-----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, B8Y6TKrKzArj+1vJllL0CwMKbJZhyNPB+iIeLoGYcs/nWSL7Unr/37lW92go3FIP mHpjP6SC+DZlSivG5dMu4A== 0000823560-01-000001.txt : 20010207 0000823560-01-000001.hdr.sgml : 20010207 ACCESSION NUMBER: 0000823560-01-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL TECHNOLOGY SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000823560 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 592740462 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16594 FILM NUMBER: 1525923 BUSINESS ADDRESS: STREET 1: 12920 AUTOMOBILE BLVD CITY: CLEARWATER STATE: FL ZIP: 34622-4734 BUSINESS PHONE: 7275766311 MAIL ADDRESS: STREET 1: 12920 AUTOMOBILE BLVD CITY: CLEARWATER STATE: FL ZIP: 33762 10-Q 1 0001.txt MEDICAL TECHNOLOGY SYSTEMS, INC. FORM 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________________ to ______________________ 0-16594 Commission file number ________________________________________________________ MEDICAL TECHNOLOGY SYSTEMS, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) DELAWARE 59-2740462 - -------------------------------- -------------------- (State or other jurisdiction of (I.R.S.) Employer Incorporation or Organization) Identification No.) 12920 Automobile Boulevard, Clearwater, Florida 33762 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) 727-576-6311 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ______ 10Q-1 i MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES Index Page Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 2000 and March 31, 2000....................... 1 Condensed Consolidated Statements of Earnings - Three Months and Nine Months Ended December 31, 2000 and 1999. 2 Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) - Nine Months Ended December 31, 2000..... 3 Condensed Consolidated Statements of Cash Flow - Nine Months Ended December 31, 2000 and 1999............... 4 Notes to Condensed Consolidated Financial Statements........... 5 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................10 - 12 Part II - Other Information Item 6. Exhibits....................................................... 13 Signature...................................................... 13 1 Item 1. Financial Statements PART 1 - FINANCIAL INFORMATION MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) ASSETS
December 31 March 31, 2000 2000 ----------------- ----------------- (Unaudited) Current Assets: Cash $ 173 $ 172 Accounts Receivable, Net 2,786 2,601 Inventories 1,934 2,030 Prepaids and Other 108 86 Deferred Tax Benefits 1,085 0 ----------------- ----------------- Total Current Assets 6,086 4,889 Property and Equipment, Net 2,079 1,904 Other Assets, Net 1,624 1,073 Deferred Tax Benefits 4,634 0 ----------------- ----------------- Total Assets $ 14,423 $ 7,866 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current Maturities of Long-Term Debt $ 1,001 $ 1,052 Accounts Payable and Accrued Liabilities 2,460 2,135 ----------------- ----------------- Total Current Liabilities 3,461 3,187 Net Liabilities of Discontinued Operations 780 605 Long-Term Debt, Less Current Maturities 12,152 13,111 ----------------- ----------------- Total Liabilities 16,393 16,903 ----------------- ----------------- Stockholders' Equity (Deficit): Voting Preferred Stock 0 1 Common Stock 42 65 Capital In Excess of Par Value 8,715 8,646 Accumulated Deficit (10,399) (17,421) Less: Treasury Stock (328) (328) ----------------- ----------------- Total Stockholders' Equity (Deficit) (1,970) (9,037) ----------------- ----------------- Total Liabilities and Stockholders' Equity (Deficit) $ 14,423 $ 7,866 ================= ================= The accompanying notes are an integral part of these financial statements.
2 MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In Thousands; Except Earnings Per Share Amounts) (Unaudited)
Three Months Ended Nine Months Ended December 31 December 31 ------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Revenue: Net Sales $ 5,073 $ 4,213 $ 14,602 $ 12,283 Costs and Expenses: Cost of Sales 2,585 2,169 7,997 6,416 Selling, General and Administrative 1,355 1,139 3,678 3,314 Research and Development 58 50 110 185 Depreciation and Amortization 186 240 566 749 Interest, Net 237 293 758 884 -------------- -------------- -------------- -------------- Total Costs and Expenses 4,421 3,891 13,109 11,548 -------------- -------------- -------------- -------------- Income from Continuing Operations Before Income Taxes 652 322 1,493 735 Income Tax Benefit 5,719 0 5,719 0 -------------- -------------- -------------- -------------- Income from Continuing Operations Before Discontinued Operations and Extraordinary Gain 6,371 322 7,212 735 Loss from Operations of Discontinued Operations Before Income Taxes (212) (24) (190) (1,121) Gain on Disposal of Discontinued Operations, Net of Income Tax 0 0 0 1,822 -------------- -------------- -------------- -------------- Net Income $ 6,159 $ 298 $ 7,022 $ 1,436 ============== ============== ============== ============== Earnings per Basic and Diluted Common Share (Restated): Income from Continuing Operations $ 2.11 $ 0.13 $ 2.62 $ 0.29 Income (Loss) from Discontinued Operations (0.07) (0.01) (0.07) 0.28 -------------- -------------- -------------- -------------- Net Income per Basic and Diluted Common Share (Restated) $ 2.04 $ 0.12 $ 2.55 $ 0.57 ============== ============== ============== ============== Weighted average Common Shares Outstanding - Basic and Diluted (Restated) 3,017,048 2,576,000 2,750,866 2,497,391 ============== ============== ============== ============== The accompanying notes are an integral part of these financial statements.
3 MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) NINE MONTHS ENDED DECEMBER 31, 2000 (In Thousands, Except for Number of Shares) (Unaudited)
COMMON STOCK -------------------------------------------------------------------------------------- Number .01 Capital in Retained Treasury of Par Excess of Earnings Stock Total Shares Value Par Value (Deficit) ----------- ----------- ----------- ------------ ------------ ----------- Balance, March 31, 2000 6,542,621 $ 65 $ 8,646 $ (17,421) $ (328) $ (9,038) Issuance of Stock Options 45 45 Exchange of Preferred Stock for Common Stock 4,000,000 40 (39) 1 Reverse Stock Split (6,325,593) (63) 63 0 Net Income for Nine Months Ended December 31, 2000 7,022 7,022 ---------------------------------------------------------------------------------------- Balance, December 31, 2000 4,217,028 $ 42 $ 8,715 $ (10,399) $ (328) $ (1,970) ============= ============= ============ ============== ============= =========== VOTING PREFERRED STOCK ----------------------------------------------------------------------------------------------- Number $.0001 of Par Shares Value ----------- ----------- Balance, March 31, 2000 6,500,000 $ 1 $ 1 ----------- Preferred Stock to Common Stock Conversion (6,500,000) (1) (1) ----------- ----------- ----------- Balance December 31, 2000 0 $ 0 $ 0 ----------- ----------- ----------- Total Stockholders' Equity (Deficit), December 31, 2000 $ (1,970) =========== The accompanying notes are an integral part of these financial statements.
4 MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Nine Months Ended December 31, -------------------------------------- 2000 1999 ------------- -------------- Operating Activities Net Income from Continuing Operations $ 7,212 $ 735 ------------- -------------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 566 749 Non-Cash Deferred Compensation 26 0 Income Tax Benefit (5,719) 0 (Increase) Decrease in: Accounts Receivable (185) (58) Inventories 96 (277) Prepaids and Other (22) (41) Increase (Decrease) in: Accounts Payable and Other Accrued Liabilities 325 49 ------------- -------------- Total Adjustments (4,913) 422 ------------- -------------- Net Cash Provided by Continuing Operations 2,299 1,157 ------------- -------------- Investing Activities Expended for Property and Equipment (693) (260) Expended for Product Development (521) (78) Expended for Patents and Other Assets (74) (68) ------------- -------------- Net Cash (Used) by Investing Activities of Continuing Operations (1,288) (406) ------------- -------------- Financing Activities Payments on Notes Payable and Long-Term Debt (1,037) (597) Proceeds from Borrowing on Notes Payable 25 0 Advances from Affiliates - Discontinued Operations 2 (252) ------------- -------------- Net Cash (Used) by Financing Activities of Continuing Operations (1,010) (849) ------------- -------------- Net Increase (Decrease) in Cash - Continuing Operations 1 (98) Cash at Beginning of Period - Continuing Operations 172 205 ------------- -------------- Cash at End of Period - Continuing Operations $ 173 $ 107 ============= ============== The accompanying notes are an integral part of these financial statements.
5 MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended December 31, 2000 are not necessarily indicative of the results that may be expected for the year ended March 31, 2001. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended March 31, 2000. The consolidated financial statements include the accounts of the Company and its subsidiaries, MTS Packaging Systems, Inc. ("MTS Packaging"), Medical Technology Laboratories, Inc. ("MTL") and LifeServ Technologies, Inc. ("LifeServ"). MTL and LifeServ represent discontinued operations, and accordingly, the discontinued segments' net liabilities are shown as one amount under the captions "Net Liabilities of Discontinued Operations" for fiscal 2001 and fiscal 2000. The results of operations of the discontinued segment for fiscal 2001 and fiscal 2000 has been excluded from the components of "Income (Loss) from Continuing Operations" and shown under the caption "Loss from Operations of Discontinued Operations" in the Statements of Operations. NOTE B - INVENTORIES The components of inventory consist of the following:
December 31, March 31, 2000 2000 ----------------- ----------------- (In Thousands) Raw Materials $ 928 $ 967 Finished Goods and Work in Progress 1,046 1,103 Less: Inventory Valuation Allowance (40) (40) ---------------- ---------------- $ 1,934 $ 2,030 ================ ================
Inventories are stated at the lower of cost (first-in, first-out) or market. NOTE C - EARNINGS PER SHARE Net income per common share is computed by dividing net income by the basic and diluted weighted average number of shares of common stock outstanding. For diluted weighted average shares outstanding, the Company used the Treasury stock method to calculate the common stock equivalents that stock options would represent. The effect of all options and warrants were not included in the calculation of net income per diluted common share as the effect would have been anti-dilutive. The Company effected a reverse stock split of 1 share for 2.5 shares of common stock on December 8, 2000. Earnings per basic and diluted common share have been retroactively restated for the reverse stock split. 6 NOTE D - DISCONTINUED OPERATIONS During fiscal year 2000, the Company completed a strategy of focusing all its resources on the core business, MTS Packaging, and divesting the other two business segments it historically operated. The Company sold the principal assets of its Health Care Information Systems business, LifeServ, in May 1999 and its Clinical Laboratory Services business, MTL, in January 2000. The sale of the assets of LifeServ occurred in the first quarter of fiscal 2000 and resulted in a gain on disposal of $1.8 million. The sale of MTL did not occur until the fourth quarter of fiscal 2000. As part of that sale, the Company retained certain assets and liabilities of MTL. The assets are primarily comprised of accounts receivable that the Company continues to attempt to collect. The operations of MTL during the first nine months of fiscal 2001 were primarily confined to the collection of accounts receivable. The Company estimated the realizable value of the accounts receivable at the end of fiscal 2000 to be $1,000,000. Since the date of the sale, approximately $431,000 of accounts receivable were collected. In addition, the Company determined that a portion of the accounts receivable were uncollectible and reduced the carrying value of the accounts receivable by $184,000 and $320,000 in the second and third fiscal quarters respectively. The proceeds of the collection of accounts receivable have been used to pay the ongoing cost of collections and to fund settlements with unsecured creditors of MTL. Current liabilities have been reduced by the amount of unsecured debt that has been compromised as a result of the settlements. The carrying value of the net assets of discontinued operations at December 31, 2000 and March 31, 2000 is comprised of the following.
