-----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, Q/sJC7x+l+6CgpghoSMjpnyfyzJ70wNrs8De4vfmcH8rBcJ/E9tEjBKkHNBfYDOr rjdtfpEBS+fMlaX0nkA2Dg== 0001005477-02-001681.txt : 20020416 0001005477-02-001681.hdr.sgml : 20020416 ACCESSION NUMBER: 0001005477-02-001681 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020416 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-14053 FILM NUMBER: 02612552 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 10KSB 1 d37126_10ksb.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 2001. 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 of (I.R.S. Employer 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: Name of Each Exchange Title of Each Class 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, 2001, the revenues of the registrant were $4,093,710. 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 on March 29, 2002 of $.68 was approximately $8,395,192. As of March 29, 2002, the registrant has a total of 12,345,870 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE None MILESTONE SCIENTIFIC, INC. Form 10-KSB Annual Report TABLE OF CONTENTS Page ---- PART I Item 1. Description of Business......................................... 3 Item 2. Description of Properties....................................... 16 Item 3. Legal Proceedings............................................... 16 Item 4. Submission of Matters to a Vote of Security Holders............. 16 PART II Item 5. Market for Common Equity and Related Stockholder Matters........ 17 Item 6. Management's Discussion and Analysis or Plan of Operations...... 20 Item 7. Financial Statements............................................ 28 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...................................... 28 PART III Item 9. Directors and Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.... 29 Item 10. Executive Compensation.......................................... 32 Item 11. Security Ownership of Certain Beneficial Owners and Management.. 34 Item 12. Certain Relationships and Related Transactions.................. 36 Item 13. Exhibits, List and Reports on Form 8-K.......................... 36 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. PART I Item 1. Description of Business All references in this report to the Company refer to Milestone Scientific Inc., its wholly owned subsidiary, Sagacity I, Inc., doing business in the United States as Milestone Scientific, and its 88.65% owned subsidiary, Spintech, Inc. ("Spintech"), unless the context otherwise indicates. Unless stated to the contrary, all references in this Annual Report on Form10-KSB to "we," "us," "our" or "the Company" refer to Milestone Scientific Inc. and its subsidiaries. General Milestone develops, manufactures, markets and sells a proprietary, computer-controlled system for the improved and painless delivery of local anesthetic, through the use of The Wand(R), a single use disposable handpiece. The system is marketed in dentistry under the trademark CompuDent(TM) and in medicine under the trademark CompuMed(TM). CompuDent(TM) is suitable for all dental anesthetic procedures. CompuMed(TM) is suitable for many medical procedures regularly performed in Plastic Surgery, Hair Restoration Surgery, Colorectal Surgery, Podiatry, Dermatology, Orthopedics and a number of other disciplines. CompuDent(TM) and CompuMed(TM) are sold in the United States and in over 25 countries abroad. Milestone's products, CompuDent(TM) in the dental market, CompuMed(TM) in the medical market and the disposable component, The Wand(R) handpiece, were developed to penetrate the existing 150 year old syringe marketplace. This market has changed little since the introduction of the syringe, while the rest of medical science and technology have grown by leaps and bounds. CompuDent(TM) and CompuMed(TM) are computer-controlled infusion devices that provide a highly regulated rate of emission of anesthetics and other medications. This controlled infusion allows for a drop of anesthetic to always precede the needle tip during insertion thus ensuring that the needle traverses already anesthetized tissue. The controlled flow also eliminates the "bee sting" effect, which is descriptive of the pain associated with a surge of fluids into tissue. Milestone has also developed a new technology that, when commercialized, will provide Milestone with a strong entry into new markets, specifically the large and profitable hospital sector. CompuFlo(TM) is a computer-controlled, pressure sensitive infusion, perfusion, suffusion and aspiration device, that employs touch-screen technology to provide a real time readout of pressures, fluid densities and flow rates in the delivery and removal of a wide array of fluids. Utilizing bar code technology, CompuFlo(TM) will interface with the hospital's computer system and automatically cross-reference the prescription, medication, dosage (when bar coded), drug interactions and allergies found in the patient's electronic hospital records. This will disallow an injection that is unauthorized or contraindicated and will provide a record of the time, medication, dosage, and the name of the staff member who administered the injection. These capabilities are of value in the entire drug delivery process. Milestone has obtained four U.S. patents in connection with the CompuFlo(TM) technology. CompuFlo(TM) has not yet been introduced commercially. All three systems utilize a common disposable component, The Wand(R) handpiece, which through its unique, patented ergonomic design, allows the practitioner enhanced tactile control during the injection. The systems offer the practitioner a greater selection of the types of injection administered, more freedom of movement, increased patient comfort, reduced anxiety (for both the patient and practitioner), improved efficacy, greater infection control and safety, and reduced potential liability. Recent studies also indicate that the systems will reduce the amount of anesthetic required. The products have gained recognition and praise in clinical and other intellectual studies. Milestone introduced its dental system at the Fall 1997 American Dental Association Trade Show and it began selling equipment units and an initial supply of disposables in January 1998. Originally, the 3 dental unit was sold in the U.S. and Canada through major distributors of dental products. In October 1999, Milestone began selling the product directly to dentists in the U.S. Currently, the product is sold in the U.S. both directly and through company-trained independent sales representatives, in Canada through one major distributor and internationally through dental product distributors. Milestone also markets and sells Luer Lock needles for use with The Wand(R) to its domestic dental customers. Milestone was organized in August 1989 under the laws of Delaware. On November 3, 1995. Milestone acquired 65% of the outstanding shares of common stock of Spintech for an aggregate purchase price of $2,700,000. During 2000 and 2001, Milestone increased its interest in Spintech to 85.65% and 88.65% by exercising the fourth and the final annual options to acquire an additional 3% of Spintech's shares for a nominal amount granted in the original acquisition transaction, by receiving shares from two former employees as part of a settlement agreement and acquiring additional shares from Spintech stockholders. Spintech developed and owns the technology underlying various products for healthcare providers, including CompuDent(TM), CompuMed(TM) and The Wand(R), and has registered various patents and trademarks related to these products. Milestone 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 CompuDent(TM) and CompuMed(TM), Milestone's Computer Controlled Anesthetic Injection Systems are computer controlled local anesthetic delivery systems developed by Milestone. Milestone believes that it has overcome the typical problems associated with conventional anesthetic injections. The slim, pen-like shape of The Wand(R), the disposable handpiece, is more functional to the user and less ominous in appearance to the patient. The pen 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 a standard air controlled foot pedal provides the precision flow necessary for virtually painless local anesthesia. These systems provide a highly controlled rate of emission of anesthetic solution in advance of the needle point. The controlled rate of anesthetic emission creates 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 this system employs The Wand(R) a single use disposable handpiece and a needle, Milestone believes that it will offer protection against patient cross-contamination. In many procedures, CompuDent(TM) rapidly anesthetizes tissue 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. Milestone believes that the CompuDent(TM) technology enables a dentist to provide painless injections, increases productivity, is safer than traditional methods of injections and provides important competitive advantages for dentists trying to build and maintain their practices. While initially designed for use in dentistry, the technology has uses in a variety of medical disciplines including Podiatry, Dermatology, Hair Restoration Surgery, Colorectal Surgery, Orthopedic and Plastic surgery. The technology, utilized in a device designed for use in medicine, named CompuMed(TM), was first introduced to the medical community during the third quarter of 2001. 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 with the hypodermic syringe against which they may guide their hand when inserting a needle or while administering the injection. The resulting uncontrolled movement of the needle frequently can be painful to the patient. Although the dentist is trained to inject slowly, present devices do not allow automatic control of the rate of flow. Thus, the 4 needle often enters tissue that has not yet been anesthetized. CompuDent(TM) 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 equipment unit, an initial supply of The Wand(R) disposable handpieces and needles, an instructional videotape and other educational material in January 1998. Prior thereto, a pre-production prototype of the system 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 performance aspects of the system and were published in major dental publications. To date, over 40 articles have been published about the system. Over the last year, a study published in colorectal surgery, one of the disciplines targeted for the CompuMed(TM) system, confirmed that patients experienced significantly less pain when the CompuMed(TM) system was used. The study was terminated before accruing its initial target number of patients because the researchers considered it unethical not to use CompuMed(TM) exclusively. Another clinical study was presented as an abstract in the field of podiatry, where the study compared the use of the CompuMed(TM) and traditional hypodermic syringe for obtaining regional anesthetics in the hallux. The results stated that the pain associated with using the CompuMed(TM) was decreased from moderate to nearly non-existent. There are several ongoing clinical studies in other medical disciplines. In the dental market, a favorable evaluation on the use of the CompuDent(TM) was published in the Dental Advisor. Additionally, a study was published describing the benefits of using the new bi-directional rotation insertion technique. Since Milestone began marketing its technology, it has included Luer Lock needles in its system kits. In October 1999, Milestone began to market and sell the luer lock needles directly to its dental customers. Until November 2001 Milestone had sold SplatrFree(TM) prophy angles. In November 2001, Milestone sold certain tangible and intangible assets, rights and properties (which were fully amortized) relating to the SplatrFree product to Smart Health, Inc. for $55,000 payable at closing and a 12 month consulting agreement for $96,000 in aggregate. Manufacturing and Sources of Supply CompuDent(TM) and CompuMed(TM) equipment units are manufactured for Milestone by Tricor Systems, Inc. ("Tricor") pursuant to specific purchase orders. In order to fund certain expenses of Tricor, Milestone has advanced funds to Tricor. These advances are reduced as Tricor makes shipments to Milestone. Net advances to Tricor as of December 31, 2000 and 2001 were $1,004,530 and $689,529, respectively. The Wand(R) disposable handpiece is manufactured for Milestone by Nypro Inc. ("Nypro") pursuant to scheduled production requirements. Nypro utilizes molds, semi-automated assembly equipment and packaging equipment purchased by Milestone. In October 1999, Milestone reached an agreement through an authorized intermediary to sell Becton Dickinson ("BD") Luer Lock needles directly to Milestone dental customers. BD remains Milestone's major needle supplier. Marketing - Dentistry CompuDent(TM) was originally marketed to dental practitioners utilizing a group of major dental distributors in the U.S. and Canada. In October 1999, Milestone 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 Milestone signed a distribution agreement with order minimums with Synca, a Canadian corporation. During the second quarter of 2001, Milestone transitioned to independent sales representatives supported through Milestone's customer service 5 department and an in house sales department. As of December 31, 2001 Milestone employed 5 full time in house sales people and utilized 8 independent sales representatives. Milestone has experienced difficulty in achieving significant market penetration. Recent changes to the marketing approach and introduction of new sales programs have been instituted in order to improve results. During 2001, Milestone embarked on a re-positioning strategy. In October 2001, Milestone re-launched The Wand(R) Plus as CompuDent(TM) at the American Dental Association Exhibition (ADA) in Kansas City. The re-launch, complete with a new image, was part of an overall positioning effort to leverage the brand equity in The Wand(R) handpiece while providing separately identified products for the various market segments. The new positioning strategy is designed to enhance product perceptions. As part of the new strategy, Milestone is utilizing new tag lines that will also be used in the medical market, namely "Don't stick with old technology" and "Give them your best shot". New collateral material to support this new position was developed and launched, along with a new advertising campaign. To complete this repositioning strategy, Milestone will leverage the findings of two clinical studies, both of which focused on a new needle insertion technique called Bi-directional Rotation Insertion. This new technique made possible by the revolutionary design of The Wand(R) handpiece, minimized needle deflection, which is the path taken by a needle through tissue. The result produced greater accuracy in an in vitro model versus the traditional syringe technique. This is clinically significant, as contemporary dental anesthesia textbooks indicate needle deflection as a source of anesthetic failures. The second study concluded that this same technique requires two to three times less force to penetrate tissue, which may lead to a more comfortable injection experience of the patient. This new positioning strategy leverages the historical findings of Milestone to chart a pathway for the future. The industry is moving towards reducing the number of shows and the size of the exhibition stand as well as the number of people representing the manufacturers. Going forward, Milestone will reduce the number of trade shows that it attends in the dental market to a maximum of 18 shows in 2002. Milestone will also reduce the exhibit space to a standard 10' x 20' for several of the major exhibitions and a 10' x 10' display for the other exhibitions. The logistical management of these shows will be outsourced to a professional organization specializing in medical and dental trade shows. Milestone plans on utilizing a targeted direct mail approach in support of the trade shows. Milestone has utilized several types of distribution strategies in the U.S. The most recent strategy employed was the development of a network of independent sales representatives. This strategy has been met with limited success. The primary issue with this type of distribution strategy is that a representative must rely on a single product line for success. This has proven to be extremely difficult. Milestone believes that the concept of independent sales representation is the correct strategy, however, the overall plan must be modified to meet Milestone's strategic objectives. To that end, Milestone will continue the recruitment of commission only independent sales representatives that have established product lines in well defined geographic territories as well as regional dealers. Milestone believes that with smaller territories and complementary products, this new strategy will increase the sales of units, thereby increasing the installed base and the annuity stream of 6 handpieces. In addition, Milestone plans on collaborating with regional dealers to support the sales effort. The management of this network will be accomplished internally, further reducing the financial risk. To support this strategy, Milestone has developed an inside sales capability in its Deerfield, IL, facility. Currently, this inside sales team, consisting of six professionals, is successfully targeting the installed base in open sales territories to both increase handpiece utilization as well as increase the installed base of CompuDent(TM) units by targeting existing customers for additional units. Milestone also offers telemarketing services to the external sales network, which is used primarily to set appointments. The cost of this service is partially offset by reductions in commissions in specific territories. Internationally, Milestone has developed a network of distributors. Currently, Milestone Medical Technologies (MMT), an independent company, manages the sales of the products in Europe, South Africa, the Middle East and Mexico. Latin American sales are managed through Windsor Technologies, China and Taiwan is managed through the IME Corporation and Synca manages the sales into the Canadian market. Sales in all other territories are managed directly by Milestone. This network of distributors is experiencing some of the same issues that faced the U.S market, most notably the training of practitioners. Steps are being taken to provide a standardized sale, marketing and training approach for the global distribution market. A unique issue uncovered in the international market is the re-use of handpieces. To mitigate this potential infection control issue, Milestone will introduce a bonded handpiece, which marries the handpiece and needle together in a single, sterile package. Milestone believes that these new approaches will provide the impetus for increased unit sales and handpiece utilization. Dental and Hygiene School Program Milestone is committed to support the education and training of future dentists and dental professionals. Accordingly, it offers special educational assistance programs to qualified dental and hygiene schools throughout the U.S. 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. Marketing - Medical CompuMed(TM), released into the physician-based market in third quarter of 2001 for further market trials, will further expand Milestone's opportunities. CompuMed(TM) addresses the needs of several medical disciplines, including Podiatry, Plastic Surgery, Dermatology, Hair Restoration Surgery, Colorectal Surgery and Ambulatory Surgery. Milestone will initially focus on five specialties, Podiatry, Colorectal Surgery, Hair Restoration, Dermatology and the Ambulatory Surgery market. The choice by Milestone in its target markets is based on exhaustive analysis by focus type groups, consultation with industry experts and a pragmatic assessment of the opportunity. Milestone's products are designed to provide the same function as the traditional syringe with the enhancement of greater efficacy, less patient discomfort and reduction in liability. That simple analysis dictates that the product should be directed toward the industry and practices that would be most helped. In order to effectively penetrate the markets chosen, Milestone has begun to augment its current marketing and sales effort with contracted expertise from these fields. Milestone plans to introduce CompuFlo(TM), designed for the hospital market, in 2004. With the pressures on the hospital market to reform, market penetration should be easier. Hospitals and drug companies are already developing systems to control the error rate in administration of medication. 7 CompuFlo(TM) will seamlessly integrate with these bar code systems to provide a previously unattainable level of patient security and safety. Competition Milestone 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 Milestone'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 Milestone's products less marketable, or even obsolete. Therefore, Milestone 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, Milestone must establish an effective distribution network. Several regulatory authorities also must approve Milestone's products before they may be marketed. There can be no assurance that Milestone will be able to compete successfully, that its competitors will not develop technologies or products that render its products less marketable or obsolete, or that it will succeed in improving its existing products, effectively develop new products or obtain required regulatory approvals. The Wand(R) system 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 practitioner and the patient. It reduces fear, pain and anxiety for the patient and greatly reduces practitioner stress levels. It can be used for all local anesthesia techniques as well as new and modified techniques. These 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" for dental application. Milestone has not been able to completely assess the competition presented by the product but believes that the mere introduction of the Dentsply product serves to validate the technology implicit in The Wand(R). 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. Milestone 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 and 2001, sales to the Company's largest customer, Milestone Medical Technologies, Ltd ("MMT") were approximately $641,000 and $410,000 (representing 11% and 10%, respectively). Furthermore, accounts receivable due from MMT at December 31, 2000 and 2001 were approximately $354,000 and $153,000 respectively. This represented 42% of account receivable, at the end of 2001 as opposed to 67% at the end of 2000. In addition, sales in 2000 to New Image do Brasil Import Export Ltd. (our distributor in Brazil), and Yoshida Dental Manufacturing Company of Japan were approximately $679,000 and $571,000, representing 12% and 10% of total sales for 2000, respectively. 8 Patents and Intellectual Property Milestone's patents are believed to be material to its business and potential growth. Milestone holds the following twelve U.S. utility patents and three U.S. 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 (CompuFlo, CompuMed(TM), and CompuDent(TM)) 5,180,371 1/19/93 Dental Anesthetic and Delivery Injection Unit 6,022,337 2/8/00 Dental Anesthetic Delivery Injection Unit (continuation of No. 6,022,387) 6,152,734 11/28/00 Dental Anesthetic Delivery Injection Unit (continuation of No. 6,022,337) 6,132,414 10/17/00 Pressure/Force Computer Controlled Drug Delivery System 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 Other - ----- Hypodermic Syringe and Method 4,877,934 12/19/88 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, 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-Sterilizing Hypodermic Syringe and Method 5,693,026 12/2/97
Milestone also has filed four additional United States utility patent applications on improvements in The Wand(R) and its accessories and three other utility applications on related injection technology. Milestone has adopted the trademarks, The Wand(R) and The Wand(R) Plus. The Wand(R)is registered on the Principal Register as Registration No. 2,291,401, issued November 9, 1999. The Wand Plus(TM) is registered on the principal register as registration No. 2,452,781 issued May 22, 2001. Milestone 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 Milestone to protect its products, unauthorized parties may attempt to reverse engineer, copy, or obtain and use products and information that Milestone regards as proprietary. Litigation may be necessary to protect Milestone's intellectual property rights and could result in substantial cost to and diversion of effort by Milestone with no guarantee of success. The failure of Milestone to protect its proprietary information and the expenses of doing so could have a material adverse effect on its operating results and financial condition. While there are no current claims that Milestone's products infringe on the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against Milestone in the future with respect to current or future products or that any such assertion may not require Milestone to cease selling such products, or to enter into arrangements that require Milestone to pay 9 royalties, or to engage in costly litigation. Although Milestone 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 its products infringe upon patent or proprietary rights of others, Milestone may be required to modify its processes or to obtain a license. There can be no assurance that Milestone 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 Milestone. Government Regulation The CompuDent(TM) system (then known as The Wand(R)) and its disposable handpiece were cleared for marketing in the U.S. by the FDA, for dentistry in July 1996 and the CompuMed(TM) was cleared for marketing in the U.S. for medicine in May 2001. The manufacture and sale of medical devices and other medical products, such as 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 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 Milestone's market introduction of its products and could have a material adverse effect on Milestone. 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 10 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 CompuDent(TM) and CompuMed(TM) have received FDA marketing clearance, there can be no assurance that any of Milestone's other 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 entail limitations on the indicated uses for which the product may be marketed. In addition, modifications may be made to Milestone'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 Milestone'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 Milestone. Milestone 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 Milestone 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 Milestone is not in compliance with the law, the FDA can institute proceedings to detain or seize products, enjoin future violations, or 11 assess civil and/or criminal penalties against Milestone, its officers or employees. Any action by the FDA could result in disruption of Milestone'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 Milestone's ability to do business. In addition, expansion of Milestone's operations into foreign countries will require Milestone 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 its business could require Milestone to alter methods of operations at costs that could be substantial, which could have an adverse effect on it. There can be no assurance that Milestone will be able, for financial or other reasons, to comply with applicable laws and regulations and approval, permit or license requirements. Currently, Milestone 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 Wand(R) The WandPlus(R), CompuDent(TM) and CompuMed(TM) and that it has all necessary approvals, permits and licenses that are applicable to its business, operations and products and services. Product Liability Failure to use any of Milestone's products in accordance with recommended operating procedures potentially could result in subjecting users to health hazards or injury. Failures of its products to function properly could subject Milestone to claims of liability. Milestone maintains liability insurance in an amount which it believes to be adequate. However, there can be no assurance that its insurance coverage will be sufficient to pay products liability claims brought against Milestone. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on Milestone. Research and Development Activities During the 2000 and 2001 fiscal years, Milestone expensed $386,250 and $49,943, respectively, on research and development activities. The higher costs incurred during 2000 were associated with the development of the medical unit and product improvements. Employees Milestone had 17 full-time employees including three executive officers, 3 part-time employees and 8 independent sales representatives at December 31, 2001. Milestone 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 Milestone and should be considered by any prospective purchaser of Milestone'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, 2000 and 2001 our revenues were approximately $8.8 million, $2.9 million, $5.7 million and $4.1 million respectively. In addition, we have had losses for each of the years ended December 31, 1995, 1996, 1997, 1998, 1999, 2000 and 2001 including a loss of approximately $4 million for 2001. At December 31, 2001, we had an accumulated deficit of approximately $39.3 million. 12 Need for Greater Market Acceptance of our technology. 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), CompuDent(TM) and CompuMed(TM) depends, in large part, upon our ability to educate potential customers of their distinctive characteristics and benefits and will require substantial marketing efforts and expense. More than 12,000 units of the CompuDent(TM) or its predecessor unit were sold in the U.S. over the past three years. Sales of disposable handpieces in 2001 reflect a low level of usage of our dental and medical systems. However, from November 1999 through the present, Milestone has experienced steady disposable handpiece sales in the U.S. 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. 