-----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, UEuY65xpg+j108HA7W10SfE+htZZOoLQxL3HUICzRkKGTZpeDaCWTyHDU4MZdhHC ictXuO+MxfX+ylokrUYBcQ== 0001077357-00-000076.txt : 20000307 0001077357-00-000076.hdr.sgml : 20000307 ACCESSION NUMBER: 0001077357-00-000076 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20000302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SURGICAL SAFETY PRODUCTS INC CENTRAL INDEX KEY: 0001063530 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 650565144 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-31472 FILM NUMBER: 559450 BUSINESS ADDRESS: STREET 1: 2018 OAK TERRACE CITY: SARASOTA STATE: FL ZIP: 34231 BUSINESS PHONE: 9419277874 MAIL ADDRESS: STREET 1: 2018 OAK TERRACE CITY: SARASOTA STATE: FL ZIP: 34231 S-3 1 REGISTRATION STATEMENT SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 SURGICAL SAFETY PRODUCTS, INC. (Exact name of registrant as specified in its charter) New York 65-1565144 - ----------------------------------- --------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2018 Oak Terrace Sarasota, Florida 34231 (941) 927-7874 ------------------------------------ (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Dr. G. Michael Swor, President and Chief Executive Officer 2018 Oak Terrace Sarasota, Florida 34231 (941) 927-7874 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------------- Copies of all communications to: Mercedes Travis, Esq. Mintmire & Associates 265 Sunrise Avenue, Suite 204 Palm Beach, Florida 33480 Tel: (561) 832-5696 - Fax: (561) 659-5371 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(a) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment, filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- Proposed Proposed Maximum Maximum Title of Shares Amount to be Aggregate Price Aggregate Amount of to be Registered registered per Share Offering Price Registration Fee (1) (2) (3) ------------------ --------------- ---------------- --------------- ----------------- Common Stock, 20,038,097 $1.468 $29,415,926 $8,178 $.001 par value
(1) Common Stock issuable upon conversion of the Issuer's notes held by Selling Shareholders and upon exercise of Issuer's Warrants held by Selling Shareholders. (2) The number of shares initially to be registered for resale by the Selling Shareholders is contained in a registration rights agreements covering the notes issued and warrants granted to the Selling Shareholders. (3) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c), based on the average of the bid and asked price quoted on the OTC BB for the Company's Common Stock under the symbol "SURG" as of February 28, 2000, which is within five (5) days prior to the date of filing of this registration statement. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the securities act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine. The information in the preliminary prospectus in Part I hereof is not complete and may be changed. The Selling Shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to completion. Dated March 1, 2000. PART I PROSPECTUS 20,038,097 Shares SURGICAL SAFETY PRODUCTS, INC. Common Stock The 20,038,097 shares of Surgical Safety Products, Inc. ("Surgical" or the "Company") Common Stock covered by this prospectus are all being offered for the account of the Selling Shareholders listed on page 18. Surgical will not receive any of the proceeds from any sales of these securities. Each of the Selling Shareholders may offer and sell from time to time shares of Surgical's Common Stock directly or through broker-dealers or underwriters who may act solely as agents, or who may acquire shares as principals. The price to the public and the net proceeds to the Selling Shareholders from the sale of the shares will depend on the nature and timing of the sales and therefore will not be known until the sales are actually made. Surgical's Common Stock is quoted on the OTC BB under the symbol "SURG". On February 28, 2000, the closing price for Surgical's Common Stock as quoted on the OTC BB was $1.468 per share. See "Risk Factors" on page 8 to read about factors you should consider before buying shares of the Company's Common Stock. The Company's principal executive offices are located at 2018 Oak Terrace, Sarasota, Florida 34231, its telephone is (941) 927-7874 and its facsimile number is (941) 925-0515. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated March 1, 2000. -1- PROSPECTUS SUMMARY This summary highlights information incorporated by reference or contained elsewhere in this prospectus. It is not complete and may not contain all of the information that you should consider before investing in our securities. You should read the entire prospectus carefully, including the "Risk Factors" section, and you must consult the more detailed financial statements, and notes to the financial statements, incorporated by reference to this prospectus. This prospectus and the documents incorporated by reference contain certain forward-looking statements. These statements can be identified by the use of forward-looking terminology such as "may", "will", "could", "expect", "anticipate", "estimate", "continue", "plan" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other forward-looking information. Examples of forward-looking statements can be found in the discussion set forth under "Management Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, incorporated in this prospectus by reference. Such statements are based on current expectations that involve a number of uncertainties including those set forth in the risk factors below. When considering forward-looking statements, you should keep in mind that the risk factors noted below and other factors noted throughout this prospectus or incorporated by reference could cause our actual results to differ significantly from those contained in any forward- looking statement. The Company Surgical Safety Products, Inc. (the "Company" or "Surgical") is incorporated in the State of New York and qualified to do business as a foreign corporation in the State of Florida. Surgical Safety Products, Inc. originally was incorporated under the laws of the State of Florida on May 15, 1992. On November 28, 1994 the Company merged into Sheffeld Acres Inc., a New York shell corporation which had approximately 1,100 shareholders, but had never commenced operations. Although Sheffeld Acres, Inc. was technically the surviving entity, the Company changed its name after the merger to Surgical Safety Products, Inc. Articles of Merger were filed with the State of Florida on October 12, 1994 and a Certificate of Merger was filed with the State of New York on February 8, 1995. The Company filed to do business as a foreign corporation on April 11, 1995 in the State of Florida. The Company's Common Stock is quoted on the OTC Bulletin Board under the symbol "SURG". The Company's executive offices are presently located at 2018 Oak Terrace, Sarasota, Florida 34231, its telephone number is (941) 927-7874 and its facsimile number is (941) 925-0515. The Company was formed for the initial purpose of combating the potential spread of blood borne pathogen infections, such as HIV and hepatitis. The founding philosophy arose from a concern regarding the occupational risks of healthcare workers in the operating room. Since inception, the Company has broadened its mission to include the research, development and production of innovative products and services which create and maintain a safe surgical environment for medical and hospital staff, healthcare workers and patients, as well as enhance the level of surgical care available to patients. -2- The Company is engaged in product development, sales and services for the medical industry. The Company is currently engaged in one line of business which is divided into three (3) divisions each of which is involved with specialty medical product research and development: (1) a division which develops various medical-related services to be marketed to healthcare facilities, including an entire family of computer software applications designed to evaluate, track, organize and manage infection control data for healthcare facilities and to provide multi-media information centers for a facility's healthcare workers ("Data Systems Division"); (2) a division which researches and develops medical products for sale in the marketplace ("Medical Products Division"); and (3) a division which provides confidential consultation services to third party developers of medical products, usually physicians and healthcare technicians ("Medical Products Consultation Division"). The common thread interwoven into each area requires medical research, education and a commitment to safety issues. It is the Company's intention to gradually make the transition from a research and development-oriented medical device company into a multi-product device manufacturer and distributor. The Company was formed in 1992, and until 1996, was primarily engaged in women's healthcare, medical research and product development with a focus on safety-related products geared to the reduction of occupational risks to healthcare workers. To date, the Company has received four (4) patents on two (2) products, is seeking patent protection on other products and is in the process of developing or acquiring the rights to approximately nine (9) additional medical products intended to be marketed to the healthcare community. The concepts and designs of the additional medical products are at various stages of development or negotiation. The Company has an exclusive five (5) year manufacturing and supply agreement for a line of protective prescription eyeglasses; however, it has decided to discontinue marketing efforts for this line due to poor sales. The Company markets its product lines under the trademark, Compliance Plus. The Company's premiere product in the Compliance Plus line, marketed under the trade name, SutureMate(R), is a disposable Food and Drug Administration ("FDA") approved, multi- function, suturing safety device for surgery. Three (3) of the patents apply to this product. The original instrument and its developmental variations facilitate advanced surgical techniques, which increase surgical efficiency and reduce the occupational risk of exposure to blood borne pathogens such as HIV and hepatitis. The original product is currently being re-released. The product has been re-engineered and updated after feedback from over 4,000 surgeons and surgical technologists. New clinical advantages and significantly lower manufacturing costs create potential for this patented, disposable surgical assist device which was originally designed to facilitate the preferred one-handed suturing technique. The Company intends to market under the trade name, Prostasert(R), a FDA listed product which was developed to improve the preparation of pregnant patients for labor by providing a mechanism for applying and maintaining a pharmaceutical gel to the cervix and vagina. One (1) of the patents applies to this product. -3- In addition, the Company intends to market an infection control equipment kit for healthcare workers under the trademark, IcePak(TM). The Company has two (2) additional products in the development stage: Prepwiz(TM), which is a revolutionary surgical prep and drape system and FingerSafe(TM), which is a multi-featured surgical thimble. The Company aggressively protects its intellectual properties through patents, trademarks and copyrights, as well as by proprietary software designs (flow charts, algorithms, reports and databases). In addition to the utility and design patents already issued to the Company, the Company has a number of other products in various stages of development which have patent potential. In 1997, the Company focused on the creation and establishment of an information system for multiple applications within healthcare. Formerly named Surgical Safety Network, this information system is now marketed under the name OASiS which is the acronym for Occupational Automated Services Information System. In April 1998, the Company filed for two (2) patents on this system, one related to this touch-access information system and the other related to a technology transfer application. This touch access system has developed into a platform for initially managing three areas of need: (1) exposure (to blood borne pathogen) management; (2)healthcare training; and (3) healthcare risk management. In February 1998, the Company executed a letter of intent to joint venture with U.S. Surgical Corporation ("U S Surgical"), a major manufacturer of surgical products which distributes its products worldwide, for the marketing of the OASiS system. The parties executed a final agreement dated October 28, 1998 (the "Short Term Agreement"). On October 1, 1998, Tyco Healthcare Group LP ("Tyco") consummated a merger with US Surgical. On July 30, 1999 Surgical entered into a private partner network agreement with US Surgical. Under the July agreement, Surgical is to supply up to four hundred (400) OASiS systems to US Surgical under licenses calling for installation in nominated hospitals (the "Long Term Agreement"). The Company's other products and concepts in development generally fall into the categories of occupational safety, infection control, obstetrics and gynecology, and new "minimally invasive" surgery devices and techniques. Most of these development projects originated from within the Company, although several are being co-developed with outside third party inventors who are mainly physicians and medical technicians for whom the Company provides consulting services in new product development. The FDA lists Surgical as a medical device specifier. Under FDA Registration No. 1056687, as a medical device specifier, Surgical is permitted to control the specifications of its products. The Company spent its formative years in research and development and in obtaining patent protection on its core products and services. Tangential to its core competency, the Company had found it necessary to diversify its offerings, but has, over the past fiscal year focused a majority of its efforts towards the commercialization of its touch-access information system, OASiS. -4- Surgical is attempting to secure a research-backed, OSHA mandate status for its OASiS information system which would make the availability of Compliance Plus required in hospitals and other medical facilities. The Company's plan is to accumulate enough research on product lines to demonstrate statistically their significant safety advantages to support such products inclusion in OSHA requirements for workplace safety compliance. There can be no assurance that such statistics will demonstrate such facts, or even if demonstrated, that such products will be included in OSHA requirements. Twenty (20) OASiS unit are now installed in eight (8). Lease payments from OASiS currently are made directly to Surgical from the customer hospital but may be made, in the future, through a third party leasing intermediary. In the case of the third party intermediary, Surgical is paid a lump sum at the front end of the lease and the hospital then makes its payments to the leasing company. Selection of the leasing arrangements is made based upon Surgical's current financial status and based upon the financial strength of the hospital involved. SutureMate(R) was originally sold in limited quantities and had limited success due to the high manufacturers suggested retail price. New manufacturing arrangements will allow sales in the $5 to $6 range, more in keeping with disposable products. Due to limited sales, the Company is dropping the MediSpecs Rx(TM) product line. Consulting fees are derived from the Medical Consultation Division on an as needed basis. The Company now is positioned to commercialize Compliance Plus product lines and its proprietary OASiS system through its alliance with US Surgical and their full size international sales force. The Company is preparing other alliances with one or more established industry leaders in healthcare. The Company believes that recurring multiple revenue streams and a "cookie cutter" program and network will allow for potentially rapid growth in the number of OASiS system installations. When the OASiS system reaches the appropriate size, the Company may consider the spin-off of a separate subsidiary for managing this Internet-based healthcare information network and subsequently an initial public offering related to the spun off subsidiary. If the Company grows and attains its projected earnings, it intends to apply for listing on the NASDAQ Quotation System where it believes the market would apply an appropriate multiple to the earnings per share. At such time, the Company may position itself as an acquisition target for major medical or information system entities, although it has no such plans at this time. The Company has been seeking debt or equity financing in the amount of between $2,000,000 and $5,000,000. In December 1999, the Company executed a Loan Agreement with Thomson Kernaghan & Co., Ltd. ("TK"), as Agent and Lender, whereby TK agreed to make loans to the Company of up to $5,000,000 in installments during the period commencing with the date of the agreement and ending on November 30, 2002 (the "TK Loan Commitment"). Under the terms of the TK Loan Commitment, each installment is supported by a convertible note and security agreement and the Agent and Lender are granted warrants to purchase shares of the Company's Common Stock. Further, 2,700,000 shares are held by TK in escrow for the potential conversion of the notes or exercise of the warrants. Under the terms of the TK Loan Commitment, an initial loan of $650,000 was made on December 30, 1999, the Lender was granted a warrant to purchase 3,428,571 -5- shares and the Agent was granted a warrant to purchase 1,142,857 shares. The Company granted TK registration rights and is obligated to file a Form S-3 within sixty (60) days of the agreement covering initially 20,038,097 shares of its Common Stock. The issuance of the securities was made pursuant to Regulation S of the Act. The Company thus far has borrowed $650,000 as the first installment under which the note could be convertible into a maximum of 1,7333,333 shares of the Company's Common Stock at the lowest possible conversion price and has issued warrants to purchase 3,428,571 and 1,142,857 shares of the Company's Common Stock. However due to the formula nature of the conversion price, the Company is unable to project the exact number of additional shares, if any, of its Common Stock which will be required to be issued if all of the debt is converted or all of the warrants are exercised. As of December 31, 1999, the Company had short term debt of $100,000 as a result of draw downs under its revolving loan agreement with South Trust Bank and long term debt of $650,000 as a result of the initial loan under the TK Loan Commitment. The TK Loan Commitment, once interest payments begin to accrue, will increase both the short or long term debt of the Company. The Company has entered into consulting agreements with several other potential funding sources; however, to date, has not concluded terms for any financing which it feels appropriately meets the requirements of the Company under such agreements. With the TK Loan Commitment and in the event additional debt is raised, it will incur future interest expenses. The TK Loan Commitment, if fully converted and all warrants are exercised, will dilute the interest of existing shareholders and in the event additional equity is raised, management may be required to dilute the interest of existing shareholders further or forgo a substantial interest in revenues, if any. In the event that the Company is successful in securing additional debt financing, the amount of such financing, depending upon its terms, would increase either the short or long term debt of the Company or both. The Company entered into an agreement with IBM Global Services effective January 3, 2000 which includes an IBM Customer Agreement and a Statement of Work (the "IBM Global Agreement"). Under the terms of the IBM Global Agreement IBM will provide complete implementation and support service solutions for 1,200 OASiS terminals in an estimated 400 end user locations during the 12 month period commencing December 1, 1999. On February 3, 2000, IBM Global Services and the Company finalized the Statement of Work. The services to be provided under the agreement include project planning, site surveys, product acquisition, network design, web-site hosting services, premises wiring, OASiS TouchPort Implementation, help desk support and consulting services. The estimated cost for performing the work is approximately $10 million. In addition, IBM Global Services will bill the Company a monthly service charge for pre and post installation support services, including 24-7 support, and for labor, travel and out of pocket expenses. The Company will provide technical resources and oversee the IBM Global's activities. The Company believes that this agreement will expedite the deployment of its OASiS systems under the terms of its Long Term Agreement with US Surgical. The TK Loan Commitment will be used by the Company to fund a portion of the commitment under the IBM Global Agreement, the balance of which will be funded from increased revenues as installations are completed and from the sale of some of those leases to third party leasing companies. The Company's ability to rapidly deploy its OASiS units through the IBM Global Agreement will cover its obligations under the Long Term Agreement with US Surgical and for general -6- operating expenses. With the additional installments under the TK Loan Commitment, or subject to the availability of additional financing, of which there can be no assurance, with such additional financing, the Company plans (1) to facilitate implementation of its sales strategies, (2) to apply additional funding to existing new technology; and (3) to apply additional funding to complimentary products and services through corporate acquisition and exclusive licensing. The Company currently employs, under the agreement with Staff and on a full-time basis, seven (7) people, including its President and Vice President. Total employee salaries for the year ending December 31, 1999 were $363,418 of which $216,221 was paid as Executive Compensation, including salaries and the value of Common Stock and Options issued and granted to such executives. The Company's executive officers and directors devote such time and effort as are necessary to participate in the day-to-day management of the Company. During the fourth quarter of 1999, the Company did not employed any additional staff. Subject to the availability of additional funding, of which there can be no assurance, the Company plans to add personnel as needed to implement the Long Term Agreement with US Surgical and other growth plans. The Company is dependent upon the services of two of its officers and directors. Dr. G. Michael Swor, the founder and Chairman of the Board and Chief Executive Officer, is responsible for inventing all four (4) of the patents, which patents were assigned to the Company in exchange for stock. Dr. Swor is responsible for the overall corporate policy and the financing activities of the Company. The Company is the beneficiary of a "key-man" insurance policy currently owned by Dr. Swor. In addition to his duties with the Company, Dr. Swor is a board certified, practicing physician with a specialty in Obstetrics and Gynecology. Donald K. Lawrence, a Director, President and Chief Operating Officer, is responsible for operations, sales management, market planning and advertising for the Company. Mr. Lawrence in addition to nearly ten (10) years in medical device sales, has extensive experience in computer graphics, multi-media and computer equipment leasing programs. The Company plans to continue to use to its advantage the reputations and skills of these two officers in the medical industry. Nevertheless, while these officers have been successful in the past, there can be no assurance that they will be successful in the continued development of the Company which is needed for a successful operation of the Company. The Company has employment agreements with each of these individuals. RISK FACTORS Before you decide to invest, you should consider carefully the risks described below, together with the information provided in other parts of this prospectus. Any and all of these factors or others not mentioned below could affect our prospects as a whole. Our Company Has a History of Losses Although Surgical has been in business since May 15, 1992 it was in the development stage until July 7, 1993 when it began commercial shipments of -7- its first product. As of December 31, 1997, the Company had total assets of $445,235, a net loss of $148,422 on revenues of $255,386 and stockholders deficit of $59,043. As of December 31, 1998, the Company had total assets of $373,514, a net loss of $797,662 on revenues of $42,393 and stockholders equity of $318,183. Due to the Company's operating history and limited resources, among other factors, there can be no assurance that profitability or significant revenue will occur in the future. Moreover, the Company expects to continue to incur operating losses through at least the first half of 2000, and there can be no assurance that losses will not continue thereafter. The ability of the Company to establish itself as a going concern is dependent upon the receipt of additional funds from operations or other sources to continue those activities. The Company is subject to all of the risks inherent in the operation of a development stage business and there can be no assurance that the Company will be able to successfully address these risks. Our Company Has Minimal Assets, Working Capital and Net Worth As of December 31, 1998, the Company's total assets in the amount of $373,514, consisted , principally, of the sum of $41,191 in cash, $58,700 in deposits and $26,898 in inventory. As a result of its minimal assets and a net loss from operations, in the amount of $797,662, as of December 31, 1998, the Company had a net worth of $318,183. Further, there can be no assurance that the Company's financial condition will improve. Even though management believes, without assurance, that it will obtain sufficient capital with which to implement its expansion plan, the Company is not expected to proceed with its expansion without an infusion of capital. Under the TK Loan Commitment, the Company is required to issue shares on conversion of the note or exercise of the warrants which will dilute the interest of existing shareholders. In the event the Company obtains additional debt or equity financing, management may be required to dilute the interest of existing shareholders or forego a substantial interest of its revenues, if any. Our Company Needs Additional Capital Without an infusion of capital or profits from operations, the Company is not expected to proceed with its expansion as planned. Under the TK Loan Commitment, the Company has the ability to secure a total of $5 million in financing, subject to certain terms and conditions. The Company is not expected to overcome its history of losses unless this line can be drawn upon as and when needed or the Company secures additional equity and/or debt financing. The Company does not anticipate the receipt of increased operating revenues until management successfully implements its expansion plan, which is not assured. Further, Surgical may incur significant unanticipated expenditures which deplete its capital at a more rapid rate because of among other things, the stage of its business, its limited personnel and other resources and its lack of a widespread client base and market recognition. Because of these and other factors, management is presently unable to predict what additional costs might be incurred by the Company beyond those currently contemplated to achieve market penetration on a commercial scale in its expanded line of business, i.e. medical device supplier and risk exposure systems developer. Other than TK, Surgical has no identified alternative sources of funds, and there can be no assurance that resources will be available to the Company when needed. -8- Our Company Is Dependent On Its Current Management The possible success of the Company is expected to be largely dependent on the continued services of its Founder, Chairman and Chief Executive Office, Dr. G. Michael Swor, and its President and Chief Operating Officer, Donald K. Lawrence. Virtually all decisions concerning the marketing, distribution and sales of the Company's products and services will be made or significantly influenced by the Company's officers. These officers are expected to devote only such time and effort to the business and affairs of the Company as may be necessary to perform their responsibilities as executive officers and directors of Surgical. The loss of the services of any of these officers, but particularly Dr. Swor, would adversely affect the conduct of the Company's business and its prospects for the future. The Company presently has employment agreements with Dr. Swor and Mr. Lawrence and holds no key-man life insurance on the lives of, and has no other agreement with any of these officers, except that the Company is the named beneficiary of a key- man life insurance policy currently owned by Dr. Swor. Our Company Has Limited Distribution Capability The Company's success depends in large part upon its ability to distribute its products and services. As compared to Surgical, which lacks the financial, personnel and other resources required to compete with its larger, better-financed competitors, virtually all of the Company's competitors have much larger budgets for securing customers. Although the Company has entered into several distribution agreements for its medical products, none are producing significant revenues at this time. Further, the OASiS system currently is in a few locations. Depending upon the level of funding which the Company can draw down under the TK Loan Commitment, management believes, without assurance, that it will be possible for Surgical to attract additional customers for its products and services. However, in the event that the Company is limited in the amount it can take down under the commitment, the Company anticipates that its limited finances and other resources may be a determinative factor in the decision to go forward with planned expansion. Until such time, as the Company draws down sufficient advances under the commitment, it intends to continue marketing its products through its current distribution arrangements. However, the fact that these arrangement have not thus far produced significant revenue may adversely impact the Company's chances for success. There Are Risks and Possible Unforseen Costs Which May Be Associated with our Entry into the Medical Device and Exposure Reporting Information Industries There can be no assurance that the costs for the establishment of a client base for its products and services will not be significantly greater than those estimated by Company management. Therefore, the Company may expend significant unanticipated funds or significant funds may be expended by Surgical without development of a commercially viable medical device or exposure reporting information business. There can be no assurance that cost overruns will not occur or that such cost overruns will not adversely affect the Company. Further, unfavorable general economic conditions and/or a downturn in customer confidence could have an adverse effect on the Company's business. Additionally, competitive pressures and changes in customer mix, among other things, which -9- management expects the Company to experience in the uncertain event that it achieves commercial viability, could reduce the Company's gross profit margin from time to time. Accordingly, there can be no assurance that Surgical will be capable of establishing itself in a commercially viable position in local, state, nationwide and international medical device and exposure reporting information markets. Our Company Is Dependent On Securing a Suitable Strategic Partner The Company's ability to establish a sufficient customer base at a level sufficient to meet the larger competition depends in part upon the ability of the Company to capitalize on its joint venture with US Surgical with regard to OASiS and to finalize a joint venture agreement with a suitable partner for its disposable medical devices. The Company has no tentative agreements with any strategic partner for expansion of its medical device business. There can be no assurance that a qualified strategic arrangement will be found at the levels which management believes are possible. Further, even if the Company receives sufficient proceeds from the TK Loan Commitment, thus enabling it to go forward with its planned expansion of its business, it will nevertheless be dependent upon the availability of a qualified strategic partner to progress at the levels which the Company believes are necessary. OASiS has only been in the marketplace for the past year and appears to be meeting expectations; however, its market acceptance has not yet been determined. SutureMate(R) had limited acceptance as originally marketed, which limited acceptance the Company believes was due to the manufacturers suggested retail price. SutureMate(R) has been redesigned and will be re- released at a price more in keeping with disposal devices. MediSpecs RX(TM) has had limited acceptance to date and due to poor sales, will be dropped by the Company. Initially, the proceeds of the TK Loan Commitment are anticipated to be sufficient to meet the needs to expand OASiS and the Company has elected to concentrate on development of markets for OASiS rather than focusing on the expansion of the markets for its two other products and will rely on its existing markets for these products. Although management believes that the acceptance of its products and services will continue to find the market acceptance which has occurred in the past, there can be no assurance that this will be so. Our Company Currently Has Significant Customer and Product Concentration To date, a limited number of customers and distributors have accounted for substantially all of the Company's revenues with respect to product sales. The Company anticipates that the main focus of its selling efforts will be to continue to sell its products to a relatively small group of medical products distributors with the objective of having its products distributed on a large national and international scale. Although the company entered into agreements with US Surgical, had an exclusive distributorship agreement with Hospital News and believes it can reactivate its distributorship agreements with Johnson & Johnson Medical Pty Ltd. to sell its SutureMate(R) product (in the territories of Australia, New Zealand, Papua, New Guinea and Fiji), with the two other distributors to sell such product in Saudi Arabia and the Netherlands and that Noesis will generate sales, there is no assurance that the Company will be able to obtain adequate distribution of its products to the intended end user. Most medical product distributors carry an extensive line of products (some of which they manufacture themselves) which they make available to end users -10- (hospitals, surgeons, healthcare workers) and various of these products may compete with each other as to function, price or other factors. In addition, numerous medical product distributors are not themselves well capitalized and their financial condition may impact their ability to properly distribute the Company's products. The Company's ability to achieve revenues in the future will depend in significant part upon its ability to obtain orders from, maintain relationships with and provide support to, existing and new distributors, as well as the condition of its distributors. As a result, any cancellation, reduction or delay in orders by or shipments to any customer or the inability of any customer to finance its purchases of the Company's products may materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company's revenues will increase in the future or that the Company will be able to support or attract customers. Our Company Has Experienced Fluctuations in Results of Operations The Company has experienced and may in the future experience significant fluctuations in revenues, gross margins and operating results. On the medical products development side of its business, the introduction of new products and the manufacture and marketing of most of the Company's products is a lengthy (ranging from a minimum of six weeks to an estimated maximum of eighteen (18) months from order to delivery) process and the timing and amount of product sales is difficult to predict reliably. In addition, a single customer's order scheduled for shipment in a fiscal quarter can represent a significant portion of the Company's potential sales for such quarter. As with many developing businesses, the Company expects to fail to receive expected orders, and delivery schedules may have to be deferred as a result of changes in customer requirements, among other factors. As a result, the Company's operating results for a particular period have, to date, been and may in the future be materially adversely affected by a delay, rescheduling or cancellation of even one purchase order. Moreover, purchase orders are often received and accepted substantially in advance of shipment, and the failure to reduce actual costs to the extent anticipated or an increase in anticipated costs before shipment could materially, adversely affect the gross margins for such order, and as a result, the Company's results of operations. Moreover, a majority of the Company's anticipated orders could be canceled since orders are expected to be made substantially in advance of shipment, and even though the Company's contracts do not typically provide that orders may be canceled, if an important distributor wishes to cancel an order, the Company may be compelled, due to competitive conditions, to accede to such request. As a result, backlog, if any, will not necessarily be indicative of future sales for any particular period. Furthermore, a substantial portion of net sales may be realized near the end of each quarter. A delay in a shipment near the end of a particular quarter, due, for example, to an unanticipated shipment rescheduling, to cancellations or deferrals by customers or to unexpected manufacturing difficulties experienced by the Company, may cause net revenues in a particular quarter to fall significantly below the company's expectations and may materially adversely affect the Company's operating results for such quarter. A large portion of the Company's expenses are fixed and difficult to reduce should revenues not meet the Company's expectations, thus magnifying the material adverse effect of any revenue shortfall. Furthermore, announcements by the Company or its competitors of new products and technologies could cause customers to defer purchases of the Company's products or a reevaluation of -11- products under development, which would materially adversely affect the Company's business, financial condition and results of operations. Additional factors that may cause the Company's revenues, gross margins and results of operations to vary significantly from period to period include: product development, patent processing, FDA processing, clinical trials, mix of products sold; manufacturing efficiencies, costs and capacity; price discounts; market acceptance and the timing of availability of new products by the Company or its customers, usage of different distribution and sales channels; warranty and customer support expenses; customization of systems; and general economic and political conditions. In addition, the Company's results of operations are influenced by competitive factors, including the pricing and availability of and demand for, competitive products. All of the above factors are difficult for the Company to forecast, and these or other factors could materially adversely affect the Company's business, financial condition and results of operations. As a result, the Company believes that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indications of future performance. Our Company Can Be Affected By Unfavorable Interpretation of Government Regulation As a medical device specifier, the Company is subject to all federal, state and local statutes and regulations governing its products, to the extent applicable. The Company will not be subject to additional regulation unless it elects to produce products which require it to conduct extensive clinical trials for FDA clearance which are not required for the Company's products at this time. In such event the Company shall have all of the uncertainties such clinical trials present including the risk of loss of substantial capital in the event a product never receives the required approvals. Medical products are subject to extensive regulation by the United States (U.S. Food and Drug Administration ("FDA") and U.S. Patent Office), state, local and foreign laws and international treaties. The Company's products must conform to a variety of domestic and international requirements. In order for the Company to sell its products in a foreign jurisdiction, it must obtain regulatory approval and comply with different regulations in each jurisdiction. The delays inherent in this governmental approval process may cause the cancellation, postponement or rescheduling of the purchase by the Company's customers, which in turn may have a material adverse effect on the sale of such products by the Company to such foreign customers. The failure to comply with current or future domestic and foreign regulations or changes in the interpretation of existing regulations could result in the suspension or cessation of product sales. Such regulations or such changes in interpretation could require the Company to modify its products and incur substantial costs to comply with such time-consuming regulations and changes. The regulatory environment in which the Company operates is subject to change. Regulatory changes, which are affected by political, economic and technical factors, could significantly impact the Company's operations by restricting development efforts by the Company and its customers, making current products obsolete or increasing the opportunity for additional competition. Any such regulatory changes could have a material adverse effect on the Company's business, financial condition and results of operations. The Company might deem it necessary or advisable to alter or modify its products to operate in compliance with such regulations. Such modifications could be extremely expensive and, especially if subject to regulatory review and approval, time-consuming. -12- Our Company's Proprietary Rights Are Important To Its Continued Growth The Company attempts to protect its intellectual property rights through patents, trademarks, secrecy agreements, trade secrets and a variety of other measures. However, there can be no assurance that such measures will provide adequate protection for the Company's trade secrets or other proprietary information, that disputes with respect to the ownership of its intellectual property rights will not arise, that the Company's trade secrets or proprietary technology will not otherwise become known or be independently developed by competitors or that the Company can otherwise meaningfully protect its intellectual property rights. There can be no assurance that any patent owned by the Company will not be invalidated, circumvented or challenged, that the rights granted thereunder will provide competitive advantages to the Company or that any of the Company's pending or future patent applications will be issued with the scope of the claims sought by the Company, if