Total Discontinued Operations ------------------------------------- December 31, March 31, 2000 2000 -------------- ------------- Current Assets $ 195 $ 1,078 Other Assets 0 0 ------------- ------------ Total Assets $ 195 $ 1,078 ------------- ------------ Current Liabilities $ 885 $ 1,567 Long-Term Liabilities 90 116 ------------- ------------ Total Liabilities $ 975 $ 1,683 ------------- ------------ Net Liabilities of Discontinued Operations $ 780 $ 605 ============= ============
7 NOTE E - LONG-TERM DEBT Long-term debt related to continuing operations consists of the following:
December 31, March 31, 2000 2000 ------------- -------------- (In Thousands) Bank Term Loan; payable in installments of interest at 7.5% and principal monthly for ten years ending September 1, 2006, with a lump sum payment of approximately $7.3 million on that date secured by all tangible and intangible assets of the Company. $ 12,649 $ 13,376 Unsecured Notes Payable plus interest at 18% through December 2000. 0 150 Unsecured Notes Payable due September 2001 plus interest at 13%. 59 142 Unsecured Note Payable plus interest at 3%, payable in monthly installments of $2,394 through September 2006. 128 169 Unsecured Note Payable under settlement agreement with State of Florida Department of Revenue, payable in monthly installments of $2,500-$3,500 over a period of four to eight years. 231 260 Other Notes and Agreements; interest and principal payable monthly and annually at various amounts through November 2001. 86 66 ------------ ------------- Total Long -Term Debt 13,153 14,163 Less Current Portion (1,001) (1,052) ------------ ------------- LONG-TERM DEBT DUE AFTER 1 YEAR $ 12,152 $ 13,111 ============ =============
The bank notes payable are collateralized by the Company's accounts receivables, inventory, equipment and intangibles. On July 6, 2000, the Company and its lender entered into an amendment to their loan agreement that included a waiver of certain defaults that may have occurred up to and including that date. In addition, the amendment provided for an increase in the monthly principal payments, a modification of the excess cash flow payment formula and a one-time principal payment of $200,000 that represented the excess cash flow payments that were due and payable through March 31, 2000. In October 1998, the Company borrowed $200,000 from an individual to support the operations of MTL. The terms and conditions of this obligation included repayment on September 1, 1999 including interest at 12% per annum. The note provided the lenders with warrants to purchase 40,000 shares of common stock of the Company at $1.88 per share for a period of ten (10) years. The fair value assigned to the warrants at the time they were issued was insignificant. The obligation matured without repayment, and the Company and the lender agreed to a repayment schedule with monthly installments commencing in October 1999 and ending in September 2001 including interest at 13%. In the event that the Company defaults on its obligations under the promissory note, the lender is entitled to receive warrants to purchase up to 320,000 and 7,200 shares of common stock at $.13 and $1.88 per share, respectively, for a period of ten (10) years. In addition, the note is secured by 116,125 shares of the Company's common stock controlled by the Chairman and C.E.O. 8 NOTE F - CONTINGENCIES In November 1998, MTL, a discontinued operation, received a refund request in the amount of $1.8 million from Medicare Program Safeguards ("MPS") following an on-site review by MPS of MTL in 1997. MTL disputed the refund request in its response to MPS in December 1998. MTL has not received any additional correspondence from MPS regarding this matter. Certain creditors of LifeServ and MTL commenced legal actions against the Company seeking payment of liabilities assumed by the buyers of LifeServ and MTL. The Company is vigorously defending these actions, and if necessary will seek appropriate remedies from the buyers. The Company is involved in certain claims and other legal actions arising in the ordinary course of business. There can be no assurances that these matters will be resolved on terms acceptable to the Company. In the opinion of management, based upon advice of counsel and consideration of all facts available at this time, the ultimate disposition of these matters will not have a material adverse effect on the financial position, results of operations or liquidity of the Company. NOTE G - RECAPITALIZATION PLAN On December 8, 2000, the Company effected a recapitalization plan. The plan included the exchange of 4,000,000 shares of common stock for 6,500,000 shares of voting preferred stock and also a reverse stock split of 1 share of common stock for 2.5 shares of common stock after the exchange of common stock for preferred stock. The recapitalization plan was approved by the shareholders at the annual meeting held on November 9, 2000. If the recapitalization plan had been completed at the beginning of the nine-month period ended December 31, 1999, the number of shares outstanding for purposes of calculating earnings per share would have been 4,217,000 and the earnings per basic and diluted common share for continuing operations for the nine months ended December 31, 2000 and December 31, 1999 would have been $1.71 and $.17 respectively, and net income per basic and diluted common shares for the nine months ended December 31, 2000 and December 31, 1999 would have been $1.67 and $.34 respectively. NOTE H - OTHER In June 2000, the Company entered into a one-year agreement with National Securities Corporation ("National") for investment banking services. As part of the compensation for services to be provided, the Company issued to National 80,000 warrants to purchase shares of common stock at $.88 per share. In addition, the Company will issue to National 40,000 warrants to purchase shares of common stock at $.88 per share if the Company's common stock qualifies for a listing on an exchange. The Company has estimated the fair value of the warrants to be approximately $45,000 and is amortizing this cost over the term of the agreement. In January 2001, the Company entered into a one-year agreement with de Jong and Associates ("de Jong") for investor relations services. As part of the compensation for services to be provided, the Company issued to de Jong 80,000 warrants to purchase common stock at $1.06 per share. The warrants begin to vest in April 2001. 9 NOTE I - INCOME TAXES At December 31, 2000, the Company had deferred tax assets of approximately $5,719,000. Net operating loss carryforwards represent approximately $4,200,000 of the deferred tax assets. These carryfoward losses are available to offset future taxable income. The carryforward losses expire beginning in fiscal year 2011 and ending in fiscal year 2020. It is management's belief that it is more likely than not that these income tax benefits will be realized in the future based in part on (1) the historical profitable operations of its core business; (2) expectations that its core business will continue to be profitable; (3) growth opportunities available for its core business; and (4) the length of time that the net operating loss carryforwards are available to offset future taxable income. Accordingly, the Company recorded a tax benefit of $5,719,000 during the three and nine months ended December 31, 2000. 10 MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-Q contains forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Additional written or oral forward-looking statements may be made by the Company from time to time, in filings with the Securities and Exchange Commission or otherwise. Statements contained herein that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions described above. Forward-looking statements may include, but are not limited to, projections of revenues, income or losses, capital expenditures, plans for future operations, the elimination of losses under certain programs, financing needs or plans, compliance with financial covenants in loan agreements, plans for sale of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events and the effects of pending and possible litigation, as well as assumptions relating to the foregoing. In addition, when used in this discussion, the words "anticipates", "estimates", "expects", "intends", "plans" and variations thereof and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which can be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained herein. Statements in Quarterly Report, particularly in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes to Condensed Consolidated Financial Statements, describe factors, among others, that could contribute to or cause such differences. Other factors that could contribute to or cause such differences include, but are not limited to, unanticipated increases in operating costs, labor disputes, capital requirements, increases in borrowing costs, product demand, pricing, market acceptance, intellectual property rights and litigation, risks in product and technology development and other risk factors detailed in the Company's Securities and Exchange Commission filings. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions of these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. RESULTS OF OPERATIONS Three Months Ended December 31, 2000 and 1999 - --------------------------------------------- Net sales for the three months ended December 31, 2000 increased 21.4% to $5.1 million from $4.2 million during the same period the prior year. Net Sales increased primarily as a result of an increase in the amount of disposable punch cards sold to new and existing customers. In addition, the development of new markets for the Company's disposable products contributed to the increase in net sales. Prices charged for disposable products increased slightly during the third quarter of fiscal 2001. The volume of disposable cards is anticipated to continue to grow as a result of reduced medication dispensing cycles and the addition of new customers. Cost of sales for the three months ended December 31, 2000 increased 18.2% to $2.6 million from $2.2 million during the same period the prior year. The increase is primarily due to the increase in net sales. Cost of sales as a percentage of sales decreased to 51.0% from 51.5% during the same period the prior year. The decrease is primarily due to efficiencies realized from increased revenue and production. In addition, the fixed operating costs incurred by the Company did not increase in proportion with the increased revenue. Increases in prices charged for disposable punch cards also contributed to the decrease in cost of sales as a percentage of revenue. 11 Selling, general and administration expenses for the three months ended December 31, 2000 increased 19.0% to $1,355,000 from $1,139,000 in the same period during the prior year primarily due to increases in selling costs associated with increased revenue. Research and development expenses for the three months ended December 31, 2000 increased 16% to $58,000 from $50,000 during the same period the prior year. The increase resulted primarily from the fact that the Company directed more of its development resources to research new products during the third quarter of fiscal 2001 compared to the same period the prior year when development resources were directed more towards completing new products. Depreciation and amortization expenses for the three months ended December 31, 2000 decreased 22.5% to $186,000 from $240,000 during the same period the prior year. This decrease is a result of older assets becoming fully depreciated. Interest expense for the three months ended December 31, 2000 decreased 19.1% to $237,000 from $293,000 during the same period the prior year. The decrease results from a decrease in debt that has resulted from the regular monthly amortization of principal and the proceeds of the sale of MTL in the fourth quarter of fiscal year 2000. The Company recorded an income tax benefit of $5,719,000 during the three months ended December 31, 2000. The income tax benefit is comprised primarily of net operating loss carryforwards that are available to offset future taxable income. The carryforward losses expire beginning in fiscal year 2011 and ending in fiscal year 2020. It is management's belief that it is more likely than not that these income tax benefits will be realized in the future based in part on (1) the historical profitable operations of its core business; (2) expectations that its core business will continue to be profitable; (3) growth opportunities available for its core business; and (4) the length of time that the net operating loss carryforwards are available to offset future taxable income. Nine Months Ended December 31, 2000 and 1999 - -------------------------------------------- Net sales for the nine months ended December 31, 2000 increased 18.7% to $14.6 million from $12.3 million during the same period the prior year. Net Sales increased primarily as a result of an increase in the amount of disposable punch cards sold to new and existing customers. In addition, the development of new markets for the Company's disposable products contributed to the increase in net sales. Also, prices charged for disposable products increased approximately 2.2% during the nine months ended December 31, 2000. The volume of disposable cards is anticipated to continue to grow as a result of reduced medication dispensing cycles and the addition of new customers. Cost of sales for the nine months ended December 31, 2000 increased 25.0% to $8.0 million from $6.4 million during the same period the prior year. The increase is primarily due to the increase in net sales. Cost of sales as a percentage of sales increased to 54.8% from 52.2% during the same period the prior year. The increase is primarily due to increased material and shipping costs as well as increased labor costs. In addition, the Company offered certain discounts to new customers as a way of obtaining long-term commitments for purchase of disposables during the first and second quarters of fiscal 2001. Selling, general and administration expenses for the nine months ended December 31, 2000 increased 12.1% to $3.7 million from $3.3 million in the same period during the prior year primarily due to increases in selling costs associated with increased revenue. Research and development expenses for the nine months ended December 31, 2000 decreased 40.5% to $110,000 from $185,000 during the same period the prior year. The decrease resulted primarily from the fact the Company directed its development resources to the completion of new products during the first six months of fiscal 2001 compared to the same period the prior year when development resources were directed more towards researching new products. 