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". Milestone 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 CompuDent(TM) and CompuMed(TM). 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. New products must be approved by regulatory authorities 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 our anesthetic injection technology successfully. Domestically we rely on a limited number of independent representatives and in-house sales people. In international markets, we continue to lack distributors in many markets. In order to be successful we will need to expand our distribution channels. Patent and Intellectual Property Protection. We hold U.S. patents applicable to The Wand(R). 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 13 would need to recover our existing tools or have new tools produced. Establishing new manufacturing relationships could 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 alleged malfunction or misuse of our dental and medical products. While we carry liability insurance which we believe is adequate, 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 24% 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. If Our Shares of Common Stock Are Removed or Delisted from The American Stock Exchange the Ability of Stockholders to Sell Our Common Stock and Warrants in the Secondary Market Could Be Restricted. The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be an equity security that has a market price, as defined, of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions, including an exception of an equity security that is quoted on the American Stock Exchange. If our shares of common stock are removed or delisted from the American Stock Exchange, the security may become subject to rules that impose additional sales practice requirements on broker-dealers who sell these securities. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser's written consent to the transactions prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered underwriter, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As such, the "penny stock" rules, in the event our securities are delisted from the American Stock Exchange, may restrict the ability of stockholders to sell our common stock and warrants in the secondary market. 14 If We Are Unable to Satisfy the American Stock Exchange Maintenance Requirements, Our Common Stock May Be Delisted from the American Stock Exchange which Could Impair the Liquidity and the Value of our Common Stock. Shares of our common stock are currently included on the American Stock Exchange. However, there can be no assurance that, in the future, we will meet the criteria for continued listing. Continued listing on the American Stock Exchange generally requires that (i) we maintain at least $2,000,000 in stockholders' equity if the issuer had losses in two of the most recent three years, or at least $4,000,000 in stockholders' equity if the issuer had losses in three of the most recent four years; (ii) there be at least 200,000 shares in the public float valued at $1,000,000 or more, and (iii) the common stock be held by at least 300 holders. Milestone has incurred a net loss in each of the three years ended December 31, 2001 and, as at December 31, 2001, had a total stockholders' deficit of $4.5 million. Further, the estimated value of its public float on March 29, 2002 was $6,356,478. If we are unable to satisfy the American Stock Exchange's maintenance requirements, for 30 consecutive days our securities may be delisted from the American Stock Exchange within 90 days from the receipt of notification of such deficiency from the American Stock Exchange. In that event, trading, if any, in the common stock and warrants would be conducted in the over the counter market in the so-called "pink sheets" or the NASD's "OTC Bulletin Board." Consequently the liquidity of our securities could be impaired, not only in the number of securities which could be bought and sold, but also through delays in the timing of transactions, reduction in security analysts and new media coverage of Milestone, and lower prices for our securities than might otherwise be obtained. Government Regulation and FDA Clearance. The manufacture and sale of Milestone's CompuDent(TM), CompuMed(TM) 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 U.S. 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 CompuDent(TM), CompuMed(TM) 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 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 and the Pacific 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 15 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 3,325,832 shares of our Common Stock at prices ranging from $.75 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. Milestone occupies this space under a lease that, in March 2002 was extended for an additional five year period, at a cost Milestone believes to be competitive. Spintech's accounting functions are located in the corporate office. Spintech's operational functions are located at and consolidated with the other operations in Deerfield, Illinois. In October 1999, Milestone 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 Milestone's products and the telemarketing office. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders (a) Election of Board of Directors Milestone held its 2001 Annual Meeting of Stockholders on November 8, 2001. At the meeting, stockholders reelected all board members which were presented below are the votes cast for each director nominee: --------------------------------------------------------------------- Withhold Name For Authority Abstain --------------------------------------------------------------------- Leonard Osser 7,874,678 56,833 --------------------------------------------------------------------- Paul Gregory 7,877,378 54,133 --------------------------------------------------------------------- Louis I. Margolis 7,877,278 54,233 --------------------------------------------------------------------- Leonard M. Schiller 7,877,278 54,233 --------------------------------------------------------------------- Stephen A. Zelnick 7,885,278 46,233 --------------------------------------------------------------------- (b) Appointment of J.H. Cohn LP as Milestone's independent accountants for the fiscal year ending December 31, 2001. For 7,891,353 Against 34,928 Abstain 5,230 16 PART II Item 5. Market for Common Equity and Related Stockholder Matters (a) Market Information Milestone'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 ---- --- 2000 ---- First Quarter $ 6.00 $ .8125 Second Quarter $ 4.1875 $ 1.0625 Third Quarter $ 3.25 $ 1.75 Fourth Quarter $ 2.1875 $ .875 2001 ---- First Quarter $ 2.00 $ .85 Second Quarter $ 1.00 $ .62 Third Quarter $ 1.75 $ .68 Fourth Quarter $ .73 $ .50 2002 ---- First Quarter $ .68 $ .52 (b) Holders As of March 15, 2002 the number of record holders of the Common Stock of Milestone was 161. Milestone believes that there are more than 3,500 beneficial holders of its Common Stock. (c) Dividends The holders of our Common Stock are entitled to receive such dividends as may be declared by Milestone's Board of Directors. Milestone 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, Milestone issued five-year warrants to purchase an aggregate of 142,857 shares of Common Stock to holders of Milestone'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 Milestone 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 March 2001, the exercise price of these warrants was amended by agreement between Milestone and the warrant holders to provide 17 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 Milestone and the firm in which Steve Zelnick, a Director, is a 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 at an exercise price of $3.125. On February 3, 2000, Milestone reduced the exercise price of all these warrants to $1.25 and extended their exercise period to February 2, 2002. Consideration for the amendments were legal services rendered to Milestone 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, December 7, 2000 and January 26, 2001, Milestone issued to K. Tucker Andersen, a major existing investor warrants to purchase 70,000, 80,000 and 20,000 shares of Common Stock, respectively, at an exercise price of $3.00, $1.25 and $1.875 per share, respectively. Each of the aforementioned warrants are exercisable for five years from the date of issuance and were issued as consideration for loans of a total of $1,000,000 that the investor made to Milestone. The loans, which are evidenced by a senior secured promissory note, bear an 8% interest that is payable quarterly in arrears. Principal payments, in the amount of $500,000 each, are due on June 30, 2003 and December 31, 2003, respectively. 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 January 22, 2001, Milestone entered into an agreement to grant to Hillgreen Investments Limited ("Hillgreen") warrants to purchase 100,000 shares of Common Stock as consideration for opening an equity line of credit with Milestone. 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, Milestone 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 Milestone issued to Shaul Koren 92,308 shares of Common Stock, as payment for 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 February 8, 2001, Milestone 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 March 9, 2001, Milestone issued to K. Tucker Andersen, 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 opening a $500,000 line of credit. Milestone pays a 2% facility fee on the line of credit and interest at a rate of 10% per annum on monies borrowed. On December 28, 2001, Milestone signed an agreement to issue 33,840 units, consisting of one share and one warrant to purchase one share in payment of the $27,072 accrued interest through December 31, 2001. The warrants are exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. All of these units and warrants were issued in February 2002 pursuant to the exemptions from registration under the Act provided by Sections 4(2) and 4(6) of the Act. 18 On March 30, 2001, Milestone issued to an owner and officer of a management company for 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. 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 CompuDent(TM), CompuMed(TM), 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 Milestone's products and technologies. As consideration for their services, Milestone granted to News USA, Inc. and Vested Media Partners, Inc. warrants to purchase an aggregate of approximately 1,172,000 shares of Milestone'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. On December 28, 2001, Milestone entered into an agreement with its CEO, Leonard Osser to issue to him 614,183 units in payment of $491,346 in compensation, specifically, his salary as Chief Executive Officer of Milestone, which he voluntarily has deferred since August 5, 2000. In January 2002, the units were issued and each unit consists of one share of Milestone's common stock and one warrant to purchase an additional share of such common stock. The warrants are exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. The warrants were issued pursuant to the exemptions from registration under the Act provided by Sections 4(2) and 4(6) of the Act. In December 2001, Milestone entered into an agreement with K. Tucker Andersen, an existing investor, to issue 325,000 units. The units, which were issued in January 2002, consists of one share of Milestone common stock and one warrant to purchase an additional share of such common stock. The warrants are exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. The units were issued in exchange for $185,000 and the cancellation of a 10% convertible promissory note issued in October 2001, under which an amount of $75,000 was due at that time. On March 28, 2002, the Company entered into an agreement with a vendor to issue 187,500 units in consideration for payment on accounts payables totaling $93,924 and for future services totaling $56,076 aggregating $150,000. Each unit consisted of one share of the Company's common stock and a warrant to purchase an additional share of common stock. The warrants are exercisable at $.80 per share through December 31, 2003 therefore at $1.00 per share through January 31, 2004 and thereafter at $2.00 per share through January 31, 2007 at which time they expire. 19 ITEM 6. Management's Discussion and Analysis or Plan of Operation Summary of Significant Accounting Policies Inventory Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or market. 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 had occurred. Accordingly, the Company recorded, in the fourth quarter, a noncash charge of $2,203,721 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). Revenue Recognition Revenue is recognized when title passes at the time of shipment and collectibility is assured. Use of Estimates The preparation of the consolidated 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. The most significant estimates relate to the allowance for doubtful accounts, advances to contract manufacturer inventory valuation allowances, and valuation allowances on deferred tax assets. Actual results could differ from those estimates. Overview Management's efforts during 2001 have focused on reducing cash flows in operations, obtaining additional financing, reducing the cash outlays connected with existing debt and overhead, and introducing CompuMed(TM) for medical procedures. In 2001, Milestone has achieved several of these objectives. As mentioned previously, it received $1,260,000 in new financing from existing major investors, restructured approximately $756,000 of existing debt and obtained an equity commitment subject to certain conditions for the purchase of up to 2,100,000 shares of its Common Stock. It successfully reduced operating overhead through cost containment programs and transitioned to a commission based sales incentive program for sales representatives. In August 2001, Milestone unveiled the CompuMed(TM) technology for medical procedures. Furthermore, Milestone reached an agreement with a media service company to increase the awareness of healthcare professionals and the public to the benefits of the CompuDent(TM), CompuMed(TM), and Milestone's new CompuFlo(TM) technologies. Finally, Milestone was granted a broad new U.S. patent covering the CompuFlo(TM) technology. Although operations have not become a source of cash to date, management is encouraged that only $335,000 was needed to fund the operating activities during the last six months of 2001. The resulting $56,000 monthly average use of cash from operations during the second half represents a sharp decline from the approximate $1,050,000 (an average of $175,000 per month) used in operating activities during the first six months of 2001. Results to date indicate that this trend is continuing during 2002. Unit sales remain below expectation, as foreign distributors postponed restocking until existing inventories have been depleted and as domestic efforts concentrated on repositioning the product in the dental market place. 20 In addition, the events of September 11, 2001 caused the cancellation of a major trade show in September and brought about lower attendance at subsequent 2001 trade shows, reducing net sales during this period. Fiscal year ended December 31, 2001 compared to fiscal year ended December 31, 2000 Statement of Operations Net sales for the years ended December 31, 2001 and 2000 were $4,093,710 and $5,674,351, respectively. The $1,580,641 or 27.9% decrease is attributable primarily to several transactions unique to 2000, when Milestone partnered with a domestic distributor in a promotional sales effort; availed to its customers the first time opportunity to purchase refurbished units of CompuDent(TM) at a special discounted price; and launched the sale of CompuDent(TM) and The Wand(R) in Japan, Mexico and Brazil. These efforts generated revenues of approximately $87,000, $280,000 and $1,250,000, respectively. For 2001, revenue generated from domestic sales of Wand(R) handpieces increased to approximately $1,756,500 or 7.3% as compared to the year ended December 31, 2000. Domestic unit sales declined approximately 18.9% to $1,309,700 while Milestone transitioned from its own sales force to a sales force of independent representatives. Cost of sales for the years ended December 31, 2001 and 2000 were $1,973,156 and $3,626,786, respectively. The $1,653,630 decrease is attributable primarily to lower foreign sales and promotional unit sales and $388,284 in depreciation of tooling equipment during 2000. During the fourth quarter of 2000, the tooling equipment was written off. The decrease was partially offset by the recovery in 2000 of previously written down inventory for parts and finished goods totaling $569,000. For the years ended December 31, 2001, Milestone generated a gross profit of $2,120,554 or 51.8% as compared to a gross profit of $2,047,565 or 36.1% for the year ended December 31, 2000. Selling, general and administrative expenses for the years ended December 31, 2001 and 2000 were $5,271,032 and $7,250,780, respectively. The $1,979,748 decrease is attributable primarily to a $1,366,000 aggregate reduction in selling and marketing expenses for CompuDent(TM), a $227,000 decrease in consulting fees, a $99,000 reduction in legal fees, a $173,000 decrease in non cash compensation for services rendered and $244,549 of patent amortization for 2000. These decreases were partially offset by a $85,560 increase in the CEO's accrued salary, to the level in effect in 1998. Salary payments to the CEO were deferred until the end of 2001. In January 2002, the Company issued 625,000 units in payment of the deferred liability in January 2002. During the fourth quarter of 2000, Milestone incurred a patent writedown of $1,247,175. Research and development expenses for the years ended December 31, 2001 and 2000 were $49,943 and $386,250, respectively. The $336,307 difference is the result of higher costs incurred during the third quarter of 2000, which were associated with the development of the medical unit and product improvements. The loss from operations for the years ended December 31, 2001 and 2000 was $3,200,421 and $6,854,423, respectively. In February 2000, Milestone settled the lawsuit with 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 80,000 shares of common stock to him and 8,000 shares of common stock to Glen Spinello. Since the market price of the shares was $2.3125 per share, Milestone recognized a $228,500 expense. Milestone received from the Spinello's 5,025 shares of Spintech common stock, a subsidiary of Milestone. 21 In November 2001, the Company sold certain tangible and intangible assets, rights and properties (which were fully amortized) relating to the SplatrFree(TM) prophy angle to Smart Health, Inc. for $55,000. In addition, the Company entered into a 12 month consulting agreement with Smart Health for $96,000 Milestone incurred interest expense of $858,582 for the year ended December 31, 2001 as compared to $436,340 of interest expense for calendar 2000. The difference is attributable to higher average borrowings in 2001 and $306,734 in amortization of the debt discount and deferred financing costs, which is associated with the detachable warrants from the financing described below. The net loss for the years ended December 31, 2001 was $3,991,580 as compared to a net loss of $7,509,855 for 2000. The $3,518,275 reduction in net loss is attributable to a decrease in operating expenses. This was partially offset by a decrease in foreign sales volume for CompuDent(TM) and its disposable handpiece and an increase in interest expense. Liquidity and Capital Resources At December 31, 2001, Milestone had $15,742 in cash and had a working capital deficiency of $280,663. For 2001, Milestone decreased cash by $157,125. For the year ended December 31, 2001, Milestone's net cash used in operating activities was $1,384,936. This is attributable primarily to a net loss of $3,991,580 adjusted for non-cash items of $306,734 for amortization of debt discount and deferred financing costs, $21,398 for the amortization of unearned advertising costs, $31,055 for amortization of unearned compensation, $75,990 for depreciation, $150,000 for common stock issued for services and $197,649 for options and warrants issued for services rendered; increases and decreases of operating assets and liabilities are as follows; a $165,801 decrease in accounts receivable; a $13,533 decrease in inventory; an $121,727 decrease in prepaid expenses; a $315,000 decrease in advance to contract manufacturer; a $2,044 increase in other assets; an increase in accrued expenses of $54,178; a $551,847 increase in accrued interest; a $253,776 increase in accounts payable; and a $350,000 increase in deferred compensation. For the year ended December 31, 2001, Milestone used $10,672 in investing activities for capital expenditures. For the year ended December 31, 2001, Milestone generated $1,238,483 from financing activities. This is due to the $735,167 net of expenses, received in aggregate from the sale of common stock and the $600,000 received in aggregate from notes and two credit lines. This was partially offset by $96,684 of debt financing costs. These financings were accomplished through two major existing investors. To improve liquidity and meet its working capital needs during 2001, Milestone has reduced operating overhead, restructured existing debt and raised additional capital. The reduction in operating overhead was achieved in part by transitioning its domestic sales forces to a commission based independent sales force, by reducing operating staff and by reducing marketing expenses. On March 28, 2002, the Company entered into an agreement with a vendor to issue a total of 187,500 units for payment on accounts payable of $93,924 and for future services of $56,076 aggregating $150,000. At December 31, 2001, accounts payable with the vendor was $66,100. On March 29, 2002, the Company entered into the following agreements for: o Deferring payment on accounts payable to a related party totaling $272,866 at December 31, 2001 until January 2, 2003. o Extending the maturity date of its $200,000 obligation and accrued interest of $26,600 to its Chief Executive Officer ("CEO") until January 2, 2003. o Deferring payment on $320,000 of the CEO's $350,000 salary until January 2, 2003. 22 o Establishing a 6% $100,000 line of credit with its CEO through January 2, 2003, payable on April 2, 2003 On March 31, 2002, the senior secured zero coupon 20% promissory notes were originally due. On March 31, 2002, the Company obtained the required consents from the senior secured zero coupon 20% promissory note noteholders whose outstanding face value (principal plus accrued interest) was collectively greater then 80% of the total outstanding face value of the obligations to extend the maturity date up to 30 days. On April 12, 2002 and on April 15, 2002, the Company entered into the following agreements with existing noteholders: o The Company received the required consents from the senior secured zero coupon 20% promissory noteholders whose outstanding face value (principal plus accrued interest) was collectively greater then 80% of the total outstanding face value of the obligation and the following occurred; (1) the notes were extended to July 1, 2003 and (2) the interest rate was reduced to 6% if paid in cash or reduced to 12% if paid in common stock. Additionally, at the option of the Company the face value on the maturity date will be payable either in cash or in the Company's common stock, valued at the average closing price per share. For the five trading days prior to July 1, 2003. Furthermore, for the holders who had given their consent the Company will issue to these holders 120 shares of the Company's common stock for each $1,000 face amount outstanding at maturity. o Extending the 20% promissory notes to July 1, 2003 and lowering the interest rate from 20% to 6% if paid in cash or to 12% if paid in common stock. o Extending the 8% $500,000 promissory note to August 1, 2003. o Extending the 10% line of credit for $500,000 to August 1, 2003. o Establishing a 6% $200,000 line of credit with an existing investor through January 2, 2003. o Allowing the Company to issue additional unsecured debt so long as the maturity date is subsequent to August 1, 2003. Debt Restructuring 10% Senior Secured Promissory Notes In March 2001, Milestone 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 repriced back to the initial exercise price of $1.75 per share at the date of grant. As mentioned above, the notes were extended as part of a restructuring on April 12, 2002. $1,260,000 in New Financing In March 2001 and through two major existing investors, Milestone obtained a $500,000 line of credit, which matures on August 31, 2002 and received $492,000, net of expenses, from the sale of 500,000 shares of common stock. Milestone pays a 2% facility fee on the line of credit and interest at the rate of 10% per annum on monies borrowed. In connection with obtaining the line of credit, the lender received warrants to purchase 100,000 shares of common stock at an exercised price of $1.69 and an aggregate estimated fair value of $80,000. As of December 31, 2001, Milestone had drawn down the entire $500,000 from the line of credit. Moreover, the line of credit agreement has been amended to allow Milestone to use funds available under this agreement for general corporate purposes. In December 2001, Milestone reached agreements with an existing investor to issue 358,840 units in aggregate. Each unit will consist of one share of Milestone common stock and one warrant to purchase an 23 additional share of such common stock. The warrants are exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. 33,840 of the units were issued in payment of all accrued interest including facility fees in connection with the $500,000 line of credit through December 31, 2001 and 325,000 units were issued in exchange for $185,000 and the cancellation of a 10% convertible promissory note issued in October 2001, under which an amount of $75,000 was due at that time. Agreement with Media Services Company to Boost Exposure In March 2001, the Company entered into an advertising agreement with News USA, Inc. and Vested Media Partners, Inc.- (the "Agreement") to increase the awareness of healthcare professionals and the public to the benefits of The Wand(R) and the CompuFlo(TM) technologies. Under the Agreement, News USA is required to prepare articles and advertisements for the Company's products and technologies and place them in newspapers and on radio stations. News USA has guaranteed 72,000 media placements during the 18-month term of the Agreement. In exchange for these services the Company granted warrants to purchase 1,171,875 shares of common stock exercisable on the following dates and prices over the life of the Agreement; (1) $1.28 during the first 18 months, (2) $2.25 during the next nine months and (3) $3.00 during the next nine months. The Agreement provides for a termination clause in the fourth month if the Company's average closing stock price does not exceed $2.25 during the first ten days of the fourth month provided that the Company has received 24,000 publications. Accordingly, the remaining two-thirds of the warrants to purchase the Company's common stock would not become exercisable. However, the vendor can recommence producing the publications whenever the Company's average closing stock price for a ten day period exceeds $2.25. At the end of the ninth month, the vendors have the option to terminate the Agreement if the Company's stock price has not averaged $2.25 for a ten day period. Upon termination, two-thirds of the warrants remaining to purchase the Company's common stock will be forfeited unless the vendors resumes fulfilling one-half of their obligation in three months and the remaining obligation in the next six months. As of December 31, 2001, the Company recorded unearned advertising cost of $324,218 which represents the estimated fair value of the 390,625 of the warrants for one-third of the total warrants granted based on the 24,000 minimum placements. The unearned advertising costs are being amortized as publications are received by the Company over the minimum placements. For the year ended December 31, 2001, the Company recorded advertising charges of $21,398. The estimated fair value of the remaining warrants to purchase 781,250 of the Company's common stock have not been recorded in the Company's consolidated financial statements due to the likelihood that the Agreement will not be fulfilled. 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. As mentioned above, the notes were extended as part of a restructuring on April 15, 2002. 24 8% Promissory Notes On July 31, 2000, the Company established a $1,000,000 credit facility with a major existing investor. Initially, $500,000 was borrowed under the line, which was due on June 30, 2003. In December 2000, and January 2001, the Company borrowed under the credit facility an additional $400,000 and $100,000, respectively due on December 31, 2003. In connection with the initial $500,000, the investor received five-year warrants to purchase 70,000 shares of the Company's common stock, exercisable at $3.00 per share. In connection with the $400,000, the investor received five-year warrants to purchase 80,000 shares of the Company's common stock exercisable at $1.25 per. In connection with the $100,000, the investor received five-year warrants to purchase 20,000 shares of the Company's common stock at $1.25 per share. On April 12, 2002 the investor agreed to extend the maturity date of the $500,000 originally due June 30, 2003 to August 1, 2003. Accordingly, in connection with the extension, the unamortized debt discount will be amortized to August 1, 2003. Accordingly, these loans have been recorded as long term debt in the accompanying consolidated financial statements. 9% Promissory Note In April 2000, Leonard Osser, Chairman and CEO, agreed to provide to Milestone 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 January 2, 2003. 