at all. Furthermore, there can be no assurance that others will not develop similar products, duplicate the Company's products or design around the patents owned by the Company or that third parties will not assert intellectual property infringement claims against the Company. In addition, there can be no assurance that foreign intellectual property laws will adequately protect the Company's intellectual property rights abroad. The failure of the Company to protect its proprietary rights could have a material adverse effect on its business, financial condition and results of operations. Litigation may be necessary to protect the Company's intellectual property rights and trade secrets, to determine the validity of and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that infringement, invalidity, right to use or ownership claims by third parties or claims for indemnification resulting from infringement claims will not be asserted in the future. If any claims or actions are asserted against the Company, the Company may seek to obtain a license under a third party's intellectual property rights. There can be no assurance, however, that a license will be available under reasonable terms or at all. In addition, should the Company decide to litigate such claims, such litigation could be extremely expensive and time consuming and could materially adversely affect the Company's business, financial condition and results of operations, regardless of the outcome of the litigation. Our Company May Not Be Able To Manage Growth The Company expects to grow through its alliance with US Surgical, one or more strategic alliances, acquisitions, internal growth and by granting licenses for products which are not within the focuses defined by management. There can be no assurance that the Company will be able to create a greater market presence, or if such market is created, to expand its market presence or successfully enter other markets. The ability of the Company to grow will depend on a number of factors, including the availability of working capital to support such growth, existing and emerging competition, one or more additional qualified strategic alliances and the Company's ability to maintain sufficient profit margins in the face of pricing pressures. The Company also must manage costs in a changing regulatory environment, adapt its infrastructure and systems to accommodate growth within the niche market which it has created. -13- The Company also plans to expand its business, in part, through acquisitions. Although the Company will continuously review potential acquisition candidates, it has not entered into any agreement, understanding or commitment with respect to any additional acquisitions at this time. There can be no assurance that the Company will be able to successfully identify suitable acquisition candidates, complete acquisitions on favorable terms, or at all, or integrate acquired businesses into its operations. Moreover, there can be no assurance that acquisitions will not have a material adverse effect on the Company's operating results, particularly in the fiscal quarters immediately following the consummation of such transactions, while the operations of the acquired business are being integrated into the Company's operations. Once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity as at then existing Company-owned locations or otherwise perform as expected. The Company is unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisitions will be completed. The Company will be competing for acquisition and expansion opportunities with entities that have substantially greater resources than the Company. In addition, acquisitions involve a number of special risks, such as diversion of management's attention, difficulties in the integration of acquired operations and retention of personnel, unanticipated problems or legal liabilities, and tax and accounting issues, some of all of which could have a material adverse effect on the Company's results of operations and financial condition. As a Device Specifier, Our Company May Be Subject To Potential Legal Liability Providers of medical devices may be subject to claims relating to their product. In addition, under the terms of an agreement with Sarasota Medical Hospital ("SMH"), the Company is required to indemnify and hold harmless SMH and the Lessee against any and all claims regarding the use of the OASiS system. Management has adopted and implemented policies and guidelines to reduce its exposure to these risks; principally in the area of its initial product research and development. However, the failure of any product to meet such policies and guidelines may result in governmental intervention, negative publicity, injunctive relief and the payment by the Company of money damages or fines. There can be no assurance that the Company will not experience such problems. At such time as the Company enters into licensing agreements for certain products which it feels are not a proper mix but deserve exploitation, the Company may be subject to claims asserting that it is vicariously liable for the damages allegedly caused by the products produced by the licensees. Generally, liability for the acts or inactions of its licensees are based on agency and products liability concepts. The Company intends for its license agreements to state that the parties are not agents, that the licensees control the manufacturer and production of the product, and that any modifications are the sole responsibility of the licensee. Despite these efforts to minimize the risk of liability, there can be no assurance that a claim will not be made against the Company. -14- Our Company Operated In a Highly Competitive Market The medical products and devices industry is highly competitive, with several major companies involved. The exposure reporting information industry has only one (1) known competitor at this time. The Company will be competing with larger competitors in international, national, regional and local markets. In addition, the Company may encounter substantial competition from new market entrants. Many of the Company's competitors have significantly greater name recognition and have greater marketing, financial and other resources than the Company. There can be no assurance that the Company will be able to compete effectively against such competitors in the future. Our Company Operates In an Area of Rapid Technological Change The market for surgical safety products and services is subject to rapid technological change, frequent new product introductions and enhancements, product obsolescence and changes in end- user requirements. The Company's ability to be competitive in this market will depend in significant part upon its ability to successfully develop, introduce and sell new innovative proprietary products, services and enhancements thereof on a timely and cost-effective basis that respond to changing customer requirements. Any success of the Company in developing new and enhanced products and services will depend upon a variety of factors, including new product selection, timely and efficient compliance with and completion of the regulatory process (FDA and the U.S. Patent and Trademark Office), timely and efficient completion of design, timely and efficient implementation of manufacturing and assembly process, its cost reduction program and the development, completion, performance, quality and reliability and development of competitive products and services by competitors. The Company may experience delays from time to time in completing development and introduction of new products and services. Moreover, there can be no assurance that the Company will be successful in selecting, developing, manufacturing and marketing new products and services. There can be no assurance that defects will not be found in the Company's products and services after commencement of commercial shipments, which could result in the loss of or delay in market acceptance. The inability of the Company to introduce in a timely manner new products and services that contribute to revenues could have a material adverse effect on the Company's business, financial condition and results of operations. There Is an Uncertainty As To The Market Acceptance of Our Products The future operating results of the Company depend to a significant extent upon the continued development of products and services deemed necessary, useful, convenient, affordable and competitive by medical professionals and their patients. There can be no assurance that the Company has the ability to continuously introduce propriety products and services into the marketplace which will achieve the market penetration and acceptance necessary for the Company to grow and become profitable on a sustained basis, especially given the fierce competition that exists from companies more established and well financed than the Company. To date, substantially all of the Company's product sales have been to customers within the United States with a small portion of such sales generated internationally. The Company's future results of operations will be dependent in significant part on its ability to penetrate markets in the United States and foreign countries in which the Company has not yet established a -15- meaningful presence. There can be no assurance that the Company will be successful in penetrating these additional markets. Our Company Has Never Declared a Dividend While payments of dividends on the Common Stock rests with the discretion of the Board of Directors, there can be no assurance that dividends can or will ever be paid. Payment of dividends is contingent upon, among other things, future earnings, if any, and the financial condition of the Company, capital requirements, general business conditions and other factors which cannot now be predicted. It is highly unlikely that cash dividends on the Common Stock will be paid by the Company in the foreseeable future. Our Charter Does Not Permit Cumulative Voting The election of directors and other questions will be decided by a majority vote. Since cumulative voting is not permitted and one-third of the Company's outstanding Common Stock constitute a quorum, investors who purchase shares of the Company's Common Stock may not have the power to elect even a single director and, as a practical matter, the current management will continue to effectively control the Company. There Could Be Potential Anti-Takeover and Other Effects of Issuance of Preferred Stock Which May Be Detrimental to Common Shareholders Potential anti-takeover and other effects of issuance the of preferred stock may be detrimental to Common Shareholders. The Company is authorized to issue shares of preferred stock. ("Preferred Stock"); none of which has been issued to date. The issuance of Preferred Stock does not require approval by the shareholders of the Company's Common Stock. The Board of Directors, in its sole discretion, has the power to issue shares of Preferred Stock in one or more series and to establish the dividend rates and preferences, liquidation preferences, voting rights, redemption and conversion terms and conditions and any other relative rights and preferences with respect to any series of Preferred Stock. Holders of Preferred Stock may have the right to receive dividends, certain preferences in liquidation and conversion and other rights; any of which rights and preferences may operate to the detriment of the shareholders of the Company's Common Stock. Further, the issuance of any shares of Preferred Stock having rights superior to those of the Company's Common Stock may result in a decrease in the value of market price of the Common Stock provided a market exists, and additionally, could be used by the Board of Directors as an anti-takeover measure or device to prevent a change in control of the Company. Secondary Trading of Our Shares May Not Be Possible in Some States Secondary trading in the Common Stock will not be possible in each state until the shares of Common Stock are qualified for sale under the applicable securities laws of the state or the Company verifies that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. There can be no assurance that the -16- Company will be successful in registering or qualifying the Common Stock for secondary trading, or availing itself of an exemption for secondary trading in the Common Stock, in any state. If the Company fails to register or qualify, or obtain or verify an exemption for the secondary trading of, the Common Stock in any particular state, the shares of Common Stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in the Company's Common Stock, a public market for the Common Stock will fail to develop and the shares could be deprived of any value. The Company was listed in Moody's OTC Industrial on April 28, 1998 and has been published in Standard & Poor's Daily News since January 27, 2000. The Company will be published in the Standard & Poor's Manual sometime in March, 2000. This listing should qualify the Company in those states that recognize such listing as an exemption. Penny Stock Regulations Could Adversely Effect Trading of Our Common Stock in the Secondary Market Although trading volume indicates that a secondary trading market has developed to a certain extent for the shares of Common Stock of the Company, the Common Stock is expected to come within the meaning of the term "penny stock" under 17 CAR 240.3a51-1 because such shares are issued by a small company; are low-priced (under five dollars); and are not traded on NASDAQ or on a national stock exchange. The SEC has established risk disclosure requirements for broker- dealers participating in penny stock transactions as part of a system of disclosure and regulatory oversight for the operation of the penny stock market. Rule 15g-9 under the Securities Exchange Act of 1934, as amended, obligates a broker-dealer to satisfy special sales practice requirements, including a requirement that it make an individualized written suitability determination of the purchaser and receive the purchaser's written consent prior to the transaction. Further, the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure instrument that provides information about penny stocks and the risks in the penny stock market. Additionally, the customer must be provided by the broker-dealer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. For so long as the Company's Common Stock is considered penny stock, the penny stock regulations can be expected to have an adverse effect on the liquidity of the Common Stock in the secondary market, if any, which develops. USE OF PROCEEDS All of the shares of Surgical's Common Stock covered by this prospectus are being offered for the account of the Selling Shareholders listed herein. We will not receive any proceeds from this offering. SELLING SHAREHOLDERS All of the 20,038,097 shares of Surgical's Common Stock covered by this prospectus are being offered for the account of Thomas Kernaghan & Co., -17- Ltd. ("TK") as Agent and Lender (the "Selling Shareholders") under a Loan Agreement dated December 20, 1999 and the related Registration Rights Agreement dated December 30, 1999, as amended. Under the terms of the Registration Rights Agreement, we have agree, among other things, to file a registration statement of which this prospectus is a part with the Securities and Exchange Commission to register all of the shares which potentially could be issued if TK makes a loan in the total aggregate amount of $5 million, sufficient to cover the conversion of all of the notes issued under such loan and the exercise of all of the warrants granted under such loan. Further, under such agreement, we are to pay all of the registration expenses incurred in connection with this registration and the reasonable fees and expenses of one (1) counsel for the Selling Shareholders, except that TK is to pay all selling commissions, underwriting discounts and disbursements, transfer taxes and fees and expenses of separate counsel applicable to their sale of Surgical's Common Stock to be issued pursuant to the agreements underlying the TK Loan Commitment. The agreements provides that we must keep current and effective the registration statement covering these shares for the greater of (i) a period of at least three (3) years from the closing date and (ii) a period of at least ninety (90) days after all of the notes have been converted or paid and all the warrants have been exercised or have expired. Prior to the TK Loan Commitment, neither TK nor any of its officers, directors or principal shareholders have held any position or office nor have any of them had a material relationship with Surgical or any of its affiliates within the past three (3) years. As of December 31, 1999, the Company had 14,515,373 shares outstanding, of which 2,700,000 relate to the escrow required under the TK Loan Commitment and are covered by this prospectus. Assuming that all the other shares registered hereby are issued, the total outstanding, with no other shares issued, would be 31,853,470. In such event, TK's ownership of 20,038,097 shares would represent 62.91% of the total voting shares of the Company and a controlling interest in it. PLAN OF DISTRIBUTION The Selling Shareholders may effect the distribution of the shares in one or more transactions that may take place through block trades or ordinary broker's transactions, or through privately negotiated transactions, an underwritten offering, or a combination of any such methods of sale. Sales of shares will be made at market prices prevailing at the time of sale or at negotiated prices. Selling Shareholders may pay usual and customary or specifically negotiated brokerage fees or commissions in connection such sales. We have agreed to pay registration expenses incurred in connection with this registration of approximately $36,228. The aggregate proceeds to the Selling Shareholders from the sale of the shares will be the purchase price of the Surgical Common Stock sold less the aggregate agents' commissions and underwriters' discounts, if any. The Selling Shareholders and any dealers or agents that participate in the distribution of the shares may be deemed to be "underwriters" within the meaning of the -18- Securities Act of 1933 (the "Act"), and any profit from the sale of shares by them and any commissions received by any such dealers or agents might be deemed to be underwriting discounts and commissions under the Act.. In order to comply with the securities laws of certain states, if applicable, the securities may be sold only through registered or licenses brokers or dealers. In addition, in certain states, the securities may not be sold unless they have been registered or qualified for sale in such state or any exemption from such registration or qualification requirement is available and the sale is made in compliance with the requirements. We have agreed to indemnify the Selling Shareholders in certain circumstances, against certain liabilities arising under the Act. The Selling Shareholders have agreed to indemnify us and our directors and officers who sign the registration statement against certain liabilities, including liabilities arising under the Act. DESCRIPTION OF SECURITIES The securities offered by this prospectus are shares of our Common Stock which are registered pursuant to Section 12 of the Securities and Exchange Act of 1934 (the "Exchange Act"). At the annual shareholder meeting held on February 29, 2000, by a majority vote, the Company was authorized it file a Certificate of Amendment to its Certificate of Incorporation, increasing the number of authorized shares of Common Stock from 20,000,000 to 100,000,000. The Certificate of Amendment was sent to the New York Department of State for filing. The transaction under which these shares are to be issued arose in December 1999, when the Company executed the TK Loan Commitment with TK, as Agent and Lender, whereby TK agreed to make loans to the Company of up to $5,000,000 in installments during the period commencing with the date of the agreement and ending on November 30, 2002. The TK Loan Commitment permits instalments aggregating $500,000 in any 90-day period. The proceeds of the loan are to pay agent fees and for working capital purposes. The TK Loan Commitment provides that the offering has been conducted under Regulation S of the Act. Under the terms of the TK Loan Commitment, each installment is supported by a convertible note and security agreement and the Agent and Lender are granted warrants to purchase shares of the Company's Common Stock. Prior to each instalment, the Company is obligated to escrow shares under the terms of an escrow agreement. The convertible note bears interest at 8% per annum and may be prepaid at any time. The note issued for the first installment is convertible at any time at the option of TK at the higher of (i) $.375 or (ii) the lower of $.8203 or 75% of the closing bid price of the Company's Common Stock on the conversion date. The security agreement grants TK a security interest in all of the Company's equipment, inventory, accounts, contract rights, chattel paper and instruments, and the proceeds of any of the collateral. Both the Lender's and the Agent's warrants granted with the first installment are exercisable at $1.09375 per share, subject to defined adjustments. The warrants are exercisable -19- 20% immediately and at the rate of an additional 1% for each $25,000 of principal borrowed. The Company was obligated to issue 2,700,000 shares of its Common Stock to be held in escrow for the potential conversion of the notes or exercise of the warrants. TK acts as escrow agent for the shares and is authorized to release such shares upon receipt of a notice of note conversion or warrant exercise. The Company granted TK registration rights and is obligated to file a Form S-3 within sixty (60) days of the agreement. This prospectus is part of the registration statement required and under the terms of the agreement covers initially 20,038,097 shares. In the event the Company's registration statement is not declared effective within one hundred twenty (120) days of a specified deadline, the Company is required to pay a penalty equal to $13,000 per month, to be adjusted pro rata for less periods. Under the terms of the TK Loan Commitment, an initial loan of $650,000 was made on December 30, 1999, the Lender was granted a warrant to purchase 3,428,571 shares and the Agent was granted a warrant to purchase 1,142,857 shares. The issuance of the securities was made pursuant to Regulation S of the Act. LEGAL OPINIONS Mintmire & Associates will provide Surgical with an opinion that the shares being offered in this prospectus are legally and validly issued. Donald F. Mintmire, the principal of the firm, owns as of February 28, 2000 less than 60,000 shares of Surgical's Common Stock. EXPERTS The financial statements of Surgical as of December 31, 1998 included and incorporated by reference in this prospectus and elsewhere in this registration statement, have been audited by Kerkering, Barbario &Co., P.A., independent public accounts, as indicated in their report with respect thereto and are included and incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the "SEC"). You may read and copy any documents we file with the SEC at their public reference facilities in Room 1024 at 450 Fifth Street N.W., Washington, DC 20549 or at regional offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New York 10048. Please call the SEC at 1-800- SEC-0330 for further information on the public reference rooms. Our SEC filings also are available to the public on the SEC Internet site at http://www.sec.gov. We filed with the SEC a registration statement on Form S-3 under the Act which registered the shares covered by this prospectus for resale by the Selling Shareholders. This prospectus is only part of the registration statement. It does not contain all of the information shown in the registration statement because the SEC rules and regulations allow us to include certain information in the filing, but permit us to omit certain information from the -20- prospectus. Statements contained in this prospectus as to any contract or other documents' contents are not necessarily complete. In each instance, if the contract or document is filed as an exhibit to the registration statement, the affected statement is qualified, in all aspects by reference to the applicable exhibit to the registration statement. For further information about us and our shares, we refer you to the registration statement and the exhibits that you may obtain from the SEC at its principal office after you pay the SEC prescribed fee, or you can obtain it through the Internet site listed above. The SEC allows us to "incorporate by reference" the information we file with them. This means that we can disclose important information to you by referring you to these documents. The information we incorporate by reference is an important part of this prospectus, and information that we file later with the SEC will update or supercede automatically this information. We incorporate by reference the following documents, which we have filed already with the SEC, and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until the termination of the offering under this prospectus. (1) Our Annual Report on Form 10KSB for the year ended December 31, 1998, as amended on December 29, 1999. (2) Our Quarterly Reports on Form 10QSB for the quarters ended March 31, 1999, June 30, 1999, as amended October 15, 1999 and September 30, 1999, as amended December 29, 1999. (3) The Company has not filed any current reports on Form 8K (4) The description of the Company's Common Stock, par value $.001 per share is contained in its Registration Statement filed under the Exchange Act on Form 10SB (File No. 0-24921), as amended on October 15, 1999. You should rely only on the information we include or incorporate by reference in this prospectus and any applicable prospectus supplement. We have not authorized anyone to provide you with information different from that contained in this prospectus. The information contained in this prospectus or the applicable prospectus supplement is accurate only as of the date on the front of those documents, regardless of the time of delivery of this prospectus or the applicable prospectus supplement or of any sale of our securities. Any statement contained in this prospectus or in a document incorporated or deemed to be incorporated by reference in this prospectus is deemed to be modified or superseded for purposes of this prospectus to the extent that any of the following modifies or superseded a statement in this prospectus or incorporated by reference in this prospectus: o in the case of a statement in a previously filed document incorporated by reference or deemed to be incorporated by reference in this prospectus, a statement contained in this prospectus; -21- o a statement contained in any accompanying prospectus supplement relating to a specific offering of shares; or o a statement contained in any other subsequently filed document that modifies or supersedes a statement in this prospectus. Any modified or superseded statement will not be deemed to constitute a part of this prospectus or any accompanying prospectus supplement, except as modified or superseded. Except as provided by the above mentioned exceptions, all information appearing in this prospectus and each accompanying prospectus supplement is qualified in its entirety by the information appearing in the documents incorporated by reference. We will provide, without charge to each person to whom a copy of this prospectus is delivered, after their written or oral request, a copy of any or all of the documents incorporated by reference into this prospectus, other than exhibits to the documents, unless the exhibits are incorporated specifically by reference in the documents. Requests may be made by writing or telephoning the following person: Stacy Quaid Investor Relations 2018 Oak Terrace Sarasota, Florida 34231 (941) 927-7874 -22- No person is authorized in connection with any offering of the shares to give any information or to give any representation not contained in this prospectus, and you should not rely on any such information or representation as having been authorized by Surgical or any Selling Shareholder. Neither the delivery of this prospectus nor any sale made hereunder shall under any circumstances create any implication that the information contained in this prospectus is correct as of any time subsequent to the date of this prospectus. Until the later of December 31, 2002 or ninety (90) days after all notes have been converted or paid and all warrants have been exercised or expired, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. TABLE OF CONTENTS Page No. Prospectus Summary 1 Risk Factors 8 Use of Proceeds 18 Selling Shareholders 18 Plan of Distribution 19 Description of Securities 20 Legal Opinions 21 Experts 21 Where You Can Find More Information 21
PROSPECTUS 20,038,097 Shares SURGICAL SAFETY PRODUCTS, INC. Common Stock This Prospectus is dated March 1, 2000. -23- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated expenses to be paid solely by Surgical in connection with the distribution of the securities being registered: Securities and Exchange Registration Fee $ 8,178 Blue Sky Fees and Expenses $ 0 Printing Expenses $ 1,000 Accounting Fees and Expenses 800 Legal Fees and Expenses $ 25,000 Miscellaneous Expenses $ 1,250 TOTAL $ 36,228
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Surgical is organized under the laws of the State of New York. Section 722 of the Business Corporation Law permits a New York corporation to indemnify any person is made, or threatened to be made, a party to an action or proceeding ( other than one by or in the right of the corporation to procure a judgment in its favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the corporation served in any capacity at the request of the corporation, by reason of the fact that he, his testator or intestate, was a director or officer of the corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, and amounts paid in settlement, and reasonable expenses, including attorneys` fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. However, under certain circumstances a director remains liable for his actions. Section 719 excludes any limitation of liability of directors in the following cases: -24- (a) Directors of a corporation who vote for or concur in any of the following corporate actions shall be jointly and severally liable to the corporation for the benefit of its creditors or shareholders, to the extent of any injury suffered by such persons, respectively, as a result of such action: (1) The declaration of any dividend or other distribution to the extent that it is contrary to the provisions of paragraphs (a) and (b) of section 510 (Dividends or other distributions in cash or property). (2) The purchase of the shares of the corporation to the extent that it is contrary to the provisions of section 513 (Purchase or redemption by a corporation of its own shares). (3) The distribution of assets to shareholders after dissolution of the corporation without paying or adequately providing for all known liabilities of the corporation, excluding any claims not filed by creditors within the time limit set in a notice given to creditors under articles 10 (Non-judicial dissolution) or 11 (Judicial dissolution). (4) The making of any loan contrary to section 714 (Loans to directors). (b) A director who is present at a meeting of the board, or any committee thereof, when action specified in paragraph (a) is taken shall be presumed to have concurred in the action unless his dissent thereto shall be entered in the minutes of the meeting, or unless he shall submit his written dissent to the person acting as the secretary of the meeting before the adjournment thereof, or shall deliver or send by registered mail such dissent to the secretary of the corporation promptly after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. A director who is absent from a meeting of the board, or any committee thereof, when such action is taken shall be presumed to have concurred in the action unless he shall deliver or send by registered mail his dissent thereto to the secretary of the corporation or shall cause such dissent to be filed with the minutes of the proceedings of the board or committee within a reasonable time after learning of such action. (c) Any director against whom a claim is successfully asserted under this section shall be entitled to contribution from the other directors who voted for or concurred in the action upon which the claim is asserted. (d) Directors against whom a claim is successfully asserted under this section shall be entitled, to the extent of the amounts paid by them to the corporation as a result of such claims: (1) Upon payment to the corporation of any amount of an improper dividend or distribution, to be subrogated to the rights of the corporation against shareholders who received such dividend or distribution with knowledge of facts indicating that it was not authorized by section 510, in proportion to the amounts received by them respectively. -25- (2) Upon payment to the corporation of any amount of the purchase price of an improper purchase of shares, to have the corporation rescind such purchase of shares and recover for their benefit, but at their expense, the amount of such purchase price from any seller who sold such shares with knowledge of facts indicating that such purchase of shares by the corporation was not authorized by section 513. (3) Upon payment to the corporation of the claim of any creditor by reason of a violation of subparagraph (a) (3), to be subrogated to the rights of the corporation against shareholders who received an improper distribution of assets. (4) Upon payment to the corporation of the amount of any loan made contrary to section 714, to be subrogated to the rights of the corporation against a director who received the improper loan. (e) A director shall not be liable under this section if, in the circumstances, he performed his duty to the corporation under paragraph (a) of section 717. (f) This section shall not affect any liability otherwise imposed by law upon any director. Article VI of the Company's Articles of Incorporation contains provisions providing for the indemnification of directors of the Company as follows: "The personal liability of directors to the corporation or its shareholders for damages for any breach of duty in such capacity is hereby eliminated except that such personal liability shall not be eliminated if a judgment or other final adjudication adverse to such director establishes that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled or that his acts violated Section 719 of the Business Corporation Law." Article VI of the Company's By-Laws contains provisions providing for the indemnification of directors and officers of the Company as follows: "Each director and officer of this corporation shall be indemnified by the corporation against all costs and expenses actually and necessarily incurred by him or her in connection with the defense of any action, suit or proceeding in which he or she may be involved or to which he or she may be made a party by reason of his or her being or having been such director or officer, except in relation to matters as to which he or she shall be finally adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty." The Company has no other agreements with any of its directors or executive offices providing for indemnification of any such persons with respect to liability arising out of their capacity or status as officers and directors. -26- At present, there is no pending litigation or proceeding involving a director or officer of the Company as to which indemnification is being sought. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ITEM 16. EXHIBITS Exhibit No. Description of Exhibit 3.(I).10 * Certificate of Amendment filed February 29, 2000 5.1 * Opinion of Mintmire & Associates as to the legality of the Securities to be issued. 10.38 * Effective December 30, 1999, Loan Agreement, Note, Security Agreement, Lender's Warrant, Agent's Warrant, Registration Rights Agreement and Escrow Agreement relative to the December 1999 transaction with Thomson Kernaghan & Co., Inc. under which the securities offered herein arise and Amendment thereto. 10.39 * Effective January 3, 2000 IBM Customer Agreement and Statement of Work. 23.1 * Consent of Kerkering, Barbario & Co., P.A., Independent Public Accounts. 23.2 * Consent of Mintmire & Associates is contained in the Opinion as to legality of Securities filed as Exhibit 5 27.1 * Financial Data Schedule * Filed Herewith ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a) of the Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental -27- change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low and high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change in such information in the registration statement. Provided, however, that paragraph (1)(i) and (1) (ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3 and the information required [or] to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for purposes of determining any liability under the Act, each such post- effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Act, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. -28- SIGNATURE Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sarasota, State of Florida, on February 29, 2000. SURGICAL SAFETY PRODUCTS INC. By: /S/ G. Michael Swor ------------------------ Dr. G. Michael Swor, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons, who represent a majority of the Board of Directors, in the capacities and on the dated indicated Signature Capacity Date - - --------- ----- ---- /s/ G. Michael Swor Chairman of the Board February 29, 2000 - - --------------------------- and Chief Executive G. Michael Swor Officer /s/ David Collins Acting Chief Financial Officer, February 29, 2000 - - --------------------------- Secretary, Treasurer and David Collins Director (principal financial or accounting officer) /s/ Donald K. Lawrence President, Chief Operating February 29, 2000 - - --------------------------- Officer and Director Donald K. Lawrence /s/ Frank Clark Director February 29, 2000 - ----------------------------- Frank Clark /s/ James D. Stuart Director February 29, 2000 - - --------------------------- James D. Stuart
-29- Signature Capacity Date - - --------- ----- ---- /s/ Sam Norton Director February 29, 2000 - ------------------------------ Sam Norton /s/ David Swor Director February 29, 2000 - ------------------------------ David Swor /s/ William B. Saye Director February 29, 2000 - ------------------------------ William B. Saye
-30- SURGICAL SAFETY PRODUCTS INC. INDEX TO EXHIBITS FILE WITH FORM S-3 REGISTRATION STATEMENT
Exhibit No. Description of Exhibit Page No. - ----------- ---------------------- -------- 3.(I).10 * Certificate of Amendment filed February 29, 2000 33 5.1 * Opinion of Mintmire & Associates as to the legality of the Securities to be issued. 35 10.38 * Effective December 30, 1999, Loan Agreement, Note, Security Agreement, Lender's Warrant, Agent's Warrant, Registration Rights Agreement and Escrow Agreement relative to the December 1999 transaction with Thomson Kernaghan & Co., Inc. under which the securities offered herein arise and Amendment thereto. 37 10.39 * Effective January 3, 2000 IBM Customer Agreement and Statement of Work. 120 23.1 * Consent of Kerkering, Barbario & Co., P.A., Independent Public Accounts. 177 23.2 * Consent of Mintmire & Associates is contained in the Opinion as to legality of Securities filed as Exhibit 5 27.1 * Financial Data Schedule
