-----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, Fo5myrtsNm9lBLGy8k/6pmomM+izxfKs4GAjwu/6B2igPpPTkW2GCBSyT0y+RV1y L2QKzspHhO6yL/I+a5mtJQ== 0001005477-01-002890.txt : 20010425 0001005477-01-002890.hdr.sgml : 20010425 ACCESSION NUMBER: 0001005477-01-002890 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILESTONE SCIENTIFIC INC/NJ CENTRAL INDEX KEY: 0000855683 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 133545623 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 001-14053 FILM NUMBER: 1609910 BUSINESS ADDRESS: STREET 1: 220 S ORANGE AVE STREET 2: LIVINGSTON CORPORATE PARK CITY: LIVINGSTON STATE: NJ ZIP: 07039 BUSINESS PHONE: 2013793171 MAIL ADDRESS: STREET 1: 44 KEAN ROAD STREET 2: 220 SOUTH ORANGE AVE CITY: LIVINGSTON STATE: NJ ZIP: 07039 FORMER COMPANY: FORMER CONFORMED NAME: U S OPPORTUNITY SEARCH INC DATE OF NAME CHANGE: 19920703 10KSB40 1 0001.txt FORM 10-KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) |X| Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934 For the Fiscal Year ended December 31, 2000 |_| Transition Report Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission File Number 0-26284 Milestone Scientific Inc. ------------------------- (Name of Small Business Issuer in its Charter) Delaware 13-3545623 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization Identification No.) 220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number (973) 535-2717 Securities registered under Section 12(b) of the Exchange Act: Title of Each Class Name of Each Exchange ------------------- on Which Registered --------------------- Common Stock, par value $.001 per share American Stock Exchange Pacific Stock Exchange Securities Registered under Section 12(g) of the Exchange Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X| For the year ended December 31, 2000, the revenues of the registrant were $5,674,351. The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant, based on the closing price on the American Stock Exchange March 30, 2001 of $ 0.85 was approximately $9,581,920. As of March 30, 2001, the registrant has a total of 11,272,847 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE NONE 2 MILESTONE SCIENTIFIC, INC. Form 10-KSB Annual Report TABLE OF CONTENTS Page ---- PART I Item 1. Description of Business ....................................... 4 Item 2. Description of Properties ..................................... 15 Item 3. Legal Proceedings ............................................. 15 Item 4. Submission of Matters to a Vote of Security Holders ........... 15 PART II Item 5. Market for Common Equity and Related Stockholder Matters ...... 16 Item 6. Management's Discussion and Analysis or Plan of Operations .... 19 Item 7. Financial Statements .......................................... 25 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ........................ 25 PART III Item 9. Directors and Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act ........................................ 26 Item 10. Executive Compensation ........................................ 29 Item 11. Security Ownership of Certain Beneficial Owners and Management 31 Item 12. Certain Relationships and Related Transactions ................ 33 Item 13. Exhibits, List and Reports on Form 8-K ........................ 33 FORWARD-LOOKING STATEMENTS Certain statements made in this Annual Report on Form 10-KSB are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of the Company's early stage operations, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. 3 PART I Item 1. Description of Business All references in this report to the Company refer to Milestone Scientific Inc. (formerly U.S. Opportunity Search, Inc.), its wholly owned subsidiaries, Princeton PMC, Inc. ("Princeton PMC") and Sagacity I, Inc., doing business in the United States as Milestone Scientific, and its 87.0% owned subsidiary, Spintech, Inc. ("Spintech"), unless the context otherwise indicates. Unless stated to the contrary, all references in this Annual Report on From 10-KSB to "we," "us," "our" or "the Company" refer to Milestone Scientific Inc. and its subsidiaries. General The Company develops, manufactures, markets and sells equipment and related disposable or consumable items and other products for use primarily by the dental practitioner. Company products focus on practitioner efficiency, patient comfort, and infection control. The Company's principal product is the The Wand(R), (a computer controlled "painless" injection system enabling the practitioner to more quickly and effectively anesthetize patients in certain dental applications), which the Company introduced at the Fall 1997 American Dental Association Trade Show. The Company began selling equipment units of The Wand(R) and an initial supply of disposables in January 1998. The Wand(R) originally was sold in the U.S. and Canada through major distributors of dental products. A toll free number was established in January 1999, allowing dentists to buy the product directly from the Company. In October 1999, the Company launched its new disposable handpiece, The Wand(R) Plus. The product reduced aspiration time from 14 to 5 seconds. In conjunction with the launch of The Wand(R) Plus handpiece, the Company severed the U.S. dealer distribution channel and began selling its product directly to dentists throughout the U.S. The dealer distribution channel in Canada was not affected until March 2000, when the Company signed a distribution agreement with order minimums with Synca, a Canadian corporation. In January 1999, the Company received authorization to apply the CE mark to The Wand(R). This is a requirement for all dental and medical devices distributed throughout the European Union. In September 1999, the authorization was extended to include medical use of The Wand(R). Furthermore, in February 1999, the Company entered an agreement for the international distribution of The Wand(R). In January 2000, the Company terminated its international distribution agreement and entered a new international distribution agreements, giving its products entry into Japan, Great Britain, Germany, Israel, South Africa, Scandinavia, while retaining its presence in China and Taiwan. In June, Milestone entered distribution agreements for South and Central America, including Mexico. In January 2001, Milestone entered into a three-year private equity line of credit agreement with Hillgreen Investments Limited ("Hillgreen"), a British Virgin Islands corporation, pursuant to which Hillgreen is obligated to purchase, subject to the fulfillment of specified conditions, up to 2.1 million shares of Milestone common stock, par value $.001 per share, (the "Common Stock") over the next 36 months. Hillgreen has allocated up to $20 million to fund its purchase obligations. The transaction was arranged by Jesup & Lamont Securities Corporation, a New York-based investment banking firm. Milestone's right to draw upon this facility is subject to a number of limitations and conditions, including a limitation on the amounts sold to Hillgreen within specified periods and the effectiveness of a resale registration statement covering the securities to be purchased. Subject to these and other conditions and limitations, Milestone will have full control over the timing of any financing under the equity line and is under no obligation to sell any shares to Hillgreen. Any shares that are sold will be priced at 87.5% of the volume weighted average market price of Milestone Common Stock during a fixed period prior to the sale. Milestone has discretion to establish a floor price below which shares will not be sold to Hillgreen. The availability of this equity line allows the Company to finance operations and move forward in developing its medical product line. 4 The Company also markets and sells (i)SplatrFree(TM) disposable prophy angles and (ii) Luer Lock needles. Both currently are sold domestically, directly to our dental customers. The Company was organized in August 1989 under the laws of Delaware. On November 3, 1995, the Company acquired 65% of the outstanding shares of common stock of Spintech for an aggregate purchase price of $2,700,000. During 1999 and 2000, the Company increased its interest in Spintech to 87.0%, by exercising the third and fourth of a series of five annual options to acquire an additional 3% of Spintech's shares for a nominal amount granted in the original acquisition transaction and by receiving shares from two former employees as part of a settlement agreement. Spintech developed and owns the technology underlying various products for healthcare providers, including The Wand(R), and has registered various patents and trademarks related to these products. In March 2001, Milestone was granted a broad new United States patent and three related United States patents covering its CompuFlo(TM) technology, a new technology for computer-controlled infusion of a wide array of liquid drugs and other fluids, aspiration of bodily fluids and measurements of in-tissue pressure. The CompuFlo(TM) technology is designed to reduce patient pain and tissue tearing during injection procedures. Use of CompuFlo(TM) technology will provide doctors with real time feed-back of flow rate, volume injected and tissue pressure. The Company maintains its executive offices at 220 South Orange Avenue, Livingston Corporate Park, Livingston, New Jersey 07039, and its telephone number is (973) 535-2717. Products The Wand(R) Computer Controlled Anesthetic Injection System is a computer controlled local anesthetic delivery system developed by the Company. The Company believes that The Wand(R) overcomes the typical problems associated with conventional anesthetic injections. The slim, pencil-like shape of The Wand(R) is more functional to the user and less ominous in appearance to the patient. The pencil grip provides a greater level of stability for the user by preventing antagonistic movements between the patient and the practitioner during needle placement, a positioning control not possible with syringes currently in use. A computer driven infusion machine operated by the standard air controlled foot pedal provides the precision flow necessary for virtually painless local anesthesia. The Wand(R) provides a highly controlled rate of emission of anesthetic solution in advance of the needle point. The controlled rate of anesthetic emission causes an anesthetic pathway, which anesthetizes the tissue immediately ahead of the needle's penetration. The controlled rate substantially eliminates the so-called "bee sting" effect, which is pain associated with the sudden build-up of pressure by the too rapid flow rate of expelled fluids. Because The Wand(R) uses a disposable handpiece and needle, the Company believes that it will offer protection against patient cross-contamination. In many procedures, The Wand(R) more quickly anesthetizes by eliminating the need for preliminary pain blocking injections and reducing the waiting time required to see if the injection has taken effect before further anesthetic injections. Also, with the October 1999 introduction of The Wand(R) Plus disposable handpiece, aspiration time was reduced from 14 to 5 seconds. The Company believes that The Wand(R) enables a dentist to provide virtually painless injections, increases productivity, is more sanitary than traditional methods of injections and that it provides important competitive advantages for dentists trying to build and maintain their practices. While designed for use in dentistry, The Wand(R) also may have uses in proctology, podiatry, urology and possibly dermatology and plastic surgery. Although the Company has focused its marketing of The Wand(R) on the dental market, it was granted approval in September 1999 to sell The Wand(R) in Europe for medical use. While many dentists often give comfortable injections, it is extremely difficult for them to do so consistently using conventional techniques. Dentists do not have a strong purchase point against which they may guide their hand when inserting a needle or while administrating the injection. The resulting uncontrolled 5 movement of the needle frequently can be painful to the patient. Although the dentist is taught to inject slowly, present devices do not allow automatic control of the rate of flow. Thus, the needle often enters tissue that has not yet been anesthetized. The Wand(R) can precisely control the flow rate and modulate fluid pressure by the use of a microprocessor and electronically controlled motor. The Company began shipping system kits consisting of The Wand(R) drive unit, an initial supply of disposable handpieces and needles, an instructional videotape and other educational material in January 1998. Prior thereto, a pre-production prototype of The Wand(R) had been clinically tested in over 1,000 patients. Of those tested, 96% reported a "virtually painless" or significantly less painful procedure than the traditional syringe injection. At that time, three additional clinical studies were conducted on various aspects of The Wand(R) performance and were published in major dental publications. Over the last two years, three favorable evaluations were reported by independent testing organizations. Additionally, ten domestic and nine international clinical studies were completed in year 2000 and either published or submitted for publication in major dental journals. To date, over 40 articles have been published about The Wand(R). SplatrFree(TM) Prophy Angles. Prophy angles are dental accessories incorporating a cup-like rubber tip moving at high rotational speeds, which are used by dentists and dental hygienists in teeth cleaning and other prophylaxis procedures. Prophy angle tips frequently cause splattering of saliva, particulate matter and possibly pathogens onto the dentist, hygienist, dental instruments and surrounding surfaces. The SplatrFree(TM) prophy angle has a unique tip design that substantially eliminates splattering. The SplatrFree(TM) prophy angle is available in disposable models. The Company believes that its prophy angle can improve dental office infection control and hygiene by reducing the spread of infection from patient to patient and from patient to dentist or dental auxiliaries (including dental assistants). Since the Company began marketing The Wand(R), it has included Becton Dickinson Luer Lock needles in its system kits. In October 1999, the Company began selling the needles directly to its dental customers. Manufacturing and Sources of Supply The Wand(R) equipment units are manufactured for the Company by Tricor Systems, Inc. ("Tricor") pursuant to specific purchase orders. In order to fund certain expenses of Tricor, the Company has advanced funds to Tricor. These advances are reduced as Tricor makes shipments to the Company. Net advances to Tricor as of December 31, 2000 and 1999 were $1,004,530 and 1,707,789, respectively. The disposable handpiece for The Wand(R) is manufactured for the Company by Nypro Inc. ("Nypro") pursuant to scheduled production requirements. Nypro utilizes molds, semi-automated assembly equipment and packaging equipment purchased by the Company. In 1998, a $1,712,982 writedown of new, yet unused, semi-automation equipment and molds was made by the Company. The semi-automation equipment and molds were purchased for approximately $2,200,000 in anticipation of the ramp up of disposable handpiece sales. In 2000, the Company further evaluated the recoverability of its assets, and as a result of continued losses from operations, it wrote off $956,546, the remaining book value of its tooling equipment. The Company also wrote off $1,247,175 in unamortized patents. All SplatrFree(TM) prophy angles have been produced for the Company by Team Technologies, Inc. ("TTI") pursuant to an agreement entered into in July 1995. Prototype prophy angles were produced in a single cavity mold purchased by the Company for $7,000. Commercial quantities of prophy angles are produced utilizing a 16-cavity production mold capable of producing more than 30,000 prophy angles per day. The 16-cavity production mold was purchased by the Company at a cost of $72,000. Commercial delivery of prophy angles began in the first quarter of 1997 after small modifications to TTI production molds. 6 In October 1999, the Company reached an agreement through an authorized intermediary to sell Becton Dickinson ("BD") Luer Lock needles directly to Milestone dental customers. Since December 1999, BD's dental partner, Crosstex International, has handled needle purchases by the Company. Marketing The Wand(R) originally was marketed to dental practitioners through a group of dental distributors in the U.S. and Canada. In October 1999, in conjunction with the launch of The Wand(R) Plus handpiece, the Company severed the U.S. distribution channel and began selling and marketing its product directly to dentists throughout the U.S. The dealer distribution channel in Canada was not affected until March 2000, when the Company signed a distribution agreement with order minimums with Synca, a Canadian corporation. In addition, the Company has established regional sales territories in the U.S. and Canada. As of December 31, 2000, these territories were staffed by twelve full time sales people. Sales representatives train, motivate, and direct sales activity. They also conduct study clubs for dentists, contact and call on dental hygiene schools, attend local, state and national dental conventions, and call on dentists for training and education purposes. Sales literature and training materials are produced to support the selling and educational activities of the Company and its representatives. Currently, the Company has ten full time sales people and two independent sales representatives. Marketing of The Wand(R) outside the U.S. is accomplished through specified dental product distributors. The Company markets its other products directly to its dental customers. Dental and Hygiene School Program The Company has a commitment to the dental profession to support the education and training of future dentists and dental professionals. Accordingly, the Company offers special educational assistance programs to qualified dental and hygiene schools throughout the United States and Canada. These programs include providing demo units, a year's supply of handpieces per unit, and free instruction and guidance to participating educators. Currently, The Wand(R) has been added to the curriculum of 28 U.S. and Canadian dental schools and 17 schools providing degrees in dental hygiene. Competition The Company faces intense competition from companies in the medical and dental device industry, including well-established academic institutions, possessing substantially greater financial, marketing, personnel, and other resources. Most of the Company's competitors have established reputations, stemming from their success in the development, sale, and service of medical products. Further, rapid technological change and extensive research and development characterize the industry. Current or new competitors could, at any time, introduce new or enhanced products with features that render the Company's products less marketable, or even obsolete. Therefore, the Company must devote substantial efforts and financial resources to improve its existing products, bring its developmental products to market, and develop new products for its related markets. In order to compete successfully, the Company must establish an effective distribution network. Several regulatory authorities also must approve the Company's products before they may be marketed. There can be no assurance that the Company will be able to compete successfully, that its competitors will not develop technologies or products that render the Company's products less marketable or obsolete, or that the Company will succeed in improving its existing products, effectively develop new products or obtain required regulatory approvals therefor. The Wand(R) competes with non-automated disposable and reusable syringes and other local anesthetic delivery systems generally selling at significantly lower prices and utilizing established and well-understood methodologies. The Wand(R) competes on the basis of its performance characteristics and offers significant benefits to the dentist and the patient. It reduces fear, pain and anxiety for the patient and greatly reduces dentist stress levels. It can be used for all local anesthesia techniques as well as new and modified techniques. These 7 new techniques allow faster procedures, shortening of chair time while minimizing numbing of the lips and facial muscles of expression. It enhances productivity, reduces stress and virtually eliminates pain and anxiety. In February 2001, a division of Dentsply International ("Dentsply") unveiled its own "Computer Controlled Anesthetic Delivery System". The Company has not completely assessed the competition presented by the produt but knows the introduction of the Dentsply product serves to validate the technology implicit in The Wand(R). SplatrFree(TM) prophy angles compete with prophy angles produced and distributed by a number of major manufacturers and distributors and other producers or distributors of dental products, many of whom have significant competitive advantages because of their size, strength in the marketplace, financial and other resources and broad product lines. The Company competes on the basis of the superior, non-splattering performance of its prophy angle and product quality. The Luer Lock needle competes with dental needles produced and distributed by a number of major manufacturers and distributors and other producers or distributors of dental products, many of whom have significant competitive advantages because of their size, strength in the marketplace, financial and other resources and broad product lines. The Company competes on the basis of convenience since it can package the product with an order for disposable handpieces. Dependence on a Few Major Customers In 2000, the Company made sales to the following three customers in the aggregate amount of approximately $1,891,000. Sales to New Image do Brasil Import Export Ltda. (our distributor in Brazil), Milestone Medical Technologies Ltd. (our distributor in Europe and Africa), and Yoshida Dental Manufacturing Company (our distributor in Japan) represented 12%, 11% and 10% of sales for 2000, respectively. In addition, accounts receivable due from Milestone Medical Technologies Ltd. at December 31, 2000 amount to approximately $354,000, representing 67% of accounts receivable as of the end of the 2000. During the year ended December 31, 1999, sales to one customer, AFP Imaging Corp., our former international distributor, amounted to approximately $516,326 or 18% of sales for that year. Each of the above named distributors resold the Company's products to dental practitioners, principally in foreign markets. Patents and Intellectual Property The Company's patents are believed to be material to its business and potential growth. The Company holds the following ten United States utility patents and three United States design patents:
U.S. Patent Date of Description Number Issue ----------- ------ ----- The Wand(R) Hypodermic Anesthetic Injection Method 4,747,824 5/31/88 Hypodermic Anesthetic Injection Apparatus & Method 5,180,371 1/19/93 Dental Anesthetic and Delivery Injection Unit 6,022,337 2/8/00 Preservative Free Computer Controlled Drug Delivery System (The Wand(R)III) 6,200,289 3/13/01 Design for a Dental Anesthetic Delivery System Handle D427,314 6/27/00 Design for a Dental Anesthetic Delivery System Holder D422,361 4/4/00 Design for a Dental Anesthetic Delivery System Housing D423,665 4/25/00 SplatrFree(TM) Anti-Splattering Rotary Dental Instrument 5,690,488 11/25/97 Other Apparatus and Method for Sterilizing, Destroying and Encapsulating Medical Implement Wastes 4,992,217 2/12/91 Apparatus and Method for Verifiably Sterilizing Destroying and Encapsulating Regulated Medical Wastes 5,078.924 1/7/92 Apparatus and Method for Verifiably Sterilizing,
8 Destroying and Encapsulating Regulated Medical Wastes 5,401,444 3/28/95 Self-Sterilizing Hypodermic Syringe and Method 5,512,730 4/30/96 Self-Sterlizing Hypodermic Syringe and Method 5,693,026 12/2/97
The Company also has filed four additional United States utility patent applications on improvements in The Wand(R) and its accessories, and two other utility applications on related injection technology. The Company has adopted the trademarks SplatrFree(TM), The Wand(R) and The Wand(R) Plus. SplatrFree(TM) is registered on the Supplemental Register as United States Trademark Registration No. 2,226,868, issued February 23, 1999. The Wand(R) is registered on the Principal Register as Registration No. 2,291,401, issued November 9, 1999. The Wand(R) Plus is the subject of a pending trademark application which has been approved and published by the United States Patent & Trademark Office. The Company relies on a combination of patent, copyright, trade secret, and trademark laws and employee and third-party nondisclosure agreements to protect its intellectual property rights. Despite the precautions taken by the Company to protect its products, unauthorized parties may attempt to reverse engineer, copy, or obtain and use products and information that the Company regards as proprietary. Litigation may be necessary to protect the Company's intellectual property rights and could result in substantial cost to and diversion of effort by the Company with no guarantee of success. The failure of the Company to protect its proprietary information and the expenses of doing so could have a material adverse effect on the Company's operating results and financial condition. While there are no current claims that the Company's products infringe on the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products or that any such assertion may not require the Company to cease selling such products, or to enter into arrangements that require the Company to pay royalties, or to engage in costly litigation. Although the Company has received no claims of infringement, it is possible that infringement of existing or future patents or proprietary rights of others may occur. In the event that the Company's products infringe patent or proprietary rights of others, the Company may be required to modify its processes or to obtain a license. There can be no assurance that the Company would be able to do so in a timely manner, upon acceptable terms and conditions, or at all. The failure to do so would have a material adverse effect on the Company. Government Regulation SplatrFree(TM) prophy angles and The Wand(R) were cleared for marketing in the United States by the FDA in April and July 1996, respectively. The manufacture and sale of medical devices and other medical products, such as the SplatrFree(TM) prophy angle and The Wand(R), are subject to extensive regulation by the FDA pursuant to the FDC Act, and by other federal, state and foreign authorities. Under the FDC Act, medical devices must receive FDA clearance before they can be marketed commercially in the United States. Some medical products must undergo rigorous pre-clinical and clinical testing and an extensive FDA approval process before they can be marketed. These processes can take a number of years and require the expenditure of substantial resources. The time required for completing such testing and obtaining such approvals is uncertain, and FDA clearance may never be obtained. Delays or rejections may be encountered based upon changes in FDA policy during the period of product development and FDA regulatory review of each product submitted. Similar delays also may be encountered in other countries. Following the enactment of the Medical Device Amendments to the FDC Act in May 1976, the FDA classified medical devices in commercial distribution into one of three classes. This classification is based 9 on the controls necessary to reasonably ensure the safety and effectiveness of the medical device. Class I devices are those devices whose safety and effectiveness can reasonably be ensured through general controls, such as adequate labeling, premarket notification, and adherence to the FDA's Quality System Regulation ("QSR"), also referred to as "good manufacturing practices ("GMP") regulations. Some Class I devices are further exempted from some of the general controls. Class II devices are those devices whose safety and effectiveness reasonably can be ensured through the use of special controls, such as performance standards, post-market surveillance, patient registries, and FDA guidelines. Class III devices are those which must receive premarket approval by the FDA to ensure their safety and effectiveness. Generally, Class III devices are limited to life-sustaining, life-supporting or implantable devices. If a manufacturer or distributor can establish that a proposed device is "substantially equivalent" to a legally marketed Class I or Class II medical device or to a Class III medical device for which the FDA has not required premarket approval, the manufacturer or distributor may seek FDA marketing clearance for the device by filing a 510(k) Premarket Notification. The 510(k) Premarket Notification and the claim of substantial equivalence may have to be supported by various types of data and materials, including test results indicating that the device is as safe and effective for its intended use as a legally marketed predicate device. Following submission of the 510(k) Premarket Notification, the manufacturer or distributor may not place the device into commercial distribution until an order is issued by the FDA. By regulation, the FDA has no specific time limit by which it must respond to a 510(k) Premarket Notification. At this time, the FDA typically responds to the submission of a 510(k) Premarket Notification within 90 to 200 days. The FDA response may declare that the device is substantially equivalent to another legally marketed device and allow the proposed device to be marketed in the United States. However, the FDA may determine that the proposed device is not substantially equivalent or may require further information, such as additional test data, before the FDA is able to make a determination regarding substantial equivalence. Such determination or request for additional information could delay the Company's market introduction of its products and could have a material adverse effect on the Company. If a device that has obtained 510(k) Premarket Notification clearance is changed or modified in design, components, method of manufacture, or intended use, such that the safety or effectiveness or the device could be significantly affected, separate 510(k) Premarket Notification clearance must be obtained before the modified device can be marketed in the United States. If a manufacturer or distributor cannot establish that a proposed device is substantially equivalent to a legally marketed device, the manufacturer or distributor will have to seek premarket approval of the proposed device. A premarket approval application (a "PMA application") would be supported by extensive data, including pre-clinical and human clinical trial data, as well as extensive literature, to prove the safety and efficacy of the device. Upon receipt, the FDA will conduct a preliminary review of the PMA application to determine whether the submission is sufficiently complete to permit substantive review. If sufficiently complete, the submission is declared acceptable for filing by the FDA. The FDA has 180 days to review a PMA application once it has been declared acceptable for filing. While in the past the FDA has responded to PMA applications within the allotted time period, more frequently PMA reviews occur over a significantly protracted time period, and generally take approximately two years or more from the date of filing to complete. A number of devices for which FDA marketing clearance has been sought have never been cleared for marketing. If human clinical trials of a proposed device are required and the device presents "significant risk," the manufacturer or distributor of the device will have to file an Investigational Device Exemption ("IDE") application with the FDA prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and mechanical testing. If the IDE application is approved, human clinical trials may begin at the specific number of investigational sites and could include the number of patients approved by the FDA subject to any limitations imposed by FDA, such as the specific number of investigational sites and/or number of patients approved by FDA. Though the SplatrFree(TM) prophy angle and The Wand(R) have received FDA clearance based on their 510(k) Premarket Notification, there can be no assurance that any of the Company's other products under 10 development will obtain the required regulatory clearance on a timely basis, or at all. If regulatory clearance of a product is granted, such clearance may entail limitations on the indicated uses for which the product may be marketed. In addition, modifications may be made to the Company's products to incorporate and enhance their functionality and performance based upon new data and design review. There can be no assurance that the FDA will not request additional information relating to product improvements, that any such improvements would not require further regulatory review thereby delaying the testing, approval and commercialization of the Company's development products or that ultimately any such improvements will receive FDA clearance. Compliance with applicable regulatory requirements is subject to continual review and will be monitored through periodic inspections by the FDA. Later discovery of previously unknown problems with a product, manufacturer, or facility may result in restrictions on such product or manufacturer, including fines, delays or suspensions of regulatory clearances, seizures or recalls of products, operating restrictions and criminal prosecution and could have a material adverse effect on the Company. The Company is subject to pervasive and continuing regulation by the FDA, whose regulations require manufacturers of medical devices to adhere to certain QSR requirements, also referred to as "Good Manufacturing Practices" ("GMP") as defined by the FDC Act. QSR compliance requires testing, quality control and documentation procedures. Failure to comply with QSR requirements can result in the suspension or termination of production, product recall or fines and penalties. Products also must be manufactured in registered establishments. In addition, labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. The export of devices is also subject to regulation in certain instances. The Medical Device Reporting ("MDR") regulation obligates the Company to provide information to the FDA on product malfunctions or injuries alleged to have been associated with the use of the product or in connection with certain product failures that could cause serious injury. If, as a result of FDA inspections, MDR reports or other information, the FDA believes that the Company is not in compliance with the law, the FDA can institute proceedings to detain or seize products, enjoin future violations, or assess civil and/or criminal penalties against the Company, its officers or employees. Any action by the FDA could result in disruption of the Company's operations for an undetermined time. In addition to the foregoing, numerous other federal and state agencies, such as environmental, fire hazard control, working condition and other similar regulators, have jurisdiction to take actions that could have a materially adverse effect upon the Company's ability to do business. In addition, expansion of the Company's operations into foreign countries will require the Company to obtain approvals, permits or licenses and comply with additional regulatory schemes in those countries. Amendments to existing statutes and regulations, adoption of new statutes and regulations and expansion of the Company's business could require the Company to alter methods of operations at costs that could be substantial, which could have an adverse effect on the Company. There can be no assurance that the Company will be able, for financial or other reasons, to comply with applicable laws and regulations and approval, permit or license requirements. Currently, the Company believes it is in compliance with all applicable statutes and regulations governing its operations and business as currently conducted, including, without limitation, those in respect of the SplatrFree(TM) prophy angles and The Wand(TM), and The Wand(R) Plus, and the Company has all necessary approvals, permits and licenses that are applicable to its business, operations and products and services. 