12 Depreciation and amortization expenses for the nine months ended December 31, 2000 decreased 24.4% to $566,000 from $749,000 during the same period the prior year. This decrease is a result of older assets becoming fully depreciated. Interest expense for the nine months ended December 31, 2000 decreased 14.3% to $758,000 from $884,000 during the same period the prior year. The decrease results from a decrease in debt that resulted from the regular monthly amortization of principal and the proceeds of the sale of MTL in the fourth quarter of fiscal year 2000. The Company recorded an income tax benefit of $5,719,000 during the nine months ended December 31, 2000. The income tax benefit is comprised primarily of net operating loss carryforwards that are available to offset future taxable income. The carryforward losses expire beginning in fiscal year 2011 and ending in fiscal year 2020. It is management's belief that it is more likely than not that these income tax benefits will be realized in the future based in part on (1) the historical profitable operations of its core business; (2) expectations that its core business will continue to be profitable; (3) growth opportunities available for its core business; and (4) the length of time that the net operating loss carryforwards are available to offset future taxable income. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended December 31, 2000, the Company had net income from continuing operations before income tax benefit of $1,493,000 compared to net income from continuing operations of $735,000 the prior year. Cash provided by operating activities of continuing operations was $2,299,000 during the nine months ended December 31, 2000 compared to $1,157,000 provided in the prior year. The Company had working capital of $2,625,000 at December 31, 2000. The increase in cash provided by operating activities of continuing operations during the nine months ended December 31, 2000 compared to the same period the prior year was primarily due to increases in profitability. Investing activities used $1,288,000 during nine months ended December 31, 2000 compared to $406,000 during the same period the prior year. The increase resulted primarily from an increase in the level of spending that the Company has dedicated to capital equipment and increased expenditures for new product development. Financing activities used $1,010,000 during the nine months ended December 31, 2000 compared to $849,000 during the same period the prior year. The increase results primarily from the principal payments made by the Company to its secured lender pursuant to certain excess cash flow payment provisions contained in it loan agreement. The Company's short-term and long-term liquidity is primarily dependent on its ability to generate cash flow from operations. Inventory levels are not expected to change significantly based upon the Company's current level of operation. Cash flow from operations is anticipated to support the Company's working capital requirements. The Company has several new product development projects underway that are expected to be funded by cash flow from operations. These projects are monitored on a regular basis to attempt to ensure that the anticipated costs associated with them do not exceed the Company's ability to fund them from cash flow from operations. In January 2001, the Company placed new production equipment into service that will significantly increase its manufacturing capacity for disposable cards. The equipment cost approximately $750,000, and the Company has negotiated extended payment terms with the vendor through April 2001. The Company believes that cash generated from operations will be sufficient to meet its capital expenditures, product development and working capital needs for at least the next twelve months. 13 PART II - OTHER INFORMATION - --------------------------- Item 6. Exhibits A. Exhibits Consulting Agreement dated January 2, 2001 between de Jong and Associates and Medical Technology Systems, Inc. Form of Warrant dated January 2, 2001 between deJong & Associates and Medical Technology Systems, Inc. Employment Agreement between Medical Technology Systems, Inc. and Todd E. Siegel dated September 1, 1999, executed on October 28, 2000. Amendment One to Executive Stock Appreciation Rights and Non Qualified Stock Option Agreement between Medical Technology Systems, Inc. and Todd E. Siegel dated October 28, 2000. Signature - --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MEDICAL TECHNOLOGY SYSTEMS, INC. Date: February 6, 2001 By: /s/ Michael P. Conroy - ---------------------- --------------------------------------------- Michael P. Conroy Vice President & Chief Financial Officer (Principal Financial Officer) By: /s/ Mark J. Connolly --------------------------------------------- Mark J. Connolly Controller (Principal Accounting Officer and Controller) EX-10 2 0002.txt MATERIAL CONTRACTS 1 Medical Technology Systems, Inc./de Jong & Associates Inc. Agreement 1 Consulting Agreement This agreement ("Agreement") is made effective as of January 2, 2001, by and between de Jong & Associates, Inc., a California Corporation ("Consultant"), and Medical Technology Systems, Inc., a Delaware Corporation (the "Company"). Witnesseth: Whereas, Consultant is engaged in the business of providing business consulting services, promotion and investor relations services to companies for investors, stock brokerages, and the investment community, and: Whereas Consultant will provide such services and perform promotion and investor relation's services for Company, all on the terms and condition contained herein. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree as follows: 1. Engagement. Company hereby engages Consultant and Consultant hereby accepts engagement from Company as a consultant. Consultant shall perform services for Company for the period and upon the terms and conditions set forth in this Agreement. 2. Scope of Services and Duties of Consultant 2.1. Consultant shall: 2.1.1. Advise Company and provide assistance in the area of investor relations, and bring the Company to the favorable attention of the investment community; 2.1.2. Promote meetings and communications in which the public and securities industry professionals shall be introduced to the Company as circumstances may require; 2.1.3. Assist Company in the development of due diligence packages for brokers, investors and analysts if needed; 2.1.4. Assist Company in the development of a corporate recognition program that identifies Consultant as the point of contact for brokers and investors; 2.1.5. Coordinate it's services with other outside consultants engaged by the Company during the term of this agreement; 2.1.6. Assist Company in identifying and contracting with required professionals as needed; 2 Consultant will perform these services understanding that the above-referenced services will be performed in various parts of the United States and that Company will have the option of making presentations at any meeting arranged for the Company. Consultants and Company acknowledge that it is the Company's responsibility to provide Consultant with monthly DTC sheets. 2.2 Performance of Services and Duties. Consultant shall serve Company faithfully and to the best of its ability and devote such time, attention, skill and effort as is required to effectively discharge its duties hereunder, consistent with the standards of conduct and professionalism applicable to the securities industry. The manner, means and methods of conducting the Services are under the joint control of Consultant and Company, requiring the knowledge and approval of Company, which shall not be unreasonably withheld so long as they are lawful and consistent with the terms of this Agreement. 2.3 Use of Services or Advice. It is understood that there may be times when Company does not use the services or advice of Consultant. The failure of Company to use, or seek in writing Consultant advice and/or services and/or assistance, as set forth in this paragraph 2, shall not be deemed as non-performance of Consultant. 3. Term. 3.1. Term. The term of this agreement shall commence as of January 2nd 2001, and shall continue for twelve months. This agreement may be terminated by either party without cause after 90 days from the signing of this agreement. 4. Compensation. 4.1 The Company agrees to issue to the Consultant a warrant to purchase 80,000 shares of the Company's common stock exercisable at a price per share equal to the closing price of the Company's common stock on January 2, 2001 as follows: 30,000 shall vest 90 days from the signing of this agreement as long as consultant has not terminated the agreement pursuant to Section 3.1; 25,000 shall vest on the date that the price of the stock reaches $2.00 per share, as long as consultant has not terminated the agreement pursuant to Section 3.1; 15,000 shall vest on the date that the price of the stock reaches $2.50 per share, as long as consultant has not terminated the agreement pursuant to Section 3.1; and 10,000 shall vest on the date that the price of the stock reaches $3.00 per share, as long as consultant has not terminated the agreement pursuant to Section 3.1. Thesewarrants shall expire on the third anniversary of the date when they become exercisable. Company shall execute an agreement confirming the granting of these warrants to Consultant. The Company agrees to include the registration of all shares and underlying warrants issued under the terms of this Agreement in the first and, if necessary any subsequent registrations undertaken by the Company. 3 4.2 Delivery of the above-mentioned warrants granted in terms of this agreement to de Jong & Associates will be completed within 90 days from the signing of this agreement. 4.3 Right to Convert Warrant. In addition to the right to exercise the Consultant Warrant for cash pursuant to Section 4.1, Consultant shall have the right to convert the Consultant's Warrant (in whole but not in part) by the surrender of the Consultant's Warrant at the office of the Company at any time during the term of the Consultant Warrant, into shares of Common Stock as provided for in this Section 4.3. Upon exercise of this conversion right, Consultant shall be entitled to receive that number of shares of Common Stock of the Company equal to the quotient obtained by dividing [(A-B)(X)] by (A), where: (A) = the Market Price of one share of Common Stock on the date of conversion of the Consultant's Warrant. (B) = the Common Stock Exercise Price for one share of Common Stock under the Consultant's Warrant. (X) = the number of Shares issuable upon exercise of the Consultant's Warrant. If the above calculation results in a negative number, then no shares of Common Stock shall be issued or issuable upon conversion of the Consultant's Warrant. Upon conversion of the Consultant's Warrant, the Consultant shall be entitled to receive a certificate for the number of shares of Common Stock determined under this Section 4.3. 4.4 Cash Compensation. Company shall pay Consultant $15,000 upon the signing of this Agreement and a monthly consulting fee of Five Thousand Dollars per month ($5,000), on the first day of each month commencing April 1, 2001. Company, at its option, may pay this fee in free trading stock. 4.5 Expenses. Expenses shall be negotiated on a case-by-case basis. Postage and printing expenses for Company shall be reimbursable on a monthly basis, upon receipt by the Company of acceptable document support. 4.6 Office Facilities. Consultant shall be responsible for its office facilities, as well as such staff equipment and materials as Consultant may deem necessary for Consultant, agents and representatives to fulfill its duties under this Agreement. 5. Confidentiality. Consultant shall, and shall cause its directors, officers and employees to hold confidential and not to publish, disclose or make accessible to any other person not bound by an obligation of confidentiality all information which (i) Company provides to Consultant, its officers and employees in relation to Company's financial condition, results of operations, business, property, assets or liabilities, and (ii) which Company specifically designates or marks as being confidential. Any information that is provided orally shall be considered confidential if Company provides Consultant with written notice of its intention that such information remain confidential within five business days of the date of disclosure of such information. 4 Notwithstanding the foregoing, information shall not be deemed confidential if (i) it becomes public knowledge, (ii) Consultant is aware of the information prior to its disclosure by Company, or (iii) Consultant learns of the information through a third party not under an obligation of confidentiality to Company. 6. Indemnification. 6.1 Company's Indemnification. Consultant shall have no liability with respect to decisions made or actions taken by Company in reliance on advice or recommendations given by Consultant or transactions presented to Company by Consultant. Company agrees to indemnify and hold harmless Consultant and its Affiliates, the respective members, agents and employees and each other person, if any, controlling Consultant or any of their Affiliates (collectively, the "Consultant Parties"), to the full extent lawful, from and against all losses, claims, damages, liabilities and expenses incurred by them (including attorney's fees and disbursements) that result from actions taken or omitted to be taken (including any untrue statements made or any statements omitted to be made) by Company, its agents or employees. 6.2 Consultants Indemnification. Company shall have no liability with respect to decisions made or actions taken by Consultant in reliance on advice or recommendations given by Company or transactions presented to Consultant by company. Consultant agrees to indemnify and hold harmless Company, and the respective directors, officers, agents and employees or Company, to the full extent lawful, from and against all losses, claims, damages, liabilities and expenses incurred by them (including attorney's fees and disbursements) that results from actions taken or omitted to be taken (including any untrue statements made or any statements omitted to be made) by Consultant, its agents or employees. 6.3 Process of Indemnification. Each person or entity seeking indemnification hereunder (the "Indemnified Party") shall promptly notify the other (the "Indemnifying Party") of any loss, claim, damage, or expense for which the Indemnifying Party may become liable pursuant to this Section. The Indemnifying Party shall have the opportunity to defend any claim for which it may be liable hereunder, provided it notifies the Indemnified Party within fifteen days of notice of the claim. The Indemnified Party shall not pay, settle or acknowledge liability under any such claim without consent of the Indemnifying Party, and shall permit the Indemnifying Party a reasonable opportunity to cure any underlying problem or to mitigate actual or potential damages. The rights stated pursuant to this Section shall be in addition to any rights that the Indemnified party may have at common law or otherwise, including, but not limited to, any right to contribution. 6.4 Scope. The scope of this indemnification shall be limited to, and pertain only to certain transactions contemplated or entered into pursuant to this Agreement. 7. Representations and Warranties of the Company. The Company represents and warrants to Consultant that: 5 7.1.1 The Company is (i) a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and (ii) has the corporate power and corporate authority to enter into this Agreement. 7.1.2 The execution and delivery of this Agreement and the performance of the obligations and consummation of the transactions herein contemplated will not conflict with or constitute a breach of or default under the Article of Incorporation or Bylaws of the Company. 