10% Senior Secured Promissory Notes In February 2000, the Company concluded a $1 million institutional private placement of 10% Senior Secured Promissory notes which were originally due June 30, 2001 and warrants to purchase 142,857 shares of the Company's Common 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 the Company 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 the Company. The estimated fair market value of the warrants, which amounted to $292,857, was recorded as debt discount and was being amortized through June 30, 2001. On March 16, 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 the Company 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 year were repriced back to the initial exercise price of $1.75 per share at the date of grant. 3% Senior Secured Promissory Notes In March 1999, Milestone 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, 25 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. Operations Domestic Milestone believes that CompuDent(TM), CompuMed(TM) and The Wand(R) technologies are a major advance in the delivery of local anesthesia and that the potential applications of this technology extends beyond dentistry to include Podiatry, Hair Restoration Surgery, Colorectal Surgery, Plastic Surgery, Dermatology and procedures in Orthopedics, OB-GYN and Ophthalmology. Based on scientific and anecdotal support, Milestone contends that CompuMed(TM) could enhance the practices of the estimated 90,000 physicians included in the aforementioned non-dental disciplines. Despite limited resources, Milestone has continued its efforts to realize the market potential of its dental unit and become profitable. These steps include (i) relaunching of The Wand(R) Plus drive unit domestically, under the name CompuDent(TM), (ii) distribution of CompuDent(TM) through a host of channels (i.e. independent sales representatives and an inside sales group), (iii) advertising to increase the awareness of the product, (iv) implementing cost reduction programs, and (vi) launching The Wand(R) Plus drive unit for medical purposes and marketing it as CompuMed(TM). 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 the CompuDent(TM), CompuMed(TM), and The Wand(R) and CompuFlo(TM) technologies. Milestone's cost reduction program includes eliminating a key executive position and obtaining the Chief Executive Officer's consent to accept stock and warrants as payment of his salary. Management believes that the above steps are critical to the realization of Milestone's long-term business strategy; however, substantial funding is still required to execute Milestone's business plan and there can be no assurance that the successful execution of such business plan will actually improve Milestone's operating results. During 2001, Milestone has received FDA approvals to market The Wand(R) Plus computer controlled anesthetic delivery system for medical procedures. It is being marketed as CompuMed(TM) and was officially launched with moderate success at the 2001 Annual Meeting of the American Podiatry Medical Association, August 16-18 in Chicago. To date, 100 CompuMed(TM) units have been shipped. In October 2001, Milestone began marketing CompuMed(TM) to other medical disciplines, namely hair restoration and dermatology. Milestone will continue to attend shows to increase practitioners' awareness and product sales. Additional Patent Protection for CompuDent(TM), CompuMed(TM) and The Wand(R) In January 2001, Milestone was granted a new United States patent relating to certain elements of the handpiece for The Wand. The improvements covered by the new patent afford the user greater tactile control over the handpiece and needle and thereby assure precise needle placement. 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 the measurement of in-tissue pressure. The CompuFlo(TM) technology is designed to reduce patient pain and tissue tearing 26 during injection procedures. CompuFlo(TM) technology will provide doctors with real time feedback 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 can also 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, its Director of Research and Development. Steps are being taken to commercialize of CompuFlo(TM) technology. Prototypes of CompuFlo(TM) units are being evaluated by physicians and surgeons in South Africa and Germany in their clinical practices in areas including general practice and conscious sedation. These clinical evaluations are narrowing Milestone's focus for initial applications of its CompuFlo(TM) technology and providing further validation of its efficacy. Subsequent Events Through March 21, 2002, the Company issued 33,840 units in exchange for payment of accrued interest totaling $27,072 relating to the $500,000 line of credit. The warrants are exercisable at $.80 per share through December 31, 2003 and $1.00 per share through January 31, 2004 and thereafter at $2.00 per share through January 31, 2007. In addition 325,000 shares of the Company's common stock, which were received prior to December 31, 2001, were issued. On March 28, 2002, the Company entered into an agreement with a vendor to issue 187,500 units in consideration for payment on accounts payable totaling $93,924 and for future services totaling $56,076 aggregating $150,000. Each unit consisted of one share of the Company's common stock and a warrant to purchase an additional share of common stock. The warrants are exercisable at $.80 per share through December 31, 2003 therefore at $1.00 per share through January 31, 2004 and thereafter at $2.00 per share through January 31, 2007 at which time they expire. On February 19, 2002, Milestone issued a $150,000 promissory note to an existing investor. The note bears interest at 8% interest if paid in cash and 10% if paid through equity. Principal and interest is to be repaid on August 1, 2003, the maturity date. In March 2002, Milestone announced an agreement with Medical Hair Restoration (MHR), a Leavitt Company, under which MHR will equip each of its 21 surgery centers in the U.S. with Milestone's CompuMed(TM) computer controlled local anesthetic delivery system. "CompuMed(TM), featuring The Wand(R) handpiece is an example of Medical Hair Restoration's commitment to our patients, commented Lee Fields, Vice President of Operations for Medical Hair Restoration. As medical professionals, it is our duty to make the patient experience as stellar as our acclaimed physicians' results. This advancement in anesthetic delivery will ensure maximum patient comfort. With 21 surgery centers and more on the horizon, our practice will continue to leverage technology to improve patient results and raise the bar on patient care." The Leavitt Companies, with offices in more than 35 cites nationwide, includes Medical Hair Restoration and Advanced Dermatology & Cosmetic Surgery. In April 2002, Milestone announced that the United States Patent Office has granted a Notice of Allowance for broad patent protection of a new safety engineered needle technology to be issued to Milestone Scientific, Inc. When commercialized, this new technology will be used with a plethora of infusion devices, including the Companies CompuDent(TM) and CompuMed(TM) computer controlled local anesthetic delivery systems as well as the CompuFlo(TM), an enabling technology for computer controlled infusion, perfusion, suffusion and aspiration of fluids. The technology known as the "Tucker Device" sets a new level for safety engineered products. Invented by Dr. Mark N. Hochman, Dir. of R&D for MS, Inc. this technology provides features previously unavailable to medical and dental practitioners; fully automated true single-handed activation with needle anti-deflection and force-reduction capability. This technology results in greater accuracy of needle placement when compared to a traditional syringe system. In addition, practitioners can re-use this safety engineered device repeatedly during a single patient session making it highly functional in a wide variety of medical and dental applications. In light of the recent Federal Needlestick and Safety Prevention Act, signed into law in November, 2000, requiring preventative measures that employers must make available in use of sharps "with engineered sharps injury protection features" this technology becomes highly relevant. Federal and state legislation mandate the use of these devices to reduce the risk to healthcare workers of occupational exposure to HIV, hepatitis C and other diseases. The term "Sharps with Engineered Sharps Injury Protection" is defined as a needle device used for administering medications or other fluids, with a built-in safety feature or mechanism that effectively reduces the risk of an exposure incident. In April 2002, Milestone announced acceptance of an independent clinical study concluding that use of Milestone's computer controlled local anesthetic delivery technology in nasal and sinus surgery produced a "safe, acceptable, tolerable, and cost effective method of sedating patients creates a sense of security and adds to the ultimate satisfaction associated with nasal surgery." The study also concluded "Recovery room and expensive hospital costs are avoided, making nasal surgery more affordable and within reach of a greater range of potential nose surgery patients." One of the study's authors, Dr. Pieter Swanepoel, a world renowned surgeon, has been asked by a prestigious American Academy of Facial, Plastic and Reconstructive Surgery to present his study at the 8th International Symposium of the Academy in New York City in May 2002. According to Dr. Swanepoel, "The conscious sedation produced using Milestone's equipment requires an absolute minimum of drugs to simulate a natural sleep process. Surgery can be done as an outpatient procedure as a result of a substantially shorter recovery period, allowing patients to return home with minimal after effects. This permits the patient to fully recover at home with minimal after effects. The new procedure reduces unnecessary bleeding since, unlike general anesthesia, it does not stimulate the sympathetic nervous system causing an increase in pulse rate and blood pressure. The modified anesthesia technique using Milestone's technology allows us to focus on the tissue around the nose, reduces post-operative swelling and promotes healing." The new technique is an adaptation of similar regional nerve blocking techniques used by dental surgeons and replaces the need for costly and invasive general anesthesia. Dr. Swanepoel in conducting his research used pre-production prototypes of our CompuFlo(TM) system, since it allowed him to measure flow rate and tissue pressure and determine parameters for optimal results. The core technology embodied in the CompuMed(TM) unit may be used to deliver local anesthesia within the parameters ascertained by Dr. Swanepoel to produce optimal results and then achieve conscious sedation in nasal surgery. 27 Item 7. Financial Statements The financial statements of Milestone 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 28 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 Milestone and their respective ages as of December 31, 2001 are as follows:
Director Name Age Position Since - ------------------------------------------------------------------------------------------------------------------------- Leonard A. Osser 54 Chairman and Chief Executive Officer of Milestone and President and Chief 1991 Executive Officer of Spintech, a subsidiary Stuart J. Wildhorn 44 Senior Vice President Thomas M. Stuckey 47 Chief Financial Officer and Vice President of Milestone and Chief Financial Officer of both Spintech and Sagacity I, each a subsidiary Stephen A. Zelnick (1) 64 Director of Milestone 1996 Paul Gregory (1) 64 Director of Milestone 1997 Leonard M. Schiller (1) 60 Director of Milestone 1997
- ---------- (1) Member of the Compensation and the Audit Committees 29 Leonard A. Osser has been Chief Executive Officer and a director of Milestone since July 1991, and the President and Chief Executive Officer of Spintech, a subsidiary of Milestone, since November, 1995. From July 1991 until July 1997, he also served as President and Chief Financial Officer of Milestone. From 1980 until the consummation of Milestone'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. Stuart J. Wildhorn has been our Senior Vice President since April 2001. During the prior 11 years, Mr. Wildhorn held progressive senior management positions with Datex-Ohmeda, a leading manufacturer of anesthesia and patient monitoring products. Thomas M. Stuckey has been Chief Financial Officer and Vice President of Milestone and Chief Financial Officer of Spintech and Sagacity I, a subsidiary of Milestone, since May 1998. Prior to joining Milestone, Mr. Stuckey had been the Corporate Controller of PureTec, a plastic product manufacturer, for 13 years. Stephen A. Zelnick, a director of Milestone since January 1996, 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. Mr. Zelnick serves on the Board of Directors of DAG Media, Inc., a publisher of classified telephone directories, Hometown Auto Retailers, Inc., an automotive dealership group and AdStar Inc., an application service provider to classified advertising publishers. Paul Gregory has been a director of Milestone 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. Leonard M. Schiller has been a director of Milestone 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 and iMall, Inc., a leading provider of fully-integrated "one-stop" e-commerce solutions. 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. Milestone'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 Milestone, reviews general policy matters relating to compensation and benefits of employees of Milestone, and administers the issuance of stock options to Milestone's officers, employees, directors and consultants. All compensation arrangements between Milestone 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 Milestone's independent auditors to determine the adequacy of internal controls and other financial reporting matters. In July 2000, each independent board member was granted 12,422 options at an exercise price of $1.61. 30 Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires Milestone's officers and directors, and persons who own more than ten percent (10%) of a registered class of Milestone'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 Milestone with copies of all Section 16(a) forms they file. To the best of Milestone's knowledge, based solely on review of the copies of such forms furnished to Milestone, or written representations that no other forms were required, Milestone believes that all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent (10%) shareholders were complied with during 2001. 31 Item 10. Executive Compensation. The following Summary Compensation Table sets forth all compensation earned, in all capacities, during the fiscal years ended December 31, 2001, 2000, and 1999 by (i) Milestone'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 2001 fiscal year and whose salary as determined by Regulation S-B, Item 402, exceeded $100,000 (the individuals falling within categories (i) and (ii) are collectively referred to as the "Named Executives"). Summary Compensation Table Annual Awards Compensation Common Stock Name and Salary Underlying Options Principal Position Year ($) (#) - -------------------------------------------------------------------------------- Leonard A. Osser Chief Executive 2001 350,967(1) 50,000 Officer and 2000 265,407(2) 50,000 Chairman 1999 191,135(3) 50,000 Thomas M. Stuckey 2001 116,905 10,000 Chief Financial 2000 114,051 25,000 Officer and Vice 1999 119,922 21,000 President - ---------- (1) Includes $350,000 in deferred compensation, of which $314,000 earned as Chairman and CEO of Milestone and $36,000 earned as President and CEO of Spintech. The deferred compensation was paid subsequent to year end through the issuance of 625,000 units, each consisting of one share common stock and one six-year warrant to purchase one share of common stock at prices ranging from $.80-$2.00. It excludes $20,850 paid by Milestone to Marilyn Elson, a certified public account, who was employed by Milestone to render professional tax services. Ms. Elson is the wife of Mr. Osser (2) Includes $141,346 in deferred compensation and $21,000 earned as President and Chief Executive Officer of Spintech. The deferred compensation was paid subsequent to year end through the issuance of 176,683 units, each consisting of one share common stock and one six-year warrant to purchase one share common stock at prices ranging from $.80-$2.00. (3) Reflects voluntary reduction of base salary, which commenced in July 1998 and also includes $36,000 earned as President and Chief Executive Officer of Spintech. 32 Stock Options The following tables show certain information with respect to incentive and non-qualified stock options granted in 2001 to Named Executives under Milestone's 1997 Stock Option Plan and the aggregate value at March 18, 2002 of such options. In general, the per share exercise price of all options is equal to the fair market value of a share of Common Stock on the date of grant. No options granted to Named Executives have been exercised. Option Grants in 2001 Individual Grants of Options Number of Percent of Shares of Total Options Common Stock Granted to Exercise Underlying Employees in Price Expiration Name Option # 2001 ($/Sh) Date Leonard A. Osser 50,000(1) 35.7% $ 1.56 01-01-06 Stuart J. Wildhorn 50,000(2) 35.7% $ 2.50 07-27-06 Thomas A. Stuckey 10,000(2) 7.1% $ 2.50 07-27-06 - ---------- (1) Options vest 01-01-02 (2) One third vesting on each anniversary. Aggregated 2001 Year End Options Values for Options Granted Prior to and During 2001 Number of Shares of Common Value of Unexercised Stock Underlying In-The-Money Options Unexercised Options at At 12-31-2001(1) 12-31-2001 Exercisable/ Exercisable/ Name Unexercisable Unexercisable - -------------------------------------------------------------------------------- Leonard A. Osser 250,000 // 100,000 $0 // $0 Stuart J. Wildhorn 0 // 50,000 $0 // $0 Thomas M. Stuckey 54,333 // 26,667 $0 // $0 - ---------- (1) Based on the closing price on March 29, 2002 of $.68 as quoted on the American Stock Exchange. Employment Contracts As of January 1, 1998 Milestone 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 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, Milestone 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 Milestone 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, Milestone shall grant the executive an additional option to purchase up to 50,000 shares depending upon the achievement of 33 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. 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 Milestone. 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. . In December 2001, Milestone reached an agreement with Mr. Osser to satisfy the $491,346 of unpaid salary. The agreement calls for the issuance of 614,183 units. Each unit consists of one share of Milestone common stock and one warrant to purchase an additional share of such common stock. The warrants will be exercisable at $.80 per share through January 31, 2003, therefore at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. On March 29, 2002, Mr. Osser signed an agreement deferring $320,000 of his $350,000 annual salary until January 2, 2003. 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 13, 2000, each of the five independent board members was granted 12,422 options at an exercise price of $1.61 per share. This equated to a fair market value of $20,000 using the Black-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 29, 2002, regarding stock ownership of all persons known by Milestone to own beneficially more than 5% of Milestone's outstanding Common Stock, certain executive officers, all directors, and all directors and officers of Milestone as a group: Shares of Common Stock Beneficially Percentage of Name of Beneficial Owner (1) Owned (2) Ownership - -------------------------------------------------------------------------------- Executive Officers and Directors Leonard Osser ............................... 3,765,141 (3) 28.09% Stuart J. Wildhorn 2,333 (4) * Thomas M. Stuckey ........................... 58,166 (5) * Paul Gregory................................. 32,572 (6) * Leonard M. Schiller.......................... 53,016 (7) * Stephen A. Zelnick........................... 180,185 (8) 1.34% All Directors & Officers as a group.......... 4,049,413 (10) 30.53% - ---------- * Less than 1% 34 Shares of Common Stock Beneficially Percentage of 5% and Greater Stockholders Owned (2) Ownership - -------------------------------------------------------------------------------- K. Tucker Andersen c/o Cumberland Associates LLC 1114 Avenue of the Americas New York, New York 10036 1,646,439 (10) 13.44% 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; Stuart J. Wildhorn, 220 South Orange Ave, Livingston, NJ 07039; 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; Leonard M. Schiller, Schiller, Klein & McElroy, P.C., 33 North Dearborn Street, Suite 1030, Chicago, Illinois 60602. (2) A person is deemed to be a beneficial owner of securities that can be acquired by such person within 60 days from March 29, 2002 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 March 29, 2002 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 12,245,870 were outstanding on March 15, 2001. (3) Includes (i) an aggregate of 350,000 shares issuable upon exercise of stock options within 60 from March 29, 2002, 50,000 of which are exercisable at $16.00 per share, 50,000 of which are exercisable at $1.00 per share, 50,000 of which are exercisable at $.68 per share, 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; (ii) warrants immediately exercisable to purchase 35,714 shares at $1.75 per share and; (iii) 614,183 yet to be issued common shares and 614,183 warrants currently exercisable at $.80 per share. (4) Includes 2,333 shares subject to stock option, exercisable within 60 days from March 29, 2002 at $.75 per share. (5) Includes 8,333 shares subject to stock options, exercisable within 60 days from March 29, 2002 at $2.1875 per share and 2,333 shares subject to stock options, exercisable within 60 days from March 29, 2002 of at $.75 per share and 21,000 shares subject to stock options, exercisable within 60 days from March 29, 2002 at $3.00 per share and 25,000 shares subject to stock options, exercisable within 60 days from March 29, 2002 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. (6) Includes 150 shares held by Mr. Gregory's wife, 20,000 shares subject to stock options, exercisable within 60 days from March 29, 2002 at $5.125 per share and 12,422 shares subject to stock options, exercisable within 60 days from March 29, 2002 at $2.1875 per share. (7) Includes 20,000 shares subject to stock options, exercisable within 60 days from March 29, 2002 $5.125 per share and 6,211 shares subject to stock options, exercisable within 60 from March 29, 2002 at $2.1875 per share. (8) Includes (i) an aggregate of 62,422 shares issuable upon exercise of stock options within 60 days March 29, 2002, 50,000 of which are exercisable at $5.125 per share and 12,422 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 657,040 shares subject to stock options and 536,265 shares subject to warrants all of which are exercisable within sixty (60) days from March 29, 2002. (10) Based upon an to Schedule 13G filed by K. Tucker Andersen with the Securities and Exchange Commission on 12/7/01 and the 33,840 shares issued to Mr. Andersen in January 2002 in lieu of interest. (11) Based solely upon an amendment to Schedule 13G filed by Cumberland Associates LLC with the Securities and Exchange Commission on 2/14/02. (12) Based upon an amendment to Schedule 13G filed by Gintel Asset Management, Inc. on 2/1/01 and the 500,000 shares owned by Robert Gintel, Chief Executive Officer of Gintel Asset Management, Inc. and a controlling partner of Gintel Partners Fund. The fund disclaims beneficial ownership of Mr. Gintel's holdings in the Company. 35 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 Milestone, purchased $250,000 principal amount of 10% secured promissory notes and five-year warrants to purchase 35,714 shares of Milestone'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. In March 2001, the exercise price of these warrants was amended by agreement between Milestone and the warrant holders to provide for an exercise price of $1.75 per share up to the date of maturity. Additionally, pursuant to an agreement made as of January 31, 1999, Milestone issued 1,800,000 shares of Common Stock in full payment of Milestone'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 Milestone with a $200,000 line of credit which is payable on January 2, 2003. In December 2001, the Company reached an agreement with Mr. Osser to satisfy $491,346 of his deferred compensation through the issuance of 614,183 units, each unit consisted of one share of Milestone common stock and one warrant to purchase an additional share of each stock. These units were issued to Mr. Osser in January 2002. Morse, Zelnick, Rose and Lander, LLP, legal counsel to Milestone and the firm in which Steve Zelnick, a Director and General Counsel to Milestone, 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, Milestone reduced the exercise price of these warrants to $1.25 and extended their exercise period to February 2, 2002. Milestone paid $72,500 and $191,501 during the years ended December 31, 2001 and December 31, 2000, 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. As of December 31, 2001, outstanding payables due to the law firm was $302,866. On March 28, 2002, the principals agreed to defer all payment until January 2, 2003 except for $30,000 and with the stipulations that the Company pays future billings on a timely basis and that a yet to be determined percentage of future equity financing is applied against the payments in arrears. 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 Milestone. (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 Milestone. (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) 36 Exhibit No. Description ------- ----------- 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 Milestone and Hillgreen Investments Limited dated January 22, 2001. (5) 4.15 Registration Rights Agreement, dated January 22, 2001, between Milestone and Hillgreen Investments Limited. (5) 4.16 Escrow Agreement dated as of January 22, 2001, among Milestone, Hillgreen Investments Limited and Epstein Becker & Green, P.C. (5) 4.17 Line of Credit Agreement dated March 9, 2001.(7) 4.18 Form of 10% Promissory Note, dated March 9, 2001.(7) 4.19 Registration Rights Agreement dated March 9, 2001.(7) 4.20 Amendment to Purchase Agreement Dated January 31, 2000, dated March 16, 2001.(7) 4.21 Form of Senior Secured Promissory Note, dated March 16, 2001.(7) 4.22 Form of revised 20% Secured Promissory Notes to Longview Partners A, L.P. and Cumberland Benchmarked Partners, L.P. dated August 28, 2000. (7) 4.23 Letter Agreement among Milestone, Cumberland Benchmarked Partners, L.P. and Longview Partners A, L.P., dated March 23, 2001(7) 4.24 Letter Agreement, dated March 27, 2001, regarding the sale of 500,000 shares of Milestone's Common Stock.(7) 4.25 Amendment to Line of Credit Agreement between Milestone and K. Tucker Andersen from March 9, 2001, dated July 30, 2001. 4.26 Purchase Agreement between Milestone and K. Tucker Andersen dated October 4, 2001 4.27 Form of 10% Convertible Promissory Note dated October 4, 2001 4.28 Letter Agreement dated December 12, 2001, regarding the issuance of 325,000 units to K. Tucker Andersen. 4.29 Warrant to purchase 325,000 shares of Milestone 4.30 Letter Agreement between Milestone and K. Tucker Andersen dated December 28, 2001 regarding the issuance to Andersen of 33,840 units. 4.31 Warrant to purchase 33,840 shares of Milestone. 4.32 Letter dated December 28, 2001 re issuance of units to Leonard Osser in lieu of deferred compensation. 4.33 Warrant to purchase 614,183 shares dated December 28, 2001. 4.34 Purchase Agreement with K. Tucker Andersen dated February 19, 2002 4.35 Form of 8% Promissory Note, dated February 19, 2002 4.36 Letter dated March 28, 2002 regarding the issuance of 187,500 units to Design Centre Incorporated. 4.37 Letter from Leonard Osser dated March 29, 2002, re deferral of payment on 9% Promissory Secured Note issued in April 2000. 4.38 Second Amendment of Purchase Agreement dated January 31, 2000, dated April 15, 2002. 4.39 Amendment of Purchase Agreement dated August 25, 2000, dated April 15, 2002. 4.40 Amendment to 1. 10% Promissory Note dated March 9, 2001; 2. 8% Senior Secured Promissory Notes dated July 25, 2000; 3. 8% Senior Secured Promissory Note Note dated February 19, 2002, with K. Tucker Andersen, dated April 15, 2002. 4.41 Letter re Line of Credit Agreement with K. Tucker Andersen, dated April 15, 2002. 4.42 Line of Credit Agreement with Len Osser, dated April 15, 2002. 10.1 Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone. (3) 10.2 Form of Underwriter's Warrant. (2) 10.3 Financial Advisory and Investment Banking Agreement entered into July 1, 1996 between GKN Securities Corp. and Milestone. (3) 10.4 Employment Agreement dated November 1, 1996 by and between Milestone 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 Milestone 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 Milestone 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) 37 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). 10.22 Agreement among Milestone, News USA, Inc. and Vested Media Partners, Inc., dated March 22, 2001.(7) 10.23 Letter from Leonard Osser and Morse, Zelnick, Rose & Lander, LLP, dated April 9, 2000. (7) 10.24 Letter from Leonard Osser, dated March 29, 2002 deferring compensation payment. 10.25 Letter form Morse, Zelnick, Rose & Lander LLP, dated March 29, 2002, re deferral of payment. 21.1 Subsidiaries of the Registrant. (3) 23.1 Consent of Grant Thornton LLP 23.2 Consent of J. H. Cohn LLP - ---------- (1) Incorporated by reference to Milestone's Registration Statement on Form SB-2 No. 333-92324. (2) Incorporated by reference to Amendment No. 1 to Milestone's Registration Statement on Form SB-2 No. 333-92324. (3) Incorporated by reference to Milestone's Form 10-KSB for the year ended December 31, 1996. (4) Incorporated by reference to Milestone's Registration Statement on Form S-3 No. 333-39784. (5) Incorporated by reference to Milestone's Registration Statement on Form S-2 No. 333-54732. (6) Incorporated by reference to Milestone's Form 10-KSB for the year ended December 31, 1999. (7) Incorporated by reference to Milestone's Form 10-KSB for the year ended December 31, 2000. (b) There were no reports on Form 8-K filed by the Registrant during the last quarter of the period covered by this report. 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, 2002 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 April 16, 2002. Signature Date Title /s/ Leonard Osser April 15, 2002 Chairman, and Chief - ---------------------------- Executive Officer Leonard Osser /s/ Thomas M. Stuckey April 15, 2002 Vice President and - ---------------------------- Chief Financial Officer Thomas M. Stuckey /s/ Stephen A. Zelnick April 15, 2002 Director - ---------------------------- Stephen A. Zelnick /s/ Leonard Schiller April 15, 2002 Director - ---------------------------- Leonard Schiller /s/ Paul Gregory April 15, 2002 Director - ---------------------------- Paul Gregory 38 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Milestone Scientific, Inc. We have audited the accompanying consolidated balance sheet of MILESTONE SCIENTIFIC, INC. AND SUBSIDIARIES as of December 31, 2001, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Milestone Scientific, Inc. and Subsidiaries as of December 31, 2001, and their results of operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. J.H. Cohn LLP Roseland, New Jersey April 6, 2002, except for Notes B, H, I and K which are as of April 15, 2002 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Milestone Scientific, Inc. We have audited the accompanying consolidated statements of operations, stockholders' equity (deficit) and cash flows of Milestone Scientific, Inc. and subsidiaries for the year 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the statements of operations, stockholders' equity (deficit) and cash flows referred to above present fairly, in all material respects, the consolidated results of operations and consolidated cash flows of Milestone Scientific Inc. and Subsidiaries for the year ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. The 2000 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 a net loss of $7,509,855 for the year ended December 31, 2000. Cash used in operations amounted to $2,842,677 for the year ended December 31, 2000 and the Company also had stockholders' deficit of $1,702,335. 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-2 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2001