-31- EX-3.(I) 2 AMENDMENT TO ARTICLES OF INCORPORATION EXHIBIT 3.(I).10 Certificate of Amendment of the Certificate of Incorporation of Surgical Safety Products, Inc., f/k/a Sheffeld Acres Inc Under Section 805 of the Business Corporation Law IT IS HEREBY CERTIFIED THAT: (1) The name of the corporation is Surgical Safety Products, Inc., f/k/a Sheffeld Acres Inc. (2) The certificate of incorporation was filed by the department of state on the 7th day of May 1993. (3) The certificate of incorporation of this corporation is hereby amended to effect the following change The Certificate of Incorporation is amended to increase the number of shares that the cororation shall have the authority to isssue. Article IV of the Certificate of Incorporation is amended to read as follows: ARTICLE IV - Number of Shares The aggregate number of share of Common Stock that the corporation shall have the authority to issue is One Hundred Million, (100,000,000), all of which shall have a par value of One Mil ($ .0001). The Board of Directors, as it shall determine (1) shall have authority to issue other classes of shares and the authority to establish the class, the aggregate number of shares in such class, whether the class is with or without par value and the relative rights, preferences and limitations of the class and (2) shall have the authority to issue any and all series of any classes of preferred shares and any and all of the designations of the series, the aggregate number of such series, whether the series is with or without par value, relative rights, preferences and limitations of any and all such series. (4) The amendment to the certificate of incorporation was authorized: -32- * first, by vote of the board of directors. * and then at a meeting of shareholders by vote of a majority of all the outstanding shares entitled to vote thereon. IN WITNESS WHEREOF, this certificate has been subscribed this day of April 1998 by the undersigned who affirm(s) that the statements made herein are true under the penalties of perjury. Type name Capacity in which signed Signature - ----------------- ------------------------------- --------------------- G. Michael Swor, M.D. CEO /s/G M Swor - --------------------- ------------------------------- --------------------- Donald K. Lawrence President/COO /s/Donald K. Lawrence - --------------------- -------------------------------- --------------------- David Collins Acting CFO/Treasurer & Secretary /s/David Collins - --------------------- -------------------------------- --------------------- ------------------------------------------------------ Certificate of Amendment of the Certificate of Incorporation of Surgical Safety Products, Inc. f/k/a Sheffeld Acres Inc. under Section 805 of the Business Corporate Law ------------------------------------------------------------ Filed by: Address: -33- EX-5 3 LEGAL OPINION EXHIBITS 5.1 and 23.2 [LETTERHEAD OF MINTMIRE & ASSOCIATES] February 29,2000 Surgical Safety Products Inc. 2018 Oak Terrace Sarasota, FL 34231 Re: Registration Statement on Form S-3 Ladies and Gentlemen: We have acted as counsel to Surgical Safety Products Inc., a New York corporation (the "Company"), in connection with the preparation and filing of a registration statement on Form S-3 (Registration Number _______) (the "Registration Statement"), under the Securities Act of 1933, as amended (the "Act"), registering initially an aggregate of 20,038,097 shares of the Company's Common Stock, par value $.001, 2,700,000 shares of which are currently issued and outstanding (the "Outstanding Shares") and held in escrow against conversion of all or part of the initial note payable to Thomson Kernaghan & Co., Ltd. ("TK") in the principal amount of $650,000, or against exercise of the initial warrants which are exercisable into 4,571,428 shares (the "Warrant Shares") and the balance of which are to be issued at such time as additional loans up to an aggregate of Five Million Dollars ($5,000,000) are made by TK to the Company, some of which shares are to be held in escrow against conversion of additional notes and against exercise of additional warrants (collectively the "Additional Offered Shares"), all of which are for resale by the Selling Shareholders (as defined in the Registration Statement). For purposes of this opinion, we have examined the originals or copies, certified or otherwise identified to our satisfaction, of the Company's Articles of Incorporation and Bylaws, each as amended to date, resolutions adopted by the Company's Board of Directors and other agreements, instruments, documents and records relating to the Company and the issuance of the Outstanding Shares, Warrants Shares and Additional Offered Shares as we deemed appropriate. In all examinations, we have assumed the legal capacity of each natural person signing any of the documents and corporate records relating to the Company, the genuineness of signatures, the authenticity of the documents submitted to us as originals, the conformity to authentic original documents of documents submitted to us as copies and the accuracy and completeness of all records and other information made available to us by the Company. As to various questions of fact material to our opinion, we have relied on representations of officers of the Company. -34- We express no opinion concerning the laws of any jurisdictions other than the Business Corporation Laws of the State of New York and the Florida Business Corporation Act. On the basis of the foregoing, we are of the opinion that the Outstanding Shares have been validly issued and when released from escrow will be fully paid and non-assessable by the Company, the Warrant Shares, upon exercise of the warrants and payment thereof in accordance with the terms thereof, will be validly issued, fully paid and non-assessable by the Company and the Offered Shares when issued in accordance with the TK Loan Commitment (as defined in the Registration Statement), will be validly issued, and fully paid and non-assessable by the Company when released from escrow whether as a result of conversion of all or part of any outstanding note or upon exercise of the warrants and payment thereof in accordance with the terms thereof. We hereby consent to the reference of our firm under the caption "Legal Opinion" in the Prospectus and to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not admit that we come within the categories of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ Mintmire & Associates Mintmire & Associates -35- EX-10.38 4 MATERIAL DOCUMENT EXHIBIT 10.38 LOAN AGREEMENT ss.1. Parties 1.1. This Agreement is made and entered into as of December 20, 1999 (the "Effective Date"), by and between Surgical Safety Products, Inc., and Thomson Kernaghan & Co. Ltd. ss.2. Definition and Accounting Terms 2.1. Definitions. As used in this Agreement: (a) "Affiliate" means any Person (i) that directly or indirectly controls, or is controlled by, or is under common control with the Borrower or a Subsidiary; or (ii) that directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of the Borrower or any Subsidiary; or (iii) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Borrower or a Subsidiary. (b) "Agent" means Thomson Kernaghan & Col. Ltd., a corporation incorporated under the laws of Ontario, for itself and as agent for the Lenders. (c) "Agent's Fee" shall have the meaning ascribed in paragraph 10.12 of this Agreement. (d) "Agent's Principal Office" means the Agent's principal office at 365 Bay Street, Toronto, Ontario M5H 2V2. (e) "Agent's Warrant" shall have the meaning ascribed in paragraph 6.2(a) of this Agreement. (f) "Agreement" means this Loan Agreement, as amended, supplemented or modified from time to time. (g) "Borrower" means Surgical Safety Products, Inc., a corporation incorporated under the laws of the U.S. state of New York. (h) "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in Toronto are authorized or required to close under the laws of the province of Ontario. (i) "Capital Lease" means all leases that have been or should be capitalized on the books of the lessee in accordance with GAAP. -36- (j) "Closing Date" means December 22, 1999, or such other date as the Agent, the Borrower and the Parent may agree in writing to be the Closing Date. (k) Code" means the US Internal Revenue Code of 1986, as amended from time to time, and the regulations and published interpretations thereof. (l) "Collateral" means all property that is subject to the Lien granted by the Security Agreement; (m) "Commitment" means the Agent's obligation to make Loans to the Borrower pursuant to Section 2.01 in the amounts referred to therein. (n) "Common Stock" means the Borrower's common stock, US$.001 par value. (o) "Commonly Controlled Entity" means an entity, whether or not incorporated, that is under common control with the Borrower, within the meaning of Section 414(b) or 414(c) of the Code. (p) "Control" (whether or not capitalized) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. (q) "Conversion Shares" means the shares of Common Stock into which the Notes are convertible. (r) "Debt" means (i) indebtedness or liability for borrowed money; (ii) obligations evidenced by bonds, debentures, notes or other similar instruments; (iii) obligations for the deferred purchase price of property or services (including trade obligations); (iv) obligations under Capital Leases; (v) obligations under letters of credit; (vi) obligations under acceptance facilities; (vii) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person or entity, or otherwise to assure a creditor against loss; and (viii) all obligations secured by any Liens, whether or not the obligations have been assumed. (s) "Default" means any of the events specified in paragraph 9.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition has been satisfied. -37- (t) "Effective Date" means the date set forth in paragraph 1.1 of this Agreement. (u) "Escrow Agreement" shall have the meaning ascribed in paragraph 6.2(d) of this Agreement. (v) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereof. (w) "Event of Default" means any of the events specified in Section 9.01, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. (x) "Exchange Act" means the United States of America. Securities Exchange Act of 1934, as amended. (y) "GAAP" means generally accepted accounting principles in the U.S. (z) "Lenders" means Thomson Kernaghan & Co., Ltd., and Persons that purchase participations in the Loans from Thomson Kernaghan & Co. Ltd. (aa) "Lenders' Warrant" shall have the meaning ascribed in paragraph 6.2(a) of this Agreement. (bb) "Lien" means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge or encumbrance of any kind or nature whatsoever (including without limitation any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement, charge or similar notice under the law of any jurisdiction to evidence any of the foregoing. (cc) "Loan" shall have the meaning ascribed in paragraph 3.1 of this Agreement. (dd) "Loan Documents" means this Agreement, the Notes, the Security Agreement, the Lenders' Warrant, the Agent's Warrant, the Registration Rights Agreement, and the Escrow Agreement. (ee) Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA. -38- (ff) "Notes" shall have the meaning ascribed in paragraph 3.4 of this Agreement. (gg) "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. (hh) "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. (ii) "Plan" means any pension plan which is covered by Title IV of ERISA and in respect of which the Borrower or a Commonly Controlled Entity is an "employer" as defined in Section 3(5) of ERISA. (jj) "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. (kk) "Registration Rights Agreement" shall have the meaning ascribed in paragraph 6.2(b) of this Agreement. (ll) "Reportable Event" means any of the events set forth in Section 4043 of ERISA. (mm) "SEC" means the Securities and Exchange Commission of the United States of America. (nn) "Securities Act" means the United States of America Securities Act of 1933, as amended. (oo) "Security Agreement" means a Security Agreement in substantially the form of Exhibit B to be delivered by the Borrowerunder the terms of this Agreement. (pp) "Subsidiary" means a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of that corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by the Borrower. (qq) "Termination Date" means November 30, 2002. (rr) "U.S." means the United States of America. -39- (ss) "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants. (tt) "Warrants" means the Lenders' Warrant and the Agent's Warrant. 2.2. Singular and Plural Terms. As used in this Agreement, terms defined in the singular have the same meaning when used in the plural, and terms defined in the plural have the same meaning when used in the singular. 2.3. Accounting Terms. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP. All financial data submitted pursuant to this Agreement shall be prepared in accordance with GAAP. 2.4. Currency. All currency described or otherwise referred to in the Loan Documents is the currency of the United States of America. ss.3. Amount and Terms of the Loans 3.1. The Loans. The Agent agrees on the terms and conditions set forth in this Agreement to make loans (each a "Loan" and collectively the "Loans") to the Borrower from time to time during the period from the date of this Agreement up to but not including the Termination Date, up to a maximum principal amount of Five Million Dollars in the currency of the United States of America (US$ 5,000,000). The initial Loan shall be in the principal amount of $650,000. Unless the Agent otherwise agrees, the aggregate amount of Loans made in any 90-day period shall not exceed $500,000. 3.2. Notice and Manner of Borrowing. The Borrower shall give the Agent at least five (5) Business Days' notice of any Loans under this Agreement, specifying the date and amount thereof. Not later than 2:00 P.M. Toronto time, on the date of such Loan and upon fulfillment of the applicable conditions set forth in Section 4, the Agent will make such Loan available to the Borrower in immediately available funds by wire transfer to the Borrower's account at a commercial bank. The Borrower shall give the Agent written wiring instructions for such transfer, specifying the name, address and ABA routing number for the Bank, and the Borrower's account number to be credited with the Loan proceeds. 3.3. Interest. The Borrower shall pay interest to the Agent on the outstanding and unpaid principal amount of the Loan at the rate of eight percent (8%) per year, calculated on the basis of a year of 360 days comprised of twelve 30-day months. Interest shall be payable upon any prepayment of principal and at maturity, at the Agent's Principal Office. 3.4. The Notes. The Borrower's obligation to repay each Loan shall be evidenced by its promissory note (each a "Note" and collectively the "Notes") in -40- substantially the form of Exhibit A attached to this Agreement with blanks appropriately filled in and payable to the order of the Agent. Each Note shall be dated the date on which the Agent advances the Loan proceeds to the Borrower, and each of the Notes shall be due and payable on the Termination Date. At any time prior to their respective payment in full, all or any part of the principal and interest of the Notes may, at the option of the Agent or other holder, be converted into Common Stock, at a price per share equal to the lower of (i) $0.8203125 or (ii) 75% of the closing bid price on Conversion Date, as defined in the Note; provided however, that the conversion price per share shall in no event be less than $0.375 per share. 3.5. Collateral. The Notes, together with all of the Borrower's other obligations under this Agreement, shall be secured by a Security Agreement in the form of Exhibit B hereto executed by the Borrower. 3.6. Prepayments. The Borrower may prepay the Notes, in whole or in part, at any time with the Agent's consent. The Borrower may prepay the Notes in whole, or in part in increments of $500,000 or less with accrued interest to the date of such prepayment on the amount prepaid, without the Agent's consent, provided that: (i) the Borrower gives the Agent not less than 10 Business Days' prior written notice of its intention to do so, which notice shall specify the amount being prepaid and the prepayment date; (ii) a registration statement under the Securities Act shall be in effect registering the issuance and resale of the Conversion Shares and the Warrant Shares; (iii) the average closing bid price of the Common Stock for the 20 trading days preceding the notice shall be in excess of $1.00; and the average daily trading volume for the Common Stock for the 20 trading days preceding the notice shall be in excess of 20,000. The Agent may convert all or any part of the Notes being prepaid at any time prior to receipt of the prepayment. 3.7. Method of Payment. The Borrower shall make each payment under this Agreement and under the Notes at the Agent's Principal Office not later than 2:00 P.M., Toronto time on the date when due in lawful currency of the United States of America and in immediately available funds. Whenever any payment to be made under this Agreement or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest due on the Loan. 3.8. Use of Proceeds. The Borrower shall use the proceeds of the Loan solely for the following purposes: (a) to pay the Agent's Fee; (b) to pay the fees and expenses of the Agent's counsel in the negotiation and preparation of this Agreement; (c) to repay the Borrower's promissory note dated November 30, 1999, in the principal amount of $50,000, plus interest, payable to the order of Thomson Kernaghan & Co. Limited, and (d) for the Borrower's working capital purposes. The Borrower hereby authorizes the Agent to withhold the amounts necessary to repay that note, the Agent's Fee and such fees and expenses of its counsel from the proceeds of the Loans. -41- ss.4. Conditions Precedent. 4.1. Condition Precedent to Initial Loan. The obligation of the Agent to make the initial Loan to the Borrower is subject to the condition precedent that the Agent shall have received on or before the day of the Loan each of the following, in form and substance satisfactory to the Agent and its counsel: (a) Note. A Note for the principal amount of the initial Loan duly executed by the Borrower; (b) Security Agreement. A Security Agreement duly executed by the Borrower; together with an undertaking by the Borrower to (i) file within the time proscribed by law for perfecting the Agent's security interest in the Collateral, and deliver to the Agent acknowledgment copies of the Financing Statements (UCC-1) duly filed under the Uniform Commercial Code of all jurisdictions necessary or, in the opinion of the Agent, desirable to perfect the security interest created by the Security Agreement, and (ii) certified copies of Request for Copies or Information (Form UCC-11) identifying all of the financing statements on file with respect to the Borrower in all jurisdictions referred to under (i), including the Financing Statement filed by the Agent against the Borrower, indicating that no party claims an interest in any of the Collateral except as set forth on Schedule 5.1(o); (c) Evidence of all corporate action by the Borrower. Certified (as of the Effective Date) copies of all corporate action taken by the Borrower, including resolutions of its Board of Directors, authorizing the execution, delivery, and performance of the Loan Documents and each other document to be delivered pursuant to this Agreement; (d) Incumbency and signature certificate of the Borrower. A certificate (dated as of the Effective Date) of the Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign the Loan Documents and any other documents to be delivered by the Borrower under this Agreement; (e) Lenders' Warrant. The Lenders' Warrant; (f) Agent's Warrant. The Agent's Warrant; (g) Registration Rights Agreement. The Registration Rights Agreement; (h) Escrow Agreement. The Escrow Agreement; and -42- (i) Opinion of counsel for the Borrower. A favorable opinion of counsel for the Borrower, in substantially the form of Exhibit C hereto, and as to such other matters as the Agent may reasonably request. 4.2. Conditions Precedent to All Loans. The obligation of the Agent to make each Loan (including the initial Loan) shall be subject to the further conditions precedent that on the date of such Loan: (a) The following statements shall be true and the Agent shall have received a certificate signed by a duly authorized officer of the Borrower, dated the date of such Loan, stating that (i) the representations and warranties contained in Section 5.1 of this Agreement, and in Section 4.01 of the Security Agreement are correct on and as of the date of such Loan as though made on and as of such date; and (ii) no Default or Event of Default has occurred and is continuing, or would result from such Loan; (b) The Agent shall have received a detailed statement of the use of proceeds from the Loan, reasonably satisfactory to the Agent, certified by the Borrower's chief financial officer and chief executive officer; (c) The Agent shall have received such other approvals, opinions, or documents as the Agent may reasonably request; (d) The closing bid price of the Common Stock for the 20 trading days preceding the date of the Loan shall have been above $1.00; and (e) The average daily trading volume for the 20 trading days preceding the date of the Loan shall have been in excess of 20,000. ss.5. Representations and Warranties. 5.1. Borrower's Representations and Warranties. The Borrower represents and warrants to the Lenders that: (a) Incorporation, Good Standing, and Due Qualification. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation; has the corporate power and authority to own its assets and to transact the business in which it is now engaged and proposes to be engaged in; and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required. The Borrower has no Subsidiaries. (b) Corporate Power and Authority. The execution, delivery and performance by the Borrower of the Loan Documents have been duly authorized by all -43- necessary corporate action and do not and will not (i) require any consent or approval of the shareholders of such corporation; (ii) contravene such corporation's charter or bylaws; (iii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to such corporation; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which such corporation is a party or by which it or its properties may be bound or affected; (v) result in or require the creation or imposition of any Lien upon or with respect to any to the properties now owned or hereafter acquired by such corporation; and (vi) cause such corporation to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award, or any such indenture, agreement, lease or instrument. (c) Legally Enforceable Agreement. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally. (d) Financial Statements. Borrower's Financial Statements. The balance sheet of the Borrower as at December 31, 1998 and 1997, and, and the related statements of income, retained earnings and cash flows of the Borrower for the fiscal years then ended, and the accompanying footnotes, together with the opinion thereon of Kerkering, Barberio & Co., independent certified public accountants, and the interim consolidated and consolidating balance sheet of the Borrower as at September 30, 1999, and the related statements of income, retained earnings and cash flows of the Borrower for the nine (9) month period then ended, copies of which have been included by the Borrower in its reports filed with the SEC on Forms 10-K and 10-Q, respectively, are complete and correct and fairly present the financial condition of the Borrower as at such dates and the results of the operations of the Borrower for the periods covered by such statements, all in accordance with GAAP consistently applied (subject to year-end adjustments in the case of the interim financial statements), and since September 30, 1999, there has been no material adverse change in the condition (financial or otherwise), business, or operations of the Borrower or any Subsidiary. There are no liabilities of the Borrower or any Subsidiary, fixed or contingent, which are material but are not reflected in the financial statements or in the notes thereto, other than liabilities arising in the ordinary course of business since September 30, 1999. (e) Full Disclosure. No information, exhibit or report furnished by the Borrower, to the Agent in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statement contained therein not materially misleading. -44- (f) Labor Disputes and Acts of God. Neither the business nor the properties of the Borrower or any Subsidiary are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other casualty (whether or not covered by insurance) materially and adversely affecting such business properties or the operation of the Borrower or such Subsidiary. (g) Other Agreements. Except as set forth on Schedule 5.1 (g) the Borrower is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction which could have a material adverse effect on the business, properties, assets, operations, or conditions, financial or otherwise, of the Borrower to carry out its obligations under the Loan Documents. The Borrower is not in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party. (h) Litigation. There is no pending or threatened action or proceeding against or affecting the Borrower before any court, governmental agency, or arbitrator which may, in any one case or in the aggregate, materially adversely affect the financial condition, operations, properties, or business of the Borrower or the ability of the Borrower to perform its obligations under the Loan Documents. (i) No Defaults on Outstanding Judgments or Orders. The Borrower has satisfied all judgments (if any), and is not in default with respect to any judgment, writ, injunction, decree, rule, or regulation of any court, arbitrator, or federal, state, municipal, or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign. (j) Ownership and Liens. The Borrower has title to, or valid leasehold interests in, all of its properties and assets, real and personal, including the properties and assets and leasehold interest reflected in the financial statements referred to in paragraph 5.1(d) of this Agreement (other than any properties or assets disposed of in the ordinary course of business), and none of the properties and assets owned by the Borrower and none of its leasehold interests is subject to any Lien, except such as may be permitted pursuant to paragraph 7.1(a) of this Agreement. (k) ERISA. The Borrower is in compliance in all material respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed, nor has any Plan been terminated; no circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither the Borrower nor any Commonly Controlled -45- Entity has completely or partially withdrawn from a Multiemployer Plan; the Borrower and each Commonly Controlled Entity have met their minimum funding requirements under ERISA with respect to all of their Plans, and the present value of all vested benefits under each Plan does not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA; and neither the Borrower nor the Parent nor any Commonly Controlled Entity has incurred any liability to the PBGC under ERISA. (l) Operation of Business. The Borrower possesses all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted, and the Borrower is not in violation of any valid rights of others with respect to any of the foregoing. (n) Taxes. The Borrower has filed all tax returns (federal, state, and local) required to be filed and have paid all taxes, assessments, and governmental charges and levies thereon to be due, including any interest and penalties. (o) Debt. Schedule 5.1(o) is a complete and correct list of all credit agreements, indentures, purchase agreements, guaranties, Capital Leases, and other investments, agreements, and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which the Borrower is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, which are outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in Schedule 5.1(o). (p) Environment. The Borrower has duly complied with, and its businesses, operations, assets, equipment, property, leaseholds, or other facilities are in compliance with, the provisions of all federal, state, and local environmental, health, and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder. The Borrower has been issued and will maintain all required federal, state, and local permits, licenses, certificates, and approvals relating to (1) air emissions; (2) discharges to surface water or groundwater; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage, transportation, or disposal of toxic or hazardous substances or wastes (intended hereby and hereafter to include any and all such materials listed in any federal, state, or local law, code or ordinance and all rules and regulations promulgated thereunder as hazardous or potentially hazardous); or (6) other environmental, health, or safety matters. A true, accurate, and complete list of all such permits, licenses, certificates, and approvals is attached hereto as Schedule 5.1(p). The Borrower has not received notice of, nor -46- knows of, or suspects facts which might constitute any violations of any federal, state, or local environmental, health, or safety laws, codes or ordinances, and any rules or regulations promulgated thereunder with respect to its businesses, operations, assets, equipment, property, leaseholds, or other facilities. Except in accordance with a valid governmental permit, license, certificate, or approval listed in Schedule 5.1(p), there has been no emission, spill, release, or discharge into or upon (1) the air; (2) soils; or any improvements located thereon; (3) surface water or groundwater; or (4) the sewer, septic system or waste treatment, storage or disposal system servicing the premises of any toxic or hazardous substances or wastes at or from the premises; and accordingly the premises of the Borrower and its Subsidiaries are free of all such toxic or hazardous substances or wastes. There has been no complaint, order, directive, claim, citation, or notice by any governmental authority or any person or entity with respect to (1) air emissions; (2) spills, releases or discharges to soils or improvements located thereon, surface water, groundwater or the sewer, septic system or waste treatment, storage or disposal systems servicing the premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage, transportation, or disposal of toxic or hazardous substances or waste; or (6) other environmental, health, or safety matters affecting the Borrower or its business, operations, assets, equipment, property, leaseholds, or other facilities. Neither the Borrower nor its Subsidiaries have any indebtedness, obligation, or liability, absolute or contingent, matured or not matured, with respect to the storage, treatment, cleanup, or disposal of any solid wastes, hazardous wastes or other toxic or hazardous substances (including without limitation any such indebtedness, obligation, or liability with respect to any current regulation, law, or statute regarding such storage, treatment, cleanup, or disposal) which is not shown on Schedule 5.1(p). Set forth in Schedule 5.1(p) is a list of all real property owned or leased by the Borrower and its Subsidiaries, and a brief description of the business conducted at such location. (p) Registration and Listing of Common Stock. The Borrower is a reporting company (although its Form 10-SB has yet to clear the SEC), and has continuously been a reporting company for more than the 11 calendar months preceding the Closing Date, and the Common Stock is registered under the Exchange Act and listed on the OTC Bulletin Board. The Borrower has filed all reports and other documents required of it by the Exchange Act, the rules and regulations of the SEC, and the rules and regulations of the OTC Bulletin Board. (q) No U.S. Offering. The Borrower has not offered any of the Notes, the Conversion Shares, the Warrants or the Warrant Shares to a U.S. Person (as defined in SEC Rule 902(k)) or to a person in the United States. (r) Offshore Transaction. The negotiations for and the issuance of the Notes and the Warrants to the Agent has been made in an offshore transaction as defined in SEC Rule 902(h). -47- (s) No Directed Selling Efforts. The Company has not engaged in any directed selling efforts, as defined in SEC Rule 902(c), with respect to the Notes and the Warrants. (t) Category 3 Securities. The Company has complied with all of the conditions required of it under SEC Rule 903(b)(3) with respect to the issuance of the Notes and Warrants. (u) Exemption of Notes and Warrants from Registration. The Borrower's issuance of the Notes and the Warrants is exempt from the registration requirements of Section 5 of the Securities Act pursuant to the provisions of SEC Regulation S. 5.2. Agent's Representations and Warranties. The Agent represents and warrants to the Borrower that: (a) Accredited Investor. Each of the Agent and the other Lenders is an accredited investor as that term is defined in Rule 501(a)(3) of Regulation D of the SEC. (b) U. S. Persons. Neither the Agent nor any Lender is a U.S. Person as defined in SEC Rule 902(k). (c) The Agent has complied with all of the conditions required of it by SEC Rule 903(b)(3) to be complied with by it in connection with the transactions contemplated by this Agreement. ss.6. Affirmative Covenants. 6.1. Financial and Operational. So long as any of the Notes shall remain unpaid, the Borrower will: (a) Maintenance of Existence. Preserve and maintain its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required. (b) Maintenance of Records. Keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all material financial transactions of the Borrower. (c) Maintenance of Properties. Maintain, keep and preserve all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. -48- (d) Conduct of Business. Continue to engage in an efficient and economical manner in a business of the same general type as conducted by it on the date of this Agreement. (e) Maintenance of Insurance. Maintain insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from its coverage. (f) Compliance With Laws. Comply with all applicable laws, codes, regulations, rules, ordinances and orders, including without limitation paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property. (g) Right of Inspection. At any reasonable time and from time to time, permit the Agent or any of its agents or representatives to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower, and to discuss its affairs, finances and accounts with any of its officers, directors and independent accountants. (h) Reporting Requirements. Furnish to the Agent: (i) Quarterly Financial Statements. The Borrower's reports on Form 10-Q or 10-QSB contemporaneously with their filing with the SEC. (ii) Annual Financial Statements. The Borrower's annual reports on Form 10-K or 10-KSB contemporaneously with their filing with the SEC. (iii) Management Letters. Promptly upon receipt thereof, copies of any reports submitted to the Borrower or any Subsidiary by independent accountants in connection with their examination of the financial statements of the Borrower. (iv) Certificate of No Default. Within twenty-five (25) days after the end of each month a certificate of the Borrower's chief financial officer certifying that to the best of his or her knowledge no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that is proposed to be taken with respect thereto. -49- (v) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality (domestic or foreign) or arbitrator, affecting the Borrower, which, if determined adversely to the Borrower, could have a material adverse effect on the financial condition, properties or operations of the Borrower. (vi) Notice of Defaults and Events of Default. As soon as possible and in any event within ten (10) days after the occurrence of each material Default or material Event of Default, a written notice setting forth the details of such Default or Event of Default and the action that is proposed to be taken by the Borrower with respect thereto. (vii) ERISA reports. As soon as possible, and in any event within thirty (30) days after the Borrower knows or has reason to know that any circumstances exist that constitute grounds entitling the PBGC to institute proceedings to terminate a Plan subject to ERISA with respect to the Borrower or any Commonly Controlled Entity, and promptly but in any event within two (2) Business Days of receipt by the Borrower or any Commonly Controlled Entity of notice that the PBGC intends to terminate a Plan or appoint a trustee to administer the same, and promptly but in any event within five (5) Business Days of the receipt of notice concerning the imposition of withdrawal liability with respect to the Borrower or any Commonly Controlled Entity, the Borrower will deliver to the Agent a certificate of the chief financial officer of the Borrower setting forth all relevant details and the action which the Borrower proposes to take with respect thereto. (vii) Reports to Other Creditors. Promptly after the furnishing thereof, copies of any statement or report furnished by the Borrower or any Subsidiary to any other party pursuant to the terms of any indenture, loan, credit or similar agreement and not otherwise required to be furnished to the Agent pursuant to any other clause of this Agreement. (viii) Other Regulatory Reports and Filings. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Borrower or any Subsidiary sends to -50- its shareholders, and copies of all regular, periodic and special reports, and all registration statements that the Borrower files with the securities regulatory authorities of any country, province or state, or with any securities exchange. (ix) General Information. Such other information respecting the condition or operations, financial or otherwise, of the Borrower as the Agent may from time to time reasonably request. (i) Environment, Health and Safety. Be and remain in compliance with the provisions of all federal, state, and local environmental, health, and safety laws, codes and ordinances, and all rules and regulations issued thereunder; notify the Agent immediately of any notice of a hazardous discharge or environmental complaint received from any governmental agency or any other party; notify the Agent immediately of any hazardous discharge from or affecting its premises; immediately contain and remove the same, in compliance with all applicable laws; promptly pay any fine or penalty assessed in connection therewith; permit the Agent to inspect the premises, to conduct tests thereon, and to inspect all books, correspondence, and records pertaining thereto; and at the Agent's request, and at the Borrower's expense, provide a report of a qualified environmental engineer, satisfactory in scope, form, and content to the Agent, and such other and further assurances reasonably satisfactory to the Agent that the condition has been corrected. 6.2. The Borrower hereby further covenants and agrees with the Agent that: (a) Warrants. Contemporaneously with the execution of this Agreement, the Borrower shall issue and deliver to the Agent (i) a warrant in the form of Exhibit D hereto to purchase up to 3,428,571 shares of Common Stock (the "Lenders' Warrant"), and (ii) a warrant in the form of Exhibit E hereto to purchase up to 1,142,857shares of Common Stock (the "Agent's Warrant"), each at a price per share of $1.09375, and each vesting as provided therein. The Lenders' Warrant and the Agent's Warrant each shall be exercisable from time to time, pro rata, as follows: (i) the Warrants shall be immediately exercisable for 20% of the number of Warrant Shares; and, (ii) the Warrants shall be exercisable for an additional1% of the number of Warrant Shares for each $25,000 of principal of Loans made under this Agreement. (b) Registration of Common Stock Underlying Notes and Warrants. Contemporaneously with the execution of this Agreement, the Borrower shall execute and deliver to the Agent a registration rights agreement in the form of Exhibit F hereto. (the "Registration Rights Agreement").The Borrower shall register the issuance and sale of the Conversion Stock and the Warrant Stock in accordance with the provisions of the Registration Rights Agreement. -51- (d) Escrow. Contemporaneously with the execution of this Agreement, the Borrower shall executed an escrow agreement with the Agent as escrow holder (the "Escrow Agreement") in the form of Exhibit G to this Agreement. Contemporaneously with the execution of this Agreement, the Borrower shall execute and deliver to the Escrow Holder a certificate for 2,700,000 shares of Common Stock as a portion of the number of Conversion Shares (based upon a conversion price of $0.375 per share) underlying the principal amount of the Note evidencing the initial Loan and the number of Warrant Shares for which the Warrants shall be exercisable upon funding the initial Loan. Prior to each additional Loan, the Borrower shall execute and deliver to the Escrow Holder a certificate for 200% of the number of additional Conversion Shares (based upon a conversion price of $0.375 per share) underlying the principal amount of the Note evidencing that Loan and 200% the number of additional Warrant Shares for which the Warrants shall be exercisable upon funding that Loan, until all of the Conversion Shares and Warrant Shares have been delivered to the Escrow Holder.. All certificates for Conversion Shares and Warrant Shares delivered to the Escrow Holder shall be registered in the name of Thomson Kernaghan & Co. Limited. Until such time as the registration statement covering the Conversion Shares and the Warrant shares is effective, the certificates shall bear a legend indicating that they have been issued in a transaction that is exempt from the registration requirements of the Securities Act, and may not be transferred except pursuant to registration under the Securities Act or an exemption from such registration. Except for such legend, the Common Stock underlying the Lenders' Warrant and the Agent's Warrant shall be free and clear of any legends, liens, claims, stop orders or other restrictions. Not later than the third Business Day following the effective date of the Registration Statement, the Borrower shall cause the Common Stock underlying the Lenders' Warrant and the Agent's Warrant to be registered in Agent's street name, in DTC form, free and clear of any legends, liens, claims, stop orders or other restrictions. ss.7. Negative Covenants. 