8. Covenants and Representations of Consultant 8.1.1 Consultant is (i) a corporation duly organized, validly existing and in good standing under the laws of the State of California and (ii) has the corporate power and corporate authority to enter into this Agreement. 8.1.2 Consultant covenants and agrees to comply with any applicable requirements of the Securities Act, the Securities Exchange Act of 1934 ("Exchange Act"), applicable Blue Sky securities laws and the published rules and regulations thereunder (including, but not limited to, Sections 3(b), 4(2) and 4(6) of the Securities Act and Rules 505 and 506 thereunder, and the Rules of Fair Practice of the National Association of Securities Dealers ("NASD"). 8.1.3 Consultant is not authorized to act as agent of the Company in any connection or transaction, and Consultant agrees not to act as such agent and not to purport to do so without the prior written approval of the Company. 8.1.4 Consultant, by performance of this Agreement, shall not violate any of it's existing contracts. 9. Further Assurances. The parties shall execute, acknowledge and deliver any further documents, instruments, or other assurances and shall take any other action consistent with the terms of this Agreement that may be reasonably requested by the other party or its counsel for the purpose of confirming or effectuating any of the transactions contemplated by this Agreement. 10. Notices. All notices required or desired to be given hereunder shall be deemed to be duly given upon personally delivering such notice or upon delivery by fax or other electronic means, or three days after mailing it, via certified or registered mail, postage prepaid to the parties at the following addresses: If to Consultant: de Jong & Associates 345 South Coast Highway 101, Suite E Encinitas, CA 92024 Attn: Mr. Ronald de Jong If to Company: Medical Technology Systems, Inc. 12920 Automobile Boulevard Clearwater, FL 33762 Attn: Mr. Michael Conroy Giving written notice in the manner provided for above may change the above address. 6 11. Binding Effect. This Agreement and any amendment hereto, shall be binding upon the parties hereto, their successors, heirs, next of kin, executors, administrators, personal representatives, legal representatives, assignees, creditors, including receivers, and all other persons with notice or knowledge of the provisions hereof. 12. Independent Contractor. Consultant shall have no authority to bind Company to any agreement or obligation with a Relationship of Parties. The relationship of the parties hereto is one of independent contractors. Nothing in this Agreement shall be construed to constitute the parties as partners with each other. 13. Governing Law and Venue. This Agreement shall be deemed to have been executed in the State of Florida and shall be governed and construed as to both substantive and procedural matters in accordance with the laws of the State of Florida, but excepting any State of Florida rule which would result in the application of the law of a jurisdiction other than the State of Florida. Any legal proceeding arising out of this Agreement shall be brought only in a state or federal court of competent jurisdiction sitting in the County of Pinellas, State of Florida, and all parties hereto agree that venue shall lie therein and agree to submit themselves to the personal jurisdiction of such court. 14. Attorney's Fees. In any legal proceeding arising out of this Agreement, including with respect to any instrument, document or agreement made under or in connection with this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorney's fees. 15. Construction. The captions contained in this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. The language of this Agreement shall be construed as to its fair meaning and not strictly for or against any party. 16. Entire Agreement. This Agreement and any related agreements referred to herein, constitute the entire agreement between the parties with respect to its subject matter and there are no representations, warranties or agreements between the parties which are not expressed herein. This Agreement supercedes and replaces all prior understandings and agreements between the parties hereto, whether written or oral, expressed or implied, with respect to its subject matter. 17. Amendment. This Agreement may not be amended, modified, superceded, canceled or terminated, and any of the matters, covenants, representations, warranties or conditions hereof may not be waived, except by written instrument executed by the parties hereto or, in the case of a waiver, by the party to be charged with such a waiver. 18. Severability. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. Further, if a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable as written, such court may interpret, construe, rewrite or revise such provision, to the fullest extent allowed by law, so as to make it valid and enforceable consistent with the intent of the parties hereto. 19. Assignment. This Agreement shall not be assignable, in whole or in part, by either party without the written consent of the other party. 7 20. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party hereto whose signatures appears hereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signature of all of the parties reflected hereon as the signatories. 21. Default. Should the Company be in default with the payment of any monies payable under the terms of this agreement, strictly on the due date stipulated therefore, and remain in such default for a period of seven (7) days after receiving written notification from the Consultant to make payment, Consultant shall be entitled to forthwith cancel this agreement without further notification and to claim all amounts then outstanding in terms of this agreement. In the event of such cancellation, Consultant shall be entitled to retain all vested warrants under the terms of this agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written: de Jong & Associates Inc. By _________________________________________________________ Ronald de Jong, President Medical Technology Systems, Inc. By:__________________________________________________________ Michael Conroy, Vice President and Chief Financial Officer EX-99 3 0003.txt ADDITIONAL EXHIBITS 1 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO THE ACT OR AN OPINION OF LEGAL COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. DATED: January 2, 2001 NO. I FORM OF WARRANT MEDICAL TECHNOLOGY SYSTEMS, INC. Warrant to Purchase 80,000 Shares, Subject to Adjustment, of Common Stock, par value $.01 per share VOID AFTER 5:00 P.M., EASTERN STANDARD TIME ON JANUARY 2, 2004 OR SUCH LATER DATE AS DESCRIBED IN THE FIRST PARAGRAPH BELOW This certifies that, for value received, deJong & Associates or registered assigns the ("Holder"), is entitled to purchase from Medical Technology Systems, Inc., a Delaware corporation (the "Company"), 80,000 shares (the "Shares") of the Company's Common Stock, par value $.01 per share (the "Common Stock"), at a price of $1.06 per Share (the "Exercise Price") for three years after the warrant becomes exercisable with respect to such shares (the "Exercise Period"), subject to the terms, conditions, and adjustments set forth in this warrant (the "Warrant"). 1. Vesting and Exercise of Warrants. This Warrant will vest and may be exercised in whole or in part by the Holder as follows: (a) thirty thousand (30,000) shares on April 1, 2001, providing the Holder has not terminated a certain Consulting Agreement dated January 2, 2001 between the Holder an the Company pursuant to Section 3.1 of that agreement; (b) twenty-five thousand (25,000) shares on the date that the closing market price (as defined below) of the Company's Common Stock reaches $2.00, providing the Holder has not terminated a certain Consulting Agreement dated January 2, 2001 between the Holder and the Company pursuant to Section 3.1 of that agreement; (c) fifteen thousand (15,000) shares on the date that the closing market price (as defined below) of the Company's Common Stock reaches $2.50, providing the Holder has not terminated a certain Consulting Agreement dated January 2, 2001 between the Holder and the Company pursuant to Section 3.1 of that agreement; and (d) ten thousand (10,000) shares on the date the market price (as defined below) of the Company's Common Stock reaches $3.00, providing the Holder has not terminated a certain Consulting Agreement dated January 2, 2001 between the Holder and the Company pursuant to Section 3.1 of that agreement, upon presentation and surrender hereof, with the Purchase Form attached hereto as Exhibit A duly executed, at the office of the Company located at 12920 Automobile Boulevard, Clearwater, Florida 33762, accompanied by full payment of the Exercise Price multiplied by the number of Shares of the Company being purchased (the "Purchase Price"), whereupon the Company shall cause the appropriate number of Shares to 2 be issued and shall deliver to the Holder, within 10 days of surrender of the Warrant, a certificate representing the Shares being purchased. Upon each partial exercise hereof, a new Warrant evidencing the remainder of the Shares will be issued to the Holder, at the Company's expense, as soon as reasonably practicable, at the same Exercise Price, for the same Exercise Period(s), and otherwise on the same terms and conditions as the Warrant partially exercised. The Purchase Price shall be payable by delivery of a certified or bank cashier's check payable to the Company, or by wire transfer of immediately available funds to an account designated in writing by the Company, in the amount of the Purchase Price, or, if the Company's Common Stock is listed on a securities exchange or market, in the manner set forth in the following paragraph if requested by the Holder in the Purchase Form. The Holder shall be deemed for all purposes to have become the holder of record of Shares so purchased upon exercise of this Warrant as of the close of business on the date as of which this Warrant, together with a duly executed Purchase Form, was delivered to the Company and payment of the Purchase Price was made, regardless of the date of delivery of any certificate representing the Shares so purchased, except that if the Company were subject to any legal requirements prohibiting it from issuing shares of Common Stock on such date, the Holder shall be deemed to have become the record holder of such Shares on the next succeeding date as of which the Company ceased to be so prohibited. If the Company's Common Stock is listed on a securities exchange or market, in addition to the method of payment set forth above and in lieu of any cash payment required, the Holder shall have the right to exercise this Warrant in full or in part by surrendering this Warrant in the manner specified above in exchange for the number of Shares equal to the product of (x) the number of Shares as to which this Warrant is being exercised multiplied by (y) a fraction, the numerator of which is the Market Price (as defined below) less the Purchase Price, and the denominator of which is the Market Price. For purpose of this Warrant, "Market Price" shall mean the average closing sale price quoted on a share of Common Stock on the NASDAQ National Market or the principal stock exchange on which the Common Stock is then traded for the three trading days immediately prior to the date of the delivery to the Company of a purchase form (or if the Company's Common Stock is not traded or listed on the NASDAQ National Market or any other principal securities market, the average of the closing bid prices on the NASDAQ SmallCap Market, the OTC Electronic Bulletin Board, or otherwise in the over-the-counter market on such days as reported by NASDAQ, the National Quotation Bureau Incorporated or any comparable system, or if not so reported, as reported by any New York Stock Exchange member firm selected in good faith by the Company for such purpose). 2. Exchange; Restrictions on Transfer or Assignment. This Warrant is exchangeable, without expense, at the option of the Holder, upon surrender hereof to the Company for other Warrants of different denominations entitling the Holder to purchase in the aggregate the same number of Shares purchasable hereunder. Subject to compliance with the Act, applicable state securities laws, and the requirements pertaining to transfer described in Section 5, this Warrant and the Holder's rights hereunder are transferable. To effect a transfer of this Warrant, the Holder shall surrender the Warrant to the Company at its principal office with the Assignment Form attached hereto as Exhibit B duly completed and executed (with signature guaranteed), whereupon the Company, if the proposed assignment is permitted pursuant to the provisions hereof, shall register the assignment of this Warrant in accordance with the information contained in the assignment instrument and shall, without charge, execute and deliver a new Warrant or Warrants in the name(s) of the assignee or assignees named in such assignment instrument (and, if applicable, a new Warrant in the name of the Holder evidencing any remaining portion of the Warrant not theretofore exercised, transferred, or assigned) and this Warrant shall promptly be cancelled. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. 3 3. Rights and Obligations of Warrant Holders. (a) This Warrant does not confer upon the Holder any rights as a shareholder of the Company, either at law or in equity. The rights of the Holder are limited to those expressed herein and the Holder, by acceptance hereof, consents to and agrees to be bound by and to comply with all the provisions of this Warrant. Each Holder, by acceptance of this Warrant, agrees that the Company and its transfer agent, if any, may, prior to any presentation of this Warrant for registration of transfer, deem and treat the person in whose name this Warrant is registered as the absolute, true, and lawful owner of this Warrant for all purposes whatsoever and neither the Company nor any transfer agent shall be affected by any notice to the contrary. (b) In addition to the right to exercise this Warrant, the Holder shall have the right to convert the Warrant (in whole but not in part) by the surrender of the Warrant at the office of the Company at any time during the term of the Warrant, into shares of Common Stock as provided for in this Section. Upon exercise of this conversion right, the Holder shall be entitled to receive that number of shares of Common Stock of the Company equal to the quotient obtained by dividing [(A-B)(X)] by (A), where: (A) = the Market Price of one share of Common Stock on the date of conversion of the Warrant. (B) = the Common Stock Exercise Price for one share of Common Stock under the Warrant. (X) = the number of Shares issuable upon exercise of the Warrant. If the above calculation results in a negative number, then no shares of Common Stock shall be issued or issuable upon conversion of the Warrant. Upon conversion of the Warrant, the Holder shall be entitled to receive a certificate for the number of shares of Common Stock determined under this Section. 