11 Product Liability Failure to use any of the Company's products in accordance with recommended operating procedures potentially could result in subjecting users to health hazards or injury. Failures of the Company's products to function properly could subject the Company to claims of liability. The Company maintains liability insurance in the aggregate amount of $2,000,000 with a per-occurrence limit of $1,000,000 and a $10,000,000 umbrella policy, which the Company believes to be adequate. However, there can be no assurance that our insurance coverage will be sufficient to pay products liability claims brought against the Company. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on the Company. Research and Development Activities During the 2000 and 1999 fiscal years, the Company expensed $386,250 and $455,332, respectively, on research and development activities. Employees The Company had 34 full-time including three executive officers and 3 part-time employees at December 31, 2000. The Company also uses the services of certain outside consultants for marketing and other activities. Certain Risk Factors That May Affect Growth And Profitability The following factors may affect the growth and profitability of the Company and should be considered by any prospective purchaser of the Company's securities: History of Losses; Accumulated Deficit. Our operations commenced in November 1995, when we acquired a 65% interest in Spintech. For the fiscal years ending December 31, 1995, 1996 and 1997 we had limited revenues. For the fiscal years ended December 31, 1998, 1999, and 2000 our revenues were approximately $8.8 million, $2.9 million, and $5.7 million respectively. In addition, we have had losses for each of the years ended December 31, 1995, 1996, 1997, 1998, 1999 and 2000 including a loss of approximately $7.5 million for 2000. At December 31, 2000, we had an accumulated deficit of approximately $35.4 million. We cannot assure you we will be able to generate operating profits and resultant cash flow sufficient to fund our operations in the future. Going Concern Limitation. The report of our independent auditors with respect to our financial statements for the year ended December 31, 2000 included in this Annual Report states that there is substantial doubt regarding our ability to continue as a going concern. There can be no assurance that our existing operations will not continue to generate negative cash flows. However, we believe that increased cash flows from operations during the current year, coupled with savings from our post year end debt restructuring and new financings, will increase to a level sufficient to satisfy our working capital needs. See "Description of Business." Need for Greater Market Acceptance of The Wand(R). As with any new technology, there is substantial risk that the marketplace will not accept the potential benefits of such technology or be unwilling to pay for any cost differential with the existing technologies. Market acceptance of The Wand(R) depends, in large part, upon our ability to educate potential customers of the distinctive characteristics and benefits of The Wand(R) and will require substantial marketing efforts and expense. More than 10,500 units of The Wand(R) were sold in the U.S. over the past three years. The 1,900,000 in disposable handpiece sales for 2000 reflect a low level of usage of The Wand(R). However, from November 1999 through the present, the Company has experienced increased disposable handpiece sales in the U.S. Since sales and rates of usage of our products have not sufficiently improved, the Company has curtailed some marketing efforts and relied on the gradual build-up of demand due to growing awareness of the benefits of The Wand(R) technology resulting from additional clinical studies. We cannot assure you that our current or proposed products will be accepted by end users or that any of the current or proposed products will be able to compete effectively against current and alternative products. 12 Limited Financial Resources; Need for Additional Financing. Our capital requirements have been and will continue to be significant, though we believe, after giving effect to the debt restructuring and equity funding during the first quarter of 2001, that we have sufficient working capital for the next 12 months. However, if we have underestimated our operating expenses or our expected revenue, we will be required to borrow funds or sell equity securities, or curtail or reduce our activities. We have no current arrangements for future additional financing, except as disclosed herein. We cannot assure you that any sources of additional financing will be available on acceptable terms, or at all. To the extent that any future financing involves the sale of our equity securities, the ownership interest of our stockholders could be substantially diluted. Highly Competitive Industry; Technological and Product Obsolescence. We face intense competition from many companies in the medical and dental device industry, including well-established academic institutions, possessing substantially greater financial, marketing, personnel, and other resources. Most of our competitors have established reputations, stemming from their success in the development, sale, and service of competing dental products. Further, rapid technological change and research may affect our product. Current or new competitors could, at any time, introduce new or enhanced products with features that render our products less marketable or even obsolete. In February 2001, a division of Dentsply unveiled its own "Computer Controlled Anesthetic Delivery System". The Company has not completely assessed the competition presented by the product but knows the introduction of the Dentsply product serves to validate the technology implicit in The Wand(R). Therefore, we must devote substantial efforts and financial resources to improve our existing products, bring our products to market quickly, and develop new products for related markets. In addition, our ability to compete successfully requires that we establish an effective distribution network. Several regulatory authorities must approve our products before they may be marketed. We cannot assure you that we can compete successfully, that our competitors will not develop technologies or products that render our products less marketable or obsolete, or that we will succeed in improving our existing products, effectively develop new products, or obtain required regulatory approval for those products. Limited Distribution; Need to Broaden Distribution Channels. Our future revenues depend on our ability to market and distribute The Wand(R) successfully. During 1999, we relied, primarily on independent dental distributors to sell The Wand(R) domestically and internationally. In January 2000, we terminated our international distribution agreement and entered into a new one, giving our products entry into Japan, Great Britain, Germany, Israel, South Africa, Scandinavia while retaining our presence in China and Taiwan. Domestically, the efforts of our sales force in marketing The Wand(R) continued to grow in 2000. As 2000 came to a close, the Company began to explore the use of independent sales representatives to market The Wand(R) domestically, to eliminate expenses associated with maintaining an in-house sales force. Patent and Intellectual Property Protection. We hold U.S. patents applicable to the The Wand(R) as well as the SplatrFree(TM) prophy angle. We rely on a combination of patent, trade secret, and trademark laws and employee and third-party nondisclosure agreements, to protect our intellectual property rights. Despite the precautions we have taken to protect our products, unauthorized parties may attempt to reverse engineer, copy, or obtain and use products and information that we regard as proprietary. We may have to initiate lawsuits to protect our intellectual property rights. Such lawsuits are costly and divert management's time and effort away from our business with no guarantee of success. Our failure to protect our proprietary rights, and the expense of doing so, could have a material adverse effect on our operating results and financial condition. Although we have not received any claims of infringement, it is possible that our products may infringe on the existing or future patents or proprietary rights of others. If so, we may have to modify our processes or to obtain a license. We cannot assure you that we will be able to do so in a timely manner, upon acceptable terms and conditions, or at all. Dependence on Manufacturers. We have informal arrangements with certain manufacturers with respect to the manufacture of our products. Termination of the manufacturing relationship with any of these manufacturers could significantly and adversely affect our ability to produce and sell our products. Though alternate sources of supply exist and new manufacturing relationships could be established, we would need to recover our existing tools or have new tools produced. Establishing new manufacturing relationships could 13 involve significant expense and delay. Any curtailment or interruptions of the supply, whether or not as a result or termination of the relationship, would adversely affect us. Product Liability. We could be subject to claims for personal injury from the use of our dental and medical products. We have liability insurance in the aggregate amount of $2,000,000 with a per-occurrence limit of $1,000,000, which we believe is adequate, although we cannot assure you that the insurance coverage will be sufficient to pay such claims should they be made. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on us. Reliance Upon Management. We depend on the personal efforts and abilities of Leonard Osser, our Chairman and Chief Executive Officer. While we have a key man life insurance policy in the amount of $3,000,000 on the life of Mr. Osser, any loss of his services could have a materially adverse effect on our business. No Dividends. We have never paid a cash dividend on our Common Stock. Payment of dividends on our Common Stock is within the discretion of the Board of Directors and will depend upon our earnings, capital requirements, financial condition, and other relevant factors. We currently do not intend to declare any dividends on our Common Stock in the foreseeable future. Control by Certain Persons. Our current officers and directors own approximately 25% of the outstanding shares of our Common Stock. Accordingly, by reason of their stockholdings, and their control of the means for soliciting stockholder votes, the officers and directors will be able to exercise control and, in all likelihood, will be able to continue to elect all directors. Limitation of Director Liability. Our Certificate of Incorporation provides that our directors are not personally liable to us or any of our stockholders for monetary damages for breach of the fiduciary duty of care as a director, including breaches that constitute gross negligence, subject to certain limitations imposed by the Delaware General Corporation Law. Thus, under certain circumstances, neither we, nor our stockholders, can recover damages even if directors take actions that harm us. Government Regulation and FDA Clearance. The manufacture and sale of the Company's SplatrFree(TM) prophy angles and The Wand(R) are subject to extensive regulation by the FDA pursuant to the Federal Food, Drug, and Cosmetic Act ("FDC Act"), and by other federal, state and foreign authorities. Under the FDC Act, these medical devices must receive FDA clearance before they can be marketed commercially in the United States. Some products must undergo rigorous pre-clinical and clinical testing and an extensive FDA approval process before they can be marketed. These processes can take a number of years and require the expenditure of substantial resources. The time required for completing such testing and obtaining such approvals is uncertain, and FDA clearance may never be obtained. Delays or rejections may be based upon changes in FDA policy during the period of product development and FDA regulatory review of each submitted application. Similar delays also may be encountered in other countries. While SplatrFree(TM) prophy angle and The Wand(R) have received FDA marketing clearance, there can be no assurance that all of our products under development will obtain the required regulatory clearance on a timely basis, or at all. If regulatory clearance of a product is granted, such clearance may impose limitations on the indicated uses for which the product may be marketed. In addition, modifications may be made to our products to incorporate and enhance their functionality and performance based upon new data and design review. There can be no assurance that the FDA will not request additional information relating to product improvements, that any such improvements would not require further regulatory review thereby delaying the testing, approval and commercialization of the our products or that ultimately any such improvements will receive FDA clearance. FDA regulations also require manufacturers of medical devices to adhere to certain "Good Manufacturing Practices" ("GMP"), which include testing, design, quality control and documentation procedures. Compliance with applicable regulatory requirements is subject to continual review and will be monitored through periodic inspections by the FDA. Later discovery of previously unknown 14 problems with a product, manufacturer, or facility may result in restrictions on such product or manufacturer, including fines, delays or suspensions of regulatory clearances, seizures or recalls of products, operating restrictions and criminal prosecution and could have a material adverse effect on us. Restricted Securities; Possible Volatility of Market Price. Shares of our Common Stock currently are traded on the American Stock Exchange. From time to time the market prices of dental and medical product companies have been affected by various factors, including adverse publicity. We cannot assure you that the market price of our Common Stock will not be volatile as a result of factors such as our financial results, possible adverse publicity resulting from any infractions of governmental regulations and various other factors affecting dental and medical product companies or the market generally. In recent years the stock market has experienced wide price fluctuations not necessarily related to the operating performance of such companies. Effect of Outstanding Warrants and Options. We currently have outstanding options and warrants to purchase 1,826,800 shares of our Common Stock at prices ranging from $.875 to $23.00 per share. Holders of these warrants and options are given the opportunity to profit from a rise in the market price of our Common Stock and are likely to exercise their securities at a time when we would be able to obtain additional equity capital on more favorable terms. Thus, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of outstanding options and warrants can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the exercise terms provided by such outstanding securities. We have granted registration rights with respect to our shares of our Common Stock covered by the warrants. Item 2. Description of Property On March 20, 1997 Milestone opened new corporate headquarters and administrative offices occupying approximately 2,693 square feet at 220 South Orange Avenue, Livingston Corporate Park, Livingston, New Jersey. The Company occupies this space under a five (5) year and one (1) month lease at a cost the Company believes to be competitive. Spintech's accounting functions were moved to the new corporate headquarters. Spintech's operational functions are located at and consolidated with the other operations in Deerfield, Illinois. In October 1999, the Company consolidated its operations in Deerfield, Illinois, moving from two facilities to a single facility (approximately 5,470 square feet) in the same business complex. A five-year lease was signed. The facility serves as distribution center for the Company's products and the telemarketing office. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders (a) Not applicable. (b) Not applicable. (c) Not applicable. 15 PART II Item 5. Market for Common Equity and Related Stockholder Matters (a) Market Information The Company's Common Stock had been traded on the Nasdaq SmallCap Market under the symbols "USOS" from November 3, 1995 through December 5, 1996 and "WAND" from December 6, 1996 through January 6, 1998. The Common Stock has traded on the Nasdaq National Market under the symbol "WAND" from January 7, 1998 through April 22, 1998. Since such date, the Common Stock has traded on the American Stock Exchange under the symbol "MS" and the Pacific Stock Exchange under the symbol "MS." The following table sets forth the high and low closing prices of our Common Stock, as quoted by the American Stock Exchange. Such quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. Closing Price High Low 1999 First Quarter $ 3.00 $ .9375 Second Quarter $ 1.875 $ 1.00 Third Quarter $ 2.75 $ .6875 Fourth Quarter $1.4375 $ .875 2000 First Quarter $ 6.00 $ .8125 Second Quarter $4.1875 $1.0625 Third Quarter $ 3.25 $ 1.75 Fourth Quarter $2.1875 $ .875 (b) Holders As of February 26, 2001, the number of record holders of the Common Stock of the Company was 141. The Company believes that there are more than 3,500 beneficial holders of the Common Stock. (c) Dividends The holders of our Common Stock are entitled to receive such dividends as may be declared by the Company's Board of Directors. The Company has not paid and does not expect to declare or pay any dividends in the foreseeable future. Sales of Unregistered Securities On January 31, 2000, the Company issued five-year warrants to purchase an aggregate of 142,857 shares of Common Stock to holders of the Company's 10% Secured Promissory Notes, including Cumberland Associates LLC, Strategic Restructuring Partnership L.P., a former principal of Cumberland Associates, two officers of the Corporation, an affiliate of one of its directors and six other individuals. The warrants were issued as consideration for the loans made by these investors to the Company at the time of issuance. Each of the warrants, as originally issued, contained a provision gradually escalating its exercise price from $1.75 in 2000 to a maximum of $7.00 in 2004. However, in April 2001, the exercise price of these warrants was amended by 16 agreement between the Company and the warrantholders to provide for an exercise price of $1.75 per share up to the date of maturity. The warrants were issued pursuant to the exemption from registration under the Securities Act of 1933, as amended (the "Act"), provided by Sections 4(2) and 4(6) of the Act. Morse, Zelnick, Rose and Lander, LLP, legal counsel to the Company and the firm in which Steve Zelnick, a Director and General Counsel to the Company, is Partner, is the holder of warrants to purchase 118,000 shares of Common Stock and warrants to purchase 83,333 units, each unit consisting of one share of Common Stock and one warrant to purchase one share of Common Stock. On February 3, 2000, the Company reduced the exercise price of these warrants to $1.25 and extended their exercise period to February 2, 2002. Consideration for the amendments were legal services rendered to the Company by Morse, Zelnick, Rose & Lander, LLP. The warrants originally were issued pursuant to the exemption from registration under the Act provided by Sections 4(2) and 4(6) of the Act. On July 31, 2000, the Company issued to a major existing investor a warrant to purchase 70,000 shares of Common Stock at an exercise price of $3.00 per share. On December 7, 2000, the Company issued to the investor a warrant to purchase 80,000 shares of the Common Stock at an exercise price of $1.25 per share. On January 26, 2001, the Company issued to the investor an additional warrant to purchase 20,000 shares of Common Stock at an exercise price of $1.875 per share. Each of the aforementioned warrants are exercisable for five years from the date of issuance and were issued as consideration for loans that the investor made to the Company. The warrants were issued pursuant to the exemptions from registration under the Act provided by Sections 4(2) and 4(6) of the Act. On February 8, 2001, the Company issued to Cumberland Associates LLC, Strategic Restructuring Partnership L.P., a former principal of Cumberland Associates, two officers of the Corporation, an affiliate of one of its directors and six other individuals, an aggregate of 27,641 shares of Common Stock in payment of interest on the 10% Secured Promissory Notes issued to these investors on January 31, 2000. The stock was issued pursuant to the exemption from registration under the Act provided by Sections 4(2) and 4(6) of the Act. On January 22, 2001, the Company granted to Hillgreen Investments Limited ("Hillgreen") warrants to purchase 100,000 shares of Common Stock as consideration for opening of an equity line of credit with the Company. In addition, as consideration for the services rendered by Jesup & Lamont Securities Corporation ("Jesup & Lamont") as placement agent in connection with the equity line of credit, the Company granted to Jesup & Lamont warrants to purchase 75,000 shares of Common Stock. The warrants issued to Hillgreen and Jesup & Lamont are exercisable at any time prior to January 22, 2003 at a price of $1.86 per share, and were issued pursuant to the exemptions from registration under the Act provided by Sections 4(2) and 4(6) of the Act. On January 30, 2001 the Company issued to Shaul Koren 92,308 shares of Common Stock, as payment of consulting services performed by Mr. Koren, pursuant to exemptions from registration under the Act provided by Sections 4(2) and 4(6) of the Act. On March 9, 2001, the Company issued to a major existing investor a warrant to purchase 100,000 shares of Common Stock, exercisable at any time for five years from the date of issuance at $1.10 per share, as consideration for the investor's $500,000 loan to the Company. The warrants were issued pursuant to the exemptions from registration under the Act provided by Sections 4(2) and 4(6) of the Act. On March 30, 2001, the Company issued to a major existing investor 500,000 shares of Common Stock for $500,000 pursuant to exemptions from registration under the Securities Act of 1933, as amended, provided by Sections 4(2) and 4(6) of the Act. The stock was issued pursuant to the exemptions from registration under the 17 Act provided by Sections 4(2) and 4(6) of the Act. In March 2001, the Company signed an agreement with News USA, Inc. and Vested Media Partners, Inc. to increase the awareness of healthcare professionals and the public to the benefits of The Wand(R) and CompuFlo(TM) technologies. Under the agreement, News USA, Inc. is required to prepare, write and seek to place in newspapers and other media, articles about the Company's products and technologies. As consideration for their services, the Company granted to News USA, Inc. and Vested Media Partners, Inc. warrants to purchase an aggregate of 1,172,000 shares of the Company's Common Stock at prices increasing from $1.28 to $3.00 per share during the 3-year warrant term. The warrants were issued pursuant to the exemptions from registration under the Act provided by Sections 4(2) and 4(6) of the Act. 18 ITEM 6. Management's Discussion and Analysis of Financial Condition and Results of Operation During 2000, the Company took significant steps to grow The Wand(R) ownership base and increase the daily utilization by domestic dentists. The Company enlarged its direct sales force from 3 to 12 and increased its presence at national, regional and local trade shows as part of its direct sales approach. Internationally, the Company established additional distribution agreements, which provide for the sale of The Wand(R) in Canada and throughout Central and South America. The Company also received approval to sell The Wand(R) and its disposable handpieces in Japan. Furthermore, during this period of time, the Company received approval from the FDA to market The Wand(R) to medical practitioners, raised $2,000,000 through a private placement, established lines of credit totaling $1,200,000 and resolved lawsuits pending against the Company. Lastly, the Company recorded $2.2 million of aggregate writedowns of the carrying values of tooling equipment and patents as a result of continued losses and in accordance with generally accepted accounting principles. Fiscal year ended December 31, 2000 compared to fiscal year ended December 31, 1999 Statement of Operations Net sales for the year ended December 31, 2000 and December 31, 1999 were $5,674,351 and $2,855,463, respectively. The $2,818,888 or 98.7% increase reflects an approximate 124% increase in domestic sales of The Wand(R) and a 67% increase in domestic sales of its disposable handpiece. For the twelve months ended December 31, 2000, domestic sales of units of The Wand(R) increased by 960 to 1,737 and domestic disposable handpieces sales increased by 746,600 to 1,854,950, when compared to the same period in 1999. The increase in net sales also includes an 81% aggregate increase in sales for foreign distributions. The increase in foreign sales includes the shipment of 1000 units of The Wand(R) and approximately 100,000 disposable handpieces to the Company's authorized dealer in Japan. It also includes 2,100 units and 121,000 disposable handpieces for distribution in Brazil and Mexico. These increases partially were offset by $143,819 of net sales generated from the discontinued Wisdom toothbrush line during 1999. Cost of sales for the year ended December 31, 2000 and December 31, 1999 were $ 3,626,786 and $1,572,319, respectively. The $2,054,467 increase is attributable primarily to an increase in sales of The Wand(R) and its disposable handpieces and a $956,546 writedown in the net book value of the Company's semi-automation equipment and molds. The increase partially was offset by a $206,190 decrease in cost of sales resulting from the termination of the Wisdom product line and the effect of previously reserved inventory sold during the current year. For the year ended December 31, 2000, the Company generated a gross profit of $ 2,047,565 or 36% as compared to a gross profit of $1,283,144 or 44.9% for the year ended December 31, 1999. Selling, general and administrative expenses for the years ended December 31, 2000 and 1999 were $8,497,955 and $7,009,543, respectively. The $1,488,412 increase is attributable principally to the $1,247,175 patent writedown and $520,975 in compensation expense representing 267,500 stock options issued to consultants, which partially was offset by a $134,684 decrease in expenses resulting from the termination of the Wisdom product line and other decreases in legal and marketing expenses. 19 Research and development expenses for the year ended December 31, 2000 and December 31, 1999 were $386,250 and $455,332, respectively. The $69,082 difference is attributable primarily to a decrease in costs associated with product improvements. In April 1999, the Company discontinued its selling effort with regard to the Wisdom product line excluding Splatrfree(TM) prophy angles. Aggregate costs of $76,345 were incurred in terminating the product line. They included $19,291 for uncollectible receivables, $15,692 in aggregate termination compensation and employee benefits, $5,066 for a lease buyout, $18,793 in previously unamortized acquisition costs, and $17,503 to write off inventory. During the fourth quarter of 2000, the Company disposed of a trade show display for the Wisdom product line with a net book value of $17,783. Loss from operations for the years ended December 31, 2000 and 1999 were $ 6,854,423 and $6,258,076, respectively. The Company incurred interest expenses of $436,340 for the year ended December 31, 2000 as compared to $64,572 of interest expense for calendar 1999. The $371,768 difference is attributable to a higher average interest rate on lower average borrowings in 2000, $377,963 of non-cash interest representing amortization of the debt discount, deferred financing costs associated with the detachable warrants from the $1,000,000 credit line established in August, 2000, the $1,000,000 private placement established by February 1, 2000, and certain warrants issued to financing advisors that were extended and repriced by the Company during 2000. Interest income generated from treasury bills during 1999 as compared to minimal investments during the same period in 2000, accounted for the $72,188 decrease in interest income for the year ended December 31, 2000. Also, as a result of a reduction in the conversion price of the 3% convertible notes, the Company recorded a non-cash debt conversion expense of $731,250 in 1999. In February 2000, the Company settled a lawsuit with two former employees, Ronald Spinello, DDS, former Chairman and Director of Research of Spintech and his son, Glen Spinello. Milestone paid $25,000 to Dr. Spinello and issued to him 80,000 shares and to Glen Spinello 8,000 shares. Since the market price of the shares was $2.3125 per share, the Company recognized a $228,500 expense for the settlement. The net loss for the year ended December 31, 2000 was $7,509,855 as compared to a net loss of $6,972,312 for the year ended December 31, 1999. The $537,543 increase in net loss is attributable to $2,203,721 in asset writedowns from impairment, an increase in selling, general and administrative expenses, an increase in interest expense, a decrease in interest income, and the cost to settling litigation. The above items were offset partially by a 98.7% increase in aggregate sales revenue for The Wand(R) and its disposable handpiece, the recovery of a portion of previously reserved inventory, a reduction in research and development expenses, debt conversion expenses of $731,250 recognized in 1999, and the elimination of expenses associated with the termination of the Wisdom product line. Liquidity and Capital Resources At December 31, 2000, Milestone's working capital was $111,039. For the year ended December 31, 2000, cash and cash equivalents decreased by $69,976. For the year ended December 31, 2000, the Company's net cash used in operating activities was $2,842,677, attributable principally to a net loss of $7,509,855 adjusted for non-cash items of $244,549 for patent amortization, $377,913 for non-cash interest, $474,071 for depreciation, $520,975 for non-cash consulting expenses, a $956,546 loss on impairment of fixed assets, a $1,247,175 loss on impairment of patents, a $17,783 loss on a disposed trade show display, and $203,500 for the non-cash portion of a lawsuit settlement. Changes in operating assets and liabilities consist of a $231,766 increase in accounts receivable, a $373,187 net decrease in inventory and advances to a contract manufacturer, a $39,924 decrease in prepaid expenses; an $11,953 decrease in accrued expenses, a $141,346 increase in deferred compensation, a $130,416 increase in accrued interest and a $152,407 increase in accounts payable. 20 For the year ended December 31, 2000, the Company used $51,773 in investing activities. These expenditures covered retooling costs for product modifications, leasehold improvements, and additional furniture and fixtures. Financing activities provided $2,824,474 for the period. The Company, as described below, raised $2,000,000 through private placements, drew down $1,100,000 in aggregate from two credit lines (including $200,000 provided by the Company's Chairman and Chief Executive Officer) and converted $2,250,000 of debt to equity. As of December 31 2000, it made $243,005 in aggregate principal payments and $58,727 in cash interest payments to these note holders. Additional notes for $18,333 were issued in lieu of interest during 2000 and 27,641 additional shares were issued subsequent to year end in lieu of payment of interest. As of December 31, 2000, the Company had $172,867 in aggregate cash and cash equivalents. In addition, as of March 31, 2001, the Company, as described below, had received an additional $1,000,000 in new financing from existing major investors and obtained an equity commitment subject to certain conditions for up to 2.1 million shares of its Common Stock. Management believes that through the proper utilization of these existing funds, revenues generated from international distributors and from continued increases in domestic disposable handpiece sales, the expense reductions achieved through cost containment programs, and the funds raised during the first quarter of 2001, it will have sufficient cash to meet its needs over the next twelve months. Private Placements 20% Promissory Notes In August 2000, Milestone borrowed $1,000,000 from two funds managed by Cumberland Associates LLC pursuant to a 2-year secured loan, bearing interest at 20% per year and payable in cash or through the issuance of additional 20% notes on which both interest and principal are payable at the maturity of the loan. The loan is prepayable in cash at any time, and is prepayable, with accrued interest, in Milestone Common Stock after March 31, 2001. Stock issued in payment of this debt will be valued at 85% of the then market prices. 