7.1. So long as any of the Notes remains unpaid, or the Agent shall be obligated to make Loans under this Agreement, the Borrower will not: (a) Liens. Create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any Lien upon or with respect to any of its properties, now owned or hereafter acquired, except: (1) Liens in favor of the Agent; (2) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained; -52- (3) Liens imposed by law, such as mechanics', materialmen's, landlords', warehousemen's, and carriers' Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than thirty (30) days or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; (4) Liens under workers' compensation, unemployment insurance, Social Security, or similar legislation; (5) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance, or other similar bonds, or other similar obligations arising in the ordinary course of business; (6) Liens disclosed on Schedule 5.1(o); (7) Judgment and other similar Liens arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (8) Easements, rights-of-way, restrictions, and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use, and enjoyment by the Borrower or any Subsidiary of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; and (9) Liens securing obligations of a Subsidiary to the Borrower or another Subsidiary (b) Debt. Create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any Debt, except: (1) Debt of the Borrower under this Agreement or the Note; (2) Debt described in Schedule 5.1(o) but no voluntary prepayments, renewals, extensions, refinancings, or increases in he amounts thereof; -53- (3) Debt of the Borrower subordinated on terms satisfactory to the Agent to the Borrower's obligation under this Agreement and the Note; (4) Debt of the Borrower to any Subsidiary or of any Subsidiary to the Borrower or another Subsidiary; and (5) Accounts payable to trade creditors for goods or services which are not aged more than sixty (60) days from the billing date and current operating liabilities (other than for borrowed money) which are not more than ten (10) days past due, in each case incurred in the ordinary course of business, as presently conducted, and paid within the specified time, unless contested in good faith and by appropriate proceedings. (c) Mergers, Etc. Wind up, liquidate or dissolve itself, reorganize, merge or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, or acquire all or substantially all of the assets or the business of any Person, and the Borrower shall not permit any Subsidiary to do so, except that (1) any Subsidiary may merge into or transfer assets to the Borrower, and (2) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary. (d) Leases. Create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any material obligation as lessee for the rental or hire of any real or personal property, except: (i) Capital Leases created pursuant to existing lease financing agreements disclosed on Schedule 5.1(o); (ii) leases existing on the date of this Agreement and any extensions or renewals thereof; and (iii) leases between the Borrower and any Subsidiary or between any Subsidiaries. (e) Sale and Leaseback. Sell, transfer, or otherwise dispose of, or permit any Subsidiary to sell, transfer, or otherwise dispose of, any real or personal property to any Person and thereafter directly or indirectly lease back the same or similar property. (f) Dividends. Declare or pay any dividends; or purchase, redeem, retire, or otherwise acquire for value any of its capital stock now or hereafter outstanding; or make any distribution of assets to its stockholders as such whether in cash, assets, or obligations of the Borrower; or allocate or otherwise set apart any sum for the payment of any dividend or distribution -54- on, or for the purchase, redemption, or retirement of any shares of its capital stock; or make any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock; or permit any of its Subsidiaries to do any of the foregoing or to purchase or otherwise acquire for value any stock of the Borrower or another Subsidiary. (g) Sale of Assets. Sell, lease, assign, transfer, or otherwise dispose of, or permit any Subsidiary to sell, lease, assign, transfer, or otherwise dispose of, any of its now owned or hereafter acquired assets (including, without limitation, shares of stock and indebtedness of Subsidiaries, receivables, and leasehold interests), except: (1) inventory disposed of in the ordinary course of business; (2) the sale or other disposition of assets no longer used or useful in the conduct of its business; and (3) that any Subsidiary may sell, lease, assign, or otherwise transfer its assets to the Borrower. (h) Investments. (i) Make, or permit any Subsidiary to make, any loan or advance to any Person, or (ii) purchase or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any capital stock, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any Person, or participate as a partner or joint venturer with any other Person, except: (1) direct obligations of the U.S. or any agency thereof with maturities of one year or less from the date of acquisition; (2) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (3) certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank having capital and surplus in excess of One Hundred Million U.S. Dollars (US$100,000,000); and (4) stock, obligations, or securities received in settlement of debts (created in the ordinary course of business) owing to the Borrower or any Subsidiary. (i) Guaranties, Etc. Assume, guaranty, endorse, or otherwise be or become directly or contingently responsible or liable, or permit any Subsidiary to assume, guaranty, endorse, or otherwise be or become directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods, or services, or to supply or advance any funds, assets, goods, or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth, or otherwise to assure the creditors of any Person against loss), for obligations of any Person, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. (j) Transactions With Affiliates. Enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, or permit any Subsidiary to enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable -55- requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (k) Capital Expenditures. Purchase or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any material capital assets, without the Agent's prior written consent. ss.8. Financial Covenants 8.1. So long as the Note shall remain unpaid or the Agent shall have any Commitment under this Agreement, the Borrower shall not, nor shall it permit any Subsidiary to, increase the amount of any borrowings, or obtain any additional advances on any existing lines of credit in excess of their currently contracted limits, except for Loans under this Agreement, without the Agent's prior written consent. ss.9. Events of Default 9.1. Events of Default. If any of the following events shall occur: (a) The Borrower should fail to pay the principal of or interest on any Note as and when due and payable, or any amount of any other fee by or within 10 days after the date that it is due and payable; (b) Any representation or warranty made or deemed made by the Borrower in this Agreement or any other Loan Document, or which is contained in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document, shall prove to have been incorrect, incomplete, or misleading in any material respect on or as of the date made or deemed made; (c) The Borrower shall fail to perform or observe any term, covenant, or agreement contained in this Agreement to be performed or observed by it ; (d) The Borrower or any Subsidiary shall (i) fail to pay any indebtedness for borrowed money (other than the Note) of the Borrower or such Subsidiary, as the case may be, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), or (ii) fail to perform or observe any material term, covenant, or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, -56- after the giving of notice or passage of time, or both, the maturity of such indebtedness, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (e) The Borrower or any Subsidiary (i) shall generally not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors, or petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or a substantial part of its assets; or (iii) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or an adjudication or appointment is made, and which remains undismissed for a period of thirty (30) days or more; or (v) shall take any corporate action indicating its consent to, approval of, or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (vi) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of thirty (30) days or more; (f) One or more judgments, decrees, or orders for the payment of money shall be rendered against the Borrower or any Subsidiary and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied, or stayed or bonded pending appeal; (g) The Security Agreement shall at any time after its execution and delivery and for any reason cease (a) to create a valid and perfected security interest in and to the property purported to be subject to such Security Agreement, and in the priority disclosed on Schedule 5.1(o); or (b) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by the Borrower, or the Borrower shall deny it has any further liability or obligation under the Security Agreement, or the Borrower shall fail to perform any of its material obligations under the Security Agreement; (h) Any of the following events shall occur or exist with respect to the Borrower or any Commonly Controlled Entity under ERISA: any Reportable Event shall occur; complete or partial withdrawal from any Multiemployer Plan shall take place; any Prohibited Transaction shall occur; a notice of intent to terminate a Plan shall be filed, or a Plan shall be terminated; or circumstances shall exist which constitute grounds entitling the PBGC to institute proceedings to terminate a Plan, -57- or the PBGC shall institute such proceedings; and in each case above, such event or condition, together with all other events or conditions, if any, could subject the Borrower to any tax, penalty, or other liability which in the aggregate may exceed Ten Thousand Dollars ($10,000); or (i) If the Agent receives its first notice of a hazardous discharge or an environmental complaint regarding the Borrower or a Subsidiary from a source other than the Borrower, and the Agent does not receive notice (which may be given in oral form, provided same is followed with all due dispatch by written notice given by Certified Mail, Return Receipt Requested) of such hazardous discharge or environmental complaint from the Borrower within twenty-four (24) hours of the time the Agent first receives said notice from a source other than the Borrower; or if any federal, state, or local agency asserts or creates a Lien upon any or all of the assets, equipment, property, leaseholds, or other facilities of the Borrower or a Subsidiary by reason of the occurrence of a hazardous discharge or an environmental complaint; or if any federal, state, or local agency asserts a claim against the Borrower, a Subsidiary, or its respective assets, equipment, property, leaseholds, or other facilities for damages or cleanup costs relating to a hazardous discharge or an environmental complaint; provided, however, that such claim shall not constitute a default if, within five (5) Business Days of the occurrence giving rise to the claim, (i) the Borrower can prove to the Agent's satisfaction that the Borrower has commenced and is diligently pursuing either: (a) a cure or correction of the event which constitutes the basis for the claim, and continues diligently to pursue such cure or correction to completion or (b) proceedings for an injunction, a restraining order, or other appropriate emergent relief preventing such agency or agencies from asserting such claim, which relief is granted within ten (10) Business Days of the occurrence giving rise to the claim and the injunction, order, or emergent relief is not thereafter resolved or reversed on appeal; and (ii) in either of the foregoing events, the Borrower has posted a bond, letter of credit, or other security satisfactory in form, substance, and amount to both the Agent and the agency or entity asserting the claim to secure the proper and complete cure or correction of the event which constitutes the basis for the claim; (j) A change of Control of the Borrower or any Subsidiary occurs, including without limitation any Person shall acquire securities representing 25% or more of the voting securities of the Borrower; then, and in any such event, the Agent may, by notice to the Borrower, (i) declare its obligation to make Loans to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the Notes, all interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest, and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Parent and the Borrower. -58- 9.2. Agent's Right to Setoff. Upon the occurrence and during the continuance of any Event of Default, the Agent is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), to set off and apply any and all funds, deposits and accounts at any time held and other indebtedness at any time owing by the Agent to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or the Note or any other Loan Document, irrespective of whether or not the Agent shall have made any demand under this Agreement or the Note or such other Loan Document and although such obligations may be unmatured. The Agent agrees promptly to notify the Borrower after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Agent under this Section 9.2 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Agent may have. ss.10. Miscellaneous. 10.1. Amendments, Etc. No amendment, modification, termination, or waiver of any provision of any Loan Document to which the Borrower is a party, nor consent to any departure by the Borrower from any Loan Document to which it is a party, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 10.2. Notices, Etc. All notices given under this Agreement and under the other Loan Documents shall be in writing, addressed to the parties as set forth below, and shall be effective on the earliest of (i) the date received, or (ii) if given by facsimile transmittal on the date given if transmitted before 5:00 p.m. the recipient's time, otherwise it is effective the next day, or (iii) on the second business day after delivery to a major international air delivery or air courier service (such as Federal Express or Network Couriers): If to the Agent: Thomson Kernaghan & Co. Ltd. 365 Bay Street Toronto, Ontario M5H 2V2 Attention: Mark E. Valentine, Chairman Facsimile No. (416) 367-8055 With a copy (that does not constitute notice) to: John M. Mann Attorney at Law 1330 Post Oak Boulevard, Suite 2800 Houston, Texas 77056-3060 Facsimile No. (713) 622-7185 If to the Borrower: Surgical Safety Products, Inc. 2018 Oak Terrace Sarasota, Florida 34231 Attention: Frank M. Clark, President Facsimile No. (941) 925-0510 With a copy (that does not constitute notice) to: Mintmire & Associates 265 Sunrise Avenue, Suite 204 Palm Beach, FL 33480 Attn: Donald F. Mintmire, Esq. Facsimile No. (561) 659-5371 -59- 10.3. No Waiver. No failure or delay on the part of the Agent in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise. 10.4. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Agent, and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights under any Loan Document to which the Borrower is a party without the prior written consent of the Agent. 10.5 Costs, Expenses, and Taxes. The Borrower agrees to pay on demand all costs and expenses incurred by the Agent in connection with the preparation, execution, delivery, filing, and administration of the Loan Documents, and of any amendment, modification, or supplement to the Loan Documents, including, without limitation, the fees and out-of-pocket expenses of counsel for the Agent incurred in connection with advising the Agent as to its rights and responsibilities hereunder. The Borrower also agrees to pay all such costs and expenses, including court costs, incurred in connection with enforcement of the Loan Documents, or any amendment, modification, or supplement thereto, whether by negotiation, legal proceedings, or otherwise. In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Loan Documents and the other documents to be delivered under any such Loan Documents, and agree to hold the Agent harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. This provision shall survive termination of this Agreement. 10.6. Integration. This Agreement and the Loan Documents contain the entire agreement between the parties relating to the subject matter hereof and supersede all oral statements and prior writings with respect thereto. 10.7. Indemnity. The Borrower shall defend, protect, indemnify, and hold harmless the Agent and each Lender, and all of their respective officers, directors, employees, and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities, and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Borrower in this Agreement or any other Loan Document, or any other certificate, instrument, or document contemplated hereby or thereby; or (b) any breach of any covenant, agreement, or obligation of the Borrower contained in this Agreement or any other Loan Document; or (c) the activities of the Borrower or any Subsidiary, each of their respective predecessors in interest or third parties with whom they or any of them have or had a contractual relationship, or arising directly or indirectly -60- from the violation of any environmental protection, health, or safety law, whether such claims are asserted by any governmental agency or any other person; or (d) any cause of action, suit, or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance, or enforcement of this Agreement or any Loan Document, or any other instrument, document, or agreement executed pursuant hereto or thereto by any of the Indemnities, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the Loans or from the exercise of the Warrants, or the status of the Agent or any Lender or holder of any of the Notes, Warrants, Conversion Shares or Warrant Shares, or as a stockholder in the Borrower. To the extent that the foregoing undertaking by the Borrower may be unenforceable for any reason, the Borrower shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. This indemnity shall survive termination of this Agreement. 10.8. Governing Law. This Agreement and the Note shall be governed by, and construed in accordance with, the laws of the Province of Ontario, Canada; provided, however, if any provision of this Agreement is unenforceable under Ontario law, but is enforceable under the laws of the U.S. State of Florida, then Florida law shall govern the construction and enforcement of that provision. 10.9. Severability of Provisions. Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction (after applying the provisions of paragraph 10.8 of this Agreement to that provision) shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. 10.10 Headings. Section and paragraph headings in the Loan Documents are included for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. 10.11. Dispute Resolution. Any controversy or claim arising out of or relating to this Agreement (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration at Toronto, Canada, in accordance with the commercial arbitration rules of the International Chamber of Commerce. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties agree that the courts of the Province of Ontario, Canada, shall have exclusive jurisdiction and venue for the adjudication of any civil action between them arising out of relating to this Agreement, and hereby irrevocably consent to such jurisdiction and venue. 10.12. Agent's Fee. The Borrower shall pay Thomson Kernaghan & Co. Ltd. a fee for their services as Agent (the "Agent's Fee") in an amount equal to ten percent (10%) of the aggregate principal amount of all Loans, payable pro rata upon the disbursement of each Loan. -61- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the Effective Date. The Agent: THOMSON KERNAGHAN & CO. LTD. By _________________________________ Name _______________________________ Title ________________________________ Date signed __________________________ The Borrower: SURGICAL SAFETY PRODUCTS, INC. By _________________________________ Name _______________________________ Title ________________________________ Date signed __________________________ -62- NOTE US$............[amount of Loan] Toronto, Ontario ........ ...., ....... FOR VALUE RECEIVED, on demand, and if no demand then on November 30, 2002, the undersigned, SURGICAL SAFETY PRODUCTS, INC., (the "Borrower"), a New York (USA) corporation, whose address is 2018 Oak Terrace, Sarasota, Florida 34231, USA, hereby promises to pay to the order of THOMSON KERNAGHAN & CO. LTD., (the "Agent"), at the Agent's office at 365 Bay Street, Toronto, Ontario M5H 2V2, Canada, in lawful currency of the United States of America and in immediately available funds, the principal sum of ................. DOLLARS AND NO CENTS (US$...............) together with interest on the unpaid principal amount of this Note at the rate of EIGHT PERCENT (8%) per year, from the date of this Note until paid. This Note is one of the Notes referred to in, and is entitled to the benefits of, the Loan Agreement, dated as of December 20, 1999, between the Borrower and the Agent (the "Loan Agreement"). Terms used herein which are defined in the Loan Agreement shall have their defined meanings when used herein. The Loan Agreement, among other things, contains provisions for acceleration of the maturity of this Note upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity of this Note upon the terms and conditions specified in the Loan Agreement. This Note is secured by a Security Agreement referred to in the Loan Agreement, executed by the Borrower, reference to which is hereby made for a description of the collateral provided for under the Security Agreement, and the rights of the parties with respect thereto. This Note shall be governed by the laws of the Province of Ontario, Canada; provided, however, if any provision of this Agreement is unenforceable under Ontario law, but is enforceable under the laws of the U.S. State of Florida, then Florida shall govern the construction and enforcement of that provision. The Agent or other holder of this Note is entitled, at its option, to convert at any time and from time to time, all or any part of the principal amount of the Note, plus accrued interest, into shares (the "Conversion Shares") of the Borrower's common stock, $0.001 par value ("Common Stock"). No fraction of shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. To convert this Note, this Note must be surrendered at the principal executive office of the Escrow Agent pursuant to an Escrow Agreement between the Company and Thomson Kernaghan & Co. Ltd., dated December 20, 1999, accompanied by written notice of conversion substantially in the form of Exhibit A to this Note, with appropriate insertions. The date upon which the conversion shall be effective (the "Conversion Date") shall be deemed to be the date on which the Agent or other holder has delivered this Note, with the conversion notice duly executed to Escrow Holder, or if earlier, the date set forth in such notice of conversion if the Note and such conversion notice is received by the Escrow Holder within three (3) business days therefrom. The Escrow Holder will deliver certificates representing the Conversion Shares within three (3) business days -63- following receipt of the Note and conversion notice. The price per share of Common Stock into which this Note is convertible (the "Conversion Price") shall be the higher of (i) US$0.375, or (ii) the lower of (x) $0.8203125 or (y) 75% of the closing bid price of the Borrower's Common Stock quoted on the OTC Bulletin Board on the Conversion Date; i.e., in no event shall the Conversion Price be less that US$0.375 per share of Common Stock. The Borrower is obligated to register the issuance and resale of the Conversion Shares under the Securities Act of 1933, as amended, pursuant to the terms of the Registration Rights Agreement between the Borrower and the Agent referred to in the Loan Agreement. Any controversy or claim arising out of or relating to this Note (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration at Toronto, Canada, in accordance with the commercial arbitration rules of the International Chamber of Commerce. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties hereby consent to the exclusive jurisdiction of the courts of the Province of Ontario for that purpose. SURGICAL SAFETY PRODUCTS, INC. By _________________________________ Name _______________________________ Title ________________________________ Date signed __________________________ -64- EXHIBIT "A" NOTICE OF CONVERSION (To be executed by the Holder in order to Convert the Note) TO SURGICAL SAFETY PRODUCTS, INC. C/O THOMSON KERNAGHAN & CO. LIMITED The undersigned hereby irrevocably elects to convert $________________ of the principal amount of the above Note into Shares of Common Stock of Surgical Safety Products, Inc. according to the conditions stated therein, as of the Conversion Date written below. Conversion Date Applicable Conversion Price Signature Name __________________________________________________________ Address: -65- SECURITY AGREEMENT This SECURITY AGREEMENT, PLEDGE AND ASSIGNMENT (this ASecurity Agreement@) dated and effective as of December 9, 1998, is made by Surgical Safety Products, Inc. (the ABorrower@), a New York corporation, as the debtor, to Thomson Kernaghan & Co. Ltd. (the AAgent@), as the secured party, in connection with the Loan Agreement (as hereinafter defined). PRELIMINARY STATEMENTS: (1) The Borrower and the Agent have made and entered into a Loan Agreement (as it now exists or subsequently may be modified, the ALoan Agreement@) effective as of December __, 1999. The Borrower will derive substantial direct and indirect benefit from the transactions contemplated by the Loan Agreement. (2) It is a condition precedent to the making of Loans by the Agent under the Loan Agreement that the Borrower shall have made the pledge and granted the assignment and security interest contemplated by this Security Agreement. (3) All capitalized terms used but not defined in this Security Agreement shall have the meanings ascribed to them in the Loan Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Agent to make Loans under the Loan Agreement, the Borrower hereby agrees with the Agent as follows: Section 1.01. Pledge, Assignment and Grant of Security. The Borrower hereby assigns and pledges to the Agent, and hereby grants to the Agent a security interest in all of the Borrower=s right, title and interest in and to the following, whether now owned or hereafter acquired (the ACollateral@): (1) All equipment in all its forms, wherever located, now or hereafter existing, all fixtures and all parts thereof and all accessions thereto (any and all such equipment, fixtures, parts, and accessions being the AEquipment@); (2) All inventory in all of its forms, wherever located, now or hereafter existing and raw materials and work in process therefor, finished goods thereof, and materials used or consumed in the manufacture or production thereof; (b) goods in which the Borrower has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which the Borrower has an interest or right as consignee); and (c) goods which are returned to or repossessed by the Borrower), and all accessions thereto and products thereof and documents therefor (any and all such inventory, accessions, products, and documents being the AInventory@); and (3) All accounts, contract rights, chattel paper and instruments, now or hereafter existing, whether or not arising out of or in connection with the sale or lease of goods or the rendering of sevices, and all rights now or -66- hereafter existing in and to all security agreements, leases, and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper and instruments (any and all such accounts, contract rights, chattel paper and instruments, being the AReceivables,@ and any and all such leases, security agreements, and other contracts being the ARelated Contracts@); (4) All proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds which constitute property of the types described in clauses (1) through (4) of this Section 1.01), and, to the extent not otherwise included, all (a) payments under insurance (whether or not the Agent is the loss payee thereof), or any indemnity, warranty, or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral, and (b) cash. Section 2.01. Security for Obligations. This Security Agreement secures the payment for all obligations of the Borrower now or hereafter existing under the Loan Agreement, the Notes and the Registration Rights Agreement, whether for principal, interest, fees, expenses, or otherwise, and all obligations of the Borrower now or hereafter existing under this Security Agreement (collectively, the AObligations@). Without limiting the generality of the foregoing, this Security Agreement secures the payment of all amounts which constitute part of the Obligations and would be owed by the Borrower to the Agent under any of the Loan Documents but for the fact that they are unenforceable or not allowable owing to the existence of bankruptcy, reorganization, or similar proceedings involving the Borrower. Section 3.01. Borrower Remains Liable. Anything herein to the contrary notwithstanding, (1) the Borrower shall remain liable under the contracts and agreements included in the collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Security Agreement had not been excluded; (2) the exercise by the Agent of any rights hereunder shall not release the Borrower from any of its duties or obligations under the contracts and agreements included in the Collateral; and (3) the Agent shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Security Agreement, nor shall the Agent be obligated to perform any of the obligations or duties of the Borrower thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 4.01. Representations and Warranties. The Borrower represents and warrants as follows: (1) All of the Equipment and Inventory are located at the places specified in Schedule I hereto. The chief place of business and chief executive office of the Borrower and the office where the Borrower keeps its records concerning the Receivables, and the originals of all chattel paper that evidence Receivables, and the original copies of the Assigned Agreements, are located at its address specified in Section 17.01. None of the Receivables is evidenced by a promissory note or other instrument. (2) The Borrower is the legal and beneficial owner of the Collateral free and clear of any Lien except for (i) the security interest created by this Security Agreement, and (ii) the security interests described in Schedule II. No effective financing statement or other document similar in effect covering all or any part of the Collateral is on file in any recording office, except (i) such as may have been filed in favor of the Agent relating to this Security Agreement, and (ii) the financing statements described in Schedule II. The Borrower has no trade names except as set forth on Schedule III. -67- (3) Except as provided on Schedule I, the Borrower has exclusive possession and control of the Equipment and Inventory. (4) Except as set forth on Schedule I, this Security Agreement creates a valid and perfected first priority security interest in the Collateral, securing the payment of the Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. (5) The Borrower is a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; has the corporate power and authority to own its assets and to transact its business, and is duly qualified and in good standing under the laws of each jurisdiction in which qualification is required. (6) The execution and performance by the Borrower of this Security Agreement have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of the Borrower=s stockholders; (b) contravene the Borrower=s charter or bylaws; (c) violate any provision of any law, rule, or regulation; or (d) result in a breach of or constitute a default under any indenture or loan or Loan Agreement or any other agreement, lease, or instrument to which the Borrower is a party or by which it or its properties may be bound or affected. (7) This Security Agreement is the legal, valid, and binding obligation of the Borrower, enforceable in accordance with its respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors= rights generally. (8) No consent of any other person or entity and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (a) for the pledge by the Borrower of the Security Collateral pursuant to this Security Agreement, for the grant by the Borrower of the assignment and security interest granted hereby or for the execution, delivery, or performance of this Security Agreement by the Borrower; (b) for the perfection or maintenance of the pledge, assignment, and security interest created hereby (including the first priority nature of such pledge, assignment, and security interest); or (c) for the exercise by the Agent of the voting or other rights provided for in this Security Agreement or the remedies in respect of the Collateral pursuant to this Security Agreement (except as may be required in connection with the disposition of any portion of the Security Collateral by laws affecting the offering and sale of securities generally). (9) The Inventory has been produced by the Borrower in compliance with all requirements of the Fair Labor Standards Act. (10) There are no conditions precedent to the effectiveness of this Security Agreement that have not been satisfied or waived. (11) The Borrower has, independently and without reliance upon the Agent and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Security Agreement. -68- Section 5.01. Further Assurances. (1) The Borrower agrees that from time to time, at the expense of the Borrower, the Borrower will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Borrower will execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Agent may request, in order to perfect and preserve the pledge, assignment, and security interest granted or purported to be granted hereby. (2) The Borrower hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of the Borrower where permitted by law. A photocopy or other reproduction of this Security Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. (3) The Borrower will furnish to the Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request, all in reasonable detail. Section 6.01. As to Equipment and Inventory. (1) The Borrower shall keep the Equipment and Inventory (other than Inventory sold in the ordinary course of business) at the places therefor specified in Section 4.01(1) or, upon 10 days= prior written notice to the Agent, at such other places in a jurisdiction where all action required by Section 5.01 shall have been taken with respect to the Equipment and Inventory. (2) The Borrower shall cause the Equipment to be maintained and preserved in the same condition, repair, and working order as when new, ordinary wear and tear excepted, and in accordance with any manufacturer=s manual, and shall forthwith, or in the case of any loss or damage to any of the Equipment as quickly as practicable after the occurrence thereof, make or cause to be made all repairs, replacements, and other improvements in connection therewith which are necessary or desirable to such end. The Borrower shall promptly furnish to the Agent a statement respecting any loss or damage to any of the Equipment. (3) The Borrower shall pay promptly when due all property and other taxes, assessments, and governmental charges or levies imposed upon, and all claims (including claims for labor, materials, and supplies) against, the Equipment and Inventory. In producing the Inventory, the Borrower shall comply with all requirements of the Fair Labor Standards Act. -69- Section 7.01. Insurance. (1) the Borrower shall, at its own expense, maintain insurance with respect to the Equipment and Inventory in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to the Agent from time to time. The Borrower's current insurers are satisfactory to the Agent. Each policy for liability insurance shall provide for all losses to be paid on behalf of the Agent and the Borrower as their respective interests may appear and each policy for property damage insurance shall provide for all losses (except for losses of less than $10,000 per occurrence) to be paid directly to the Agent. Each such policy shall in addition (a) name the Borrower and the Agent as insured parties thereunder (without any representation or warranty by or obligation upon the Agent) as their interests may appear; (b) contain the agreement by the insurer that any loss thereunder shall be payable to the Agent notwithstanding any action, inaction, or breach of representation or warranty by the Borrower; (c) provide that there shall be no recourse against the Agent for payment of premiums or other amounts with respect thereto; and (d) provide that at least ten days= prior written notice of cancellation or of lapse shall be given to the Agent by the insurer. The Borrower shall, if so requested by the Agent, deliver to the Agent original or duplicate policies of such insurance and, as often as the Agent may reasonably request, a report of a reputable insurance broker with respect to such insurance. Further, the Borrower shall, at the request of the Agent, duly execute and deliver instruments of assignment of such insurance policies to comply with the requirements of Section 6.01 and cause the insurers to acknowledge notice of such assignment. (2) Reimbursement under any liability insurance maintained by the Borrower pursuant to this Section 7.01 may be paid directly to the person who shall have incurred liability covered by such insurance. In case of any loss involving damage to Equipment or Inventory when subsection (3) of this Section 7.01 is not applicable, the Borrower shall make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance maintained by the Borrower pursuant to this Section 7.01 shall be paid to the Borrower as reimbursement for the costs of such repairs or replacements. (3) Upon (a) the occurrence and during the continuance of any Event of Default, or (b) the actual or constructive total loss (in excess of US$10,000 per occurrence) of any Equipment or Inventory, all insurance payments in respect of such Equipment or Inventory shall be paid to and applied by the Agent as specified in Section 13.01(2). Section 8.01. Place of Perfection; Records, Collection of Receivables. (1) The Borrower shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Receivables, and the original copies of the Assigned Agreements and the originals of all chattel paper that evidence Receivables, at the location therefor specified in Section 4.01(1) or, upon 30 days= prior written notice to the Agent, at any other locations in a jurisdiction where all actions required by Section 6.01 shall have been taken with respect to the Receivables. The Borrower will hold and preserve such records, Assigned Agreements and chattel paper and will permit representatives of the Agent at any time during normal business hours to inspect and make abstracts from such records and chattel paper. (2) Except as otherwise provided in this subsection (2), the Borrower shall continue to collect, at its own expense, all amounts due or to become due the Borrower under the Receivables. In connection with such collections, the Borrower may take (and, at the Agent=s direction, shall take) such action as the Borrower or the Agent may deem necessary or advisable to enforce collection of the Receivables: provided, however, that the Agent shall -70- have the right upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default and upon written notice to the Borrower of its intention to do so, to notify the account debtors or obligors under any Receivables of the assignment of such Receivables to the Agent and subject to any priority interests of other secured creditors to direct such account debtors or obligors to make payment of all amounts due or to become due to the Borrower thereunder directly to the Agent and upon such notification and at the expense of the Borrower, to enforce collection of any such Receivables, and to adjust, settle, or compromise the amount or payment thereof, in the same manner and to the same extent as the Borrower might have done. After receipt by the Borrower of the notice from the Agent referred to in the proviso to the preceding sentence, (a) all amounts and proceeds (including instruments) received by the Borrower in respect of the Receivables shall be received in trust for the benefit of the Agent hereunder, shall be segregated from other funds of the Borrower, and shall be forthwith paid over to the Agent in the same form as so received (with any necessary endorsement) to be held as cash collateral and either (i) released to the Borrower so long as no Event of Default shall have occurred and be continuing or (ii) if any Event of Default shall have occurred and be continuing, applied as provided by Section 13.01(2), and (b) the Borrower shall not adjust, settle, or compromise the amount or payment of any Receivable, release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon. Section 9.01. Transfers and Other Liens; Additional Shares. (1) The Borrower shall not (a) sell, assign (by operation of law or otherwise), or otherwise dispose of, or grant any option with respect to, any of the Collateral, except Inventory in the ordinary course of business, or (b) create or permit to exist any Lien upon or with respect to any of the Collateral, except for the security interest under this Security Agreement. Section 10.01. Agent Appointed Attorney-In-Fact. The Borrower hereby irrevocably appoints the Agent the Borrower=s attorney-in-fact, with full authority in the place and stead of the Borrower and in the name of the Borrower or otherwise, from time to time in the Agent=s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposed of this Security Agreement (subject to the rights of the Borrower under Section 8.01), including, without limitation, upon five days= notice to the Borrower: (1) To obtain and adjust insurance required to be paid to the Agent pursuant to Section 8.01; (2) To ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Collateral; (3) To receive, endorse, and collect any drafts or other instruments, documents, and chattel paper, in connection therewith; and (4) To file any claims or take any action or institute any proceedings which the Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Agent with respect to any of the Collateral. Section 11.01. Agent May Perform. If the Borrower fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Borrower under Section 14.01 (2). 5 days after notice and failure -71- Section 12.01. The Agent=s Duties. The powers conferred on the Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders, or other matters relative to any Security Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property. Section 13.01 Remedies. If any Event of Default shall have occurred and be continuing: (1) The Agent may exercise in respect of the collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code in effect in the State of Delaware at that time (the ACode@) (whether or not the Code applies to the affected Collateral), and also may (a) require the Borrower to, and the Borrower hereby agrees that it will at its expense and upon request of the Agent forthwith, assemble all of part of the Collateral as directed by the Agent and make it available to the Agent at a place to be designated by the Agent which is reasonably convenient to both parties and (b) upon five days= notice to the Borrower (except as specified below), sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Agent=s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Borrower agrees that, to the extent notice of sale shall be required by law, at least ten days= notice to the Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. the Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (2) Any cash held by the Agent as Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Agent, be held by the Agent as Collateral for, and/or then or any time thereafter be applied (after payment of any amounts payable to the Agent pursuant to Section 19.01) in whole or in part by the Agent against, all or any part of the Obligations in such order as the Agent shall elect. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Obligations shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive such surplus. (3) The Agent may exercise any and all rights and remedies of the Borrower under or in connection with the Assigned Agreements or otherwise in respect of the Collateral, including, without limitation, any and all rights of the Borrower to demand or otherwise require payment of any amount under, or performance of any provision of, any Assigned Agreement. (4) All payments received by the Borrower under or in connection with any Assigned Agreement or otherwise in respect of the Collateral shall be -72- received in trust for the benefit of the Agent, shall be segregated from other funds of the Borrower and shall be forthwith paid over to the Agent in the same form as so received (with any necessary endorsement). Section 14.01. Indemnity and Expenses. (1) The Borrower agrees to indemnify the Agent from and against any and all claims, losses, and liabilities (including reasonable attorney fees) growing out of or resulting from this Security Agreement (including, without limitation, enforcement of this Security Agreement), except claims, losses, or liabilities resulting from the Agent=s gross negligence or willful misconduct. (2) The Borrower will upon demand pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent may incur in connection with (a) the administration of this Security Agreement; (b) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Agent hereunder; or (d) the failure by the Borrower to perform or observe any of the provisions hereof. Section 15.01. Security Interest Absolute. All rights of the Agent and the pledge, assignment, and security interest hereunder, and all obligations of the Borrower hereunder, shall be absolute and unconditional, irrespective of: (1) Any lack of validity, regularity, or enforceability of the Loan Agreement, the Notes or any other agreement or instrument relating thereto; (2) Any change in the time, manner, or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Loan Agreement or the Notes, including, without limitation, any increase in Obligations resulting from the extension of additional credit to the Borrower or any of its Subsidiaries or otherwise. (3) Any taking, exchange, release, or nonperfection of any other collateral, or any taking, release, or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (4) Any manner of application of Collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any Collateral for all or any of the Obligations or any other assets of the Borrower or any of its subsidiaries; (5) Any change, restructuring, or termination of the corporate structure or existence of the Borrower or any of its subsidiaries; or (6) Any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower. Section 16.01. Amendments; Etc. No amendment, modification, termination, or waiver of any provision of this Security Agreement, and no consent to any departure by the Borrower herefrom, shall in any event be -73- effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 17.01. Addresses for Notices. All notices given under this Security Agreement shall be in writing, addressed to the parties as set forth below, and shall be effective on the earliest of (i) the date received, or (ii) if given by facsimile transmittal on the date given if transmitted before 5:00 p.m. the recipient=s time, otherwise it is effective the next day, or (iii) on the second business day after delivery to a major international air delivery or air courier service (such as Federal Express or Network Couriers): If to the Agent: If to the Borrower: Thomson Kernaghan & Co. Ltd. Surgical Safety Products, Inc. 365 Bay Street 2018 Oak Terrace Toronto, Ontario M5H 2V2 Sarasota, Florida 34231 Attention: Robert F. Wilson Attention: Frank M. Clark, President Executive Vice President Facsimile No. (941) 925-0510 Facsimile No. (416) 367-8055 With a copy (that does not constitute With a copy (that does not constitute notice) to: notice) to: Mintmire & Associates John M. Mann 265 Sunrise Avenue, Suite 204 Attorney at Law Palm Beach, FL 33480 1330 Post Oak Boulevard, Suite 2800 Attn: Donald F. Mintmire, Esq. Houston, Texas 77056-3060 Facsimile No. (561) 659-5371 Facsimile No. (713) 622-7185 Section 18.01. Continuing Security Interest; Assignments Under Loan Agreement. This Security Agreement shall create a continuing security interest in the Collateral and shall (1) remain in full force and effect until (a) the payment in full of the Obligations and all other amounts payable under this Security Agreement, and (b) the expiration or termination of any obligation of the Agent to make Loans; (2) be binding upon the Borrower, its successors and assigns; and (3) inure to the benefit of, and be enforceable by, the Agent and its successors, transferees, and assigns. Without limiting the generality of the foregoing clause (3), the Agent may assign or otherwise transfer all or any portion of its rights and obligations under the Loan Agreement (including, without limitation, all or any portion of any Notes held by it) to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to the Agent herein or otherwise. Upon the later of the payment in full of the Obligations and all other amounts payable under this Security Agreement and the expiration or termination of any obligation of the Agent to make Loans, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Borrower. Upon any such termination, the Agent will, at the Borrower=s expense, execute and deliver to the Borrower such documents as the Borrower shall reasonably request to evidence such termination. Section 19.01. Governing Law; Terms. This Security Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario, except: (a) if any provision of this Security Agreement is unenforceable under Ontario law but is enforceable under the laws of the U.S. State of Florida, then Florida law shall govern the construction and enforcement -74- of that provision; and (b) the validity or perfection of the security interest hereunder, or remedies hereunder, in respect of any particular Collateral shall be governed by the Uniform Commercial Code as adopted in Florida. Unless otherwise defined in this Security Agreement or in the Loan Agreement, terms used in Article 9 of the UCC are used herein as therein defined. Section 20.01. Dispute Resolution. Any controversy or claim arising out of or relating to this Agreement (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration at Toronto, Canada, in accordance with the commercial arbitration rules of the International Chamber of Commerce. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties hereby consent to the exclusive jurisdiction of the courts of the Province of Ontario for that purpose. IN WITNESS WHEREOF, the parties have caused this Security Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. The Agent: The Borrower: THOMSON KERNAGHAN & CO. LTD. SURGICAL SAFETY PRODUCTS, INC. By _________________________________ By _________________________________ Name _______________________________ Name _______________________________ Title ______________________________ Title ______________________________ Date signed ________________________ Date signed ________________________ -75- SCHEDULE I Part 1 -76- Schedule II Locations of Equipment and Inventory -77- SCHEDULE II Description of Other Liens, Security Interests and Financing Statements -78- SCHEDULE III Description of Borrower=s Trade Names -79- LENDERS' WARRANT Warrant No. _____ Void after 5:00 p.m. Toronto, Ontario time, on November 30, 2002, 2002 Warrant to Purchase Shares of Common Stock THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE SELLER WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT. ------------------------------------------------------------- WARRANT TO PURCHASE 3,428,571 SHARES OF COMMON STOCK OF SURGICAL SAFETY PRODUCTS, INC.. ---------------------------------------------------------------- This it to certify that, FOR VALUE RECEIVED, Thomson Kernaghan & Co. Limited as Agent or assigns ("Holder") is entitled to purchase, subject to the provisions of this Warrant, from SURGICAL SAFETY PRODUCTS, INC., a New York corporation (the "Company"), the fully paid, validly issued and non-assessable shares of Common Stock, $0.001 par value, of the Company ("Common Stock") at any time or from time to time during the period from the date hereof, through and including November 30, 2002, but not later than 5:00 p.m. Toronto, Ontario time, on November 30, 2002 (the "Exercise Period") at the price of US$1.09375 per share (the "Exercise Price"). The total number of shares of Common Stock to be issued upon exercise of this Warrant shall be 3,428,571 shares. The price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares" and the respective exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." -80- This Warrant is being issued pursuant to the Loan Agreement, dated as of December 20, 1999, between the Company and the Holder. This Warrant shall be exercisable from time to time as follows: (i) this Warrant shall be immediately exercisable for 20% of the number of Warrant Shares; and, (ii) the Warrants shall be exercisable for an additional1% of the number of Warrant Shares for each $25,000 of principal of Loans made under the Loan Agreement. The Company has agreed to register the issuance and resale of the Common Stock issuable upon exercise of this Warrant under the U.S. Securities Act of 1933, as amended, pursuant to a Registration Rights Agreement between the Company and the Holder of even date herewith. A. EXERCISE OF WARRANT This Warrant may be exercised in whole or in part at any time or from time to time during the Exercise Period; provided, however, that (i) if the last day of the Exercise Period is a day on which banking institutions in the City of Toronto are authorized by law to close, then the Exercise Period shall terminate on the next succeeding day that shall not be such a day, and during such period the Holder shall have the right to exercise this Warrant into the kind and amount of shares of stock and other securities and property (including cash) receivable by a holder of the number of shares of Common Stock into which this Warrant might have been exercisable immediately prior thereto. This Warrant may be exercised by presentation and surrender hereof to Thomson Kernaghan & Co. Limited as Escrow Holder at the Escrow Holder's principal office, 365 Bay Street, Tenth Floor, Toronto, Ontario M5H 2V2, Canada, with the Exercise Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. As soon as practicable after each such exercise of the Warrants, but not later than seven (7) days from the date of such exercise, the Escrow Holder shall, to the extent that the Company has deposited shares of Common Stock with the Escrow Holder for that purpose, issue and deliver to the Holder a certificate or certificates for the designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of Warrant Shares purchasable thereunder. Upon receipt by the Company of this Warrant at its principal office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder. THIS WARRANT MAY BE EXERCISED ONLY (i) BY A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE ACT), (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON, (iii) IF NO U.S. PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING SECURITIES TO BE ISSUED UPON EXERCISE, AND (iv) OUTSIDE THE UNITED STATES AND THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED OUTSIDE THE UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANT CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY PRIOR TO EXERCISE OF THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN REGISTERED UNDER THE ACT. -81- B. RESERVATION OF SHARES AND COVENANTS OF THE COMPANY The Company shall at all times have allotted and reserved for issuance, and deposited with the Escrow Holder for delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of the Warrant. The Company covenants with the Holder that so long as any Warrants remain outstanding and may be exercised: 1. it will cause the shares of Common Stock and the certificates representing the Common Stock subscribed and paid for pursuant to the exercise of the Warrants to be duly issued and deposited with the Escrow Holder for delivery in accordance herewith and the terms hereof; 2. all shares of Common Stock that shall be issued upon exercise of the right to purchase provided for herein, upon payment of the prevailing Exercise Price herein provided, shall be fully paid and non-assessable; 3. it will use its best efforts to maintain its corporate existence; and 4. generally, it will well and truly perform and carry out all of the acts or things to be done by it as provided herein. C. FRACTIONAL SHARES No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows: 1. If the Common Stock is listed on a National Securities Exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ system, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or, if no such sale is made (or reported) on such day, the average closing bid and asked prices for such day on such exchange or system; or 2. If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean to the last reported bid and ask prices reported by the Electronic Bulletin Board or National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or 3. If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and ask prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. -82- D. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company for other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any applicable transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such Assignment Form and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other warrants that carry the same rights upon presentation hereof at the principal office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt of the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. This Warrant and the Common Stock issuable upon exercise of this Warrant were issued under Regulation S under the Act and may be transferred only in accordance therewith and as provided in the legends set forth in this Warrant. E. RIGHTS OF THE HOLDER The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. F. ANTI-DILUTION PROVISIONS The respective Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrant shall be subject to adjustment from time to time upon the happening of certain events are follows: 1. In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the respective Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the respective Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of -83- which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. 2. Whenever the respective Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsection (1) above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the respective number of Shares initially issuable upon exercise of this Warrant by a fraction, the denominator of which shall be the Exercise Price after giving effect to such action and the numerator of which shall be the Exercise Price in effect immediately prior to such action. 3. No adjustment in the respective Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustment that by reason of this Subsection (3) is not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section (F) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section (F) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the respective Exercise Price, in addition to those required by this Section (F), as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any federal income tax liability to the holders of Common Stock or securities convertible into Common Stock (including the Warrants). 4. In the event that at any time, as a result of an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (1) to (3) inclusive above. 5. Irrespective of any adjustments in the respective Exercise Price or the related number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. G. OFFICER'S CERTIFICATE Whenever the respective Exercise Price shall be adjusted as required by the provisions of the foregoing Section (F), the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of related additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by -84- the holder or any holder of a Warrant executed and delivered pursuant to Section (A) and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to the Holder or any such holder. H. NOTICES TO WARRANT HOLDERS So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights, options or warrants (other than this Warrant) or (iii) if a capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least fifteen (15) days prior to the date specified, as the case may be, a notice containing a brief description of the proposed action and stating the date on which a record date is to be determined for the purpose of such dividend, distribution or issue of rights, options, or warrants or such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. The failure to give such notice shall not otherwise affect the action take by the Company. I. RECLASSIFICATION, REORGANIZATION OR MERGER In case of any reclassification, capital reorganization or other change of outstanding shares Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter, by exercising this Warrant at any time prior to the expiration of the Warrant, to purchase the kind and amount of shares of stock an other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of such number of shares of Common Stock that might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (I) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (F) hereof. -85- J. WARRANTS TO RANK PARI PASSU All Warrants shall rank pari passu, whatever may be the actual date of issue of the same. K. GOVERNING LAW; JURISDICTION AND VENUE This Warrant shall be governed by and interpreted in accordance with the laws of the State of Florida; provided, however, that if any provision of this Agreement is unenforceable under the laws of the State of Florida, but is enforceable under the laws of the Province of Ontario, Canada, then such provision shall be governed by and interpreted in accordance with the laws of the Province of Ontario. Any controversy or claim arising out of or relating to this Agreement (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration at Toronto, Canada, in accordance with the commercial arbitration rules of the International Chamber of Commerce. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties agree that the courts of the Province of Ontario, Canada, shall have exclusive jurisdiction and venue for the adjudication of any civil action between them arising out of relating to this Agreement, and hereby irrevocably consent to such jurisdiction and venue. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by the undersigned, each being duly authorized, as of the date below. SURGICAL SAFETY PRODUCTS, INC.. By:_____________________________ Its:_____________________________ DATED: December __, 1999 ATTEST: ======================= -86- FORM OF NOTICE OF EXERCISE THIS WARRANT MAY BE EXERCISED ONLY (i) BY A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED), (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON, (iii) IF NO U.S. PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING SECURITIES TO BE ISSUED UPON EXERCISE, AND (iv) OUTSIDE THE UNITED STATES AND THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED OUTSIDE THE UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANT CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY PRIOR TO EXERCISE OF THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing __________ shares of Common Stock at the Exercise Price of US$1.09375 per share, for a total of US$ _________________. INSTRUCTIONS FOR REGISTRATION OF STOCK Name_________________________________________ (Please typewrite or print in block letters) Address________________________________________ ========================================= The undersigned represents and warrants to U.S. Surgical Products, Inc. that the conditions for exercise of the within Warrant set forth in the first sentence of the first paragraph above have been fully complied with and no U.S. Person has any interest in the Warrant or the Warrant Shares. Signature____________________________________________________ (Sign exactly as your name appears on the first page of this Warrant) -87- ASSIGNMENT FORM FOR VALUE RECEIVED, - ------------------------------------------------------- hereby sells, assigns and transfers unto Name - ---------------------------------------------------------- (Please typewrite or print in block letters) Address - ---------------------------------------------------------- - ---------------------------------------------------------- the right to purchase shares of Common Stock of Surgical Safety Products, Inc., represented by this Warrant as to which such right is exercisable and does hereby irrevocably constitute and appoint __________________________ ________________ Attorney, to transfer the same on the books of Surgical Safety Products, Inc., with full power of substitution in the premises. Date: __________________________ Signature: ____________________________________ (sign exactly as your name appears on the first page of this Warrant) Note: The Warrant and the Common Stock issuable upon exercise of the Warrant were issued under Regulation S under the Securities Act of 1933, as amended, and may be transferred only in accordance therewith and as provided in the legends set forth in the Warrant. -88- AGENTS' WARRANT Warrant No. _____ Void after 5:00 p.m. Toronto, Ontario time, on November 30, 2002 Warrant to Purchase Shares of Common Stock THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE SELLER WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT. ------------------------------------------------------------- WARRANT TO PURCHASE 1,142,857 SHARES OF COMMON STOCK OF SURGICAL SAFETY PRODUCTS, INC.. ---------------------------------------------------------------- This it to certify that, FOR VALUE RECEIVED, Thomson Kernaghan & Co. Limited or assigns ("Holder") is entitled to purchase, subject to the provisions of this Warrant, from SURGICAL SAFETY PRODUCTS, INC., a New York corporation (the "Company"), the fully paid, validly issued and non-assessable shares of Common Stock, $0.001 par value, of the Company ("Common Stock") at any time or from time to time during the period from the date hereof, through and including November 30, 2002, but not later than 5:00 p.m. Toronto, Ontario time, on November 30, 2002 (the "Exercise Period") at the price of US$1.09375 per share (the "Exercise Price"). The total number of shares of Common Stock to be issued upon exercise of this Warrant shall be 1,142,857 shares. The price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares" and the respective exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." -89- This Warrant is being issued pursuant to the Loan Agreement, dated as of December 20, 1999, between the Company and the Holder. This Warrant shall be exercisable from time to time as follows: (i) this Warrant shall be immediately exercisable for 20% of the number of Warrant Shares; and, (ii) the Warrants shall be exercisable for an additional1% of the number of Warrant Shares for each $25,000 of principal of Loans made under the Loan Agreement. The Company has agreed to register the issuance and resale of the Common Stock issuable upon exercise of this Warrant under the U.S. Securities Act of 1933, as amended, pursuant to a Registration Rights Agreement between the Company and the Holder of even date herewith. A. EXERCISE OF WARRANT This Warrant may be exercised in whole or in part at any time or from time to time during the Exercise Period; provided, however, that (i) if the last day of the Exercise Period is a day on which banking institutions in the City of Toronto are authorized by law to close, then the Exercise Period shall terminate on the next succeeding day that shall not be such a day, and during such period the Holder shall have the right to exercise this Warrant into the kind and amount of shares of stock and other securities and property (including cash) receivable by a holder of the number of shares of Common Stock into which this Warrant might have been exercisable immediately prior thereto. This Warrant may be exercised by presentation and surrender hereof to Thomson Kernaghan & Co. Limited as Escrow Holder at the Escrow Holder's principal office, 365 Bay Street, Tenth Floor, Toronto, Ontario M5H 2V2, Canada, with the Exercise Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. As soon as practicable after each such exercise of the Warrants, but not later than seven (7) days from the date of such exercise, the Escrow Holder shall, to the extent that the Company has deposited shares of Common Stock with the Escrow Holder for that purpose, issue and deliver to the Holder a certificate or certificates for the designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of Warrant Shares purchasable thereunder. Upon receipt by the Company of this Warrant at its principal office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder. THIS WARRANT MAY BE EXERCISED ONLY (i) BY A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE ACT), (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON, (iii) IF NO U.S. PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING SECURITIES TO BE ISSUED UPON EXERCISE, AND (iv) OUTSIDE THE UNITED STATES AND THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED OUTSIDE THE UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANT CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY PRIOR TO EXERCISE OF THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN REGISTERED UNDER THE ACT. -90- B. RESERVATION OF SHARES AND COVENANTS OF THE COMPANY The Company shall at all times have allotted and reserved for issuance, and deposited with the Escrow Holder for delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of the Warrant. The Company covenants with the Holder that so long as any Warrants remain outstanding and may be exercised: 1. it will cause the shares of Common Stock and the certificates representing the Common Stock subscribed and paid for pursuant to the exercise of the Warrants to be duly issued and deposited with the Escrow Holder for delivery in accordance herewith and the terms hereof; 2. all shares of Common Stock that shall be issued upon exercise of the right to purchase provided for herein, upon payment of the prevailing Exercise Price herein provided, shall be fully paid and non-assessable; 3. it will use its best efforts to maintain its corporate existence; and 4. generally, it will well and truly perform and carry out all of the acts or things to be done by it as provided herein. C. FRACTIONAL SHARES No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows: 1. If the Common Stock is listed on a National Securities Exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ system, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or, if no such sale is made (or reported) on such day, the average closing bid and asked prices for such day on such exchange or system; or 2. If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean to the last reported bid and ask prices reported by the Electronic Bulletin Board or National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or 3. If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and ask prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. -91- D. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company for other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any applicable transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such Assignment Form and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other warrants that carry the same rights upon presentation hereof at the principal office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt of the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. This Warrant and the Common Stock issuable upon exercise of this Warrant were issued under Regulation S under the Act and may be transferred only in accordance therewith and as provided in the legends set forth in this Warrant. E. RIGHTS OF THE HOLDER The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. F. ANTI-DILUTION PROVISIONS The respective Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrant shall be subject to adjustment from time to time upon the happening of certain events are follows: 1. In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the respective Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the respective Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of -92- which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. 2. Whenever the respective Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsection (1) above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the respective number of Shares initially issuable upon exercise of this Warrant by a fraction, the denominator of which shall be the Exercise Price after giving effect to such action and the numerator of which shall be the Exercise Price in effect immediately prior to such action. 3. No adjustment in the respective Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustment that by reason of this Subsection (3) is not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section (F) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section (F) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the respective Exercise Price, in addition to those required by this Section (F), as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any federal income tax liability to the holders of Common Stock or securities convertible into Common Stock (including the Warrants). 4. In the event that at any time, as a result of an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (1) to (3) inclusive above. 5. Irrespective of any adjustments in the respective Exercise Price or the related number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. G. OFFICER'S CERTIFICATE Whenever the respective Exercise Price shall be adjusted as required by the provisions of the foregoing Section (F), the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of related additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by -93- the holder or any holder of a Warrant executed and delivered pursuant to Section (A) and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to the Holder or any such holder. H. NOTICES TO WARRANT HOLDERS So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights, options or warrants (other than this Warrant) or (iii) if a capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least fifteen (15) days prior to the date specified, as the case may be, a notice containing a brief description of the proposed action and stating the date on which a record date is to be determined for the purpose of such dividend, distribution or issue of rights, options, or warrants or such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. The failure to give such notice shall not otherwise affect the action take by the Company. I. RECLASSIFICATION, REORGANIZATION OR MERGER In case of any reclassification, capital reorganization or other change of outstanding shares Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter, by exercising this Warrant at any time prior to the expiration of the Warrant, to purchase the kind and amount of shares of stock an other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of such number of shares of Common Stock that might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (I) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (F) hereof. -94- J. WARRANTS TO RANK PARI PASSU All Warrants shall rank pari passu, whatever may be the actual date of issue of the same. K. GOVERNING LAW; JURISDICTION AND VENUE This Warrant shall be governed by and interpreted in accordance with the laws of the State of Florida; provided, however, that if any provision of this Agreement is unenforceable under the laws of the State of Florida, but is enforceable under the laws of the Province of Ontario, Canada, then such provision shall be governed by and interpreted in accordance with the laws of the Province of Ontario. Any controversy or claim arising out of or relating to this Agreement (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration at Toronto, Canada, in accordance with the commercial arbitration rules of the International Chamber of Commerce. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties agree that the courts of the Province of Ontario, Canada, shall have exclusive jurisdiction and venue for the adjudication of any civil action between them arising out of relating to this Agreement, and hereby irrevocably consent to such jurisdiction and venue. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by the undersigned, each being duly authorized, as of the date below. SURGICAL SAFETY PRODUCTS, INC.. By:_____________________________ Its:_____________________________ DATED: December __, 1999 ATTEST: ======================= -95- FORM OF NOTICE OF EXERCISE THIS WARRANT MAY BE EXERCISED ONLY (i) BY A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED), (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON, (iii) IF NO U.S. PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING SECURITIES TO BE ISSUED UPON EXERCISE, AND (iv) OUTSIDE THE UNITED STATES AND THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED OUTSIDE THE UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANT CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY PRIOR TO EXERCISE OF THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing __________ shares of Common Stock at the Exercise Price of US$1.09375 per share, for a total of US$ _________________. INSTRUCTIONS FOR REGISTRATION OF STOCK Name_________________________________________ (Please typewrite or print in block letters) Address________________________________________ ========================================= The undersigned represents and warrants to U.S. Surgical Products, Inc. that the conditions for exercise of the within Warrant set forth in the first sentence of the first paragraph above have been fully complied with and no U.S. Person has any interest in the Warrant or the Warrant Shares. Signature____________________________________________________ (Sign exactly as your name appears on the first page of this Warrant) -96- ASSIGNMENT FORM FOR VALUE RECEIVED, - ------------------------------------------------------- hereby sells, assigns and transfers unto Name - -------------------------------------------------------- (Please typewrite or print in block letters) Address - -------------------------------------------------------- - -------------------------------------------------------- the right to purchase shares of Common Stock of Surgical Safety Products, Inc., represented by this Warrant as to which such right is exercisable and does hereby irrevocably constitute and appoint _________________________ ________________ Attorney, to transfer the same on the books of Surgical Safety Products, Inc., with full power of substitution in the premises. Date: __________________________ Signature: _____________________________________________________________ (sign exactly as your name appears on the first page of this Warrant) Note: The Warrant and the Common Stock issuable upon exercise of the Warrant were issued under Regulation S under the Securities Act of 1933, as amended, and may be transferred only in accordance therewith and as provided in the legends set forth in the Warrant. -97- REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of December 20, 1999, by and between Surgical Safety Products, Inc., a New York corporation (the "Company"), and Thomson Kernaghan & Co. Limited (the "Agent"), for itself and certain lenders (the "Lenders") described in the Loan Agreement defined below.. Preliminary Statements In connection with the consummation of the transactions contemplated by that certain Loan Agreement (including all exhibits thereto, the "Loan Agreement") of even date herewith by and between the Company and the Agent, the Company has agreed, upon the terms and subject to the conditions of the Loan Agreement, at the option of the Agent or other holders of the Notes (as defined in the Loan Agreement), to convert the Notes into shares of the Company's Common Stock (the "Conversion Shares"). The Company has also agreed, upon the terms and subject to the conditions of the Loan Agreement, to issue to the Agent a Warrant (the "Lender's Warrant") to purchase up to 3,428,571 shares of the Company's Common Stock (the "Lender's Warrant Shares") and to issue to the Agent a Warrant (the "Agent's Warrant") to purchase up to1,142,857 shares of the Company's Common Stock (the "Agent's Warrant Shares"). The Lender's Warrant Shares and the Agent's Warrant Shares are collectively referred to as the Warrant Shares. The Conversion Shares and the Warrant Shares are hereinafter collectively referred to as the "Registrable Securities." The Registrable Securities are issuable pursuant and subject to the provisions of the Loan Agreement. To induce the Agent to execute and deliver the Loan Agreement and to make Loans thereunder, the Company has agreed, pursuant to the terms and conditions of this Agreement, to provide certain registration rights with respect to the Registrable Securities. Agreement In consideration of the foregoing, the mutual covenants and conditions set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to become legally bound, hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following respective meanings: "Agent" shall mean Thomson Kernaghan & Co. Limited. "Agent's Warrant" shall have the meaning ascribed to such term in the Preliminary Statements to this Agreement. -98- "Agent's Warrant Shares" shall have the meaning ascribed to such term in the Preliminary Statements to this Agreement. "Agreement" shall mean this Registration Rights Agreement. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Conversion Shares" shall have the meaning ascribed to such term in the Preliminary Statements to this Agreement. "Company" shall mean Surgical Safety Products, Inc., a New York company. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as in effect from time to time. "Filing Deadline" shall have the meaning ascribed to such term in Section 2.1 of this Agreement. "Holder" or "Holders" shall mean (a) the Agent, to the extent that the Agent holds Registrable Securities, and (b) any Person holding Registrable Securities as a transferee of the Agent (directly or indirectly, including subsequent transfers). "Lender's Warrant" shall have the meaning ascribed to such term in the Preliminary Statements to this Agreement. "Lender's Warrant Shares" shall have the meaning ascribed to such term in the Preliminary Statements to this Agreement. "Loan Agreement" shall have the meaning ascribed to such term in the Preliminary Statements to this Agreement. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing with the Commission one or more registration statements covering Registrable Securities in compliance with the Registrable Securities Act that is declared or ordered effective by the Commission. "Registrable Securities" shall mean the Conversion Shares, the Lender's Warrant Shares and the Agent's Warrant Shares, and any shares of capital stock issued or issuable with respect to the Conversion Shares, the Lender's Warrant Shares or the Agent's Warrant Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event; provided, however, that such Registrable Securities shall cease to be Registrable Securities when (a) a registration statement with respect to such Registrable Securities shall have been declared effective under the -99- Registrable Securities Act and such Registrable Securities shall have been disposed of pursuant to the registration statement, (b) such Registrable Securities are distributed to the public pursuant to Rule 144(k) (or any successor provisions) promulgated under the Securities Act or (c) such Registrable Securities shall have ceased to be outstanding. "Registration Deadline" shall have the meaning ascribed to such term in Section 2.1 of this Agreement. "Registration Expenses" shall mean all expenses incurred in order to comply with Article II hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of one (1) counsel for the Holders, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding the compensation of regular employees of the Company (which shall be paid in any event by the Company) and excluding Selling Expenses. "Restricted Registrable Securities" shall mean Registrable Securities that are "restricted Registrable Securities" as defined in Rule 144 under the Securities Act. "Registrable Securities" shall have the meaning ascribed to such term in the Preliminary Statements to this Agreement. "Securities Act" shall mean the Registrable Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as in effect from time to time. "Selling Expenses" shall mean all underwriting discounts and selling commissions incurred in connection with the sale of Registrable Securities pursuant to a registration effected hereunder. "Warrant Shares" shall have the meaning ascribed to such term in the Preliminary Statements to this Agreement. Capitalized terms used in this Agreement and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Loan Agreement. ARTICLE II REGISTRATION RIGHTS Section 2.1 Mandatory Registration. (a) The Company shall prepare and file with the Commission within sixty (60) days from the date of this Agreement (the "Filing Deadline") a registration statement or registration statements (as is necessary) on Form S-3 covering the issuance and the resale of all of the Registrable Securities. Such registration statement shall initially register for resale at least 21,750,000 Conversion Shares, and 100% of the Warrant Shares. The Company shall use its best efforts to have the registration statement declared effective by the Commission within one hundred and twenty (120) days after the Filing Deadline (the "Registration Deadline"). The Company shall permit the registration statement to become effective within five (5) business days after receipt of a "no review" notice from the Commission. Such -100- registration statement shall be kept current and effective for the greater of (i) a period of at least three (3) years from the Closing Date and (ii) a period of at least ninety (90) days after (x) all of the Notes shall have been converted into Conversion Shares or paid in full, and (y) the Agent's Warrant and the Agent's Warrant shall have been fully exercised or expired. If a registration statement with respect to the Registrable Securities is not effective on the Registration Deadline date, the Company agrees to and shall pay the Agent liquidated damages of US$13,000 per month, pro-rated for partial months, until the registration statement is effective. Section 2.2 Expenses of Registration. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.1 shall be borne by the Company; and all Selling Expenses in connection with such registration, qualification or compliance shall be borne by the holders of the Registrable Securities so registered pro rata on the basis of the number of shares so registered. Section 2.3 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Article II, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will: (a) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Registrable Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement; (b) furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirement of the Registrable Securities Act, and such other documents as they may reasonably request (including a conformed copy of the registration statement filed with the Commission and any amendments thereto and an original executed underwriting agreement entered into in connection with such registration) in order to facilitate the disposition of Registrable Registrable Securities owned by them; (c) use reasonable efforts to register and qualify the Registrable Securities covered by such registration statement under such other Registrable Securities or blue sky laws of one (1) jurisdiction (in addition to those jurisdictions in which the Company has otherwise agreed to so register and qualify such Registrable Securities) as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (d) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement with the managing underwriter(s) of such offering; each Holder participating in such underwriting shall also enter into and perform its obligations under such underwriting agreement; (e) notify each Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any -101- of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (f) furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Article II, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with registration pursuant to this Article II, if such Registrable Securities are being sold through underwriters, or on the date that the registration statement with respect to such Registrable Securities becomes effective, if such Registrable Securities are not being sold through underwriters, (i) a copy of any opinion, dated such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters of the Company, and (ii) a copy of any letter, dated such date, from the independent accountants of the Company, addressed to the underwriters of the Company. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in clause (f) of this Section 2.3, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of a supplemented or amended prospectus and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense), all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities that was in effect prior to such amendment or supplement. In the event the Company shall give any such notice, the period set forth in clause (a) of this Section 2.3 shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to clause (e) of this Section 2.3 to and including the date when each seller of Registrable Securities covered by such registration statement shall have received the copies of a supplemented or amended prospectus. Section 2.4 Indemnification. (a) The Company will indemnify each Holder, each Holder's officers, directors and partners, and each Person controlling such Holder (collectively, "Holder's Parties"), participating in any registration, qualification, or compliance effected pursuant to this Article II with respect to Registrable Securities held by such Holder and each underwriter, if any, and each Person who controls any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, to which they may become subject under the Registrable Securities Act, the Exchange Act or other federal or state law, arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other similar document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder's Parties each such underwriter, and each Person who controls any such underwriter, for any legal and any other expenses reasonably -102- incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission, made in reliance on and in conformity with written information furnished to the Company by such Holder's Parties or underwriter or Person controlling such underwriter specifically for use in the preparation thereof. (b) Each Holder will, if Registrable Securities held by such Holder are included in the Registrable Securities as to which such registration, qualification or compliance is being effected, severally and not jointly, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company Registrable Securities covered by such a registration statement, and each Person who controls the Company or such underwriter within the meaning of the Registrable Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other similar document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such directors, officers, Persons, underwriters or control Persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with the written information furnished to the Company by such Holder specifically for use in the preparation thereof, or (ii) any violation by any such Holder of any federal, state or common law rule or regulation applicable to such Holder in connection with the distribution of Registrable Securities pursuant to a registration statement, and will reimburse the Company, such Holders, such directors, officers, Persons, underwriters or control Persons for any legal any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, as incurred; provided, however, that the obligations of each such Holder hereunder shall be limited to an amount equal to the aggregate proceeds received by such Holder in such offering. (c) Each party entitled to indemnification under this Section 2.4 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has received written notice of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld). The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall bear the expense of such defense of one counsel representing the Indemnified Party if representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.4, except to the extent such failure to give notice shall materially and adversely prejudice the Indemnifying Party in the defense of any such claim or any such litigation. No -103- Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) (i) If the indemnification provided for in this Section 2.4 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party hereunder shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relevant intent, knowledge, access to information and opportunities to correct or prevent such statement or omission. (ii) The parties agree that it would not be just and equitable if contribution pursuant to this Section 2.4 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. The amount paid or payable by an Indemnified Party as a result of the claims, losses, damages and liabilities referred to above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. (iii) No Holder that is a seller of Registrable Securities covered by such registration statement or Person controlling such seller other than the Company shall be obligated to make contribution hereunder that in the aggregate exceeds the total public offering price of the Registrable Securities sold by such Holder, less the aggregate amount of any damages that such Holder and its controlling Persons have otherwise been required to pay pursuant to this Section 2.4. The obligations of such Holders to contribute are several in proportion to their respective ownership of the Registrable Securities covered by such registration statement and not joint. (iv) The indemnity and contribution provided herein shall be in addition to, and not in lieu of, any other liability that one party may have to another. Section 2.5 Information by Holder. Each Holder of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Article II. -104- Section 2.6 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission that may at any time permit the sale of the Restricted Registrable Securities to the public without registration, the Company agrees to: (a) use its best efforts to facilitate the sale of the Restricted Registrable Securities to the public without registration under the Registrable Securities Act, pursuant to Rule 144 under the Registrable Securities Act; (b) make and keep public information available, as those terms are understood and defined in Rule 144 under the Registrable Securities Act, at all times after the effective date of the first registration statement filed by the Company for an offering of its Registrable Securities to the general public; (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Registrable Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (d) so long as a Holder owns any Restricted Registrable Securities to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the public information requirements of said Rule 144, and the reporting requirements of the Registrable Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such Registrable Securities without registration. Section 2.7 Transfer of Registration Rights. The rights granted under this Article II may be assigned or otherwise conveyed by any Holder of Registrable Securities to any transferee, subject to compliance with all applicable Registrable Securities laws and regulations. Section 2.8 Certain Limitations in Connection with Future Grants of Registration Rights. From and after the date of this Agreement, without the prior written consent of the Holders of a majority of the Registrable Securities, the Company shall not enter into any agreement with any holder or prospective holder of any Registrable Securities of the Company providing for the granting to such holder of registration rights that would be superior to those granted to Holders pursuant to Section 2.1. Section 2.9 Restrictions on Market Manipulation. In the event any shares of Common Stock are offered or sold by any Holder in a registration, each such Holder will: (a) advise the Company in writing of any offer, sale or other disposition by it of any Common Stock in any manner other than as set forth in the registration statement or any prospectus included therein on or for the 30-day period prior to the filing of such registration statement until the distribution under the registration statement has been completed; (b) not effect any stabilization activity in connection with the Company's Common Stock; -105- (c) not bid or purchase, for any account in which it has a beneficial interest, any Common Stock except as may be permitted pursuant to Rule 10b-6 under the Exchange Act (if applicable); (d) not until it has sold all of such shares of Common Stock, attempt to induce any Person to purchase any Common Stock except as may be permitted pursuant to Rule 10b-6; and (e) not until it has sold all such shares of Common Stock, pay any compensation for soliciting another to purchase any Registrable Securities of the Company, except as may be permitted pursuant to Rule 10b-6. ARTICLE III MISCELLANEOUS Section 3.1 Governing Law; Jurisdiction and Venue. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Florida; provided, however, that if any provision of this Agreement is unenforceable under the laws of the State of Florida, but is enforceable under the laws of the Province of Ontario, Canada, then such provision shall be governed by and interpreted in accordance with the laws of the Province of Ontario. Any controversy or claim arising out of or relating to this Agreement (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration at Toronto, Canada, in accordance with the commercial arbitration rules of the International Chamber of Commerce. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties agree that the courts of the Province of Ontario, Canada, shall have exclusive jurisdiction and venue for the adjudication of any civil action between them arising out of relating to this Agreement, and hereby irrevocably consent to such jurisdiction and venue. Section 3.2 Successors and Assignees. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assignees, heirs, executors and administrators (as the case may be) of the parties hereto. Section 3.3 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof. Section 3.4 Notices, etc. All notices given under this Agreement and under the other Loan Documents shall be in writing, addressed to the parties as set forth below, and shall be effective on the earliest of (i) the date received, or (ii) if given by facsimile transmittal on the date given if transmitted before 5:00 p.m. the recipient's time, otherwise it is effective the next day, or (iii) on the second business day after delivery to a major international air delivery or air courier service (such as Federal Express or Network Couriers): -106- If to the Agent: Thomson Kernaghan & Co. Ltd. 365 Bay Street Toronto, Ontario M5H 2V2 Attention: Mark E. Valentine, Chairman Facsimile No. (416) 367-8055 With a copy (that does not constitute notice) to: John M. Mann Attorney at Law 1330 Post Oak Boulevard Suite 2800 Houston, Texas 77056-3060 Facsimile No. (713) 622-7185 -107- If to the Borrower: Surgical Safety Products, Inc. 2018 Oak Terrace Sarasota, Florida 34231 Attention: Frank M. Clark, President Facsimile No. (941) 925-0510 With a copy (that does not constitute notice) to: Mintmire & Associates 265 Sunrise Avenue, Suite 204 Palm Beach, FL 33480 Attn: Donald F. Mintmire, Esq. Facsimile No. (561) 659-5371 Section 3.5 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Holder of any Registrable Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or default or an acquiescence therein or of or in any similar breach or default thereunder occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any breach or default under this Agreement or any waiver on the part of any Holder of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any Holder shall be cumulative and not alternative. Section 3.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the parties hereto, each of which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one instrument. Section 3.7 Severability. In the event any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.8 Amendments. The provisions of this Agreement may be amended at any time and from time to time, and particular provisions of this Agreement may be waived, with and only with, an agreement or consent in writing signed by the Company and by the Holders of a majority of the Registrable Securities voting as a single class. -108- The parties have executed this Registration Rights Agreement as of the date first written above. The Agent: THOMSON KERNAGHAN & CO. LTD. By ________________________________ Name ______________________________ Title _____________________________ Date signed _______________________ The Company: SURGICAL SAFETY PRODUCTS, INC. By ________________________________ Name ______________________________ Title _____________________________ Date signed________________________ -109- SURGICAL SAFETY PRODUCTS, INC., AND THOMSON KERNAGHAN & CO. LTD ESCROW AGREEMENT 1. Parties 1.1. This Escrow Agreement (this AAgreement@) is made and entered into effective December 20, 1999 (the AEffective Date@), by and between Surgical Safety Products, Inc. (the ACompany@) and Thomson Kernaghan & Co. Limited (the AEscrow Holder@). 2. Recitals. 2.1. This Agreement is made with reference to the following facts and circumstances: (a) The Company and Thomson Kernaghan & Co. Limited, as Agent, are entering into a Loan Agreement dated December 20, 1999 (the ALoan Agreement@), pursuant to which the Company will issue to the Agent up to an aggregate of US$5,000,000 of notes (the ANotes@). The Notes are convertible, at the option of the holder or holders thereof, into shares of the Company=s common stock, $0.001 par value (ACommon Stock@). Under the terms of the Loan Agreement, the Company has agreed to issue and deliver to the Agent (i) a warrant to purchase up to an aggregate of up to 3,428,571shares of the Company=s Common Stock.(the ALenders= Warrant@), and (ii) a warrant to purchase up to an aggregate of up to 1,142,857 shares of the Company=s Common Stock (the AAgent=s Warrant@). The Lenders= Warrant and the Agent=s Warrant are referred to each as a AWarrant@ and collectively as the AWarrants.@ The Common Stock into which the Notes are convertible are referred to as the Conversion Shares. The Common Stock to which the Warrants are subject are referred to as the AWarrant Shares.@ The Conversion Shares and the Warrant Shares are issuable in such amounts and upon the terms set forth in the Loan Agreement. (b) The conversion price of the Conversion Shares is the higher of (i) US$0.375, or (ii) the lower of (x) $0.8203125 or (y) 75% of the closing bid price of the Borrower=s Common Stock quoted on the OTC Bulletin Board on the Conversion Date; i.e., in no event shall the Conversion Price be less that US$0.375 per share of Common Stock. (c) The exercise price for the Warrant Shares is US$1.09375 per share. (d) The Notes mature, unless sooner paid or converted, on November 30, 2002 (e) The Warrants, unless sooner exercised or redeemed, expire on November 30, 2002. (f) Under the terms of a Registration Rights Agreement between the Company and the Agent, the Company has agreed to file a registration statement (the ARegistration Statement@) under the United States Securities Act of 1933 as Amended (the ASecurities Act@), for the purpose of registering the issuance and resale of the Conversion Shares and the Warrant Shares. (g) Under the terms of the Loan Agreement, the Company has agreed to execute this Agreement with the Escrow Holder, to issue certificates for the Conversion Shares (the AConversion Shares Certificates@) and the Warrant Shares (the AWarrant Shares -110- Certificates@), registered in the name of the Escrow Holder, and to deliver those certificates to the Escrow Holder pursuant to the terms of this Agreement. (h) In accordance with the terms of the Loan Agreement, the Company is issuing a Note for US$650,000 upon the execution of this Agreement (the AInitial Note@). 2.1. In consideration of the premises, and in order to establish the escrow for the Conversion Shares and the Warrant Shares required by the Loan Agreement, the Company is entering into this Agreement with the Escrow Holder. 3. Escrow 3.1. Contemporaneously with the execution of this Agreement, the Borrower shall execute and deliver to the Escrow Holder a certificate for the number of Conversion Shares underlying the Note evidencing the initial Loan and the number of Warrant Shares for which the Warrants shall be exercisable upon funding the initial Loan. Prior to each additional Loan, the Borrower shall execute and deliver to the Escrow Holder a certificate for the number of additional Conversion Shares underlying the Note evidencing that Loan and the number of additional Warrant Shares for which the Warrants shall be exercisable upon funding that Loan. 3.2. All certificates for Conversion Shares and Warrant Shares delivered to the Escrow Holder shall be registered in the name of Thomson Kernaghan & Co. Ltd.. Until such time as the registration statement covering the Conversion Shares and the Warrant shares is effective, the certificates shall bear a legend indicating that they have been issued in a transaction that is exempt from the registration requirements of the Securities Act, and may not be transferred except pursuant to registration under the Securities Act or an exemption from such registration. Except for such legend, the Common Stock underlying the Lenders= Warrant and the Agent=s Warrant shall be free and clear of any legends, liens, claims, stop orders or other restrictions. 3.3. Not later than the third Business Day following the effective date of the Registration Statement, the Borrower shall cause the Common Stock underlying the Lenders= Warrant and the Agent=s Warrant to be registered in Agent=s street name, in DTC form, free and clear of any legends, liens, claims, stop orders or other restrictions. 3.4. All Conversion Shares and Warrant Shares deposited by the Company after the effective date of the Registration Statement shall be registered in the street name of Thomson Kernaghan & Co. Ltd., in DTC form, free and clear of any legends, liens, claims, stop orders or other restrictions. 4. Release of Conversion Shares and Warrant Shares 4.1. Upon receipt of a Conversion Notice, the Escrow Holder shall promptly (and in any event within three business days) release the number of Conversion Shares specified in the Conversion Notice to the person specified therein. If all of the unpaid principal of and interest on the Note is being converted; then the Escrow Holder shall endorse the Note as paid in full, and transmit the Note, so endorsed, and the Conversion Notice, to the Company. If the conversion is for less than all of the unpaid principal of and interest on the Note, the Escrow Holder shall endorse upon the Note the amount of principal thereof and interest thereon that is being converted, and transmit a copy of the Note, so endorsed, and the Conversion Notice, to the Company. -111- 4.2. Upon receipt of a Warrant, together with an executed Purchase Form and the Exercise Price for the number of Warrant Shares specified therein, the Escrow Holder shall promptly (and in any event within three business days (i) release the number of Warrant Shares specified in the Purchase Form to the person specified therein; (ii) transmit a copy of the Warrant and Purchase Form to the Company; and (ii) disburse the Exercise Price for such Warrant Shares to the Company, either by check or wire transfer as the Company shall specify by written instructions to the Escrow Holder. Promptly upon the written request of the Escrow Holder, the Company shall issue replacement Warrants and deliver them to the Escrow Holder, upon any partial exercise of a Warrant ,or upon the transfer of a Warrant or any interest therein. 5. Termination and Resignation 5.1. This Agreement, unless sooner terminated, shall terminate on the date on which all of the Notes have been redeemed or converted, and all of the Warrants have been exercised or expired. 5.2. The Escrow Holder may resign as such at any time, without liability therefor, by giving the Company and the Agent not less than 10 days prior written notice of its election to do so. In the event of the Escrow Holder=s resignation, the Company shall promptly appoint a successor Escrow Holder acceptable to the Agent. 6. Limitation on the Escrow Holder=s Liability; Indemnification. 6.1. The Escrow Holder shall not be liable to the Company, to any Note holder, to any Warrant holder, or to any other person or entity for any action taken or omitted by it, except for the Escrow Holder=s own gross negligence or wilful misconduct. Without limiting the generality of the foregoing: (a) The Escrow Holder may rely upon, and shall be protected in acting or refraining from acting in reliance upon, any notice, certificate, instrument, request, paper or other document believed by it to be genuine and made, sent, signed or presented by the Company, any Note holder, any Warrant holder, or any other person or entity. (b) The Escrow Holder shall not be responsible or liable for the genuineness, validity or sufficiency of any Note, Warrant, stock certificate, notice or other instrument delivered to it, including without limitation the genuineness of any signature thereon, or of the identity or authority of any person executing or delivering the same. 6.2. The Escrow Holder shall not be obligated to take any action to defend or enforce this Agreement, or to appear in, prosecute or defend any action or legal proceeding, or to file any income or other tax return that, in the Escrow Holder=s opinion, would or might involve any cost, expense, loss or liability, unless, and as often as required by it, the Company shall furnish it with security and indemnity satisfactory to it against all such cost, expense, loss and liability. -112- 6.3. The Escrow Holder shall not be responsible for the validity or enforceability of any provision of this Agreement, or for the execution thereof by the Company, or for the truth or accuracy of any recitals or other statements of fact contained in this Agreement. 6.4. The Escrow Holder is not, and shall not be deemed for any purpose to be, a fiduciary under this Agreement or otherwise, for the Company, for any Note holder, for any Warrant holder, or for any other person or entity. 6.5. Except for matters for which the Escrow Holder is liable to the Company under paragraph 6.1 of this Agreement, the Company hereby agrees to defend and indemnify the Escrow Holder and its shareholders, directors, officers, employees and agents, and to hold each of them harmless from and against any and all judgments, awards, orders, damages, claims, demands, liability, penalties, costs, and expenses (including attorney fees and court or arbitration costs) of any nature whatsoever, directly or indirectly arising out of or relating to this Agreement, or any act or omission of the Escrow Holder hereunder. This indemnity shall survive termination of this Agreement. 7. Miscellaneous Provisions. 7.1. No amendment, modification, termination, or waiver of any provision of this Agreement, nor consent to any departure by the Company from any of its provisions, shall in any event be effective unless the same shall be in writing and signed by the Escrow Holder, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 7.2. All notices given under this Agreement shall be in writing, addressed to the parties as set forth below, and shall be effective on the earliest of (i) the date received, or (ii) if given by facsimile transmittal on the date given if transmitted before 5:00 p.m. the recipient=s time, otherwise it is effective the next day, or (iii) on the second business day after delivery to a major international air delivery or air courier service (such as Federal Express or Network Couriers): If to the Escrow Holder: If to the Company: Thomson Kernaghan & Co. Ltd. Surgical Safety Products, Inc. 365 Bay Street 2018 Oak Terrace Toronto, Ontario M5H 2V2 Sarasota, Florida 34231 Attention: Mark E. Valentine, Chairman Attention: Frank M. Clark, President Facsimile No. (416) 860-6140 Facsimile No. (941) 925-0510 With a copy (that does not With a copy (that does not constitute constitute notice) to: notice) to: John M. Mann Mintmire & Associates Attorney at Law 265 Sunrise Avenue, Suite 204 1330 Post Oak Boulevard, Suite 2800 Palm Beach, FL 33480 Houston, Texas 77056-3060 Attn: Donald F. Mintmire, Esq. Facsimile No. (713) 622-7185 Facsimile No. (561) 659-5371 7.3. No failure or delay on the part of the Escrow Holder in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise. 7.4. This Agreement shall be binding upon and inure to the benefit of the Company and the Escrow Holder, and their respective successors and assigns, except that the Company may not assign or transfer any of its r rights under this Agreement without the prior written consent of the Escrow Holder. 7.5 The Company agrees to pay on demand all costs and expenses incurred by the Escrow Holder in connection with the preparation, execution, delivery, filing, and administration of this Agreement, and of any amendment, modification, or supplement hereto, including, without limitation, the fees and out-of-pocket expenses of counsel for the Escrow Holder incurred in connection with advising the Escrow Holder as to its rights and responsibilities hereunder. The Company also agrees to pay all such costs and expenses, including court costs, incurred in connection with enforcement of this Agreement, or any amendment, modification, or supplement thereto, whether by negotiation, legal proceedings, or otherwise. In addition, the Company shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the issuance, transfer and deliver of any Warrant or Warrant Shares, and agrees to hold the Escrow Holder harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. This provision shall survive termination of this Agreement. 7.6. This Agreement shall be governed by, and construed in accordance with, the laws of the Province of Ontario, Canada; provided, however, if any provision of this Agreement is unenforceable under Ontario law, but is enforceable under the laws of the U.S. State of Florida, then Florida law shall govern the construction and enforcement of that provision. 7.7. Any controversy or claim arising out of or relating to this Agreement (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration at Toronto, Canada, in accordance with the commercial arbitration rules of the International Chamber of Commerce. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties hereby consent to the exclusive jurisdiction of the courts of the Province of Ontario for that purpose. -113- IN WITNESS WHEREOF, the Company and the Escrow Holder have executed this Agreement as of the Effective Date. The Escrow Holder: The Company: THOMSON KERNAGHAN & CO. LIMITED SURGICAL SAFETY PRODUCTS, INC.. By _________________________________ By ________________________________ Name _______________________________ Name ______________________________ Title ______________________________ Title _____________________________ Date signed ________________________ Date signed _______________________ -114- AMENDMENT NO. 1 TO THE (1) LOAN AGREEMENT WITH THE EFFECTIVE DATE DECEMBER 20, 1999; (2) SECURITY AGREEMENT, PLEDGE AND ASSIGNMENT EFFECTIVE DECEMBER 9, 1999; (3) REGISTRATION RIGHTS AGREEMENT EXECUTED THE 22ND DAY OF DECEMBER 1999; AND (4) THE ESCROW AGREEMENT EFFECTIVE DECEMBER 20, 1999 EACH OF WHICH IS BY AND BETWEEN SURGICAL SAFETY PRODUCTS, INC. (the "Company" and "Borrower") AND THOMSON KERNAGHAN & CO. (the "Agent" and "Escrow Holder") and (5) THE NOTE DATED DECEMBER 30, 1999 IN THE AMOUNT OF $650,000 PAYABLE TO THOMSON KERNAGHAN & CO. LTD; (6) THE LENDER'S WARRANT GRANTED TO THOMSON KERNAGHAN & CO. LTD. FOR THE PURCHASE OF 3,428,571 SHARES; and (7) THE AGENT'S WARRANT GRANTED TO THOMSON KERNAGHAN & CO. LTD. FOR THE PURCHASE OF 1,142,857 SHARES THIS AMENDMENT effective the 30th day of December 1999 is by and between the Company/Borrower and Agent/Escrow Holder as noted in the heading. 1. The defined terms set forth herein shall have the same meaning as set forth in the (1) Loan Agreement with the Effective Date December 20, 1999 (the "Loan Agreement"); (2) Security Agreement, Pledge and Assignment Effective December 9, 1999 (the "Security Agreement"); (3) Registration Rights Agreement Executed the 22nd Day of December 1999 (the "RR Agreement"); and (4) the Escrow Agreement Effective December 20, 1999 (the "Escrow Agreement") each of which is by and between Surgical Safety Products, Inc. (the "Company" and "Borrower") and Thomson Kernaghan & Co. (the "Agent" and "Escrow Holder") and (5) the Note dated December 30, 1999 in the amount of $650,000 payable to Thomson Kernaghan & Co. Ltd (the "Note"); (6) the Lender's Warrant granted to Thomson Kernaghan & Co for the purchase of 3,428,571 Shares (the "Lender's Warrant"); and (7) the Agent's Warrant granted to Thomson Kernaghan & Co for the purchase of 1,142,857 Shares (the "Agent's Warrant"). 2. This Amendment amends, modifies and revokes the following and replaces each of them as set out herein. o The Loan Agreement "Effective Date" and "Closing Date" are amended and modified to December 30, 1999. o The effective date of the Security Agreement is amended and modified to December 30, 1999 and paragraph 1 of the Preliminary Statement is amended and modified to reflect the effective date of the Loan Agreement as December 30, 1999. o The effective date of the RR Agreement is made December 30, 1999 and Article II, Section 2.1(a) in the RR Agreement is amended and modified and replaced with the following: "Section 2.1 Mandatory Registration. o The Company shall prepare and file with the Commission within sixty (60) days from the date of this Agreement (the "Filing Deadline") a registration statement or registration statements (as is necessary) on Form S-3 covering the issuance and the resale of all of the Registrable Securities. Such registration statement shall initially register for resale 20,038,097 shares. The Company shall use its best efforts to have the registration statement declared effective by the Commission within one hundred and twenty (120) days after the Filing Deadline (the "Registration Deadline"). The Company shall permit the registration statement to become effective within five (5) business days after receipt of a "no review" notice from the Commission. Such registration statement shall be kept current and effective for the greater of (i) a period of at least three (3) years from the Closing Date and (ii) a period of at least ninety (90) days after (x) all of the Notes shall have been converted into Conversion Shares or paid in full, and (y) the Lender's Warrant and the Agent's Warrant shall have been fully exercised or expired. If a registration statement with respect to the Registrable Securities is not effective on the Registration Deadline date, the Company agrees to and shall pay the Agent liquidated damages of US$13,000 per month, pro-rated for partial months, until the registration statement is effective." o The Escrow Agreement "Effective Date" is amended and modified to December 30, 1999. o Paragraph 2 of the Note is amended and modified to reflect the date of the Loan Agreement as December 30, 1999 and Paragraph 4 of the Note is amended and modified to reflect the date of the Escrow Agreement as December 30, 1999. o Page 2, first full paragraph of the Lender's Warrant and the Agent's Warrant are each amended and modified to reflect the date of the Loan Agreement as December 30, 1999. IN WITNESS WHEREOF, the parties have set their hand and seal effective on the date first above written. SURGICAL SAFETY PRODUCTS, INC. THOMSON KERNAGHAN & CO., LTD. BY:____________________________ BY:_____________________________ -116- EX-10.39 5 MATERIAL CONTRACT EXHIBIT 10.39 Customer Agreement Thank you for doing business with us. We strive to provide you with high quality Products and Services. If, at any time, you have any questions or problems, or are not completely satisfied, please let us know. Our goal is to do our best for you. This IBM Customer Agreement (called the "Agreement") covers business transactions you may do with us to purchase Machines, license Programs, and acquire Services. This Agreement and its applicable Attachments and Transaction Documents are the complete agreement regarding these transactions, and replace any prior oral or written communications between us. By signing below for our respective Enterprises, both of us agrees to the terms of this Agreement. Once signed, 1) any reproduction of this Agreement, an Attachment, or Transaction Document made by reliable means (for example, photocopy or facsimile) is considered an original and 2) all Products and Services you order under this Agreement are subject to it. Agreed to: (Enterprise name) Agreed to: International Business Machines Corporation By_____________________________ By______________________________________ Authorized Signature Authorized Signature Name (type or print): Name (type or print): Date: Date: Enterprise Number: Agreement Number: Enterprise Address: IBM address: -117- Customer Agreement Table of Contents
Section Title Page Section Title Page - ------------------------------------------------- ------------------------------------------ Part 1 - General 3 Part 4 - Programs 13 1.1 Definitions 3 4.1 License 13 1.2 Agreement Structure 4 4.2 License Details 13 4 4.3 Program Components Not 1.3 Delivery Used on the Designated 13 Machines 5 4.4 Distributed System License 1.4 Charges and Payment Option 13 1.5 Changes to the Agreement 5 4.5 Program Testing 14 Terms 1.6 IBM Business Partners 6 4.7 Packaged Programs 14 1.7 Mutual Responsibilities 6 4.8 Program Services 14 1.8 Your Other Responsibilities 6 4.9 License Termination 14 1.9 Patents and Copyrights 7 1.10 Limitation of Liability 7 1.11 Agreement Termination 8 1.12 Geographic Scope 8 Part 5 - Services 15 1.13 Governing Law 8 5.1 IBM Services 15 Part 2 - Warranties 9 5.2 Personnel 15 5.3 Materials Ownership and 15 License 2.1 The IBM Warranties 9 5.4 Changes to Service Terms 15 2.2 Extent of Warranty 9 5.5 Renewal 16 2.3 Items Not Covered By 10 5.6 Termination and Withdrawal Warranty 16 5.7 Service for Machines (during and after warranty) 16 5.8 Maintenance Coverage 17 Part 3 - Machines 11 3.1 Title and Risk of Loss 11 3.2 Production Status 11 3.3 Installation 11 3.4 Licensed Internal Code 11 3.5 Machine Code 12
-118- Customer Agreement Part 1 - General 1.1 Definitions Customer-set-up Machine is an IBM Machine that you install according to our instructions. Date of Installation is the following: 1. for an IBM Machine we are responsible for installing, the business day after the day we install it or, if you defer installation, make it available to you for subsequent installation by us; 2. for a Customer-set-up Machine and a non-IBM Machine, the second business day after the Machine's standard transit allowance period; and 3. for a Program, the latest of - a. the day after its testing period ends, b. the second business day after the Program's standard transit allowance period, or c. the date, specified in a Transaction Document, on which we authorize you to make a copy of the Program, or d. the date you distribute a copy of a chargeable component in support of your authorized use of the Program. Designated Machine is either 1) the machine on which you will use a Program for processing and which we require you to identify to us by type/model and serial number, or 2) any machine on which you use the Program if we do not require you to provide this identification to us. Enterprise is any legal entity (such as a corporation) and the subsidiaries it owns by more than 50 percent. The term "Enterprise" applies only to the portion of the enterprise located in the United States or Puerto Rico. Machine is a machine, its features, conversions, upgrades, elements, or accessories, or any combination of them. The term "Machine" includes an IBM Machine and any non-IBM Machine (including other equipment) that we may provide to you. Materials are literary works or other works of authorship (such as programs, program listings, programming tools, documentation, reports, drawings and similar works) that we may deliver to you as part of a Service. The term "Materials" does not include Programs or Licensed Internal Code. Product is a Machine or a Program. Program is the following, including the original and all whole or partial copies: 1. machine-readable instructions and data; 2. components; 3. audio-visual content (such as images, text, recordings, or pictures); and 4. related licensed materials. The term "Program" includes an IBM Program and any non-IBM Program that we may provide to you. The term does not include Licensed Internal Code or Materials. Service is performance of a task, provision of advice and counsel, assistance, or access to a resource (such as access to an information database) we make available to you. Specifications is a document that provides information specific to a Product. For an IBM Machine, we call the document "Official Published Specifications." For an IBM Program, we call it "Licensed Program Specifications," or "License Information." -119- Specified Operating Environment is the Machines and Programs with which a Program is designed to operate, as described in the Program's Specifications. 1.2 Agreement Structure Attachments Some Products and Services have terms in addition to those we specify in this Agreement. We provide the additional terms in documents called "Attachments," which are also part of this Agreement. Attachments will be signed by both of us if requested by either of us. Transaction Documents For each business transaction, we will provide you with the appropriate "Transaction Documents" that confirm the specific details of the transaction. Transaction Documents will be signed by both of us if requested by either of us. The following are examples of Transaction Documents with examples of the information they may contain: 1. addenda (contract-period duration, start date, and total quantity); 2. exhibits (eligible Products by category); 3. invoices (item, quantity, and amount due); 4. statements of work (scope of Services, responsibilities, deliverables, completion criteria, estimated schedule or contract period, and charges); and 5. supplements (Machine quantity and type ordered, price, estimated shipment date, and warranty period). Conflicting Terms If there is a conflict among the terms in the various documents, those of an Attachment prevail over those of this Agreement. The terms of a Transaction Document prevail over those of both of these documents. Our Acceptance of Your Order A Product or Service becomes subject to this Agreement when we accept your order by doing any of the following: 1. sending you a Transaction Document; 2. shipping the Machine or making the Program available to you; or 3. providing the Service. Your Acceptance of Additional Terms You accept the additional terms in an Attachment or Transaction Document by doing any of the following: 1. signing the Attachment or Transaction Document; 2. using the Product or Service, or allowing others to do so; or 3. making any payment for the Product or Service. -120- 1.3 Delivery We will try to meet your delivery requirements for Products and Services you order, and will inform you of their status. Transportation charges, if applicable, will be specified in a Transaction Document. 1.4 Charges and Payment The amount payable for a Product or Service will be based on one or more of the following types of charges: 1. one-time (for example, the price of a Machine); 2. recurring (for example, a periodic charge for Programs or measured use of Services); 3. time and materials (for example, charges for hourly Services); or 4. fixed price (for example, a specific amount agreed to between us for a custom Service). Depending on the particular Product, Service, or circumstance, additional charges may apply (such as special handling or travel related expenses). We will inform you in advance whenever additional charges apply. Recurring charges for a Product begin on its Date of Installation. Charges for Services are billed as we specify which may be in advance, periodically during the performance of the Service, or after the Service is completed. Amounts are due upon receipt of invoice and payable as we specify in a Transaction Document. You agree to pay accordingly, including any late payment fee. If any authority imposes a duty, tax, levy, or fee, excluding those based on our net income, upon any transaction under this Agreement, then you agree to pay that amount as specified in the invoice or supply exemption documentation. You are responsible for personal property taxes for each Product from the date we ship it to you. One-time and recurring charges may be based on measurements of actual or authorized use (for example, number of users or processor size for Programs, meter readings for maintenance Services, or connect time for network Services). You agree to provide actual usage data if we specify. If you make changes to your environment that impact use charges (for example, change processor size or configuration for Programs), you agree to promptly notify us and pay any applicable charges. Recurring charges will be adjusted accordingly. Unless we agree otherwise, we do not give credits or refunds for charges already due or paid. In the event that we change the basis of measurement, our terms for changing charges will apply. We may increase recurring charges for Products and Services, as well as labor rates and minimums for Services provided under this Agreement, by giving you three months' written notice. An increase applies on the first day of the invoice or charging period on or after the effective date we specify in the notice. We may increase one-time charges without notice. However, an increase to one-time charges does not apply to you if 1) we receive your order before the announcement date of the increase and 2) one of the following occurs within three months after our receipt of your order: 1. we ship you the Machine or make the Program available to you; 2. you make an authorized copy of a Program or distribute a chargeable component of a Program to another Machine; or 3. a Program's increased use charge becomes due. You receive the benefit of a decrease in charges for amounts which become due on or after the effective date of the decrease. Services for which you prepay must be used within the applicable contract period. Unless we specify otherwise, we do not give credits or refunds for unused prepaid Services. -121- 1.5 Changes to the Agreement Terms In order to maintain flexibility in our business relationship, we may change the terms of this Agreement by giving you three months' written notice. However, these changes are not retroactive. They apply, as of the effective date we specify in the notice, only to new orders and on-going transactions (such as licenses, except that changes to license termination terms are effective only for new orders). Part 5 of this Agreement contains additional provisions for changes to the terms of individual Service transactions. Otherwise, for a change to be valid, both of us must sign it. Additional or different terms in any written communication from you (such as an order) are void. 1.6 IBM Business Partners We have signed agreements with certain organizations (called "IBM Business Partners") to promote, market, and support certain Products and Services. When you order our Products or Services (marketed to you by IBM Business Partners) under this Agreement, we confirm that we are responsible for providing the Products or Services to you under the warranties and other terms of this Agreement. We are not responsible for 1) the actions of IBM Business Partners, 2) any additional obligations they have to you, or 3) any products or services that they supply to you under their agreements. 1.7 Mutual Responsibilities Both of us agree that under this Agreement: 1. neither of us grants the other the right to use its trademarks, trade names, or other designations in any promotion or publication without prior written consent; 2. all information exchanged is nonconfidential. If either of us requires the exchange of confidential information, it will be made under a signed confidentiality agreement; 3. each is free to enter into similar agreements with others; 4. each grants the other only the licenses and rights specified. No other licenses or rights (including licenses or rights under patents) are granted; 5. each may communicate with the other by electronic means and such communication is acceptable as a signed writing. An identification code (called a "user ID") contained in an electronic document is legally sufficient to verify the sender's identity and the document's authenticity; 6. each will allow the other reasonable opportunity to comply before it claims that the other has not met its obligations; 7. neither of us will bring a legal action more than two years after the cause of action arose; and 8. neither of us is responsible for failure to fulfill any obligations due to causes beyond its control. 1.8 Your Other Responsibilities You agree: 1. not to assign, or otherwise transfer, this Agreement or your rights under this Agreement, delegate your obligations, or resell any Service, without our prior written consent. Any attempt to do so is void; 2. to acquire Machines with the intent to use them within your Enterprise and not for reselling, leasing, or transferring to a third party, unless either of the following applies: a. you are arranging lease-back financing for the Machines, or b. you purchase them without any discount or allowance, and do not remarket them in competition with our authorized remarketers; -122- 3. to allow us to install mandatory engineering changes (such as those required for safety) on a Machine. Any parts we remove become our property. You represent that you have the permission from the owner and any lien holders to transfer ownership and possession of removed parts to us; 4. that you are responsible for the results obtained from the use of the Products and Services; 5. to provide us with sufficient, free, and safe access to your facilities for us to fulfill our obligations; and 6. to comply with all applicable export and import laws and regulations. 