year in an amount which, at a minimum, shall be equal to the cumulative cost-of-living as determined by the Corporation's board of directors. 3.2 Bonuses. Employee shall be eligible to receive a discretionary bonus for each year (or portion thereof) during the term of this Agreement and any extensions thereof, with the actual amount of any such bonus to be determined in the sole discretion of the Board of Directors based upon its evaluation of Employee's performance during such year. All such bonuses shall be reviewed annually by the Compensation Committee. 3.3 Additional Benefits. During the term of this Agreement, Employee shall be entitled to the following fringe benefits: 3.3.1 Employee Benefits. Employee shall be eligible to participate in such of Corporation's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of the Corporation. For purposes of establishing the length of service under any benefit plans or programs of Corporation. 3.3.2 Vacation. Employee shall be entitled to ___ (__) weeks of vacation during each year during the term of this Agreement and any extensions thereof, prorated for partial years. Vacation time may be accrued. 3.3.3 Life Insurance. For the term of this Agreement and any extensions thereof, Corporation shall at its expense procure and keep in effect term life insurance on the life of Employee payable to Corporation in the aggregate amount of $_______ and payable to the employee's spouse in the amount of $_________. 3.3.4 Automobile Allowance. For the term of this agreement and any extensions thereof the corporation shall provide officer with an automobile allowance. 3.3.5 Reimbursement for Expenses. During the term of this Agreement, Corporation shall reimburse Employee for reasonable and properly documented out-of-pocket business and/or entertainment expenses incurred by Employee in connection with his duties under this Agreement. Section 4. Payment Obligations. Corporation's obligation to pay Employee the compensation and to make the arrangements provided herein shall be unconditional, and Employee shall have no obligation whatsoever to mitigate damages hereunder. Section 5. Confidentiality. Employee agrees that all confidential and proprietary information relating to the business of Corporation shall be kept and treated as confidential both during and after the term of this Agreement, except as may be permitted in writing by Corporation's Board of Directors or as such information is within the public domain or comes within the public domain without any breach of this Agreement. Section 6. Withholdings. All compensation and benefits to Employee hereunder shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law. Section 7. Indemnification. In addition to any rights to indemnification to which Employee is entitled to under the Corporation's Articles of Incorporation and Bylaws, Corporation shall indemnify Employee at all times during and after the term of this Agreement to the maximum extent permitted under Utah Revised Business Corporation Act or any successor provision thereof and any other applicable state law, and shall pay Employee's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit or proceeding, to the maximum extent permitted under such applicable state laws. Section 8. Notices. Any notices permitted or required under this Agreement shall be deemed given upon the date of personal delivery or forty-eight (48) hours after deposit in the United States mail, postage fully prepaid, return receipt requested, addressed to the Corporation at: 655 E. Medical Drive Bountiful, Utah 84010 addressed to the Employee at: 2453 S. Wood Hollow Way Bountiful, Utah 84010 or at any other address as any party may, from time to time, designate by notice given in compliance with this Section. Section 9. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah. Section 10. Titles and Captions. All section titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the context nor effect the interpretation of this Agreement. Section 11. Entire Agreement. This Agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this Agreement. Section 12. Agreement Binding. This Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. Section 13. Attorney Fees. In the event an arbitration, suit or action is brought by any party under this Agreement to enforce any of its terms, or in any appeal therefrom, it is agreed that the prevailing party shall be entitled to reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or appellate court. Section 14. Computation of Time. In computing any period of time pursuant to this Agreement, the day of the act, event or default from which the designated period of time begins to run shall be included, unless it is a Saturday, Sunday, or a legal holiday, in which event the period shall begin to run on the next day which is not a Saturday, Sunday, or legal holiday, in which event the period shall run until the end of the next day thereafter which is not a Saturday, Sunday, or legal holiday. Section 15. Pronouns and Plurals. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular, or plural as the identity of the person or persons may require. Section 16. Presumption. This Agreement or any section thereof shall not be construed against any party due to the fact that said Agreement or any section thereof was drafted by said party. Section 17. Further Action. The parties hereto shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of the Agreement. Section 18. Parties in Interest. Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party. Section 19. Savings Clause. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed. SPECIALIZED HEALTH PRODUCTS, EMPLOYEE: INC: By:____________________________ _______________________________ Its: EX-10.4 13 EXHIBIT 10.4 Form of Indemnity Agreement with Executive Officers and Directors INDEMNITY AGREEMENT This Indemnity Agreement (the "Agreement") is made as of _______________, 1995, by and between Specialized Health Products International, Inc., a Delaware corporation (the "Company"), and person whose signature appears at the end of this Agreement (the "Indemnitee"), an officer and/or director of the Company. RECITALS A. The Indemnitee is currently serving as an officer and/or director of the Company and in such capacity renders valuable services to the Company. B. Both the Company and the Indemnitee recognize the substantial risk of litigation against officers and directors of corporations, and the Indemnitee has indicated that he or she does not regard the indemnification available under the Company's Bylaws as adequate to protect against legal risks associated with service to the Company and may be unwilling to continue in office in the absence of greater protection and indemnification. C. The Board of Directors of the Company has determined that it is in the best interests of the Company and its stockholders to induce the Indemnitee to continue to serve as an officer and/or director and retain the benefits of his or her experience and skill by entering into this Agreement to provide protection from potential liabilities which might arise by reason of the fact that he or she is an officer and/or director of the Company beyond the protection afforded by Delaware law and the Company's Bylaws. AGREEMENT In consideration of the continued services of the Indemnitee and as an inducement to the Indemnitee to continue to serve as an officer and/or director, the Company and the Indemnitee do hereby agree as follows: Definitions. As used in this Agreement: (a) The term "Company' shall include Specialized Health Products International, Inc., a Delaware corporation and any wholly-owned subsidiary. (b) The term "Expenses" includes, without limitation, attorneys' fees, disbursements and retainers, accounting and witness fees, travel and deposition costs, any interest, assessment or other charges, any federal, state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, any other expense, liability or loss, any amounts paid or to be paid in settlement by or on behalf of Indemnitee, and any expenses of establishing a right to indemnification (pursuant to this Agreement or otherwise), paid or incurred in connection with investigating, defending, being a witness in, or participating in, or preparing for any of the foregoing in, any Proceeding relating to an Indemnifiable Event, including reasonable compensation for time spent by the Indemnitee in connection with the investigation, defense or appeal of a Proceeding or of an action for indemnification for which he or she is not otherwise compensated by the Company or any third party. The Indemnitee shall be deemed to be compensated by the Company or a third party for time spent in connection with the investigation, defense or appeal of a Proceeding or an action for Indemnification if, among other things, he or she is a salaried employee of the Company or such third party and his or her salary is not reduced In proportion to the time spent in connection with the Proceeding or action for Indemnification. The term "Expenses" does not include the amount of judgments, fines, penalties or ERISA excise taxes actually levied against the Indemnitee. (c) The term "Indemnifiable Event" shall include any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the service of Indemnitee as an officer and/or director of the Company, or his or her service at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise. or related to anything done or not done by Indemnitee in any such capacity, whether or not the basis of a Proceeding arising in whole or in part from such Indemnifiable Event is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company or at the request of the Company, as described above, and whether or not he or she is serving in such capacity at the time any liability or Expenses are incurred for which indemnification or reimbursement is to be provided under this Agreement. (d) The term "Proceeding" shall include (i) any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of a civil, criminal, administrative, investigative or other nature; and (ii) any inquiry, hearing or investigation, whether or not conducted by the Company, that Indemnitee in good faith believes might lead to the institution of any such action. suit or proceeding. 2. Agreement to Serve. The Indemnitee agrees to continue to serve as an officer and/or director of the Company at the will of the Company for so long as Indemnitee is duly elected or appointed or until such time as Indemnitee tenders a resignation in writing; provided, however, that nothing in this Agreement shall be construed as providing the Indemnitee any right to continued employment. 