ASSETS CURRENT ASSETS: Cash and cash equivalents $ 15,742 Accounts receivable, net of allowance for doubtful accounts of $54,865 363,743 Inventories 162,640 Advances to contract manufacturer 315,000 Prepaid expenses 30,985 ------------ Total current assets 888,110 PROPERTY AND EQUIPMENT, net 207,823 ADVANCES TO CONTRACT MANUFACTURER - Long term 374,529 OTHER ASSETS 45,277 ------------ Total $ 1,515,739 ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Account payable, including $43,000 to related parties $ 1,063,363 Accrued expenses 105,410 ------------ Total current liabilities 1,168,773 Accrued Interest 221,982 Accounts Payable, including $272,866 to a related party 338,940 Deferred compensation payable to officer/stockholder 491,346 Notes payable 3,553,665 Note payable - officer/stockholder 200,000 ------------ Total liabilities 5,974,706 ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIENCY: Common stock, par value $.001; authorized, 25,000,000 shares; 11,372,847 shares issued and outstanding 11,373 Additional paid-in capital 36,090,566 Accumulated deficit (39,346,570) Unearned advertising (302,820) Treasury stock, at cost, 100,000 shares (911,516) ------------ Total stockholders' deficiency (4,458,967) ------------ Total $ 1,515,739 ============
The accompanying notes are an integral part of these statements. F-3 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31,
2001 2000 ---- ---- Revenues $ 4,093,710 $ 5,674,351 Cost of Sales, including a $956,546 impairment charge for tooling equipment in 2000 1,973,156 3,626,786 ------------ ------------ Gross profit 2,120,554 2,047,565 ------------ ------------ Selling, general and administrative expenses 5,271,032 7,250,780 Impairment charge for patents -- 1,247,175 Research and development expenses 49,943 386,250 Loss from termination of Wisdom product line -- 17,783 ------------ ------------ (5,320,975) (8,901,988) ------------ ------------ Loss from operations (3,200,421) (6,854,423) Interest income 2,936 9,408 Interest expense (858,582) (436,340) Sale of prophy angle business 64,487 -- Litigation settlement -- (228,500) ------------ ------------ NET LOSS $ (3,991,580) $ (7,509,855) ============ ============ Loss per common share - basic and diluted $ (.36) $ (.72) ============ ============ Weighted-average shares outstanding - basic and diluted 11,142,590 10,489,689 ============ ============
The accompanying notes are an integral part of these statements. F-4 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) Years Ended December 31, 2001 and 2000
Common Stock Additional ---------------- Paid in Accumulated Unearned Deferred Treasury Shares Amount Capital Deficit Advertising Compensation Stock Total ------ ------ ------- ------- ----------- ------------ ----- ----- Balance, January 1, 2000 8,864,898 $ 8,865 $ 30,877,375 $ (27,845,135) $ (911,516) $ 2,129,589 Warrants issued to consultants 520,975 520,975 Common stock issued in settlement of litigation 88,000 88 203,412 203,500 Conversion of note payable into common stock 1,800,000 1,800 2,248,200 2,250,000 Cost associated with registering common stock (32,521) (32,521) Options issued to directors 62,110 (31,055) 31,055 Warrants issued with convertible notes 502,830 502,830 Repricing of warrants issued to financing officers 202,092 202,092 Net Loss (7,509,855) (7,509,855) -------------------------------------------------------------------------------------------------------- Balance December 31, 2000 10,752,898 10,753 34,584,473 (35,354,990) -- (31,055) (911,516) (1,702,335) Warrants issued with draw- down on credit facility 23,400 23,400 Common stock issued for consideration for payment of accrued interest 27,641 28 36,251 36,279 Warrants issued pursuant to a $500,000 line of credit 40,000 40,000 Common stock issued for services rendered 92,308 92 149,908 150,000 Warrants issued for unearned advertising fees 324,218 (324,218) 0 Proceeds from sale of common stock, net of expenses 500,000 500 491,500 492,000 Warrants issued to consultants 100,000 100,000 Stock options issued for services rendered 97,649 97,649 Amortization of unearned advertising expense 21,398 21,398 Amortization of deferred compensation 31,055 31,055 Proceeds from sale of common stock, net of expenses yet to be issued 243,167 243,167 Net loss (3,991,580) (3,991,580) -------------------------------------------------------------------------------------------------------- Balance, December 31, 2001 11,372,847 $11,373 $ 36,090,566 $ (39,346,570) $(302,820) $ -- $ (911,516) $(4,458,967) =======================================================================================================
The accompanying notes are an integral part of these statements. F-5 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31,
2001 2000 ----------- ----------- Cash flows from operating activities: Net loss $(3,991,580) $(7,509,855) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 75,990 474,071 Amortization of unearned advertising cost 21,398 -- Amortization of debt discount and deferred financing costs 306,734 377,963 Amortization of patents -- 244,549 Common stock issued for services 150,000 -- Amortization of unearned compensation 31,055 31,055 Stock options and warrants issued to consultants 197,649 520,975 Common stock issued in litigation settlement -- 203,500 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 operating assets and liabilities: (Increase) decrease in accounts receivable 165,801 (231,766) (Increase) decrease in inventories 13,533 (330,072) Decrease in advances to contract manufacturer 315,000 703,259 Decrease in prepaid expenses 121,727 39,924 (Increase) decrease in other assets (2,044) -- Increase in accounts payable 253,776 152,407 Increase in accrued interest 551,847 130,416 Increase (decrease) in accrued expenses 54,178 (11,953) Increase in deferred compensation 350,000 141,346 ----------- ----------- Net cash used in operating activities (1,384,936) (2,842,677) ----------- ----------- Cash flows from investing activities payment for Capital expenditures (10,672) (51,773) ----------- ----------- Cash flows from financing activities Proceeds received from sale of common stock, net of expenses 492,000 -- Proceeds received from note payable-- officer/stockholder -- 200,000 Proceeds received from line of credit 500,000 -- Proceeds received from issuance of notes payable 100,000 2,900,000 Principal payments on notes payable -- (243,005) Proceeds from the sale of common stock yet to be issued 243,167 -- Payments for deferred financing costs (96,684) (32,521) ----------- ----------- Net cash provided by financing activities 1,238,483 2,824,474 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (157,125) (69,976) Cash and cash equivalents at beginning of year 172,867 242,843 ----------- ----------- Cash and cash equivalents at end of year $ 15,742 $ 172,867 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for Interest $ 0 $ 58,727 =========== ===========
F-6 Milestone Scientific Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Supplemental schedule of noncash investing and financing activities: During 2001, pursuant to the 20% promissory note agreements, the Company converted $222,417 of accrued interest into additional principal. In January 2001, the Company granted warrants to purchase 20,000 shares of common stock (with an estimated fair value of $23,400) in connection with $100,000 drawn down on the $1,000,000 credit facility provided by a major existing investor. This resulted in an initial increase to debt discount and to additional paid in capital. In February 2001, the Company issued 27,641 shares of common stock in exchange for payment of accrued interest totaling $36,279. In March 2001, pursuant to a $500,000 line of credit agreement, the Company granted warrants to purchase 100,000 shares of common stock (with an estimated fair value of $40,000). This resulted in an initial increase to debt discount and in additional paid in capital. In March 2001, the Company granted warrants to purchase 390,625 shares of common stock with an estimated fair value of $324,418 for advertising services. This amount was recorded in stockholders' deficit as an increase to unearned advertising and in additional paid in capital. 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 of common stock at an exercise price at $3.00 per share expiring on July 31, 2005 and 80,000 shares of common stock at an exercise price at $1.25 per share expiring on December 7, 2005 were issued in connection with the aggregate draw down of $900,000 of a $1,000,000 line of credit. These warrants vest immediately. This resulted in debt discounts of $136,046 and $76,375, respectively, and equal increases in additional paid-in capital. F-7 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2001 and 2000 NOTE A -- ORGANIZATION Milestone Scientific Inc. (the "Company" or "Milestone") was incorporated in the State of Delaware in August 1989. Milestone has developed a proprietary, computer-controlled anesthetic delivery system, through the use of the Wand(R), a single use disposable handpiece. The system is marketed in dentistry under the trademark CompuDent(TM) and in medicine under the trademark CompuMed(TM). CompuDent(TM) is suitable for all dental anesthetic procedures. CompuMed(TM) is suitable for many medical procedures regularly performed in Plastic Surgery, Hair Restoration Surgery, Podiatry, Dermatology, Orthopedics and a number of other disciplines. CompuDent(TM) and CompuMed(TM) are sold in the United States and in over 25 countries abroad. The Company's products are manufactured by third-party contract manufacturers. NOTE B -- LIQUIDITY AND FINANCIAL CONDITION The Company incurred net losses of $3,991,580 and $7,509,855 for the years ended December 31, 2001 and December 31, 2000, respectively. Cash used in operations amounted to $1,384,936 and $2,842,677 for the years ended December 31, 2001 and December 31, 2000, respectively. As of December 31, 2001, the Company has a stockholders' deficit of $4,458,967 and a working capital deficiency of $280,663. Despite limited resources, Milestone has continued its efforts to realize the market potential of its Wand(R) technology and become profitable. This is based on a belief that CompuDent(TM), CompuMed(TM) and The Wand(R) technology is a major advance in the delivery of local anesthesia and that the potential applications of this technology extends beyond dentistry. Based on scientific and anecdotal support, Milestone contends that CompuMed(TM) could enhance the practices of the estimated 90,000 physicians included in such non-dental disciplines, as Podiatry, Hair Restoration, Plastic Surgery, Dermatology and procedures in Orthopedics, OB-GYN and Ophthalmology. Accordingly, the steps taken include (i) relaunching of The Wand Plus(TM) drive unit domestically, under the name CompuDent(TM), (ii) distribution of CompuDent(TM) through a host of channels (i.e. independent sales representatives and an inside sales group), (iii) advertising to increase the awareness of the product, (iv) implementing cost reduction programs, and (vi) launching The Wand Plus(TM) drive unit for medical purposes and marketing it as CompuMed(TM). 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 the CompuDent(TM), CompuMed(TM), and The Wand and Compuflo technologies. Milestone's cost reduction program includes eliminating a key executive position and obtaining the Chief Executive Officer's consent to accept stock and warrants as payment of his salary. Management believes that the above steps are critical to the realization of Milestone's long-term business strategy. 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. In 2000, due to the Company's history of generating losses on sales of its principal product, CompuDent(TM) , 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 was in doubt. As a result of continued losses from operations, the Company determined that an impairment of certain assets had 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. Management's efforts during 2001 have focused on reducing its cash flows, obtaining additional financing and reducing the cash outlays with existing debt. F-8 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE B (continued) From January 1, 2002 through April 15, 2002, the Company extended $3,705,359 of the following obligations. On March 28, 2002, the Company entered into an agreement with a vendor to issue a total of 187,500 units for payment on accounts payable of $93,924 and for future services of $56,076 aggregating $150,000. At December 31, 2001, accounts payable with the vendor was $66,100. (See Note R) On March 29, 2002, the Company entered into the following agreements for: o Deferring payment on accounts payable to a related party totaling $272,866 at December 31, 2001 until January 2, 2003. (See Note P) o Extending the maturity date of its $200,000 obligation and accrued interest of $26,600 to its Chief Executive Officer ("CEO") until January 2, 2003. (See Note H) o Deferring payment on $320,000 of the CEO's $350,000 salary until January 2, 2003. (See Note K) o Establishing a 6% $100,000 line of credit with its CEO through January 2, 2003, payable on April 2, 2003. On March 31, 2002, the senior secured zero coupon 20% promissory notes were originally due. On March 31, 2002, the Company obtained the required consents from the senior secured zero coupon 20% promissory note noteholders whose outstanding face value (principal plus accrued interest) was collectively greater then 80% of the total outstanding face value of the obligations to extend the maturity date up to 30 days. (See Note I) On April 12, 2002 and on April 15, 2002, the Company entered into the following agreements with existing noteholders: o The Company received the required consents from the senior secured zero coupon 20% promissory noteholders whose outstanding face value (principal plus accrued interest) was collectively greater then 80% of the total outstanding face value of the obligation and the following occurred; (1) the notes were extended to July 1, 2003 and (2) the interest rate was reduced to 6% if paid in cash or reduced to 12% if paid in common stock. Additionally, at the option of the Company, the face value on the maturity dates will be payable either in cash or in the Company's common stock, valued at the average closing price per share for the five trading dates prior to July 1, 2003. Furthermore, for the holders who had given their consent the Company will issue to these holders 120 shares of the Company's common stock for each $1,000 face amount outstanding at maturity. (See Note I) o Extending the 20% promissory notes to July 1, 2003 and lowering the interest rate from 20% to 6% if paid in cash or to 12% if paid in common stock. (See Note I) o Extending the 8% $500,000 promissory note to August 1, 2003. (See Note I) o Extending the 10% line of credit for $500,000 to August 1, 2003. (See Note I) o Establishing at 6% $200,000 line of credit with an existing investor through January 2, 2003 o Allowing the Company to issue additional unsecured debt so long as the maturity date is subsequent to August 1, 2003. F-9 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 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. 3. Inventories Inventories principally consist of 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. Debt Issue Cost and Debt Discount Debt issue costs are deferred and amortized to interest expense over the term of the related loan on a straight line method, which approximates the interest method. Debt discounts offset against the principal balance and amortize using the interest method over the term of the related loan. 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 had occurred. Accordingly, the Company recorded, in the fourth quarter, a noncash charge of $2,203,721 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 and collectibility is assured. 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. Basic and diluted net loss per common share Basic and diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. Potentially dilutive securities have been excluded from the computation of diluted earnings per share, 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 3,325,832 and 1,708,801 outstanding options and warrants for the years ended December 31, 2001 and 2000, respectively. F-10 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE C (continued) 11. Use of Estimates The preparation of the consolidated 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. The most significant estimates relate to the allowance for doubtful accounts, advances to contract manufacturer inventory valuation allowances, and valuation allowances on deferred tax assets. Actual results could differ from those estimates. 12. Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, 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. 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. NOTE D -- ACQUISITIONS 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 was valued at zero for the years ended December 31, 2001 and 2000. F-11 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE D (continued) 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. 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 2001 increased the Company's ownership in Spintech to 88.7%. Milestone's ownership was 87.0% as of December 31, 2000. The Company's ownership had 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 -- INVENTORIES Inventories consist of the following: The Wand(R) units and handpieces $ 106,505 Component parts and other materials 207,314 --------- 313,819 Reserve 151,179 --------- $ 162,640 ========= NOTE F - ADVANCES TO CONTRACT MANFACTURER Advances to contract manufacturer represents deposits to the Company's contract manufacturer to fund future inventory commitments. The aggregate amount of the advances amounted to $689,529 of which approximately $315,000 is estimated to be used in 2002. NOTE G -- PROPERTY AND EQUIPMENT Property and equipment consist of the following: Furniture and fixtures $ 204,457 Office equipment 171,829 Trade show displays 81,800 Computer servers and software 113,362 ---------- 571,448 Less accumulated depreciation (363,625) ---------- $ 207,823 ========== F-12 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE H -- 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 and due January 2, 2003. Interest expense for the years ended December 31, 2001 and 2000 was $18,250 and $8,350, respectively. (See Note B) NOTE I -- NOTES PAYABLE (See NOTE B) Notes payable consist of the following: Senior secured zero coupon 20% promissory notes, originally due on March 31, 2002, extended to April 30, 2002, subsequently extended to July 1, 2003, net of debt discount of $9,993. $ 969,419 10% Line of credit for $500,000, originally due on August 31, 2002, extended to August 1, 2003, net of debt discount of $18,889. 481,111 20% Promissory notes, originally due on October 1, 2002 extended to July 1, 2003. 1,239,981 8% Promissory notes payable, $500,000 originally due June 30, 2003, extended to August 1, 2003 and $500,000 due December 31, 2003, net of debt discount of $136,846. 863,154 ---------- Total $3,553,665 ========== Senior Secured Zero Coupon Promissory Notes In February 2000, the Company concluded a $1 million institutional private placement of 10% Senior Secured Promissory notes which were originally due June 30, 2001 and warrants to purchase 142,857 shares of the Company's common 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 the Company 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 the Company. The estimated fair market value of the warrants, which amounted to $292,857, was recorded as debt discount and was being amortized through June 30, 2001. On March 16, 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 the Company 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 repriced back to the initial exercise price of $1.75 per share at the date of grant. F-13 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE I (continued) As a result of the Company restructuring its obligations, the unamortized portion of the debt discount was being amortized through March 31, 2002. Additionally, the Company incurred $68,300 of deferred financing costs, which was being amortized through March 31, 2002. On March 31, 2002, the holders agreed to extend the maturity date up to 30 days. Subsequently on April 15, 2002 the holders agreed to extend the maturity date to July 1, 2003. In connection with the extension, the unamortized debt discount and the deferred financing costs will be amortized through July 1, 2003. Accordingly, these zero coupon notes including accrued interest has been recorded as long term in the consolidated financial statements. $500,000 Line of Credit On March 9, 2001 from a major existing investor, the Company obtained a 10%, $500,000 line of credit, which was to mature on August 31, 2002. Additionally, the Company pays a 2% facility fee on the line outstanding balance. At the option of the Company, interest and the facility fee would have been payable either on (i) August 31, 2002 in cash, or (ii) quarterly in shares of the Company's common stock. In connection with obtaining the line of credit, the lender received warrants to purchase 100,000 shares of common stock at an exercised price of $1.10. The estimated fair value of the warrants, which amounted to $40,000, was recorded as a debt discount and was being amortized through August 31, 2002. In addition, the Company incurred deferred financing fees of $28,384 which was being amortized to August 31, 2002. As of December 31, 2001, the Company had drawn down the entire $500,000 from the line of credit. Subsequent to December 31, 2001, the Company issued 33,840 units in consideration for payment of interest (See Note R). Moreover, the line of credit agreement has been amended to allow the Company to use funds available under this agreement for general corporate purposes. On April 12, 2002 the investor agreed to extend the line of credit and payment for interest to August 1, 2003. In connection with the extension, the unamortized debt discount and the deferred financing costs will be amortized to August 1, 2003. Accordingly, the line of credit including accrued interest has been recorded as long term in the consolidated financial statements. 20% Promissory Notes In August 2000, the Company borrowed $1,000,000 which consists of two loans from two funds managed by Cumberland Associates LLC, and bear 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. The loans are secured by substantially all assets of the Company and are subordinated to the zero coupon notes dated, March 16, 2001. The loans are prepayable in cash at any time, and are prepayable, with accrued interest, in the Company's Common Stock at the option of the Company after March 31, 2001. Stock issued in payment of this debt will be valued at 85% of the then market prices. During 2001, the Company converted $222,417 of accrued interest into principal. On April 15, 2002 Cumberland Associates LLC agreed to extend the maturity date of these loans to July 1, 2003. In connection with the extension, the unamortized debt discount will be amortized to July 1, 2003. Accordingly, these loans have been recorded as long term debt in the accompanying consolidated financial statements. (See Note B.) 8% Promissory Notes On July 31, 2000, the Company established a $1,000,000 credit facility with a major existing investor. Initially, $500,000 was borrowed under the line, which was due on June 30, 2003. In December 2000 and January 2001, the Company borrowed under the credit facility an additional $400,000 and $100,000, respectively, due on December 31, 2003. In connection with the initial $500,000, the investor received five-year warrants to purchase 70,000 shares of the Company's common stock, exercisable at $3.00 per share. F-14 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE I (continued) In connection with the $400,000, the investor received five-year warrants to purchase 80,000 shares of the Company's common stock exercisable at $1.25 per share. In connection with the $100,000, the investor received five-year warrants to purchase 20,000 shares of the Company's common stock at $1.25 per share. On April 12, 2002 the investor agreed to extend the maturity date of the $500,000 originally due June 30, 2003 to August 1, 2003. Accordingly, in connection with the extension, the unamortized debt discount will be amortized to August 1, 2003. Accordingly, these loans have been recorded as long term debt in the accompanying consolidated financial statements. NOTE J -- 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 during the years ended December 31, 2001 and 2000 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. 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, 2001 and 2000 would have increased to the following pro forma amounts: December 31, ------------------------------ 2001 2000 ------------- ------------- Net loss as reported $ (3,991,580) $ (7,509,855) Pro forma net loss (4,484,067) (9,018,851) Loss per share as reported $ (.36) $ (.72) Pro forma loss per share (.40) (.86) The weighted-average fair value of the individual options granted during 2001 and 2000 was estimated as $1.79 and $1.73, respectively, on the date of grant. The fair value for 2001 and 2000 was determined using a Black-Scholes option-pricing model with the following assumptions: F-15 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE J (continued) December 31, ------------------------- 2001 2000 ---------- ---------- Volatility 92.0% 140% Risk-free interest rate 5.7% 6% Expected life 5 years 5 years Stock option activity during 2001 and 2000 is summarized below: Shares of Weighted- common stock average attributable exercise to options price of options ---------- -------------- Options outstanding at January 1, 2000 778,000 $ 7.51 Granted 291,110 1.79 Forfeited (140,000) (11.62) ---------- Options outstanding at December 31, 2000 929,110 5.11 Granted 140,000 2.32 Forfeited (139,844) 3.02 ---------- Options outstanding at December 31, 2001 929,266 $ 5.16 ========= F-16 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE J (continued) The following table summarizes information concerning outstanding and exercisable options at December 31, 2001. Remaining Number Contractual Number Exercise Prices Outstanding Life (Years) Exercisable - --------------- ----------- ----------- ----------- $ .88 50,000 3.00 50,000 1.00 50,000 2.00 50,000 1.25 5,000 2.75 3,333 1.56 5,000 1.75 5,000 1.61 37,266 3.50 37,266 1.81 16,000 3.00 5,322 2.00 50,000 4.00 0 2.19 97,000 3.50 32,336 2.50 190,000 3.00 66,666 3.00 33,500 1.50 32,000 4.00 1,500 2.50 1,000 5.00 1,500 2.50 1,000 5.13 112,000 .25 112,000 5.38 20,000 .5 20,000 6.00 1,500 2.50 1,000 6.50 4,000 .50 4,000 7.00 106,500 .50 106,500 7.56 43,500 .50 43,500 16.00 50,000 1.00 50,000 16.50 25,000 1.25 25,000 23.00 30,000 1.25 30,000 ----------- ----------- 929,266 675,923 =========== =========== The weighted-average exercise price of options exercisable at December 31, 2001 is $6.22. The Company charged $197,649 to operations during the year ended December 31, 2001, representing the fair market value of 330,000 warrants and stock options issued to consultants. Furthermore, the Company 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. NOTE K- EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION In January 1998, the Company entered into a five-year employment contract with its 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 F-17 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE K (continued) defer his annual salary on a discretionary basis. Accordingly, the Company has recorded deferred compensation payable to the CEO in the amount of $491,346 at December 31, 2001. The CEO reserves the right to resume his normal salary payments (pursuant to the terms of his employment agreement) at any time. In January 2002, in consideration for payment on the deferred compensation, the Company issued 625,000 units. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock. The warrants are exercisable at $.80 per share through January 31, 2003 and then at $1.00 per share through January 31, 2004 and thereafter at $2.00 per share through January 31, 2007. Furthermore, on March 29, 2002 the CEO has agreed to defer payment on $320,000 of his 2002 salary of $350,000 until January 2, 2003. (See Note B) NOTE L - SALES OF PROPHY ANGLES In November 2001, the Company sold certain tangible and intangible asset, right and properties (which were fully amortized) relating to the SplatrFree(TM) prophy angle to Smart Health, Inc. for $55,000. In addition, the Company entered into a 12 month consulting agreement with Smart Health for $96,000. NOTE M - INCOME TAXES Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at December 31, 2001 are as follows: Current assets and liabilities Allowance for doubtful accounts $ 22,000 Inventory allowance 60,000 Warrants issued to consultants -- Other -- Valuation allowance (82,000) ------------ Current deferred tax asset $ -- ============ Non-current assets and liabilities Depreciation $ (540,000) Asset impairment charge -- Net operating loss carryforward 13,600,000 Warrants and options issued to consultants 423,000 Accrued interest 177,000 Other -- ------------ 13,660,000 Valuation allowance (13,660,000) ------------ Non-current deferred tax asset (liability) $ -- ============ F-18 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE M (continued) For the year ended December 31, 2001 the valuation allowance increased $2,038,000. As of December 31, 2001, the Company has Federal and State net operating loss carryforwards of approximately $34,000,000 that will be available to offset future taxable income, if any through December 2021. 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 N - PRODUCT SALES AND SIGNIFICANT CUSTOMERS The Company's sales by product and by geographical region are as follows: December 31, ------------ 2001 2000 ---- ---- The Wand(R) system kits $1,828,801 $3,551,075 The Wand(R) handpieces 1,948,769 1,916,354 Prophy angles 71,592 76,680 Dental needles 168,169 121,760 Other 76,379 8,482 ---------- ---------- $4,093,710 $5,674,351 ========== ========== United States $3,354,302 $3,458,522 Canada 173,729 205,314 Other foreign countries 565,679 2,010,515 ---------- ---------- $4,093,710 $5,674,351 ========== ========== During the years ended December 31, 2001 and 2000, the Company had sales to one customer (a worldwide distributor of the Company's products based in South Africa) of approximately $410,000 and $641,000, respectively. This represented 10% and 11% the total net sales for 2001 and 2000, respectively. Accounts receivable from this customer amounted to approximately $152,000, representing 42% of net accounts receivable due at December 31, 2001. Furthermore, sales in 2000 to two other customers aggregating $1,250,000 represented 12% and 10% of sales, respectively. NOTE O - COMMITMENTS AND CONTINGENCIES Lease Commitments The Company leases office space and warehouse facilities under noncancelable operating leases. These leases also provide for escalations of the Company's share of utilities and operating expenses, which expired through 2007. F-19 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE O (continued) Aggregate minimum rental commitments under noncancelable operating leases are as follows: Year Ending December 31, - ------------------------ 2002 $101,000 2003 104,000 2004 87,000 2005 56,000 2006 62,000 Thereafter 16,000 -------- $426,000 ======== For the year ended December 31, 2001, rent expense amounted to approximately $102,000. For the year ended December 31, 2000, rent expense including equipment leases was approximately $143,000 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. 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. Contingencies In March 2001, the Company entered into an advertising agreement with News USA, Inc. and Vested Media Partners, Inc. (the "Agreement") to increase the awareness of healthcare professionals and the public to the benefits of The Wand(R) and the CompuFlo(TM) technologies. Under the Agreement, News USA is required to prepare articles and advertisements for the Company's products and technologies and place them in newspapers and on radio stations. News USA has guaranteed 72,000 media placements during the 18-month term of the Agreement. In exchange for these services the Company granted warrants to purchase 1,171,875 shares of common stock exercisable on the following dates and prices over the life of the Agreement; (1) $1.28 during the first 18 months, (2) $2.25 during the next nine months and (3) $3.00 during the next nine months. The Agreement provides for a termination clause in the fourth month if the Company's average closing stock price does not exceed $2.25 during the first ten days of the fourth month provided that the Company has received 24,000 publications. Accordingly, the remaining two-thirds of the warrants to purchase the Company's common stock would not become exercisable. However, the vendor can recommence producing the publications whenever the Company's average closing stock price for a ten day period exceeds $2.25. At the end of the ninth month, the vendors have the option to terminate the Agreement if the Company's stock price has not averaged $2.25 for a ten day period. Upon termination, two-thirds of the warrants remaining to purchase the Company's common stock will be forfeited unless the vendors resume fulfilling one-half of their obligation in three months and the remaining obligation in the next six months. F-20 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE O (continued) As of December 31, 2001, the Company recorded unearned advertising cost of $324,218 which represents the estimated fair value of the 390,625 of the warrants for one-third of the total warrants granted based on the 24,000 minimum placements. The unearned advertising costs are being amortized as publications are received by the Company over the minimum placements. For the year ended December 31, 2001, the Company recorded advertising charges of $21,398. The estimated fair value of the remaining warrants to purchase 781,250 of the Company's common stock have not been recorded in the Company's consolidated financial statements due to the likelihood that the Agreement will not be fulfilled. NOTE P - RELATED PARTY TRANSACTIONS The Company paid $72,500 and $191,501 during the years ended December 31, 2001 and December 31, 2000, respectively, to a law firm where one of the partners is also on the Company's Board of Directors. At December 31, 2001, the Company had accounts payable to the law firm of $302,866. On March 29, 2002, the Company entered into an agreement with the law firm deferring $272,866 of the accounts payable to January 2, 2003 (See Note B). The law firm and the Director also participated in the February 2001 private placement (See Note I), each purchasing $50,000 of 10% Senior Secured Promissory Notes and warrants to purchase 7,143 shares of the Company's Common Stock. For the years ended December 31, 2001 and 2000 aggregate interest expense was $24,541 and $9,723, respectively. The notes were extended to July 1, 2003. (See Note B) For the year ended December 31, 2001, the Company paid $20,850 to the wife of Milestone's CEO. She was employed by Milestone to render professional services. At December 31, 2001, the Company had accounts payable to the wife of Milestone's CEO of $13,000. NOTE Q - STOCKHOLDERS' DEFICIT In January 2001, the Company issued 92,308 shares of common stock with a value of 150,000 for services rendered. In January 2001, the Company issued warrants to consultants to purchase 175,000 shares of common stock having an estimated value of $100,000. The warrants are exercisable at any time prior to January 22, 2003 at a price of $1.86. In February 2001, the Company issued 27,641 shares of common stock in exchange for payment of accrued interest totaling $36,279. In March 2001, the Company sold 500,000 shares of common stock, receiving $492,000, net of expenses. In July 2001, the Company issued options to non-employees/consultants to purchase 155,000 shares of common stock. The aggregate value of the options was $97,649. In December 2001, the Company sold 325,000 units and received net proceeds of $243,167, net of expenses. Each unit consisted of one share of the Company's common stock and a warrant to purchase an additional share of common stock. The warrants are exercisable at $.80 per share through December 31, 2003 and $1.00 per share through January 31, 2004 and thereafter at $2.00 per share through January 31, 2007. As of December 31, 2001, the common stock has not been issued, and accordingly, the common stock has been recorded as yet to be issued. (See Note R) F-21 Milestone Scientific Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2001 AND 2000 NOTE R - SUBSEQUENT EVENTS Through March 21, 2002, the Company issued 33,840 units in exchange for payment of accrued interest totaling $27,072 relating to the $500,000 line of credit. The warrants are exercisable at $.80 per share through December 31, 2003 and $1.00 per share through January 31, 2004 and thereafter at $2.00 per share through January 31, 2007. In addition 325,000 shares of the Company's common stock which were received prior to December 31, 2001 were issued. (See Notes I and Q) On March 28, 2002, the Company entered into an agreement with a vendor to issue 187,500 units in consideration for payment on trade payables totaling $93,924 and future services totaling $56,076. Each unit consisted of one share of the Company's common stock and a warrant to purchase an additional share of common stock. The warrants are exercisable at $.80 per share through December 31, 2003 and at $1.00 per share through January 31, 2004 and thereafter at $2.00 per share through January 31, 2007 at which time they expire. On February 19, 2002, Milestone issued a $150,000 promissory note to an existing investor. The note bears interest at 8% interest if paid in cash and 10% if paid through equity. Principal and interest is to be repaid on August 1, 2003, the maturity date. In April 2002, Milestone announced that the United States Patent Office has granted a Notice of Allowance for broad patent protection of a new safety engineered needle technology to be issued to Milestone Scientific, Inc. When commercialized, this new technology will be used with a plethora of infusion devices, including the Company's CompuDent(TM) and CompuMed(TM) computer controlled local anesthetic delivery systems as well as the CompuFlo(TM), an enabling technology for computer controlled infusion, perfusion, suffusion and aspiration of fluids. F-22 EX-4.25 3 ex4-25.txt AMENDMENT TO LINE OF CREDIT AGREEMENT Exhibit 4.25 AMENDMENT TO LINE OF CREDIT AGREEMENT AMENDMENT, dated July 30, 2001, (the "Amendment") by and between Milestone Scientific Inc., a Delaware corporation, having its principal offices at 220 South Orange Avenue, Livingston, New Jersey 07039 (the "Company"), and K. Tucker Andersen (the "Lender"), having an address c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, NY 10036. For good and valuable consideration, the sufficiency of which is hereby acknowledged, the undersigned hereby agree to the following amendments to the Line of Credit Agreement, dated March 9, 2001, by and between the Company and the Lender (the "Agreement"): A. The Agreement is hereby amended by striking Paragraph 1.4 thereof and replacing said paragraph with the following new Paragraph 1.4: 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 such funds as from time to time may be needed by the Company in its discretion. B. The Agreement is hereby amended further by striking Paragraph 4.9 thereof and replacing said paragraph with the following new Paragraph 4.9: 4.9 Use of Proceeds. Borrowings under Paragraph 1.4 of this Agreement will be used for general corporate purposes. C. Except as otherwise provided herein, the Agreement, the 10% Promissory Note and Warrant issued thereunder, and the Registration Rights Agreement by and between the Company and the Lender, dated March 9, 2001, 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 2 EX-4.26 4 ex4-26.txt PURCHASE AGREEMENT Exhibit 4.26 PURCHASE AGREEMENT PURCHASE AGREEMENT (this "Agreement") is made as of October 4, 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 having an address c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, New York 10036 (the "Purchaser"). WHEREAS, the Company desires to sell to Purchaser and Purchaser desires to purchase from the Company $75,000 face amount of its 10% Convertible Promissory Notes (the "Notes"), substantially in the form annexed hereto as Exhibit A. NOW, THEREFORE, in consideration of the premises and the covenants herein contained, the parties hereto agree as follows: 1. Purchase and Sale of Notes. (a) Subject to the terms and conditions hereinafter set forth, Purchaser hereby subscribes for and agrees to purchase from the Company the Notes. (b) The purchase price for the Notes shall be $75,000 (the "Purchase Price"). The Purchase Price is payable by check made payable to the Company or by wire transfer of funds, contemporaneously with the execution and delivery of this Agreement. The Notes being purchased by Purchaser will be delivered by the Company on the Closing Date (as defined below). 2. Terms of the Notes. Except as otherwise set forth in this Agreement, the terms of the Notes, shall be as set forth in the Notes. 3. Closing. The closing of the transactions contemplated hereby ("Closing") shall take place on a date (the "Closing Date") within three (3) business days following the satisfaction of the conditions set forth herein and at such times as shall be determined by the Company at the offices of Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York 10022. 4. Representations and Warranties of the Company. The Company hereby represents and warrants to Purchaser, which representations and warranties shall be true and correct as of the date hereof and as of the Closing Date, as follows: 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 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. When issued, the Notes will be the legal and binding obligations of the Company enforceable in accordance with their terms. The shares of Common Stock issuable in respect of interest payable on the Notes or upon conversion of the Notes have been duly authorized and reserved for issuance and, when issued, 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. 4.3 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, 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, 2 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. 4.4 Securities Law Exemption. Assuming the accuracy of Purchaser's representations and warranties set forth herein, the sale of the Notes 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. 4.5 Use of Proceeds. The proceeds from the sale of the Notes will be used for working capital. 4.6 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 Purchasers. The Purchaser hereby represents and warrants to the Company, which representations and warranties shall be true and correct as of the date hereof and the Closing Date, as follows: 5.1 Authorization of Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of Purchaser, does not violate any laws or regulations applicable to Purchaser and is the valid binding and enforceable obligation of Purchaser in accordance with its terms. 5.2 Accredited Investor. Purchaser is an "accredited investor" as that term is defined in Rule 501(a) of the Securities Act, and the rules promulgated thereunder. 5.3 Investment. Purchaser acknowledges that this offering of Notes have not been reviewed by the United States Securities and Exchange Commission ("SEC") and that the sale of the Notes pursuant hereto is intended to be a nonpublic offering pursuant to Sections 4(2), 4(6) or 3(b) of the Securities Act. Purchaser represents that the Notes are being purchased for his own account, for investment and not for distribution or resale to others. Purchaser agrees that Purchaser will not sell or otherwise transfer the Notes or the shares of the Common Stock issuable in payment of interest on the Notes or upon conversion of the Notes, unless such securities, as the case may be, are registered under the Securities Act or unless an exemption from such registration is available. Purchaser understands that neither the Notes nor the shares of Common Stock issuable upon in payment of interest on the Notes nor the shares of Common Stock issuable upon 3 conversion of the Notes 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. 5.4 Access to Data. Purchaser has been given copies of the SEC Filings and has had an opportunity to review same. Purchaser 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 Purchaser's satisfaction. Purchaser 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. 5.5 Speculative Nature of Investment. Purchaser acknowledges that the purchase of the Notes 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 the Notes; (ii) Purchaser may not be able to liquidate his investment; (iii) transferability of the Notes and the shares of Common Stock issuable in payment of interest on the Notes and upon conversion of the Notes is extremely limited; and (iv) Purchaser could sustain the loss of his entire investment. 5.6 Legends. Purchaser consents to the placement of a legend on the Notes and shares of Common Stock issued in payment of interest on the Notes and upon conversion of the Notes, provided they are not then covered by an effective Registration Statement, all as set forth in Section 6 of this Agreement. 5.7 No Other Representations. Purchaser hereby represents that, except as set forth herein, no representations or warranties have been made to the Purchaser by the Company or any agent, employee or affiliate of the Company and in entering into this transaction, Purchaser 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 Purchaser. The Purchaser 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. 5.8 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 Purchaser or any of its directors, officers, employees or agents. 4 6. Legends. The Notes 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 PURCHASE AGREEMENT, DATED AS OF OCTOBER 4, 2001, A COPY OF WHICH IS ON FILE AT THE EXECUTIVE OFFICES OF MILESTONE SCIENTIFIC INC. 7. Registration Rights. The Company will use its reasonable best efforts to file with the Securities and Exchange Commission no later than May 31, 2002, 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. 8. Confidentiality. Purchaser covenants and agrees that none of Purchaser, 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 Purchaser 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 Purchaser that, from the date hereof and until the Notes have been paid in full, it shall: 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. 5 9.2 Notice of Proceedings. Give prompt written notice to the Purchaser 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 Purchasers 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 Purchaser 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 Section 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 Purchaser 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 in respect of interest payable on the Notes or upon conversion of 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 Notes are outstanding it will at all times have authorized and reserved a sufficient number of shares of Common Stock to permit the conversion of the Notes. 6 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 Purchaser 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 Closing Date, as if made on and as of the Closing Date. 10.2 Performance of Agreements. Each Purchaser 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 any of them on or before the Closing Date pursuant to this Agreement. 11. Conditions Precedent to the Obligations of the Purchaser. The obligations of the Purchaser under this Agreement is subject to the satisfaction at the Closing of each of the following conditions; provided, however, that the Purchaser may, in Purchaser'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 shall be true and correct in all material respects on and as of the Closing Date, as if made on and as of the Closing Date. 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 Closing Date pursuant to this Agreement. 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 shall not be prohibited by any applicable law or governmental regulation 7 (including without limitation Regulations G, T and X of the Board of Governors of the Federal Reserve System) and shall not subject the holder of the Notes to any tax, penalty or liability under any applicable law or governmental regulation. 12. General Provisions. 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 Purchaser 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 8 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. 12.8 Binding Effects. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, legal representatives and assigns. 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 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 By: /s/ K. TUCKER ANDERSEN ------------------------- K. TUCKER ANDERSEN 9 EXHIBIT A FORM OF 10% CONVERTIBLE PROMISORY NOTE 10 EX-4.27 5 ex4-27.txt FORM OF 10% CONVERTIBLE PROMISSORY NOTE Exhibit 4.27 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 PURCHASE AGREEMENT, DATED AS OF OCTOBER 4, 2001, A COPY OF WHICH IS ON FILE AT THE EXECUTIVE OFFICES OF MILESTONE SCIENTIFIC INC. MILESTONE SCIENTIFIC INC. 10% CONVERTIBLE PROMISSORY NOTE $75,000 October 4, 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: SEVENTY FIVE THOUSAND DOLLARS AND NO CENTS ($75,000) (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. A. Except as otherwise provided in Paragraphs B and C of this Paragraph 1, interest on the principal amount hereof shall accrue at the rate of 10% per annum (the "Basic Rate") from the date hereof until paid in full. Interest shall be payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year commencing January 1, 2002 (each such date, an "Interest Payment Date"). 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. At the option of the Company, interest shall be payable 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. In such event, interest shall be calculated at the rate of 12% per annum instead of the Basic Rate. D. Interest as aforesaid shall be calculated on the basis of actual number of days elapsed over a year of 360 days. 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 upon 15 days notice to Payee. 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 April 3, 2003 (the "Maturity Date"). 4. Conversion. At the option of Payee, the outstanding Principal Amount of this Note, and any accrued but unpaid interest, may be converted into shares of the Common Stock at a rate of one share for every $.80 of indebtedness, or may be converted proportionately into the same securities issued in the next financing transaction between Maker and Purchaser. 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 2 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 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. 3 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: 4 (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. 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: /s/ Leonard Osser --------------------------------- Leonard Osser Chairman and Chief Executive Officer 6 EX-4.28 6 ex4-28.txt LETTER AGREEMENT Exhibit 4.28 Milestone Scientific Inc. 220 S. Orange Avenue Livingston, NJ 07039 TEL: (973) 535-2717 FAX: (973) 535-2829 December 12, 2001 Mr. K. Tucker Andersen c/o Cumberland Associates LLC 1114 Avenue of the Americas New York, NY 10036 Re: Milestone Scientific Inc ("Milestone") Purchase of 325,000 units of Milestone Dear Tucker: This will confirm that Milestone has agreed to sell to you and that you have agreed to purchase from Milestone 325,000 units at a price of $0.80 per unit. Each unit will consist of one share of Milestone common stock and one warrant to purchase an additional share of such common stock. The warrants will be exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. The warrants also will have antidilution protection against capital changes. You have agreed to pay $260,000 for the units, $185,000 in cash and $75,000 by canceling Milestone's 10% Convertible Promissory Note, dated October 4, 2001, (the "Note"), held by you, and by waiving all accrued interest thereon. The cash portion of the purchase price will be paid upon execution hereof, and the Note will be delivered to Milestone for cancellation within ten business days of the date hereof, and the securities will be delivered to you promptly thereafter. Milestone will use its best efforts to file with the Securities and Exchange Commission as soon as reasonably possible, but not later than June 30, 2002, a registration statement under the Securities Act of 1933, as amended (the "Securities Act") on Form S-3, registering the reoffer, resale or other disposition of the shares included in the units and the underlying the warrants and will use its best efforts to cause the registration statement to become effective as soon as possible after filing. By signing this letter, you 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 units for investment and acknowledge that the securities 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 securities will not be registered at the time of issuance, the certificates representing the shares and warrants underlying the units delivered to you will bear the following legends, respectively: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF, AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. 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 12th DAY OF DECEMBER, 2001 By: /s/ K. Tucker Andersen ------------------------- K. Tucker Andersen 2 EX-4.29 7 ex4-29.txt WARRANT TO PURCHASE Exhibit 4.29 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF, AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. For the Purchase of 325,000 shares of Common Stock No. WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK OF MILESTONE SCIENTIFIC INC. (A Delaware corporation) Milestone Scientific Inc., a Delaware corporation (the "Company"), hereby certifies that for value received K. TUCKER ANDERSEN, having an address at c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, New York 10036, or registered assigns ("Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time during the period commencing on December 12, 2001, and ending at 5:00 p.m. on January 31, 2007, three hundred twenty five thousand shares of Common Stock (subject to adjustment as provided herein), $.001 par value, of the Company ("Common Stock"), at the following per share purchase prices: Exercise Date Purchase Price through 01/31/03 $0.80 thereafter and through 01/31/04 $1.00 thereafter and through 01/31/07 $2.00 The number of shares of Common Stock purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price", respectively. 1. Exercise and Redemption of Warrants. Unless the Warrants have been redeemed in accordance with this Section, the Registered Holder of any Warrant Certificate may exercise the Warrants, in whole or in part, at any time or from time to time at or prior to the close of business, on the Expiration Date, at which time the Warrant Certificates shall be and become wholly void and of no value. Warrants may be exercised by their holders or redeemed by the Company as follows: (a) This Warrant may be exercised by Registered Holder, in whole or in part, by the surrender of this Warrant (with the Notice of Exercise Form attached hereto as Exhibit I duly executed by Registered Holder) at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of an amount equal to the then applicable Purchase Price multiplied by the number of Warrant Shares then being purchased upon such exercise. (b) Payment may be made either in lawful money of the United States or by surrender of a Note with a balance of principal plus accrued interest to the date of surrender equal to or greater than the payment required. If the principal balance plus accrued interest on the surrendered Notes is greater than payment required, the Company will promptly pay the difference to the Registered Holder. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection l(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection l(c) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (c) As soon as practicable after the exercise of the purchase right represented by this Warrant, the Company at its expense will use its best efforts to cause to be issued in the name of, and delivered to, Registered Holder, or, subject to the terms and conditions hereof, to such other individual or entity as Registered Holder (upon payment by Registered Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full shares of Warrant Shares to which Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, stating on the face or faces thereof the number of shares currently stated on the face of 2 this Warrant (subject to adjustment as provided herein) minus the number of such shares purchased by Registered Holder upon such exercise as provided in subsection l(a) above. (d) In case the registered holder of any Warrant certificate shall exercise fewer than all of the Warrants evidenced by such certificate, the Company shall promptly countersign and deliver to the registered holder of such certificate, or to his duly authorized assigns, a new certificate evidencing the number of Warrants that were not so exercised. (e) Each person in whose name any certificate for securities is issued upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record of the securities represented thereby as of, and such certificate shall be dated, the date upon which the Warrant certificate was duly surrendered in proper form and payment of the Purchase Price (and of any applicable taxes or other governmental charges) was made; provided, however, that if the date of such surrender and payment is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares as of, and the certificate for such shares shall be dated, the next succeeding business day on which the stock transfer books of the Company are open (whether before, on or after the Expiration Date) and the Company shall be under no duty to deliver the certificate for such shares until such date. The Company covenants and agrees that it shall not cause its stock transfer books to be closed for a period of more than 10 consecutive business days except upon consolidation, merger, sale of all or substantially all of its assets, dissolution or liquidation or as otherwise provided by law. The Company shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares upon exercise of the Warrants. (f) All of the outstanding Warrants issued by the Company on the date hereof may be redeemed in whole but not in part upon 30 days' written notice at the option of the Company, commencing six months after the date hereof, if, at the time notice of such redemption is given by the Company as provided in Paragraph (g), below, the average Daily Price has exceeded $3.00 for the twenty consecutive trading days immediately preceding the date of such notice, at a price equal to $.05 per Warrant (the "Redemption Price"), provided, however, the Company shall not redeem any Warrants if the underlying shares are not then covered by an effective Registration Statement under the Securities Act of 1933, as amended. For the purpose of the foregoing sentence, the term "Daily Price" shall mean, for any relevant day, the closing price on that day (or if there is no closing price the last bid price) as reported by the principal exchange or quotation system on which prices for the Common Stock are reported. On the redemption date the holders of record of redeemed Warrants shall be entitled to payment of the Redemption Price upon surrender of such redeemed Warrants to the Company at its principal office. (g) Notice of redemption of Warrants shall be given at least 30 days prior to the redemption date by mailing, by registered or certified mail, return receipt requested, a 3 copy of such notice to all of the holders of record of Warrants at their respective addresses appearing on the books or transfer records of the Company or such other address designated in writing by the holder of record to the Company. (h) From and after the redemption date, all rights of the Warrantholders (except the right to receive the Redemption Price) shall terminate. 2. Adjustments. (a) Split, Subdivision or Combination of Shares. If the outstanding shares of the Company's Common Stock at any time while this Warrant remains outstanding and unexpired shall be subdivided or split into a greater number of shares, or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend, simultaneously with the effectiveness of such subdivision or split or immediately after the record date of such dividend (as the case may be), shall be proportionately decreased. If the outstanding shares of Common Stock shall be combined or reverse-split into a smaller number of shares, the Purchase Price in effect immediately prior to such combination or reverse split, simultaneously with the effectiveness of such combination or reverse split, shall be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) Reclassification, Reorganization, Consolidation or Merger. In the case of any reclassification of the Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 2(a) above), or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the continuing corporation and which does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Company, or the payment of a liquidating distribution then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful provision shall be made so that Registered Holder shall have the right thereafter to receive upon the exercise hereof, the kind and amount of shares of stock or other securities or property which Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of Registered Holder such that the provisions 4 set forth in this Section 2 (including provisions with respect to the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) Price Adjustment. No adjustment in the per share exercise price shall be required unless such adjustment would require an increase or decrease in the Purchase Price of at least $0.01, provided, however, that any adjustments which by reason of this paragraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest 1/l00th of a share, as the case may be. (d) Price Reduction. Notwithstanding any other provision set forth in this Warrant, at any time and from time to time during the period that this Warrant is exercisable, the Company in its sole discretion may reduce the Purchase Price or extend the period during which this Warrant is exercisable. (e) No Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such actions as may be necessary or appropriate in order to protect against impairment of the rights of Registered Holder to adjustments in the Purchase Price. (f) Notice of Adjustment. Upon any adjustment of the Purchase Price, number of shares the Warrants are exercisable for, or extension of the Warrant exercise period, the Company shall forthwith give written notice thereto to Registered Holder describing the event requiring the adjustment, stating the adjusted Purchase Price and the adjusted number of shares purchasable upon the exercise hereof resulting from such event, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment thereof in cash on the basis of the last sale price of the Warrant Shares on the over-the-counter market as reported by Nasdaq or on a national securities exchange on the trading day immediately prior to the date of exercise, whichever is applicable, or if neither is applicable, then on the basis of the then fair market value of the Warrant Shares as shall be reasonably determined by the Board of Directors of the Company. 5 4. Limitation on Sales. Each holder of this Warrant acknowledges that this Warrant and the Warrant Shares, as of the date of original issuance of this Warrant, have not been registered under the Securities Act of 1933, as amended ("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise in the absence of (a) an effective registration statement under the Act as to this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. The Warrant Shares issued upon exercise thereof shall be imprinted with a legend in substantially the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT." 5. Certain Dividends. If the Company pays a dividend or makes a distribution on the Common Stock ("Dividend"), other than a cash dividend or a stock dividend payable in shares of Common Stock, then the Company will pay or distribute to Registered Holder, upon the exercise hereof, in addition to the Warrant Shares purchased upon such exercise, the Dividend which would have been paid to such Registered Holder if it had been the owner of record of such Warrant Shares immediately prior to the date on which a record is taken for such Dividend or, if no record is taken, the date as of which the record holders of Common Stock entitled to such Dividend are determined. 6. Registration Rights of Registered Holder. The Company and Registered Holder have entered into a Registration Rights Agreement, dated the date hereof, with respect to the Warrant Shares, pursuant to which the Company has agreed to use its best efforts to prepare and file a Registration Statement under the Act ("Registration Statement") with the Securities and Exchange Commission and in such states as shall be reasonably specified by Registered Holder registering for reoffer and resale the Warrant Shares no later than July 15, 2000. 7. Notices of Record Date. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other right, or 6 (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to Registered Holder a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the record date or effective date for the event specified in such notice, provided that the failure to mail such notice shall not affect the legality or validity of any such action. 8. Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such shares of Common Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. The Company shall apply for listing, and obtain such listing, for the Warrant Shares on The Nasdaq Stock Market and each exchange on which the Common Stock is listed, at the earliest time that such listing may be obtained in accordance with the rules and regulations of The Nasdaq Stock Market and the exchange and maintain such listing until the seventh anniversary of the date of original issuance of this Warrant. All shares that may be issued upon exercise of this Warrant shall, at the time of issuance, be duly authorized, fully paid and non-assessable. 9. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. This Warrant is exchangeable for new Warrants (containing the same terms as this Warrant) each representing the right to purchase such number of shares as shall be designated by the Registered Holder at the time of surrender (but not exceeding in the aggregate the remaining number of shares of Common Stock which may be purchased hereunder. 7 10. Participation and Additional Financing. In the event the Company offers to sell shares of Common Stock, or securities convertible into or exercisable for Common Stock, at a price per share less than the exercise price of the Warrants in effect at the time of such proposed sale, other than shares issued pursuant to employee stock options (the "Offering"), the Purchaser shall have the right to purchase (the "Purchase Right") in connection with the Offering, such number of shares of Common Stock as shall equal the product of (a) the maximum number of shares of Common Stock being offered for sale by the Company in the Offering and (b) a fraction, the numerator of which is the sum of (i) the number of shares for which the Warrants held by the Purchaser are then exercisable and (ii) the number of shares of Common Stock of the Company then held by the Purchaser and the denominator of which is the total number of shares of the Company issued and outstanding at such time (without taking into account the shares of Common Stock being offered in the Offering). The Company shall give the Purchaser written notice of the Offering and include therein detailed information concerning the terms of the Offering, including, but not limited to, the maximum number of shares being offered in the Offering, the purchase price per share and the maximum number of shares of Common Stock which the Purchaser has the right to purchase pursuant to this Section 10. The Purchaser shall then have ten (10) business days within which to notify the Company in writing of its intention to exercise such Purchaser's Purchase Right and the number of shares of Common Stock which Purchaser intends to purchase (the "Subject Shares") pursuant to the Purchase Right. If the Purchaser shall fail to provide the Company with such written notification, the Company shall have no obligation to sell, and the Purchaser shall have no right to purchase, any shares of Common Stock being sold in the Offering. If the Purchaser shall notify the Company of its intention to exercise such Purchaser's Purchase Right, the Company shall sell and the Purchaser shall purchase the Subject Shares at such date and time as shall be mutually agreed to by the parties. 11. Transfers, etc. (a) The Company will maintain a register containing the names and addresses of Registered Holders. Registered Holder may change its address as shown on the warrant register by written notice to the Company requesting such change. (b) Until any transfer of this Warrant is made in the warrant register, the Company may treat Registered Holder as the absolute owner hereof for all purposes, provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 12. No Rights as Stockholder. Until the exercise of this Warrant, Registered Holder shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 8 13. Successors. The rights and obligations of the parties to this Warrant will inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, assigns, pledgees, transferees and purchasers. Without limiting the foregoing, the registration rights set forth in this Warrant shall inure to the benefit of Registered Holder and Registered Holder's successors, heirs, pledgees, assignees, transferees and purchasers of this Warrant and the Warrant Shares. 14. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 15. Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York as such laws are applied to contracts made and to be fully performed entirely within that state between residents of that state. 17. Jurisdiction and Venue. The Company and Registered Holder (i) agree that any legal suit, action or proceeding arising out of or relating to this Warrant shall be instituted exclusively in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum for such suit, action or proceeding, and (iii) irrevocably consent to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding, and the Company and Registered Holder further agree to accept and acknowledge service or any and all process which may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York and agrees that service of process upon it mailed by certified mail to its address shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. 18. Mailing of Notices, etc. All notices and other communications under this Warrant (except payment) shall be in writing and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by certified mail, return receipt requested, as follows: to Registered Holder: K. Tucker Andersen c/o Cumberland Associates LLC 1114 Avenue of the Americas New York, New York 10036 9 to the Company: Milestone Scientific Inc. 220 South Orange Avenue Livingston, New Jersey 07039 Attention: Leonard Osser, President Fax: (973) 535-2829 with a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue, Suite 902 New York, New York 10022 Attention: Stephen A. Zelnick, Esq. Fax: (212) 838-9190 or to such other address as any of them, by notice to the other may designate from time to time. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing. Dated: December 12, 2001 MILESTONE SCIENTIFIC INC. By: /s/ Leonard Osser --------------------------------- Leonard Osser, Chairman and Chief Executive Officer 10 EXHIBIT I NOTICE OF EXERCISE TO: Milestone Scientific Inc. 220 South Orange Avenue Livingston, New Jersey 07039 1. The undersigned hereby elects to purchase________shares of the Common Stock of Milestone Scientific Inc., pursuant to terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of the Common Stock in the name of the undersigned or in such other name as is specified below. If the attached Warrant is exercisable for a greater number of shares than the number set forth in paragraph 1, then please issue another Warrant in the name of the undersigned or in such other name as is specified below exercisable for the remaining number of shares. 3. The undersigned represents that it will sell the shares of Common Stock pursuant to an effective Registration Statement under the Securities Act of 1933, as amended, or an exemption from registration thereunder. (Name) (Address) (Taxpayer Identification Number) [print name of Registered Holder] By: Title: Date: 11 EX-4.30 8 ex4-30.txt LETTER AGREEMENT Exhibit 4.30 Milestone Scientific Inc. 220 S. Orange Avenue Livingston, NJ 07039 TEL: (973) 535-2717 FAX: (973) 535-2829 December 28, 2001 Mr. K. Tucker Andersen c/o Cumberland Associates LLC 1114 Avenue of the Americas New York, NY 10036 Re: Milestone Scientific Inc ("Milestone") Payment of Interest Under the Line of Credit Agreement Dear Tucker: This will confirm that Milestone has agreed to issue to you and that you have agreed to accept from Milestone 33,840 units in payment of all accrued interest through December 31, 2001 under the Line of Credit Agreement between you and Milestone, dated March 9, 2001. Each unit will consist of one share of Milestone common stock and one warrant to purchase an additional share of such common stock. The warrants will be exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. The warrants also will have antidilution protection against capital changes. Milestone will use its best efforts to file with the Securities and Exchange Commission as soon as reasonably possible, but not later than June 30, 2002, a registration statement under the Securities Act of 1933, as amended (the "Securities Act") on Form S-3, registering the reoffer, resale or other disposition of the shares included in the units and the underlying the warrants and will use its best efforts to cause the registration statement to become effective as soon as possible after filing. By signing this letter, you 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 units for investment and acknowledge that the securities 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 securities will not be registered at the time of issuance, the certificates representing the shares and warrants underlying the units delivered to you will bear the following legends, respectively: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF, AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. 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. The securities will be delivered to you promptly after receipt of your acknowledgement. Sincerely, MILESTONE SCIENTIFIC INC. By: /s/ Leonard Osser ---------------------------------- Leonard Osser, Chairman and Chief Executive Officer ACCEPTED AND AGREED TO THIS 28th DAY OF DECEMBER, 2001 By: /s/ K. Tucker Andersen ----------------------------- K. Tucker Andersen 2 EX-4.31 9 ex4-31.txt WARRANT FOR THE PURCHASE Exhibit 4.31 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF, AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. For the Purchase of 33,840 shares of Common Stock No. WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK OF MILESTONE SCIENTIFIC INC. (A Delaware corporation) Milestone Scientific Inc., a Delaware corporation (the "Company"), hereby certifies that for value received K. TUCKER ANDERSEN, having an address at c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, New York 10036, or registered assigns ("Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time during the period commencing on January 4, 2002, and ending at 5:00 p.m. on January 31, 2007, thirty-three thousand eight hundred forty shares of Common Stock (subject to adjustment as provided herein), $.001 par value, of the Company ("Common Stock"), at the following per share purchase prices: Exercise Date Purchase Price through 01/31/03 $0.80 thereafter and through 01/31/04 $1.00 thereafter and through 01/31/07 $2.00 The number of shares of Common Stock purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price", respectively. 1. Exercise and Redemption of Warrants. Unless the Warrants have been redeemed in accordance with this Section, the Registered Holder of any Warrant Certificate may exercise the Warrants, in whole or in part, at any time or from time to time at or prior to the close of business, on the Expiration Date, at which time the Warrant Certificates shall be and become wholly void and of no value. Warrants may be exercised by their holders or redeemed by the Company as follows: (a) This Warrant may be exercised by Registered Holder, in whole or in part, by the surrender of this Warrant (with the Notice of Exercise Form attached hereto as Exhibit I duly executed by Registered Holder) at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of an amount equal to the then applicable Purchase Price multiplied by the number of Warrant Shares then being purchased upon such exercise. (b) Payment may be made either in lawful money of the United States or by surrender of a Note with a balance of principal plus accrued interest to the date of surrender equal to or greater than the payment required. If the principal balance plus accrued interest on the surrendered Notes is greater than payment required, the Company will promptly pay the difference to the Registered Holder. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection l(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection l(c) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (c) As soon as practicable after the exercise of the purchase right represented by this Warrant, the Company at its expense will use its best efforts to cause to be issued in the name of, and delivered to, Registered Holder, or, subject to the terms and conditions hereof, to such other individual or entity as Registered Holder (upon payment by Registered Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full shares of Warrant Shares to which Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, stating on the face or faces thereof the number of shares currently stated on the face of 2 this Warrant (subject to adjustment as provided herein) minus the number of such shares purchased by Registered Holder upon such exercise as provided in subsection l(a) above. (d) In case the registered holder of any Warrant certificate shall exercise fewer than all of the Warrants evidenced by such certificate, the Company shall promptly countersign and deliver to the registered holder of such certificate, or to his duly authorized assigns, a new certificate evidencing the number of Warrants that were not so exercised. (e) Each person in whose name any certificate for securities is issued upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record of the securities represented thereby as of, and such certificate shall be dated, the date upon which the Warrant certificate was duly surrendered in proper form and payment of the Purchase Price (and of any applicable taxes or other governmental charges) was made; provided, however, that if the date of such surrender and payment is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares as of, and the certificate for such shares shall be dated, the next succeeding business day on which the stock transfer books of the Company are open (whether before, on or after the Expiration Date) and the Company shall be under no duty to deliver the certificate for such shares until such date. The Company covenants and agrees that it shall not cause its stock transfer books to be closed for a period of more than 10 consecutive business days except upon consolidation, merger, sale of all or substantially all of its assets, dissolution or liquidation or as otherwise provided by law. The Company shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares upon exercise of the Warrants. (f) All of the outstanding Warrants issued by the Company on the date hereof may be redeemed in whole but not in part upon 30 days' written notice at the option of the Company, commencing six months after the date hereof, if, at the time notice of such redemption is given by the Company as provided in Paragraph (g), below, the average Daily Price has exceeded $3.00 for the twenty consecutive trading days immediately preceding the date of such notice, at a price equal to $.05 per Warrant (the "Redemption Price"), provided, however, the Company shall not redeem any Warrants if the underlying shares are not then covered by an effective Registration Statement under the Securities Act of 1933, as amended. For the purpose of the foregoing sentence, the term "Daily Price" shall mean, for any relevant day, the closing price on that day (or if there is no closing price the last bid price) as reported by the principal exchange or quotation system on which prices for the Common Stock are reported. On the redemption date the holders of record of redeemed Warrants shall be entitled to payment of the Redemption Price upon surrender of such redeemed Warrants to the Company at its principal office. (g) Notice of redemption of Warrants shall be given at least 30 days prior to the redemption date by mailing, by registered or certified mail, return receipt requested, a 3 copy of such notice to all of the holders of record of Warrants at their respective addresses appearing on the books or transfer records of the Company or such other address designated in writing by the holder of record to the Company. (h) From and after the redemption date, all rights of the Warrantholders (except the right to receive the Redemption Price) shall terminate. 2. Adjustments. (a) Split, Subdivision or Combination of Shares. If the outstanding shares of the Company's Common Stock at any time while this Warrant remains outstanding and unexpired shall be subdivided or split into a greater number of shares, or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend, simultaneously with the effectiveness of such subdivision or split or immediately after the record date of such dividend (as the case may be), shall be proportionately decreased. If the outstanding shares of Common Stock shall be combined or reverse-split into a smaller number of shares, the Purchase Price in effect immediately prior to such combination or reverse split, simultaneously with the effectiveness of such combination or reverse split, shall be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) Reclassification, Reorganization, Consolidation or Merger. In the case of any reclassification of the Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 2(a) above), or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the continuing corporation and which does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Company, or the payment of a liquidating distribution then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful provision shall be made so that Registered Holder shall have the right thereafter to receive upon the exercise hereof, the kind and amount of shares of stock or other securities or property which Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of Registered Holder such that the provisions 4 set forth in this Section 2 (including provisions with respect to the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) Price Adjustment. No adjustment in the per share exercise price shall be required unless such adjustment would require an increase or decrease in the Purchase Price of at least $0.01, provided, however, that any adjustments which by reason of this paragraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest 1/l00th of a share, as the case may be. (d) Price Reduction. Notwithstanding any other provision set forth in this Warrant, at any time and from time to time during the period that this Warrant is exercisable, the Company in its sole discretion may reduce the Purchase Price or extend the period during which this Warrant is ----------------- exercisable. (e) No Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such actions as may be necessary or appropriate in order to protect against impairment of the rights of Registered Holder to adjustments in the Purchase Price. (f) Notice of Adjustment. Upon any adjustment of the Purchase Price, number of shares the Warrants are exercisable for, or extension of the Warrant exercise period, the Company shall forthwith give written notice thereto to Registered Holder describing the event requiring the adjustment, stating the adjusted Purchase Price and the adjusted number of shares purchasable upon the exercise hereof resulting from such event, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment thereof in cash on the basis of the last sale price of the Warrant Shares on the over-the-counter market as reported by Nasdaq or on a national securities exchange on the trading day immediately prior to the date of exercise, whichever is applicable, or if neither is applicable, then on the basis of the then fair market value of the Warrant Shares as shall be reasonably determined by the Board of Directors of the Company. 5 4. Limitation on Sales. Each holder of this Warrant acknowledges that this Warrant and the Warrant Shares, as of the date of original issuance of this Warrant, have not been registered under the Securities Act of 1933, as amended ("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise in the absence of (a) an effective registration statement under the Act as to this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. The Warrant Shares issued upon exercise thereof shall be imprinted with a legend in substantially the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT." 5. Certain Dividends. If the Company pays a dividend or makes a distribution on the Common Stock ("Dividend"), other than a cash dividend or a stock dividend payable in shares of Common Stock, then the Company will pay or distribute to Registered Holder, upon the exercise hereof, in addition to the Warrant Shares purchased upon such exercise, the Dividend which would have been paid to such Registered Holder if it had been the owner of record of such Warrant Shares immediately prior to the date on which a record is taken for such Dividend or, if no record is taken, the date as of which the record holders of Common Stock entitled to such Dividend are determined. 6. Registration Rights of Registered Holder. The Company and Registered Holder have entered into a Registration Rights Agreement, dated the date hereof, with respect to the Warrant Shares, pursuant to which the Company has agreed to use its best efforts to prepare and file a Registration Statement under the Act ("Registration Statement") with the Securities and Exchange Commission and in such states as shall be reasonably specified by Registered Holder registering for reoffer and resale the Warrant Shares no later than July 15, 2000. 7. Notices of Record Date. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other right, or 6 (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to Registered Holder a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the record date or effective date for the event specified in such notice, provided that the failure to mail such notice shall not affect the legality or validity of any such action. 8. Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such shares of Common Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. The Company shall apply for listing, and obtain such listing, for the Warrant Shares on The Nasdaq Stock Market and each exchange on which the Common Stock is listed, at the earliest time that such listing may be obtained in accordance with the rules and regulations of The Nasdaq Stock Market and the exchange and maintain such listing until the seventh anniversary of the date of original issuance of this Warrant. All shares that may be issued upon exercise of this Warrant shall, at the time of issuance, be duly authorized, fully paid and non-assessable. 9. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. This Warrant is exchangeable for new Warrants (containing the same terms as this Warrant) each representing the right to purchase such number of shares as shall be designated by the Registered Holder at the time of surrender (but not exceeding in the aggregate the remaining number of shares of Common Stock which may be purchased hereunder. 7 10. Participation and Additional Financing. In the event the Company offers to sell shares of Common Stock, or securities convertible into or exercisable for Common Stock, at a price per share less than the exercise price of the Warrants in effect at the time of such proposed sale, other than shares issued pursuant to employee stock options (the "Offering"), the Purchaser shall have the right to purchase (the "Purchase Right") in connection with the Offering, such number of shares of Common Stock as shall equal the product of (a) the maximum number of shares of Common Stock being offered for sale by the Company in the Offering and (b) a fraction, the numerator of which is the sum of (i) the number of shares for which the Warrants held by the Purchaser are then exercisable and (ii) the number of shares of Common Stock of the Company then held by the Purchaser and the denominator of which is the total number of shares of the Company issued and outstanding at such time (without taking into account the shares of Common Stock being offered in the Offering). The Company shall give the Purchaser written notice of the Offering and include therein detailed information concerning the terms of the Offering, including, but not limited to, the maximum number of shares being offered in the Offering, the purchase price per share and the maximum number of shares of Common Stock which the Purchaser has the right to purchase pursuant to this Section 10. The Purchaser shall then have ten (10) business days within which to notify the Company in writing of its intention to exercise such Purchaser's Purchase Right and the number of shares of Common Stock which Purchaser intends to purchase (the "Subject Shares") pursuant to the Purchase Right. If the Purchaser shall fail to provide the Company with such written notification, the Company shall have no obligation to sell, and the Purchaser shall have no right to purchase, any shares of Common Stock being sold in the Offering. If the Purchaser shall notify the Company of its intention to exercise such Purchaser's Purchase Right, the Company shall sell and the Purchaser shall purchase the Subject Shares at such date and time as shall be mutually agreed to by the parties. 11. Transfers, etc. (a) The Company will maintain a register containing the names and addresses of Registered Holders. Registered Holder may change its address as shown on the warrant register by written notice to the Company requesting such change. (b) Until any transfer of this Warrant is made in the warrant register, the Company may treat Registered Holder as the absolute owner hereof for all purposes, provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 12. No Rights as Stockholder. Until the exercise of this Warrant, Registered Holder shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 8 13. Successors. The rights and obligations of the parties to this Warrant will inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, assigns, pledgees, transferees and purchasers. Without limiting the foregoing, the registration rights set forth in this Warrant shall inure to the benefit of Registered Holder and Registered Holder's successors, heirs, pledgees, assignees, transferees and purchasers of this Warrant and the Warrant Shares. 14. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 15. Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York as such laws are applied to contracts made and to be fully performed entirely within that state between residents of that state. 17. Jurisdiction and Venue. The Company and Registered Holder (i) agree that any legal suit, action or proceeding arising out of or relating to this Warrant shall be instituted exclusively in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum for such suit, action or proceeding, and (iii) irrevocably consent to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding, and the Company and Registered Holder further agree to accept and acknowledge service or any and all process which may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York and agrees that service of process upon it mailed by certified mail to its address shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. 18. Mailing of Notices, etc. All notices and other communications under this Warrant (except payment) shall be in writing and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by certified mail, return receipt requested, as follows: to Registered Holder: K. Tucker Andersen c/o Cumberland Associates LLC 1114 Avenue of the Americas New York, New York 10036 9 to the Company: Milestone Scientific Inc. 220 South Orange Avenue Livingston, New Jersey 07039 Attention: Leonard Osser, President Fax: (973) 535-2829 with a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue, Suite 902 New York, New York 10022 Attention: Stephen A. Zelnick, Esq. Fax: (212) 838-9190 or to such other address as any of them, by notice to the other may designate from time to time. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing. Dated: January 4, 2002 MILESTONE SCIENTIFIC INC. By: /s/ Leonard Osser ---------------------------------- Leonard Osser, Chairman and Chief Executive Officer 10 EXHIBIT I NOTICE OF EXERCISE TO: Milestone Scientific Inc. 220 South Orange Avenue Livingston, New Jersey 07039 1. The undersigned hereby elects to purchase________shares of the Common Stock of Milestone Scientific Inc., pursuant to terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of the Common Stock in the name of the undersigned or in such other name as is specified below. If the attached Warrant is exercisable for a greater number of shares than the number set forth in paragraph 1, then please issue another Warrant in the name of the undersigned or in such other name as is specified below exercisable for the remaining number of shares. 3. The undersigned represents that it will sell the shares of Common Stock pursuant to an effective Registration Statement under the Securities Act of 1933, as amended, or an exemption from registration thereunder. (Name) (Address) (Taxpayer Identification Number) [print name of Registered Holder] By: Title: Date: 11 EX-4.32 10 ex4-32.txt LETTER DATED DECEMBER 28, 2001 Exhibit 4.32 Milestone Scientific Inc. 220 S. Orange Avenue Livingston, NJ 07039 Tel: (973) 535-2717 Fax: (973) 535-2829 December 28, 2001 Mr. Leonard Osser 44 Kean Road Short Hills, NJ 07078 Re: Milestone Scientific Inc ("Milestone") Payment of Deferred Compensations Dear Len: This will confirm that Milestone has agreed to issue to you and that you have agreed to accept from Milestone 614,183 units in payment of $491,346 in compensation, specifically, your salary as Chief Executive Officer of Milestone, which you voluntarily have deferred since August 5, 2000. Each unit will consist of one share of Milestone common stock and one warrant to purchase an additional share of such common stock. The warrants will be exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. The warrants also will have antidilution protection against capital changes. Milestone will use its best efforts to file with the Securities and Exchange Commission as soon as reasonably possible, but not later than June 30, 2002, a registration statement under the Securities Act of 1933, as amended (the "Securities Act") on Form S-3, registering the reoffer, resale or other disposition of the shares included in the units and the underlying the warrants and will use its best efforts to cause the registration statement to become effective as soon as possible after filing. By signing this letter, you 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 units for investment and acknowledge that the securities 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 securities will not be registered at the time of issuance, the certificates representing the shares and warrants underlying the units delivered to you will bear the following legends, respectively: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF, AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. 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. The securities will be delivered to you promptly after receipt of your acknowledgement. Sincerely, MILESTONE SCIENTIFIC INC. By: /s/ Thomas M. Stuckey ---------------------------- Thomas M. Stuckey Chief Financial Officer ACCEPTED AND AGREED TO THIS 28th DAY OF DECEMBER, 2001 By: /s/ Leonard Osser ---------------------------- Leonard Osser 2 EX-4.33 11 ex4-33.txt WARRANT TO PURCHASE 614,183 SHARES Exhibit 4.33 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF, AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. For the Purchase of 614,183 shares of Common Stock No. WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK OF MILESTONE SCIENTIFIC INC. (A Delaware corporation) Milestone Scientific Inc., a Delaware corporation (the "Company"), hereby certifies that for value received LEONARD OSSER, having an address at c/o 44 Kean Road, Short Hills, NJ 07078, or registered assigns ("Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time during the period commencing on January 4, 2002, and ending at 5:00 p.m. on January 31, 2007, six hundred fourteen thousand one hundred eighty three shares of Common Stock (subject to adjustment as provided herein), $.001 par value, of the Company ("Common Stock"), at the following per share purchase prices: Exercise Date Purchase Price through 01/31/03 $0.80 thereafter and through 01/31/04 $1.00 thereafter and through 01/31/07 $2.00 The number of shares of Common Stock purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price", respectively. 1. Exercise and Redemption of Warrants. Unless the Warrants have been redeemed in accordance with this Section, the Registered Holder of any Warrant Certificate may exercise the Warrants, in whole or in part, at any time or from time to time at or prior to the close of business, on the Expiration Date, at which time the Warrant Certificates shall be and become wholly void and of no value. Warrants may be exercised by their holders or redeemed by the Company as follows: (a) This Warrant may be exercised by Registered Holder, in whole or in part, by the surrender of this Warrant (with the Notice of Exercise Form attached hereto as Exhibit I duly executed by Registered Holder) at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of an amount equal to the then applicable Purchase Price multiplied by the number of Warrant Shares then being purchased upon such exercise. (b) Payment may be made either in lawful money of the United States or by surrender of a Note with a balance of principal plus accrued interest to the date of surrender equal to or greater than the payment required. If the principal balance plus accrued interest on the surrendered Notes is greater than payment required, the Company will promptly pay the difference to the Registered Holder. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection l(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection l(c) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (c) As soon as practicable after the exercise of the purchase right represented by this Warrant, the Company at its expense will use its best efforts to cause to be issued in the name of, and delivered to, Registered Holder, or, subject to the terms and conditions hereof, to such other individual or entity as Registered Holder (upon payment by Registered Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full shares of Warrant Shares to which Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, stating on the face or faces thereof the number of shares currently stated on the face of 2 this Warrant (subject to adjustment as provided herein) minus the number of such shares purchased by Registered Holder upon such exercise as provided in subsection l(a) above. (d) In case the registered holder of any Warrant certificate shall exercise fewer than all of the Warrants evidenced by such certificate, the Company shall promptly countersign and deliver to the registered holder of such certificate, or to his duly authorized assigns, a new certificate evidencing the number of Warrants that were not so exercised. (e) Each person in whose name any certificate for securities is issued upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record of the securities represented thereby as of, and such certificate shall be dated, the date upon which the Warrant certificate was duly surrendered in proper form and payment of the Purchase Price (and of any applicable taxes or other governmental charges) was made; provided, however, that if the date of such surrender and payment is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares as of, and the certificate for such shares shall be dated, the next succeeding business day on which the stock transfer books of the Company are open (whether before, on or after the Expiration Date) and the Company shall be under no duty to deliver the certificate for such shares until such date. The Company covenants and agrees that it shall not cause its stock transfer books to be closed for a period of more than 10 consecutive business days except upon consolidation, merger, sale of all or substantially all of its assets, dissolution or liquidation or as otherwise provided by law. The Company shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares upon exercise of the Warrants. (f) All of the outstanding Warrants issued by the Company on the date hereof may be redeemed in whole but not in part upon 30 days' written notice at the option of the Company, commencing six months after the date hereof, if, at the time notice of such redemption is given by the Company as provided in Paragraph (g), below, the average Daily Price has exceeded $3.00 for the twenty consecutive trading days immediately preceding the date of such notice, at a price equal to $.05 per Warrant (the "Redemption Price"), provided, however, the Company shall not redeem any Warrants if the underlying shares are not then covered by an effective Registration Statement under the Securities Act of 1933, as amended. For the purpose of the foregoing sentence, the term "Daily Price" shall mean, for any relevant day, the closing price on that day (or if there is no closing price the last bid price) as reported by the principal exchange or quotation system on which prices for the Common Stock are reported. On the redemption date the holders of record of redeemed Warrants shall be entitled to payment of the Redemption Price upon surrender of such redeemed Warrants to the Company at its principal office. (g) Notice of redemption of Warrants shall be given at least 30 days prior to the redemption date by mailing, by registered or certified mail, return receipt requested, a 3 copy of such notice to all of the holders of record of Warrants at their respective addresses appearing on the books or transfer records of the Company or such other address designated in writing by the holder of record to the Company. (h) From and after the redemption date, all rights of the Warrantholders (except the right to receive the Redemption Price) shall terminate. 2. Adjustments. (a) Split, Subdivision or Combination of Shares. If the outstanding shares of the Company's Common Stock at any time while this Warrant remains outstanding and unexpired shall be subdivided or split into a greater number of shares, or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend, simultaneously with the effectiveness of such subdivision or split or immediately after the record date of such dividend (as the case may be), shall be proportionately decreased. If the outstanding shares of Common Stock shall be combined or reverse-split into a smaller number of shares, the Purchase Price in effect immediately prior to such combination or reverse split, simultaneously with the effectiveness of such combination or reverse split, shall be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) Reclassification, Reorganization, Consolidation or Merger. In the case of any reclassification of the Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 2(a) above), or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the continuing corporation and which does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Company, or the payment of a liquidating distribution then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful provision shall be made so that Registered Holder shall have the right thereafter to receive upon the exercise hereof, the kind and amount of shares of stock or other securities or property which Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of Registered Holder such that the provisions 4 set forth in this Section 2 (including provisions with respect to the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) Price Adjustment. No adjustment in the per share exercise price shall be required unless such adjustment would require an increase or decrease in the Purchase Price of at least $0.01, provided, however, that any adjustments which by reason of this paragraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest 1/l00th of a share, as the case may be. (d) Price Reduction. Notwithstanding any other provision set forth in this Warrant, at any time and from time to time during the period that this Warrant is exercisable, the Company in its sole discretion may reduce the Purchase Price or extend the period during which this Warrant is exercisable. (e) No Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such actions as may be necessary or appropriate in order to protect against impairment of the rights of Registered Holder to adjustments in the Purchase Price. (f) Notice of Adjustment. Upon any adjustment of the Purchase Price, number of shares the Warrants are exercisable for, or extension of the Warrant exercise period, the Company shall forthwith give written notice thereto to Registered Holder describing the event requiring the adjustment, stating the adjusted Purchase Price and the adjusted number of shares purchasable upon the exercise hereof resulting from such event, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment thereof in cash on the basis of the last sale price of the Warrant Shares on the over-the-counter market as reported by Nasdaq or on a national securities exchange on the trading day immediately prior to the date of exercise, whichever is applicable, or if neither is applicable, then on the basis of the then fair market value of the Warrant Shares as shall be reasonably determined by the Board of Directors of the Company. 5 4. Limitation on Sales. Each holder of this Warrant acknowledges that this Warrant and the Warrant Shares, as of the date of original issuance of this Warrant, have not been registered under the Securities Act of 1933, as amended ("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise in the absence of (a) an effective registration statement under the Act as to this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. The Warrant Shares issued upon exercise thereof shall be imprinted with a legend in substantially the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT." 5. Certain Dividends. If the Company pays a dividend or makes a distribution on the Common Stock ("Dividend"), other than a cash dividend or a stock dividend payable in shares of Common Stock, then the Company will pay or distribute to Registered Holder, upon the exercise hereof, in addition to the Warrant Shares purchased upon such exercise, the Dividend which would have been paid to such Registered Holder if it had been the owner of record of such Warrant Shares immediately prior to the date on which a record is taken for such Dividend or, if no record is taken, the date as of which the record holders of Common Stock entitled to such Dividend are determined. 6. Registration Rights of Registered Holder. The Company and Registered Holder have entered into a Registration Rights Agreement, dated the date hereof, with respect to the Warrant Shares, pursuant to which the Company has agreed to use its best efforts to prepare and file a Registration Statement under the Act ("Registration Statement") with the Securities and Exchange Commission and in such states as shall be reasonably specified by Registered Holder registering for reoffer and resale the Warrant Shares no later than July 15, 2000. 7. Notices of Record Date. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other right, or 6 (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to Registered Holder a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the record date or effective date for the event specified in such notice, provided that the failure to mail such notice shall not affect the legality or validity of any such action. 8. Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such shares of Common Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. The Company shall apply for listing, and obtain such listing, for the Warrant Shares on The Nasdaq Stock Market and each exchange on which the Common Stock is listed, at the earliest time that such listing may be obtained in accordance with the rules and regulations of The Nasdaq Stock Market and the exchange and maintain such listing until the seventh anniversary of the date of original issuance of this Warrant. All shares that may be issued upon exercise of this Warrant shall, at the time of issuance, be duly authorized, fully paid and non-assessable. 9. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. This Warrant is exchangeable for new Warrants (containing the same terms as this Warrant) each representing the right to purchase such number of shares as shall be designated by the Registered Holder at the time of surrender (but not exceeding in the aggregate the remaining number of shares of Common Stock which may be purchased hereunder. 7 10. Participation and Additional Financing. In the event the Company offers to sell shares of Common Stock, or securities convertible into or exercisable for Common Stock, at a price per share less than the exercise price of the Warrants in effect at the time of such proposed sale, other than shares issued pursuant to employee stock options (the "Offering"), the Purchaser shall have the right to purchase (the "Purchase Right") in connection with the Offering, such number of shares of Common Stock as shall equal the product of (a) the maximum number of shares of Common Stock being offered for sale by the Company in the Offering and (b) a fraction, the numerator of which is the sum of (i) the number of shares for which the Warrants held by the Purchaser are then exercisable and (ii) the number of shares of Common Stock of the Company then held by the Purchaser and the denominator of which is the total number of shares of the Company issued and outstanding at such time (without taking into account the shares of Common Stock being offered in the Offering). The Company shall give the Purchaser written notice of the Offering and include therein detailed information concerning the terms of the Offering, including, but not limited to, the maximum number of shares being offered in the Offering, the purchase price per share and the maximum number of shares of Common Stock which the Purchaser has the right to purchase pursuant to this Section 10. The Purchaser shall then have ten (10) business days within which to notify the Company in writing of its intention to exercise such Purchaser's Purchase Right and the number of shares of Common Stock which Purchaser intends to purchase (the "Subject Shares") pursuant to the Purchase Right. If the Purchaser shall fail to provide the Company with such written notification, the Company shall have no obligation to sell, and the Purchaser shall have no right to purchase, any shares of Common Stock being sold in the Offering. If the Purchaser shall notify the Company of its intention to exercise such Purchaser's Purchase Right, the Company shall sell and the Purchaser shall purchase the Subject Shares at such date and time as shall be mutually agreed to by the parties. 11. Transfers, etc. (a) The Company will maintain a register containing the names and addresses of Registered Holders. Registered Holder may change its address as shown on the warrant register by written notice to the Company requesting such change. (b) Until any transfer of this Warrant is made in the warrant register, the Company may treat Registered Holder as the absolute owner hereof for all purposes, provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 12. No Rights as Stockholder. Until the exercise of this Warrant, Registered Holder shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 8 13. Successors. The rights and obligations of the parties to this Warrant will inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, assigns, pledgees, transferees and purchasers. Without limiting the foregoing, the registration rights set forth in this Warrant shall inure to the benefit of Registered Holder and Registered Holder's successors, heirs, pledgees, assignees, transferees and purchasers of this Warrant and the Warrant Shares. 14. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 15. Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York as such laws are applied to contracts made and to be fully performed entirely within that state between residents of that state. 17. Jurisdiction and Venue. The Company and Registered Holder (i) agree that any legal suit, action or proceeding arising out of or relating to this Warrant shall be instituted exclusively in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum for such suit, action or proceeding, and (iii) irrevocably consent to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding, and the Company and Registered Holder further agree to accept and acknowledge service or any and all process which may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York and agrees that service of process upon it mailed by certified mail to its address shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. 18. Mailing of Notices, etc. All notices and other communications under this Warrant (except payment) shall be in writing and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by certified mail, return receipt requested, as follows: to Registered Holder: Leonard Osser c/o Milestone Scientific Inc. 220 South Orange Avenue Livingston, New Jersey 07039 9 to the Company: Milestone Scientific Inc. 220 South Orange Avenue Livingston, New Jersey 07039 Attention: Leonard Osser, President Fax: (973) 535-2829 with a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue, Suite 902 New York, New York 10022 Attention: Stephen A. Zelnick, Esq. Fax: (212) 838-9190 or to such other address as any of them, by notice to the other may designate from time to time. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing. Dated: December 28, 2001 MILESTONE SCIENTIFIC INC. By: /s/ Thomas M. Stuckey ------------------------------ Thomas M. Stuckey Chief Financial Officer 10 EXHIBIT I NOTICE OF EXERCISE TO: Milestone Scientific Inc. 220 South Orange Avenue Livingston, New Jersey 07039 1. The undersigned hereby elects to purchase________shares of the Common Stock of Milestone Scientific Inc., pursuant to terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of the Common Stock in the name of the undersigned or in such other name as is specified below. If the attached Warrant is exercisable for a greater number of shares than the number set forth in paragraph 1, then please issue another Warrant in the name of the undersigned or in such other name as is specified below exercisable for the remaining number of shares. 3. The undersigned represents that it will sell the shares of Common Stock pursuant to an effective Registration Statement under the Securities Act of 1933, as amended, or an exemption from registration thereunder. (Name) (Address) (Taxpayer Identification Number) [print name of Registered Holder] By: Title: Date: 11 EX-4.34 12 ex4-34.txt PURCHASE AGREEMENT Exhibit 4.34 PURCHASE AGREEMENT PURCHASE AGREEMENT (this "Agreement") is made as of February 19, 2002 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 having an address c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, New York 10036 (the "Purchaser"). WHEREAS, the Company desires to sell to Purchaser and Purchaser desires to purchase from the Company $150,000 face amount of its 8% Promissory Notes (the "Notes"), substantially in the form annexed hereto as Exhibit A. NOW, THEREFORE, in consideration of the premises and the covenants herein contained, the parties hereto agree as follows: 1. Purchase and Sale of Notes. (a) Subject to the terms and conditions hereinafter set forth, Purchaser hereby subscribes for and agrees to purchase from the Company the Notes. (b) The purchase price for the Notes shall be $150,000 (the "Purchase Price"). The Purchase Price is payable by check made payable to the Company or by wire transfer of funds, contemporaneously with the execution and delivery of this Agreement. The Notes being purchased by Purchaser will be delivered by the Company on the Closing Date (as defined below). 2. Terms of the Notes. Except as otherwise set forth in this Agreement, the terms of the Notes, shall be as set forth in the Notes. 3. Closing. The closing of the transactions contemplated hereby ("Closing") shall take place on a date (the "Closing Date") within three (3) business days following the satisfaction of the conditions set forth herein and at such times as shall be determined by the Company at the offices of Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York 10022. 