1.9 Patents and Copyrights For purposes of this Section, the term "Product" includes Materials (alone or in combination with Products we provide to you as a system) and Licensed Internal Code. If a third party claims that a Product we provide to you infringes that party's patent or copyright, we will defend you against that claim at our expense and pay all costs, damages, and attorney's fees that a court finally awards, provided that you: 1. promptly notify us in writing of the claim; and 2. allow us to control, and cooperate with us in, the defense and any related settlement negotiations. If such a claim is made or appears likely to be made, you agree to permit us to enable you to continue to use the Product, or to modify it, or replace it with one that is at least functionally equivalent. If we determine that none of these alternatives is reasonably available, you agree to return the Product to us on our written request. We will then give you a credit equal to: 1. for a Machine, your net book value provided you have followed generally-accepted accounting principles; 2. for a Program, the amount paid by you or 12 months' charges (whichever is less); and 3. for Materials, the amount you paid us for the Materials. This is our entire obligation to you regarding any claim of infringement. Claims for Which We are Not Responsible We have no obligation regarding any claim based on any of the following: 1. anything you provide which is incorporated into a Product; 2. your modification of a Product, or a Program's use in other than its Specified Operating Environment; 3. the combination, operation, or use of a Product with other Products not provided by us as a system, or the combination, operation, or use of a Product with any product, data, or apparatus that we did not provide; or 4. infringement by a non-IBM Product alone, as opposed to its combination with Products we provide to you as a system. 1.10 Limitation of Liability Circumstances may arise where, because of a default on our part or other liability, you are entitled to recover damages from us. In each such instance, regardless of the basis on which you are entitled to claim damages from us (including fundamental breach, negligence, misrepresentation, or other contract or tort claim), we are liable for no more than: 1. payments referred to in our patents and copyrights terms described above; -123- 2. damages for bodily injury (including death) and damage to real property and tangible personal property; and 3. the amount of any other actual direct damages, up to the greater of $100,000 or the charges (if recurring, 12 months' charges apply) for the Product or Service that is the subject of the claim. For purposes of this item, the term "Product" includes Materials and Licensed Internal Code. This limit also applies to any of our subcontractors and Program developers. It is the maximum for which we and our subcontractors and Program developers are collectively responsible. Items for Which We are Not Liable Under no circumstances are we, our subcontractors, or Program developers liable for any of the following: 1. third-party claims against you for damages (other than those under the first two items listed above); 2. loss of, or damage to, your records or data; or 3. special, incidental, or indirect damages or for any economic consequential damages (including lost profits or savings), even if we are informed of their possibility. 1.11 Agreement Termination You may terminate this Agreement on written notice to us following the expiration or termination of your obligations. Either of us may terminate this Agreement if the other does not comply with any of its terms, provided the one who is not complying is given written notice and reasonable time to comply. Any terms of this Agreement which by their nature extend beyond the Agreement termination remain in effect until fulfilled, and apply to both of our respective successors and assignees. 1.12 Geographic Scope All your rights, all our obligations, and all licenses (except for Licensed Internal Code and as specifically granted) are valid only in the United States and Puerto Rico. 1.13 Governing Law The laws of the State of New York govern this Agreement. Nothing in this Agreement affects any statutory rights of consumers that cannot be waived or limited by contract. -124- Customer Agreement Part 2 - Warranties 2.1 The IBM Warranties Warranty for IBM Machines For each IBM Machine, we warrant that it: 1. is free from defects in materials and workmanship; and 2. conforms to its Specifications. The warranty period for a Machine is a specified, fixed period commencing on its Date of Installation. During the warranty period, we provide repair and exchange Service for the Machine, without charge, under the type of Service we designate for the Machine. If a Machine does not function as warranted during the warranty period and we are unable to either 1) make it do so, or 2) replace it with one that is at least functionally equivalent, you may return it to us and we will refund your money. Additional terms regarding Service for Machines during and after the warranty period are contained in Part 5. Warranty for IBM Programs For each warranted IBM Program, we warrant that when it is used in the Specified Operating Environment, it will conform to its Specifications. The warranty period for a Program expires when its Program Services are no longer available. During the warranty period, we provide defect-related Program Services without charge. Program Services are available for a warranted Program for at least one year following its general availability. If a Program does not function as warranted during the first year after you obtain your license and we are unable to make it do so, you may return the Program to us and we will refund your money. To be eligible, you must have obtained your license while Program Services (regardless of the remaining duration) were available for it. Additional terms regarding Program Services are contained in Part 4. Warranty for IBM Services For each IBM Service, we warrant that we perform it: 1. using reasonable care and skill; and 2. according to its current description ( including any completion criteria) contained in this Agreement, an Attachment, or a Transaction Document. Warranty for Systems Where we provide Products to you as a system, we warrant that they are compatible and will operate with one another. This warranty is in addition to our other applicable warranties. 2.2 Extent of Warranty If a Machine is subject to federal or state consumer warranty laws, our statement of limited warranty included with the Machine applies in place of these Machine warranties. -125- The warranties will be voided by misuse, accident, modification, unsuitable physical or operating environment, operation in other than the Specified Operating Environment, improper maintenance by you, removal or alteration of Product or parts identification labels, or failure caused by a product for which we are not responsible. THESE WARRANTIES ARE YOUR EXCLUSIVE WARRANTIES AND REPLACE ALL OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 2.3 Items Not Covered by Warranty We do not warrant uninterrupted or error-free operation of a Product or Service or that we will correct all defects. We will identify IBM Products that we do not warrant. Unless we specify otherwise, we provide Materials, non-IBM Products, and non-IBM Services WITHOUT WARRANTIES OF ANY KIND. However, non-IBM manufacturers, suppliers, or publishers may provide their own warranties to you. -126- Customer Agreement Part 3 - Machines 3.1 Title and Risk of Loss When we accept your order, we agree to sell you the Machine described in a Transaction Document. We transfer title to you or, if you choose, your lessor when we ship the Machine. However, we reserve a purchase money security interest in the Machine until we receive the amounts due. For a feature, conversion, or upgrade involving the removal of parts which become our property, we reserve the security interest until we receive the amounts due and the removed parts. You agree to sign an appropriate document to permit us to perfect our purchase money security interest. We bear the risk of loss for the Machine up to and including its Date of Installation. Thereafter, you assume the risk. 3.2 Production Status Each IBM Machine is manufactured from new parts, or new and used parts. In some cases, a Machine may not be new and may have been previously installed. Regardless of a Machine's production status, our appropriate warranty terms apply. 3.3 Installation For the Machine to function properly, it must be installed in a suitable physical environment. You agree to provide an environment meeting the specified requirements for the Machine. We have standard installation procedures. We will successfully complete these procedures before we consider an IBM Machine (other than a Machine for which you defer installation or a Customer- set-up Machine) installed. You are responsible for installing a Customer-set-up Machine (we provide instructions to enable you to do so) and a non-IBM Machine. Machine Features, Conversions, and Upgrades We sell features, conversions, and upgrades for installation on Machines, and, in certain instances, only for installation on a designated, serial-numbered Machine. Many of these transactions involve the removal of parts and their return to us. As applicable, you represent that you have the permission from the owner and any lien holders to 1) install features, conversions, and upgrades and 2) transfer ownership and possession of removed parts (which become our property) to us. You further represent that all removed parts are genuine and unaltered, and in good working order. A part that replaces a removed part will assume the warranty or maintenance Service status of the replaced part. You agree to allow us to install the feature, conversion, or upgrade within 30 days of its delivery. Otherwise, we may terminate the transaction and you must return the feature, conversion, or upgrade to us at your expense. 3.4 Licensed Internal Code Certain Machines we specify (called "Specific Machines") use Licensed Internal Code (called "Code"). We own copyrights in Code or have the right to license Code. We or a third party own all copies of Code, including all copies made from them. We will identify each Specific Machine in a Transaction Document. If you are the rightful possessor of a Specific Machine, we grant you a license to use the Code (or any replacement we provide) on, or in conjunction with, only the Specific Machine, designated by serial -127- number, for which the Code is provided. We license the Code to only one rightful possessor at a time. Under each license, we authorize you to do only the following: 1. execute the Code to enable the Specific Machine to function according to its Specifications; 2. make a backup or archival copy of the Code (unless we make one available for your use), provided you reproduce the copyright notice and any other legend of ownership on the copy. You may use the copy only to replace the original, when necessary; and 3. execute and display the Code as necessary to maintain the Specific Machine. You agree to acquire any replacement for, or additional copy of, Code directly from us in accordance with our standard policies and practices. You also agree to use that Code under these terms. You may transfer possession of the Code to another party only with the transfer of the Specific Machine. If you do so, you must 1) destroy all your copies of the Code that were not provided by us, 2) either give the other party all your IBM-provided copies of the Code or destroy them, and 3) notify the other party of these terms. We license the other party when it accepts these terms by initial use of the Code. These terms apply to all Code you acquire from any source. Your license terminates when you no longer rightfully possess the Specific Machine. Actions You May Not Take You agree to use the Code only as authorized above. You may not do, for example, any of the following: 1. otherwise copy, display, transfer, adapt, modify, or distribute the Code (electronically or otherwise), except as we may authorize in the Specific Machine's Specifications or in writing to you; 2. reverse assemble, reverse compile, or otherwise translate the Code unless expressly permitted by applicable law without the possibility of contractual waiver; 3. sublicense or assign the license for the Code; or 4. lease the Code or any copy of it. 3.5 Machine Code For certain Machines we may provide basic input/output system code, utilities, diagnostics, device drivers, or microcode (collectively called "Machine Code"). This Machine Code is licensed under the terms of the agreement provided with it. -128- Customer Agreement Part 4 - Programs 4.1 License When we accept your order, we grant you a non-exclusive, nontransferable license to use the Program. Programs are owned by International Business Machines Corporation or one of its subsidiaries ("IBM") or an IBM supplier and are copyrighted and licensed (not sold). 4.2 License Details Under each license, we authorize you to: 1. use the Program's machine-readable portion on only the Designated Machine. If the Designated Machine is inoperable, you may use another Machine temporarily. If the Designated Machine cannot assemble or compile the Program, you may assemble or compile the Program on another Machine. If you change a Designated Machine previously identified to us, you agree to notify us of the change and its effective date; 2. use the Program to the extent of authorizations you have acquired; 3. make and install copies of the Program, to support the level of use authorized, provided you reproduce the copyright notices and any other legends of ownership on each copy or partial copy; and 4. use any portion of the Program we 1) provide in source form, or 2) mark restricted (for example, "Restricted Materials of IBM") only to - a. resolve problems related to the use of the Program, and b. modify the Program so that it will work together with other products. You agree to comply with any additional terms we may place on a Program. We identify these in the Program's Specifications or in a Transaction Document. Actions You May Not Take You agree not to: 1. reverse assemble, reverse compile, or otherwise translate the Program; or 2. sublicense, rent or lease the Program. 4.3 Program Components Not Used on the Designated Machine Some Programs have components that are designed for use on machines other than the Designated Machine on which the Program is used. You may make copies of a component and its documentation in support of your authorized use of the Program provided you notify us of the component's actual date of distribution. 4.4 Distributed System License Option For some Programs, you may make a copy under a Distributed System License Option (called a "DSLO" copy). We charge less for a DSLO copy than we do for the original license (called the "Basic" license). In return for the lesser charge, you agree to do the following while licensed under a DSLO: 1. have a Basic license for the Program; -129- 2. provide problem documentation and receive Program Services (if any) only through the location of the Basic license; and 3. distribute to, and install on, the DSLO's Designated Machine, any release, correction, or bypass that we provide for the Basic license. 4.5 Program Testing We provide a testing period for certain Programs to help you evaluate if they meet your needs. If we offer a testing period, it will start 1) the second business day after the Program's standard transit allowance period, or 2) on another date specified in a Transaction Document. We will inform you of the duration of the Program's testing period. We do not provide testing periods for DSLO copies. 4.6 Packaged Programs We provide certain Programs together with their own license agreements. These Programs are licensed under the terms of the agreements provided with them. 4.7 Program Protection For each Program, you agree to: 1. ensure that anyone who uses it (accessed either locally or remotely) does so only for your authorized use and complies with our terms regarding Programs; and 2. maintain a record of all copies and provide it to us at our request. 4.8 Program Services We provide Program Services for warranted Programs and for selected other Programs. If we can reproduce your reported problem in the Specified Operating Environment, we will issue defect correction information, a restriction, or a bypass. We provide Program Services for only the unmodified portion of a current release of a Program. We provide Program Services 1) on an on-going basis (with at least six months' written notice before we terminate Program Services), 2) until the date we specify, or 3) for a period we specify. 4.9 License Termination You may terminate the license for a Program on one month's written notice or at any time during the Program's testing period. Licenses for certain replacement Programs may be acquired for an upgrade charge. When you acquire these replacement Programs, you agree to terminate the license of the replaced Programs when charges become due, unless we specify otherwise. We may terminate your license if you fail to comply with its terms. If we do so, your authorization to use the Program is also terminated. -130- Customer Agreement Part 5 - Services 5.1 IBM Services Services may be either standard offerings or customized to your specific requirements. Each service transaction may include one or more Services that: 1. expire at task completion or an agreed upon date; 2. automatically renew as another transaction with a specified contract period. Renewals will continue until either of us terminates the Service; or 3. do not expire and are available for your use until either of us terminates the Service. 5.2 Personnel Each of us is responsible for the supervision, direction, and control of our respective personnel. We reserve the right to determine the assignment of our personnel. We may subcontract a Service, or any part of it, to subcontractors selected by us. 5.3 Materials Ownership and License We will specify Materials to be delivered to you. We will identify them as being "Type I Materials," "Type II Materials," or otherwise as we both agree. If not specified, Materials will be considered Type II Materials. Type I Materials are those, created during the Service performance period, in which you will have all right, title, and interest (including ownership of copyright). We will retain one copy of the Materials. You grant us 1) an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform, distribute (internally and externally) copies of, and prepare derivative works based on Type I Materials and 2) the right to authorize others to do any of the former. Type II Materials are those, created during the Service performance period or otherwise (such as those that preexist the Service), in which we or third parties have all right, title, and interest (including ownership of copyright). We will deliver one copy of the specified Materials to you. We grant you an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform, and distribute, within your Enterprise only, copies of Type II Materials. Each of us agrees to reproduce the copyright notice and any other legend of ownership on any copies made under the licenses granted in this Section. Any idea, concept, know-how, or technique which relates to the subject matter of a Service and is developed or provided by either of us, or jointly by both of us, in the performance of a Service may (subject to applicable patents an copyrights) be freely used by either of us. 5.4 Changes to Service Terms We may change the terms of Services that are renewable or non-expiring by giving you three months' written notice. However, these changes are not retroactive. They apply immediately to renewal transactions and as of the effective date we specify in the notice to all existing transactions. If we make a change to the terms of a renewable Service that 1) affects your current contract period and 2) you consider unfavorable, on your request, we will defer it until the end of that contract period. -131- When both of us agree to change any Services statement of work other than as described above, we will prepare a written description of the agreed change (called a "Change Authorization"), which both of us must sign. The terms of a Change Authorization prevail over those of the statement of work and any previous Change Authorizations. 5.5 Renewal Renewable Services renew automatically for a same length contract period unless either of us provides written notification (at least one month prior to the end of the current contract period) to the other of their decision not to renew. 5.6 Termination and Withdrawal Either of us may terminate a Service if the other does not meet its obligations concerning the Service. You may terminate a non-expiring Service, without adjustment charge, on one month's written notice to us provided you have met all minimum requirements specified in the applicable Attachments and Transaction Documents. You may terminate a renewable Service or a non-expiring maintenance Service, without adjustment charge, on notice to us provided you have met all minimum requirements specified in the applicable Attachments and Transaction Documents and any of the following circumstances occur: 1. you permanently remove the eligible Product, for which the Service is provided, from productive use within your Enterprise; 2. the eligible location, for which Service is provided, is no longer controlled by you (for example, because of sale or closing of the facility); 3. an increase in the Service charges, either alone or in combination with prior increases over the previous twelve months, is more than the maximum specified in the applicable Service Transaction Document. If no maximum is specified, then this circumstance does not apply; or 4. the Machine has been under maintenance Services for at least six months and you give us one month's written notice prior to terminating the maintenance Service. For all other circumstances, you may terminate an expiring or renewable Service on one month's written notice to us but such termination will result in adjustment charges equal to the lesser of: 1. the charges remaining to complete the contract period; or 2. one of the following if specified in the Transaction Document -- a. the charges remaining to complete the contract period multiplied by the adjustment factor specified, or b. the amount specified. You agree to pay us for all Services we provide and any Products and Materials we deliver through Service termination and any charges we incur in terminating subcontractors. We may withdraw a renewable or non-expiring Service or support for an eligible Product on three months' written notice to you. If we withdraw a Service for which you have prepaid and we have not yet fully provided it to you, we will give you a prorated refund. Any terms which by their nature extend beyond termination or withdrawal remain in effect until fulfilled and apply to respective successors and assignees. 5.7 Services for Machines (during and after warranty) We provide certain types of repair and exchange Service either at your location or at a service center to keep Machines in, or restore them to conformance with their Specifications. We will inform you of the available types of Service for a Machine. We may repair the failing Machine or exchange it at our discretion. -132- When the type of Service requires that you deliver the failing Machine to us, you agree to ship it suitably packaged (prepaid unless we specify otherwise) to a location we designate. After we have repaired or exchanged the Machine, we will return it to you at our expense unless we specify otherwise. We are responsible for loss of, or damage to, your Machine while it is 1) in our possession or 2) in transit in those cases where we are responsible for the transportation charges. You agree to: 1. obtain authorization from the owner to have us service a Machine that you do not own; and 2. where applicable, before we provide Service -- a. follow the problem determination, problem analysis, and service request procedures that we provide, b. secure all programs, data, and funds contained in a Machine, and c. inform us of changes in a Machine's location. When Service involves the exchange of a Machine or part, the item we replace becomes our property and the replacement becomes yours. You represent that all removed items are genuine and unaltered. The replacement may not be new, but it will be in good working order and at least functionally equivalent to the item replaced. The replacement assumes the warranty or maintenance Service status of the replaced item. Before we exchange a Machine or part, you agree to remove all features, parts, options, alterations, and attachments not under our service. You also agree to ensure that the item is free of any legal obligations or restrictions that prevent its exchange. Any feature, conversion, or upgrade we service must be installed on a Machine which is 1) for certain Machines, the designated, serial-numbered Machine and 2) at an engineering-change level compatible with the feature, conversion, or upgrade. Repair and exchange Services do not cover: 1. accessories, supply items, and certain parts, such as batteries, frames, and covers; 2. Machines damaged by misuse, accident, modification, unsuitable physical or operating environment, improper maintenance by you; 3. Machines with removed or altered Machine or parts identification labels; 4. failures caused by a product for which we are not responsible; or 5. service of Machine alterations. We manage and install engineering changes that apply to IBM Machines and may also perform preventative maintenance. We provide maintenance Services for selected non-IBM Machines. 5.8 Maintenance Coverage When you order Machine maintenance Services under this Agreement, we will inform you of the date on which maintenance Services will begin. We may inspect the Machine within one month following that date. If the Machine is not in an acceptable condition for service, you may have us restore it for a charge. Alternatively, you may withdraw your request for maintenance Service. However, you will be charged for any maintenance Services which we performed at your request. After signing, please return a copy of this Agreement to the local "IBM address" shown above. - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- -133-
STATEMENT OF WORK Table of Contents 1.0 Executive Summary 1 1.1 Background 3 1.2 Approach 3 1.3 Staffing 4 2.0 Statement of Work 5 2.1 Project Scope 5 2.2 Key Assumptions 6 2.3 IBM Responsibilities 11 2.3.1 Perform Project Management 11 2.3.2 Orient Project Team 12 2.3.3 Project Office Services 12 2.3.4 Site Survey 13 2.3.5 Network Design Services 13 2.3.6 Data Cabling Services 14 2.3.7 TouchPort Implementation Services 16 2.3.8 TouchPort Support Services 16 2.3.9 TouchPort Warranty and Maintenance Services 17 2.3.10 TouchPort Web Site Hosting Services 18 2.4 SSP/OASiS Responsibilities 19 2.4.1 SSP/OASiS Project Manager 19 2.4.2 Other Responsibilities 20 2.4.3 Laws, Regulations, and Statutes 21 2.4.4 Space and Facilities 21 2.4.5 Security 21 2.5 Deliverable Materials 22 2.6 Completion Criteria 23 2.7 Year 2000 24 2.8 Termination 25 2.9 Estimated Schedule 27 2.10 Charges 28 2.10 Definition of Terms 30 Appendix A Deliverable Guidelines 30 A.1 Monthly Status Report 31
-134- A.2 Design and Implementation Reports 31 A.3 End User Support: Monthly Usage Reports 31 Appendix B Project Change Control Procedure 34 Appendix C Hardware/Software 34 Appendix D Signature Document 35 Appendix E Review and Approval Procedure 36
-135- 1.0 Executive Summary There exists an agreement between Surgical Safety Products (SSP/OASiS) and International Business Machines (IBM) for the Oasis TouchPort 2K Project consisting of a Statement of Work (SOW) under the terms of the IBM Customer Agreement (ICA) # AVWJ907. Full Acceptance of this Agreement shall be known as the date of final SSP/OASiS Board of Directors approval. Board of Director's Approval was granted on January 3rd, 2000. IBM has begun work per the Statement of Work under the terms of the IBM Customer Agreement. The intent of the parties is that IBM would be providing a complete implementation and support services solution for 1,200 Oasis TouchPort terminals (kiosks) at an estimated 400 SSP/OASiS end user locations during the 12 month period that started November 29th, 1999. Based on a recent meeting between SSP and IBM and considering the 19 terms and conditions issues in Mr. Sam Norton's memo, a Project Change Request (PCR or Amendment) is appropriate to the original SOW to more clearly define the intent of the parties. A copy of the SSP/OASiS executed IBM Customer Agreement (ICA) was faxed to Mr. Sam Norton, council for SSP/OASiS, on December 16th, 1999. A Project Change Request (PCR #1) is entered into this 3rd day of February, 2000 by and between International Business Machines Corporation ("IBM") and Surgical Safety Products, Inc. ("SSP" or "SSP/OASiS") to modify the original IBM Statement of Work (SOW). All aspects of this agreement, including all services to be performed and fees for same are subject to the mutual agreement between IBM and SSP which shall be memorialized in writing prior to the undertaking of any tasks, incurring of any fees, or expenditure of any monies. Nothing contained herein shall be construed as creating an exclusive arrangement for IBM to provide the services and equipment contemplated hereunder. Any tasks or services to be performed shall be initiated by a written "SSP Work Authorization" to be signed by IBM and SSP/OASiS prior to undertaking any such services or tasks. The "Work Authorization" form (see attached) will disclose any travel and living expenses that may be billed to SSP/OASiS. Agreement/Proposal. This Agreement/Proposal is made and entered into by and between INTERNATIONAL BUSINESS MACHINES CORPORATION (hereinafter sometimes referred to as "IBM" or "IBM Global Services") and SURGICAL SAFETY PRODUCTS, INC. (hereinafter sometimes referred to as "SSP" or "SSP/OASIS"). Appendix D sets forth the signatures of the parties to this Agreement. SSP/OASiS and International Business Machines Corporation are finalizing and will continue to refine a business relationship to deploy the OASiS TouchPort systems to SSP/OASiS end-customers throughout the United States. The intent of this Statement of Work is to define the initial stages of this relationship and to leverage the capabilities of each of our respective organizations to provide a high quality solution that is seamless to a wide variety of health care organizations. IBM Global Services proposes to provide a methodology based upon Project Management Institute (PMI) principles to SSP/OASiS for the management of the projects within the United States. This Project Management function will provide a base Project Office to be located at the Sarasota SSP/OASiS facility. The function proposed by IBM is to staff a core group of project management and network professionals that understand the SSP/OASiS product set and will engage IBM resources for each end client installation. It is understood -136- that each of these installations will be customized and the IBM team will work with SSP/OASiS to determine the necessary requirements for each. The IBM solution is to develop a Project Office based on SSP/OASiS requirements that will ensure each project installation has the following: Project Planning Premises Wiring Site Surveys TouchPort Implementations Product Acquisition Help Desk Support Network Design Consulting Services Web Site Hosting Services The IBM Project Office will identify and engage the necessary engineering resources for each location to develop the plan for primary and secondary TouchPort implementations. These tasks will be jointly coordinated with SSP/OASiS as each opportunity is identified and developed. IBM will provide the resources to provide a seamless solution to each health care facility. IBM will coordinate all activities related to deployment and installation. This approach is predicated on the execution of at least eight pilot TouchPort installations. The Implementation and Support Project Plan will be refined and modified as required to drive efficiency and reduce cost. IBM has the experience, technical resources, processes, and tools to mange the day to day implementation and operational tasks and issues involved in a technology rollout of this nature. This approach will free up valuable SSP/OASiS resources to focus on the tasks of TouchPort placements, establishing additional content agreements, and market development. The ultimate goal of the IBM Project Office is to provide a Central Point of Contact for SSP/OASiS for deployment and support requirements for each location and to deploy the required resources as defined by the Project, all under a pre-defined methodology for each installation. IBM proposes this functional staffing and organization for a 3 to 6 month period and adjust resources and costs based upon past project experiences and business forecasts. The Project Change Request process will be utilized to make all necessary adjustments as mutually agreed upon by both of us. 1.1 Background SSP/OASiS requires assistance in the design, deployment and support of their OASiS TouchPort 2K system. IBM Global Services has the geographic scope and personnel to provide this critical assistance to SSP/OASiS. IBM Global Services can provide the IT infrastructure necessary for SSP/OASiS to go to market with their products and solutions for the health industry. -137- 1.2 Approach Effective Project Management is crucial to the success of Surgical Safety's OASiS TouchPort 2K Infrastructure. For many years IBM has been successful in complex system integration projects because we apply three essential skills: Ability to effectively and professionally manage people and the overall project Ability to match technical skills to specific work tasks Ability to plan and integrate hardware and software to provide sound solutions To help SSP/OASiS successfully implement the OASiS TouchPort, IBM will utilize: Proven project management techniques Proven change control procedures A disciplined approach and detailed project plan IBM professionals trained in IBM's methodologies for project management Subject Matter Experts to provide the required technical know-how to accomplish project tasks. The successful completion of any project depends on the careful execution of a well structured and detailed plan. The project installation plan must be developed based on agreed to objectives and well defined goals. The project plan will be developed jointly by IBM and SSP/OASiS, including schedules, processes, and dependencies. This plan will be used to control the project, monitor all activities, track progress, and manage change control. The success of the project will be measured against the defined objectives and the successful implementation of the project plan. By having a detailed plan, problems or changes can be promptly identified and resolved. Serving as a focal point, IBM will assign a lead Project Executive to be responsible for the overall success of the project. In addition to the PE, IBM will assign a Project Manager who will manage communications with SSP/OASiS's Project Manger, and coordinate the activities of IBM, subcontractors, and suppliers. The IBM Project Manager will work closely with the Surgical Safety's Project Manager to develop a project plan that satisfies the goals and objectives of SSP/OASiS. The IBM Project manager will provide reports and updates on the IBM and subcontractor activities related to the project. -138- Recognizing that the scope of the project may require changes, IBM employs a formal change control procedure. This proven approach will allow SSP/OASiS to make cost and benefit tradeoffs based on an analysis of requested changes. Project Change Requests (PCR) will be the vehicle for communicating change. PCRs describe the requested change, the rational for change, and the effect the change will have on the project. Appendix B describes the PCR process to be used in conjunction with this Statement of Work. 1.3 Staffing IBM will provide a Project Office team to assist SSP/OASiS with the management of the OASiS TouchPort 2K. The Project Office team members will fluctuate based on the project schedule. It is anticipated that the IBM Project Office team will nominally consist of six (6) members in the following roles: Project Executive (1) Project Manager (1) Project Support Coordinator (1) Project Support Administrator (1) Network Subject Matter Experts (1-2) These roles will be staffed based on the requirements of the project schedule. Additional project office personnel may be added to address additional project requirements. 2.0 Statement of Work This Statement of Work defines the scope of work to be accomplished by IBM under the terms and conditions of the IBM Customer Agreement (Agreement). The tasks to be performed by IBM are defined and an estimated schedule is provided. In addition, the responsibilities of SSP/OASiS are listed. Changes to this Statement of Work will be processed in accordance with the procedure described in "Appendix B. "Project Change Control Procedure". The investigation and the implementation of changes may result in modifications to the Estimated Schedule, Charges, and/or other terms of the Agreement. The following are incorporated in and made part of this Statement of Work: Appendix A "Deliverable Guidelines" Appendix B "Project Change Control Procedure" Appendix C "Hardware/Software" -139- Appendix D "Signature Document" Appendix E. "Review and Approval Procedure" 2.1 Project Scope SSP/OASiS has requested IBM to provide Project Management services to assist with their OASiS TouchPort 2K Implementation Project. IBM will provide Roll-Out Services for 1,200 SSP/OASiS Touchports, beginning December 1, 1999 and ending on November 30, 2000 at an estimated 400 SSP/OASiS end customer locations. The Services specified below are to be provided by IBM and authorized by SSP/OASiS. IBM will assemble a team to establish a Project Office with adequate resources to provide the following services: Product Procurement Services Site Surveys Network Design Services Site Preparation Services TouchPort Implementation Services TouchPort Support Services 2.2 Key Assumptions This Statement of Work, and IBM's estimates to perform the Statement of Work, are based on the following key assumptions. Deviations that arise during the proposed project will be managed through the procedure described in "Appendix B. Project Change Control Procedure". IBM will provide and staff an IBM Project Office for SSP/OASiS, which may be remote to SSP/OASiS and the TouchPort "installed at" locations. The IBM Project Office will manage pre- and post-implementation issues including after installation end user support (help desk) problem escalations concerning the availability (uptime) of each TouchPort. IBM will provide Level 1 & 2 End User Support Services (help desk), 24hr x7 day coverage, via IBM provided toll free call-in number. End User Support staffing will be matched to call volumes. All Level 3 problems will be escalated to the SSP/OASiS support staff in Sarasota, FL. -140- IBM will provide "hot swap" depot hardware replacement and repair services after installation, at any TouchPort "installed at" location covered by this agreement and serviced next day by UPS, Federal Express or Airborne with coverage to be next business day. IBM will provide an on-site technician to perform the swap out. "Installed at" locations not serviced by these express delivery service providers will be serviced by IBM on a best efforts basis. IBM's target objective, for covered devices, for repair or replacement of a failed TouchPort, TouchPort peripheral, data network cabling, or network related hardware is 72 hrs or less. IBM will bill SSP/OASiS a monthly service charge (MSC) for the above described support services according to Scenarios "A", "B", and "C" schedule of charges included and made part of this Statement of Work. Funding and Invoicing: 1. Prior to IBM issuing purchase orders to non-IBM suppliers for any items required to deliver the scope of the work SSP/OASiS and IBM will: a. mutually agree on a comprehensive IBM invoicing plan to SSP/OASiS in line with the business objectives of SSP/OASiS, b. mutually agree on a SSP/OASiS plan for the payment of all IBM invoices generated as a result of IBM's execution of the deliverable elements described in this Statement of Work and, c. additionally SSP/OASiS must identify any sources of working capital that may be obtained to satisfy IBM d. SSP/Oasis must first issue to IBM an "SSP Work Authorization", in writing, prior to any costs being incurred. e. The "Work Authorization" form (see attached) will disclose any travel and living expenses that may be billed to SSP/OASiS. 1. We have assumed for planning purposes a straight-line time frame implementation; 1,200 Kiosk installed during 12 months in 400 locations. (100% Desktop units, 0% floor standing units). 2. The success of this project will require the active participation of both SSP/OASiS and IBM personnel. The appropriate SSP/OASiS personnel will be available for consultation (i.e. interviews, workshops, review sessions, etc.) throughout the duration of this project. IBM will attempt to schedule this time so as to minimize the impact on the day-to-day responsibilities of Surgical Safety's staff. 3. Written and/or electronic documentation exists and will be provided as it pertains to the objectives and scope of this project. SSP/OASiS will provide access to any available information required by the IBM project team to complete their tasks. 4. SSP/OASiS will obtain and provide information, data, decisions, and approvals, within three working days of IBM's request unless SSP/OASiS and IBM agree to an extended response time. -141- 5. Site survey activities will take place an estimated three (3) to six (6) weeks prior to the installation activities. Hardware and Software Environment: 1. IBM will provide the hardware and software described in Appendix C. 2. IBM will not be responsible for detection or removal of asbestos, hazardous waste or other pollutants. It is specifically understood by SSP/OASiS, their end- customers, and IBM that all matters relating to detection and/or abatement or removal of asbestos, hazardous waste or other pollutants are beyond the scope of this contract and that IBM shall not be liable for any delay or additional cost incurred as a result of such detection and/or abatement. 3. IBM will not be responsible under this Statement of Work for the identification or correction of any safety and/or code violations, whether federal, state or local, including but not limited to fire and electrical codes. If IBM should discover any safety and/or code violations during the course of this project, IBM will notify SSP/OASiS and their end-customer of the problem. IBM will not be required to proceed with this work under this Statement of Work until SSP/OASiS and their end-customer remedies such violation, nor will IBM be responsible for delays to the work caused by such violation. 4. SSP/OASiS is responsible for shipping charges. 5. IBM will follow the SSP/OASiS provided test script prior to certify installation of the Touchports. 6. SSP/OASiS will provide to IBM prior to the rollout of any pilots, "gold disks". These disks will contain all software SSP/OASiS requires to be loaded on to the TouchPorts. IBM will then use these disks in their redistribution efforts. SSP/OASiS will provide a mutually agreed to number of disks to be used by IBM. 7. Desktop TouchPort does not exceed 60 lbs. actual weight or Din weight of 120 lbs./in.. 8. Floorstanding TouchPort does not exceed 150 lbs. actual weight or Din weight of 250 lbs./in.. 9. No final, production-level, certified product will be delivered until the TouchPort 2 K system product passes UL, FCC and IBM's Product Safety Review Board. If the DFI product fails to meet these requirements, IBM reserves the right to substitute another product, and the charges may be adjusted as the result. -142- SSP/OASiS Personnel: 1. SSP/OASiS personnel who will be assigned to this project will have the technical skills necessary to participate in the SSP/OASiS TouchPort work effort. IBM Personnel: 2. Work under this Statement of Work will be performed at SSP/OASiS location in Sarasota, FL. and IBM locations in Orlando, FL. 3. SSP/OASiS will be charged for travel time that exceeds one hour round trip from the point of departure. . All travel time, per IBM resource, for the duration of this project, will be billed to SSP/OASiS at the rate of $225/person/hr. and must be prior approved as per the "Work Authorization" process. Resource travel time will be billed to SSP/OASiS for travel one-way to any necessary work location. Travel for IBM Project Office personnel, while performing Project Office Duties, is not billable when traveling within the State of FL to and from the SSP Corporate Center. 