8% Promissory Note On July 31, 2000 the Company entered a $1,000,000 Purchase and Line of Credit Agreement with a major existing investor. Initially, $500,000 was borrowed under the line, which is due on June 30, 2003. In December 2000, the Company borrowed an additional $400,000 under the line, which is due on December 31, 2003. Pursuant to the agreement, the investor received a five-year warrant to purchase 70,000 shares of our Common Stock, exercisable at $3.00 per share, in connection with the $500,000 loan and a five-year warrant to purchase 80,000 shares exercisable at $1.25 per share in connection with the $400,000 loan. 9% Promissory Note In April 2000, Leonard Osser, Chairman and CEO, agreed to provide to the Company a $200,000 line of credit from which funds could be drawn until December 31, 2000, and having a maturity of February 2001. In July 2000, Milestone borrowed the $200,000 under the line of credit. Mr. Osser has agreed to defer all principal and interest payments until April 30, 2001. 10% Senior Secured Promissory Notes As of February 1, 2000, the Company concluded a $1 million institutional private placement of 10% Senior Secured Promissory notes due June 30, 2001 and warrants to purchase 142,857 shares of Milestone Common 21 Stock with Cumberland Associates, Strategic Restructuring Partnership L.P., a former principal of Cumberland Associates, two officers of the Corporation, an affiliate of one of its directors and six other individuals. The notes are secured by all present and future inventories of Milestone and are prepayable out of a portion of the proceeds generated by sales of The Wand(R). The warrants originally were exercisable at prices increasing from $1.75 per share in the first year to $7.00 per share in the fifth year, subject to anti-dilution protection in the event of stock dividends and certain capital changes. Purchasers of the warrants were granted rights to participate in certain future security offerings by Milestone. In March 1999, the Company concluded a $2 million institutional private placement with Cumberland Partners, other investment funds managed by or affiliated with Cumberland Associates and certain principals of Cumberland Associates. An additional $250,000 was raised from the Chairman and Chief Executive Officer of Milestone, on the same terms and conditions. The investors purchased, at face value, 3% Senior Convertible Notes Due 2003, convertible into Milestone Common Stock at prices increasing from $2.50 per share in the first year to $6.00 per share in the fourth year, subject to anti-dilution protection in the event of stock dividends and certain capital changes. Purchasers of the Notes were granted rights to participate in certain future security offerings by Milestone. In February 2000, the holders of the 3% Convertible Notes agreed to convert all $2,250,000 of such notes into Common Stock at $1.25 per share. The 1,800,000 shares were registered by Milestone and issued in 2000. DENTAL OPERATIONS Domestic In 2000, the Company continued steps aimed at growing and strengthening the end user base, thereby increasing acceptance of The Wand(R) and translating into increased revenue through higher disposable handpiece usage. Domestically, the 124% increase in The Wand(R) system sales and the 67% increase in disposable handpiece sales is a direct result of the Company's October 1999 sales initiative. It permitted dentists in the United States to order The Wand(R) directly through Milestone and to avail themselves of certain quantity discounts when purchasing disposable handpieces and dental needles. In September 2000, the Company unveiled two domestic sales initiatives. It introduced a drive unit for The Wand(R) Plus with several enhancements, including a cruise control feature. Secondly, dental practitioners can now avail themselves of a 90 day trial program, which requires a commitment to purchase specified quantities of disposable handpieces and needles without any outlay for the unit during the demonstration period. Of the 306 units of The Wand(R) active in the program at year's end, 182 have been converted into sales. During 2000, the Company increased its sales and customer service staffs and increased its presence at trade shows. In addition, the Company has embarked on a campaign to increase the number of national seminars it presents and to offer mini seminars in the offices of proficient users. It also continues to a) provide assistance to dental and dental hygiene schools which include The Wand(R) in their curriculum; b) visit, obtain feedback from and provide further support to current users of The Wand(R); c) distribute The Wand(R) technique videos and technical bulletins to its current users; and d) sell additional units to current users of The Wand(R). Internationally The Company continued to expand its presence overseas in 2000. In February 2000, Milestone received approval to market The Wand(R) in Japan. Through December 31, 2000, the Company shipped 1,000 units and approximately 100,000 disposable handpieces to its authorized dealers in Japan. During 2000, we entered distribution agreements providing for sales of The Wand(R) in Canada, Mexico, Brazil and remainder of Central and South America. Approximately, 2,500 units and 300,000 disposable handpieces were shipped in aggregate to these areas in 2000. Previously, the Company had begun shipping The Wand(R) for distribution throughout Europe and in Taiwan, China, Israel, and South Africa. Practitioners in Great Britain, Germany and Italy make up the majority of the European end users to date. 22 PROPOSED MEDICAL OPERATIONS In June 2000, the Company received approval from the FDA to market The Wand(R) for medical use. Once sufficient capital is raised, the Company intends to create an independent sales and marketing staff for distribution to the medical community. Further, a working prototype of a device for the delivery of multi-volume medicaments and anesthetics, along with other added features of interest to medical practitioners has been developed and was submitted to the FDA for approval. Subsequent Events Subsequent to year-end, the Company achieved five major objectives. As mentioned above, it received $1,000,000 in new financing from existing major investors, restructured approximately $2,000,000 of existing debt and obtained an equity commitment subject to certain conditions for up to 2.1 million shares of its Common Stock. Furthermore, it reached an agreement with a media service company to increase the awareness of healthcare professionals and the public to the benefits of The Wand(R) and the Company's new CompuFlo(TM) technologies. Finally, Milestone was granted a broad new U.S. patent covering the CompuFlo(TM) technology. EQUITY LINE COMMITMENT In January 2001, Milestone entered a private equity line agreement with Hillgreen Investments Limited ("Hillgreen"), a British Virgin Islands corporation, pursuant to which Hillgreen is obligated to purchase, subject to the fulfillment of specified conditions, up to 2.1 million shares of Milestone Common Stock over the next 36 months. Hillgreen has allocated up to $20 million to fund its purchase obligations. The transaction was arranged by Jesup & Lamont Securities Corporation, a New York-based investment banking firm. Milestone's right to draw upon this facility is subject to a number of limitations and conditions, including a limitation on the amounts sold to Hillgreen within specified periods, and the effectiveness of a resale registration statement covering the securities to be purchased. Subject to these and other conditions and limitations, Milestone will have full control over the timing of any financing under the equity line and is under no obligation to sell any shares to Hillgreen. Any shares that are sold will be priced at 87.5% of the volume weighted average market price of Milestone Common Stock during a fixed period prior to the sale. Milestone has discretion to establish a floor price below which shares will not be sold to Hillgreen. The availability of this equity line allows the Company to finance operations and move forward in developing its medical product line. $1,000,000 IN NEW FINANCING During the first quarter of 2001, Milestone received $1,000,000 in new financing from existing major investors: $500,000 pursuant to a line of credit in support of its demo program for The Wand(R) and $500,000 from the private placement of 500,000 shares of Common Stock. Milestone will pay a 2% facility fee on the line of credit and interest at the rate of 10% per annum on monies borrowed, less interest earned on unborrowed funds. In addition, the lender received a warrant for the purchase of up to 100,000 shares of Milestone's Common Stock at a per share purchase price of $1.10. DRAW DOWN ON EXISTING LINE OF CREDIT On January 26, 2001, the Company borrowed the remaining $100,000 under its Purchase and Line of Credit Agreement with a major existing investor, dated July 31, 2000. The loan is due on December 31, 2003. The Company granted to the investor a five-year warrant to purchase 20,000 shares of our Common Stock, exercisable at $1.875, as consideration for the loan. 23 ADDITIONAL PATENT PROTECTION FOR THE WAND(R) In January 2001, Milestone was granted a new United States patent relating to certain elements of the handpiece for The Wand(R). The improvements covered by the new patent afford the user greater tactile control over the handpieces and needle and thereby assure precise needle placement. ISSUANCE OF BROAD NEW UNITED STATES PATENT In March 2001, Milestone officially was granted a broad new United States patent and three related United States patents covering its CompuFlo(TM) technology, a new technology for computer-controlled infusion of a wide array of liquid drugs and other fluids, aspiration of bodily fluids and measurement of in-tissue pressure. The CompuFlo(TM) technology is designed to reduce patient pain and tissue tearing during injection procedures. Use of the CompuFlo(TM) technology will provide doctors with real time feed-back of flow rate, volume injected and tissue pressure. The technology automatically will collect clinical data on the volume of drugs injected and treatment performed, creating a treatment record that should help reduce medical errors in hospitals and medical offices. The technology also can be adapted for home use devices. Devices using the new technology will employ a newly developed single-use disposable handpiece. The new technology was developed for Milestone by Dr. Mark Hochman, Milestone's Director of Research and Development. AGREEMENT WITH MEDIA SERVICES COMPANY TO BOOST EXPOSURE In March 2001, Milestone signed an agreement with News USA, Inc. and Vested Media Partners, Inc. to increase the awareness of healthcare professionals and the public to the benefits of its The Wand(R) and CompuFlo(TM) technologies Under the agreement, News USA is required to prepare, write and seek to place in newspapers and other media, articles about Milestone's products and technologies. News USA has guaranteed 72,000 media placements during the 18-month term of the agreement. In return for their services, News USA and Vested Media Partners have received warrants for an aggregate of approximately 1,172,000 shares exercisable at prices increasing from $1.28 to $3.00 during the 3-year warrant term. RESTRUCTURING OF EXISITNG DEBT 10% Senior Secured Promissory Notes In April 2001, the Company restructured its obligations to the holders of its 10% Senior Secured Promissory Notes, which reduced the Company's cash burden. Under the terms of the agreement, each of the Noteholders agreed to exchange his 10% Notes for a new, zero coupon note (the "Zero Coupon Note") (a) paying interest at 20% per annum until maturity on March 31, 2002, (b) having a face amount equal to the outstanding principal owed to the noteholders plus accrued interest and interest payable until maturity, (c) giving Milestone the option to pay the face amount of the Zero Coupon Note in cash or in shares of Common Stock, provided that the shares have been registered under the Securities Act of 1933, (d) paying each noteholder 108% of the face amount of his Zero Coupon Note, including unearned interest to maturity, if there is a change of control of Milestone. Moreover, the warrants previously issued to the noteholders were amended to provide for an exercise price of $1.75 per share up to the date of maturity. 20% Promissory Notes In April 2001, the Company restructured its existing obligations to the holders of its 20% Promissory Notes. The 20% Notes were amended to make them prepayable with accrued interest (a) in cash at any time before maturity, (b) in shares of Common Stock at any time after issuance but before July 31, 2002 if the Common Stock, valued as set forth in the notes, is at least $5.00 per share, or (c) in shares of Common Stock, valued as set forth in the notes, on or after July 31, 2002. Stock issued in payment of this debt will be valued at 85% of the then market prices. 24 Item 7. Financial Statements The financial statements of the Company required by this item are set forth beginning on page F-1. Item 8. Change in and Disagreements with Accountants on Accounting Financial Disclosure Not applicable 25 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act The current executive officers and directors of the Company and their respective ages as of December 31, 2000 are as follows: Director Name Age Position Since - -------------------------------------------------------------------------------- Leonard A. Osser 53 Chairman and Chief Executive 1991 Officer of the Company and President and Chief Executive Officer of Spintech, a subsidiary Thomas M. Stuckey 46 Chief Financial Officer and Vice President of the Company and Chief Financial Officer of both Spintech and Sagacity I, each a subsidiary Stephen A. Zelnick (1) 62 Director of the Company 1996 Paul Gregory 63 Director of the Company 1997 Louis I. Margolis (1) (2) 57 Director of the Company 1997 Leonard M. Schiller(2) 59 Director of the Company 1997 Daniel Martin 62 Director of the Company 1998 - ---------- (1) Member of the Compensation Committee (2) Member of the Audit Committee 26 Leonard A. Osser has been Chief Executive Officer and a director of the Company since July 1991, and the President and Chief Executive Officer of Spintech, a subsidiary of the Company, since November, 1995. From July 1991 until July 1997, he also served as President and Chief Financial Officer of the Company. From 1980 until the consummation of the Company's public offering in November 1995, he had been engaged primarily as the principal owner and Chief Executive of U.S. Asian Consulting Group, Inc., a New Jersey based provider of consulting services in "work-out" and "turnaround" situations for publicly and privately owned companies in financial difficulty. Thomas M. Stuckey has been Chief Financial Officer and Vice President of the Company and Chief Financial Officer of Spintech and Sagacity I, a subsidiary of the Company, since May 1998. Prior to joining the Company, Mr. Stuckey had been the Corporate Controller of PureTec, a plastic product manufacturer, where he had spent 13 years. Stephen A. Zelnick has been a director of the Company since January 1996. He has been a partner in the law firm Morse, Zelnick, Rose & Lander, LLP since its inception in August 1995. For more than five years prior to that he was of counsel to the law firm Dreyer and Traub, LLP. Paul Gregory has been a director of the Company since April 1997. Mr. Gregory has been a business and insurance consultant at Innovative Programs Associates Inc. and Paul Gregory Associates Inc. since January 1995 and January 1986, respectively, where he services, among other entities, foreign and domestic insurance groups, law and accounting firms and international corporations. Louis I. Margolis has been a director of the Company since April 1997. Mr. Margolis has been a General Partner of Pine Street Associates, L.P., a private investment partnership that invests in other private limited partnerships, since January 1994. Since June 1998, Mr. Margolis has been a general partner of Select Ventures Management, LP, a special purpose limited partnership that invests in an early stage venture capital partnership. Since April 1998, Mr. Margolis has been a registered representative with GRO Corporation, a member firm of the NASD. In January 1997, Mr. Margolis formed and is the President and sole shareholder of Chapel Hill Capital Corp., a financial services company. From 1993 through 1995 he was Chairman of Classic Capital Inc., a registered investment advisor. Mr. Margolis has been a member of the Financial Products Advisory Committee of the Commodity Futures Trading Commission since its formation in 1986, a Trustee of the Futures Industry Institute since 1991 and a Trustee of Saint Barnabas Hospital in Livingston, NJ since 1994. Mr. Margolis is also a director of Hometown Auto Retailers, Inc., an automotive retailer conducting business in the northeastern United States. Leonard M. Schiller has been a director of the Company since April 1997. Mr. Schiller has been a partner in the law firm of Schiller, Klein & McElroy, P.C. since 1977 and has practiced law in the State of Illinois for over 25 years. He is also President of The Dearborn Group, a residential property management and real estate acquisition company. Mr. Schiller is a member of the Board of Directors of AccuMed International, Inc., a laboratory diagnostic company. He is also a member of the Board of Directors of iMall, Inc., a leading provider of fully-integrated "one-stop" e-commerce solutions. Daniel R. Martin has been a director of the Company since March 1998. From March 1998 until February 1999 Mr. Martin also served as the President and Chief Operating Officer of the Company. From January 1990 to October 31, 1997, Mr. Martin was the President, Chief Operating Officer and director, and later Chief Executive Officer of E-Z-EM, Inc., a manufacturer of medical devices and pharmaceuticals for diagnostic imaging. All directors hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. Officers are elected to serve, subject to the discretion of the Board of Directors, until their successors are appointed. 27 The Company's Board of Directors has established compensation and audit committees. The Compensation Committees reviews and recommends to the Board of Directors the compensation and benefits of all the officers of the Company, reviews general policy matters relating to compensation and benefits of employees of the Company, and administers the issuance of stock options to the Company's officers, employees, directors and consultants. All compensation arrangements between the Company and its directors, officers and affiliates are reviewed by a compensation committee, the majority of which is made up of independent directors. The Audit Committee meets with management and the Company's independent auditors to determine the adequacy of internal controls and other financial reporting matters. In July 2000, the five independent board members were granted 12,422 options at an exercise price of $1.61. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent (10%) of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Officers, directors and greater than ten percent (10%) stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the best of the Company's knowledge, based solely on review of the copies of such forms furnished to the Company, or written representations that no other forms were required, the Company believes that all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent (10%) shareholders were complied with during 2000. 28 Item 10. Executive Compensation. The following Summary Compensation Table sets forth all compensation earned, in all capacities, during the fiscal years ended December 31, 2000, 1999, and 1998 by (i) the Company's Chief Executive Officer and (ii) the most highly compensated executive officers, other than the CEO, who were serving as executive officers at the end of the 2000 fiscal year and whose salary as determined by Regulation S-B, Item 402, exceeded $100,000 (the individuals falling within categories (i) and (ii) are collectively referred to as the "Named Executives"). Summary Compensation Table Long-Term Compensation ---------------------- Annual Compensation Awards Payouts ------------ Common Stock All Other Name and Salary Underlying Options Compensation Principal Position Year ($) (#) ($) - ------------------ ---- ------ ------------------ ------------ Leonard A. Osser Chief Executive 2000 124,061(2) 50,000 Officer and 1999 191,135(3) 50,000 Chairman 1998 280,395(4) 50,000 Mitchell G Kuhn (1) 2000 183,789 45,000 Chief Operating 1999 73,038 109,000 Officer & President Thomas M. Stuckey 2000 114,051 25,000 Chief Financial 1999 119,922 21,000 -- Officer and Vice 1998 78,124 25,000 10,000(5) President - ---------- (1) Resigned as Chief Operating Officer and President on March 9, 2001. (2) Excludes $141,346 in deferred compensation but includes $21,000 earned as President and Chief Executive Officer of Spintech. (3) Includes voluntary reduction of base salary which commenced in July 1998 and also includes $36,000 earned as President and Chief Executive Officer of Spintech. (4) Effective July 7, 1998 Mr. Osser took a voluntary reduction in his 1998 annual base salary of $350,000. Includes $73,136 earned as President and Chief Executive Officer of Spintech. Does not include $11,559 paid by the Company to Marilyn Elson, a certified public accountant who was employed by the Company to render accounting services. Ms. Elson is the wife of Mr. Osser. (5) 1999 Bonus. 29 Stock Options The following tables show certain information with respect to incentive and non-qualified stock options granted in 2000 to Named Executives under the Company's 1997 Stock Option Plan and the aggregate value at March 30, 2001 of such options. In general, the per share exercise price of all options is equal to the fair market value of a share of Common Stock on the date of grant. No options granted to Named Executives have been exercised. Option Grants in 2000 Individual Grants of Options Number of Percent of Shares of Total Options Common Stock Granted to Exercise Underlying Employees in Price Name Option # 2000 ($/Sh) Expiration Date - ------------------- ------------- ------------------------- ----------------- Leonard A. Osser 50,000 (1) 21.8% $ .875 01-01-05 Mitchell G. Kuhn 45,000 (2) 19.7% $2.1875 07-13-05 Thomas A. Stuckey 21,000 (2) 10.9% $2.1875 07-13-05 - ---------- (1) Options vest 01-01-01 (2) One third vesting on each anniversary. Aggregated 2000 Year End Options Values for Options granted prior to and During 2000 Number of Shares of Common Stock Underlying Unexercised Value of Unexercised Options at In-The-Money Options 12-31-2000 At 12-31-2000 (1) Name Exercisable/Unexercisable Exercisable/Unexercisable - ------------------ ------------------------- ------------------------- Leonard A. Osser 200,000 // 100,000 $0 // $0 Mitchell G. Kuhn 36,333 // 117,667 $0 // $0 Thomas M. Stuckey 30,666 // 40,334 $0 // $0 - ---------- (1) Based on the closing price on March 30, 2001 of $.85 as quoted on the American Stock Exchange. Employment Contracts As of January 1, 1998 the Company entered into an Employment Agreement with Mr. Osser, which provides for an initial term expiring on December 31, 2002, with a two-year non-competition period at the end of the term. The term is automatically increased for successive one-year periods unless prior to December 1 of any year either party notifies the other of its election not to extend the term. Under the Agreement Mr. Osser serves as Chief Executive Officer and is required to work on a full-time basis. Under the Employment Agreement Mr. Osser receives annual base pay of $350,000, increasing to reflect cost of living adjustments commencing on January 1, 2001. In addition, during January 1998 and each of the next four Januarys the Company shall grant Mr. Osser an option to purchase 50,000 shares of Common Stock exercisable only during the last 30 days of the five-year option term unless the Company achieves certain financial goals to be specified annually by the Compensation Committee. Additionally, as soon as financial statements for each year commencing with 1998 are completed, the Company shall grant the executive an additional option to purchase up to 50,000 shares depending upon the achievement of specified performance goals. Further, Mr. Osser shall receive the opportunity to earn cash bonuses of up to $200,000 per year depending upon the achievement of performance targets to be specified by the Option Committee. 30 On July 7, 1998, at his sole discretion, Mr. Osser implemented a voluntary reduction of his annual base salary, reducing his annual base pay from $350,000 to $188,462. The voluntary reduction has been described by Mr. Osser as being both temporary and having no effect upon his rights under his employment agreement with the Company. Such reduction remained in effect until August 5, 2000. At that time, Mr. Osser began to defer his salary at the $350,000 annual base. At December 31, 2000, his deferred compensation was $141,346. Compensation of Directors Non-employee directors are granted, upon becoming a director, a five-year option to purchase 20,000 shares of our Common Stock at an exercise price equal to the fair market value of a share of Common Stock on the date of grant. They receive no cash compensation. On July 31, 2000, each of the five independent board members were granted 12,422 options at an exercise price of $2.19 per share. This equated to a fair market value of $20,000 using the Blad-Scholes method. The options are five year options which vest in two years. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table, together with the accompanying footnotes, sets forth information, as of March 30, 2000, regarding stock ownership of all persons known by the Company to own beneficially more than 5% of the Company's outstanding Common Stock, certain executive officers, all directors, and all directors and officers of the Company as a group: Shares of Common Stock Beneficially Percentage of Name of Beneficial Owner (1) Owned (2) Ownership - -------------------------------------------------------------------------------- Executive Officers and Directors Leonard Osser ................................. 2,436,775(3) 21.62% Thomas M. Stuckey ............................. 47,500(4) * Paul Gregory .................................. 26,361(5) * Louis I. Margolis ............................. 90,211(6) * Leonard M. Schiller ........................... 46,805(7) * Stephen A. Zelnick ............................ 173,974(8) 1.54% Daniel R. Martin .............................. 8,311(9) * All Directors & Officers as a group ........... 2,829,937(10) 25.14% - ---------- * Less than 1% 31 Shares of Common Stock Beneficially Percentage of Owned (2) Ownership 5% and Greater Stockholders Cumberland Associates, LLC 1114 Avenue of the Americas New York, New York 10036 1,897,464(11) 17.6% Gintel Asset Management, Inc. 6 Greenwich Office Park Greenwich, CT 06831 1,374,700(12) 12.64% (1) The addresses of the persons named in this table are as follows: Leonard A. Osser, 220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039; Mitchell G. Kuhn, 23 Whippoorwill Rd., Armonk, NY 10504; Thomas M. Stuckey, 220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039; Stephen A. Zelnick, Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York 10022; Paul Gregory, Innovative Programs Associates Inc., 300 Mercer Street, New York, New York 10003; Louis I. Margolis, Pine Street Associates, L.P., 88 Pine Street, Suite 3100, New York, New York 10005; Leonard M. Schiller, Schiller, Klein & McElroy, P.C., 33 North Dearborn Street, Suite 1030, Chicago, Illinois 60602; Larry Haimovitch, Haimovitch Medical Technology Consultants, Four Maritime Plaza, San Francisco, CA 94111-3416 and Daniel R. Martin, 220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039. (2) A person is deemed to be a beneficial owner of securities that can be acquired by such person within 60 days from the filing of this report upon the exercise of options and warrants or conversion of convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not held by any other person) and that are exercisable or convertible within 60 days from the filing of this report have been exercise or converted. Except as otherwise indicated, and subject to applicable community property and similar laws, each of the persons named has sole voting and investment power with respect to the shares shown as beneficially owned. All percentages are determined based on 10,772,847 were outstanding on March 9, 2001. The Gintel sales of 500,000 share occurred at the end of the March. (3) Includes (i) an aggregate of 300,000 shares issuable upon exercise of stock options within 60 days of the date hereof, 50,000 of which are exercisable at $16.00 per share and 50,000 of which are exercisable at $1.00 per share and 50,000 of which are exercisable at $.875 per share and 106,000 of which are exercisable at $7.00 per share and 43,500 of which are exercisable at $7.56 per share and (ii) warrants immediately exercisable to purchase 35,714 shares at $1.75 per share. (4) Includes 21,000 shares subject to stock options, exercisable within 60 days of the date hereof at $3.00 per share and 25,000 shares subject to stock options, exercisable within 60 days of the date hereof at $16.50 per share. Mr. Stuckey disclaims beneficial ownership to (i) 5,300 shares, which are held by his wife as custodian for their children, and (ii) 1,200 shares which are owned by his wife in her IRA. (5) Includes 150 shares held by Mr. Gregory's wife, 20,000 shares subject to stock options, exercisable within 60 days of the date hereof at $5.125 per share and 6,211 shares subject to stock options, exercisable within 60 days of the date hereof at $2.1875 per share. (6) Includes 20,000 shares subject to stock options, exercisable within 60 days of the date hereof at $5.125 per share and 6,211 shares subject to stock options, exercisable within 60 days of the date hereof at $2.1875 per share. (7) Includes 20,000 shares c $5.125 per share and 6,211 shares subject to stock options, exercisable within 60 days of the date hereof at $2.1875 per share. 32 (8) Includes (i) an aggregate of 56,211 shares issuable upon exercise of stock options within 60 days of the date hereof, 50,000 of which are exercisable at $5.125 per share and 6,211 of which are exercisable at $2.1875 per share and (ii) warrants immediately exercisable to purchase 7,143 shares at $1.75 per share. (9) Includes 6,211 shares subject to stock options exercisable within 60 days of the date hereof at $2.1875 per share. (10) Includes 484,055 shares subject to stock options and 42,857 shares subject to warrants all of which are exercisable within sixty (60) days of the date hereof. (11) Based solely upon an amendment to Schedule 13G filed by Cumberland Associates LLC with the Securities and Exchange Commission on 2/14/01. (12) Based solely upon an amendment to Schedule 13G filed by Gintel Asset Management, Inc. on 2/1/01. Item 12. Certain Relationships and Related Transactions Pursuant to a $1 million private placement which was completed in February 2000, Leonard Osser, the Chairman and Chief Executive Officer of the Company purchased $250,000 principal amount of 10% secured promissory notes and five-year warrants to purchase 35,714 shares of the Company's Common Stock, immediately exercisable at $1.75 per share with such exercise price increasing each anniversary to a final exercise price of $7.00 per share. Additionally, pursuant to an agreement made as of January 31, 1999, the Company issued 1,800,000 shares of Common Stock in full payment of the Company's three percent Senior Convertible Promissory Notes in the aggregate principal amount of $2,250,000, of which 200,000 shares were issued to Leonard Osser, Chairman and Chief Executive Officer. In April 2000, Mr. Osser provided the Company with a $200,000 line of credit. Morse, Zelnick, Rose and Lander, LLP, legal counsel to the Company and the firm in which Steve Zelnick, a Director and General Counsel to the Company, is Partner, is the holder of warrants to purchase 118,000 shares of Common Stock and warrants to purchase 83,333 units, each unit consisting of one share of Common Stock and one warrant to purchase one share of Common Stock. On February 3, 2000, the Company reduced the exercise price of these warrants to $1.25 and extended their exercise period to February 2, 2002. The Company paid $191,501 and $131,632 during the years ended December 31, 2000 and December 31, 1999, respectively, to the same law firm noted above. The law firm and the Director also participated in the February 2001 private placement, each purchasing $50,000 of 10% Senior Secured Promissory Notes and warrants to purchase 7,143 shares of Milestone Common Stock. Item 13. Exhibits and Reports on Form 8-K... (a) Certain of the following exhibits were filed as Exhibits to the registration statement on form SB-2, Registration No. 33-92324 and amendments thereto (the "Registration Statement") filed by the Registrant under the Securities Act of 1933, as amended, or the reports filed under the Securities and Exchange Act of 1934, as amended, and are hereby incorporated by reference. Exhibit No. Description ------- ----------- 3.1 Certificate of Incorporation of the Company. (1) 3.2 Certificate of Amendment filed July 13, 1995. (2) 3.3 Certificate of Amendment filed October 31, 1996. (3) 3.4 Certificate of Amendment filed December 11, 1997. (6) 3.5 By-laws of the Company. (1) 4.1 Specimen Stock Certificate. (2) 4.2 Form of Purchase Agreement dated January 31, 2000 (4) 4.3 Form of Registration Rights Agreement dated January 31, 2000 (4) 4.4 Form of Security Agreement dated January 31, 2000 (4) 4.5 Form of Agreement to convert 3% Senior convertible notes dated January 31, 2000 (4) 33 4.6 Form of Warrant dated January 31, 2000 (4) 4.7 Form of 10% Senior Promissory Note dated January 31, 2000 (4) 4.8 $200,000 8% Secured Promissory Note dated July 31, 2000 (4) 4.9 $300,000 8% Secured Promissory Note dated July 31, 2000 (4) 4.10 Warrant dated July 31, 2000 (4) 4.11 20% Secured Promissory Notes to LongView Partners A, L.P. and Cumberland Benchmarked Partners, L.P. each dated August 28, 2000 (4) 4.12 Purchase and Line of Credit Agreement dated July 31, 2000 (4) 4.13 Purchase Agreement dated August 25, 2000 (4) 4.14 Private Equity Line of Credit Agreement between the Company and Hillgreen Investments Limited dated January 22, 2001. (5) 4.15 Registration Rights Agreement, dated January 22, 2001, between Registrant and Hillgreen Investments Limited. (5) 4.16 Escrow Agreement dated as of January 22, 2001, among Registrant, Hillgreen Investments Limited and Epstein Becker & Green, P.C. (5) 4.19 Line of Credit Agreement dated March 9, 2001. 