4. Representations and Warranties of the Company. The Company hereby represents and warrants to Purchaser, which representations and warranties shall be true and correct as of the date hereof and as of the Closing Date, as follows: 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 Authorization. The execution, delivery and performance by the Company of its obligations under this Agreement, other than the issuance of stock in payment of principal or interest, has been duly authorized by all requisite corporate action and the issuance of any stock in payment of principal or interest will be duly authorized prior to any such issuance, and in either case, 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. When issued, the Notes will be the legal and binding obligations of the Company enforceable in accordance with their terms. The shares of Common Stock issuable in respect of principal and interest payable on the Notes or upon Mandatory Conversion of the Notes (as defined in the Notes) have been duly authorized and reserved for issuance and, when issued, 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. 4.3 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, statute, regulation, 2 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. 4.4 Securities Law Exemption. Assuming the accuracy of Purchaser's representations and warranties set forth herein, the sale of the Notes 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. 4.5 Use of Proceeds. The proceeds from the sale of the Notes will be used for working capital and general corporate purposes. 4.6 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 Purchasers. The Purchaser hereby represents and warrants to the Company, which representations and warranties shall be true and correct as of the date hereof and the Closing Date, as follows: 5.1 Authorization of Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of Purchaser, does not violate any laws or regulations applicable to Purchaser and is the valid binding and enforceable obligation of Purchaser in accordance with its terms. 5.2 Accredited Investor. Purchaser is an "accredited investor" as that term is defined in Rule 501(a) of the Securities Act, and the rules promulgated thereunder. 5.3 Investment. Purchaser acknowledges that this offering of Notes have not been reviewed by the United States Securities and Exchange Commission ("SEC") and that the sale of the Notes pursuant hereto is intended to be a nonpublic offering pursuant to Sections 4(2), 4(6) or 3(b) of the Securities Act. Purchaser represents that the Notes are being purchased for his own account, for investment and not for distribution or resale to others. Purchaser agrees that Purchaser will not sell or otherwise transfer the Notes or the shares of the Common Stock issuable in payment of principal and interest on the Notes or upon Mandatory Conversion of the Notes (as defined in the Notes), unless such 3 securities, as the case may be, are registered under the Securities Act or unless an exemption from such registration is available. Purchaser understands that neither the Notes nor the shares of Common Stock issuable upon in payment of principal and interest on the Notes nor the shares of Common Stock issuable upon Mandatory Conversion of the Notes (as defined in the Notes) 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. 5.4 Access to Data. Purchaser has been given copies of the SEC Filings and has had an opportunity to review same. Purchaser 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 Purchaser's satisfaction. Purchaser 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. 5.5 Speculative Nature of Investment. Purchaser acknowledges that the purchase of the Notes 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 the Notes; (ii) Purchaser may not be able to liquidate his investment; (iii) transferability of the Notes and the shares of Common Stock issuable in payment of principal and interest on the Notes and upon Mandatory Conversion of the Notes (as defined in the Notes) is extremely limited; and (iv) Purchaser could sustain the loss of his entire investment. 5.6 Legends. Purchaser consents to the placement of a legend on the Notes and shares of Common Stock issued in payment of interest on the Notes and upon Mandatory Conversion of the Notes (as defined in the Notes), provided they are not then covered by an effective Registration Statement, all as set forth in Section 6 of this Agreement. 5.7 No Other Representations. Purchaser hereby represents that, except as set forth herein, no representations or warranties have been made to the Purchaser by the Company or any agent, employee or affiliate of the Company and in entering into this transaction, Purchaser 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 Purchaser. The Purchaser 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. 4 5.8 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 Purchaser or any of its directors, officers, employees or agents. 6. Legends. The Notes 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 PURCHASE AGREEMENT, DATED AS OF FEBRUARY 19, 2002, A COPY OF WHICH IS ON FILE AT THE EXECUTIVE OFFICES OF MILESTONE SCIENTIFIC INC. 7. Registration Rights. If the Company issues any shares of Common Stock to Purchaser, either in payment of principal and/or interest on the Notes or upon the Mandatory Conversion of the Notes (as defined in the Notes), then the Company, as soon as practicable thereafter, will prepare and file with the Securities and Exchange Commission a registration statement on Form S-3 with respect to such securities and use its reasonable best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby. 8. Confidentiality. Purchaser covenants and agrees that none of Purchaser, 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 Purchaser 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 Purchaser that, from the date hereof and until the Notes have been paid in full, it shall: 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 5 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 Purchaser 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 Purchasers 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 Purchaser 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 Section 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 Purchaser 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 in respect of principal and interest payable on the Notes or upon Mandatory Conversion of the Notes (as defined in the Notes), 6 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 Notes are outstanding it will at all times have authorized and reserved a sufficient number of shares of Common Stock to permit the conversion of the Notes. 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 Purchaser 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 Closing Date, as if made on and as of the Closing Date. 10.2 Performance of Agreements. Each Purchaser 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 any of them on or before the Closing Date pursuant to this Agreement. 11. Conditions Precedent to the Obligations of the Purchaser. The obligations of the Purchaser under this Agreement is subject to the satisfaction at the Closing of each of the following conditions; provided, however, that the Purchaser may, in Purchaser'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 shall be true and correct in all material respects on and as of the Closing Date, as if made on and as of the Closing Date. 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 Closing Date pursuant to this Agreement. 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 7 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 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 holder of the Notes to any tax, penalty or liability under any applicable law or governmental regulation. 12. General Provisions. 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 Purchaser 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. 8 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. 12.8 Binding Effects. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, legal representatives and assigns. 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 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 By: /s/ K. TUCKER ANDERSEN ------------------------- K. TUCKER ANDERSEN 9 EXHIBIT A FORM OF 8% PROMISORY NOTE 10 EX-4.35 13 ex4-35.txt FORM OF 8% PROMISSORY NOTE Exhibit 4.35 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 PURCHASE AGREEMENT, DATED AS OF FEBRUARY 19, 2002, A COPY OF WHICH IS ON FILE AT THE EXECUTIVE OFFICES OF MILESTONE SCIENTIFIC INC. MILESTONE SCIENTIFIC INC. 8% PROMISSORY NOTE $150,000 February 19, 2002 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: ONE HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($150,000) (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 time and in such amounts as set forth in Paragraph 3 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. A. Except as otherwise provided in Paragraphs B and C of this Paragraph 1, interest on the principal amount hereof shall accrue at the rate of 8% per annum (the "Basic Rate") from the date hereof until paid in full. Interest shall be payable at the Maturity Date (as defined in Paragraph 3 below). 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. At the option of the Company, interest shall be payable on the Maturity Date 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 Maturity Date. In such event, interest shall be calculated at the rate of 10% per annum instead of the Basic Rate. D. Interest as aforesaid shall be calculated on the basis of actual number of days elapsed over a year of 360 days. 2. Principal Payments. A. The outstanding Principal Amount of this Note shall be due and payable on the Maturity Date. The outstanding Principal Amount, with interest to date, shall be prepayable at any time without penalty upon 15 days notice to Payee. On any prepayment, interest shall be paid to the date of prepayment. B. At the option of the Company, the outstanding Principal Amount shall be payable on the Maturity Date 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 Maturity Date. 3. Maturity. This Note shall mature, and the unpaid Principal Amount and all accrued but unpaid interest thereon, shall be due in full on June 30, 2003 (the "Maturity Date"). 4. Mandatory Conversion. The outstanding Principal Amount of this Note, and any accrued but unpaid interest, shall be converted automatically into shares of Common Stock upon the occurrence of and on the same terms as those in the Maker's next equity financing transaction of $500,000 or more (the "Mandatory Conversion"). 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 2 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; (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 3 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: (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 4 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: /s/ Leonard Osser ---------------------------------------- Leonard Osser Chairman and Chief Executive Officer 6 EX-4.36 14 ex4-36.txt LETTER DATED MARCH 28, 2002 Exhibit 4.36 Milestone Scientific Inc. 220 S. Orange Avenue Livingston, NJ 07039 Tel: (973) 535-2717 Fax: (973) 535-2829 March 28, 2002 Design Centre Incorporated 218 Dew Drop Road York PA 17402 Attn: Gary DeBruin Re: Milestone Scientific Inc ("Milestone") Dear Gary: This will confirm that Milestone has agreed to issue to Design Centre Incorporated ("DCI") and that DCI has agreed to accept from Milestone 187,500 units as payment of $150,000 of design services of which $93,924 is due from Milestone and $ 56,076 will be applied as a credit against future billing on projects for which DCI has been engaged by Milestone. Each unit will consist of one share of Milestone common stock and one warrant to purchase an additional share of such common stock, exercisable at $.80 per share through January 31, 2003, thereafter at $1.00 per share through January 31, 2004, and thereafter at $2.00 per share through January 31, 2007, at which time they will expire. The warrants also will have antidilution protection against capital changes. By signing this letter, you 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 units for investment and acknowledge that the securities 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 securities will not be registered at the time of issuance, the certificates representing the shares and warrants underlying the units delivered to you will bear the following legends, respectively: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF, AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT. 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. The securities will be delivered to you promptly after receipt of your acknowledgement. Sincerely, MILESTONE SCIENTIFIC INC. By: s/ Thomas M. Stuckey ----------------------------------- Thomas M. Stuckey Chief Financial Officer ACCEPTED AND AGREED TO THIS 28th DAY OF March, 2002 s/Gary DeBruin -------------------------- Design Centre Incorporated By: Gary DeBruin 2 EX-4.37 15 ex4-37.txt 9% SECURED PROMISSORY NOTE Exhibit 4.37 Leonard Osser 110 E. 71st Street New York, NY 10021 March 29, 2002 Milestone Scientific Inc. 220 South Orange Avenue Livingston, NJ 07039 Attn: Thomas Stuckey-Chief Financial Officer RE: Milestone Scientific Inc. 9% Secured Promissory Note Dear Sirs: Please be advised that I hereby agree to defer until January 2, 2003 the payment of all principal and interest owed to me under the Milestone Scientific Inc. 9% Secured Promissory Note issued to me in April 2000. Very truly yours, Leonard Osser EX-4.38 16 ex4-38.txt 2ND AMENDMENT TO PURCHASE AGREEMENT Exhibit 4.38 SECOND AMENDMENT OF PURCHASE AGREEMENT DATED JANUARY 31, 2000 AMENDMENT, dated April 15, 2002, (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 20% Senior Secured Promissory Notes (the "Notes") (individually, the "Noteholder" and collectively, the "Noteholders") to Purchase Agreement dated January 31, 2000. RECITALS WHEREAS, pursuant to an Amendment To Purchase Agreement, dated March 16, 2001 among the Company and the Noteholders (the "the Original Amendment" and "Agreement", respectively), each Noteholder was issued by the Company a 20% Senior Secured Promissory Note on which, as of March 31, 2002, 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; and WHEREAS, the Company and the undersigned Noteholders desire to amend the Original Amendment and exchange their Notes for the Company's 6%/12% Senior Secured Promissory Notes (the "New Notes") as described herein; NOW, THEREFORE, in consideration of the promises 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 as of March 31, 2002 (the "Issuance Date"); b. The maturity date shall be July 1, 2003 (the "Maturity Date"); c. The face value shall be equal to the outstanding principal and interest on the Noteholder's Note as of March 31, 2002 (the "Face Value"); d. Interest shall accrue on the Face Value at the rate of 6% per annum from the Issuance Date to the Maturity Date, if paid in cash, or 12% per annum from the Issuance Date to the Maturity Date, if paid in Common Stock, as defined below. Interest 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 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 among the Company and Noteholders, dated January 31, 2000 (the "Registration Rights Agreement"); f. The New Notes shall continue to be secured by raw material, work in process, finished goods inventories and certain proceeds thereof, copyrights, trademarks and other intellectual property that may now or hereinafter be owned by the Company, and the Company shall execute and deliver such documents and instruments and take other reasonable actions to insure that the Noteholders have a perfected first security interest in the above mentioned assets, 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; g. The payment of the entire Face Value, including all accrued interest, 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 h. It is confirmed that there are no restrictions on the Company's right to obtain additional unsecured loans so long as they bear a maturity date that is subsequent to August 1, 2003. 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 promptly 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 2 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. As additional consideration for the extension of the maturity dates on the Notes, the Company shall issue, to each of the undersigned Noteholders who execute and return this Amendment to the Company by the close of business on April 15, 2002, shares of the Company's Common Stock with a value of $120 for each $1,000 Face Value of the New Note held by such Noteholder. The shares shall be issued promptly following maturity and will be valued at the average closing price during the five trading days preceding maturity. 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 on principal and interest on 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: ___________________________________________ Leonard Osser, Chairman and Chief Executive Officer _______________________________________________ K. TUCKER ANDERSEN CUMBERLAND PARTNERS by Cumberland Associates LLC, as its investment advisor By: ___________________________________________ 3 LONGVIEW PARTNERS by Cumberland Associates LLC, as its investment advisor By: ___________________________________________ LONGVIEW PARTNERS B, L.P. by Cumberland Associates LLC, as its investment advisor By: ___________________________________________ LONGVIEW PARTNERS C, L.P. by Cumberland Associates LLC, as its investment advisor By: ___________________________________________ MORSE, ZELNICK, ROSE & LANDER By: ___________________________________________ Stephen A. Zelnick _______________________________________________ LEONARD OSSER STRATEGIC RESTRUCTURING PARTNERSHIP LP By: ___________________________________________ Richard Haydon 4 _______________________________________________ MITCHELL KUHN _______________________________________________ EDWARD SCHWARZ _______________________________________________ SARAH JANE JELIN _______________________________________________ JAY NELSON _______________________________________________ KEITH MICHAEL JEREB TRICOR SYSTEMS INCORPORATED By: ___________________________________________ Jack Jereb _______________________________________________ DANIEL BURACK _______________________________________________ DAVID BIRKENRUTH 5 SCHEDULE A Noteholder Face value of New Note K. TUCKER ANDERSEN $130,424.35 CUMBERLAND PARTNERS by Cumberland Associates LLC, as its investment advisor 130,461.25 LONGVIEW PARTNERS by Cumberland Associates LLC, as its investment advisor 14,495.69 LONGVIEW PARTNERS B, L.P. by Cumberland Associates LLC, as its investment advisor 18,759.13 LONGVIEW PARTNERS C, L.P. by Cumberland Associates LLC, as its investment advisor 6,821.50 MORSE, ZELNICK, ROSE & LANDER LLP 111,529.13 LEONARD OSSER 341,988.65 STRATEGIC RESTRUCTURING PARTNERSHIP LP 21,447.60 MITCHELL G. KUHN 41,938.90 EDWARD SCHWARZ and SARAH JANE JELIN 45,242.49 JAY NELSON $ 36,263.54 6 KEITH MICHAEL JEREB 9,065.89 TRICOR SYSTEMS INCORPORATED 22,664.71 DANIEL BURACK 45,242.49 DAVID BIRKENRUTH 45,242.49 7 EX-4.39 17 ex4-39.txt PURCHASE AGREEMENT DATED 8/25/00 Exhibit 3.39 AMENDMENT OF PURCHASE AGREEMENT DATED AUGUST 25, 2000 AMENDMENT, dated April 15, 2002 (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 Milestone's 20% Secured Promissory Notes (the "Notes") (individually, the "Noteholder" and collectively, the "Noteholders") to the Purchase Agreement dated August 25, 2000. RECITALS WHEREAS, pursuant to a Purchase Agreement, dated August 25, 2000, among the Company and the Noteholders (the "Agreement"), each Noteholder purchased from the Company a 20% Secured Promissory Note, dated August 28, 2000 (the "Notes") on which, as of March 31, 2002, there is a balance of principal and interest in the amounts set forth opposite each Noteholder's name on Schedule A; WHEREAS, Milestone and the undersigned Noteholders desire to amend the Agreement and exchange their Notes for the Company's 6%/12% Senior Secured Promissory Notes (the "New Notes") as described herein; NOW, THEREFORE, in consideration of the promises 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 as of March 31, 2002 (the "Issuance Date"); b. The maturity date shall be July 1, 2003 (the "Maturity Date"); c. The face value shall be equal to the outstanding principal and interest on the Noteholder's Note as of March 31, 2002 (the "Face Value"); d. Interest shall accrue on the Face Value at the rate of 6% per annum from the Issuance Date to the Maturity Date, if paid in cash, or 12% per annum from the Issuance Date to the Maturity Date, if paid in Common Stock, as defined below. Interest 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 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 among the Company and Noteholders, dated August 25, 2000 (the "Registration Rights Agreement"); f. The New Notes shall continue to be secured by raw material, work in process, finished goods inventories and certain proceeds thereof, copyrights, trademarks and other intellectual property that may now or hereinafter be owned by the Company, and the Company shall execute and deliver such documents and instruments and take other reasonable actions to insure that the Noteholders have a perfected first security interest in the above mentioned assets, all pursuant to the Security Agreement dated August 25, 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; g. The payment of the entire Face Value, including all accrued interest, 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 h. It is confirmed that there are no restrictions on the Company's right to obtain additional unsecured loans so long as they bear a maturity date that is subsequent to August 1, 2003. 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 promptly 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. As additional consideration for the extension of the maturity dates on the Notes, the Company shall issue, to each of the undersigned Noteholders who execute and return this Amendment to the Company by the close of business on April 15, 2002, shares of the Company's Common Stock with a value of $120 for each $1,000 Face Value of the New Note held by such Noteholder. The shares shall be issued promptly 2 following maturity and will be valued at the average closing price during the five trading days preceding maturity. 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 on principal and interest on 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: _________________________________ Lenoard Osser Chairman and CEO CUMBERLAND BENCHMARKED PARTNERS, L.P. By CUMBERLAND ASSOCIATES By: _________________________________ Bruce G. Wilcox Chairman, Management Committee CUMBERLAND PARTNERS, L.P. By CUMBERLAND ASSOCIATES By: _________________________________ Bruce G. Wilcox Chairman, Management Committee 3 LONGVIEW PARTNERS A, L.P. By CUMBERLAND ASSOCIATES By: _________________________________ Bruce G. Wilcox Chairman, Management Committee LONGVIEW PARTNERS B, L.P. By CUMBERLAND ASSOCIATES By: _________________________________ Bruce G. Wilcox Chairman, Management Committee LONGVIEW PARTNERS, L.P. By CUMBERLAND ASSOCIATES By: _________________________________ Bruce G. Wilcox Chairman, Management Committee 4 Scehdule A Noteholder Face value of New Note Cumberland Partners $ 812,075.69 LongView Partners $ 182,336.85 LongView Partners B $ 123,461.66 Cumberland Benchmark Partners $ 227,530.11 LongView Partners A $ 19,951.68 ------------- $1,365,356.00 5 EX-4.40 18 ex4-40.txt SECOND AMENDMENT OF PURCHASE AGREEMENT Exhibit 4.40 AMENDMENT TO: 1. 10% PROMISSORY NOTE DATED MARCH 9, 2001 2. 8% SENIOR SECURED PROMISSORY NOTES DATED JULY 25, 2000 3. 8% SENIOR SECURED PROMISSORY NOTE DATED FEBRUARY 19, 2002 AMENDMENT, dated April 12, 2002, (the "Amendment") by and between Milestone Scientific Inc., a Delaware corporation, having its principal offices at 220 South Orange Avenue, Livingston, New Jersey 07039 (the "Company"), and K. Tucker Andersen (the "Lender"), having an address c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, NY 10036. For good and valuable consideration, the sufficiency of which is hereby acknowledged, the undersigned hereby agree to the following amendments to the: 1. 10% Promissory Note dated March 9, 2001 in the amount of $500,000; 2. 8% Promissory Note dated July 25, 2001 in the amount of $1,000,000; and 3. 8% Promissory Note dated February 19, 2002 in the amount of $150,000. between the Company and the Lender (collectively the "Notes"): 1. The maturity dates of all the Notes are hereby extended to August 1, 2003 except for a $500,000 balance on the 8% Promissory Note dated July 25, 2001, which remains December 31, 2003 2. It is confirmed that there are no restrictions on the Company's right to obtain additional unsecured loans so long as they bear a maturity date that is subsequent to August 1, 2003. IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed as of the date first above written. MILESTONE SCIENTIFIC INC. By: _______________________________ Leonard Osser, Chairman and Chief Executive Officer _______________________________ K. TUCKER ANDERSEN EX-4.41 19 ex4-41.txt AMENDMENT OF PURCHASE AGREEMENT DATED 8/25/2000 Exhibit 4.41 April 15, 2002 K. Tucker Anderson 61 Above All Road Warren, CT 06754 Dear Mr. Andersen: This letter serves as an agreement between Milestone Scientific and K. Tucker Andersen whereby Mr. Andersen provides Milestone with a $200,000 line of credit effective immediately, payable in cash through January 2, 2003. Interest will be computed at 6% and the specifics of the warrant agreement attached to this loan will be determined at a later date. Sincerely, Thomas M. Stuckey VP and CFO _________________________________ K. Tucker Andersen EX-4.42 20 ex4-42.txt LINE OF CREDIT AGREEMENT Exhibit 4.42 LINE OF CREDIT AGREEMENT This LINE OF CREDIT AGREEMENT (the "Agreement") is made as of April 15, 2002 between MILESTONE SCIENTIFIC INC., a Delaware corporation, with its principal offices at 220 South Orange Avenue, Livingston, New Jersey 07039 (the "Company"), and Leonard Osser ("Osser" or the "Lender"), having an address at c/o MILESTONE SCIENTIFIC INC., 220 South Orange Avenue, Livingston, New Jersey 07039. WHEREAS, the Company desires to borrow from Lender and Lender desires to lend to the Company up to an aggregate of $100,000 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. Lender hereby agrees to lend to the Company a principal amount of $100,000 in the aggregate, at any time or times until January 2, 2003, subject to the terms and conditions hereinafter set forth: The Company shall deliver to Lender, upon the borrowings of any funds under the line of credit, promissory notes (the "Notes") in the amounts borrowed, bearing a 6% interest. All outstanding Notes shall mature and be payable on April 2, 2003. The borrowings shall be made pursuant to a notice from the Company's Chief Financial Officer, that such borrowing is required for purposes related to the Company's ordinary course of business. 2. Use of Proceeds. The proceeds from the line of credit will be used for general corporate purposes. 3. Legends. Lender consents to the placement of the following legend on the Notes and shares of Common Stock issued in payment of principal and interest, provided they are not then covered by an effective Registration Statement: 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 APRIL 15, 2002, A COPY OF WHICH IS ON FILE AT THE EXECUTIVE OFFICES OF MILESTONE SCIENTIFIC INC. 4. 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. 5. 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. IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as of the day and year first above written. MILESTONE SCIENTIFIC INC. By: __________________________________ Thomas Stuckey Chief Financial Officer ________________________________ Leonard Osser 2 EX-10.24 21 ex10-24.txt LETTER FROM LEONARD OSSER, DATED MARCH 29, 2002 Exhibit 10.24 Leonard Osser 110 E. 71st Street New York, NY 10021 March 29, 2002 Mr. Thomas Stuckey Milestone Scientific Inc 220 South Orange Ave Livingston, NJ 07039 Dear Tom: Please be advised that I have agreed to defer $320,000 of my annual $350,000 salary for 2002 until January 2, 2003 except out of the proceeds of new equity financing and provided that Milestone pays me $2,500 per month. Very truly yours, Leonard Osser EX-10.25 22 ex10-25.txt LETTER FORM MORSE, ZELNICK, ROSE & LANDER LLP Exhibit 10.25 MORSE, ZELNICK, ROSE & LANDER A LIMITED LIABILITY PARTNERSHIP 450 PARK AVENUE NEW YORK, NEW YORK 10022-2605 212-838-1177 FAX. 212-838-9190 March 29, 2002 WRITER'S DIRECT LINE (212) 838-8040 Mr. Thomas Stuckey Milestone Scientific, Inc. 220 South Orange Avenue Livingston, New Jersey 07039 Dear Tom: This will confirm that we have agreed to defer payment of the current balance of fees due us for legal services rendered through February 28, 2002 ($320,866.01) until January 2, 2003, except out of the proceeds of new equity financings, provide that Milestone pays us $2,500 per month in reduction of this accumulated balance. Very truly yours, Stephen A. Zelnick cc: Mr. Leonard Osser EX-23.1 23 ex23-1.txt CONSENT OF GRANT THORNTON LLP CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated April 16, 2001, accompanying the consolidated statements of operations, stockholders' equity (deficit) and cash flows included in the Annual Report of Milestone Scientific, Inc. and Subsidiaries on Form 10-KSB for the year ended December 31, 2001. We hereby consent to the incorporation by reference of said report in the Registration Statement of Milestone Scientific, Inc. and Subsidiaries on Form S-3 (SEC File No. 333-39784), effective December 21, 2000. GRANT THORNTON LLP New York, New York April 12, 2002 EX-23.2 24 ex23-2.txt CONSENT OF J. H. COHN LLP Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Annual Report on Form 10-KSB of our report of Milestone Scientific, Inc., dated April 6, 2002, except for Notes B, H, I and K which are as of April 15, 2002 on our audit of the consolidated financial statements of Milestone Scientific, Inc. as of December 31, 2001 and for the year then ended, incorporated by reference in the registration statement on Form S-3 (SEC File No. 333-39784) of Milestone Scientific, Inc. filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933. J.H. Cohn LLP Roseland, New Jersey April 15, 2002 -----END PRIVACY-ENHANCED MESSAGE-----