3. Some IBM internal activities on this project may be performed on IBM premises. IBM will provide the IBM consultant with access to IBM tie lines, networks, and databases. The time spent on these contract-related IBM internal activities will be billable to SSP/OASiS. 4. IBM will provide services under this Statement of Work during normal business hours, 8:00 am to 5:00 pm Monday through Friday, except national holidays. TouchPort Support Services: 1. We have provided for an initial block of 2,500 calls, which may be extended with additional blocks of varying sizes throughout the year. 2. Work under this Statement of Work will be performed remotely at an IBM location. 3. IBM may use subcontractors to perform some of the proposed work. 4. IBM estimated time frames subjected to delays caused by SSP/OASiS in delivering requested or required information may result in changes to the project schedule and/or additional charges. IBM will inform SSP/OASiS as soon as is practical in this event and the change will be processed in accordance with the procedure described in Appendix B, "Project Change Control Procedure." 5. Estimated call length of 10 minutes. -143- 6. IBM will provide hot spares/depot repair services for the desktop Touchports and on-site repairs of floor standing Touchports. SSP/OASiS will be responsible for providing a consignment of hot spares for the desktop units. Other: 7. Verio ISP monthly connection fees for end-customers are NOT included in this statement of work. 8. If IBM is delayed in the progress of the project by SSP/OASiS or their end- customers by acts or neglect, or the acts or neglect of your employees or separate contractors employed by you, by changes ordered in the project not caused by the fault of IBM or other causes beyond IBM's control, the contract time shall be reasonably extended and/or charges adjusted. 9. Prior to the creation of deliverables, IBM and SSP/OASiS will agree on a format, which will become the basis and standard for acceptance of the deliverable. 10. Any order received 3 business days or less from the on-site due date may incur a labor impact charge of $ 115 per shipment in addition to the applicable expedited transportation costs. In the case of an already existing SSP/OASiS hospital/customer requiring an additional TouchPort installation in 3 days or less, a labor impact charge (expedite fee) of $115 may be incurred by SSP/OASiS in addition to any applicable expedited transportation costs. This charge will appear on the "SSP Work Authorization Form". 11. Any order received for the next day or same day shipment will be considered an Emergency order. Emergency orders will incur expedited labor charges of $ 240, and expedited transportation charges. -144- 2.3 IBM Responsibilities 2.3.1 Perform Project Management Task Description: IBM will provide project management for the IBM responsibilities in this Statement of Work. The objective of this task is to establish a framework for project communications, reporting, procedural and contractual activity. The IBM Project Manager will be responsible for this task. The following subtasks will be performed: 1.Project Planning Review the Statement of Work and the contractual responsibilities of both parties with the SSP/OASiS Project Manager. Prepare a detailed project plan that identifies and assigns tasks, major milestones for the efforts of the project team, the estimated dates on which they occur and indications of critical path. Develop and revise a Roll-Out schedule with the agreement of the SSP/OASiS Project Manager. Coordinate the establishment of the project environment. Prepare for the SSP/OASiS TouchPort project team orientation. 2.Project Tracking and Reporting Measure, track and evaluate progress against the project plan. Resolve deviations from the project plan with the SSP/OASiS Project Manager. Review project tasks, schedules, and resources and make changes or additions, as appropriate. Conduct regularly scheduled meetings with the SSP/OASiS TouchPort project team to review project status. Review the project progress with the SSP/OASiS Project Manager during the regularly scheduled status meetings. Prepare Monthly Status Reports. Administer the project change control procedure. Review and analyze project change requests. Review the work products being produced by the SSP/OASiS TouchPort project team. -145- Completion Criteria: This task will be complete when the project ends. Deliverables: The following items will be delivered to SSP/OASiS as a result of this task: A Monthly Status Report 2.3.2 Orient Project Team Task Description: The objective of this task is to orient the IBM and SSP/OASiS project participants to SSP/OASiS goals and environment and to the SSP/OASiS TouchPort project management methodology. The orientation consists of the following subtasks: 1. Orient the project team to the project objectives and approach. 2. Review the Statement of Work and provide clarification, as required. 3. Review the project plan, estimated schedule, IBM's and Surgical Safety's contractual responsibilities. 4. Review the project change control procedure. 5. Orient the team to project management methodology. Completion Criteria: This task will be complete when the 1-day orientation session has been held. Deliverables: None. 2.3.3 Project Office Services Task Description: The subtasks are: 1. Serve as a single point of contact for all IBM related activities for SSP/OASiS. 2. Provide project status reports for Safety Surgical TouchPort implementations. 3. Serve as an information repository for SSP/OASiS engagements. -146- 4. Define clear, concise, repeatable, specific process for the implementation of SSP/OASiS TouchPort solutions. a. Develop site survey scripts b. Develop installation scripts c. Develop customer acceptance and sign-off forms 5. Prepare a site installation plan to cover the service activities at each SSP/OASiS end-customer location. The plan should include the activities, schedules, and responsibilities for each party; SSP/OASiS, their end-customer, and IBM. 6. Coordinate necessary partner/vendors/sub-contractors and IBM perform resources ( cabling, ISP, installation, etc.). 7. Order and schedule for delivery appropriate components (Kiosk and HW equipment). 8. Prior to the start of this Statement of Work, IBM will designate a person, known as the EUS Customer Care Advocate, to whom SSP/OASiS will address all EUS related project communications. EUS Customer Care services will be provided during normal IBM business hours, 8:30 a.m. to 5:00 p.m., Monday through Friday excluding IBM holidays. Completion Criteria: This task will be complete when the project ends. Deliverables: The following item will be delivered to SSP/OASiS and their end- customer as a result of this task: Site Installation Plans & Schedules 2.3.4 Site Survey Task Description: The objective of this task is to determine the networking and cabling requirements for the installation of the OASiS TouchPort 2K systems. IBM will perform a site survey at each identified SSP/OASiS end-customer location approximately three weeks prior to installation. The sub tasks are: 1. Determine Hospital LAN gateway or ISP connection requirements; 2. Identify best available LAN or demarc location; 3. Determine location, placement, and environmental conditions for the TouthPort 2K system; -147- 4. Identify CAT 5 cabling requirements; 5. Obtain sign-off from end-customer to utilize their Gateway, if utilized; 6. Document electrical/cabling requirements, readiness, and locations for cable drops. Completion Criteria: This task will be complete when IBM has completed at the SSP/OASiS identified sites, up to 400 sites. Deliverables: The following items will be delivered to SSP/OASiS as a result of this task: 4. One (1) copy of the site survey document 2.3.5 Network Design Services Task Description: The objective of this task is to provide network expertise for the design of the network connection for the system and support of installation projects. The activities to be performed are: 1. Review the site surveys to assess the physical and logical networking environment. 2. Determine the additional required hardware / software components necessary to connect the system into one of the five following connection scenarios: a. DSL b. Frame Relay c. Fractional T-1 d. T-1 e. ISDN 3. Provide product specifications and configuration instructions for the recommended components to facilitate the connection of a TouchPort to the customer's premise network or Internet Service Provider's network. 4. Develop Network diagrams, based on input from the Site Surveys and implementation teams, for each individual project. 5. Provide telephone support for installation and survey activities. -148- Completion Criteria: This task will be complete when the project ends. Deliverables: None 2.3.6 Data Cabling Services Cabling Activities: IBM will furnish and install one cable drop per TouchPort at the designated SSP/OASiS end-customer facilities across the US. The Category 5 plenum 300 foot maximum cable run will terminate at an RJ45 surface mount box and face plate at one end and a RJ45 surface mount box and face plate of patch panel at the other end. Up to 15 feet of wire mold could be included at the TouchPort end of the run for aesthetic purposes. IBM has assumed a normal Hospital environment will prevail (drop ceilings, fish able walls, no asbestos). Cabling Installation Methods IBM will follow all required EIA/TIA installation methods. Specifically, the following installation practices will be adhered to: 1. The design and installation will be established using cable highways. Hallways will be followed whenever possible. All turns will be 90 degrees observing the manufacturer's specified bend radius, but in no case less than 10 times the cable OD. 2. Cable support will be provided on a minimum of 10' centers or to local code, whichever is more stringent. IBM will follow all facility support requirements. All cable will run as high as is practical above the level of the suspended ceiling. 3. Cable will not be laid upon ceiling tiles. 4. Cable will not be routed within 12" parallel to electrical circuits. Where data cable must intersect electrical cable, the crossing shall be made at a 90- degree angle. 5. No jacks will be installed adjacent to electrical outlets. 6. In no case will the twisted pair be untwisted more than the specified .5". Sheath removal will be kept to a minimum. 7. Cable will be installed in such a manner so as not to kink any wire. Any cable kinked during installation will be replaced at IBM expense. When using cable tie-wraps, they will not be tightened in any manner that would damage or kink the cable. -149- 8. All cables will be neatly dressed and bundled. 9. No twisted pair splicing will be allowed. 10. Any fire wall penetrations made by IBM will be metal sleeved and will be sealed in an appropriate manner using a fire rated sealant to maintain the fire rating of the wall in accordance with NEC. 11. All work to be provided by IBM will comply to national, state, and local code 12. All work areas will be kept clean by the work crews. Cabling Assumptions: 1. Provision for and the installation of optical fiber or riser cable is NOT included in this statement of work. 2. Access between the floors exists and is free of obstructions. IBM assumes that core drilling will not be required. Ceilings are standard drop tile and walls are of construction that are fish able. IBM also assumes all floor ducts and conduit will be free and clear of any obstructions and are fish able. 3. IBM assumes no expedited freight charges. 4. IBM assumes that jobs will be started and completed without interruption. Re- mobilization efforts will be billed accordingly, over and above the contracted pricing. Access to all necessary areas is required throughout the installation. Downtime due to limited access will be addressed in a change order. 5. No allowances have been made to supply conduit, surface raceway, or cable tray. If these types of services are deemed necessary during the survey or installation, will be addressed in the appropriate manner (quote adjustment or change order). 6. Permits (if required) are the responsibility of the end-customer. 7. Electrical wiring is outside the scope of the statement of work. Completion Criteria: This task will be complete when the project ends. Deliverables: None 2.3.7 TouchPort Implementation Services Task Description: The objective of this task is to coordinate the resources and activities required for the installation of SSP/OASiS OASiS TouchPort 2K solution. The subtasks are: -150- 1. Install necessary network electronics for the network connection; 2. Install the OASiS TouchPort 2K Kiosk; 3. Install IBM provided UPS; 4. Establish network connections between the TouchPort and ISP. 5. Verify operations by executing SSP/OASiS provided installation verification procedures; 6. Complete the Customer Acceptance process. Completion Criteria: This task will be complete when the project ends. Deliverables: The following item will be delivered to SSP/OASiS as a result of this task for each implementation: 1. Customer Acceptance and Sign-off Forms 2.3.8 TouchPort Support Services IBM will provide Single Point of Contact (SPOC) Level 1 & Level 2 telephone assistance for SSP/OASiS Products' clients called End Users. End User Support (EUS) will provide break-fix support for hardware, including assisting on-site vendor technicians and application usage "how-to" on the OASiS TouchPort unit. EUS services will routing sales and vendor related questions to SSP/OASiS. EUS will escalate Level 3 problems to SSP/OASiS for resolution. IBM will provide assistance to SSP/OASiS for a predetermined number of problems (called "Block of Problems"). Task Description: IBM will provide EUS transition setup in preparation for providing EUS Services to SSP/OASiS. The sub tasks are: 1. Work with SSP/OASiS to set up a customer profile in the call management system. 2. Work with SSP/OASiS to create a customized greeting and processes and procedures for remote operations and support and escalation and referral procedures of the SSP/OASiS personnel. Up to 40 hours has been allotted for this task. In the event that additional hours are required, they will be billed on a time and materials basis. -151- 3. Set up a dedicated toll-free telephone line, to be used exclusively by SSP/OASiS when calling the End User Support Center. 4. Provide a call center trainer; the trainer will provide training to call center personnel on the call-handling processes and procedures, escalation and referral procedures developed jointly with IBM and SSP/OASiS. IBM will perform End User Support Services for SSP/OASiS personnel. The sub tasks are: 2. Provide extended coverage, 24 X 7 including holidays. 3. Provide hardware and software support on the OSASiS TouchPort System 4. Provide status updates, at your request, during the resolution of a problem. 5. Provide SSP/OASiS with access to the end user call activity report data. Completion Criteria: This task will be considered complete when the contract end date has been reached, or the Block of Problems has utilized, whichever first occurs. Deliverable: Access to the end user call activity report data. 2.3.9 TouchPort Warranty and Maintenance Services IBM will provide in warranty and out of warranty break fix support for the SSP/OASiS Products' TouchPort 2K Touchports. These devices will be serviced on a hot spare depot/repair basis utilizing consigned spares provided by SSP/OASiS. This is the most economically viable service solution and due to the conditions of the manufacturer's warranty and the nature of the device, allowing for minimum impact on end user operations. The warranties for IBM products and services are referenced in Part 2 (Warranties) of the ICA. IBM will "pass-thru" other equipment manufacturers (OEM) warranties pertaining to their respective products. IBM does not warrant non-IBM products and services (also stated in the Warranties section of the ICA). The warranty for DFI's kiosks is 1 Year return to depot parts and labor included. Task Description: The sub tasks are: 6. On-site response time is next business day (depending on city) with immediate next day whole unit replacement (Desktop) or component parts shipped from our Orlando Service Center (Floorstanding). Service requests will be handled by the dedicated toll-free telephone number provided by EUS. -152- 7. Consigned spares will be shipped from our Orlando Center to minimize SSP/OASiS turn around time. 8. Provide hot spares shipping support 8:00AM to 5:00PM M- F Orlando time. 9. Provide status updates, at your request, during the resolution of a problem. Completion Criteria: This task will be considered complete when the contract end date has been reached. Deliverable: None. 2.3.10 TouchPort Web Site Hosting Services IBM will provide Internet hosting services for the OASiS TouchPort application. These services will consist of a dedicated Microsoft NT 4.0 server, Internet connections, maintenance and systems administration. Task Description: IBM will provide a managed host environment consisting of: 10. Dual PIII 550 MHz processor, with 256K RAM, 4 GB SCSI DASD 11. Monitoring of server 24 X 7, 365 days / year. 12. All server hardware and maintenance 13. Uninterruptible Power Supply, with Generator backup 14. Multiple connections to Internet backbone 15. 50 GB of data transfer per month. 16. System Administration: a. Operating System Upgrades b. Supported software upgrades c. Mail Server ( adding/deleting users, mail forwards etc) d. Web Server ( adding domains, password protection, server module support) e. FTP Server ( restricting access, setting up new users f. Operating System troubleshooting -153- g. Provide status updates, at your request, during the resolution of a problem. Completion Criteria: This task will be considered complete when the contract end date has been reached. Deliverable: None. 2.4 SSP/OASiS Responsibilities The responsibilities listed in this section are in addition to those responsibilities specified in the Agreement and are to be provided at no charge to IBM. IBM's performance is predicated upon the following responsibilities being fulfilled by SSP/OASiS. 2.4.1 SSP/OASiS Project Manager Prior to the start of this Statement of Work under the Agreement, SSP/OASiS will designate a person, called the SSP/OASiS Project Manager, to whom all IBM communications will be addressed and who has the authority to act for SSP/OASiS in all aspects of the contract. The responsibilities of the SSP/OASiS Project Manager include: 1. Serve as the interface between the IBM project team and all SSP/OASiS departments participating in this project. 2. With the IBM Project Manager, administer Project Change Control in accordance with "Appendix B. Project Change Control Procedure". 3. Attend project status meetings. 4. Obtain and provide information, data, decisions and approvals, within three working days of IBM's request unless SSP/OASiS and IBM agree to an extended response time. 5. Resolve deviations from project plans that may be caused by SSP/OASiS. 6. Help resolve project issues and escalate issues within the SSP/OASiS organization, as necessary. 7. Work with IBM to set up a customer profiles in the call management system. 8. Work with IBM to create a customized greeting and processes and procedures for remote operations and support and escalation and referral procedures of the SSP/OASiS personnel. 9. Be responsible for distribution and implementation of corrections. -154- 10. Track the usage of SSP/OASiS current Block of Problems. 2.4.2 Other Responsibilities Prior to the start of this Statement of Work under the Agreement, SSP/OASiS will designate technical resources to provide the following support to the IBM/SSP/OASiS project team. Their responsibilities include: 1. SSP/OASiS personnel assigned to this project will have the technical skills necessary to participate in this effort. 2. SSP/OASiS will assign subject matter experts to assist the IBM EUS Center with their data collection/due diligence effort throughout the transition period. 3. SSP/OASiS will provide necessary hardware and software licenses required for support. 4. SSP/OASiS will work with IBM EUS in creating customized processes and procedures for remote operations and support and escalation and referral procedures. 5. Provide Level 3 support for the OASiS Application; 6. Provide 90 a day rolling commit forecast of product and installation requirements. SSP/OASiS will be required to purchase and maintain a 60 day rolling inventory of product. 7. Provide an interface to Surgical Safety's end customers for the IBM Project Team members and Vendors during each project's planning and implementation phases. 8. Provide installation and verification test scripts for installed equipment and software. 9. Provide gold disks for all software that will need to be loaded to Kiosk. These gold disks will be used by IBM at the redistribution center to load all Touchports. SSP/OASiS will prepare these gold disks prior to IBM installing any locations. The gold disks will include the following software: a. Microsoft Windows 98 operating system a. OASiS TouchPort 2K application code b. Verio ISP application and communications 10. Provide documentation showing purchase date (copies of invoices), or other documents, as per the requirements of the manufacturers during the warranty period. -155- 11. Supply sufficient quantities of consigned inventory, for all hot spare devices to be included in this Maintenance Agreement. 2.4.3 Laws, Regulations, and Statutes SSP/OASiS is responsible for the identification and interpretation of any applicable laws, regulations, and statutes that affect SSP/OASiS that IBM will have access to during this project. SSP/OASiS will pay taxes and fees imposed by governmental agencies in the USA or elsewhere as they are assessed on products or services required by or in support of Project implementations. Governing Laws and applicable court costs, if any, for this Agreement are addressed in the IBM Customer Agreement in Section 1.13. 2.4.4 Space and Facilities SSP/OASiS will provide suitable office space, at SSP's home officein Sarasota, Florida including supplies, furniture, and other facilities with telephone access for up to 2 IBM personnel while working on the SSP/OASiS OASiS TouchPort 2K. It is assumed that the project team will be located in a contiguous area and all necessary security badges and clearance will be provided for access to this area. A lockable four or five drawer cabinet will be provided to IBM personnel in accordance with SSP/OASiS security procedures. Required parking spaces will also be provided. 2.4.5 Security SSP/OASiS is responsible for the actual content of any data file, selection and implementation of controls on its access and use, and security of the stored -156- 2.5 Deliverable Materials The following deliverables are classified as Type II Materials, as defined in the IBM Customer Agreement, and will be delivered to SSP/OASiS under this Statement of Work. Monthly Project Status Report Design and Implementation Reports Site survey document Site Installation Plans & Schedules Customer Acceptance and Sign-off Forms Access to End User Support: Monthly Usage Reports Hardcopy, Softcopy or both will be provided for each SSP/OASiS end customer 2.6 Completion Criteria IBM shall have fulfilled its obligations under this Statement of Work when any one of the following first occurs: IBM accomplishes the IBM tasks described in "IBM Responsibilities", including delivery to SSP/OASiS of the materials listed in "Deliverable Materials". SSP/OASiS or IBM terminates the Project in accordance with the provisions of the Agreement. When the contract end date is reached 2.7 Year 2000 IBM is not providing any Year 2000 services under this Statement of Work. IBM Product Specification specify the Year 2000 readiness of the IBM Products. IBM does not make any representations regarding the Year 2000 readiness of non-IBM Products. Under the terms of the Statement of Work, IBM is not responsible for: 17. SSP/OASiS products, -157- 18. a third party's products (including products SSP/OASiS license from IBM's suppliers) or 19. IBM's previously installed Products ("Other Products") to correctly process or properly exchange accurate date data with the Products or deliverables IBM provides. IBM will be relieved of its obligations under this Statement of Work due to the inability of such Other Products to correctly process or properly exchange accurate date data with the Products or deliverables IBM provides to SSP/OASiS. SSP/OASiS, acknowledges that it is Surgical Safety's responsibility to assess its current systems and take appropriate action to migrate to Year 2000 ready systems. The Deliverable Materials (Materials) that we provide will be Year 2000 ready. "Year 2000 ready" means that the Materials, when used in accordance with their associated documentation, are capable of correctly processing, providing and/or receiving date data within the twentieth and the twenty-first centuries, provided that all products (for example, hardware, software and firmware) used with the Materials properly exchange date data with it. IBM assumes no responsibilities or obligations to cause products or deliverables provided by IBM to accurately exchange date data with such Other Products or to cause such Other Products to accurately exchange date data with products or deliverables provided by IBM 2.8 Termination You may terminate this Statement of Work for convenience upon 60 days prior written notice and satisfaction of any payments due to IBM produced from services performed under this statement of work including reasonable expenses caused by the early termination (for example: cancellation fees of vendor contracts, prepaid expenses, additional staff required to transfer services). The following termination charges will apply in the event termination occurs due to change of ownership of SSP/OASiS: Within first 3 months of contract acceptance: $ 390,000 Within first 6 months of contract acceptance: $ 260,000 Within first 9 months of contract acceptance: $ 130,000 A. Either IBM or SSP/OASiS may terminate this Agreement for convenience upon at least 60 days prior written notice to the other party. If IBM terminates this Agreement for convenience then any outstanding charges shall be paid to IBM. If SSP/OASiS terminates for convenience or for refusal to pay additional prepayments of future invoices requested by IBM, then the following will apply: -158- (a) outstanding invoices issued for work performed, or pending invoicing in process but not issued until completion of SSP/OASiS authorized work will be payable to IBM, (b) any sub-contractor or vendor cancellation fees or charges for work performed by them as retained by IBM in accordance with this Statement of Work, (c) The cost of any IBM procured items, including, but not limited to, hardware and software held in IBM inventory for scheduled and future installations, and said purchase approved by SSP/OASiS, in accordance with this Statement of Work, (d) design, tooling, or start-up fees, previously paid by IBM, and approved by SSP, associated with the costs of customized hardware manufacture of OASiS TouchPorts, and (e) any unreimbursed travel completed and non-refundable air fare tickets purchased for future travel, including any reservation cancellation fees or any other travel costs not described in a "Work Authorization Form" approved, or pending approval by SSP/OASiS. Written evidence of each of the above will be supplied to SSP/OASiS upon written request. B. Either party may terminate this Agreement if the other party breaches the terms of the Agreement, provided the breaching party has not cured such breach within 15 days after receiving written notice of such breach. Any terms of this Agreement, which by their nature extend beyond its termination, remain in effect until fulfilled or accepted by the respective successors of the undersigned. An early termination fee will apply to any other future Assignor or Assignee who may terminate this agreement within the specified time periods. In the event SSP/OASiS, exercises its right to terminate this Agreement, (other than a termination resulting from a breach by IBM), and such termination occurs as a result of a sale or assignment by SSP/OASiS or the acquisition of substantially all of its assets to or by a third party purchaser, then, and in that event, SSP/OASiS shall pay to IBM the following early termination fee: (a) In the event the termination is effective within the first three months following the date of full acceptance of this agreement, SSP/OASiS shall pay to IBM the sum of $390,000.00. (b) In the event the termination is effective following three months from the date of full acceptance of this agreement but within six months from the date of full acceptance of this agreement, SSP/OASiS shall pay to IBM the sum of $260,000.00. (c) In the event the termination is effective following six months from the date of full acceptance of this agreement but within nine months from the date of full acceptance of this agreement, SSP/OASiS shall pay to IBM the sum of $130,000.00. NOTE: -159- (1) The aforesaid early termination fee shall not apply in the case where SSP/OASiS sells all or substantially all of its assets, or assigns this Agreement, and the Purchaser or Assignee accepts the Assignment. (2) The aforesaid early termination shall apply to any future purchaser, assignor or assignee. (3) The governing laws are covered in section 1.13 of the ICA. (State of New York). (4) IBM will not accept any "TIME IS OF THE ESSENCE" clauses. (5) IBM will not accept the "In the event of breach..." sentence. Each party will be liable for its own court costs if such situations occur. Either of us may terminate this Statement of Work if the other does not comply with any of its terms, provided the one who is not complying is given written notice and 2 weeks time to comply. Any terms of this Statement of Work which by their nature extend beyond its termination remain in effect until fulfilled, and apply to respective successors and assignees. Notices. All written notices required or permitted hereunder shall be deemed effective and duly ------- given: (i) when personally delivered; (ii) when sent by telephone facsimile (the sender shall also send a "hard copy" following the facsimile, however the notice shall be effective upon the transmission of the facsimile if confirmed by Sender with words "Confirming delivery of notice from ________________"); (iii) one day after depositing in the custody of a nationally recognized receipted overnight delivery service; or (iv) at least three (3) days after posting in the United States first class, registered or certified mail; and, in the case of iii or iv above with postage prepaid and addressed to the recipient at its address as set forth as follows: TO IBM: Cheryl Young IBM Project Manager IBM Project Office -160- 315 E. Robinson Street Orlando, FL 32801 Fax Number: (770) 659-3407 TO SSP/OASiS: Surgical Safety Products, Inc. Attn.: ___________________________________ 2018 Oak Terrace, Suite 400 Sarasota, FL 34231 Fax Number: (941) 927-7874 Either party may change its address by giving notice of such change in the manner prescribed above. 2.9 Estimated Schedule The services will be performed during the period 12-01-99 through 11-30-2000 2.10 Charges The estimated price for performing the IBM tasks defined in the Statement of Work will be $10,961,600. plus applicable taxes if any. Based on 400 sites with an average of 3 TouchPorts per site. This price is based upon an attached Schedule " PRICING SCENARIO "A" ". PRICING SCENARIO'S "B" and "C" are also attached and are made a part of this Statement of Work as pricing alternatives in certain deployment situations which may require less networking and/or connectivity services. Any single site installation charge and associated product costs will not exceed Schedule "A" estimate per Key Assumptions as stated. SSP/OASiS will be billed for actual work performed including hardware, cabling services, help desk, and break-fix support. Any out of scope charges to be prior approved by SSP/OASiS management. The charges and invoicing are as follows: Initial Payment: Prepayment of Product and Services : $100,000 upon contract acceptance to be applied immediately to any IBM invoices due. -161- Additional prepayments may be requested upon exhaustion of initial prepayment. Additional terms may be requested upon exhaustion of initial prepayment if any outstanding IBM invoice to SSP/OASiS becomes more than 30 days past due. Per Problem Pricing: End User Support Included in the Per site and Per TouchPort charges. The contract period is the lesser of one year or until all problems have been used. Extended BLOCK SIZE 24 x 7 Including Holidays - ------------------------- ---------------------- 2,500 included $29 each for add'l - ------------------------- ---------------------- 500 Routed Calls included $10 each for add'l - ------------------------- ---------------------- We will notify your designated contact when the 250 calls remain from a purchased Block of Problems. If an End User should call for support after all calls have been used , it will be considered as authorization for us to deliver service beyond the current Problem Block limit unless SSP/OASiS notifies the IBM Project Manger or Project Executive in writing not to accept any further calls. Service will continue for thirty (30) days after our notification to your designated contact. If you purchase an additional Block(s) of Problems and renew the contract period, the problems used during the 30-day extension will be deducted from the new Block. If you do not purchase an additional Block of Problems, you will be invoiced for Services provided during the 30-day extension at the per Problem rate of the last Block purchased. In addition, SSP/OASiS will reimburse IBM for: the actual travel and living expenses, upon prior approval by SSP/OASiS, incurred in providing these services. actual shipping from the integration facility in Orlando, FL to the installation site shipping to and from the Orlando, FL depot repair facility from either of 1) an installed location and/or 2) from any retained kiosk manufacturer to Orlando, FL or an installed site location. -162- 2.11 Definition of Terms This section provides definitions of the terms as used in this Statement of Work: End-Customer - SSP/OASiS Product's customer, the Hospital or Medical establishment which is the user of the OASIS TouchPort 2K system. Site - The end-customer location which contains the point of demarcation, network router and data cable termination. Level 1 Support - The 'level one' (L1) service is to answer 'how to' questions. The scope of this activity is rooted in the notion that all answers to such inquiries can be found within the documentation supplied to the end user as an integral component of the product. Level 2 Support -The 'level two' (L2) service is to augment level one service with a supplementary skill base that reflects experience in supporting operating system(s) and similar product(s) when feasible. Its scope is limited to providing solutions that are published to the public domain and in general acceptance, or to provide solutions that have been proscribed by a L3 entity for particular problems or for technical scenarios they describe. Level 3 Support - The 'level 3' (L3) service is 'ownership' by the help desk of all problems that cannot be resolved at L2 that have been appropriately escalated. This support includes but is not limited to, product defect support. Vendor - A provider of certain services to a customer. Deliverable - Materials delivered to a customer to support the services being delivered. End Users - We will consider end users to be only the personnel you authorize to use contracted EUS services. In Scope - Items included within or covered by the scope of this document. Problem - A singular request for assistance on a specific product. Requests for assistance on different problems with the same product will be considered to be multiple problems. Closure of a problem occurs when we provide an answer to the end user, which may include referring the end user to the appropriate source for resolution. If such answer does not solve the problem, subsequent calls may be placed under the original problem number. A problem may involve multiple conversations (calls) or actions such as (1) the initial end user request, (2) off-line research, (3) a callback from us to the end user and (4) closure of the problem. Call - An end user's contact with the EUS Center. There may be one or more calls from the same end user on the same problem. Call Management System (CMS) - The software used by IBM's EUS personnel to log and track reported problems -163- Appendix A Deliverable Guidelines A.1 Monthly Status Report Purpose: IBM will provide Monthly Status Reports advising the SSP/OASiS Project Manager of the progress and status of the IBM activities. The report will outline the IBM activities and describe the status of tasks worked on during that period. Significant accomplishments, milestones, and problems will be identified. Content: The report will consist of the following, as appropriate: Activities performed during the during the reporting period Activities planned for the next reporting period Project change control summary Problems, concerns, and recommendations Other items of importance Delivery: IBM will deliver one copy of this document in reproducible format. A.2 Design and Implementation Reports Purpose: These are work products that will be utilized by the IBM / SSP/OASiS team in the implementation of IBM / SSP/OASiS solutions. Content: These reports are and will consist of: Site survey document Site Installation Plans & Schedules Customer Acceptance and Sign-off Forms Delivery: IBM will deliver one copy of these documents in reproducible format for each SSP/OASiS end customer project. A.3 End User Support: Monthly Usage Reports (Access to) The Summary of End User Call Activity Report Purpose: The Summary of End User Call Activity Report will allow SSP/OASiS to review such items as: -164- 1. If problem was regarding hardware or software; 2. Type of problem being reported; 3. Which SSP/OASiS end user was placing the call; 4. Number of calls placed; 5. Length of problem; 6. Overall usage of the service. Content: The Summary of End User Call Activity Report will consist of SSP/OASiS call activity data. Delivery: Electronic access to the Report will be provided to the SSP/OASiS Primary Contact -165- Appendix B Project Change Control Procedure The following provides a detailed process to follow if a change to this Statement of Work (SOW) is required. A Project Change Request (PCR) will be the vehicle for communicating change. The PCR must describe the change, the rationale for the change and the effect the change will have on the project. The designated Project Manager of the requesting party will review the proposed change and determine whether to submit the request to the other party. Both Project Managers will review the proposed change and approve it for further investigation or reject it. IBM will specify any charges for such investigation. IBM will specify any applicable charges for such investigation prior to the investigation being performed. If the investigation is authorized, the Project Managers will sign the PCR which will constitute approval for the investigation charges. IBM will invoice SSP/OASiS for any such charges. The investigation will determine the effect that the implementation of the PCR will have on price, schedule and other terms and conditions of the Agreement. A written Change Authorization and/or Project Change Request (PCR) must be signed by both parties to authorize implementation of the investigated changes. -166- Appendix C Hardware/Software The following list contains the specific IBM/OEM part #'s, options, and quantities of equipment and software being proposed to SSP/OASiS. IBM shall provide SSP with a copy of all product warranties issued by the manufacturer. 1,200 OASiS TouchPort 2K Systems per the following configuration: Mfg. Description Quantity - ------- -------------- ------- DFI TouchPort 2K Desktop Kiosk 1,200 15" Display APC BK 200 UPS 1,200 CICSO Router 675 < 400 Router 804 < 400 Router 1604 < 400 Router 1720 < 400 Hub 1538 < 400 -167- Appendix D Signature Document Statement of Work for Project Support Services Custom Services Scope of Services, Completion Criteria, charges, and other applicable terms: Both of us agree that, 1) this Statement of Work defines the scope of work to be accomplished by IBM under the terms and 2) the conditions of the IBM Customer Agreement (Agreement). Project Scope: See Statement of Work for: OASiS TouchPort 2K Project Estimated Charges: $ 10,961,600. See Charges Section on the attached Statement of Work. - ----------------------------------------------------------------------------- This document is a Statement of Work to the IBM Customer Agreement - Project Support Services. Each of us agrees the complete agreement between us about these Services consists of 1) this Statement of Work and 2) the IBM Customer Agreement or IBM Customer Agreement - Project Support Services, as applicable ( or any equivalent agreement signed by both of us). Agreed to (IBM Customer Name): Agreed to: SSP/OASiS International Business Machines Corporation By ____________________________________ By ___________________________ Authorized Signature Authorized Signature Name (type or print) Name (type or print) Date: Date: Customer Number: 8666266 Reference Agreement Number: HQ12291 Customer Address: SSP/OASiS Statement of Work number : 7K30814 2018 Oak Terrace IBM Office number: 442 Sarasota, FL 34231 Estimated Start Date: December 1, 1999 IBM Office Address: Estimated End Date: November 30, 2000 -168- -169- Appendix E Review and Approval Procedure Each deliverable document, as defined by the Deliverables under IBM Responsibilities, will be approved in accordance with the following procedure: 7. One (1) printed draft of the deliverable document will be submitted to the SSP/OASiS Project Manager. It is the SSP/OASiS Project Manager's responsibility to make and distribute additional copies to other reviewers. 8. Within five (5) days the SSP/OASiS Project Manager will either approve the deliverables or provide the IBM Project manager a list of requested changes. If no response is received from the SSP/OASiS Project manager within five (5) days, the deliverable will be deemed approved. The IBM Project Manager will submit the updated final version to the SSP/OASiS Project Manager for approval. The SSP/OASiS will confirm that the requested changes were made and give final approval within three (3) days, the deliverables will be deemed approved. -170- EX-23 6 CONSENT OF AUDITOR EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-3 (Registration Number _________) and related Prospectus of Surgical Safety Products Inc. for the registration of initially 20,038,097 shares of its common stock and to the incorporation by reference therein of our report dated March 12, 1999 relating to the financial statements which appear in the Annual Report on Form 10K for the year ended December 31, 1998. /s/ Kerkering, Barbario & Co., P.A. ------------------------------------ Kerkering, Barbario & Co., P.A., Independent Public Accountants. Sarasota, Florida February 29, 2000 -171- EX-27 7 FDS --
5 0001063530 Surgical Safety Products, Inc. 1 U.S. Currency 9-mos DEC-31-1998 JAN-1-1999 SEP-30-1999 1 12,970 0 16,500 0 5,901 36,121 201,151 0 423,105 50,000 0 0 0 11,799 241,726 423,105 720 165,221 14,271 666,868 642,842 0 9,755 (501,647) 0 0 0 0 0 (501,647) (0.045) 0
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