4. Covenants and Warranties of the Company. The Company covenants and agrees that (i) any and all Shares that are issued and delivered upon exercise of this Warrant and payment of the Purchase Price will, upon delivery, be duly authorized, validly issued, fully-paid, and nonassessable shares of Common Stock and (ii) the Company shall at all times during the Exercise Period reserve and keep available a number of authorized but unissued shares of Common Stock sufficient to permit the exercise in full of this Warrant. The Company will take all such actions as may be necessary to assure that all shares of Common Stock may be so issued without violation by the Company of any applicable law or government regulation or any requirement of any securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance, which the Company will transmit promptly upon issuance of such shares). The Company represents and warrants that (i) the Company is a corporation duly organized, validly existing, and of active status under the laws of the State of Florida, (ii) the Company has all requisite corporate power and authority to issue this Warrant and to consummate the transactions contemplated hereby, and such issuance and consummation will not conflict with, result in a material breach of, constitute a material default under, or material violation of any provision of the Company's Articles of Incorporation or Bylaws, or any law or regulation of any governmental authority or any provision of any agreement, judgment, or decree affecting the Company and (iii) all corporate action required to be taken by the Company in connection with the execution and delivery of this Warrant and the performance of the Company's obligations hereunder has been taken. 4 5. Disposition of Warrants or Shares. The Holder acknowledges that this Warrant and the Shares issuable upon exercise thereof have not been registered under the Act or applicable state law. The Holder agrees, by acceptance of this Warrant, (i) that no sale, transfer, or distribution of this Warrant or the Shares shall be made except in compliance with the Act and the rules and regulations promulgated thereunder, including any applicable prospectus delivery requirements and the restrictions on transfer set forth herein, and (ii) that if any distribution or any other transfer of this Warrant or any Shares is proposed to be made by it otherwise than pursuant to an effective registration statement under the Act, such action shall be taken only after submission to the Company of an opinion of counsel, reasonably satisfactory in form and substance to the Company and its counsel, to the effect that the proposed distribution will not be in violation of the Act or of applicable state law. 6. Adjustment. The number of Shares purchasable upon the exercise of this Warrant and the Exercise Price per Share are subject to adjustment from time to time as provided in this Section 6. (a) Subdivision or Combination of Shares. If the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares (including a stock split effected as a stock dividend) or combine its outstanding shares of Common Stock into a lesser number of shares, the number of Shares issuable upon exercise of this Warrant shall be adjusted to such number as is obtained by multiplying the number of shares issuable upon exercise of this Warrant immediately prior to such subdivision or combination by a fraction, the numerator of which is the aggregate number of shares of Common Stock outstanding immediately after giving effect to such subdivision or combination and the denominator of which is the aggregate number of shares of Common Stock outstanding immediately prior to such subdivision or combination, and the Exercise Price per Share shall be correspondingly adjusted to such amount as shall, when multiplied by the number of Shares issuable upon full exercise of this Warrant (as increased or decreased to reflect such subdivision or combination of outstanding shares of Common Stock, as the case may be), equal the product of the Exercise Price per Share in effect immediately prior to such subdivision or combination multiplied by the number of Shares issuable upon exercise of this Warrant immediately prior to such subdivision or combination. (b) Effect of Sale, Merger, or Consolidation. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or sale of all or substantially all of the Company's assets to another corporation shall be effected after the date hereof in such a way that holders of Common Stock shall be entitled to receive stock, securities, or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger, or sale, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive, upon the basis and the terms and conditions specified in this Warrant and in lieu of the Shares immediately theretofore purchasable and receivable upon the exercise of this Warrant, such shares of stock, securities, or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore purchasable and receivable upon the exercise of this Warrant, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions of this Warrant (including, without limitation, provisions for adjustments of the Exercise Price and of the number of Shares issuable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such consolidation, merger, or sale unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument executed and delivered to the Holder at its last address appearing on the books of the Company, the obligation to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing sentence, the Holder may be entitled to purchase. 5 (c) Issuance of Common Stock Below Exercise Price. If the Company shall issue or sell shares of Common Stock or rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock ("Common Stock Equivalents") pursuant to the exercise of any Common Stock Equivalents outstanding on the date of the Note under any of the Company's employee benefit plans), at a price per share of Common Stock (determined, in the case of Common Stock Equivalents, by dividing (A) the total amount receivable by the Company in consideration of the issuance and sale of such Common Stock Equivalent, plus the total consideration payable to the Company upon exercise, conversion, or exchange thereof, by (B) the total number of shares of Common Stock covered by such Common Stock Equivalent), that is lower (calculated the date of such sale or issuance) than the Exercise Price, or for no consideration, then: (i) in each case the number of shares of Common Stock thereafter issuable upon the exercise of this Warrant (whether or not presently exercisable) shall be increased in a manner determined by multiplying the number of shares of Common Stock issuable upon the exercise of the Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to the sale or issuance plus the number of additional shares of Common Stock offered for subscription or purchase or to be issued upon exercise, conversion, or exchange of such Common Stock Equivalent, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to the sale or issuance plus the number of shares of Common Stock that the "aggregate consideration to be received by the Company" (as defined below) in connection with such sale or issuance would purchase at the Exercise Price. For the purpose of such adjustments the "aggregate consideration to be received by the Company" shall be the consideration received by the Company for such Common Stock or Common Stock Equivalents, plus any consideration or premiums stated in the Common Stock Equivalents to be paid for the shares of Common Stock covered thereby; and (ii) in each case the Exercise Price will be reduced to the price calculated by dividing (A) an amount equal to the sum of (1) the number of shares of Common Stock outstanding immediately before such issuance or sale multiplied by the then existing Exercise Price plus (2) the aggregate consideration, if any, received by the Company upon such issuance or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issuance or sale plus the number of shares of Common Stock issuable upon the exercise, conversion, or exchange of any Common Stock Equivalents issued or sold in the transaction for which the Company is making this adjustment. If the Company shall issue or sell shares of Common Stock or Common Stock Equivalents for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "price per share of Common Stock" and the "consideration" receivable by or payable to the Company for purposes of this Section 6(c), the Board of Directors of the Company shall determine, in good faith, the fair value of such property. If the Company shall issue and sell Common Stock Equivalents, together with one or more other securities as part of a unit at a price per unit, then in determining the "price per share of Common Stock" and the "consideration" receivable by or payable to the Company for purposes of this Section 6(c), the Board of Directors of the Company shall determine, in good faith, the fair value of the Common Stock Equivalents then being sold as part of such unit. 6 (d) If any event occurs as to which the preceding Sections 6(a) through (c) are not strictly applicable, but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of this Warrant, as determined by the Company or as requested by the Holder in accordance with the notice provisions of Section 12, then, in each such case, the Company shall select an independent investment bank or firm of independent public accountants, such investment bank or firm of independent public accountants to be selected from a group of three nationally recognized investment banks or firms of public accountants chosen by the Holder, which will give its opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established in this Warrant. Upon receipt of such opinion, the Company will promptly deliver a copy of such opinion to the Holder and will make the adjustments described in such opinion. The fees and expenses of such investment bank or independent public accountants will be borne by the Company. If the adjustment is requested by the Holder, however, and the investment bank or firm of independent public accountants selected by the Company pursuant to this paragraph determines that no adjustment is necessary, then the fees and expenses described in the preceding sentence shall be borne by the Holder. (e) Notice to Holder of Adjustment. Whenever the number of Shares purchasable upon exercise of this Warrant or the Exercise Price per Share is adjusted as herein provided, the Company shall cause to be mailed to the Holder within 5 days of such adjustment, in accordance with the provisions of Section 12, notice setting forth the adjusted number of Shares purchasable upon the exercise of the Warrant and the adjusted Exercise Price and showing in reasonable detail the computation of the adjustment and the facts upon which such adjustment is based. (f) Notices to Holder of Certain Events. If at any time after the date hereof: (i) the Company shall declare any dividend or other distribution upon or with respect to the Common Stock, including any dividend payable in cash, shares of Common Stock or other securities of the Company; or (ii) the Company shall offer for subscription to the holders of its Common Stock any additional shares of stock of any class or any other securities convertible into Common Stock or any rights to subscribe thereto; or (iii) there shall be any capital reorganization or reclassification of the capital stock of the Company (other than a change in par value, or from par value to no par value, or from no par value to par value or as result of the subdivision or combination of shares), or any conversion of the Shares into securities of another corporation, or a sale of all or substantially all of the assets of the Company, or a consolidation or merger of the Company with another corporation (other than a merger with a subsidiary in which the Company is the continuing corporation and which does not result in any reclassification or change of the Shares issuable upon exercise of the Warrants); or (iv) there shall be a voluntary or involuntary dissolution, liquidation, or winding up of the Company; then, in any one or more of said cases, the Company shall cause to be mailed to the Holder, not less than 15 days before any record date or other date set for the definitive action, written notice of the date upon which the books of the Company shall close or a record shall be taken for purposes of such dividend, distribution or subscription rights or upon which such reorganization, reclassification, conversion, sale, consolidation, merger, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also set forth facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the number of Shares and the kind and amount of the shares of stock and other securities and property deliverable upon exercise of the Warrants. Such notice shall also specify the date as of which the holder of record of the shares of Common Stock shall participate in such dividend, distribution, or subscription rights or shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, conversion, sale, consolidation, merger, dissolution, liquidation, or winding up, as the case may be (on which date in the event of voluntary or involuntary dissolution, liquidation, or winding up of the Company, the right to exercise the Warrants shall terminate). 7 7. Piggy-Back Registration. (a) If the Company shall, at any time prior to the expiration of this Warrant, authorize a registration of its Common Stock with the Securities and Exchange Commission (the "SEC"), the Company shall furnish the Holder with at least 30 days prior written notice thereof and the Holder shall have the option to include the Shares to be issued to the Holder upon the exercise of this Warrant in such registration statement. The Holder shall exercise the "piggy-back registration rights" granted pursuant to this Section 7 by giving written notice to the Company within 20 days of the receipt of the written notice from the Company described above. (b) Notwithstanding any other provision of this Warrant, the Company's obligations under this Section 7 shall be subject to the following terms and conditions: (i) The obligations of the Company set forth under this Section 7 shall not arise upon the filing of a registration statement that covers any of the following: (A) securities proposed to be issued in exchange for assets or securities of another corporation; (B) debt securities not convertible into, or exchangeable for, shares of Common Stock; (C) securities to be issued pursuant to a transaction registered on Form S-4 (or any registration form promulgated by the SEC in substitution of that form); or (D) a stock option, stock bonus, stock purchase, or other employee benefit or compensation plan or securities issued or issuable pursuant to any such plan. (ii) If the Company files a registration statement in connection with an underwritten public offering of Common Stock, the Company shall use its best efforts to cause the managing underwriter of the proposed offering to grant any request by the Holder that Shares purchased by the Holder upon the exercise of this Warrant be included in the proposed public offering on terms and conditions that are customary under industry practice. Notwithstanding any other provision of this Agreement, if the managing underwriter of the public offering of the Common Stock gives written notice to the Company that, in the reasonable opinion of such managing underwriter, marketing factors require a limitation of the total number of shares of Common Stock to be underwritten, then the number of Shares purchased by the Holder upon the exercise of this Warrant that the Company shall be obligated to include in the registration statement shall be reduced in accordance with the limitations imposed by the managing underwriter. (iii) The Holder must provide to the Company all information, and take all action, the Parent reasonably requests with reasonable advance notice, to enable it to comply with any applicable law or regulation or to prepare the registration statement that will cover the Shares that will be included in the registration. 