3. Indemnification in Third Party Actions. In connection with any Proceeding arising in whole or in part from an Indemnifiable Event (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), the Company shall indemnify the Indemnitee against all Expenses and all judgments, fines, penalties and ERISA excise taxes actually and reasonably incurred by the Indemnitee in connection with such Proceeding, to the fullest extent permitted by Delaware law. The Company shall also cooperate fully with Indemnitee and render such assistance as Indemnitee may reasonably require in the defense of any Proceeding in which Indemnitee was or is a party or is threatened to be made a party, and shall make available to Indemnitee and his or her counsel all information and documents reasonably available to it which relate to the subject of any such Proceeding. 4. Indemnification in Proceedings by or in the Name of the Company. In any Proceeding by or in the name of the Company to procure a judgment in its favor arising in whole or in part from an Indemnifiable Event, the Company shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by Indemnitee in connection with such Proceeding, to the fullest extent permitted by Delaware law. 5. Conclusive Presumption Regarding Standard of Conduct. The Indemnitee shall be conclusively presumed to have met the relevant standards of conduct as defined by Delaware law for indemnification pursuant to this Agreement, unless a determination is made that the Indemnitee has not met such standards by (i) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceeding, (ii) the stockholders of the Company by majority vote, or (iii) in a written opinion by independent legal counsel, selection of whom has been approved by the Indemnitee in writing. 6. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that the Indemnitee has been successful in defense of any Proceeding or in defense of any claim, issue or matter therein, on the merits or otherwise, including the dismissal of a Proceeding without prejudice. the Indemnitee shall be indemnified against all Expenses incurred in connection therewith to the fullest extent permitted by Delaware law. 7. Advances of Expenses. The Expenses incurred by the Indemnitee in any Proceeding shall be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by Delaware law; provided that if Delaware law in effect at the time so requires, the Indemnitee shall undertake in writing to repay such amount to the extent that it is ultimately determined that the Indemnitee is not entitled to indemnification. 8. Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties or ERISA excise taxes actually and reasonably incurred by Indemnitee in the investigation, defense, appeal or settlement of any Proceeding but not, however. for the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, penalties or ERISA excise taxes to which the Indemnitee is entitled. 9. Indemnification Procedure; Determination of Right to Indemnification. (a) Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee will, If a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof. (b) If a claim under this Agreement is not paid by the Company within 30 days of receipt of written notice, the right to indemnification as provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. it shall be a defense to any such action (other than an action brought to enforce a claim for Expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Company) that the Indemnitee has failed to meet a standard of conduct which makes it permissible under Delaware law for the Company to indemnity the Indemnitee for the amount claimed. The burden of proving by clear and convincing evidence that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the directors or stockholders of the Company or independent legal counsel to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the directors or stockholders of the Company or independent legal counsel that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. (c) The Indemnitee's Expenses incurred in connection with any Proceeding concerning Indemnitee's right to indemnification or advances in whole or in part pursuant to this Agreement shall also be indemnified by the Company regardless of the outcome of such Proceeding, unless a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such Proceeding was not made in good faith or was frivolous. (d) With respect to any Proceeding for which indemnification is requested, the Company will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense thereof, with counsel satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to assume the defense of a Proceeding, the Company will not be liable to the Indemnitee under this Agreement for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. The Indemnitee shall cooperate fully with the Company and render such assistance as the Company may reasonably require in the Company's participation in any such Proceeding and shall make available to the Company and its counsel all information and documents reasonably available to Indemnitee which relate to the subject of such Proceeding. The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense. to participate in the defense of such action; the Company's liability hereunder shall not be excused if participation in the Proceeding by the Company was barred. The Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee's prior written consent. The Indemnitee shall have the right to employ counsel in any Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of a Proceeding, in each of which cases the fees and expenses of the Indemnitee's counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has made the conclusion that there may be a conflict of interest between the Company and the Indemnitee. 10. Limitations on Indemnification. No payments pursuant to this Agreement shall be made by the Company: (a) To indemnify or advance Expenses to the Indemnitee with respect to Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other Statute or law or otherwise as required under Delaware law, but such Indemnification or advancement of Expenses may be provided by the Company in specific cases if a majority of the Board of Directors finds it to be appropriate; (b) To indemnify the Indemnitee for any Expenses, judgments, fines, penalties or ERISA excise taxes for which the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement; (c) To indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without the Company's written consent; however, the Company will not unreasonably withhold its consent to any proposed settlement; (d) To indemnify the Indemnitee for any Expenses, judgments, fines, penalties or ERISA excise taxes for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; (e) To indemnify the Indemnitee for any Expenses, judgments, fines or penalties sustained in any Proceeding for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules and regulations promulgated thereunder and amendments thereto or similar provisions of any federal, state or local statutory law; (f) To indemnify the Indemnitee against any Expenses, judgments, fines, penalties or ERISA excise taxes based upon or attributable to the Indemnitee having been finally adjudged to have gained any personal profit or advantage to which he or she was not legally entitled; (g) To indemnify the Indemnitee for any Expenses. judgments, fines, penalties or ERISA excise taxes resulting from Indemnitee's conduct which is finally adjudged to have been willful misconduct, knowingly fraudulent. deliberately dishonest or in violation of Indemnitee's duty of loyalty to the Company; or (h) If a court of competent jurisdiction shall finally determine that any indemnification hereunder is unlawful. 11. Maintenance of Liability Insurance. (a) The Company hereby covenants and agrees that, as long as the Indemnitee shall continue to serve as an officer and/or director of the Company and thereafter so long as the Indemnitee shall be subject to any possible Proceeding, the Company, subject to subsection (c), shall promptly obtain and maintain in full force and effect directors' and officers' liability insurance ("D&O Insurance") in reasonable amounts from established and reputable insurers. (b) In all D&O Insurance policies, the Indemnitee shall be named as an insured in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's officers or directors. (c) Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available. The premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage provided by such insurance is so limited by exclusions that it provides an insufficient benefit. 12. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed to limit or preclude any other rights to which the Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws, any agreement, any vote of stockholders or disinterested directors, Delaware law, or otherwise, both as to action In Indemnitee's official capacity and as to action in another capacity on behalf of the Company while holding such office. 13. Successors and Assigns. This Agreement shall be binding upon, and shall inure to the benefit of, the Indemnitee and Indemnitee's heirs, personal representatives and assigns, and the Company and its successors and assigns. 14. Separability. Each provision of this Agreement is a separate and distinct agreement and Independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. To the extent required. any provision of this Agreement may be modified by a court of competent jurisdiction to preserve Its validity and to provide the Indemnitee with the broadest possible indemnification permitted under Delaware law. 15. Savings Clause. If this Agreement or any portion thereof be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee as to Expenses, judgments, fines, penalties or ERISA excise taxes with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any applicable provision of the law of Delaware or the law of any other jurisdiction. 16. Interpretation; Governing Law. This Agreement shall be construed as a whole and in accordance with its fair meaning. Headings are for convenience only and shall not be used in construing meaning. This Agreement shall be governed and interpreted In accordance with the laws of the State of Delaware. 17. Amendments. No amendment, waiver, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by the party against whom enforcement is sought. The Indemnification rights afforded to the Indemnitee hereby are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Company's Certificate of Incorporation, Bylaws or agreements including D&O Insurance policies. 18. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other. 19. Notices. Any notice required to be given under this Agreement shall be directed to the Company at 655 East Medical Drive, Bountiful, Utah 84010 and to Indemnitee at the address specified below or to such other address as either shall designate in writing. 20. Subject Matter. The intended purpose of this Agreement is to provide for Indemnification, and this Agreement is not intended to affect any other aspect of any relationship between the Indemnitee and the Company. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SPECIALIZED HEALTH PRODUCTS INDEMNITEE INTERNATIONAL, INC. By._____________________________ ________________________________ _________ _________ Its ________________________________ ________________________________ ______ _________ Street Address ________________________________ _________ City, State, Zip Code EX-10.5 14 EXHIBIT 10.5 Form of Confidentiality Agreement CONFIDENTIALITY AGREEMENT This Agreement ("Agreement") is entered into this date by and between SPECIALIZED HEALTH PRODUCTS, INC., a Utah corporation ("Corporation"), and the party named at the end of this Agreement ("Consultant/Employee"). WHEREAS, the Corporation is engaged in the business of research, development and manufacturing of health care products ; and WHEREAS, the Corporation desires to retain the services of the Consultant/Employee as an independent consultant or as an employee, as the case may be. NOW THEREFORE, IT IS AGREED AS FOLLOWS: 1. Confidential/Proprietary Information. The Consultant/Employee agrees that he or she will not disclose and will hold in confidence any and all proprietary information, and other matters owned by the Corporation brought to the Consultant/Employee's attention (collectively the "Information") by Corporation during the course of this Agreement, whether in written or oral form. Without the prior written consent of the Corporation, the Consultant/Employee agrees not to use the Information for any purpose other than the performance of the services performed for Corporation. However, the Consultant/Employee shall not be so restricted where (i) the Information is now or becomes public through no fault of the Consultant/Employee, or (ii) the Consultant/Employee already had the Information in his/her possession from his/her own work prior to the date of this Agreement, or (iii) the Consultant/Employee received the Information from a third party on a non-confidential basis and not derived from Corporation, or (iv) the Consultant/Employee receives permission in writing from the Corporation to disclose the Information. Upon termination of this Agreement, the Consultant/Employee agrees to promptly return to the Corporation all of the Information, in whatever form, that the Consultant/Employee may then have in his/her possession or control. 2. Remedies. The parties acknowledge that any disclosure of the Information will cause irreparable harm to the Corporation. As a consequence, the parties agree that if the Consultant/Employee fails to abide by the terms of this Agreement, the Corporation will be entitled to specific performance, including immediate issuance of a temporary restraining order or preliminary injunction enforcing this Agreement, and to judgment for damages caused by such breach, and to any other remedies provided by applicable law. 3. Notices. All notices and other communications required or permitted under this Agreement shall be validly given, made, or served if in writing and delivered personally or sent by registered mail, to the Consultant/Employee at the following address. _______________________________ _______________________________ _______________________________ All notices and other communications required or permitted under this Agreement shall be validly given, made, or served if in writing and delivered personally or sent by registered mail, addressed to the Corporation at: 655 East Medical Drive Bountiful, Utah 84010 Attn: Chief Executive Officer or at any other address as any party may, from time to time, designate by notice given in compliance with this section. 4. Attorney Fees. In the event of any litigation between the parties to declare or enforce any provision of this Agreement, the prevailing party or parties shall be entitled to recover from the losing party or parties, in addition to any other recovery and costs, reasonable attorney fees incurred in such litigation, in both the trial and in all appellate courts. 5. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah. 6. Entire Agreement. This Agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this Agreement; provided, however, that if the Consultant/Employee is also a party to a separate written employment agreement with the Corporation which contains restrictions on the disclosure of confidential or proprietary Information, then the provisions of such employment agreement shall take precedence over the provisions of this Agreement. 7. Agreement Binding. This Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 8. Further Action. The parties hereto shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of the Agreement. 9. Counterparts. This Agreement may be executed in several counterparts and all so executed shall constitute one Agreement, binding on all the parties hereto even though all the parties are not signatories to the original or the same counterpart. 10. Parties in Interest. Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party. 11. Presumption. This Agreement or any section thereof shall not be construed against any party due to the fact that said Agreement or any section thereof was drafted by said party. 12. Savings Clause. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. Date: _____________________________ SPECIALIZED HEALTH PRODUCTS, CONSULTANT/EMPLOYEE INC., a Utah corporation By_____________________________ _______________________________ _________ _________ Its Name _______________________________ _______________________________ _______ ____ EX-10.6 15 EXHIBIT 10.6 Joint Venture Agreement JOINT VENTURE AGREEMENT This Joint Venture Agreement (the "Agreement") is made as of this 30th day of October, 1995, by and between Specialized Health Products, Inc., a Utah corporation ("SHP"), Zerbec, Inc., a Texas corporation ("Zerbec"). RECITALS A. WHEREAS the Venturers reached an earlier agreement memorialized in a Letter of Intent, dated January 7, 1995, which is attached hereto as Appendix A. In those areas where there are differences between this Agreement and the Letter of Intent, this Agreement takes precedence. B. WHEREAS SHP and Zerbec (collectively the "Venturers") shall cause a corporation to be formed under the laws of the State of Utah ("NewCo"); C. WHEREAS Zerbec has skills, proprietary technologies and know-how in diagnostic imaging areas, which can be used to develop novel and cost-competitive products and processes using solid state filmless X-Ray and other photon based detector technologies; D. WHEREAS SHP has skills and know-how in diagnostic imaging, instrumentation development and manufacturing, funding acquisition, and regulatory experience; and E. WHEREAS the Venturers desire to create a joint venture to timely develop, manufacture, distribute and market products and technologies using solid state X-Ray or other photon-based detector technologies. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual promises set forth herein and intending to be legally bound, the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Affiliate. The term "Affiliate" means a Person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Person specified. 1.2 Assigned Technology. The term "Assigned Technology," as used herein shall mean the following listed patents, patent applications, patents to be issued pursuant thereto, and all divisions, continuations, continuations-in-part, reissues, reexamines, substitutes, and extensions thereof, as well as all related subject matter and improvements and modifications thereto, the basis for which is found therein: COUNTRY PATENT NUMBER STATUS U.S.A. 4,763,002 Expires 2005 U.S.A. 4,446,365 Expires 2001 U.S.A. 4,539,591 Expires 2002 U.S.A. 4,085,324 Expired 1995 Canada 1,156,772 Expires 2000 Canada 1,159,507 Expires 2000 Canada 1,162,332 Expires 2001 1.3 Improvement or Improvements. The term "Improvement" or "Improvements" as used herein, shall mean any modification of a device, method, or product described in the Assigned Technology provided that such a modification would infringe one or more claims of the issued patents listed under section 1.2. Also, the term "Improvement" or "Improvements" shall include subsequent derivative improvements which are based upon Improvements or Technical Information received from or developed by NewCo or a Venturer including any expansion, enhancement, revision, modification, or any other form of development in which Improvements or modifications of the Improvements or Technical Information are recast, transformed, improved or adapted, except those things that are in the public domain. 1.4 Person. The term "Person" as used herein shall mean an individual, a partnership, a joint venture, a corporation, a trust, an estate, an unincorporated organization or a government or any department or agency thereof. 1.5 Technical Information. The term "Technical Information" as used herein shall mean all general and specific knowledge, experience and information, including without limitation all inventions, trade secrets, know-how and Improvements thereof and all patent and proprietary rights now owned or possessed by either Venturer or hereafter developed or acquired by or on behalf of NewCo or the Venturers, relating to the development, design, manufacture, assembly, operation, marketing, servicing or testing of the Assigned Technology and/or Improvements (including without limitation all continuations, continuations-in-part, divisions and reissues of patents), all apparatus, prototypes, equipment and parts embodying any of the above and all documents and copies thereof constituting, describing or relating to the above, including memoranda, descriptions, specifications, drawings, schematics, software, notebooks, parts lists, patents and patent applications invention records and disclosures. ARTICLE II ORGANIZATION AND MANAGEMENT OF NEWCO 2.1 Corporate Formation. The Venturers shall form and organize NewCo, a joint venture in the form of a corporation which joint venture shall be incorporated in the State of Utah under the Utah Revised Business Corporation Act. 2.2 Organizational Documents. The Articles of Incorporation shall be reviewed by both Venturers before finalization and shall be in a form reasonably acceptable to the Ventures. The Bylaws and other organizational documents of NewCo shall be established under the direction of NewCo's board of directors (the "Board"). It is hereby agreed that the organization of NewCo will be in accordance with the guidelines provided in Appendix B. 2.3 Changes in Board Organization. Until persons who are not the nominees of the Venturers are appointed to the Board, the Venturers agree that: (i) Each Venturer shall vote its shares so that each Venturer maintains Board representation equal to the other Venturer; (ii) At its discretion, each Venturer shall vote its shares so that each Venturer may remove and replace one or more of its appointees from the Board. (iii) Each Venturer agrees to be present in person or by proxy at each annual meeting of shareholders of NewCo and at each special meeting of shareholders called for the purpose of removal of any Board member or for the purpose of filling any vacancy or any newly created directorships in the Board of NewCo and will cause all stock of NewCo owned by it to be counted for quorum purposes at such meeting. 