4.20 Form of 10% Promissory Note, dated March 9, 2001. 4.21 Registration Rights Agreement dated March 9, 2001. 4.22 Amendment to Purchase Agreement Dated January 31, 2000, dated March 16, 2001. 4.23 Form of Senior Secured Promissory Note, dated March 16, 2001. 4.24 Letter Agreement among the Company, Cumberland Benchmarked Partners, L.P. and LongView Partners A, L.P., dated March 23, 2001 4.25 Form of revised 20% Secured Promissory Notes to LongView Partners A, L.P. and Cumberland Benchmarked Partners, L.P. dated August 28, 2000 4.26 Letter Agreement, dated March 27, 2001, regarding the sale of 500,000 shares of the Company's Common Stock. 10.1 Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and the Company. (3) 10.2 Form of Underwriter's Warrant. (2) 34 10.3 Financial Advisory and Investment Banking Agreement entered into July 1, 1996 between GKN Securities Corp. and the Company. (3) 10.4 Employment Agreement dated November 1, 1996 by and between the Company and Gregory Volok. (3) 10.5 Lease, as amended, dated November 6, 1991 between Raybec Management Co. and Wisdom. (3) 10.6 Employment Agreement made as of December 23, 1996 by and between Sagacity I, Inc. and Joel D. Warady. (3) 10.7 Agreement for SDS Product dated September 1, 1996 between Spintech and Princeton PMC. (3) 10.8 Agreement for The Wand(R)Product dated September 1, 1996 between Spintech and Princeton PMC. (3) 10.9 Exclusive Distributorship Agreement between Wisdom Toothbrushes Limited and Sagacity I, Inc. (3) 10.10 Agreement between Milestone and Spintech dated September 21, 1994 and Amendment No. 1 thereto. (2) 10.11 Employment Agreement between the Company and Leonard Osser dated January 1, 1998. (6) 10.12 Undertaking of Leonard Osser dated April 5, 2000. (6) 10.13 Purchase and Line of Credit Agreement dated July 31, 2000 (4) 10.14 Purchase Agreement dated August 25, 2000 (4) 10.15 Private Equity Line of Credit Agreement between the Company and Hillgreen Investments Limited dated January 22, 2001. (5) 10.16 Registration Rights Agreement, dated January 22, 2001, between Registrant and Hillgreen Investments Limited. (5) 10.17 Escrow Agreement dated as of January 22, 2001, among Registrant, Hillgreen Investments Limited and Epstein Becker & Green, P.C. (5) 10.18 Line of Credit Agreement dated March 9, 2001 (provided as Exhibit 4.19). 10.19 Registration Rights Agreement dated March 9, 2001 (provided as Exhibit 4.21). 10.20 Amendment to Purchase Agreement Dated January 31, 2000, dated March 16, 2001 (provided as Exhibit 4.22). 10.21 Letter Agreement, dated March 27, 2001, regarding the sale of 500,000 shares of Common Stock (provided as Exhibit 4.26). 35 10.22 Agreement among the Company, News USA, Inc. and Vested Media Partners, Inc., dated March 22, 2001. 10.23 Letter from Leonard Osser and S Morse, Zelnick, Rose & Lander, LLP, dated April 9, 2000 21.1 Subsidiaries of the Registrant. (3) 23.1 Consent of Grant Thornton LLP - ---------- (1) Incorporated by reference to the Company's Registration Statement on Form SB-2 No. 333-92324. (2) Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form SB-2 No. 333-92324. (3) Incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1996. (4) Incorporated by reference to the Company's Registration Statement on Form S-3 No. 333-39784. (5) Incorporated by reference to the Company's Registration Statement on Form S-2 No. 333-54732. (6) Incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1999. (b) There were no reports on Form 8-K filed by the Registrant during the last quarter of the period covered by this report. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Milestone Scientific Inc. By: /s/ Leonard Osser ------------------------------------ Leonard Osser, Chairman and Chief Executive Officer Date: April 16, 2000 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on March 31, 1999. Signature Date Title --------- ---- ----- /s/Leonard Osser April 16, 2001 Chairman, and Chief ------------------------ Executive Officer Leonard Osser /s/Thomas M. Stuckey April 16, 2001 Vice President and Chief ------------------------ Financial Officer Thomas M. Stuckey /s/Daniel R. Martin April 16, 2001 Director ------------------------ Daniel R. Martin /s/Stephen A. Zelnick April 16, 2001 Director ------------------------ Stephen A. Zelnick /s/Louis Margolis April 16, 2001 Director ------------------------ Louis Margolis /s/Leonard Schiller April 16, 2001 Director ------------------------ Leonard Schiller /s/Paul Gregory April 16, 2001 Director ------------------------ Paul Gregory 37 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Milestone Scientific Inc. We have audited the accompanying consolidated balance sheets of Milestone Scientific Inc. and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for each of the two years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Milestone Scientific Inc. and Subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company incurred net losses of $7,509,855 and $6,972,312 for the years ended December 31, 2000 and 1999, respectively. Cash used in operations amounted to $2,842,677 and $5,332,997 for the years ended December 31, 2000 and 1999, respectively. As of December 31, 2000, the Company also has a stockholders' deficit of $1,702,335 and its working capital is $111,039. The Company's losses and limited capital resources raise substantial doubt about its ability to continue as a going concern. Management's plans and intentions regarding these matters are also discussed in Note B. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. GRANT THORNTON LLP New York, New York April 16, 2001 F-1 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31,
ASSETS 2000 1999 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 172,867 $ 242,843 Accounts receivable, net of allowance for doubtful accounts of $160,244 and $79,814 in 2000 and 1999, respectively 529,544 297,778 Inventories 1,039,377 709,305 Deferred financing costs 71,328 Prepaid expenses 152,712 192,636 ------------ ------------ Total current assets 1,965,828 1,442,562 PROPERTY AND EQUIPMENT, net 273,141 1,669,769 ADVANCES TO CONTRACT MANUFACTURER 304,530 1,007,789 PATENTS, net 1,491,724 OTHER ASSETS 10,318 10,318 ------------ ------------ Total assets $ 2,553,817 $ 5,622,162 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Account payable $ 1,148,527 $ 996,120 Accrued expenses 214,437 226,390 Accrued interest 150,479 20,063 Note payable - officer/stockholder 200,000 Deferred compensation payable to officer/stockholder 141,346 ------------ ------------ Total current liabilities 1,854,789 1,242,573 ------------ ------------ NOTES PAYABLE - LONG TERM 2,401,363 2,250,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT) Common stock, par value $.001; authorized, 25,000,000 shares; 10,752,898 shares issued as of December 31, 2000 and 8,864,898 shares issued as of December 31, 1999 10,753 8,865 Additional paid-in capital 34,584,473 30,877,375 Accumulated deficit (35,354,990) (27,845,135) Deferred compensation (31,055) Treasury stock, at cost, 100,000 shares (911,516) (911,516) ------------ ------------ Total stockholders' equity (deficit) (1,702,335) 2,129,589 ------------ ------------ Total liabilities and stockholders' equity (deficit) $ 2,553,817 $ 5,662,162 ============ ============
The accompanying notes are an integral part of these statements. F-2 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31,
2000 1999 ------------ ----------- Revenues $ 5,674,351 $ 2,855,463 Cost of sales (including a $956,546 impairment charge for tooling equipment) 3,626,786 1,572,319 ------------ ----------- Gross profit 2,047,565 1,283,144 ------------ ----------- Selling, general and administrative expense (including a $1,247,175 impairment charge for patents) 8,497,955 7,009,543 Research and development expense 386,250 455,332 Loss from termination of Wisdom product line 17,783 76,345 ------------ ----------- (8,901,988) (7,541,220) ------------ ----------- Loss from operations (6,854,423) (6,258,076) ------------ ----------- Interest income 9,408 81,586 Interest expense (436,340) (64,572) Debt conversion expense (731,250) Litigation settlement (228,500) ------------ ----------- NET LOSS $ (7,509,855) $(6,972,312) ============ =========== Loss per common share - basic and diluted $ (.72) $ (.80) ============ =========== Weighted-average shares outstanding - basic and diluted 10,489,689 8,729,905 ============ ===========
The accompanying notes are an integral part of these statements. F-3 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) Years ended December 31, 2000 and 1999
Common stock Additional ----------------------- paid-in Treasury Shares Amount capital stock ---------- -------- ------------ ----------- Balance, December 31, 1998 8,817,882 $ 8,818 $ 30,111,734 $ (911,516) Shares issued for interest payment 47,016 47 36,391 Costs associated with registering shares (2,000) Debt conversion expense 731,250 Net loss for the year ended December 31, 1999 ---------- -------- ------------ ----------- Balance, December 31, 1999 8,864,898 8,865 30,877,375 (911,516) ---------- -------- ------------ ----------- Warrants issued to consultants 520,975 Common stock issued in settlement of litigation 88,000 88 203,412 Conversion of note payable into common stock 1,800,000 1,800 2,248,200 Costs associated with registering common stock (32,521) Options issued to directors 62,110 Warrants issued with convertible notes 502,830 Repricing of warrants issued to financing advisers 202,092 Net loss for the year ended December 31, 2000 ---------- -------- ------------ ----------- Balance, December 31, 2000 10,752,898 $ 10,753 $ 34,584,473 $ (911,516) ========== ======== ============ =========== Accumulated Deferred deficit compensation Total ------------ ------------- ----------- Balance, December 31, 1998 $(20,872,823) $ 8,336,213 Shares issued for interest payment 36,438 Costs associated with registering shares (2,000) Debt conversion expense 731,250 Net loss for the year ended December 31, 1999 (6,972,312) (6,972,312) ------------ ----------- Balance, December 31, 1999 (27,845,135) 2,129,589 ------------ ----------- Warrants issued to consultants 520,975 Common stock issued in settlement of litigation 203,500 Conversion of note payable into common stock 2,250,000 Costs associated with registering common stock (32,521) Options issued to directors $ (31,055) 31,055 Warrants issued with convertible notes 502,830 Repricing of warrants issued to financing advisers 202,092 Net loss for the year ended December 31, 2000 (7,509,855) (7,509,855) ------------ ------------ ----------- Balance, December 31, 2000 $(35,354,990) $ (31,055) $(1,702,335) ============ ============ ===========
The accompanying notes are an integral part of these statements. F-4 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31,
2000 1999 ----------- ----------- Cash flows from operating activities Net loss $(7,509,855) $(6,972,312) Adjustments to reconcile net loss to net cash used in operating activities Patent amortization 244,549 263,950 Noncash interest 377,963 36,438 Depreciation 474,071 468,907 Stock options issued to directors 31,055 Warrants issued to consultants 520,975 Common stock issued in litigation settlement 203,500 Debt conversion expense 731,250 Loss on impairment of fixed assets 956,546 Loss on impairment of patents 1,247,175 Loss on disposal of fixed asset 17,783 Changes in assets and liabilities (Increase) decrease in accounts receivable (231,766) 133,129 Increase in inventories (330,072) (944,043) Decrease in advances to contract manufacturer 703,259 482,211 Decrease (increase) in prepaid expenses 39,924 (65,373) Decrease in other assets 280 Increase in accounts payable 152,407 451,415 Increase in accrued interest 130,416 (Decrease) increase in accrued expenses (11,953) 81,151 Increase in deferred compensation 141,346 ----------- ----------- Net cash used in operating activities (2,842,677) (5,332,997) ----------- ----------- Cash flows from investing activities Purchase of Treasury bills (3,753,000) Sale of Treasury bills 7,020,940 Capital expenditures (51,773) (106,806) ----------- ----------- Net cash (used in) provided by investing activities (51,773) 3,161,134 ----------- ----------- Cash flows from financing activities Proceeds from note payable - officer/stockholder 200,000 Proceeds from issuance of notes and lines of credit 2,900,000 2,250,000 Principal payments on notes payable (243,005) (150,000) Costs associated with registering shares (32,521) (2,000) ----------- ----------- Net cash provided by financing activities 2,824,474 2,098,000 =========== =========== NET DECREASE IN CASH AND CASH EQUIVALENTS (69,976) (73,863) Cash and cash equivalents at beginning of year 242,843 316,706 ----------- ----------- Cash and cash equivalents at end of year $ 172,867 $ 242,843 =========== ===========
F-5 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Year ended December 31, 2000 1999 ------- ---- Supplemental disclosures of cash flow information: Cash paid during the year for Interest $58,727 $316 ======= ==== Supplemental schedule of noncash investing and financing activities: On February 1, 2000, warrants to purchase 142,857 shares at $1.75 per share were issued in connection with a $1,000,000 private placement of 10% notes. This resulted in a $226,519 debt discount and an equal increase in additional paid-in capital. Also in connection with the issuance of 10% notes on February 1, 2000, the Company repriced and extended the contractual life of 201,333 common stock purchase warrants (originally issued to advisors in 1997) and recorded $202,092 of deferred financing costs and an increase to additional paid-in capital. During 2000, warrants to purchase 70,000 shares at $3.00 per share (July 31, 2000) and 80,000 shares at $1.25 per share (December 8, 2000) were issued in connection with the aggregate draw down of $900,000 of a $1,000,000 line of credit. This resulted in debt discounts of $136,046 and $76,375, respectively, and equal increases in additional paid-in capital. In December 1999, the Company recognized a $731,250 loss relating to the conversion of $2,250,000 of notes payable into common stock in January 2000. The accompanying notes are an integral part of these statements. F-6 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2000 and 1999 NOTE A - ORGANIZATION Milestone Scientific Inc. (formerly U.S. Opportunity Search, Inc.) (the "Company") was incorporated in the State of Delaware in August 1989. The Company has developed a patented dental anesthetic delivery system that it markets directly to dental practitioners in the United States and to distributors in nondomestic markets for sale to practitioners principally in Canada, South Africa and Asia. The Company's products are manufactured by third-party contract manufacturers under agreements expiring at various times through 2001 and 2002. NOTE B - LIQUIDITY AND FINANCIAL CONDITION The Company incurred net losses of $7,509,855 and $6,972,312 for the years ended December 31, 2000 and December 31, 1999, respectively. Cash used in operations amounted to $2,842,677 and $5,332,997 for the years ended December 31, 2000 and December 31, 1999, respectively. As of December 31, 2000, the Company also has a stockholders' deficit of $1,702,335 and its working capital is $111,039. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company's continued existence is dependent upon several factors, including its ability to generate operating cash flow via execution of its business plan, and secure financing sufficient to provide for its immediate working capital needs. The Company's policy is to continually evaluate the recoverability of its assets in accordance with accounting principles generally accepted in the United States of America. Due to the Company's history of generating losses on sales of its principal product, The Wand(R) , and uncertainty with respect to the predictability of future cash flows on product sales, the recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is in doubt. As a result of continued losses from operations, the Company determined that an impairment of certain assets has occurred. Accordingly, the Company recorded noncash charges of approximately $2,203,721 for the year ended December 31, 2000, representing the write-down of tooling equipment in the amount of $956,546 and the unamortized portion of patents in the amount of $1,247,175. The Company is continuing to execute the business model described in Note A based on its belief that The Wand(R) is a major advance in dentistry and that it may ultimately become the preferred method of delivering local dental anesthesia. Accordingly, the Company has taken certain steps aimed at growing and strengthening the end user base of The Wand(R) including (i) restructuring its sales initiative in the United States by eliminating the use of distributors thereby permitting dentists in the United States to order The Wand(R) directly from the Company at more favorable prices, (ii) introducing The Wand(R) Plus drive unit with several enhancements including a cruise control feature and (iii) establishing relationships F-7 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE B (continued) with distributors in markets in Canada, South Africa and Asia in an effort to increase sales in foreign markets. The Company has also initiated a cost reduction program including eliminating a key executive position and the Chief Executive Officer has voluntarily agreed to a deferral of his salary. Management believes that the above steps are critical to the realization of the Company's long-term business strategy; however, substantial funding is still required to execute the Company's business plan and there can be no assurance that the successful execution of such business plan will actually improve the Company's operating results. As of December 31, 2000, the Company has a $1,000,000 line of credit with a significant investor who is also the holder of a 10% secured promissory note. Such line of credit had availability of $100,000 as of December 31, 2000 that was drawn down in January 2001. In addition, the Company also restructured its obligations to the holders of its 10% Secured Promissory Notes (Notes H and O), which has had the effect of reducing the Company's immediate cash needs relating to the repayment of principal and obtained $1,000,000 in new financing from existing major investors, including $500,000 under a line of credit in support of its demo program for The Wand(R) and $500,000 from the private placement of 500,000 shares of common stock. Additional financing is still required in order for the Company to sustain its operations through December 31, 2001. Management believes it has access to potential sources of capital including the possible issuance of additional debt and equity securities to existing and new investors; however, there are currently no firm commitments in place for sufficient financing and there can be no assurance that the Company will be successful in its efforts to raise sufficient capital needed within the time frame needed to sustain its operations through December 31, 2001. NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Principles of Consolidation The consolidated financial statements include the accounts of the Company and of its wholly-owned subsidiaries and its majority-owned subsidiary, Spintech. All significant intercompany balances and transactions have been eliminated in consolidation. 2. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. F-8 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE C (continued) 3. Inventories Inventories principally consist of the current portion of advances to Tricor, the Company's contract manufacturer, in the amount of $700,000 for each of the years presented. Such advances will be drawn down as the Company places purchase orders with Tricor for the production of finished goods intended to be resold to dental practitioners. The remainder principally represents finished goods and component parts stated at the lower of cost (first-in, first-out method) or market. 4. Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 7 years. The costs of maintenance and repairs are charged to operations as incurred. 5. Patents The excess of the Company's costs over the tangible net assets of Spintech has been allocated to patents and is being amortized over a period of ten years using the straight-line method (Note C-6). 6. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. As indicated in Note B, the Company believes that an impairment of certain assets has occurred. Accordingly, the Company recorded, in the fourth quarter, a noncash charge of $2,203,731 for the year ended December 31, 2000, representing the write-down of tooling equipment and patents resulting from losses relating to sales of its principal product, The Wand(R) . 7. Revenue Recognition Revenue is recognized when title passes at the time of shipment. F-9 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE C (continued) 8. Research and Development Research and development costs are expensed as incurred 9. Income Taxes The Company uses the liability method of accounting for income taxes, as set forth in SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax bases of assets and liabilities at the statutory rates enacted for future periods. 10. Loss Per Common Share Net loss per share is presented under Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." In accordance with SFAS No. 128, basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. Potentially dilutive securities have been excluded from the computation, as their effect is antidilutive. If the Company had reported net income, diluted earnings per share would have included the shares used in the computation of net loss per share plus common equivalent shares related to 1,708,801 and 1,251,231 outstanding options and warrants for the years ended December 31, 2000 and 1999, respectively. 11. Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 12. Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. Notes payable to officer/stockholder and long-term notes payable approximate fair value due to the fact that the effective interest rates are comparable among the various noteholders. F-10 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE C (continued) 13. Accounting for Stock-Based Compensation The Company has adopted the disclosure provisions of Statements of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation," and therefore applies the intrinsic value method of accounting for employee stock options as prescribed under Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." Under APB No. 25, when the exercise price of an employee stock option granted by the Company is equal to or greater than the market price of the underlying stock on the date of grant, no compensation expense is recognized. Compensation is recognized on options and warrants issued to nonemployees based upon the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable. 14. Concentration of Credit Risk The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with high quality credit institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risks. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable as the Company does not require collateral or other securities to support customer receivables. 15. Reclassification The Company has reclassified certain amounts in the December 31, 1999 financial statements in order to conform to the December 31, 2000 presentation. NOTE D - ACQUISITIONS Wisdom In December 1996, the Company completed the purchase of Wisdom's outstanding stock by issuing 23,250 shares of its common stock valued at $110,437. The acquisition has been recorded using the purchase method of accounting. The cost was less than the subsidiary's net assets at the date of F-11 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE D (continued) acquisition. The excess of net assets over cost has been applied to reduce the amounts assigned to noncurrent assets of the subsidiary. The operating results of Wisdom have been included in the Company's consolidated financial statements since the date of acquisition. In April 1999, the Company discontinued its selling effort with regard to the Wisdom product line, excluding SplatrFree(TM) prophy angles. The discontinued products generated net sales of $174,086 and an operating loss of $52,911 for the year ended December 31, 1999. In terminating the product line, the Company incurred $76,345 of expenses, including $19,291 for uncollectible receivables, $15,692 in aggregate termination compensation and employee benefits, $5,066 for a lease buyout, $18,793 in previously unamortized acquisition costs and $17,503 to write off inventory. During 2000, the Company disposed of Wisdom's trade show display and recognized a loss of $17,783. The Company had a line of credit, which had originally been secured by the assets associated with the Wisdom product line. In June 1999, the Company obtained a thirty-day extension of its $250,000 line of credit with some temporary modifications, including a line reduction. On July 26, 1999, the Company notified its lender that the Company would no longer be utilizing the line and remitted the outstanding balance of $50,000. Spintech In November 1995, the Company completed the purchase of 65% of Spintech's outstanding stock on a fully diluted basis for $2,700,000. The Company paid $2,026,495, which represents the $2,700,000 less amounts advanced to Spintech amounting to $632,500 plus interest of $41,005. The acquisition was recorded using the purchase method of accounting. The excess of the aggregate purchase price over the net tangible assets acquired was allocated to patents and is being amortized over ten years. The operating losses of Spintech have been included in the Company's consolidated financial statements since the date of acquisition. Because of recurring losses, the minority interest has been valued at zero for the years ended December 31, 2000 and 1999. On several occasions, during 1997, the Company offered, to those minority shareholders of Spintech who are accredited investors, the opportunity to exchange their Spintech shares for Milestone shares. The conversion offer ranged from 6.1 to 24.43 shares of Milestone common stock for 1 share of Spintech common stock. These offers were for restricted shares, and 1,017 shares of Spintech were converted. F-12 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE D (continued) Also, the Company holds a series of annual options to purchase, for a nominal amount, an additional 3% of Spintech's outstanding shares following each of the first five fiscal years commencing after the closing of the stock purchase (or an aggregate of 15% of such shares if all of the options are exercised). Each option is exercisable only if Spintech does not achieve a specified pretax profit target as defined in the applicable fiscal year. As a result of Spintech not achieving the specified pretax profit, the Company since 1997 has annually exercised this option. The option exercised in 2000 increased the Company's ownership in Spintech to 87.0%. Milestone's ownership was 75.9% as of December 31, 1999. The Company's ownership increased to 79.3% on February 10, 2000 when Ronald and Glen Spinello surrendered their 5,025 shares as part of a settlement agreement. The values of the converted shares and associated offering costs were recorded as patents. NOTE E - INVENTORY Inventory consists of the following: December 31, ---------------------------- 2000 1999 ----------- --------- The Wand(R) units and handpieces $ 393,488 $ 369,129 Component parts and other materials 50,818 314,249 ----------- --------- 444,306 683,378 Reserve (104,929) (674,073) ----------- --------- Inventory, net of reserves 339,377 9,305 Advances to Tricor 700,000 700,000 ----------- --------- $ 1,039,377 $ 709,305 =========== ========= Advances to Tricor, the Company's contract manufacturer, represent funds deposited with Tricor to fund future inventory purchase commitments. The aggregate amount of the advances (including the estimated current portion of $700,000 classified with inventory in each year presented) amounts to $1,004,530 and $1,707,789 at December 31, 2000 and 1999, respectively. F-13 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE F - PROPERTY AND EQUIPMENT Property and equipment consist of the following: December 31, ------------------------------- 2000 1999 ----------- ----------- Furniture and fixtures $ 204,457 $ 196,263 Office equipment 168,864 168,864 Trade show displays 81,800 130,135 Tooling equipment 2,082,995 Computer servers and software 105,653 67,557 ----------- ----------- 560,774 2,645,814 Less accumulated depreciation (287,633) (976,045) ----------- ----------- $ 273,141 $ 1,669,769 =========== =========== NOTE G - NOTE PAYABLE TO OFFICER/STOCKHOLDER Note payable to officer/stockholder represents a note payable to the Company's Chief Executive Officer with interest payable at 9% per annum. The $200,000 principal balance of the note was originally due on February 1, 2001. In January 2001, the Chief Executive Officer agreed to extend the due date for the payment of principal to April 1, 2001 and then, effective April 1, 2001, extended the due date a second time to April 30, 2001. F-14 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE H - NOTES PAYABLE - LONG-TERM Notes payable - long-term consist of the following: December 31, --------------------------- 2000 1999 ----------- ---------- Senior convertible notes, with interest payable at 3% per annum $2,250,000 Senior secured promissory notes, with interest payable at 10% per annum $ 756,995 Promissory note payable with interest payable at 8% per annum 900,000 Secured promissory note payable with interest payable at 20% per annum 1,018,333 ----------- ---------- 2,675,328 2,250,000 Less debt discount (273,965) ----------- ---------- $ 2,401,363 $2,250,000 =========== ========== Substantially all assets of the Company are pledged as collateral for the above obligations. 3% Convertible Notes In March 1999, the Company concluded a $2 million institutional private placement with Cumberland Partners, other investment funds managed by or affiliated with Cumberland Associates and certain principals of Cumberland Associates. An additional $250,000 was raised from the Chairman and Chief Executive Officer of Milestone, on the same terms and conditions. The investors purchased, at face value, 3% Senior Convertible Notes due 2003, convertible into Milestone Common Stock at prices increasing from $2.50 per share in the first year to $6.00 per share in the fourth year, subject to anti- dilution protection in the event of stock dividends and certain capital changes. Purchasers of the Notes were granted rights to participate in certain future security offerings by Milestone Scientific Inc. and Subsidiaries. F-15 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE H (continued) In December 1999, the holders of the 3% Convertible Notes agreed, and in February 2000 formalized the agreement, to convert all $2,250,000 of such notes into common stock at a modified price of $1.25 per share. Of the 1,800,000 shares, which were to be issued, only the 200,000 shares to Mr. Osser are being held in escrow and pending shareholder approval. Since the scheduled conversion price was $2.50 per share, the Company recognized a noncash debt conversion expense of $731,250 in 1999. In September 1999, the Company issued 47,016 shares of Milestone Common Stock in lieu of cash of $36,438 in making the first semiannual interest payment, on the Senior Convertible Notes as permitted by the terms of the purchase agreement. 10% Senior Secured Notes As of February 1, 2000, the Company concluded a $1,000,000 institutional private placement of its 10% Senior Secured Promissory Notes due June 30, 2001 and warrants to purchase 142,857 shares of Milestone Common Stock with Cumberland Associates LLC, Strategic Restructuring Partnership L.P., a former principal of Cumberland Associates, the Chief Executive Officer and another key executive of the Corporation, an affiliate of one of its directors and six other individuals. These notes are secured by all present and future inventories of Milestone and are prepayable out of a portion of the proceeds generated by sales of The Wand(R). The warrants are exercisable at prices ranging from $1.75 per share in the first year to $7.00 per share in the fifth year, subject to antidilution protection, if approved by the Board of Directors, in the event of stock dividends and certain capital changes. The relative fair market value of the warrants, which amounted to $292,857, was recorded as debt discount and is being amortized over the life of the related note obligations. Purchasers of the notes and warrants were also granted rights to participate in certain future security offerings by the Company. In addition, the Company also extended and repriced, to $1.25 per share, warrants for purchase of 201,333 shares of the Company's stock that were originally issued to the Company's law firm (in which a Director is a partner) for services they performed in connection with assisting the Company in obtaining the financing. The aggregate increase in the fair market value of the warrants, which amounts to $202,092, was recorded as a deferred financing cost and is being amortized over the life of the related note obligations. F-16 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE H (continued) On April 5, 2000, the Company's Chief Executive Officer and the Director holding notes in the aggregate principal amounts of $250,000 and $50,000, respectively, agreed to defer all payments of principal and interest due to them until January 3, 2001. In April 2001, the Company entered into an agreement to restructure the remaining principal balance of $756,995 plus accrued interest (through the date of the restructuring agreement) as described in Note O. 8% Promissory Note On July 31, 2000, the Company established a $1,000,000 credit facility with K. Tucker Andersen, a major investor. Initially, $500,000 was borrowed under the line. In December 2000, the Company borrowed an additional $400,000 and subsequently, in January 2001, the Company borrowed the remaining $100,000. The original $500,000 drawn down in July 2000 is due on June 30, 2003 and the remaining $500,000 drawn down in December 2000 and January 2001 is due on December 31, 2003. In addition, the investor was also issued two separate five-year warrants for the purchase of 70,000 shares and 80,000 shares of common stock at exercise prices of $3.00 per share and $1.25 per share, respectively. The relative fair market value of the warrants, which in the aggregate amounted to $212,421 was recorded as a debt discount and is being amortized as additional interest expense over the term of the related notes. The investors were also granted additional warrants for 20,000 shares exercisable at $1.25 per share in conjunction with the remaining $100,000 drawn down in January 2001. The Company may, at its own option, elect to convert $200,000 of the above notes into equity securities at any time up through May 31, 2003 in the event the Company completes a sale of such equity resulting in gross proceeds of at least $1,800,000, at a price per share substantially the same as those sold in such equity offering. 