8 (c) The Company will pay all Registration Expenses (as defined below) in connection with the registration of the Shares pursuant to this Section 7. For purposes of this Warrant, the term "Registration Expenses" shall mean all expenses incurred by the Company in complying with this Section 7, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Company, state Blue Sky fees and expenses, transfer agent fees, cost of engraving of stock certificates, costs for mailing and tombstone advertising, cost of preparing the registration statement, related exhibits, amendments and supplements thereto, underwriting documents, selected dealer agreements, preliminary and final prospectuses, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts and selling commissions attributable to the Shares and the fees and expenses of the Holder's own counsel and accountants, which shall be borne by the Holder. 8. Indemnification and Notification. (a) The Company will indemnify and hold harmless the Holder from and against any and all losses, claims, damages, expenses, and liabilities caused by any untrue statement of a material fact contained in any registration statement or contained in a prospectus furnished thereunder or caused by any omission to state a material fact necessary to make any statement therein not misleading. The foregoing indemnification and agreement to hold harmless shall not apply, however, insofar as such losses, claims, damages, expenses, and liabilities are caused by an untrue statement or omissions based upon information furnished in writing to the Company by the Holder expressly for use in any registration statement or prospectus. (b) The Holder will indemnify the Company, and each person who controls the Company within the meaning of Section 15 of the Act, from and against any and all losses, claims, damages, expenses, and liabilities caused by an untrue statement of a material fact contained in any registration statement or contained in a prospectus furnished thereunder or caused by an omission to state a material fact necessary to make any statement therein not misleading insofar as such losses, claims, damages, expenses, and liabilities are caused by an untrue statement or omission based upon information furnished in writing to the Company by the Holder expressly for use in any registration statement or prospectus. (c) Each indemnified party promptly shall notify each indemnifying party of any claim asserted or action commenced against it that is subject to the indemnification provisions of this Section, but failure to so notify an indemnifying party will not relieve the indemnifying party from any liability pursuant to these indemnity provisions or otherwise, unless and only to the extent that the failure materially prejudices the rights or obligations of the indemnifying party. Without limiting what might be materially prejudicial to an indemnifying party, the failure of an indemnified party to notify an indemnifying party of a lawsuit within ten days after the date when the indemnified party is served with a copy of the complaint, petition, or other pleading asserting the indemnifiable claim will be considered materially prejudicial to the rights and obligations of any indemnifying party who was not also served with a copy of the complaint, petition, or other pleading asserting the indemnifiable claim. The indemnifying party may participate at its own expense in the defense, or, if the indemnifying party so elects within a reasonable time, the indemnifying party may assume the defense, of any action commenced against the indemnified party that is the subject of indemnification under this Section. If the indemnifying party elects to assume the defense of an indemnified action, however, the indemnifying party shall engage to defend the action legal counsel reasonably satisfactory to the indemnified party. If the indemnifying party elects to assume the defense of any indemnified action, the indemnified party, and each controlling person who is a defendant in the action, will be entitled to employ separate counsel participate in the defense of the action at its own expense. 9 An indemnified party shall not settle an indemnified claim or action without the prior written consent of the indemnifying party and the indemnifying party will not be liable for any settlement made without its consent. The indemnifying party shall notify the indemnified party whether or not it will consent to a proposed settlement within ten days after it receives from the indemnified party notice of the proposed settlement, summarizing all the terms and conditions of settlement. The indemnifying party's failure to notify the indemnified party within that ten-day period whether or not it consents to the proposed settlement will constitute its consent to the proposed settlement. This indemnity does not apply to any untrue statement or omission, or any alleged untrue statement or omission that was made in a preliminary prospectus but remedied or eliminated in the final prospectus (including any amendment or supplement to it), if a copy of the definitive prospectus (including any amendment or supplement to it) was delivered to the person asserting the claim at or before the time required by the Securities Act and the delivery of the definitive prospectus (including any amendment or supplement to it) constitutes a defense to the claim asserted by the person. 9. No Impairment. The Company will not by any action including, without limitation, amending or permitting the amendment of the charter documents, bylaws, or similar instruments of the Company or through any reorganization, reclassification, transfer of assets, consolidation, merger, share exchange, dissolution, issue or sale of securities, or any other similar voluntary action, avoid or seek to avoid the observance or performance of any of the express terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary to protect the rights of the Holder against impairment or dilution. Without limiting the generality of the foregoing, the Company will (i) take all such action as may be reasonably necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon exercise of the Warrant, free and clear of all liens, encumbrances, equities, and claims and (ii) use all reasonable efforts to obtain all such authorizations, exemptions, or consents from any public regulatory body having jurisdiction over the Company as may be necessary to enable the Company to perform its obligations under this Warrant. 10. Dilution Fee. If, during the Exercise Period, the Company pays any cash dividends or makes any cash distribution to any holder of any class of its Common Stock with respect to such Common Stock and the Exercise Price exceeds the Market Price, then the Holder of this Warrant will be entitled to receive in respect of this Warrant a dilution fee in cash (the "Dilution Fee") on the date of payment of such dividend or distribution, which Dilution Fee will be equal to the amount per share paid to the holders of Common Stock times the number of Shares currently exercisable under this Warrant. 11. Survival. The various rights and obligations of the Holder and of the Company as set forth in Sections 4 and 5 hereof shall survive the exercise of this Warrant and the surrender of this instrument upon such exercise. 12. Notice. All notices required by this Warrant to be given or made by the Company shall be given or made by first class mail, postage prepaid, addressed to the registered Holder hereof at the address of such Holder as shown on the books of the Company. 13. Loss or Destruction. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company and its counsel, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10 14. Miscellaneous. (a) Neither this Warrant nor any term hereof may be changed, waived, discharged, or terminated except by a written instrument executed by the Company and the Holder. (b) This Warrant shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Florida, without regard to principles of conflicts of laws thereof. (c) Each provision of this Warrant shall be interpreted in such a manner as to be effective, valid, and enforceable under applicable law, but if any provision of this Warrant is held to be invalid, illegal, or unenforceable under any applicable law or rule in any jurisdiction, such provision will be ineffective only to the extent of such invalidity, illegality, or unenforceability in such jurisdiction, without invalidating the remainder of this Warrant in such jurisdiction or any provision hereof in any other jurisdiction. (d) No course of dealing or delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, power, or remedies. (e) The Company shall pay all expenses incurred by it in connection with, and all documentary stamp and other taxes (other than stock transfer taxes) and other governmental charges that may be imposed in respect of, the issue, sale and delivery of this Warrant and the Shares issuable upon the exercise hereof. (f) This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Company and the successors and permitted assigns of the Holder. 15. Further Assurances. The Company agrees that it will execute and record such documents as the Holder shall reasonably request to secure for the Holder any of the rights represented by this Warrant. IN WITNESS WHEREOF the Company has caused this Warrant to be executed by its duly authorized officer as of the ______________________. MEDICAL TECHNOLOGY SYSTEMS, INC. By: ______________________________________________ Name: ____________________________________________ Title: __________________________________________ 11 EXHIBIT "A" PURCHASE FORM To be executed upon exercise of the Warrant. Capitalized terms have the same meanings ascribed to them in the Warrant. TO: MEDICAL TECHNOLOGY SYSTEMS, INC. The undersigned hereby exercises the right to purchase _____________ Shares of Common Stock evidenced by the Warrant, according to the terms and conditions thereof, and hereby makes payment of the Purchase Price. If the Company's Common Stock is listed on a securities exchange or market, the undersigned [does] [does not] choose to pay the Purchase Price pursuant to a cashless exercise of the Warrant. The undersigned requests that certificates for the Shares shall be issued in the name set forth below: Dated: _______________________ Name: _____________________________________ ____________________________________________ (Address) ____________________________________________ Social Security No. ________________________ or other identifying number 12 EXHIBIT "B" ASSIGNMENT To be executed by the registered holder to effect a permitted transfer of the Warrant. Capitalized terms have the same meanings ascribed to them in the Warrant. FOR VALUE RECEIVED ________________________ ("Assignor") hereby sells, assigns and transfers unto _________________________________ ("Assignee") (Name) _________________________________ (Address) the right to purchase __________ shares of Common Stock of Medical Technology Systems, Inc. evidenced by the Warrant, together with all right, title, and interest therein, and does irrevocably constitute and appoint _____________________________ attorney to transfer the said right on the books of said corporation with full power of substitution in the premises. Date: ______________________ Assignor: By: _______________________________________ Its: _______________________________________ Signature: _________________________________ EX-10 4 0004.txt MATERIAL CONTRACTS 1 EMPLOYMENT AGREEMENT This agreement, effective as of September 1, 1999 (the "Agreement") is made by and between MEDICAL TECHNOLOGY SYSTEMS, INC., a Delaware corporation (the "Company") , and TODD E. SIEGEL, a resident of the State of Florida (the "Executive"). BACKGROUND The Company desires to continue to obtain the benefit of services by the Executive, and the Executive desires to continue to render services to the Company. The Compensation Committee of the Board of Directors of the Company (the "Board") has determined that it is in the Company's best interest and that of its stockholders to recognize the substantial contribution that the Executive has made and is expected to make in the future to the Company's business and to continue to retain his services in the future. Accordingly, in consideration of the mutual covenants and representations contained set forth below, the Company and the Executive agree as follows: TERMS 1. Employment a. The Executive agrees to accept employment with the Company or one or more of the Company's subsidiary corporations to render the services specified in this Agreement upon the terms and conditions and for the compensation provided in this Agreement. All compensation paid to the Executive by the Company or any subsidiary of the Company, and all benefits and perquisites received by the Executive from the Company or any of its subsidiaries, will be aggregated in determining whether the Executive has received the compensation and benefits provided for herein. b. Term. The term (the "Term") of this contract shall commence on September 1, 1999, and shall continue without interruption until August 31, 2004. 