2.4 Objectives of NewCo. SHP and Zerbec will concentrate their respective expertise and resources to create wealth for NewCo and its shareholders. It is the intention of SHP and Zerbec to achieve marketability for their interests in NewCo at the earliest opportunity and before December 31, 1997. Such marketability may be achieved by means of a public stock listing, a sale or a merger of NewCo. 2.5 Business of NewCo. The purpose or purposes for which NewCo will be organized is to timely develop, manufacture, distribute and market products and technologies using the Assigned Technology and Improvements. In furtherance of said business, NewCo shall have and may exercise all the powers now or hereafter conferred by the laws of the State of Utah on corporations formed under the laws of this state, and shall do any and all things related or incidental to its business as fully as natural persons might or could do under the laws of said state. 2.6 Purposes Limited. The business of NewCo shall be limited to those activities and purposes specified in Section 2.5. 2.7 Title to Property. All property, whether real or personal, tangible or intangible, owned by NewCo shall be owned by NewCo as an entity and, insofar as permitted by applicable law, no Venturer shall have any ownership interest in such property in its individual name or right and each Venturer's interest in NewCo shall be personal property for all purposes. 2.8 Statutory Compliance. NewCo shall exist under and be governed by the applicable laws of the State of Utah. The Venturers shall make all filings and disclosures required by, and shall otherwise comply with, all such laws. 2.9 Duty of Care. The organizational documents of NewCo shall provide that the Board shall not be liable to NewCo or its shareholders to the maximum extent allowed by Utah law and that the members of the Board shall be indemnified for liability resulting from serving on the Board to the maximum extent allowed by Utah law. 2.10 Management Decisions. NewCo will be a separate company. All management decisions relating to the business of NewCo shall be made by NewCo under the direction of the Board. The Venturers will contract with NewCo to provide the Venturers with compensation for services provided to NewCo after its formation as provided herein. Compensation for services provided by the Venturers to NewCo shall be paid at commercially reasonable rates. The Venturers shall absorb their own costs incurred in connection herewith prior to the formation of NewCo. 2.11 Liability of Venturers: Indemnification. The bylaws of NewCo shall indemnify each Venturer for any act performed by it within the scope of the authority conferred upon it by this Agreement; provided, however, that such indemnity shall be payable only if such Venturer (a) acted in good faith and in a manner it reasonably believed to be in, or not opposed to, the best interests of NewCo, and (b) had no reasonable grounds to believe that its conduct was negligent, unlawful or constituted willful misconduct, and provided further that no indemnification may be made in respect of any claim, issue or matter as to which any Venturer shall have been adjudged to be liable for negligence or misconduct in the performance of its duty to NewCo unless, and only to the extent that, the court in which such action or suit is brought determines that in view of all the circumstances of the case, despite the adjudication of liability for negligence or misconduct, such Venturer is fairly and reasonably entitled to indemnity for those expenses which the court deems proper. Any such indemnification shall be paid from, and only to the extent of, NewCo assets, and no Venturer shall have any personal liability on account thereof. 2.12 Debt. NewCo shall not create, incur, assume, or suffer to exist any obligation for borrowed money other than current accounts payable and similar current liabilities incurred in the ordinary course of business until completion of the first level of the Second Phase Financing (defined below). In no event, however, shall such debt exceed $10,000 until completion of the first level of the Second Phase Financing. ARTICLE III ASSIGNMENT AND FUNDING 3.1 Assigned Technology. Within 45 days after the formation of NewCo, Zerbec shall assign to NewCo Zerbec's entire right, title and interest in the above identified Assigned Technology and Improvements and any related logos, trademarks or copyrights. Once the Assigned Technology has been assigned to NewCo it cannot be reassigned to another entity without unanimous consent of all parties hereto. 3.2 SHP Funding to NewCo for Services to be Provided by Zerbec. SHP hereby agrees to provide NewCo with $15,000 per month for up to a consecutive twelve month period beginning the month during which this Agreement is executed for use by NewCo to pay Zerbec for services to be provided by Zerbec. 3.3 SHP Termination of Funding to NewCo for Services to be Provided by Zerbec. SHP may terminate the funding referenced in Section 3.2 if, in the judgment of SHP, Zerbec fails to provide reasonable support for acquisition of Second Phase Financing as evidenced by failure to meet the milestone objectives set forth in Appendix D. A written notice of such termination shall be given to Zerbec at least thirty (30) days before termination of the funding reference in Section 3.2. Said funding will continue, however, if the cause of the termination notice is reconciled within said thirty (30) day period. 3.4 SHP Funding to NewCo for Internal Operations. SHP hereby agrees to provide NewCo with up to $15,000 per month for up to a consecutive twelve month period beginning the month during which NewCo is incorporated in order to fund NewCo's internal operations. The funding referenced in this Section 3.4 and in Section 3.2 are hereinafter referred to as the "Interim Funding." 3.5 Second Phase Financing. SHP shall use reasonable efforts to assist NewCo in locating and securing funding of not less than $3,000,000 with a target of $6,000,000 (the "Second Phase Financing"). The first level of Second Phase Financing is a minimum of $3,000,000. The second level of Second Phase Financing is an additional $3,000,000. (i) The first level of Second Phase Financing is to be raised within 12 months of the signing of this Agreement as stated in the milestones of Appendix C. (ii) At the successful securing of at least the first level of the Second Phase Financing, SHP will terminate the Interim Funding. (iii) At the successful securing of the second level of the Second Phase Financing, NewCo will repay SHP an amount equal to the total amount of Interim Funding paid by SHP to NewCo. 3.6 Failure to Meet First Level of Second Phase Financing. If the first level of the Second Phase Financing is not met within 12 months from the date hereof, then Zerbec shall have the right to acquire two thirds of SHP's NewCo stock for $1.00 upon thirty (30) days written notice to SHP. ARTICLE IV THE VENTURERS 4.1 Services to be Provided by SHP Before the First Level of the Second Phase Financing. SHP shall provide the following services to NewCo at NewCo's expense before the first level of the Second Financing is secured. 4.1.1 Selection of Full Time Employee. Mr. Jim Yardley or some other person selected by SHP shall become a full time employee of NewCo and will be responsible to coordinate the operations and business of NewCo. Said employee's salary shall be paid by SHP until the formation of NewCo. Thereafter, NewCo will pay said salary. 4.1.2 Facilities. SHP shall make available to NewCo reasonable facilities from which NewCo may conduct its business, including utilities, office furniture, telephone service, office supplies and equipment. Such facilities shall be located in Bountiful, Utah, or such other location(s) as SHP shall determine. 4.1.3 Patent Procurement. SHP shall provide NewCo with reasonable assistance in filing and prosecuting all current and new patent applications relating to the Assigned Technology. 4.1.4 Human Resources. SHP shall provide NewCo: with reasonable assistance in the following areas: accounting, human resources, payroll, employee fringe benefits and other services as related to the support of Mr. Jim Yardley or some other person selected by SHP under constraints of a budget approved by SHP. 4.1.5 Business Plan. SHP shall provide NewCo with assistance, to the degree reasonably requested by NewCo, in the preparation of a detailed five (5) year business plan. The business plan shall include projections on costs to commercialize the Assigned Technology, a marketing plan and projected financial statements. Such plan shall indicate the resources required to achieve commercialization of the Assigned Technology. 4.2 Services to be Provided by Zerbec Before the First Level of the Second Phase Financing. Zerbec shall provide the following services to NewCo before the first level of the Second Phase Financing is secured. 4.2.1 Small Plate Demonstration System. Zerbec shall develop a small plate selenium detector demonstration unit for NewCo that can be used to validate the technology. This demonstration system will be capable of a resolution of at least 10 1p/mm with the goal of 20 1p/mm. 4.2.2 Patent Procurement. Zerbec shall provide reasonable assistance to NewCo in filing and prosecuting of all current and new patent applications relating to the Assigned Technology and Improvements. 4.2.3 Presentations. Zerbec shall provide reasonable technical support in making presentations to prospective investors, including demonstration of the new demonstration unit and/or the original experimental development system. 4.2.4 Introductions. Zerbec shall provide business contact with appropriate hospital, clinic, and research resources which will facilitate obtaining information in order to strategically help NewCo. 4.2.5 Facilities. Beginning on the date hereof, Zerbec shall make available to NewCo reasonable research facilities for the development of the small plate demonstration unit, including utilities, computers, and communications equipment and connections. Such facilities shall be in such location(s) as Zerbec shall determine. 4.2.6 Research. Zerbec shall research potential sources of amorphous selenium, low noise amplifiers, scanning systems and other technologies that will be beneficial for the updating/upgrading of the Assigned Technology. 