20% Promissory Notes In August 2000, Milestone borrowed $1,000,000 from two funds managed by Cumberland Associates LLC pursuant to a two-year secured loan, bearing interest at 20% per annum, payable in cash, or through the issuance of additional 20% notes on which both interest and principal are payable at the maturity of the two-year secured loan. The loan is prepayable in cash at any time and is prepayable, with accrued interest, in Milestone common stock after March 31, 2001. Stock issued in payment of this debt will be valued at 85% of the then market prices. F-17 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE H (continued) In October 2000, Milestone converted $18,333 in accrued into additional principal with interest payable at 20% per annum as provided for in the note agreement. In April 2001, the Company restructured its existing obligations to the holders of its 20% Promissory Notes as described in Note O. NOTE I - STOCK OPTION PLAN In 1997, the Board of Directors approved the adoption of the 1997 Stock Option Plan. The 1997 Stock Option Plan provides for the grant of options to purchase up to 500,000 shares of the Company's common stock. In 1999, the Plan was amended, providing for the grant of options to purchase up to 1,000,000 shares of the Company's common stock. Options may be granted to employees, officers, directors and consultants of the Company for the purchase of common stock of the Company at a price not less than the fair market value of the common stock on the date of the grant. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company applies the intrinsic value method prescribed under Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, the Company recorded compensation expense of $31,055 representing the fair market value of the Company's common stock in excess of the exercise price relating to the vested portion of stock options issued to Directors during the year ended December 31, 2000. No compensation expense was recorded during the year ended December 31, 1999, since the exercise prices of stock options issued to employees and Directors were equal to the fair market values of the Company's common stock on the date of grant. If the Company had elected to recognize compensation expense based upon the fair value at the grant date, consistent with the methodology prescribed by SFAS No. 123, pro forma net loss and net loss per share to common stockholders for the years ended December 31, 2000 and 1999 would have increased to the following pro forma amounts: F-18 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE I (continued) December 31, --------------------------------- 2000 1999 ------------- ------------- Net loss as reported $ (7,509,855) $ (6,972,312) Pro forma net loss (9,018,851) (9,647,015) Loss per share as reported $ (.72) $ (.80) Pro forma loss per share (.86) (.80) The weighted-average fair value of the individual options granted during 2000 and 1999 was estimated as $1.73 and $1.45, respectively, on the date of grant. The fair value for 2000 and 1999 was determined using a Black-Scholes option-pricing model with the following assumptions: December 31, --------------------- 2000 1999 ------- ------- Volatility 140% 158.10% Risk-free interest rate 6% 6.35% Expected life 5 years 5 years Stock option activity during 2000 and 1999 is summarized below: Shares of Weighted- common stock average attributable exercise to options price of options ---------- ---------------- Options outstanding at December 31, 1998 541,000 $ 9.85 Granted 252,000 2.39 Forfeited (15,000) (5.38) -------- Options outstanding at December 31, 1999 778,000 $ 7.51 Granted 291,110 1.79 Forfeited (140,000) (11.62) -------- Options outstanding at December 31, 2000 929,110 $ 5.11 ======== No options were exercised during each of the years presented. F-19 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE I (continued) The following table summarizes information concerning outstanding and exercisable options at December 31, 2000. Remaining Number contractual Number Exercise prices outstanding life (years) exercisable --------------- ----------- ------------ ----------- $ .88 50,000 4.00 16,667 1.00 50,000 3.00 50,000 1.25 5,000 3.75 1,667 1.56 5,000 2.75 3,333 1.61 62,110 4.50 31,055 1.81 34,000 4.00 10,389 2.19 136,000 4.50 21,542 2.50 100,000 3.75 33,333 3.00 51,500 3.50 32,833 4.00 1,500 3.50 500 5.00 1,500 3.50 500 5.13 152,000 1.25 152,000 5.38 20,000 1.00 20,000 6.00 1,500 3.50 500 6.50 4,000 1.50 4,000 7.00 106,500 1.50 106,500 7.56 43,500 1.50 43,500 16.00 50,000 2.00 50,000 16.50 25,000 2.00 16,666 23.00 30,000 2.00 20,000 ------- ------- 929,110 614,985 ======= ======= The weighted-average exercise price of options exercisable at December 31, 2000 is $6.34. The Company also charged $520,975 to operations during the year ended December 31, 2000, representing the fair market value of 267,500 common stock purchase warrants issued to consultants. F-20 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE J - EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION The Company has a five-year employment contract with its Chief Executive Officer ("CEO") providing for an annual base compensation of up to $350,000, plus stock options and cash bonuses based upon attaining certain earnings levels, which the Company has not yet achieved. In July 1998, the CEO agreed to a voluntary reduction of his annual base salary from $350,000 to approximately $188,000 that remained in effect through August 2000. At that time, the CEO agreed to defer his annual salary on a discretionary basis. Accordingly, the Company has recorded deferred compensation payable to the CEO in the amount of $141,346 that is payable upon demand. The CEO reserves the right to resume his normal salary payments (pursuant to the terms of his employment agreement) at any time. NOTE K - INCOME TAXES Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities are as follows: December 31, ----------------------------- 2000 1999 ------------ ----------- Current assets and liabilities Allowance for doubtful accounts $ 99,000 $ 39,000 Inventory allowance 821,000 1,000,000 Warrants issued to consultants 260,000 Other 58,000 6,000 Valuation allowance (1,238,000) (1,045,000) ------------ ----------- Current deferred tax asset (liability) $ -- $ -- ============ =========== Noncurrent assets and liabilities Depreciation $ (720,000) $ (57,000) Asset impairment charge 770,000 Net operating loss carryforward 11,600,000 9,400,000 Other 12,000 -- ------------ ----------- 11,662,000 9,343,000 Valuation allowance (11,622,000) (9,343,000) ------------ ----------- Noncurrent deferred tax asset (liability) $ -- $ -- ============ =========== F-21 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE K (continued) As of December 31, 2000, the Company has Federal and State net operating loss carryforwards of approximately $29,000,000 that will be available to offset future taxable income, if any through December 2020. The utilization of the Company's net operating losses may be subject to a substantial limitation due to the "change of ownership provisions" under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their utilization. The Company has established a 100% valuation allowance to reserve for all of its net deferred tax assets due to the uncertainty that their benefit will be realized in the future. The provision for income taxes differs from the effective tax rate used in the financial statements as a result of current year net operating losses, the benefit of which has not been recognized in the current year. NOTE L - PRODUCT SALES AND SIGNIFICANT CUSTOMERS The Company's sales by product and by geographical region are as follows: December 31, --------------------------- 2000 1999 ---------- ---------- The Wand(R) system kits and System Kits $3,551,075 $1,562,850 The Wand(R) handpieces 1,916,354 1,000,820 Prophy angles 76,680 75,700 Dental needles 121,760 31,240 Wisdom products excluding prophy angles 174,086 Other 8,482 10,767 ---------- ---------- $5,674,351 $2,855,463 ========== ========== United States $3,458,522 $1,585,733 Canada 205,314 118,040 Other foreign countries 2,010,515 1,151,690 ---------- ---------- $5,674,351 $2,855,463 ========== ========== F-22 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE L (continued) During the year ended December 31, 2000, aggregate sales to three customers amounted to approximately $1,891,000, each representing 12%, 11% and 10% of the year's sales, respectively. Accounts receivable due from one of these customers (a worldwide distributor of the Company's products based in South Africa) amounted to approximately $360,000 representing 68% of net accounts receivable due at December 31, 2000. During the year ended December 31, 1999, sales to one customer amounted to approximately $516,000 representing 18% of sales for the year. NOTE M - COMMITMENTS AND CONTINGENCIES Lease Commitments The Company leases office space and warehouse facilities under noncancelable operating leases expiring at various times through 2004. These leases also provide for escalations of the Company's share of utilities and operating expenses. Aggregate minimum rental commitments under noncancelable operating leases are as follows: Year ending December 31, 2001 $129,000 2002 52,000 2003 55,000 2004 18,000 -------- $254,000 ======== Rent expense amounted to approximately $143,000 and $136,000 for the years ended December 31, 2000 and 1999, respectively. Contract Manufacturing Agreements The Company has informal arrangements for the manufacture of The Wand(R) unit and system kit with Tricor Systems, Inc. ("Tricor") and for the manufacture of The Wand(R) disposable handpiece by Nypro Inc. under thirty-day cancelable agreements expiring in January 2002 and December 2001, respectively, but renewable annually unless otherwise terminated by either party. F-23 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE M (continued) The termination of the manufacturing relationship with any of the above manufacturers could have a material adverse effect on the Company's ability to produce and sell its products. Though alternate sources of supply exist and new manufacturing relationships could be established, the Company would need to recover its existing tools or have new tools produced. Establishment of new manufacturing relationships could involve significant expense and delay. Any curtailment or interruption of the supply, whether or not as a result of termination of such a relationship, would adversely affect the Company. NOTE N - RELATED PARTY TRANSACTIONS The Company paid $191,501 and $131,632 during the years ended December 31, 2000 and December 31, 1999, respectively, to a law firm where one of the partners is also on the Company's Board of Directors. The law firm and the Director also participated in the February 2001 private placement (Note H), each purchasing $50,000 of 10% Senior Secured Promissory Notes and warrants to purchase 7,143 shares of Milestone Common Stock. NOTE O - SUBSEQUENT EVENTS DEBT RESTRUCTURING 10% Senior Secured Promissory Notes In April 2001, the Company restructured its obligations to the holders of its 10% Senior Secured Promissory Notes. Under the terms of the agreement, each of the noteholders agreed to exchange their 10% Notes for a new, zero coupon note (the "Zero Coupon Note") (a) paying interest at 20% per annum until maturity on March 31, 2002, (b) having a face amount equal to the outstanding principal owed to the noteholders plus accrued interest and interest payable until maturity, (c) giving Milestone the option to pay the face value of the notes in cash or in shares of common stock, provided that the shares have been registered under the Securities Act of 1933, and (d) paying each noteholder 108% of the face value of his Zero Coupon Note, including unearned interest to maturity, if there is a change of control of Milestone. Moreover, the warrants previously issued to the noteholders were amended to provide for an exercise price of $1.75 per share up to the date of maturity. F-24 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE O (continued) 20% Promissory Notes In April 2001, the Company restructured its existing obligations to the holders of its 20% Promissory Notes. The 20% Promissory Notes were amended to make them prepayable with accrued interest (a) in cash at any time before maturity, (b) in shares of common stock at any time after issuance but before July 31, 2002 if the common stock, valued as set forth in the notes, is at least $5.00 per share, or (c) in shares of common stock, valued as set forth in the notes, on or after July 31, 2002. Stock issued in payment of this debt will be valued at 85% of then market prices. $1,000,000 IN NEW FINANCING During the first quarter of 2001, Milestone received $1,000,000 in new financing from existing major investors, $500,000 pursuant to a line of credit in support of its demo program for The Wand(R) and $500,000 from the private placement of 500,000 shares of common stock. Milestone will pay a 2% facility fee on the line of credit and interest at the rate of 10% per annum on monies borrowed. In addition, the lender received a warrant for the purchase of up to 100,000 shares of Milestone's common stock at a per share purchase price of $1.10. EQUITY LINE COMMITMENT In January 2001, Milestone entered into a three-year private equity line agreement with Hillgreen Investments Limited ("Hillgreen"), a British Virgin Islands corporation, pursuant to which Hillgreen is obligated to purchase, subject to the fulfillment of specified conditions, up to 2.1 million shares of Milestone common stock over the next 36 months. Hillgreen has allocated up to $20 million to fund its purchase obligations. The transaction was arranged by Jesup & Lamont Securities Corporation, a New York-based investment banking firm. Milestone's right to draw upon this facility is subject to a number of limitations and conditions, including a limitation on the amounts sold to Hillgreen within specified periods, and the effectiveness of a resale registration statement covering the securities to be purchased. Subject to these and other conditions and limitations, Milestone will have full control over the timing of any financing under the equity line and is under no obligation to sell any shares to Hilllgreen. Any shares that are sold will be priced at 87.5% of the volume weighted average market price of Milestone common stock during a fixed period prior to the sale. Milestone has discretion to establish a floor price below which shares will not be sold by Milestone to Hillgreen. F-25 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2000 and 1999 NOTE O (continued) AGREEMENT WITH MEDIA SERVICES COMPANY TO BOOST EXPOSURE In March 2001, Milestone signed an agreement with News USA, Inc. and Vested Media Partners, Inc. to increase the awareness of healthcare professionals and the public to the benefits of its The Wand(R) and CompuFlo(TM) technologies. Under the agreement, News USA is required to prepare, write and seek to place in newspapers and other media, articles about Milestone's products and technologies. News USA has guaranteed 72,000 media placements during the 18-month term of the agreement. In return for their services, News USA and Vested Media Partners have received warrants for an aggregate of approximately 1,172,000 shares exercisable at prices increasing from $1.28 to $3.00 during the three-year warrant term. F-26 EX-4.19 2 0002.txt LINE OF CREDIT AGREEMENT Exhibit 4.19 LINE OF CREDIT AGREEMENT This LINE OF CREDIT AGREEMENT (the "Agreement") is made as of March 9, 2001 between MILESTONE SCIENTIFIC INC., a Delaware corporation, with its principal offices at 220 South Orange Avenue, Livingston, New Jersey 07039 (the "Company"), and K. Tucker Andersen ("Andersen" or the "Lender"), having an address c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, New York 10036 and Robert Gintel ("Gintel" or the "Lender"), having and address at 71 Baldwin Farm South, Greenwich, CT 06831 (collectively the "Lenders"). WHEREAS, the Company desires to borrow from Lenders and Lenders desire to lend to the Company up to an aggregate of $1,000,000 pursuant to a line of credit; NOW, THEREFORE, in consideration of the premises and the covenants herein contained, each of the undersigned parties hereto agree as follows: 1. Line of Credit, Notes and Warrants. Each Lender hereby agrees to lend to the Company a principal amount of $500,000 ($1,000,000 in the aggregate), subject to the terms and conditions hereinafter set forth: 1.1 Andersen shall deliver to the Company, on or before the date of his execution and delivery of this Agreement, a good bank or certified check payable to "K. Tucker Andersen" in the sum of $500,000.00 (the "Andersen Check"), which shall be deposited into a bank account in accordance with Paragraph 1.3. Gintel shall deliver to the Company, contemporaneously with his execution and delivery of this Agreement, a good bank or certified check payable to "Robert Gintel" in the sum of $500,000.00 (the "Gintel Check"), which also shall be deposited into a bank account in accordance with Paragraph 1.3. 1.2 Subject to collection of the principal amount from each Lender, the Company shall deliver the following to each Lender within five (5) business days of the date hereof: (a) A promissory note (the "Note") in the form annexed hereto as Exhibit A, which Note shall (i) be dated the date hereof, (ii) be for a principal amount of $500,000.00, and (iii) require interest be payable, at the Company's option, either in cash upon maturity of the Note (less interest received on amounts held in the Account), or quarterly in the common stock of the Company (the "Common Stock"); and (b) A warrant (the "Warrant") in the form annexed hereto as Exhibit B (i) for the purchase of 100,000 shares of Common Stock, (ii) exercisable commencing on the date hereof up to and including the fifth anniversary of the date hereof, and (iii) for a per share purchase price equal to the closing price of a share of Common Stock on the date hereof. 1.3 The Company, with the Lenders' cooperation, shall open two separate bank accounts (the "Accounts") at PNC Bank Corp. branch located at 170 Essex St., Millburn, NJ 07041: one in the name of Andersen (the "Andersen Account") and a second in the name of Gintel (the "Gintel Account"). The Company shall have the right to designate a signatory authorized to withdraw funds from the Accounts on its behalf (the "Signatory"). The Company shall have the right to replace the Signatory at any time and the Lenders hereby agree to cooperate in promptly effecting such change to the Accounts. As soon as practicable after payment is received, the Company shall deposit the Andersen Check into the Andersen Account and the Gintel Check into the Gintel Account. 1.4 Upon the deposit of the Andersen Check in accordance with Paragraph 1.3, the Company shall have the right to withdraw from the Andersen Account the sum of $312,300. Upon the deposit of the Gintel Check in accordance with Paragraph 1.3, the Company shall immediately transfer the sum of $156,150 from the Gintel Account to the Andersen Account. Thereafter, the Company shall have the right to withdraw from each of the Accounts the sum of $450.00 for each unit of The Wand(R) (the "Unit") that it delivers to a health care practitioner, including technicians (the "Practitioner") under the Company's 90 day trial program (the "Program"). (a) For each Unit sold to a Practitioner as a result of the Program, the Company shall return to each of the Accounts the sum of $450.00, less any amounts previously returned to the Account with respect to that Unit under Paragraph 1.4(b). (b) For each disposable handpiece sold to a Practitioner for use with the Unit under the Program, or for use with the Unit after the expiration of the 90 day trial period, the Company shall return to each of the Accounts the sum of $0.20, until the $450.00 withdrawn from the Account in connection with that Unit is returned to the Account. (c) For each Unit returned to the Company as unsold, the Company shall use its best efforts to sell the Unit and shall not withdraw any additional funds from the Accounts in respect to that Unit if such Unit thereafter is delivered to another Practitioner under the Program. 2. Terms of the Notes and Warrants. Except as otherwise set forth in this Agreement, the terms of the Notes and the Warrants shall be as set forth in the Notes and the Warrants, respectively. 3. Additional Warrants. Pursuant to the terms of the Notes, the Company may elect to extend the Maturity Date (as defined in Paragraph 3 of the Notes) of the Lender's Note for one year. If such election is made, then the holder of each Note whose Maturity Date has been extended shall receive a Warrant (i) for the purchase of 50,000 shares of Common Stock, (ii) exercisable commencing on the date of its issuance up to and including the fifth anniversary of the date of its issuance, and (iii) for a per share purchase price equal to the closing price of a share of Common Stock on the date of its issuance. 4. Representations and Warranties of the Company. The Company hereby represents and warrants to Lenders, which representations and warranties shall be true and correct as of the date hereof, as follows: 2 4.1 Organization; Standing and Power. The Company and its subsidiaries (a) are corporations duly organized, existing and in good standing under the laws of the state of their incorporation, (b) have all requisite corporate power and authority to own its properties and to carry on their businesses as now conducted and as proposed hereafter to be conducted, (c) are duly qualified to do business as foreign corporations in each and every jurisdiction where such qualification is necessary except where the failure to so qualify would not have a material adverse effect on the financial condition, business, operations, assets or prospects of the Company and its subsidiaries as a whole and (d) the Company has all requisite corporate power and authority to execute and deliver, and perform all of its obligations under this Agreement. 4.2 Capitalization. The total authorized capital stock of the Company consists of 25,000,000 shares of Common Stock and no shares of preferred stock. As of January 30, 2001, the Company had outstanding 10,772,847 shares of Common Stock. In addition, as of January 30, 2001, there were 1,000,000 shares of Common Stock reserved for issuance under the Company's 1997 Stock Option Plan of which 932,110 shares were issuable pursuant to the exercise of outstanding stock options ranging in exercise price from $1.00 to $23.00 per share. The Company also has outstanding other compensatory options for 431,500 shares at a weighted average price of $4.10 per share and warrants for 571,191 shares at exercise prices ranging from $1.25 to $3.25 per share of Common Stock. 4.3 Authorization. The execution, delivery and performance by the Company of its obligations under this Agreement has been duly authorized by all requisite corporate action and will not, either prior to or as a result of the consummation of the transactions contemplated by this Agreement: (a) violate any law, any order of any court or other agency of government, any provision of the Certificate of Incorporation or Bylaws of the Company or any contract, indenture, agreement or other instrument to which the Company is a party, or by which the Company or any of its assets or properties are bound, or (b) be in conflict with, result in a breach of, or constitute (after the giving of notice or lapse of time or both) a default under, or result in the creation or imposition of any lien of any nature whatsoever upon any of the property or assets of any Company pursuant to, or result in the acceleration of, any such contract, indenture, agreement or other instrument. The Company is not required to obtain any government approval, consent or authorization from, or to file any declaration or statement with, any governmental instrumentality or agency in connection with or as a condition to the execution, delivery or performance of any of this Agreement other than the filings which have heretofore been made. This Agreement is valid, binding and enforceable against the Company in accordance with its terms. 4.4 Non-contravention. To the best of its knowledge, the Company is not in violation or breach of or in default with respect to, complying with any material provision of any contract, agreement, instrument, lease, license, arrangement or understanding to which it is a party, and each such contract, agreement, instrument, lease, license, arrangement and understanding is in full force and effect and is the legal, valid and binding obligation of the Company enforceable as to the Company in accordance with its terms (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general equitable principals). Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) violate any constitution, 3 statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Company is subject or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Company is a party or by which the Company is bound or to which any of the Company's assets are subject. 4.5 Litigation. There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending or, to the knowledge of the Company, threatened in writing against the Company, or any of its assets, which, if adversely determined, might reasonably be expected to have a material adverse effect on the Company's business, operations and financial condition. 4.6 SEC Filings. The information set forth in the Form 10-KSB/A for the year ended December 31, 1999 and Form 10-QSB/A for the nine month period ended September 30, 2000 (collectively, the "SEC Filings") as filed by the Company with the Securities and Exchange Commission (the "SEC") is true, correct and complete in all material respects as of the respective date of each such filing and does not omit to state any material fact necessary in order to make the statements therein not misleading. The financial statements of the Company as set forth in the SEC Filings have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and fairly present in all material respects the financial condition and results of operations of the Company as of their respective dates. Since September 30, 2000, there has not been any material adverse change in the business, financial condition or results of operations of the Company except that the Company has continued to operate at a loss. Other than the liabilities set forth in the financial statements included in the SEC Filings and liabilities which have arisen after September 30, 2000 in the ordinary course of business, the Company has no material liability, except as follows: (a) In December 2000, we borrowed $400,000 from K. Tucker Andersen under a purchase and line of credit agreement dated as of July 31, 2000. The loan bears interest at 8% per annum and is due on December 31, 2003. In addition, Mr. Andersen received warrants to purchase 80,000 shares of our common stock, exercisable at $1.25 per share, which was the fair market value of a share on the date of grant. (b) On January 26, 2001, we borrowed the remaining $100,000 available to us under the above-mentioned purchase and line of credit agreement with Mr. Andersen. On that date, Mr. Andersen also received warrants to purchase 20,000 shares of our common stock, exercisable at $1.6875 per share, which was the fair market value of a share on the date of grant. (c) On January 19, 2001, the Company entered into a Private Equity Line of Credit Agreement with Hillgreen Investments Limited, a British Virgin Islands Corporation ("Hillgreen"), pursuant to which Hillgreen has agreed to purchase up to 2,100,000 shares of Common Stock over a 36 month period. During such period, the Company may request a drawdown under the equity line of credit by putting shares of our common stock to Hillgreen, and Hillgreen will be obligated to purchase the shares the Company puts to it, subject to exceptions set forth in the agreement. During the 20 business days following a drawdown notice, the number of shares to be sold and the price per share, which will be 87.5% of the volume 4 weighted average price of the Common Stock for such period, will be calculated. Upon the exercise of each drawdown, the Company will receive the amount of the drawdown less a fee payable to legal counsel for Hillgreen and less a brokerage fee payable to Jesup & Lamont Securities Corporation ("Jessup & Lamont"), the placement agent that introduced the Company to Hillgreen. In addition, the Company granted to Hillgreen a warrant to purchase 100,000 shares of Common Stock and granted to Jesup & Lamont a warrant to purchase 75,000 shares of Common Stock. On January 31, 2001, the Company filed with the SEC a registration statement on Form S-2, the effectiveness of which is pending, to permit Hillgreen to resell shares of Common Stock which it may purchase under the equity line of credit agreement, and to permit Hillgreen and Jesup & Lamont to resell shares of Common Stock that they receive if they should exercise their warrants. 4.7 Due Authorization. The issuance of the Notes and Warrants has been duly authorized by all necessary corporate action and when issued will be the legal and binding obligations of the Company enforceable in accordance with their terms. The shares of Common Stock issuable upon exercise of the Warrants or in respect of interest payable on the Notes have been duly authorized and reserved for issuance and, when issued in accordance with the terms of the Warrants or issued in respect of interest payable on the Notes, as applicable, will be fully paid and non-assessable, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act of 1933, as amended (the "Securities Act") and state securities laws), taxes, security interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. 4.8 Securities Law Exemption. Assuming the accuracy of Lenders' representations and warranties set forth herein, the issuance of the Notes and Warrants pursuant to this Agreement has been made in accordance with the provisions and requirements of Regulation D ("Regulation D") or ss.4(6) under the Securities Act and any applicable state law. 4.9 Use of Proceeds. The proceeds from the line of credit will be used for general corporate purposes and shall be withdrawn from the Account only in accordance with the procedure set forth in Paragraph 1.4 above. 4.10 Compliance with Laws. The Company is in compliance in all material respects with all occupational safety, health, wage and hour, employment discrimination, environmental, flammability, labeling, usury and other applicable laws which are material to its businesses, and the Company is not aware of any state of facts, events, conditions or occurrences which may now or hereafter constitute or result in a violation of any of such applicable laws, or which may give rise to the assertion of any such violation, the effect of which could have a materially adverse effect on the Company's business, operations and financial condition. 4.11 Licenses and Permits. The Company has obtained all federal, state and local licenses and permits required to be maintained in connection with and material to its operations, and all such licenses and permits obtained are valid and in full force and effect. 4.12 Existing Registration Rights. Except for the Registration Rights Agreement referred to in Paragraph 7 hereof, and the registration rights given to Hillgreen Investments Limited ("Hillgreen") in connection with the Private Equity Line of Credit 5 Agreement by and between the Company and Hillgreen, dated January 19, 2001, the Company is not a party to any agreement under which it is obligated to register any of its securities under the Securities Act. 4.13 Patents, Trademarks, Copyrights, Etc. The Company owns or validly licenses all patents, patent rights, patent applications, licenses, shop rights, trademarks, trademark applications, tradenames, copyrights and other proprietary information (collectively "Rights") used in the conduct of its business as currently being conducted. To the actual knowledge of the Company, the conduct of its business as currently being conducted does not conflict with valid rights of others in any way, nor has any material use been made of the Rights, except by the Company or by other entities duly licensed to use the same. 4.14 No Other Representations. The Company shall not be deemed to have made any representations, warranties, covenants, agreements or indemnifications pertaining to the subject matter of this Agreement, whether express or implied, except to the extent that such representations, warranties, covenants, agreements or indemnifications are made in this Agreement or the Schedules hereto or in any certificate or other agreement, document or instrument delivered pursuant to the provisions of this Agreement. 5. Representations and Warranties of the Lenders. Each Lender hereby represents and warrants to the Company, which representations and warranties shall be true and correct as of the date hereof, as follows: 5.1 Authorization of Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on his part, does not violate any laws or regulations applicable to him and is the valid binding and enforceable obligation of his in accordance with its terms. 