2. Duties. a. General Duties. The Executive shall serve as President and Chief Executive Officer of the Company and shall continue to serve in those positions, with duties and responsibilities that are customary for such executives including, without limitation, ultimate responsibility for managing the Company, subject to the authority of the Board. b. Full Time Employment. During the term of this Agreement and excluding any periods of vacation, family or sick leave or holidays to which the Executive is entitled, the Executive shall devote his full business time and energy to the business, affairs and interests of the Company and its subsidiaries, and matters related thereto, and shall use his reasonable commercial efforts and ability to promote the interests of the Company and its subsidiaries. The Executive will diligently endeavor to promote the business, affairs and interests of the Company and its subsidiaries and perform services contemplated by this Agreement in accordance with the policies established by the Board from time to time. 2 c. Certain Permissible Activities. The Executive may serve as a director or in any other capacity of any business enterprise, including an enterprise whose activities may involve or relate to the business of the Company or any of its subsidiaries but only if such service is expressly approved by the Company in writing. The Executive may (i) make and manage personal business investments of his choice, (ii) teach at educational institutions and deliver lectures, and (iii) serve in any capacity with any civic, educational or charitable organization, or any governmental entity or trade association, in each such case without seeking or obtaining approval by the Company so long as such activities and service do not materially interfere or conflict with the performance of his duties hereunder. It is agreed that to the extent that the Company shall have approved any service of the Executive pursuant to the first sentence of this Section 3(c) prior to a Change in Control Date (as defined in Section 7 below), or to the extent that the Executive may have engaged in activities pursuant to the second sentence of this Section 3(c) prior to such Change in Control Date, the continued conduct of such activities or the conduct of activities during the thirty-six months subsequent to such Change in Control Date shall be permissible and not in violation of any provisions of this Agreement and such Company approval may not be revoked or limited in any material respect during the thirty-six months following such Change in Control Date. 3. Compensation and Expenses. a. Base Salary. For the services of the Executive to be rendered under this Agreement, the Company will pay the Executive an annual base salary (the "Base Salary") as follows: [4% a year increases] (i) For the year September 1, 1999 through August 31, 2000, the amount of $210,000; (ii) For the year September 1, 2000 through August 31, 2001, the amount of $218,400; (iii)For the year September 1, 2001 through August 31, 2002, the amount of $227,136; (iv) For the year September 1, 2002 through August 31, 2003, the amount of $236,221; and (v) For the year September 1, 2003 through August 31, 2004, the amount of $245,670; Provided, however, that such Base Salary shall be pro rated accordingly over the time period that the Executive performs services under this Agreement in any calendar year during which this Agreement shall terminate before August 31st of such year. The Company shall pay the Executive his Base Salary in equal installments no less than semi-monthly. 3 b. Base Salary Adjustment. The Base Salary may not be decreased hereunder during the term of this Agreement, but may be increased upon review by and within the sole discretion of the Board. c. Bonus. Executive shall be entitled to receive bonus compensation in accordance with Exhibit A. Such bonuses may be paid in cash or issued in shares of the Company's common stock on such terms as recommended by the Compensation Committee and approved by the Board. d. Expenses. In addition to any compensation received pursuant to Section 3, the Company will reimburse or advance funds to the Executive for all reasonable, ordinary and necessary travel, educational, seminar, trade shows, YPO, entertainment, and miscellaneous expenses incurred in connection with the performance of his duties under this Agreement, provided that the Executive properly accounts for such expenses to the Company in accordance with the Company's practices. Such reimbursement shall include travel, lodging and food costs for Executive's immediate family to the extent they accompany Executive on business related travel. e. Subsidiary and Affiliate Payments. In recognition of the fact that in the course of the performance of his duties hereunder the Executive may provide substantial benefits to the Company's subsidiaries or affiliated companies, the Executive and the Company may at any time and from time to time agree that all or any portion of the compensation due the Executive under this Agreement may be paid directly to the Executive by one or more of the Company's subsidiaries or affiliated companies. Additional Equity Based Incentive Compensation. Executive shall be entitled to additional annual equity based incentive compensation as set forth in Exhibit B. 4. Benefits. a. Vacation. For each year during the Term during which the Executive is employed, the Executive shall be entitled to 20 vacation days (which shall accrue and vest, except set forth below on each September 1st) without loss of compensation or other benefits to which he is entitled under this Agreement. If the Executive is unable to take all of his vacation days during a year for which he becomes vested, then the Executive, at his sole option, may elect (a) to carry over any unused vacation to the next calendar year to be used solely in that next year or (b) to receive an appropriate pro rata portion of his Base Salary corresponding to the year in which the vacation days vested. The Executive shall take his vacation at such times as the Executive may select and the affairs of the Company or any of its subsidiaries or affiliates may permit. b. Employee Benefit Programs. In addition to the compensation to which the Executive is entitled pursuant to the provisions of Section 3 of this Agreement, during the Term, the Executive will be entitled to participate in any stock option plan, stock purchase plan, pension or retirement plan, insurance or other employee benefit plan that is maintained at that time by the Company for its employees, including programs of life, disability, basic medical and dental, supplemental medical and dental insurance. 4 Notwithstanding any provision of this Agreement to the contrary, the Company shall not be obligated to provide the Executive with any of the benefits contained in this Section 4 (b) if the Executive, for any reason, is or becomes uninsurable with respect to coverage relating to any such benefit(s). c. Automobile Allowance. During the term of this Agreement, the Company shall pay Executive an additional $750.00 per month as an automobile allowance to be applied to any automobile expense incurred by Executive. d. Financial and Tax Planning. During the term of this Agreement, and as additional consideration hereunder, Executive shall be reimbursed for personal financial planning, tax preparation services and accounting and legal fees related to such financial and tax planning, up to a maximum of $3,000 per year. 5. Termination. a. Termination for Cause. The Company may terminate the Executive's employment pursuant to this Agreement at any time for cause upon written notice. Such termination will become effective upon the giving of such notice. Upon any such termination for cause, the Executive shall have no right to compensation, bonus or reimbursement under Section 3 or to participate in any employee benefit programs or other benefits to which he may be entitled under Section 4 for any period subsequent to the effective date of termination. For purposes of this Agreement, the term "cause" shall mean: (i) the Executive's conviction of a felony and all appeals with respect thereto have been extinguished or abandoned by the Executive; (ii) the Executive's conviction of misappropriating assets or otherwise defrauding the Company or any of its subsidiaries or affiliates; (iii)a material breach by the Executive of any provision of this Agreement, after thirty (30) days written notice, and thirty days to materially cure such breach. b. Death or Disability. This Agreement and the Company's obligations under this Agreement will terminate upon the death or disability of the Executive. For purposes of this Section 5(b), "disability" shall mean that for a period of six months in any twelve-month period the Executive is incapable of substantially fulfilling the duties set forth in this Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease as determined by an independent physician mutually acceptable to the Company and the Executive. Upon any such termination upon death or disability, the Company will pay the Executive or his legal representative, as the case may be, his Base Salary (which may include any accrued, but unused vacation time) at such time pursuant to Section 3(a) through the date of such termination of employment (or, if terminated as a result of a disability, until the date upon which the disability policy maintained pursuant to Section 4 (b) (ii) begins payment of benefits) plus any other compensation that may be due and unpaid. In the event of death or disability of the Executive, any obligations that the Executive may owe the Company for repayment of loans or other amounts shall be forgiven. 5 c. Voluntary Termination. Prior to the termination of this Agreement, the Executive may, on sixty days prior written notice to the Company, at any time terminate his employment. Upon any such termination, the Company shall pay the Executive his Base Salary at such time pursuant to Section 3(a) through the date of such termination of employment (which shall include any vested and accrued, but unused vacation time). d. Additional Severance Upon Triggering Event. Upon any event which (a) causes Siegel or his immediate family members to lose the absolute right, whether exercisable directly or indirectly, to elect and dismiss a majority of the board of directors of the Company and (b) the Executive is terminated without cause (i.e., any reason other than death, disability or termination for cause), ((a) and (b) referred to as a Triggering Event), the following shall occur immediately and without further notice or action by Executive: (i) All of the Company's obligations under this Agreement to Executive shall accelerate and become immediately performable and due and payable except for salary for the balance of the term of this agreement, which shall become due and payable only to the extent set forth in Section (d)(ii). (ii) In addition to any and all other compensation to Executive under this Agreement, the Company shall pay to Executive an amount equal to 2.99 times the Executive's base salary in the fiscal year of the Company next immediately preceding the fiscal year in which the triggering event occurs; (iii)At his option, notwithstanding the payment of the above items, Executive may terminate his obligations to the Company under this Agreement, including any loans payable to the Company; and (iv) The Company shall immediately assign to Executive any life insurance policy insuring Executive's life. The Company shall, prior to the assignment, satisfy the balance of all premiums owed on the assigned policies and shall insure that the designated beneficiary is not changed. (v) If any of the above benefits are deemed to violate Internal Revenue Code 280G and related regulations thereunder, as amended, then any excess benefits will be paid during the next tax year if permitted by applicable law. 6. Restrictive Covenants. a. Competition with the Companies. The Executive covenants and agrees that, during the Term of this Agreement, the Executive will not, without the prior written consent of Company, directly or indirectly (whether as a sole proprietor, partner, stockholder, director, officer, employee or in any other capacity as principal or agent) , compete with the Company. Notwithstanding this restriction, Executive shall be entitled to invest in stock of other competing public companies so long as his ownership is less than 5% of such company's outstanding shares. 6 b. Disclosure of Confidential Information. The Executive acknowledges that during his employment he will gain and have access to confidential information regarding the Company and its subsidiaries and affiliates. The Executive acknowledges that such confidential information as acquired and used by the Company or any of its subsidiaries or affiliates constitutes a special, valuable and unique asset in which the Company or any of its subsidiaries or affiliates, as the case may be, hold a legitimate business interest. All records, files, materials and confidential informant (the "Trade Secrets") obtained by the Executive in the course of his employment with the Company shall be hereby deemed confidential and proprietary and shall remain the exclusive property of the Company or any of its subsidiaries or affiliates, as the case may be. The Executive will not, except in connection with and as required by his performance of his duties under this Agreement, for any reason use for his own benefit or the benefit of any person or entity with which he may be associated, disclose any Trade Secrets to any person, firm, corporation, association or other entity for any reason or purpose whatsoever without the prior written consent of the Board of Directors of the Companies, unless such information previously shall have become public knowledge through no action by or omission of the Executive. c. Subversion, Disruption or Interference. At no time during the term hereof shall Executive, directly or indirectly, interfere, induce, influence, combine or conspire with, or attempt to induce, influence, combine or conspire with, any of the employees or sponsors of, or consultants to, the Company to terminate their relationship with or compete or ally against the Company or any of its subsidiaries or affiliates of the Company in the business in which the Company or any one of its subsidiaries or affiliates is presently engaged. d. Enforcement of Restrictions. The parties hereby agree that any violation by Executive of the covenants contained in this Section 6 will cause irreparable damage to the Company or any of its subsidiaries and affiliates and may, as a matter of course, be restrained by process issued out of a court of competent jurisdiction, in addition to any other remedies provided by law. 7. Change of Control. a. For the purposes of this Agreement, a "Change of Control" shall be deemed to have taken place if any person, other than the JADE Partnership or the Siegel Family Revocable Trust, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the owner or beneficial owner of the Company's securities, after the date of this Agreement, having more than 50% of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities specifically approved by Executive and specifically excluded from the provisions of this Section 7 by subsequent written agreement of the Executive); provided, however, that a Change of Control shall not be deemed to have occurred if the person who becomes the owner of more than 50% of the combined voting power of the Company is Todd E. Siegel or an entity (or entities) controlled by Todd E. Siegel. 