4.2.7 Business Plan. Zerbec shall provide NewCo with assistance, to the degree reasonably requested by NewCo, in the preparation of a detailed five (5) year business plan. The business plan shall include projections on costs to commercialize the Assigned Technology, a marketing plan and projected financial statements. Said plan shall indicate the resources required to achieve commercialization of the Assigned Technology. 4.3 Services to be Provided by SHP After the First Level of the Second Phase Financing. SHP shall provide the following services to NewCo after the first level of the Second Phase Financing is secured. 4.3.1 NewCo Technical Employees. SHP shall provide, under the direction of Dr. Gale H. Thorne, resources to aid NewCo in assembling a group of seasoned imaging system development engineers. Dr. Gale H. Thorne will be made available to serve on the Board and will provide professional services reasonably requested by the Board. 4.3.2 Facilities and Services. SHP will contract with NewCo to provide, at NewCo's expense, reasonable facilities and services to NewCo until NewCo is reasonably able to provide these facilities and services for itself. Such facilities include offices from which NewCo may conduct its business, including utilities, office furniture, telephone service, office supplies and equipment. Such services include patent procurement, accounting, human resources, payroll, employee fringe benefits, and other related services and issues. 4.3.3 Contact Network. SHP will use its expertise to help NewCo establish a contact network used initially to provide system development inputs, a set of alpha test sites and beta test sites. 4.4 Services to be Provided by Zerbec After First Level of the Second Phase Financing. Zerbec shall provide the following services to NewCo after the first level of the Second Phase Financing is secured. 4.4.1 Patent Procurement. Zerbec shall provide reasonable assistance to NewCo in filing and prosecuting all current and new patent applications relating to the Assigned Technology and Improvements. NewCo shall bear all expenses relating to such patent procurement. 4.4.2 Introductions. Zerbec shall provide business contact with appropriate hospital, clinic, and research resources which will facilitate obtaining information in order to strategically help NewCo. 4.4.3 Research Team. Zerbec shall assemble and manage a research team that will oversee early proprietary property specifications and development of the Assigned Technology. 4.4.4 X-Ray Cassette System. Zerbec will contract with NewCo to provide support in the development of the selenium plate technology so that within one year after the Second Phase Financing has been secured, NewCo may be able to build an alpha test Mammography Imaging Instrument system as specified in Appendix E. These services will be provided at a cost of not more than $800,000 to NewCo. This system will be capable of capturing, processing and displaying an X-Ray image using a cassette that is 24mm X 30 mm. The cost will cover: (i) Resources. Time and materials for the principal inventor, four associate inventors, administrator, three research assistants, three consultants and an administrative assistant; (ii) Facilities. Office and laboratory facilities, furniture and equipment, office supplies, utilities, communications and computer equipment, research equipment and supplies; and (iii) Other. Accounting, employee fringe benefits and travel expenses. Zerbec will also contract with NewCo to provide research support to enable NewCo to build an alpha test system for X-Ray, as specified in Appendix F, which will be completed within 6 months after completion of the alpha test Mammography Imaging Instrument. The cost for this system has not been determined. 4.4.5 Ongoing Research & Development. Zerbec will continue to support NewCo in selenium plate technology and the related Improvements. SHP anticipates that when the second level of the Second Phase Financing is secured, R&D development funding to Zerbec as requested by NewCo, may be in the amounts suggested below: Year 2 up to $600,000 Year 3 up to $400,000 Year 4 up to $400,000 Year 5 up to $400,000 The intent of said funding is to utilize the expert resources available to Zerbec. SHP anticipates that this funding may continue indefinitely, but it depends upon Zerbec's ability to perform such services. It is Zerbec's intent to provide such research and development services to NewCo, and Zerbec anticipates that the specific objectives and deliverables of each year's funding will be determined through collaborations between Zerbec and NewCo and will be based, in part, on the strategic intent and plans of NewCo. 4.5 Restrictions on Transfer. No Venturer may, without the consent of the other Venturer, sell, convey, transfer, assign, mortgage, pledge, hypothecate, encumber or otherwise dispose in any way all or any portion of its interest in NewCo for two years after completion of the Second Phase Financing. 4.6 Liability of Ventures; Indemnification. No Venturer shall be liable, responsible or accountable in damages or otherwise to NewCo or the other Venturer for any act or omission performed or omitted by it in good faith on behalf of NewCo and in a manner reasonably believed by it to be within the interests of NewCo if it shall not have been guilty of negligence or willful misconduct with respect to such acts or omissions. 4.7 No Further Contributions. The Venturers shall not be required to contribute additional capital, loan any funds or provide services to NewCo, except as expressly set forth herein. ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1 Zerbec's Representations and Warranties. As of the date hereof, each of the statements in this Section 5.1 shall be a true, accurate and a full disclosure of all facts relevant to the matters contained therein, and such warranties and representations shall survive the execution of this Agreement. Zerbec hereby represents and warrants to SHP as follows: 5.1.1 Organization. That Zerbec is duly organized under the laws of the State of Texas and has the requisite power and authority to enter into and carry out the terms of this Agreement. 5.1.2 Consents. The required approvals, consents and other required corporate action have been obtained/taken by Zerbec in connection with the execution and performance of the transactions contemplated herein. No further approval of any board, court, or other body is necessary in order to permit Zerbec to consummate this Agreement. 5.1.3 Authority. The person(s) negotiating this Agreement on behalf of Zerbec have full power and authority to do so. 5.1.4 Ownership. Zerbec agrees that the assignment referenced in Section 3.1, will provide NewCo, with ownership of the entire right, title and interest in and to the Assigned Technology and Improvements free and clear of all liens and encumbrances, except for royalties due from Zerbec to M.D. Anderson and/or the University of Texas (hereinafter individually and collectively "MD Anderson"), such royalties to be fully met by compensation provided to M.D. Anderson as follows: (i) NewCo shall pay to Zerbec for subsequent payment to MD Anderson an amount not to exceed10% of all profits that Zerbec receives from NewCo after such profits accruing to Zerbec exceed $50,000; or (ii) M.D. Anderson shall be awarded 5% ownership of NewCo in lieu of all royalties and other financial commitments related to the Assigned Technology; 5.1.5 Intellectual Property Rights. To the best of Zerbec's knowledge the Assigned Technology does not violate any intellectual property right, including but not limited to, patent, copyright, trademark, trade dress, trade name, trade secret, right to privacy or right of publicity, or contain libelous matter, and NewCo's proposed use of the Assigned Technology will not violate any intellectual property right, as well as any statute, ordinance or governmental rule or regulation of the United States or Canada. 5.1.6 Patent Procurement. The Assigned Technology was not fraudulently procured from the U.S. Patent Office, and Zerbec has no knowledge of any circumstances which would render the patents references herein invalid. 5.1.7 Registration Documentation. Zerbec has or will within forty-five (45) days from the date hereof, provide NewCo with all existing registration documentation in its possession relating to all of its intellectual property rights in the Assigned Technology. 5.1.8 Lawsuits. There is no lawsuit, proceeding or claim pending or, to the best of Zerbec's knowledge, asserted or unasserted claims relating to the Assigned Technology, Improvements or Technical Information. 5.1.9 Contracts. There are no contracts or obligations relating to the Assigned Technology, Improvements and/or Technical Information or to which Zerbec is a party that would interfere with the execution or performance of the transaction contemplated herein. 5.1.10 Other Agreements. The transaction contemplated herein does not violate or shall not violate any contract, document, understanding, agreement or instrument to which Zerbec is a party or by which Zerbec may be bound, or any contract, document, understanding, agreement or instrument affecting the Assigned Technology, Improvements or Technical Information. 5.1.11 Adverse Change. No representation, warranty or covenant of Zerbec in this Agreement contains or will contain any untrue statement of material fact or omit to state material facts necessary to make the statements or facts contained herein not misleading. Zerbec shall inform SHP and NewCo of any material adverse change in the foregoing representations and warranties occurring at any time after the execution hereof. 5.2 SHP's Representations and Warranties. As of the date hereof, each of the statements in this Section 5.2 shall be a true, accurate and a full disclosure of all facts relevant to the matters contained therein, and such warranties and representations shall survive the execution of this Agreement. SHP hereby represents and warrants to NewCo and Zerbec as follows: 5.2.1 Organization. That SHP is duly organized under the laws of the State of Utah and has the requisite power and authority to enter into and carry out the terms of this Agreement. 5.2.2 Consents. The required approvals, consents and other required corporate action have been obtained/taken by SHP in connection with the execution and performance of the transactions contemplated herein. No further approval of any Board, court, or other body is necessary in order to permit SHP to consummate this Agreement. 5.2.3 Authority. The person(s) negotiating the transaction contemplated herein have full power and authority to act on behalf of SHP. 5.2.4 Contracts. SHP is not a party to any contracts or obligations which would interfere with the execution or performance of the transaction contemplated herein. 