5.2 Non-contravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which he is subject or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which he is a party or by which he is bound or to which any of his assets are subject. 5.3 Accredited Investor. He is an "accredited investor" as that term is defined in Rule 501(a) of the Securities Act, and the rules promulgated thereunder. 5.4 Investment. He acknowledges that this offering of Notes and Warrants has not been reviewed by the United States Securities and Exchange Commission ("SEC") and that the sale of the Notes and Warrants pursuant hereto is intended to be a nonpublic offering pursuant to Paragraphs 4(2), 4(6) or 3(b) of the Securities Act. Lender represents that the Notes or Warrants are being purchased by him for his own account, for investment and not for distribution or resale to others. Lender agrees that he will not sell or otherwise transfer the Notes, Warrants or the shares of the Common Stock issuable upon exercise of the Warrants 6 unless such securities, as the case may be, are registered under the Securities Act or unless an exemption from such registration is available. Lender understands that neither the Notes, Warrants nor the shares of Common Stock issuable upon exercise of the Warrants have been registered under the Securities Act and they are or will be issued pursuant to a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 5.5 Access to Data. Lender has been given copies of the SEC Filings and has had an opportunity to review same. Lender has had an opportunity to discuss the SEC Filings and the Company's business, management and financial affairs with the Company's management and the opportunity to review the Company's facilities, each to Lender's satisfaction. Lender understands that such discussions, as well as any written information issued or provided by the Company, were intended to describe the aspects of the Company's business and prospects which the Company believes to be material but were not necessarily a thorough or exhaustive description thereof. 5.6 Speculative Nature of Investment. Lender acknowledges that the purchase of the Notes and Warrants involves a high degree of risk and that (i) an investment in the Company is highly speculative and only investors who can afford the loss of their entire investment should consider investing in the Company and purchasing Notes and Warrants; (ii) Lender may not be able to liquidate his investment; (iii) transferability of the Notes, Warrants and the shares of Common Stock issuable upon exercise of the Warrants is extremely limited; and (iv) Lender could sustain the loss of his entire investment. 5.7 Experience. Lender acknowledges that he has prior investment experience, including investment in non-listed and non-registered securities, or has employed the services of an investment advisor, attorney or accountant to review all of the documents furnished or made available by the Company and to evaluate the merits and risks of such an investment on Lender's behalf. 5.8 Lack of Liquidity. Lender understands that there is no public market for the Notes or Warrants. 5.9 Legends. Lender consents to the placement of a legend on the Notes, Warrants, and shares of Common Stock issued on exercise of the Warrants, provided they are not then covered by an effective Registration Statement, all as set forth in Paragraph 6 of this Agreement. 5.10 Commitment Fee. On the Maturity Date of the Notes (as defined in Paragraph 3 of the Notes), the Company shall pay to each Lender a commitment fee of 2% of the principal amount borrowed from the Lender. 5.11 Registered Representative. Lender acknowledges that if he is a Registered Representative of a National Association of Securities Dealers, Inc. ("NASD") member firm, he must give such firm the notice required by the NASD Conduct Rules, or any applicable successor rules of the NASD receipt of which must be acknowledged by such firm on the signature page hereof. 7 5.12 No Other Representations. Lender hereby represents that, except as set forth herein, no representations or warranties have been made to the Lender by the Company or any agent, employee or affiliate of the Company and in entering into this transaction, Lender is not relying on any information, other than that contained herein, that contained in the SEC Filings and the results of independent investigation by the Lender. Lender shall not be deemed to have made any representations, warranties, covenants, agreements or indemnifications pertaining to the subject matter of this Agreement, whether express or implied, except to the extent that such representations, warranties, covenants, agreements or indemnifications are made in this Agreement or the Schedules hereto or in any certificate or other agreement, document or instrument delivered pursuant to the provisions of this Agreement. 5.13 No Broker. There is no firm, corporation, agency or other entity or person that is entitled to a finder's fee or any type of commission in relation to or in connection with the transactions contemplated by this Agreement as a result of any agreement or understanding with Lender or any of its directors, officers, employees or agents. 6. Legends. The Notes and Warrants shall be endorsed with the following legend: THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (II) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. THIS SECURITY IS SUBJECT TO THE TERMS OF A LINE OF CREDIT AGREEMENT, DATED AS OF MARCH 9, 2001, A COPY OF WHICH IS ON FILE AT THE EXECUTIVE OFFICES OF MILESTONE SCIENTIFIC INC. 7. Registration Rights. The Company and the Lenders will enter into a registration rights agreement, substantially in the form annexed hereto as Exhibit D. 8. Confidentiality. Lenders covenants and agrees that none of Lenders, his agents and representatives will use for their own benefit, convey or disclose to any third party any information provided by the Company concerning its current or proposed business, operations and financial conditions, other than information which is already publicly available, was already known to Lenders or is obtained from a source other than the Company and to the extent required by law. 9. Affirmative Covenants. The Company covenants and agrees with the Lenders that, from the date hereof and until the Notes have been paid in full, it shall: 8 9.1 Corporate. Do or cause to be done all things necessary to at all times (a) other than mergers solely among the Company and any of its subsidiaries, preserve, renew and keep in full force and effect its corporate existence, patents, trademarks, rights, licenses, permits and franchises, (b) comply with this Agreement, (c) maintain and preserve all of its material property used or useful in the conduct of their respective businesses, and (d) comply with all applicable laws material to its businesses, including the reporting requirements of the Securities Exchange Act of 1934, whether now in effect or hereafter enacted, promulgated or issued. 9.2 Notice of Proceedings. Give prompt written notice to the Lenders of any proceeding instituted against the Company in any federal or state court or before any commission or other regulatory body, whether federal, state or local, which, if adversely determined, could have a material adverse effect upon their business, operations, properties, assets or condition, financial or otherwise when taken as a whole. 9.3 Books and Records; Inspection. Maintain true and accurate books and records respecting all of their business operations, and permit agents or representatives of the Lenders to inspect, at any time during normal business hours, upon reasonable notice, and without undue material disruption of their business operations, all of such books and records and to visit the properties and operations of the Company and consult with the employees and officers of the Company. 9.4 Notice of Default or Material Adverse Change. Promptly advise the Lenders of any event which could have a material adverse effect on the Company's business, operation, property, assets or condition, financial or otherwise, or the existence or occurrence of any Event of Default (as defined in the Notes), any breach of this Paragraph 9 or any default of the Company under any agreement or instrument to which it is a party. 9.5 Notice of Filings with SEC. Promptly advise the Lenders of any filing of a registration statement under the Securities Act with the SEC covering any of the Company's securities. 9.6 Delivery of Financial Statements and other Reports. The Company will deliver to each holder of Notes promptly upon transmission thereof, copies of all financial statements, information circulars, proxy statements and reports as the Company shall send to its stockholders and copies of all registration statements, prospectuses and all reports which it shall file with the Securities and Exchange Commission or with any securities exchange on which any of its securities is listed or with NASDAQ and copies of all press releases and other statements made available to the public concerning material developments in the business of the Company. 9.7 Stock to be Reserved. The Company covenants that all shares of Common Stock that may be issued upon exercise of the Warrants or in respect of interest payable on the Notes will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. The Company covenants that during the period in which the Warrants are outstanding it will at all times have authorized and reserved a sufficient number of shares of Common Stock to permit the exercise of the Warrants. 9 10. Conditions Precedent to the Obligations of the Company. The obligations of the Company pursuant to this Agreement are subject to the satisfaction at the Closing of each of the following conditions; provided, however, that the Company may, in its sole discretion, waive any of such conditions and proceed with the transactions contemplated hereby. 10.1 Accuracy of Representations and Warranties. The representations and warranties of the Lenders contained in this Agreement or in any document or certificate delivered in connection with the transactions contemplated hereby shall be true and correct in all material respects on and as of the date hereof. 10.2 Performance of Agreements. Each Lender shall have duly executed and delivered this Agreement to the Company and shall have performed and complied in all material respects with all covenants, obligations and agreements to be performed or complied with by him on or before the date hereof. 11. Conditions Precedent to the Obligations of the Lenders. The obligations of the Lenders under this Agreement is subject to the satisfaction at the Closing of each of the following conditions; provided, however, that the Lenders may, in Lenders's sole discretion, waive any of such conditions and proceed with the transactions contemplated hereby. 11.1 Accuracy of Representations and Warranties. The representations and warranties of the Company contained in this Agreement or in any document or certificate delivered in connection with the transactions contemplated hereby are true and correct in all material respects on and as of the date hereof. 11.2 Performance of Agreements. The Company shall have duly executed and delivered this Agreement and the Registration Rights Agreement and shall have performed and complied in all material respects with all covenants, obligations and agreements to be performed or complied with by it on or before the date hereof. 11.3 Litigation, Material Changes, Defaults, etc. No claim, action, suit, proceeding, arbitration or hearing or notice of hearing shall be pending (and no action or investigation by any governmental authority shall be threatened) which seeks to enjoin, prevent or adversely affect the consummation of the transactions contemplated by this Agreement. There shall not have been any changes in the business of the Company, which have or could reasonably be expected to have a material adverse effect on the business, operations, properties, assets or condition, financial or otherwise, of the Company. There shall exist no defaults under the provisions of any instrument evidencing indebtedness of the Company. 11.4 Purchase Permitted by Applicable Laws. The purchase of and payment for the Notes and Warrants shall not be prohibited by any applicable law or governmental regulation (including without limitation Regulations G, T and X of the Board of Governors of the Federal Reserve System) and shall not subject the holders of the Notes and Warrants to any tax, penalty or liability under any applicable law or governmental regulation. 12. General Provisions. 10 12.1 Survival of Representations, Warranties, Covenants, and Agreements. The representations, warranties, covenants and agreements contained in this Agreement shall survive the execution of this Agreement. 12.2 Notices. All notices, requests, demands and other communications which are required to be or may be given under this Agreement to any party to any of the other parties shall be in writing and shall be deemed to have been duly given when (a) delivered in person, (b) the day following dispatch by an overnight courier service (such as Federal Express or UPS, etc.) or (c) five (5) days after dispatch by certified or registered first class mail, postage prepaid, return receipt requested, to the party to whom the same is so given or made. Any notice or other communication given hereunder shall be addressed to the Company, at its principal offices as set forth above and to the Lenders at his address indicated on the signature page hereto. 12.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 12.4 Headings. All headings are inserted for convenience of reference only and shall not affect the meaning or interpretation of any such provisions or of this Agreement, taken as an entirety. 12.5 Severability. If and to the extent that any court of competent jurisdiction holds any provision (or any part thereof) of this Agreement to be invalid or unenforceable, such holding shall in no way affect the validity of the remainder of this Agreement. 12.6 Changes, Waivers, Etc. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but rather may only be changed by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. It is agreed that a waiver by either party of a breach of any provision of this Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same party. 12.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The parties hereby agree that any dispute which may arise between them arising out of or in connection with this Agreement shall be adjudicated before a court located in New York City and they hereby submit to the exclusive jurisdiction of the courts of the State of New York located in New York, New York and of the federal courts in the Southern District of New York with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, in care of the address set forth below or such other address as the undersigned shall furnish in writing to the other. 11 12.8 Binding Effects. This Agreement shall be binding upon and inure to the benefit of each of the undersigned parties and their respective successors, legal representatives and assigns. The failure of one Lender to execute this Agreement shall not affect the validity or enforceability of the Agreement between the Company and the Lender who has executed the Agreement. 12.9 Entire Agreement. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter thereof and incorporates and supersedes all prior discussions, agreements and understandings of any and every nature among them. 12.10 Further Assurances. The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement. 12.11 Expenses. Each party hereto shall pay all of its own fees and expenses in connection with the transactions contemplated hereby. IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as of the day and year first above written. MILESTONE SCIENTIFIC INC. By: /s/ Leonard Osser ---------------------------------- Leonard Osser, Chairman and Chief Executive Officer /s/ K. Tucker Andersen ---------------------------------- K. TUCKER ANDERSEN -------------------------------- ROBERT GINTEL 12 EXHIBIT A FORM OF NOTE 13 EXHIBIT B FORM OF WARRANT 14 EXHIBIT C FORM OF REGISTRATION RIGHTS AGREEMENT 15 EX-4.20 3 0003.txt 10% PROMISSORY NOTE MILESTONE SCIENTIFIC INC. 10% PROMISSORY NOTE $500,000 March 9, 2001 Livingston, New Jersey FOR VALUE RECEIVED, MILESTONE SCIENTIFIC INC., a Delaware corporation (the "Company" or "Maker") with its principal executive office at 220 South Orange Avenue, Livingston, New Jersey 07039, promises to pay to: K. Tucker Andersen c/o Cumberland Associates LLC 1114 Avenue of the Americas New York, NY 10036 (the "Payee" or the "holder of this Note") or permitted successors and assigns of the Payee, the principal amount of: FIVE HUNDRED THOUSAND DOLLARS AND NO CENTS ($500,000) (the "Principal Amount"), or, if less, the amount then outstanding, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, or such other form as shall be acceptable by the Payee in his sole and absolute discretion together with interest as set forth in Paragraph 1 of this Note at such times and in such amounts as set forth in Paragraph 2 of this Note, at Payee's address designated above or at such other place as the Payee shall have notified the Company before such payment is due. 1. Interest and Facility Fee. A. Except as otherwise provided in Paragraph B of this Paragraph 1, the maker shall pay a facility fee equal to 2% of the above principal amount plus interest on the daily principal balance at the rate of 10% per annum from the date hereof until paid in full. B. If an Event of Default (as defined in Paragraph 5 below) shall have occurred and shall continue while this Note is outstanding, interest on this Note shall accrue at a rate equal to the maximum rate permitted by law (such rate is hereinafter referred to as the "Default Rate"). C. Interest as aforesaid shall be calculated on the basis of actual number of days elapsed over a year of 360 days. D. At the option of the Company, interest and the facility fee shall be payable either (i) on the Maturity Date (as defined in Paragraph 3 below) in cash (less interest received on the Andersen Account referred to in Paragraph 1.3 of the Line of Credit Agreement between the Company and the Payee, dated March 9, 2001), or (ii) quarterly, commencing August 1, 2001, in shares of the Company's common stock, par value $.001 per share (the "Common Stock"), valued at the average closing bid price per share of Common Stock for the five trading days ending the day prior to the interest payment date. 2. Principal Payments. The outstanding Principal Amount of this Note shall be due and payable on the Maturity Date (as defined in Paragraph 3 below). The outstanding Principal Amount, with interest to date, shall be prepayable at any time without penalty. On any prepayment, interest shall be paid to the date of prepayment. 3. Maturity. This Note shall mature, and the unpaid Principal Amount and all accrued but unpaid interest thereon, shall be due in full on August 31, 2002 (the "Maturity Date"). The Company may elect to extend the Maturity Date for one year by serving written notice of such election upon the Payee at any time prior to the Maturity Date. 4. Priority. The payment of the Principal Amount, and the accrued but unpaid interest hereon, shall be subordinate in right of payment to the 10% Series Notes and senior in right of payment to all other indebtedness of the Company whether incurred prior or subsequent to the date hereof other than (i) any purchase money obligations incurred by the Company in connection with the purchase of property in the ordinary course of business, (ii) all payment obligations of the Company pursuant to any capitalized lease entered into by the Company. and (iii) all payables incurred by the Company in the ordinary course of its business. 5. Events of Default and Remedies. A. Events of Default. Each of the following events is herein referred to as an Event of Default: (i) any default in the payment of any principal hereunder when the same shall be due and payable, whether at the Maturity Date or by acceleration or otherwise; (ii) any default in the payment of any interest hereunder when the same shall be due and payable not remedied within three (3) days of written notice given pursuant to Paragraph 5(B) herein, whether at the Maturity Date, the interest payment date or by acceleration or otherwise; (iii) any material default in the due observance or performance of any other covenant, condition or agreement to be observed or performed pursuant to the terms hereof, and the continuance of such default unremedied for a period of twenty (20) days after written notice thereof to the Company setting forth in reasonable detail the circumstances of such Event of Default; (iv) if the Company shall: (A) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, (B) admit in writing its inability to pay its debts as they mature, (C) make a general assignment for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code, or (E) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against him or it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing; 2 (v) if any order, judgment or decree shall be entered, without the application, approval or consent of the Company, by any court of competent jurisdiction, approving a petition seeking reorganization of the Company, or appointing a receiver, trustee, custodian or liquidator of any of the Company, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) consecutive days; (vi) there shall be a default (taking into account lapse of notice, written notice to the Company or both) under any bond, debenture, note or other evidence of indebtedness for money borrowed or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company, whether existing on the date hereof or created subsequent to the date hereof, which default relates to the obligation to pay the principal of or interest on any such indebtedness and the effect of such default is to cause such indebtedness to become due prior to its stated maturity; or (vii) if final judgment(s) for the payment of money in excess of $200,000 individually or $250,000 in the aggregate shall be rendered against the Company, and the same shall remain undischarged or unbonded for a period of thirty (30) consecutive days, during which execution shall not be effectively stayed. B. Remedies. Upon the occurrence of any Event of Default, and at all times thereafter during the continuance thereof: (i) this Note shall, at the option of the holder of this Note, become immediately due and payable, both as to principal, interest and premium, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding; (ii) all outstanding obligations under this Note, and all other outstanding obligations on which the applicable interest rate is determined by reference to the interest rate under this Note, shall bear interest at the Default Rate; (iii) the holder of this Note may file suit against the Company on the Note and/or seek specific performance or injunctive relief hereunder (whether or not a remedy exists at law or is adequate); (iv) the holder of this Note shall have the right, in accordance with this Note to exercise any and all remedies as such holder may determine in such holder's discretion (without any requirement of marshalling of assets, or other such requirement). 6. Miscellaneous. A. Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Company or the Payee shall bind and inure to the benefit of the permitted successors and assigns of the Company and the Payee, respectively, whether so expressed or not. B. Notice Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed or sent by certified, registered, or express mail, postage prepaid, and shall be deemed given when so delivered personally, telegraphed or, if mailed, five days after the date of deposit in the United States mail as follows: 3 (i) if to the Maker: Milestone Scientific Inc. 220 South Orange Avenue Livingston, NJ 07039 Attn: Thomas M. Stuckey, Chief Financial Officer (ii) if to the Payee: At the address set forth on the first page C. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York and any applicable laws of the United States of America, without giving effect to the conflicts or choice of law principles thereof. D. Enforceability. Maker acknowledges that this Note and Maker's obligations hereunder are and shall at all times continue to be absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Note and the obligations of Maker evidenced hereby, unless otherwise expressly evidenced in a writing duly executed by the holder of this Note. E. Payment. If the date for any payment due hereunder would otherwise fall on a day which is not a Business Day, such payment or expiration date shall be extended to the next following Business Day with interest payable at the applicable rate specified herein during such extension. "Business Day" shall mean any day other than a Saturday, Sunday, or any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law to close. F. Waiver and Set-off. Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by Payee of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. The Payee, in addition to any other right available to it under applicable law, shall have the right, at its option, to immediately set off against this Note any monies owed by the Payee in any capacity to Maker, whether or not due, upon the occurrence of any Event of Default, even though such charge is made or entered on the books of Payee subsequent to those events. G. Lost Documents. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (i) in the case of loss, theft or destruction, of indemnity satisfactory to it and (ii) in the case of mutilation, of surrender for cancellation of such Note, and, in any case, upon reimbursement to the Company of all reasonable expenses incidental thereto, the Company will make and deliver in lieu of such Note a new Note of like tenor and principal amount and dated as of the original date of this Note. 4 IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company. MILESTONE SCIENTIFIC INC. By: ____________________________________ Leonard Osser Chairman and Chief Executive Officer 5 EX-4.21 4 0004.txt REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT ("Agreement") made as of the 9th day of March, 2001 by and between Milestone Scientific Inc., a Delaware corporation (the "Company"), K. Tucker Andersen having an address at c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, N.Y. 10036, and Robert Gintel, having and address at 71 Baldwin Farm South, Greenwich, CT 06831 (individually the "Purchaser" and collectively the "Purchasers"). W I T N E S S E T H: WHEREAS, the Company and the Purchaser have entered into a Line of Credit Agreement, dated even date herewith (the "Agreement") pursuant to which the Purchaser periodically will purchase from the Company, at the Company's request, and the Company will periodically sell to the Purchaser, the Company's 10% Secured Notes, due August 31, 2002, and related Warrants; and WHEREAS, in connection with the Purchase Agreement, the Company has agreed to enter into this Registration Rights Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Commission" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the "Securities Act" (as defined herein). "Common Stock" shall mean the Common Stock, $.001 par value per share, of the Company, as constituted as of the date of this Agreement. "Exchange Act" shall mean the United States Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Registration Expenses" shall mean the expenses so described in Section 4. "Registerable Securities" shall mean the shares of the Company's Common Stock issuable upon exercise of the Warrants. "Securities Act" shall mean the United States Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 4. "Warrants" shall mean the Draw Down Warrants issued to the Purchaser in connection with each draw down under the line of credit agreement, dated March 9, 2001, initially representing the right to purchase shares of the Common Stock. 2. Registration. The Company will use its reasonable best efforts (subject to the provisions of this Agreement) to file with the Commission no later than August 15, 2001 a registration statement under the Securities Act and any applicable state securities laws registering for reoffer and resale the Registerable Securities and shall use its reasonable best efforts to make such Registration Statement effective as soon as possible thereafter. 3. Registration Procedures. The Company will, as expeditiously as possible: (a) Prepare and file with the Commission a registration statement with respect to such securities (on such applicable form as the Company may in its sole discretion elect to use) and use its reasonable best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby, determined as hereinafter provided; (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in subsection (a) above and comply with the provisions of the Securities Act with respect to the disposition of all Registerable Securities covered by such registration statement in accordance with Purchasers' intended method of disposition set forth in such registration statement for such period; (c) Notify the Purchasers of the filing and effectiveness of the registration statement and any amendments thereto and furnish to Purchasers such number of copies of the registration statement and the prospectus included therein, including each preliminary prospectus or any amendments or supplement thereto, as Purchasers reasonably may request in order to facilitate the public sale or other disposition of the Registerable Securities covered by such registration statement; (d) Use its reasonable best efforts to register or qualify the Registerable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as Purchasers reasonably shall request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) Immediately notify Purchasers at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a 2 material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (f) Use its reasonable best efforts to include or list, as the case may be, the Registerable Securities being registered on the automated quotation system of the National Association of Securities Dealers, Inc. or the principal securities exchange on which Common Stock of the Company is then quoted or listed; (g) Afford Purchasers and its representative, if any, an opportunity to make such examination and inquiry into the financial position, business and affairs of the Company and its subsidiaries as Purchasers or their counsel may reasonably deem necessary to satisfy Purchasers and their counsel as to the accuracy and completeness of the registration statement; and (h) Use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement (which in no event shall require the Company to commence any judicial proceeding) and shall notify Purchasers regarding any such order. For purposes of Sections 3(a) and 3(b) above, the period of distribution of Registerable Securities shall be deemed to extend until the earlier of (i) the sale of all Registerable Securities covered by the registration statement or (ii) the date on which all of the Warrants have been exercised and all Registerable Securities held by each Purchaser becomes salable under Rule 144 during a period of not more than 90 days. In connection with registration hereunder, Purchasers will furnish to the Company in writing such information with respect to itself and the proposed distribution by it as shall be reasonably necessary in order to assure compliance with federal and applicable state securities laws. 4. Expenses. All expenses incurred by the Company in complying with Section 2 hereof, including without limitation, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Purchaser (except as otherwise included in the term "Selling Expenses" below), counsel for the Company and independent public accountants for the Company, fees and expenses, including counsel fees, incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars and costs of insurance are called "Registration Expenses." All selling commissions applicable to the sale of Registerable Securities." The Company will pay all Registration Expenses in connection with the registration statement. All Selling Expenses shall be borne by Purchasers. 5. Rule 144 Reporting. With a view to making available to Purchasers the benefits of certain rules and regulations of the Commission which may permit the sale of the Registerable Securities without registration, the Company agrees to: 3 (a) make and keep public information available, as those terms are used and defined in Commission Rule 144; (b) use its reasonable best efforts to file with the Commission in a timely manner all reports and other documents required by the Company under the Exchange Act; and (c) furnish to each Purchaser upon request a written statement as to its compliance with the reporting requirements under the Securities Act, the Exchange Act, Rule 144, as such rule may be amended, and any other similar rule that is adopted in the future. 6. Indemnification and Contribution. (a) In the event of a registration of any of the Registerable Securities under the Securities Act pursuant to Section 2 above, the Company will indemnify and hold harmless Purchasers, and each other person, if any, who controls a Purchaser within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint or several, to which Purchasers or such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses, or actions in respect thereof, arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registerable Securities was registered under the Securities Act pursuant to Section 2 above, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation by the Company of the Securities Act or any rule or regulation promulgated thereunder, and will reimburse Purchasers, and each such controlling person, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or expense; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information, pertaining to Purchasers, as such, furnished in writing by Purchasers specifically for use in such registration statement or prospectus. (b) In the event of a registration of any of the Registerable Securities under the Securities Act pursuant to Section 2 above, each Purchaser shall indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement and each director of the Company, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities, or actions in respect thereof, arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registerable Securities was registered under the Securities Act pursuant to Section 2 above, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will 4 reimburse the Company and each such officer, director, and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that a Purchaser shall be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such Purchaser, as such, furnished in writing to the Company by such Purchaser specifically for use in such registration statement or prospectus; and provided further, however, that the liability of such Purchaser hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the public offering price of the Registerable Securities sold by such Purchaser under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the proceeds received by such Purchaser from the sale of Registerable Securities covered by such registration statement. (c) Promptly after receipt by a party indemnified hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 6 and shall only relieve it from any liability which it may have to such indemnified party under this Section 6 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 6 for any legal expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified parties shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. No indemnifying party, in the defense of any such claim or litigation shall, except with the consent of the indemnified party, consent to the entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by claimant or plaintiff to such indemnified party as a release from all liability in respect of such claim or litigation. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) a Purchaser, exercising its rights under this Agreement, or any controlling person of such Purchaser, makes a claim for indemnification 5 pursuant to this Section 6 but it is judicially determined, by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal, that such indemnification may not be enforced in such case, the fact that this Section 6 provides for indemnification in such case notwithstanding, or (ii) contribution under the Securities Act may be required on the part of a Purchaser or any controlling person with respect to such Purchaser in circumstances for which indemnification is provided under this Section 6, then and in each such case, the Company and such Purchaser will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject, after contribution from others, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage or liability, as well as any other equitable considerations. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to the information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that in any such case, (x) such Purchaser will not be required to contribute any amount in excess of the public offering price of all such Registerable Securities offered by it pursuant to such registration statement; and (y) no person or entity guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of the Securities Act, will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 7. Changes in Common Stock. If, and as often as, there is any change in the Common Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization where the Company is the surviving entity, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby to Purchasers shall continue with respect to the Common Stock as so changed. 6 8. Miscellaneous. (a) The rights granted to Purchasers hereunder may not be assigned to any other person, except to transferees of the Notes and/or the Warrants. (b) Except as otherwise expressly provided herein, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of (i) personal delivery to the address set forth below, or (ii) in the case of notice by Federal Express or other reputable overnight courier service, two (2) business days after delivery to such courier service, addressed to the party to be notified as follows: if to the Company or to a Purchaser, at the address of such party set forth in the Purchase Agreement. (c) This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflict-of-laws principles which would require the application of the laws of another jurisdiction. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and all of the Purchasers. (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 7 (f) The provisions of Section 2 above to the contrary notwithstanding, the Company's obligation to file a registration statement, or cause such registration statement to become and remain effective, shall be suspended for a period not to exceed 30 days in any 12-month period if there exists at the time material non-public information relating to the Company which, in the reasonable opinion of the Company, based on the advice of counsel, should not be disclosed. (g) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. (h) As used in this Agreement, the masculine, feminine or neutral gender and the singular or plural number shall be deemed to include the others whenever the context so indicates or requires. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer, and each Purchaser has duly executed this Agreement, as of the date first written above. MILESTONE SCIENTIFIC INC. By: /s/ Leonard Osser ---------------------------------- Leonard Osser, Chairman and Chief Executive Officer PURCHASERS: /s/ K. Tucker Andersen ---------------------------------- K. TUCKER ANDERSEN ---------------------------------- ROBERT GINTEL 8 EX-4.22 5 0005.txt AMENDMENT TO PURCHASE AGREEMENT AMENDMENT TO PURCHASE AGREEMENT DATED JANUARY 31, 2000 AMENDMENT, dated March 16, 2001, (the "Amendment") among Milestone Scientific Inc., a Delaware corporation with its principal offices at 220 South Orange Avenue, Livingston, New Jersey 07039 (the "Company"), and the holders of the Company's 10% Senior Secured Promissory Notes (the "Notes") (individually, the "Noteholder" and collectively, the "Noteholders"). RECITALS WHEREAS, pursuant to a Purchase Agreement, dated January 31, 2000, among the Company and the Noteholders (the "Agreement"), each Noteholder purchased from the Company its 10% Senior Secured Promissory Notes principal and interest on which, as of March 16, 2001 there is a balance in the amounts set forth opposite each Noteholder's name on Schedule A; WHEREAS, pursuant to paragraph 12.11 of the Agreement, the payment of interest, time of payment of interest, the interest rate payable, payment of principal and time of payment of principal on the Notes may be changed by the written consent of holders then holding at least 80% of the outstanding principal amount of the Notes; WHEREAS, the Company and the undersigned Noteholders desire to amend the Agreement and exchange their Notes for the Company's 20% Senior Secured Promissory Notes (the "New Notes") having several terms and conditions different from those of the Notes; and WHEREAS, the Company and the undersigned Noteholders desire to amend the Warrants for the Purchase of Shares of Common Stock of Milestone Scientific Inc., dated January 31, 2000 (the "Warrants"), previously issued to such Noteholders. NOW, THEREFORE, in consideration of the premises set forth above, the mutual releases set forth below and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the undersigned hereby agree as follows: 1. The Company shall issue to each Noteholder a New Note having the following terms: a. The issuance date shall be March 16, 2001 (the "Issuance Date"); b. The maturity date shall be March 31, 2002 (the "Maturity Date"); c. The face value shall be equal to the outstanding principal and past due interest on the Noteholder's Note, plus interest on that amount, calculated at rate of 20% per annum from the Issuance Date to the Maturity Date (the "Face Value"); d. The Face Value shall be payable on the Maturity Date; e. At the option of the Company, the Face Value shall be payable either in cash or in shares of the Company's Common Stock. Par value $.001 per share (the "Common Stock"), valued at the average closing price per share of the Common Stockfor the five trading days ending the day prior to the Maturity Date of the New Notes, provided that such shares of Common Stock have been registered pursuant to the Registration Rights Agreement among the Company and Noteholders, dated January 31, 2000 (the "Registration Rights Agreement"). f. Each holder of a New Note shall receive 108% of the face value of the New Note if there is a change of control of the Company, as defined on Schedule B, prior to the Maturity Date; g. The New Notes shall be secured by raw material, work in process and finished goods inventories and certain proceeds thereof of the Company, all pursuant to the Security Agreement dated January 31, 2000 among the Company and the Noteholders (the "Security Agreement", which is hereby amended to substitute the New Note for the Note in all references; h. The payment of the entire Face Value of the New Notes, shall be senior in right of payment to all other indebtedness of the Company whether incurred prior or subsequent to the date of thereof other than (i) any purchase money obligations incurred by the Company in connection with the purchase of property in the ordinary course of business, and (ii) all payment obligations of the Company pursuant to any capitalized lease entered into by the Company, and (iii) all payables incurred by the Company in the ordinary course of its business; and i. Except as otherwise provided herein, the provisions of the Note relating to the rights of the Noteholders and the obligations of the Company shall be incorporated into the New Notes, which shall appear substantially in the form annexed hereto as Exhibit A. 2. Each Noteholder shall return his Notes to the Company in exchange for the New Notes in the amount set forth opposite his name on Schedule A. 3. The Company's obligations and the rights of the Noteholders under the Notes shall terminate upon the execution of this Amendment by the holders of 80% of the outstanding principal amount of the Notes, except for the right of the Noteholders to exchange his Note for the New Note, as provided herein. 4. The Warrant issued to each of the undersigned Noteholders who execute and return this Amendment to the Company before April 6, 2001, is hereby amended to 2 provide for an exercise price of $1.75 if the Warrant is exercised at any time from the date hereof until 5:00 p.m. on January 31, 2005. The Warrants held by the other Noteholders shall continue unchanged. 5. The Registration Rights Agreement is hereby amended to include in the definition of "Registrable Securities" as used therein any shares of Common Stock that may be issued as payment of the Face Value of the New Notes. 6. Except as otherwise provided herein, the Agreement, the Security Agreement, the Warrants, and the Registration Rights Agreement shall continue unchanged and in full force and effect. IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed as of the date first above written. MILESTONE SCIENTIFIC INC. By: /s/ Leonard Osser -------------------------------------------- Leonard Osser, Chairman and Chief Executive Officer /s/ K. Tucker Andersen -------------------------------------------- K. TUCKER ANDERSEN CUMBERLAND PARTNERS by Cumberland Associates LLC, as its investment advisor By: /s/ Bruce G. Wilcox -------------------------------------------- LONGVIEW PARTNERS by Cumberland Associates LLC, as its investment advisor By: /s/ Bruce G. Wilcox -------------------------------------------- 3 LONGVIEW PARTNERS B, L.P. by Cumberland Associates LLC, as its investment advisor By: /s/ Bruce G. Wilcox -------------------------------------------- LONGVIEW PARTNERS C, L.P. by Cumberland Associates LLC, as its investment advisor By: /s/ Bruce G. Wilcox -------------------------------------------- MORSE, ZELNICK, ROSE & LANDER By: /s/ Stephen A. Zelnick -------------------------------------------- Stephen A. Zelnick /s/ Leonard Osser -------------------------------------------- LEONARD OSSER STRATEGIC RESTRUCTURING PARTNERSHIP LP By: /s/ Richard Haydon -------------------------------------------- Richard Haydon /s/ Mitchell G. Kuhn -------------------------------------------- MITCHELL KUHN /s/ Edward Schwarz -------------------------------------------- Edward Schwarz 4 /s/ Sarah Jane Jelin -------------------------------------------- Sarah Jane Jelin /s/ Jay Nelson -------------------------------------------- Jay Nelson /s/ Keith Michael Jereb -------------------------------------------- Keith Michael Jereb TRICOR SYSTEMS INCORPORATED By: /s/ John Jack Jereb -------------------------------------------- Jack Jereb /s/ Daniel Burack -------------------------------------------- DANIEL BURACK /s/ David Birkenruth -------------------------------------------- DAVID BIRKENRUTH 5 SCHEDULE A
A B C D E Outstanding unpaid Principal 20% interest on Unpaid principal interest on Note plus interest Note principal Face value of Noteholder on Note as of 3/16/01 on Note (A+B) and interest New Note - ---------------------------------------------------------------------------------------------------------------------------------- K. TUCKER ANDERSEN $ 97,481.09 $ 10,208.74 $107,689.83 $ 22,734.52 $130,424.35 CUMBERLAND PARTNERS by Cumberland Associates LLC, as its investment advisor 97,484.69 10,235.60 107,720.30 22,740.95 130,461.25 LONGVIEW PARTNERS by Cumberland Associates LLC, as its investment advisor 10,831.63 1,137.29 11,968.92 2,526.77 14,495.69 LONGVIEW PARTNERS B, L.P. by Cumberland Associates LLC, as its investment advisor 14,017.41 1,471.79 15,489.19 3,269.94 18,759.13 LONGVIEW PARTNERS C, L.P. by Cumberland Associates LLC, as its investment advisor 5,097.24 535.19 5,632.43 1,189.07 6,821.50 MORSE, ZELNICK, ROSE & LANDER LLP 82,384.05 9,704.22 92,088.27 19,440.86 111,529.13 LEONARD OSSER 250,000.00 32,375.95 282,375.95 59,612.70 341,988.65 STRATEGIC RESTRUCTURING PARTNERSHIP LP 16,027.55 1,681.48 17,709.03 3,738.57 21,447.60 MITCHELL G. KUHN 31,331.43 3,297.02 34,628.45 7,310.45 41,938.90
6
A B C D E Outstanding unpaid Principal 20% interest on Unpaid principal interest on Note plus interest Note principal Face value of Noteholder on Note as of 3/16/01 on Note (A+B) and interest New Note - ---------------------------------------------------------------------------------------------------------------------------- Edward Schwarz and Sarah Jane Jelin $ 33.831.40 $ 3,524.79 $37,356.19 $ 7,886.31 $45,242.49 Jay Nelson 27,117.75 2,824.63 29,942.38 6,321.17 36,263.54 Keith Michael Jereb 6,779.44 706.16 7,485.59 1,580.29 9,065.89 TRICOR SYSTEMS INCORPORATED 16,948.59 1,765.39 18,713.98 3,950.73 22,664.71 DANIEL BURACK 33,831.40 3,524.79 37,359.19 7,886.31 45,242.49 David Birkenruth 33,831.40 3,3524.79 37,356.19 7,886.31 45,242.49
7 SCHEDULE B A "Change in Control of the Company" shall be deemed to occur if: 1. there shall be consummated: (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Common Stock immediately prior to the merger have not less than 50% of the ownership of common stock of the surviving corporation immediately after the merger, or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or 2. the stockholders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company, or 3. any person (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) who, at the time of the execution of this Agreement, does not own 5% or more of the Company's outstanding Common Stock, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the outstanding Common Stock other than pursuant to a plan or arrangement entered into by such person and the Company, or 4. during any period of two consecutive years commencing on the date hereof, individuals who at the beginning of such period constitute the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 8 EXHIBIT A THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (II) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. THIS NOTE IS SUBJECT TO THE TERMS OF A PURCHASE AGREEMENT, DATED AS OF JANUARY 31, 2000, AS AMENDED BY AN AGREEMENT DATED AS OF MARCH 16, 2001, COPIES OF WHICH ARE ON FILE AT THE EXECUTIVE OFFICES OF MILESTONE SCIENTIFIC INC. MILESTONE SCIENTIFIC INC. SENIOR SECURED PROMISSORY NOTE $________ March 16, 2001 Livingston, New Jersey FOR VALUE RECEIVED, MILESTONE SCIENTIFIC INC., a Delaware corporation (the "Company" or "Maker") with its principal executive office at 220 South Orange Avenue, Livingston, New Jersey 07039, promises to pay to: [name and address] (the "Payee" or the "holder of this Note"), or registered assigns, the face amount (which includes interest to maturity at the rate of 20% per year) of [dollar amount] in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, or such other form as shall be acceptable by the Payee in its sole and absolute discretion together with interest as set forth in Section 1 of this Note at such times and in such amounts as set forth in Section 2 of this Note, at Payee's address designated above or at such other place as the Payee shall have notified the Company in writing at least five (5) days before such payment is due. This Note is one of a series of similar notes (collectively referred to as the "Notes") issued pursuant to a Purchase Agreement between the Company and Payee, dated as of January 31, 2000 (the "Agreement"), as amended on March 16, 2001 (the Amendment"), copies of which are available for inspection at the Company's principal office. This Note is entitled to the benefit of certain terms, conditions, covenants and agreements contained in the Agreement. Unless otherwise specifically provided herein to the contrary, capitalized terms used herein shall have the same meaning ascribed to such terms in the Agreement. 1. Interest. A. If an Event of Default (as defined in the Agreement) shall have occurred and shall continue while this Note is outstanding, interest on the unpaid principal balance of this Note shall accrue at a rate equal to the maximum rate permitted by law (such rate is hereinafter referred to as the "Default Rate"). B. In the event a registration statement covering any shares of the Company's Common Stock (as defined below) that may be issued as payment of the face amount due on this Note or on exercise of certain warrants issued on January 31, 2000 (collectively, the "Registerable Securities") is not effective on or before July 15, 2000, in accordance with the terms of a Registration Rights Agreement between the Company and the Payee, dated even date herewith, interest on the principal amount hereof shall accrue at the rate of 16% per annum from such date until the earlier of (x) the effective date of a registration statement covering the Registerable Securities or (y) the date on which the Registerable Securities are salable pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, during a period of not more than 90 days. C. Interest as aforesaid shall be calculated on the basis of actual number of days elapsed over a year of 360 days. 2. Payment of Face Amount. A. The entire face amount of this Note shall be due and payable on the Maturity Date (as defined below). B. At the option of the Company, the face amount of this Note shall be payable either in cash or in shares of the Company's Common Stock. Par value $.001 per share (the "Common Stock"), valued at the average closing price per share of the Common Stock for the five trading days ending the day prior to the Maturity Date of the New Notes, provided that such shares of Common Stock have been registered pursuant to the Registration Rights Agreement between the Company and Payee, dated January 31, 2000. C. The Company shall pay to Payee 108% of the face amount of this Note if there is a change in control of the Company prior to the Maturity Date. For the purposes of this provision, a "change in control of the Company" shall be deemed to occur if: (1) there shall be consummated (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Common Stock immediately prior to the merger have not less than 50% of the ownership of common stock of the surviving corporation immediately after the merger, or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or (2) the stockholders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company; or (3) any person (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) who, at the time of the execution of this Agreement, does not own 5% or more of the Company's outstanding Common Stock, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the outstanding Common Stock other than pursuant to a plan or arrangement entered into by such person and the Company; or (4) during any period of two consecutive years commencing on the date hereof, individuals who at the beginning of such 2 period constitute the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 3. Maturity. This Note shall mature, and the entire unpaid face amount hereof shall be due in full on March 31, 2002 (the "Maturity Date"). 4. Security. This Note is a secured by raw material, work in process and finished goods inventories and certain proceeds thereof of the Company pursuant to a Security Agreement dated even date herewith. 5. Priority. The payment of the entire face amount of this Note shall be senior in right of payment to all other indebtedness of the Company whether incurred prior or subsequent to the date hereof other than (i) any purchase money obligations incurred by the Company in connection with the purchase of property in the ordinary course of business, (ii) all payment obligations of the Company pursuant to any capitalized lease entered into by the Company, and (iii) all payables incurred by the Company in the ordinary course of its business. 6. Events of Default and Remedies. A. Events of Default. Each of the following events is herein referred to as an Event of Default: (i) if any representation or warranty made herein, or in the Agreement, or in any report, certificate, financial statement or other instrument furnished in connection with this Note or the Agreement, shall be false, inaccurate or misleading in any material respect when made or when deemed made hereunder; (ii) any default in the payment of the face amount hereof when the same shall be due and payable, whether at the due date thereof or by acceleration or otherwise; (iii) any material default in the due observance or performance of any other covenant, condition or agreement to be observed or performed pursuant to the terms hereof or the Agreement, and the continuance of such default unremedied for a period of twenty (20) days after written notice thereof to the Company setting forth in reasonable detail the circumstances of such Event of Default; (iv) if the Company shall: (A) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, (B) admit in writing its inability to pay its debts as they mature, (C) make a general assignment for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code, or (E) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against him or it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing; (v) if any order, judgment or decree shall be entered, without the application, approval or consent of the Company, by any court of competent jurisdiction, approving a petition 3 seeking reorganization of the Company, or appointing a receiver, trustee, custodian or liquidator of any of the Company, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) consecutive days; (vi) there shall be a default (taking into account lapse of notice, written notice to the Company or both) under any bond, debenture, note or other evidence of indebtedness for money borrowed or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company, whether existing on the date hereof or created subsequent to the date hereof, which default relates to the obligation to pay the principal of or interest on any such indebtedness and the effect of such default is to cause such indebtedness to become due prior to its stated maturity; or (vii) if final judgment(s) for the payment of money in excess of $200,000 individually or $250,000 in the aggregate shall be rendered against the Company, and the same shall remain undischarged or unbonded for a period of thirty (30) consecutive days, during which execution shall not be effectively stayed. B. Remedies. Upon the occurrence of any Event of Default, and at all times thereafter during the continuance thereof: (i) this Note shall, at the option of the holder thereof, in accordance with Section 13.11 of the Agreement (except in the case of Sections 7(A)(iv) and (v) hereof, the occurrence of which shall automatically effect acceleration, regardless of any action or forbearance in respect of any prior or ongoing default or event of default which may be inconsistent with such automatic acceleration), become immediately due and payable, both as to principal, interest and premium, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Agreement to the contrary notwithstanding, (ii) all outstanding obligations under this Note, and all other outstanding obligations on which the applicable interest rate is determined by reference to the interest rate under this Note, shall bear interest at the default rate of interest provided herein, (iii) the holder of this Note may file suit against the Company on the Note and/or seek specific performance or injunctive relief hereunder (whether or not a remedy exists at law or is adequate), (iv) the holder of this Note shall have the right, in accordance with this Note to exercise any and all remedies as such holder may determine in such holder's discretion (without any requirement of marshalling of assets, or other such requirement). 7. Miscellaneous. A. Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Company or the Payee shall bind and inure to the benefit of the permitted successors and assigns of the Company and the Payee, respectively, whether so expressed or not. Any transferee or transferees of this Note, by their acceptance hereof, assume the obligations of the Payee in the Agreement with respect to the conditions and procedures for transfer of this Note. B. Notices. All notices, requests, consents and demands shall be given or made, and shall become effective, in accordance with the Agreement executed by the Payee and the Company. C. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York and any applicable laws of the United States of America, without giving effect to the conflicts or choice of law principles thereof. 4 D. Enforceability. Maker acknowledges that this Note and Maker's obligations hereunder are and shall at all times continue to be absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Note and the obligations of Maker evidenced hereby, unless otherwise expressly evidenced in a writing duly executed by the holder hereof. E. Payment. If the date for any payment due hereunder would otherwise fall on a day which is not a Business Day, such payment or expiration date shall be extended to the next following Business Day with interest payable at the applicable rate specified herein during such extension. "Business Day" shall mean any day other than a Saturday, Sunday, or any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law to close. F. Waiver and Set-off. Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by Payee of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. The Payee, in addition to any other right available to it under applicable law, shall have the right, at its option, to immediately set off against this Note any monies owed by the Payee in any capacity to Maker, whether or not due, upon the occurrence of any Event of Default, even though such charge is made or entered on the books of Payee subsequent to those events. G. Lost Documents. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (i) in the case of loss, theft or destruction, of indemnity satisfactory to it and (ii) in the case of mutilation, of surrender for cancellation of such Note, and, in any case, upon reimbursement to the Company of all reasonable expenses incidental thereto, the Company will make and deliver in lieu of such Note a new Note of like tenor and principal amount and dated as of the original date of this Note. 5 IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company. MILESTONE SCIENTIFIC INC. by: _____________________________ Leonard Osser, Chairman and Chief Executive Officer 6 EX-4.23 6 0006.txt SENIOR SECURED PROMISSORY NOTE Exhibit 4.23 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (II) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. THIS NOTE IS SUBJECT TO THE TERMS OF A PURCHASE AGREEMENT, DATED AS OF JANUARY 31, 2000, AS AMENDED BY AN AGREEMENT DATED AS OF MARCH 16, 2001, COPIES OF WHICH ARE ON FILE AT THE EXECUTIVE OFFICES OF MILESTONE SCIENTIFIC INC. MILESTONE SCIENTIFIC INC. SENIOR SECURED PROMISSORY NOTE $14,495.69 March 16, 2001 Livingston, New Jersey FOR VALUE RECEIVED, MILESTONE SCIENTIFIC INC., a Delaware corporation (the "Company" or "Maker") with its principal executive office at 220 South Orange Avenue, Livingston, New Jersey 07039, promises to pay to LONGVIEW PARTNERS LP c/o Cumberland Associates LLC 1114 Avenue of the Americas New York, New York 10036 (the "Payee" or the "holder of this Note"), or registered assigns, the face amount (which includes interest to maturity at the rate of 20% per year) of FOURTEEN THOUSAND FOUR HUNDRED NINETY FIVE and 69/100 DOLLARS ($14,495.69), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, or such other form as shall be acceptable by the Payee in its sole and absolute discretion together with interest as set forth in Section 1 of this Note at such times and in such amounts as set forth in Section 2 of this Note, at Payee's address designated above or at such other place as the Payee shall have notified the Company in writing at least five (5) days before such payment is due. This Note is one of a series of similar notes (collectively referred to as the "Notes") issued pursuant to a Purchase Agreement between the Company and Payee, dated as of January 31, 2000 (the "Agreement"), as amended on March 16, 2001 (the Amendment"), copies of which are available for inspection at the Company's principal office. This Note is entitled to the benefit of certain terms, conditions, covenants and agreements contained in the Agreement. Unless otherwise specifically provided herein to the contrary, capitalized terms used herein shall have the same meaning ascribed to such terms in the Agreement. 1. Interest. A. If an Event of Default (as defined in the Agreement) shall have occurred and shall continue while this Note is outstanding, interest on the unpaid principal balance of this Note shall accrue at a rate equal to the maximum rate permitted by law (such rate is hereinafter referred to as the "Default Rate"). B. In the event a registration statement covering any shares of the Company's Common Stock (as defined below) that may be issued as payment of the face amount due on this Note or on exercise of certain warrants issued on January 31, 2000 (collectively, the "Registerable Securities") is not effective on or before July 15, 2000, in accordance with the terms of a Registration Rights Agreement between the Company and the Payee, dated even date herewith, interest on the principal amount hereof shall accrue at the rate of 16% per annum from such date until the earlier of (x) the effective date of a registration statement covering the Registerable Securities or (y) the date on which the Registerable Securities are salable pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, during a period of not more than 90 days. C. Interest as aforesaid shall be calculated on the basis of actual number of days elapsed over a year of 360 days. 2. Payment of Face Amount. A. The entire face amount of this Note shall be due and payable on the Maturity Date (as defined below). B. At the option of the Company, the face amount of this Note shall be payable either in cash or in shares of the Company's Common Stock. Par value $.001 per share (the "Common Stock"), valued at the average closing price per share of the Common Stock for the five trading days ending the day prior to the Maturity Date of the New Notes, provided that such shares of Common Stock have been registered pursuant to the Registration Rights Agreement between the Company and Payee, dated January 31, 2000. C. The Company shall pay to Payee 108% of the face amount of this Note if there is a change in control of the Company prior to the Maturity Date. For the purposes of this provision, a "change in control of the Company" shall be deemed to occur if: (1) there shall be consummated (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Common Stock immediately prior to the merger have not less than 50% of the ownership of common stock of the surviving corporation immediately after the merger, or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or (2) the stockholders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company; or (3) any person (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) who, at the time of the 2 execution of this Agreement, does not own 5% or more of the Company's outstanding Common Stock, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the outstanding Common Stock other than pursuant to a plan or arrangement entered into by such person and the Company; or (4) during any period of two consecutive years commencing on the date hereof, individuals who at the beginning of such period constitute the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 3. Maturity. This Note shall mature, and the entire unpaid face amount hereof shall be due in full on March 31, 2002 (the "Maturity Date"). 4. Security. This Note is a secured by raw material, work in process and finished goods inventories and certain proceeds thereof of the Company pursuant to a Security Agreement dated even date herewith. 5. Priority. The payment of the entire face amount of this Note shall be senior in right of payment to all other indebtedness of the Company whether incurred prior or subsequent to the date hereof other than (i) any purchase money obligations incurred by the Company in connection with the purchase of property in the ordinary course of business, (ii) all payment obligations of the Company pursuant to any capitalized lease entered into by the Company, and (iii) all payables incurred by the Company in the ordinary course of its business. 