7 b. The Company and Executive agree that, if Executive is in the employ of the Company on the date on which a Change of Control occurs (the "Change of Control Date") , the Company will continue to employ the Executive and the Executive will remain in the employ of the Company for the period commencing on the Change of Control Date and ending on the expiration of the Term, to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by the Executive immediately prior to the Change of Control Date. If after a Change of Control, the Executive is requested, and, in his sole and absolute discretion, consents to change his principal business location outside of Pinellas or Hillsborough Counties, Florida, the Company will reimburse the Executive for his relocation expenses, including without limitation, moving expenses, temporary living and travel expenses for a time while arranging to move his residence to the changed location, closing costs, if any, associated with the sale of his existing residence and the purchase of a replacement residence at the changed location, plus an additional amount representing a gross-up of any state or federal taxes payable by Executive as a result of any such reimbursements. If the Executive shall not consent to change his business location, the Executive may continue to provide the services required of him under this Agreement in Pinellas County, Florida and the Company shall continue to maintain an office for the Executive at that location similar to the Company's office prior to the Change of Control Date. c. During the remaining Term after the Change of Control Date, the Company will (i) continue to honor the terms of this Agreement, including as to Base Salary and other compensation set forth in Section 3, and (ii) continue employee benefits as set forth in Section 4 at levels in effect on the Change of Control Date (but subject to such reductions as may be required to maintain such plans in compliance with applicable federal law regulating employee benefits). d. If during the remaining Term on or after the Change of Control Date (i) the Executive's employment is terminated by the Company other than for cause (as defined in Section 5), or (ii) there shall have occurred a material reduction in Executive's compensation or employment related benefits, or a material change in Executive's status, working conditions or management responsibilities, or a material change in the business objectives or policies of the Company and the Executive voluntarily terminates employment within sixty days of any such occurrence, or the last in a series of occurrences, then the Executive shall be entitled to receive, subject to the provisions of subparagraphs (e) and (f) below, a lump-sum payment equal to 299% of Executive's current Base Salary in addition to any other compensation that may be due and owing to the Executive under Section 3. e. The amounts payable to the Executive under any other compensation arrangement maintained by the Company which became payable, after payment of the lump-sum provided for in paragraph (d), upon or as a result of the exercise by Executive of rights which are contingent on a Change of Control (and would be considered a "parachute payment" under Internal Revenue Code 280G and regulations thereunder), shall be reduced to the extent necessary so that such amounts, when added to such lump-sum, do not exceed 299% of the Executive's Base Salary (as computed in accordance with provisions of the Internal Revenue Code of 1986, as amended and any regulations promulgated thereunder) for determining whether the Executive has received an excess parachute payment. Any such excess amount shall be deferred and paid in the next tax year. 8 f. In the event of a proposed Change in Control, the Company will allow the Executive to participate in all meetings and related negotiations related. 8. Assignability. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, provided that such successor or assign shall acquire all or substantially all of the assets and business of the Company. The Executive's rights and obligations under this Agreement may not be assigned or alienated and any attempt to do so by the Executive will be void and constitute a material breach hereunder. 9. Indemnification. The Company and the Executive acknowledge that the Executive's service as an officer of the Company exposes the Executive to risks of personal liability arising from, and pertaining to, the Executive's participation in the management of the Company. The Company shall defend, indemnify and hold harmless the Executive from any actual cost, loss, damages, attorneys fees, or liability suffered or incurred by the Executive arising out of, or connected to, the Executive's service as an officer of the Company or any of its current, former, or future subsidiaries to the fullest extent allowed by law. The Company will not have any obligation to the Executive under this section for any loss suffered if the Executive voluntarily pays, settles, compromises, confesses judgment for, or admits liability with respect to without the approval of the Company. Within thirty days after the Executive receives notice of any claim or action which may give rise to the application of this section, the Executive shall notify the Company in writing of the claim or action. The Executive's failure to timely notify the Company of the claim or action will relieve the Company from any obligation to the Executive under this section. 10. Severability. If any provision of this Agreement otherwise is deemed to be invalid or unenforceable or is prohibited by the laws of the state or jurisdiction where it is to be performed, this Agreement shall be considered divisible as to such provision and such provision shall be inoperative in such state or jurisdiction and shall not be part of the consideration moving from either of the parties to the other. The remaining provisions of this Agreement shall be valid and binding and of like effect as though such provision were not included. 11. Prior Employment Agreements. The Executive represents that he has not executed any agreement with any previous Company which may impose restrictions on his employment with the Company. 12. Notice. Notices given pursuant to the provisions of this Agreement shall be sent by certified mail, postage prepaid, or by overnight courier, or telecopier to the following addresses: If to the Company: Medical Technology Systems, Inc. 12920-M Automobile Blvd. Clearwater, FL 34622 9 If to the Executive: Todd E. Siegel 10043 Windtree Blvd. Seminole, FL 33772 Either party may, from time to time, designate any other address to which any such notice to it or him shall be sent. Any such notice shall be deemed to have been delivered upon the earlier of actual receipt or four days after deposit in the mail, if by certified mail. 13. Miscellaneous. a. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws Florida without giving effect to the conflict of laws rules thereof. b. Waiver/Amendment. The waiver by any party to this Agreement of a breach of any provision hereof by any other party shall not be construed as a waiver of any subsequent breach by any party. No provision of this Agreement may be terminated, amended, supplemented, waived or modified other than by an instrument in writing signed by the party against whom the enforcement of the termination, amendment, supplement, waiver or modification is sought. c. Attorney's Fees. In the event any action is commenced to enforce any provision of this agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and expenses. d. Entire Agreement. This Agreement, and the attached Exhibits A and B, comprise the entire agreement between the Executive and the Company. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof and may not be modified or terminated orally. No modification, termination, or attempted waiver shall be valid unless it is in writing and is executed by each of the parties. e. Counterparts. This Agreement may be executed in counterparts, all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the day and year first above written. WITNESSES: EXECUTIVE _____________________________________ _____________________________________ TODD E. SIEGEL Print Name: _________________________ _____________________________________ Print Name: _________________________ 10 COMPANY MEDICAL TECHNOLOGY SYSTEMS, INC., _____________________________________ a Delaware corporation Print Name: _________________________ By: ___________________________________ _____________________________________ Print Name: ____________________________ Print Name: _________________________ As: ____________________________________ EXHIBIT A BONUS PROGRAM Executive shall be entitled to receive an annual performance bonus as follows: 3% of the first $800,000 of the Company's net income after income taxes plus 2.5% of the Company's net income after taxes in excess of $800,000, but less than $1,600,000 plus 2% of the Company's net income after taxes in excess of $1,600,000. Such bonuses may be paid in cash or issued in shares of the Company's common stock subject to compliance with all applicable securities laws including without limitation those laws governing insider trading. Such stock shall be valued at sixty percent (60%) of the closing bid price of the Company's common stock as quoted on an established exchange as of the date of Executive's election. For the purposes of this Agreement, "net income after income taxes" shall mean with respect to each fiscal year of the Company, the sum of (y), the net income after income taxes, but without taking into account any unusual, non-recurring gains or losses recognized during such year including tax benefits associated with deferred tax assets; and (z) any amount of the performance bonus payable under this Section 3(b) for such fiscal year which has been accrued as an expense and included in the Company's payroll and related expenses for such fiscal year in arriving at the amount of the Company's net income after income taxes. For purposes of this Agreement, net income after income taxes for any year shall be as reported on a consolidated basis in the Company's annual report filed with the Securities and Exchange Commission for such fiscal year . EX-10 5 0005.txt MATERIAL CONTRACTS 1 AMENDMENT ONE TO EXECUTIVE STOCK APPRECIATION RIGHTS AND NON QUALIFIED STOCK OPTION AGREEMENT This Amendment One to Executive Stock Appreciation Rights and Non Qualified Stock Option Agreement ("Amendment") is made and entered into this 28 day of October 2000, between Medical Technology Systems, Inc., a Delaware corporation (the "Company"), and Todd E. Siegel (the "Executive'). Background A. On February 6, 1995, the Company and the Executive entered into an Executive Stock Appreciation Rights and NonQualified Stock Option Agreement, a true, correct and authentic copy of which is attached hereto as Exhibit "A" (the Agreement"). B. It is the parties' desire to amend the Agreement as set forth below. THEREFORE, in consideration of the mutual covenants and promises set forth herein, and in consideration of Executive's continued employment with and service with the Company and its subsidiaries, the parties agree as follows: 1. The Background is true and correct, and is incorporated herein. 2. Section 1.14 of the Agreement is deleted and replaced as follows: "Total Market Capitalization" means the total number of shares of common stock outstanding on the Valuation Date multiplied by the weighted average closing bid price of the common stock trade on the NASDAQ/NMS (or other market or exchange). The "weighted average closing bid price" shall be determined by multiplying the closing bid price on the Valuation Date by the number of shares of Common Stock traded on the Valuation Date and repeating the calculation for each of the four days preceding the Valuation Date, then dividing the sum of the five calculations by the aggregate number of shares of Common Stock traded during the five day period. 2 3. The following definition is added to Section 1 of the Agreement: 1.18 "Floor Value" means the highest Total Market Capitalization of the Company from March 31, 2000 through March 31, 2005 as measured on March 31 of any year during that time period. By way of example, for the time period from March 31, 2000 through March 31, 2001, the Floor Value is $3,336,736.00 (the Total Market Capitalization as of March 31, 2000). If the Total Market Capitalization as of March 31, 2001 exceeds $3,336,736.00, then the March 31, 2001 Total Market Capitalization will be the new Floor Value. If the Total Market Capitalization as of March 31, 2001 does not exceed $3,336,736.00 then $3,336,736.00 will remain the Floor Value. 4. Section 1.15 of the Agreement is deleted, and replaced as follows: "Incremental Value" means the difference between the Total Market Capitalization of the Company at the end of a fiscal year (i.e., March 31) and the Floor Value. Example: the Floor Value of the company as of March 31, 2000 is $3,336,736.00. The Total Market Capitalization of the Company as of March 31, 2001 is $4,000,000.00. Incremental Value is defined as the difference between the Total Market Capitalization on March 31, 2001 and the Floor Value or $663,264.00. (In addition, the "Floor Value" for the next fiscal year will be $4,000,000.00). 5. Section 2.A. is deleted, and replaced as follows: A. Grant of SAR's. Subject to the terms and conditions of this Agreement, the Company hereby grants the Executive, as additional compensation, which the Executive may receive, effective as of each March 31st during the term of this Agreement, if the Executive is then employed, Stock Appreciation Rights equal to 3.25% of the Incremental Value of the Company. Any stock appreciation rights granted under this Agreement shall vest immediately. 6. Section 2.B. is deleted, and replaced as follows: B. Payment of SAR. Except as may be provided in any other provision here to the contrary, the Executive, or as the case may be, his estate or legatees, heirs or assigns, shall be paid an amount in cash equal to the value of any Stock Appreciation Rights within 120 days after each Incremental Valuation Date. If the Total Market Capitalization at any fiscal year-end is less than the Floor Value, the Executive will not be entitled to compensation pursuant to this Stock Appreciation Right. There is no requirement that in the determination of Incremental Value that the prior base fiscal year be the fiscal year with the highest preceding value. Measurements of Incremental Value will be done on a year-to-year basis based upon the annual change in Total Market Capitalization between Valuation Dates. 3 7. Section 2.F. is deleted, and replaced as follows: Termination of Employment. If Executive ceases to be employed by the company and/or its subsidiaries at any time during the term of this Agreement, for any reason other than for "cause" termination as described in the Executive's Employment Agreement, the Valuation Date shall be the date of such termination of employment. The executive shall be entitled to his SARs based upon the increase in value between the Floor Value and the Total Market Capitalization of the company on the date of termination. Payment shall be due to the executive, his estate, assigns, or legal representatives within sixty (60) days of the termination date. Payment shall be in the form of cash or the company's common stock, at the election of the executive, as described in subparagraph 2.C. above. 8. This Amendment is intended to act prospectively and will govern the calculation of all Stock Appreciation Rights granted after the date of the Amendment. This Amendment does not, in any way, affect the grant of any Stock Appreciation Rights which occurred, or should have occurred, prior to the date of this Amendment. 9. Other than as modified by this Amendment, the Agreement, and all provisions of the Agreement which are not modified by this Amendment, remain in full force and effect. This Amendment is intended to modify only those provisions which are expressly modified by this Amendment. 10. The parties expressly incorporate the modifications set forth in this Amendment into the Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement this ____ day of ________, 2000. Medical Technology Systems, Inc. By: _________________________________ _______________________________ Print: _______________________________ Its: _________________________________ ________________________________ Witnesses for MedTech Date: ________________________________ 4 _______________________________ Todd Siegel __________________________ _______________________________ Date: ________________________________ Witnesses for Siegel -----END PRIVACY-ENHANCED MESSAGE-----