5.2.5 Adverse Change. No representation, warranty or covenant of SHP in this Agreement contains or will contain any untrue statement of material fact or omit to state material facts necessary to make the statements or facts contained herein not misleading. SHP shall inform Zerbec and NewCo of any material adverse change in the foregoing representations and warranties occurring at any time after the execution hereof. ARTICLE VI CONFIDENTIALITY; COMPETITION 6.1 Confidentiality. Except as otherwise provided for herein, each of the Venturers (including their Affiliates) agree to retain in strict confidence any proprietary confidential information and trade secrets of NewCo, whether disclosed prior to or after the date hereof, and not to use or disclose to third parties, and to use its best efforts to cause its employees, agents and consultants not to use or disclose to third parties, such proprietary confidential information and trade secrets to or for any third party without the prior approval in writing of a duly authorized officer or directorof NewCo; unless it can be established by the disclosing party that such information: (i) was at the time of disclosure a part of the public knowledge or literature and readily accessible to such third party; (ii) was at the time of disclosure already known by the receiving party otherwise then under an obligation of confidentiality; or (iii) was required by law to be disclosed. 6.2 Competition. No Venturer nor any Affiliates of the Venturers (either individually, collectively or with others) shall, without the prior written consent of the other Venturer and NewCo, conduct or invest in any business which competes with NewCo's business. If the Venturer obtains the written consent of the other Venturer and NewCo to conduct or invest in a business which competes with NewCo, no Venturer who competes with NewCo will enter into any contract with NewCo that has the effect of restricting, controlling, or reducing the competition between NewCo and the competing Venturer. 6.3 Ownership of Technical Information. The Venturers agree to assign to NewCo upon its formation and thereafter any and all of their right, title and interest in and to any and all Technical Information made, generated or conceived by it before and/or during the period of NewCo's corporate existence, and the Ventures agree to disclose all such Technical Information to NewCo in writing. ARTICLE VII MISCELLANEOUS 7.1 No Liabilities Assumed. Unless and except as expressly set forth herein, none of the parties hereto assume any liability, nor bear any responsibility or liability for the payment of any debts, obligations, liabilities or claims of NewCo or any other party hereto. 7.2 Assignments. This Agreement shall not be assignable by any party hereto, nor shall the performance of any of the duties hereunder be delegable by any party hereto, without the written consent of all the other parties hereto. This Agreement shall not be assignable by operation of law. 7.3 Assistance. Each of the parties covenants and agrees that it will assist NewCo in the sale, distribution and marketing of the Assigned Technology, and will provide its expertise in this regard when reasonably requested by NewCo. 7.4 Duty to Inform. Each Venturer shall keep the other Venturer and NewCo informed of its activities to raise capital, develop, distribute, market or otherwise assist NewCo. 7.5 Interim Use of Patent and Technical Information. From the date of execution of this Agreement and continuing until the termination of the Agreement, neither Zerbec nor SHP shall market, advertise for sale, transfer, sell, hypothecate, mortgage or otherwise deal with the Assigned Technology in a manner that is inconsistent with the terms of this Agreement. 7.6 Notices. Any such notice required or permitted to be given by one party to the other may be given by personal service, telegram, or mailing. If any notice is sent by certified mail or deposited into the custody of Federal Express, United Parcel Service or another overnight courier service, for overnight delivery, postage prepaid and addressed to such party at the address hereinafter specified, such notice shall be effective upon its deposit into the custody of such couriers. All other notices shall be effective upon receipt. The addresses of the parties for all purposes under this Agreement shall be: SHP: Dr. Gale H. Thorne Specialized Health Products International, Inc. 655 East Medical Drive Bountiful, Utah 84010 With copies to: Eric L. Robinson Blackburn & Stoll, LC 77 West 200 South, Suite 400 Salt Lake City, Utah 84101 Zerbec: Charles D. Becker Zerbec, Inc. 8415 Datapoint San Antonio, Texas 78229 With copies to: Alfonso Zermeno 6334 Community Houston, Texas 77005 Either party may change the address at which it desires to receive notice upon written notice of such change to the other party. 7.7 Attorneys' Fees. In the event a party hereto brings suit to enforce or interpret this Agreement or for damages on account of the breach of a covenant, representation or warranty contained herein, the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs incurred in any such action, in addition to other relief to which the prevailing party is entitled. 7.8 Severability. Whenever possible, each provision of this Agreement and every related document shall be interpreted in such manner as to be valid under applicable law; but, if any provision of any of the foregoing shall be invalid or prohibited under applicable law, such provision shall be ineffective to the extent of such invalidity or prohibition without invalidating the remainder of such provision or the remaining provisions of this document. 7.9 Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Utah. 7.10 Counterparts. This Agreement may be signed in one or more counterparts, any one of which shall be deemed to be an original. The signature in counterpart on a facsimile transmission copy of this Agreement shall be valid and binding. 7.11 Further Actions. Each of the parties to this Agreement shall promptly execute and deliver such documents and take such action as may be reasonably requested by another party to this Agreement in order to carry out the intentions and purposes of this Agreement. 7.12 Non-Waiver. The failure of any party to enforce any of the provisions of this Agreement or any rights with respect thereto or to exercise any election provided for therein, shall in no way be considered a waiver of such provisions, rights, or elections or in any way to affect the validity of this Agreement. No term or provisions hereof shall be deemed waived and no breach excused, unless such waiver or consent shall be in writing and signed by the party claimed to have waived or consented. The failure by a party hereto to enforce any of said provisions, rights, or elections shall not preclude or prejudice that party from later enforcing or exercising the same or in any other provisions, rights, or elections which it may have under this Agreement. Any consent by any party to, or waiver of, a breach by the other, whether express or implied, shall not constitute a consent or waiver of, or excuse for any other, different or subsequent breach. All remedies herein conferred upon any party shall be cumulative and no one shall be exclusive of any other remedy conferred herein by law of equity. 7.13 No Third Party Beneficiary. It is the intention of the parties hereto that no Person shall be deemed to be a third party beneficiary of this Agreement. 7.14 Entire Agreement. This Agreement constitutes the entire agreement of the parties. 7.15 Transfers. This Agreement shall be binding not only upon the parties hereto, but also upon, without limitation thereof, their successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. ZERBEC, INC.: SPECIALIZED HEALTH PRODUCTS, INC.: By /s/ Charles D. Becker_______________ By /s/ David A. Robinson Charles D. Becker ______________ Its president David A. Robinson Its president SUMMARY OF APPENDICES APPENDIX "A" - Letter of Intent "B" - Organizational Guidelines "C" - Milestones for SHP "D" - Milestones for Zerbec "E" - Alpha Test Mammography Imaging Instrument "F" - Alpha Test 14" x 17" Cassette Imaging Instrument Appendix A Letter of Intent Dated: January 7, 1995 January 7, 1994 Mr. Charles Becker President ZERBEC, INC. 8415 Datapoint Drive, Suite 1000 San Antonio, Texas 78229 Re: Letter of Intent Dear Charles: With reference to recent discussions we hereby confirm our intent to join with ZERBEC, INC. ("ZERBEC") in a joint venture to develop, manufacture, distribute and market products protected by the intellectual property assigned to ZERBEC by Alfonso Zermeno, Ph.D. who received assignment from the University of Texas System (the "Patents") in accordance with the following basic terms and conditions: 1. Corporate Formation. SPECIALIZED HEALTH PRODUCTS, INC. ("SHP") and ZERBEC shall cause a joint venture to be formed under the laws of the State of Utah (the "Joint Venture"). 2. Objective of the Joint Venture. The principal activities of the Joint Venture will be to timely develop, manufacture, distribute and market products protected by the Patents (the "Technology"). The Joint Venture may itself enter into arrangements with third parties for the efficient performance of any of these activities. 3. Objective(s) of the Joint Venturers SHP and ZERBEC will concentrate their respective expertise and resources to create wealth for the Joint Venture and the Joint Venturers. It is the intention of SHP and ZERBEC to achieve marketability for their interests in the Joint Venture at the earliest opportunity and before 31st December, 1997. Such marketability may be achieved by means of a public stock listing, a sale or merger of the Joint Venture. 