6. Events of Default and Remedies. A. Events of Default. Each of the following events is herein referred to as an Event of Default: (i) if any representation or warranty made herein, or in the Agreement, or in any report, certificate, financial statement or other instrument furnished in connection with this Note or the Agreement, shall be false, inaccurate or misleading in any material respect when made or when deemed made hereunder; (ii) any default in the payment of the face amount hereof when the same shall be due and payable, whether at the due date thereof or by acceleration or otherwise; (iii) any material default in the due observance or performance of any other covenant, condition or agreement to be observed or performed pursuant to the terms hereof or the Agreement, and the continuance of such default unremedied for a period of twenty (20) days after written notice thereof to the Company setting forth in reasonable detail the circumstances of such Event of Default; (iv) if the Company shall: (A) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, (B) admit in writing its inability to pay its debts as they mature, (C) make a general assignment for the benefit of 3 creditors, (D) be adjudicated a bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code, or (E) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against him or it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing; (v) if any order, judgment or decree shall be entered, without the application, approval or consent of the Company, by any court of competent jurisdiction, approving a petition seeking reorganization of the Company, or appointing a receiver, trustee, custodian or liquidator of any of the Company, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) consecutive days; (vi) there shall be a default (taking into account lapse of notice, written notice to the Company or both) under any bond, debenture, note or other evidence of indebtedness for money borrowed or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company, whether existing on the date hereof or created subsequent to the date hereof, which default relates to the obligation to pay the principal of or interest on any such indebtedness and the effect of such default is to cause such indebtedness to become due prior to its stated maturity; or (vii) if final judgment(s) for the payment of money in excess of $200,000 individually or $250,000 in the aggregate shall be rendered against the Company, and the same shall remain undischarged or unbonded for a period of thirty (30) consecutive days, during which execution shall not be effectively stayed. B. Remedies. Upon the occurrence of any Event of Default, and at all times thereafter during the continuance thereof: (i) this Note shall, at the option of the holder thereof, in accordance with Section 13.11 of the Agreement (except in the case of Sections 7(A)(iv) and (v) hereof, the occurrence of which shall automatically effect acceleration, regardless of any action or forbearance in respect of any prior or ongoing default or event of default which may be inconsistent with such automatic acceleration), become immediately due and payable, both as to principal, interest and premium, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Agreement to the contrary notwithstanding, (ii) all outstanding obligations under this Note, and all other outstanding obligations on which the applicable interest rate is determined by reference to the interest rate under this Note, shall bear interest at the default rate of interest provided herein, (iii) the holder of this Note may file suit against the Company on the Note and/or seek specific performance or injunctive relief hereunder (whether or not a remedy exists at law or is adequate), (iv) the holder of this Note shall have the right, in accordance with this Note to exercise any and all remedies as such holder may determine in such holder's discretion (without any requirement of marshalling of assets, or other such requirement). 4 7. Miscellaneous. A. Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Company or the Payee shall bind and inure to the benefit of the permitted successors and assigns of the Company and the Payee, respectively, whether so expressed or not. Any transferee or transferees of this Note, by their acceptance hereof, assume the obligations of the Payee in the Agreement with respect to the conditions and procedures for transfer of this Note. B. Notices. All notices, requests, consents and demands shall be given or made, and shall become effective, in accordance with the Agreement executed by the Payee and the Company. C. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York and any applicable laws of the United States of America, without giving effect to the conflicts or choice of law principles thereof. D. Enforceability. Maker acknowledges that this Note and Maker's obligations hereunder are and shall at all times continue to be absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Note and the obligations of Maker evidenced hereby, unless otherwise expressly evidenced in a writing duly executed by the holder hereof. E. Payment. If the date for any payment due hereunder would otherwise fall on a day which is not a Business Day, such payment or expiration date shall be extended to the next following Business Day with interest payable at the applicable rate specified herein during such extension. "Business Day" shall mean any day other than a Saturday, Sunday, or any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law to close. F. Waiver and Set-off. Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by Payee of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. The Payee, in addition to any other right available to it under applicable law, shall have the right, at its option, to immediately set off against this Note any monies owed by the Payee in any capacity to Maker, whether or not due, upon the occurrence of any Event of Default, even though such charge is made or entered on the books of Payee subsequent to those events. G. Lost Documents. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (i) in the case of loss, theft or destruction, of indemnity satisfactory to it and (ii) in the case of mutilation, of surrender for cancellation of such Note, and, in any case, upon reimbursement to the Company of all reasonable expenses incidental thereto, the Company will make and deliver 5 in lieu of such Note a new Note of like tenor and principal amount and dated as of the original date of this Note. 6 IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company. MILESTONE SCIENTIFIC INC. by: _____________________________ Leonard Osser, Chairman and Chief Executive Officer 7 EX-4.24 7 0007.txt LETTER AGREEMENT DATED MARCH 23, 2001 [Letterhead of Morse, Zelnick, Rose & Lander] March 23, 2001 Mr. Bruce G. Wilcox Cumberland Associates LLC 1114 Avenue of the Americas New York, NY 10036 Re: Milestone 20% Secured Promissory Notes Dear Bruce: As per my conversation with Barry Konig, Milestone hereby offers to exchange new 20% Secured Promissory Notes (the "New Notes") for the 20% Secured Promissory Notes (the "Old Notes") now held by Cumberland Benchmarked Partners, L.P. and LongView Partners A, L.P. The New Notes will be identical to the Old Notes, except that Paragraph 2 will be revised to prevent prepayment of the New Notes in common stock until July 31, 2002 unless the stock issued in prepayment is valued at $5.00 or more under the New Notes. Paragraph 2 of the New Notes will read as follows: "2. Principal Payments. The Principal Amount of this Note and any Interest Payment Note and any accrued interest thereon, shall be due and payable on the Maturity Date (as defined in Paragraph 3 below) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts ("cash") or, at the option of the Maker, in shares of Common Stock, valued as set forth in Paragraph 7. The Maker shall have the option to prepay the Principal Amount and the Principal Amount of all related Interest Payment Notes, if any, together with accrued interest on all such notes to the payment date (a) in cash at any time before the Maturity Date, (b) in shares of Common Stock at any time after issuance but before July 31, 2002 if the Common Stock, valued as set forth in Paragraph 7, is at least $5.00 per share, or (c) in shares of Common Stock, valued as set forth in Paragraph 7, on or after July 31, 2002." If the Noteholders consent to the exchange as set forth herein, please indicate such consent by signing this letter where indicated below and returning it to our office together with the Old Notes. Very truly yours, /s/ Stephen A. Zelnick Stephen A. Zelnick Consented and agreed to: Cumberland Benchmarked Partners, L.P. By: Cumberland Associates LLC By: Bruce G. Wilcox ------------------------------------ Bruce G. Wilcox LongView Partners A, L.P. By: Cumberland Associates LLC By: Bruce G. Wilcox ------------------------------------ Bruce G. Wilcox 8 EX-4.25 8 0008.txt SECURED PROMISSORY NOTES MILESTONE SCIENTIFIC INC. 20% SECURED PROMISSORY NOTE $940,000.00 August 28, 2000 Livingston, New Jersey FOR VALUE RECEIVED, MILESTONE SCIENTIFIC INC., a Delaware corporation (the "Company" or "Maker") with its principal executive office at 220 South Orange Avenue, Livingston, New Jersey 07039, promises to pay to: Cumberland Benchmarked Partners, L.P., c/o Cumberland Associates 1114 Avenue of the Americas New York, NY 10036 (the "Payee" or the "Holder of this Note") or permitted successors and assigns of the Payee, the principal amount of: Nine Hundred Forty Thousand and 00/100 Dollars ($940,000.00) (the "Principal Amount"), together with interest thereon, each as set forth in Sections 1 and 2 of this Note, payable at Payee's address set forth in the Purchase Agreement for this Note, or at such other place as the Payee shall have notified the Company before any principal or interest payment date. 1. Interest. A. Except as otherwise provided in Paragraph B of this Section 1, interest on the Principal Amount hereof shall accrue at the rate of 20% per annum from the date hereof until paid in full. Interest shall be payable quarterly in arrears on the 1st day of each quarter commencing October 1, 2000 (each such date, an "Interest Payment Date"), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, or, at the option of the Maker, through issuance to the Payee of a new secured promissory note ( an "Interest Payment Note") in the face amount of such interest payment. Interest Payment Notes shall be identical in form to this Note, except that interest thereon shall be due at the Maturity Date, as defined below. B. If an Event of Default (as defined in Paragraph 6 below) shall have occurred and shall continue while this Note is outstanding, interest on this Note and any Interest Payment Note shall accrue at a rate equal to the maximum rate permitted by law (such rate is hereinafter referred to as the "Default Rate"). C. Interest shall be calculated on the basis of actual number of days elapsed over a year of 360 days. 2. Principal Payments. The Principal Amount of this Note and any Interest Payment Note and any accrued interest thereon, shall be due and payable on the Maturity Date (as defined in Paragraph 3 below) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts ("cash") or, at the option of the Maker, in shares of Common Stock, valued as set forth in Paragraph 7. The Maker shall have the option to prepay the Principal Amount and the Principal Amount of all related Interest Payment Notes, if any, together with accrued interest on all such notes to the payment date (a) in cash at any time before the Maturity Date, (b) in shares of Common Stock at any time after issuance but before July 31, 2002 if the Common Stock, valued as set forth in Paragraph 7, is at least $5.00 per share, or (c) in shares of Common Stock, valued as set forth in Paragraph 7, on or after July 31, 2002. 3. Maturity. This Note shall mature, and the Principal Amount and all accrued but unpaid interest thereon shall be due in full, on October 1, 2002 (the "Maturity Date"). 4. Security. Subject and subordinate to the security interests granted to the holders of the Maker's 10% Secured Notes (the "Series Note Holders") issued pursuant to a Purchase Agreement dated as of January 31, 2000 the Company hereby grants to the Payee a security interest in all the tangible and intangible assets of the Company including the raw material, work in process and finished goods inventories and certain proceeds thereof, as security for the prompt payment of the principal and accrued interest on this Note and all Interest Payment Notes. The security interest granted hereunder shall be shared, pro-rata, based upon the amounts then owed, including accrued interest, to the Payee, all other payees under notes in similar form in the aggregate amount, together with this Note, of $1,000,000, the payees under the Interest Payment Notes, the holder of the Maker's 9% Secured Note in the face amount of $200,000 and the holder of the Maker's 8% Secured Note and related line of credit in the aggregate amount of $1,000,000. The Company will execute all documents and make all filings and take any other actions necessary to perfect the security interest granted herein. 5. Priority. The payment of the Principal Amount, the principal amount under any Interest Payment Note and any accrued but unpaid interest on either amount, and the principal amounts under obligations sharing the security interest with this Note on a pro rata basis, together with the accrued but unpaid interest thereon, shall be subordinate in right of payment to the 10% Secured Notes and senior in right of payment to all other indebtedness of the Company whether incurred prior or subsequent to the date hereof other than (i) any purchase money obligations incurred by the Company in connection with the purchase of property in the ordinary course of business, (ii) all payment obligations of the Company pursuant to any capitalized lease entered into by the Company, and (iii) all payables incurred by the Company in the ordinary course of its business. 6. Events of Default and Remedies. A. Events of Default. Each of the following events is herein referred to as an Event of Default: (i) any default in the payment of any principal hereunder when the same shall be due and payable, whether at the Maturity Date or by acceleration or otherwise; (ii) any default in the payment of any interest hereunder when the same shall be due and payable not remedied within three (3) days of written notice given pursuant to Paragraph 6 (B) herein, whether at the Interest Payment Date or by acceleration or otherwise; (iii) any material default in the due observance or performance of any other covenant, condition or agreement to be observed or performed pursuant to the terms hereof, and the continuance of such default unremedied for a period of twenty (20) days after written notice thereof to the Company setting forth in reasonable detail the circumstances of such Event of Default; (iv) if the Company shall: (A) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, (B) admit in writing its inability to pay its debts as they mature, (C) make a general assignment for the benefit of creditors, (D) be 2 adjudicated a bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code, or (E) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against him or it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing; (v) if any order, judgment or decree shall be entered, without the application, approval or consent of the Company, by any court of competent jurisdiction, approving a petition seeking reorganization of the Company, or appointing a receiver, trustee, custodian or liquidator of any of the Company, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) consecutive days; (vi) there shall be a default (taking into account lapse of notice, written notice to the Company or both) under any bond, debenture, note or other evidence of indebtedness for money borrowed or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company, whether existing on the date hereof or created subsequent to the date hereof, which default relates to the obligation to pay the principal of or interest on any such indebtedness and the effect of such default is to cause such indebtedness to become due prior to its stated maturity; or (vii) if final judgment(s) for the payment of money in excess of $200,000 individually or $250,000 in the aggregate shall be rendered against the Company, and the same shall remain undischarged or unbonded for a period of thirty (30) consecutive days, during which execution shall not be effectively stayed. B. Remedies. Upon the occurrence of any Event of Default, and at all times thereafter during the continuance thereof: (i) this Note shall, at the option of the holder of this Note, become immediately due and payable, both as to principal, interest and premium, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding; (ii) all outstanding obligations under this Note, and all other outstanding obligations on which the applicable interest rate is determined by reference to the interest rate under this Note, shall bear interest at the Default Rate; (iii) the holder of this Note may file suit against the Company on the Note and/or seek specific performance or injunctive relief hereunder (whether or not a remedy exists at law or is adequate); (iv) the holder of this Note shall have the right, in accordance with this Note to exercise any and all remedies as such holder may determine in such holders' discretion (without any requirement of marshalling of assets, or other such requirement). 7. Issuance of Shares in Payment of Principal and Interest. At any time after March 31, 2001, the Company may, at its option and upon twenty (20) trading days prior written notice, pay the principal and accrued interest on the Note and any Interest Payment Notes by issuing shares of Common Stock valued at eighty-five (85) percent of the average closing price of the shares during the first fifteen (15) of the eighteen (18) trading days immediately preceding the date of payment. If the Company issues shares pursuant to this paragraph then it will use its reasonable best efforts to file with the Securities and Exchange Commission no later than sixty (60) days after issuance, a registration statement under the Securities Act of 1933, as amended, and any applicable state securities laws registering for reoffer and resale all such shares and shall further use its best efforts to secure the effectiveness of such registration statement at the earliest date thereafter and to maintain its effectiveness until all of the shares covered thereby have been sold, provided, however, that the Company shall not be obligated to file a registration statement, or keep a registration statement effective, if all the shares issued pursuant to this section and 3 held by the Payee can be sold under Rule 144 within a period of ninety (90) days from the filing of the applicable form. 8. Miscellaneous. A. Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Company or the Payee shall bind and inure to the benefit of the permitted successors and assigns of the Company and the Payee, respectively, whether so expressed or not. B. Notice Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed or sent by certified, registered, or express mail, postage prepaid, and shall be deemed given when so delivered personally, telegraphed or, if mailed, five days after the date of deposit in the United States mail as follows: (i) if to the Maker: Milestone Scientific Inc. 220 South Orange Avenue Livingston, NJ 07039 Attn: Thomas M. Stuckey, Chief Financial Officer (ii) if to the Payee: at the address set forth on Exhibit A to the Purchase Agreement C. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York and any applicable laws of the United States of America, without giving effect to the conflicts or choice of law principles thereof. D. Enforceability. Maker acknowledges that this Note and Maker's obligations hereunder are and shall at all times continue to be absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Note and the obligations of Maker evidenced hereby, unless otherwise expressly evidenced in a writing duly executed by the holder of this Note. E. Payment. If the date for any payment due hereunder would otherwise fall on a day which is not a Business Day, such payment or expiration date shall be extended to the next following Business Day with interest payable at the applicable rate specified herein during such extension. "Business Day" shall mean any day other than a Saturday, Sunday, or any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law to close. F. Waiver and Set-off. Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by Payee of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. The Payees, in addition to any other right available to it under applicable law, shall have the right, at its option, to immediately set off against this Note any monies owed by the Payee in any capacity to Maker, whether or not due, upon the occurrence of any Event of Default, even though such charge is made or entered on the books of Payees subsequent to those events. G. Lost Documents. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (i) in the case of loss, theft or destruction, of indemnity satisfactory to it and (ii) in the case of mutilation, of surrender for 4 cancellation of such Note, and, in any case, upon reimbursement to the Company of all reasonable expenses incidental thereto, the Company will make and deliver in lieu of such Note a new Note of like tenor and principal amount and dated as of the original date of this Note. IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company. MILESTONE SCIENTIFIC INC. By:__________________________________ Leonard Osser, Chairman and Chief Executive Officer 5 EX-4.26 9 0009.txt LETTER AGREEMENT DATED MARCH 27, 2001 [Letterhead of Milestone Scientific] March 27, 2001 Mr. Robert Gintel 71 Baldwin Farm South Greenwich, CT 06831 Re: Milestone Scientific Inc. ("Milestone") Purchase of 500,000 shares of Common Stock Dear Mr. Gintel: This will confirm that Milestone has agreed to sell to you, and that you have agreed to purchase from Milestone, 500,000 shares (the "Shares") of Milestone's common stock, par value $.001 per share, for the sum of $500,000. Further, Milestone will use its reasonable best efforts to file with the Securities and Exchange Commission no later than June 30, 2001, and to cause to become effective, a registration statement under the Securities Act of 1933, as amended (the "Securities Act") on Form S-3, and under any applicable state securities laws, registering the reoffer, resale or other disposition of the Shares. This also will confirm that (i) you are an "accredited investor" within the meaning of Rule 215 of the Rules and Regulations under the Securities Act, and (ii) you have acquired the Shares for investment and acknowledge that they cannot be resold or otherwise disposed of until they are registered under the Securities Act and any applicable state securities laws or an exemption from registration is available. Since the Shares will not be registered at the time of issuance, the certificates representing the Shares delivered to you will bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE SAID ACT. [LOGO] Mr. Robert Gintel March 27, 2001 Please acknowledge your agreement and understanding of the above provisions by signing and dating a copy of this letter and returning it to us by facsimile and mail. Sincerely, MILESTONE SCIENTIFIC INC. By: /s/ Leonard Osser --------------------------------- Leonard Osser, Chairman and Chief Executive Officer ACCEPTED AND AGREED TO THIS 30th DAY OF MARCH 2001 /s Robert Gintel - --------------------------- ROBERT GINTEL 2 EX-10.20 10 0010.txt AMENDMENT TO PURCHASE AGREEMENT EXHIBIT 10.20 Leonard Osser 220 South Orange Avenue Livingston, New Jersey 07039 April 9, 2000 Milestone Scientific, Inc. 220 South Orange Avenue Livingston, New Jersey 07039 Attn: Thomas Stuckey, Chief Financial Officer Re: Milestone Scientific Inc. ("Milestone") Dear Sirs: The undersigned hereby provide the following undertaking in connection with your audit of the financial statements of the above corporation for year ended December 31, 1999. 1. Leonard Osser ("Osser") hereby agrees to open a $200,000 Line of Credit for benefit of Milestone. There shall be no facility fee. However, Borrowings under the line shall bear interest at the rate of 9% per annum, payable at maturity. The Line of Credit shall end on December 31, 2000 and all the borrowings then outstanding shall be paid by February 1, 2001. Milestone shall draw-down amounts against the line by providing Osser with written notice at his home address and funds shall be provided within 7 days of notice. 2. If Milestone shall provide Osser with notice that it reasonably expects to require funds in excess of those available to it under the above Line of Credit prior to December 31, 2000, then upon receipt of such notice Osser will begin to defer the entire base salary to which he is presently entitled under his employment agreement. On the commencement of that deferral, his present agreement to waive a portion of his salary shall be canceled and extinguished and the deferral shall be in the full amount of his salary without regard to that prior salary reduction. All amounts deferred shall be payable by Milestone on January 3, 2001. 3. Osser hereby guarantees the payment in full of all amounts owed to Milestone by Dentmate, Inc. (Milestone's Taiwanese distributor) and IME Corporation (Milestone's China distributor) whether now owing or owing at any time prior to December 31, 2000. 4. Osser hereby agrees to defer until January 3, 2001 all prepayments owed to him under the 10% Secured Promissory Notes issued in February 2000. 5. Morse, Zelnick, Rose & Lander, LLP, hereby agrees to defer until January 3, 2001, all payment owed to it on $50,000 face amount of the 10% secured Promissory Note issued in February, 2000. Very truly yours, /s/ Leonard Osser ------------------------------------- Leonard Osser MORSE, ZELNICK, ROSE & LANDER LLP by: /s/ Stephen A. Zelnick --------------------------------- Stephen A. Zelnick cc: Grant Thornton - Attn: Chet Borgida EX-10.22 11 0011.txt AGREEMENT AGREEMENT AGREEMENT made as of this 28th day of February, 2001 among MILESTONE SCIENTIFIC, INC. ("MS"), VESTED MEDIA PARTNERS, INC. ("VMPI") and NEWS USA, INC. ("NU"). 1. NU will, during the term of this agreement, provide the following advertising and promotional services to MS: a. Prepare, write, print or otherwise publish and provide proof of placement of the articles and advertisements detailed below. b. Prepare and cause publication of an aggregate of 60 tabloid pages and 60 timed radio segments of articles and advertisements for MS and its products and technology. For purposes hereof a tabloid page shall be a page containing 8 assorted size news articles per page and a timed radio segments shall be at least 60 seconds long. The editorial content of the tabloid pages and radio segments shall also be distributed to at least 5,000 Websites. c. NU will provide to MS, within 10 days after the end of each calendar month, a detailed report as to newspaper, radio station and Website placements of the above material. The monthly reports will be accompanied by physical clippings from newspapers, air-checks from radio stations and other documentation showing the actual placement of articles and advertisements. The reports will also detail placements by DMA Market, specify the number of placements in that month and since the inception of this agreement and the "ad value" equivalent". NU guarantees that the articles and advertisements in (a) and (b) will have at least 72,000 placements in newspapers and radio stations, as well as parallel distribution to Websites. 2. MS hereby agrees to promptly comment on articles and ads submitted to it and, after its comments are reflected, to promptly approve finished copy to support NU in its placement activities. Without limitation of the foregoing, upon receipt of notice from NU that placement is being delayed or impeded by failure of MS to approve copy, MS will respond to such notice within 48 hours. 3. In full payment for the services to be rendered by NU hereunder MS will issue three-year Warrants to purchase 1,171,875 shares of Common Stock, 585,938 to NU and at NU's direction, 585,938 to VMPI. The Warrants will be exercisable at the following prices $1.28 during the first 18 months of the Warrant Term $2.25 during the next 9 months of the Warrant Term $3.00 during the final 9 months of the Warrant Term The Warrants shall be non-transferable and the stock issued on exercise thereof shall be restricted stock and bear an appropriate restrictive legend. However, Milestone shall, promptly after the date hereof, file a Registration Statement with the Securities and Exchange Commission allowing the resale of the underlying shares and use its best efforts to make such registration effective at the earliest possible date. Notwithstanding any registration of the shares, VMPI shall not sell any of the underlying shares for a period of one year hereafter and NU shall not sell any shares for a period of 4 months hereafter. The lock-up shall be waived with respect to 50% of the shares held by each of VMPI and NU, if the MS Common Stock trades at prices equal to or greater than $6.25 per share for a period of 20 consecutive trading days. The Warrants shall not have any "cashless" exercise provision but may be exercised from time to time in the discretion of NU and VMPI without limitations as to the number of shares covered in any exercise, except that twenty-five percent (25%) of the Warrants held by NU and VMPI shall not be exercisable until MS Common Stock trades at a price of at least $2.25 for a period of 20 consecutive trading days. 4. NU shall have the right, in its discretion, during the fourth month of this agreement, to halt distribution of articles and ads until the ninth month after execution hereof if the average daily closing price during the first 10 trading days of that 30 day period does not exceed $2.25, provided that NU has previously met 1/3 of its total commitment to prepare articles and ads for client approval. While NU has halted distribution 2/3 of the Warrants granted hereunder to NU and VMPI shall not be exercisable. NU shall recommence performance of its obligations whenever the average closing price for a 10-day period exceeds $2.25. If at the end of the ninth month the stock has not averaged a $2.25 closing price for a 10 day period NU can either terminate its obligations hereunder and forfeit 2/3 of the Warrants or resume performance completing 1/2 of the unperformed obligation in 3 months and the balance in 6 months and retain its Warrants, in either case upon written notice to Milestone not more than 5 days after the end of such ninth month. If, following a halt in distribution by NU, NU recommences performance, then the Warrant Exercise Price shall be re-set to be the greater of the prices set forth in paragraph 3, above or the average closing price during the 10 days prior to the resumption of performance by NU. 5. The term of this agreement shall be 18 months commencing on the date hereof. 6. This agreement represents the entire agreement between the parties and all prior understandings or discussions are merged herein. This agreement shall be interpreted under the laws of the State of New Jersey and any disputes among the parties shall be resolved in the courts of that State. IN WITNESS WHEREOF the parties have executed this agreement the day and year first above written. MILESTONE SCIENTIFIC, INC. by______________________________________ Leonard Osser, Chairman & CEO VESTED MEDIA PARTNERS, INC. By:_______________________________ Kevin F. Sherlock, President NEWS USA, INC. by:_______________________________ Rick Smith, CEO EX-10.23 12 0012.txt LETTER FROM LEONARD OSSER EXHIBIT 10.23 Leonard Osser 220 South Orange Avenue Livingston, New Jersey 07039 April 9, 2000 Milestone Scientific, Inc. 220 South Orange Avenue Livingston, New Jersey 07039 Attn: Thomas Stuckey, Chief Financial Officer Re: Milestone Scientific Inc. ("Milestone") Dear Sirs: The undersigned hereby provide the following undertaking in connection with your audit of the financial statements of the above corporation for year ended December 31, 1999. 1. Leonard Osser ("Osser") hereby agrees to open a $200,000 Line of Credit for benefit of Milestone. There shall be no facility fee. However, Borrowings under the line shall bear interest at the rate of 9% per annum, payable at maturity. The Line of Credit shall end on December 31, 2000 and all the borrowings then outstanding shall be paid by February 1, 2001. Milestone shall draw-down amounts against the line by providing Osser with written notice at his home address and funds shall be provided within 7 days of notice. 2. If Milestone shall provide Osser with notice that it reasonably expects to require funds in excess of those available to it under the above Line of Credit prior to December 31, 2000, then upon receipt of such notice Osser will begin to defer the entire base salary to which he is presently entitled under his employment agreement. On the commencement of that deferral, his present agreement to waive a portion of his salary shall be canceled and extinguished and the deferral shall be in the full amount of his salary without regard to that prior salary reduction. All amounts deferred shall be payable by Milestone on January 3, 2001. 3. Osser hereby guarantees the payment in full of all amounts owed to Milestone by Dentmate, Inc. (Milestone's Taiwanese distributor) and IME Corporation (Milestone's China distributor) whether now owing or owing at any time prior to December 31, 2000. 4. Osser hereby agrees to defer until January 3, 2001 all prepayments owed to him under the 10% Secured Promissory Notes issued in February 2000. 5. Morse, Zelnick, Rose & Lander, LLP, hereby agrees to defer until January 3, 2001, all payment owed to it on $50,000 face amount of the 10% secured Promissory Note issued in February, 2000. Very truly yours, /s/ Leonard Osser ------------------------------------- Leonard Osser MORSE, ZELNICK, ROSE & LANDER LLP by: /s/ Stephen A. Zelnick --------------------------------- Stephen A. Zelnick cc: Grant Thornton - Attn: Chet Borgida EX-23 13 0013.txt CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated April 16, 2001 accompanying the consolidated financial statements included in the Annual Report of Milestone Scientific, Inc. on Form 10-KSB for the year ended December 31, 2000. We hereby consent to the incorporation by reference of said reports in the Registration Statement of Milestone Scientific, Inc. on Form S-3 (File No. 33339784), effective December 21, 2000. GRANT THORNTON LLP New York, New York April 16, 2001 EX-23.1 14 0014.txt CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCNTS EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated March 27, 2000 (except for Note A as to which the date is April 5, 2000) accompanying the consolidated financial statements and schedules included in the Annual Report of Milestone Scientific, Inc. on Form 10-K for the year ended December 31, 1999. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Milestone Scientific, Inc. on Form S-8 (File No. 33376497), effective April 14, 1999. GRANT THORNTON LLP New York, New York April 11, 2000 -----END PRIVACY-ENHANCED MESSAGE-----