4. Initial Organization. a. Assistance by SHP. i. Business Plan. SHP shall be responsible for the preparation of a detailed five (5) year business plan. ZERBEC shall be fully involved in the preparation of the said plan and shall provide to SHP its knowledge and expertise. The business plan shall include projections on costs to commercialize the Technology, a marketing plan and projected financial statements. Such plan shall indicate the resources required to achieve commercialization of the Technology. The preparation of such plan shall commence immediately following the execution of this Letter of Intent. ii. Funding. SHP shall use its best efforts to assist the Joint Venture in locating and securing a third party funding source that will provide the financial resources required to commercialize the Technology which shall in any event be not less than SIX MILLION DOLLARS ($6,000,000). It is the intention that in return for such funding the funding party shall receive not more than a one third equity interest in the Joint Venture upon terms and conditions to be negotiated or upon such other terms as may be agreed to by the management of the Joint Venture (the "Funding"). In the absence of securing a third party funding source the Funding may be provided by SHP or ZERBEC. iii. Development Group. SHP shall provide resources to the Joint Venture to enable it to assemble a group of seasoned imaging system development engineers. Such efforts shall be spearheaded by Dr. Gale H. Thorne (subject to the approval of the Joint Venture). iv. Contact Network. SHP will use its expertise to help the Joint Venture establish a contact network used initially to provide system development inputs, a set of alpha test sites and beta test sites. v. Patent Procurement. SHP shall use its expertise to assist the Joint Venture in filing and prosecuting patents relating to the Technology. vi. Management. SHP shall provide resources to the Joint Venture to enable it to locate development and fiscal management. SHP may provide personnel for such positions. b. Assistance by ZERBEC. i. Patents. ZERBEC shall grant an exclusive, world- wide license (the License) for the Joint Venture to make, use and sell the Patents including, but not limited to, all extensions of the original intellectual property owned by ZERBEC. Any intellectual property developed after the formation of the Joint Venture will be owned by the Joint Venture. ii. Technical Information. ZERBEC shall license and deliver to the Joint Venture all published and unpublished research and development information, unpatented inventions, know-how, trade secrets and technical data in the possession of ZERBEC, under the conditions of 4.b.i (above), which are needed to fully exploit the Technology (the "Technical Information"). iii. Research Team. ZERBEC shall assist the Joint Venture in developing a research team that will oversee critical early proprietary property specifications and development of the initial products of the Joint Venture. iv. R&D Objectives. ZERBEC shall assist the Joint Venture in establishing R&D objectives for the research team members. v. Operating Budgets. ZERBEC shall assist the Joint Venture in developing agreements (including all rights to intellectual property) and operating budgets for the research team. vi. Business Plan. ZERBEC shall provide it knowledge and expertise in the preparation of the business plan as provided in Section 4.a.i. 5. Organization of the Joint Venture. a. Ownership. Initially both SHP and ZERBEC shall have equal (fifty percent) ownership interests (the Initial Interests) in the Joint Venture. Upon allocation of an ownership interest to the funding party in accordance with Section 4.a.ii., the Initial Interests of SHP and ZERBEC shall be reduced equally. b. Election of Board. The initial board of directors shall be elected by cumulative voting and shall consist of five (5) directors. ZERBEC and SHP shall each have the right to appoint two (2) directors and it is intended that the funding party shall have the right to appoint one (1) director. c. Research Team. All initial research will be contracted to ZERBEC at reasonable costs to the Joint Venture. As found necessary, later research may be performed by the Joint Venture, assisted by ZERBEC. d. Other Teams. The Joint Venture will have development, manufacturing, quality control, financial management, sales and marketing teams. SHP shall provide resources on an arm's length basis at reasonable costs to the Joint Venture to enable such teams to operate. e. Budgets. The Joint Venture will develop budgets and budgetary control systems for the financial management and control of its operations. No budgets will be set up nor funds expended, for purposes outside of the development, manufacture and operations associated with products relating to the Patent without the prior approval of SHP and ZERBEC. f. Reversion of the Intellectual Property. The Agreement (defined below) shall provide, upon terms to be negotiated by the parties, that the all rights to and in the intellectual property ZERBEC assignees or transfers to the Joint Venture shall revert to ZERBEC in the event that the Joint Venture terminates through lack of funding and is unable to pursue its objectives. g. Incentive Plans. The Joint Venture shall introduce incentive ownership plans to provide incentives to key personnel and organizations, inside and outside the Joint Venture, who make contributions to the Joint Venture. 6. Formal Agreements. a. Joint Venture Agreement. It is understood that this Letter of Intent, after execution by the parties, is intended to be binding. It represents the general conditions to which the parties have agreed, and will be the basis of a more comprehensive agreement(s) to follow (the "Agreement"). Both parties shall use their best efforts to negotiate and execute these documents in a timely manner. b. Protection of Minority Interests. The organizational document and/or other agreements shall provide for protection of minority interests in the following ways: i. The Joint Venture will distribute net cash from operations not required for future operations or reserves. ii. There shall be restrictions on the ability of management or related parties to take non arms-length payments for services. iii. No joint venturer or group of joint venturers may sell an aggregate interest in the Joint Venture exceeding 10% of the Joint Venture, without providing all joint venturers with an opportunity to participate in such sale. iv. All joint venturers shall be able to sell their interests to a third party after having first offered such interest to fellow interest owners on no less favorable terms. v. Subject to Section 4.a.ii., the Joint Venture shall not sell a share in the Joint Venture to third parties without first offering such share to existing Joint Venturers. c. Compensation. SHP and ZERBEC shall enter into arrangements with the Joint Venture for compensation for services provided to the Joint Venture after its formation. It is understood that no compensation shall be paid for such services in the event that the Funding is not obtained. Each Party to the Joint Venture shall absorb its own costs incurred prior to formation of the Joint Venture. 7. ZERBEC's Representations and Warranties. ZERBEC shall furnish SHP and the Joint Venture with representations and warranties, including, but not limited to, the following: a. Organization. That ZERBEC has been duly organized under the laws of the State of Texas. b. Consents. The required approvals or consents have been obtained by ZERBEC in connection with the execution and performance of the transactions contemplated herein. ZERBEC will provide a complete disclosure regarding ongoing relationship with MD Anderson and the original inventors. c. Authority. The person(s) negotiating the transaction contemplated herein have full power and authority to act on behalf of ZERBEC. d. Ownership. The entire right title and interest in and to the Patents and Technical Information are owned by ZERBEC free and clear of all liens and encumbrances except for (1) the right of the University of Texas to use the Patents, Technical Information and/or Technology in its own facilities, and (2) the obligation of ZERBEC to pay the University of Texas a 10% of any combined royalties and other net income exceeding $50,000 that ZERBEC receives from commercialization of the Technology. e. Lawsuits. There is no lawsuit, proceeding or claim pending or, to the best of ZERBEC's knowledge, asserted or unasserted claims relating to the Patent and/or Technical Information. f. Contracts. There are no contracts or obligations relating to the Patent or Technical Information which would interfere with the execution or performance of the transaction contemplated herein. g. Other Agreements. The transaction contemplated herein does not violate or shall not violate any contract, document, understanding, agreement or instrument to which ZERBEC is a party or by which ZERBEC may be bound, or any contract, document, understanding, agreement or instrument affecting the Patent or Technical Information. h. Adverse Change. ZERBEC shall inform SHP and the Joint Venture of any material adverse change in the foregoing representations and warranties occurring at any time after the execution hereof. 8. SHP's Representations and Warranties. SHP shall furnish ZERBEC and the Joint Venture with representations and warranties, including, but not limited to, the following: a. Organization. That SHP has been duly organized under the laws of the State of Utah. b. Consents. The required approvals or consents have been obtained by SHP in connection with the execution and performance of the transactions contemplated herein. c. Authority. The person(s) negotiating the transaction contemplated herein have full power and authority to act on behalf of SHP. d. Contracts. There are no contracts or obligations which would interfere with the execution or performance of the transaction contemplated herein. e. Adverse Change. SHP shall inform ZERBEC and the Joint Venture of any material adverse change in the foregoing representations and warranties occurring at any time after the execution hereof. 9. Breach of Misrepresentation or Warranty. If either party hereto breaches a representation or warranty then the other party shall have the right to terminate this Letter of Intent and all obligations hereunder shall cease. 10. No Liabilities Assumed. Except as otherwise provided in Section 11., the Joint Venture will not assume, nor bear any responsibility or liability for the payment of any debts, obligations, liabilities or claims related to the Technology which accrue, arise out of or in connection with any ownership of the Technology prior to the licensing of the Technology to the Joint Venture. 11. University of Texas Obligation. SHP has been provided with certain documents revealing an obligation on the part of ZERBEC to pay certain sums to the University of Texas in connection with the commercialization of the Technology. The parties hereto agree that any such obligations will be assumed by the Joint Venture. 12. Confidentiality. The parties acknowledge and agree that their relationship with the Joint Venture, including their officers, directors and/or employees, will necessarily involve their access to certain trade secrets and confidential information pertaining to the business of the Joint Venture. Accordingly, each of the parties agrees that during the term of this Letter of Intent and the Agreement and at all times thereafter it will not disclose, and will use its best efforts to prevent any of its employees from disclosing, to any unauthorized third party any of the trade secrets or confidential information pertaining to the business of the Joint Venture. 13. Duty to Inform. Each Joint Venturer shall keep the other Joint Venturer and the Joint Venture informed of its activities to develop, distribute, market or otherwise assist the Joint Venture. 14. Termination. In the event that the Joint Venture has not secured the Funding either party hereto may, at its option, terminate the Agreement by giving the other party and the Joint Venture not less than sixty (60) days written notice, to expire not earlier than June 30, 1995. The Agreement shall not terminate, however, if the Funding is secured prior to the expiration of said sixty (60) day period. In the event the Agreement is terminated, the License shall also be terminated. 15. Interim Use of Patent and Technical Information. From the date of execution of this Letter of Intent and continuing until the termination of the Agreement, neither ZERBEC or SHP shall market, advertise for sale, transfer, sell, hypothecate, mortgage or otherwise deal with the Patent or Technical Information in a manner that is inconsistent with the terms of this Letter of Intent. 16. Assignments. This Letter of Intent shall not be assignable by any party hereto, nor shall the performance of any of the duties hereunder be delegable by any party hereto, without the written consent of all the other parties. This Agreement shall not be assignable by operation of law. 17. Assignment of Patents and Technical Information. Upon receipt by the Joint Venture of the funding referred to in Section 4.a.ii. and the execution of an agreement with the University of Texas clarifying its rights arising out of its assignment of the Patents, then, at the option of the Joint Venture, all of ZERBEC's right, title and interest in the Patents and Technical Information will be assigned to the joint Venture in substitution for the License. 18. Assistance. Each of the parties covenants and agrees that upon execution of an Agreement, and so long as it is a Joint Venturer, it will assist the Joint Venture in the sale, distribution and marketing of the Technology, and will assist provide its expertise in this regard when reasonably requested by the Joint Venturer. Payment for services provided to the Joint Venture that are provided by nonemployees of the Joint Venture will be paid at commercially reasonable rates. 19. Attorneys' Fees. In the event either party brings suit to enforce or interpret this Letter of Intent or for damages on account of the breach of a covenant, representation or warranty contained herein, the prevailing party shall be entitled to recover from the other party its reasonable attorneys' fees and costs incurred in any such action, in addition to other relief to which the prevailing party is entitled. 20. Severability. Whenever possible, each provision of this Letter of Intent and every related document shall be interpreted in such manner as to be valid under applicable law; but, if any provision of any of the foregoing shall be invalid or prohibited under applicable law, such provision shall be ineffective to the extent of such invalidity or prohibition without invalidating the remainder of such provision or the remaining provisions of this document. 21. Governing Law. This Letter of Intent shall be construed and interpreted in accordance with the laws of the State of Utah. 22. Counterparts. This Letter of Intent may be signed in one or more counterparts, any one of which shall be deemed to be an original. Very truly yours, SPECIALIZED HEALTH PRODUCTS, INC.: By /s/ David A. Robinson____________ David A. Robinson Its president Dated: January 7, 1994. The foregoing Letter of Intent is hereby accepted in accordance with the terms and conditions contained therein. Dated this10th day of January, 1994. ZERBEC, INC.: By /s/ Charles Becker_________________ Charles Becker Its president Appendix B Guidelines for the Organization of NewCo 1. Name. The name of the corporation shall be such name as the Venturers shall reasonably agree upon. All business of NewCo shall be conducted solely in such name. 2. Place of Business. The initial principal office of NewCo shall be located in Utah. 3. Capital Structure. NewCo shall have 1,000,000 shares of authorized capital stock, of which, 90,000 shares shall be initially distributed as described hereafter. Upon the completion of the organization of NewCo, the Ventures shall receive capital stock of NewCo in the following amounts and proportions: Venturer Initial Ownership Percentage SHP 45,000 50% Zerbec 45,000 50% In addition, 5,000 shares of capital stock shall be reserved for MD Anderson, to be issued at the direction of Zerbec upon completion of Zerbec's negotiations with MD Anderson concerning its rights in and to the Assigned Technology. In addition, it is the intention of the Venturers that the Board issue the remaining 5,000 shares of capital stock in a manner that will incentivize key employees of NewCo. 4. Issuance of Additional Shares. Issuance of shares beyond the initial shares as described in Section 3. above shall be at the discretion of the Board. 5. Board of Directors. The Board shall initially consist of an equal number of nominees from both Zerbec and SHP, and shall consist of not less than four members (i) A shareholders' meeting shall be held annually and the directors shall be elected through cumulative voting; and (ii) The Board may be expanded to a number as allowed by the bylaws of NewCo by a majority vote of the Board. 6. Protection of Minority Interests. Minority interests will be protected by: (i) NewCo will declare distributions to shareholders, on a pro rata basis, net cash from operations not required for future operations or reserves. (ii) There shall be restrictions on the ability of management or related parties to take non arms-length payments for services which restrictions shall be determined by the Board. (iii) The Venturers shall enter into a restrictive ownership agreement in a form reasonably acceptable to both Venturers whereby neither Venturer may sell, assign, transfer, mortgage, pledge, encumber or grant a security interest in any or all its interest in NewCo without first offering to sell such interest to the other Venturer upon the same terms and conditions. (iv) The NewCo shareholders shall have preemptive rights to acquire additional shares of NewCo. Appendix C Milestones for NewCo All dates represent time periods following date of this Agreement Last Acceptable Milestone Milestone Date Milestone Date 1. Form NewCo 1 Month 2 Months 2. First Version of 1 Month 2 Months Business Plan 3. First Contact with 2 Months 3 Months Financial Group 4. First Demonstration Unit 6 Months 8 Months Presentation 5. Financing Source 7 Months 10 Months Selection 6. New Patent Application 7 Months 10 Months Filing 7.. Complete at Least 9 Months 12 Months First Level of Second Phase Financing Appendix D Milestones for ZERBEC All dates represent time periods following date of this Agreement Last Acceptable Milestone Milestone Date Milestone Date 1. New MD Anderson 2 Months 5 Months Agreement 2. Demonstration Unit (10 4 Months 7 Months lp/mm) 3. New Patent Application 6 Months 8 Months Disclosure 4. Develop Method for 8 Months 11 Months Large Scanner (24mm x 30 mm Plate) Appendix E Alpha Test Mammography Imaging Instrument Preliminary Specifications The preliminary specifications for the alpha test Mammography Imaging Selenium Plate X-Ray detector instrument contains the general requirements for the system. More specific requirements will be determined as part of a product specification which will be developed through customer interviews, specifications for competitive systems, and technological advancements. Product Description The product will comprise a selenium plate cassette, cassette reader system, and a display monitor. The selenium plate cassette will be inserted into the X-Ray system in place of the film cassette. After exposure to the radiation, the cassette will be removed and placed into the cassette reader system. The image on the selenium plate will be converted to an electrical signal, digitized, interpreted by the reader system, and displayed on the monitor. The digital image can be stored on CD- ROM and transferred over communications networks. Product Specifications Cassette Size The size of the cassette will be such that the resultant image will be 24mm x 30mm. Image Resolution The image spacial resolution will be 10 lp/mm. Processing Time The image processing time from when the cassette is inserted in the reader to when the image is displayed will be less than one minute. Appendix F Alpha Test 14" X 17" Cassette Imaging Instrument Preliminary Specifications The preliminary specifications for the alpha test Selenium Plate X-Ray detector instrument contains the general requirements for the system. More specific requirements will be determined as part of a product specification which will be developed through customer interviews, specifications for competitive systems, and technological advancements.. Product Description The product will comprise a selenium plate cassette, cassette reader system, and a display monitor. The selenium plate cassette will be inserted into the X-Ray system in place of the film cassette. After exposure to the radiation, the cassette is removed and placed into the cassette reader system. The image on the selenium plate will be converted to an electrical signal, digitized, interpreted by the reader system and displayed on the monitor. The digital image can be stored on CD-ROM and transferred over communications networks. Product Specifications Cassette Size The size of the cassette will be such that the resultant image will be 14" X 17". Image Resolution The image spacial resolution will be 2 lp/mm. Processing Time The image processing time from when the cassette is inserted in the reader to when the image is displayed will be less than one minute. EX-16.1 16 EXHIBIT 16.1 Letter re change in certifying accountant Nielsen, Grimmett & Company Certified Public Accountants 175 East 400 South Suite 600 Member American Institute of Salt Lake City, Utah 84111 Certified Public Accountants Telephone (801) 364-4600 SEC Practice Section Fax (801) 364-2466 November 22, 1995 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: We were previously the principal accountants for Specialized Health Products International, Inc. ("SHPI"), formerly Russco, Inc. On November 10, 1995, we were dismissed as the principal accountants of SHPI. We have read SHPI's statements included under Item 5 of its Form 10-Q for the quarterly period ended September 30, 1995, and we agree with such statements. Very truly yours, /s/ Nielsen, Grimmett & Company Nielsen, Grimmett & Company EX-21.1 17 EXHIBIT 21.1 Schedule of Subsidiaries SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. LIST OF SUBSIDIARIES OF THE REGISTRANT 1. Specialized Health Products, Inc. (incorporated in Utah). 2. Quantum Imaging Corporation (incorporated in Utah), a subsidiary of Specialized Health Products, Inc. EX-27 18 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. type DEC-31-1995 DEC-31-1995 4,251,584 0 350,718 0 16,322 4,775,491 820,245 8,196 5,950,728 580,923 0 0 0 171,333 5,198,472 5,950,728 447,844 583,272 294,171 3,502,761 0 0 0 (2,908,100) 0 (2,908,100) 0 0 0 (2,908,100) (.68) (.68)
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